Oct 26 2007

SAS Economists Podcast #5 – What does the Caramel Frappuchino mean to Starbucks?

Published by at 11:04 am under Consumer behavior,Elasticity,Supply/Demand

by Caleb Liao and Drew Venkatramen

Just how important is the caramel frappuchino to Starbucks? This podcast will explore the demand for a particular product from the ubiquitous coffee chain, a new branch of which has recently been opened across the street from Shanghai American School.

SAS students overwhelmingly favor the sweet, caramel goodness of the beloved Frappuchino, but how much would they really be willing to pay for already the steeply-priced beverage. At its market price of 32 kuai, customers seem to arrive in droves from the SAS campus; but could Starbucks do better by charging a higher price? What if they lowered the price, would it make a difference in their revenues? This podcast explores the market for the crowd’s favorite coffee beverage, the caramel frappuchino, and tries to learn something about demand, elasticity, and firm behavior in the process!

About the author:  Jason Welker teaches International Baccalaureate and Advanced Placement Economics at Zurich International School in Switzerland. In addition to publishing various online resources for economics students and teachers, Jason developed the online version of the Economics course for the IB and is has authored two Economics textbooks: Pearson Baccalaureate’s Economics for the IB Diploma and REA’s AP Macroeconomics Crash Course. Jason is a native of the Pacific Northwest of the United States, and is a passionate adventurer, who considers himself a skier / mountain biker who teaches Economics in his free time. He and his wife keep a ski chalet in the mountains of Northern Idaho, which now that they live in the Swiss Alps gets far too little use. Read more posts by this author

7 responses so far

7 Responses to “SAS Economists Podcast #5 – What does the Caramel Frappuchino mean to Starbucks?”

  1. Michael Dailyon 29 Oct 2007 at 1:45 am

    Wow, inspiring podcast. Seriously, great vibe. Especially with Drew shouting random things really loud. But anyways, it's interesting to see how much a company can depend on one product. I was a little skeptical at first that the caramel frap would be that important to Starbucks, but I guess it is at least for Zhudi Town. It's kind of interesting that one product can have such a huge effect on a business's total revenue.

  2. Bryan Bockon 29 Oct 2007 at 6:37 pm

    This experiment is really interesting, as it shows how important Caramel Frappuchino is to Starbucks. To hear that Starbucks rely so much on just one product is unbelievable. I never thought that one product could make such a big difference in a company's economy. However, i do agree that Caramel Frappuchino is indeed very popular among Starbuck's daily customers. I hope to be able to hear more from the DCE about this topic.

  3. Cassy Changon 29 Oct 2007 at 8:33 pm

    this is the idea of one of the questions asked in class: would one person's personal demand affect the market? no. so the fact that customers favor the caramel frap is why it is important to star bucks.

  4. Angeline Chenon 03 Nov 2007 at 9:38 pm

    HAHAHA that truly was…mmm…

    but yeah, caramel frappuchino are definately the reason why I go!

    It's pretty interesting how one product can have so much affect on their TR, but when they change the price of caramel frappuchino's, I've noticed they change the prices of the rest of their beverages as well. Is this to hopefully encourage more people to buy other drinks as well? So that if people stop wanting caramel frappuchinos, for example they get sick of them, then they will have a backup? Hmm…

    According to the law of demand, as prices increase, Qd decreases and as prices decrease Qd increases. Noticed in the graph and chart provided, as they decreased the prices of caramel frappuchinos by 2 quai, their TR had increased by up to 200 quai which means that the product is elastic. Costumers are more responsive to a change in price, obviously adjusting their consumption of a product as prices decrease or increase. If costs of production increase, then Starbucks will have to increase their prices in order to maintain profit however if costs of production decrease and they keep prices the same, they will attract more costumers while also making more profit.

  5. Tim Con 05 Nov 2007 at 10:50 pm

    Really Funny stuff guys. I wouldnt go as far as to say that the frap IS what makes starbucks. it's certainly a factor but you have to count in other drinks. I was also a bit suprised that some people were willing to pay up to $40 for a frap, but given the wealth of the students here at SAS, it certainly is a possibility. All in all, great work guys! I'm still laughing at drew's random shouting haha.

  6. ed tangon 07 Nov 2007 at 9:53 am

    its surprising how one product can have such a great effect on the total revenue. But as angeline said, when they increase the price of one product, they increase the price of the other products as well. I think the reason is to keep the number of consumers buying the prouduct at a higher price. For example, if the price of the caramel frappucino was increased alone, consumers would buy the other products like vanilla or chocolate. But if they increased all frappucinos, then consumers would go back to buying the caramel frappucino

  7. Patrick Son 07 Nov 2009 at 6:02 am

    Due to the fact that this blog tells us about the new Statbucks that just recently oppened across the street from Shanghai American School, which made students fall in love with it, it could be said that studets would be inelastic to the change in price, or less sensitive. So, if Starbucks wanted to increase their total revenue, they should increase the price of frappuchinos by a bit, which will make the quantity demanded of this good increase by much more. Also, since tastes and prefferences are included (caramel flavour), demand for this good will increase. So, since it is a new shop and it attracted several people, a little change in price would not make a big difference, creating a greater total revenue to this firm.