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

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.

Environmentally Friendly Products – How Customers From Generation Z in V4 Countries Assess This Approach

“…The topic of consumer decision-making has received extensive analysis in international literature (Kucera, Kaderabkova, 2023). In recent years, marketing professionals have paid increasing attention to the growing importance of pro-environmental determinants taken into account during consumer choices (Mazurek-Łopacińska, Sobocińska, Krupowicz, 2022;Deng, Yang, 2022).…”

A new approach - deriving expected future income for intertemporal models

“…Expectations about future income is one area that is key at the macro level but also at the micro level. While some papers extend the decision-making to other areas such as transportation costs (Kucera and Kaderabkova, 2023), these studies focus on the other side of the same coin, namely expected costs. One can intuitively expect that if an agent expects a negative development (e.g., he expects his income to stagnate or be threatened), transaction costs will be among the first costs that the agent will stop accepting and will most likely exclude from consumption.…”

Location of Firms and Outsourcing

“…Following a consolidated tradition in the Hotelling models, we consider both the consumers' transportation cost, t, and the firms' transportation costs, τ, as exogenous variables. In a recent paper, Kucera and Kaderabkova (2023) [36] treat the transportation costs as an endogenous variable. However, they do not consider the problem in hand.…”