Starbucks versus Dunkin Donuts (Essay Sample)

Starbucks versus Dunkin Donuts
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Starbucks versus Dunkin Donuts
The conventional perception on pricing is once recession pushes clients to reduce their expenses and change from a certain company’s product(s) to less expensive alternatives, that company reduces their prices in order to retain the clients. While this is a normally followed and accepted practice, it is not based on prevailing events and analysis. As such, there is sufficient grounds and logic for Starbuck to increase its price. Apparently, an increase in price is essential to offset the rather higher costs of fuel labor and rising prices inside its supply chain. The costs of daily products have particularly hurt a huge number of large food companies in the recent times. In fact, it has become clear for Starbuck that it would have trouble attaining their higher end share profit range. Moreover, once the price sensitive client(s) shifts due to the increase in price, the price insensitive customers who prefer the products of Starbuck would be left. As such, it is logical to charge more for such customers so long as the decrease in earnings from further customer drops is lesser than the increment in earnings from higher price.
Operating leverage in essence measures how the net income of a company changes as per the changes in sales. As such, if a business has a high operating leverage, then a slight change in sale results to greater changes in income and vice versa. In the case of Starbuck, the 600 stores were underperforming. Their sales were not translating to higher earnings. Hence, closing them down would ensure that the company concentrates on those stores that have high operating leverage...