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With reference to Figure 1, briefly explain the market structure that describes the UK branded coffee shop market - Edexcel - A-Level Economics A - Question 1 - 2018 - Paper 3
Question 1
With reference to Figure 1, briefly explain the market structure that describes the UK branded coffee shop market. Figure 1: Market share of UK branded coffee shops... show full transcript
Worked Solution & Example Answer:With reference to Figure 1, briefly explain the market structure that describes the UK branded coffee shop market - Edexcel - A-Level Economics A - Question 1 - 2018 - Paper 3
Step 1
1(a) Briefly explain the market structure that describes the UK branded coffee shop market.
Answer
The UK branded coffee shop market exhibits characteristics of an oligopoly, where a few large firms dominate. Notable players include Starbucks, Costa Coffee, and Caffè Nero, which collectively command a significant market share as depicted in Figure 1.
In this market structure, competition is not just based on price but also heavily relies on branding, customer loyalty, and product differentiation. Starbucks holds a 13% market share, closely followed by Costa Coffee at 30%. The presence of various smaller competitors allows for limited competition, making it a key characteristic of oligopolies, where firms are interdependent in their pricing and strategic decisions.
Step 2
1(b) With reference to Figure 3 and other information provided, discuss the price and non-price strategies Starbucks may adopt to cope with competition.
Answer
Starbucks may implement several price and non-price strategies to maintain its competitive position:
Price Strategies
- Premium Pricing: By positioning itself as a premium coffee brand, Starbucks can charge higher prices, as evident in Figure 3 where prices are generally above competitors.
- Discounts and Promotions: Seasonal promotions or loyalty programs can offer discounts, encouraging repeat business without changing the overall price perception.
Non-Price Strategies
- Product Differentiation: Offering a unique range of products, such as specialty coffees and exclusive merchandise, can attract customers looking for variety.
- Brand Loyalty Programs: Rewarding loyal customers through a points system can enhance customer retention and increase sales volume over time.
- Enhanced Customer Experience: Creating a welcoming atmosphere and providing excellent customer service can distinguish Starbucks from competitors, driving both foot traffic and customer loyalty.
Step 3
1(c) Examine the advantages of using an indirect tax as a means of reducing the use of disposable coffee cups.
Answer
Implementing an indirect tax on disposable coffee cups has several advantages:
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Behavioral Change: An indirect tax incentivizes consumers to reduce their use of disposable cups, aligning consumer behavior with environmental goals.
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Revenue Generation: The tax can generate significant revenue for the government, which can be reinvested in recycling initiatives or public awareness campaigns.
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Pushing Alternatives: It encourages companies and consumers to seek alternative solutions, such as reusable cups, thereby fostering innovation in sustainable practices.
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Environmental Impact: Reducing the use of disposable cups can lead to substantial decreases in waste, positively impacting local environments and aligning with broader sustainability goals.