As many of you may know, the popular drink store in San Mateo downtown, Tpumps, has increased its prices. From a previous $2.00 price for a regular sized 24-oz drink and a $2.50 price for a "pumpbo" 36-oz sized drink, Tpumps now charges $2.50 for the regular and $3.50 for the 36-0z, $0.50 and $1.00 price increases respectively.
So why the increase in price? One explanation may stem from the business perspective. Since opening in the summer of 2011, Tpumps has become a largely popular destination. The unique drinks they boast combined with their relatively cheaper prices as compared with other stores downtown has earned Tpumps lots of business. Perhaps due to the vastness of demand and the limit of supply, increasing prices could maximize profits for the store.
Another explanation could be the need to increase prices due to costs of supplies, ingredients, and other operating costs. At $2.71 (with tax) for the 36-0z drink, Tpumps was relatively inexpensive for the size of beverage offered. Raising prices may have been necessary to maintain the revenue generated by the store.
With this new price increase, will customers continue to support Tpumps? For some, the dollar increase on a drink previously only $2.50 could perhaps serve as an incentive to no longer purchase from them. However, the question may boil down to elasticity of demand. Is Tpumps a necessity or a luxury? Are there substitute goods? What proportion of income does it constitute? Is demand elastic or inelastic? The answers to these questions will most probably differ for each person. For some, demand will be elastic, and for others, such as Alice Zheng, demand will range more on the inelastic side.
Personally, I will most likely continue to buy drinks from Tpumps but perhaps with a little less frequency. How do you think Tpumps's new prices will affect its business?
Subscribe to:
Post Comments (Atom)
5 comments:
That would be an extra ten dollars every week for me. This sucks because there is no substitute for Tpumps.
The regular and "pumpbo" drinks saw 25% and 40% price increases, respectively. The key question is, will that result in a 25-40% drop in customer visits/purchases? That, as Jackie mentioned, ties into the elasticity of demand. Necessity or luxury? For the majority of customers, I'd say luxury. Substitute goods? Starbucks, Jamba Juice....although Alice Zheng would argue that there is no substitute good for Tpumps, similar to how Kenny and I claimed there was no substitute good for a round of golf :) Proportion of income? That depends on the person's visit frequency and employment status (I'm focusing only on high schoolers, arguably its largest market. Proportion of income is not much of a question for working adults, for whom that proportion would be relatively miniscule).
For now let's assume that Tpumps' revenue remained about the same. One thing to consider is that lines at Tpumps were often out the door (or so I heard), I'm sure generating a bit of customer dissatisfaction although it was worth the wait. Even though possessing a reputation of "lines out the door" attracts customers, in several cases this may have even been a disincentive for busy individuals to go there. Because the price hike would theoretically result in lower frequency and thus slightly shorter lines, Tpumps may once again become an attractive option for this type of customer with a tight schedule and a desire for efficiency. Not only is this customer satisfied, but Tpumps maintains its level of revenue while also winning back these individuals' loyalty.
I understand why a thriving business such as Tpumps would increase its prices, to respond to production costs and to test out marginal revenue. However, I find a significant price change like this too cursory, making many disheartened customers feel like Tpumps is merely exploiting their love of the drinks to make a more handsome profit. In my opinion, it's far better to raise the price at a slower rate than this.
As disappointing as it is to see this price hike, it's interesting to be able to witness economic principles in action firsthand.
While $2.50 is still relatively cheap for a drink, it's now much closer to $3 with tax (coming out to $2.71) as opposed to the previous $2 that amounted to $2.17 with tax. Aside from the obvious awareness of the price increase, I'm wondering if the psychology of it--the price being more like $3, rather than $2--will impact customer's views on the frequent attainability of Tpumps drinks. To a high school student living on a much smaller budget, little differences in small, everyday purchases can actually make a difference.
Additionally, this may be purely rumor, but I've heard that Tpumps raised its prices to accommodate for the expense of fixing its ice machine, which broke down last week causing the store to close temporarily. If this is the case, do you think there's a chance that prices could go back down, or will the price increase stay if business stays up?
I must say the Tpumps price hike is definitely saddening, but expected; if something is profitable, why not see how profitable and test out the elasticity of demand? Maybe there really are a lot of die hard Tpumps fans (Alice).
Anna brings up a good point, although it may be a rumor she said. If Tpumps is really just trying to make up for the revenue lost by the ice machine repairs maybe the price will go down. However, I have a feeling the price won't go down; if enough people continue to buy Tpumps at the high price so the business makes a profit...well so be it. Then the prices will remain high. If the owner finds out that less people buy, then maybe the prices will go back down later, but i doubt it. It seems like there will still be the faithful tea drinkers who can afford the price increase (me not included) :(
It sucks that Tpumps raised their prices but I can understand why they had to. Almost everytime I went there they would run out of something like a specific flavor or it took a lot longer than expected for them to make my drink because there were too many orders trying to be made at once. Tpumps is awesome and I am glad that they have so many customers who are in there buying drinks like every day of the week, so I don't mind that the prices went up a little I just want them to stay in business!
Post a Comment