Starbuck’s $1 Strategy – will it work?

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Starbucks recently announced they would be taking a different approach to selling their coffee by offering a cup for $1 along with free refills. There is much speculation about the potential damage this may do to the brand. There is also speculation that this is how Starbuck’s is proactively handling a possible recession. I tend to look at it in a different light… 

I see 2 potential reasons behind this strategy. #1 – go with a $1 price point for a limited time and then raise it up after this sampling period is over. This method is done over and over in fast food. Get a Big Mac for a $1, get someone hooked and then raise the price. Along with Burger King, McDonald’s has joined the coffee fight, so the gloves are off in the coffee arena. Starbucks may be out to show the McDonald’s coffee drinkers their joe is better and then simply raise the price later. I do have to agree with many critics that the coffee at Starbuck’s is quite different than what you’d experience at McD’s.Another strategy may be what I’ve long called the “Taco Bell Tap Dance.” Taco Bell competes with Taco John’s in my market. Consistently Taco Bell is 30 cents cheaper than Taco John’s for a taco. How do they do it? Simple – they make it up in volume. So, perhaps Starbuck’s is trying to bring more customers in with a cheaper price point and making it up for it in volume. Does the $1 cup apply to regular coffee only? If so, they should be OK. If not, can they keep up with the demand and also – are the $1 drinkers going to put up with the potential wait they may endure for customers drinking the specialty coffees? I can’t answer the questions right now, but all in all, this should be very interesting to watch.

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One Response

  1. Will, the $1 strategy work? If you want to get people to drink $1 cups of coffee, then yes. If you want to revitalize the Starbucks brand and build long-term perceived value, then no.

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