Marginal Analysis and Diminishing Utility: Economic Decision-Making for Plant-Based Milk Alternatives in Coffee Shops
Overview
This paper applies microeconomic principles to analyze the business decision of introducing plant-based milk alternatives in a coffee shop. The author uses marginal analysis to compare incremental benefits (increased customer traffic, loyalty from health-conscious consumers) against incremental costs (higher procurement and storage expenses), and applies diminishing marginal utility theory to optimize product selection and avoid overstocking.
What this coursework covers
- Introduction and market opportunity for plant-based milk alternatives in coffee shops
- Application of marginal analysis framework to evaluate financial feasibility and profitability
- Analysis of diminishing marginal utility and its implications for product variety decisions
Preview
Plant-Based Milk Alternatives in Coffee
Donald Ngonyo
University of the People
BUS 1103-01 Microeconomics - AY2026-T3
Ogochuku Fisher
February 5, 2026
Plant-Based Milk Alternatives in Coffee
As an owner of a popular coffee shop in a busy city, where customer preferences are changing fast, making the increased demand for plant-based milk alternatives, like almond milk or oat milk, an opportunity and a challenge. To introduce such options, marginal analysis should be applied, and the concept of diminishing marginal utility should be understood to ensure that the decision is as profitable and meets customers’ needs.
Through marginal analysis allows economists can make decisions through the comparison of the incremental (marginal) benefits with the incremental (marginal) costs of a decision (Shapiro et al., 2023). The marginal benefit of introducing plant-based milks, in this case, consists of the increase of customer traffic and customer loyalty from health-conscious, lactose-intolerant, or vegan customers, who represent an emerging customer segment. The current market dynamics show a growing demand for market plant-based milk, and the market is expected to continue to expand due to health, diet, and sustainability factors (Grand View Research, 2024). In the case of a coffee shop, this implies an increase in sales for lattes, cappuccinos, and other drinks based on milk, particularly because frothing properties make it ideal for barista-style beverages. The marginal cost includes increased procurement costs for higher plant-based milk which cost 1.5 to 3 times more than dairy milk, in addition to storage overhead, potential waste due to reduced shelf life, and changes to the menu.