Desperate times call for desperate measures. And, Starbucks sure seems desperate at the moment.
First, they sacked their CEO and reinstated founder and chairman Howard Schultz in the position. Then Schultz announces that the brand has lost its way and promises to close stores and re-focus on core offerings. Next, McDonald’s, sensing vulnerability, announces it will open 14,000 coffee bars and go mano-a-mano with the once unrivaled coffee king.
And how does Starbucks respond? It begins testing $1 cups of coffee in its hometown of Seattle. That’s right, the guys who dazzled marketing professors everywhere by convincing Americans to pay $4 or more for a cup of Joe, have blinked.
One can almost sense the panic that must be pervading the hallways of Schultz’s once-proud empire. Slashing the price of its coffee flies in the face of everything Starbucks stands for, and should give a monumental image and reputation boost to McDonald’s gamble.
The Starbucks move makes as much sense as Lexus suddenly offering a cheap, ‘starter car,’ Gucci licensing body tattoos or Zegna selling designer overalls.
These are the times that try men’s souls and now is the time for Howard Schultz to stand firm and hold the line on pricing and brand consistency.
I don’t think the problem is with the price, which is why I think lowering prices won’t help. The problem, I believe, is related to over expansion.
From an operations standpoint, becoming too big, too fast is costly and hurts the bottom line. From an image and reputation standpoint, it’s equally damaging. At some point – and it is different with every company/industry – the Walmart syndrome kicks in. You become everyone’s target and the poster child for all things bad within your space because of your size. Remember, this country loves to build you up and then tear you down and that is exactly what is happening to Starbucks right now. The NGOs and advocacy groups come after you, then the media dig in followed by investors and customers.
It isn’t necessarily a death sentence but you have to stop, take notice and take action to prevent a collapse. I think Starbucks is at the point where they’ve clearly noticed and they’re starting to take action but it’s less clear if it is the right action to be taking.
Only time will tell…
Having recently watched a “black coffee” documentary, seems as though we’ve always undervalued coffee – and contributed to the plight of the brazilian/columbian/ethiopian farmer by doing so.
Starbucks seemed to be the only one that was charging what it’s really worth. Too bad they stooped to McD levels instead of “leading the way”.
I’m going to side with the price cut.
I think that American consumer that has been paying the high prices will continue to do so. They’re addicted. With the cut in cost, Starbucks might start to attract those that vowed to never pay $3.99 for a cup of coffee.
You get them in the door and folks will spend. Incredible margins were made on the coffee drinks in the past, and now some will be lost. But, let’s not forget that Starbucks still sells tea, beans, sammiches, and muffins. Something tells me these prices might be raised in order to even things out. Plus, the stores themselves are what attracts many people to this brand. It’s the total event of plopping down on the couch and/or table and enjoying the store’s atmosphere.
Most people who go into McD’s for a $.69 cent coffee probably walk out with a McMuffin and some hasbrowns, too…right?
One final point: I think BMW is coming out with a starter car. 2 door coupe w/o the hatchback that the 318 was. Have you heard?