Question

Question Nine

Starbucks rents prime locations in cities and charges customers a very high price for coffee.

1. Why are people willing to pay such a high price for coffee? Explain.

2. Thinks of the resources that Starbucks uses. Which resources are not all that scarce and which resource is the scarcest? Explain.

3. How is the owner of the scarcest resource able to capture the high value customers attach to the coffee? Explain.

Answer 1

The psychological principle of persuasion given by Dr. Robert Cialdini states that the rarer or more difficult it is to obtain a product, the more valuable it becomes and people are willing to pay a higher price for it. When people feel that the resources used in the production of a commodity is scarce in nature, they fear that these products could soon be unavailable to them and hence are willing to pay a higher price of it. This is how the owners of Starbucks extract higher prices from the consumers. Starbucks had recently introduced unicorn frapuchhino and it said the coffee is only available for two days and the demand soared for these product because consumers knew that it is not going to be available later and hence were even willing to pay a higher price for it.