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Consumers´ Decision-Making under Salop´s Model: Key Study on Starbucks Prague and Richmond business model

Author

Listed:
  • Oldrich Kucera

    (Prague University of Economics and Business)

  • Bozena Kaderabkova

    (Prague University of Economics and Business)

Abstract

This study thesis analyses the Starbucks business model in Prague and Richmond from the location perspective, focusing on the company’s consumers and their decision-making towards commuting to the stores. Using modified Salop’s circle model, the transportation costs of the average Starbucks consumer in both cities are calculated, explained, and compared. It is revealed that the average Starbucks consumer in Richmond bears, on average, 1.255x higher transportation costs than the one in Prague and is willing to travel 2.54x higher distances to purchase the average Starbucks product. In addition, after analyzing transportation costs, the study offers a real-life applicable business proposal for where to place a new Starbucks store in both cities, based on several techniques often used in business consulting for solving case studies. The suggested most suitable location for the new store in Prague is the Prague main railway station. In contrast, the best location in Richmond is the intersection of West Broad Street E and North Lombardy Street, close to Virginia Commonwealth University. The study’s main contribution is the inverting of Salop’s circle model and emphasizing transportation costs as an endogenous variable. In general terms, this study may guide spatial optimization in business strategies, from circular economy applications to strategic managerial decisions in locations with different consumer sensitivity to transportation costs.

Suggested Citation

  • Oldrich Kucera & Bozena Kaderabkova, 2023. "Consumers´ Decision-Making under Salop´s Model: Key Study on Starbucks Prague and Richmond business model," International Journal of Economic Sciences, European Research Center, vol. 12(1), pages 85-115, May.
    • Handle: RePEc:aop:jijoes:v:12:y:2023:i:1:p:85-115
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    References listed on IDEAS

    as
    1. Jeffrey M. Perloff & Steven C. Salop, 1985. "Equilibrium with Product Differentiation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 52(1), pages 107-120.
    2. Angelo Leogrande & Alessandro Massaro & Maurizio Galiano, 2020. "The Location of Superstores in Italy: A Metric Approach," International Journal of Business and Management, International Institute of Social and Economic Sciences, vol. 8(1), pages 35-64, May.
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    More about this item

    Keywords

    Salop’s Model; Transportation Costs; Consumers´ Decision-Making; Business Strategy; Cost Optimization; Competition;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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