Posted by: Chris | January 31, 2008

Starbucks’ Price Positioning Misstep


coffee.jpg

How timely! Just yesterday, I blogged about the importance of pricing in positioning. And while this is not particularly new news, today, I saw a couple of blogs discussing Starbucks’ experiment with $1 coffee. (And to think I was just patting Howard Schultz on the back!)

The background: Starbucks founder and recently (re)instated CEO, Howard Schultz, has decided to offer $1 coffee. The experiment will be limited to Seattle shops for now. The purpose of the new pricing is to compete with McDonald’s and to boost existing store sales. As I mentioned yesterday, pricing decisions go well beyond simply covering costs-pricing is a marketing tool. It is one of the most compelling attributes of positioning. It makes a very clear statement about how a consumer should perceive a product.

In making this decision, Schultz is implying that there is nothing more to Starbucks than coffee. By providing a cheap cup of Joe, he is reducing the company to commodity status, the natural result being a price war. No longer is buying a cup of Starbucks coffee an experience. Now, we’re just customers who are helping the company pay their bills and take a jab at competitors.

Barry Berman, a marketing professor at Hofstra University’s Frank G. Zarb School of Business, told Newsday that in settling to sell a $1 cup of coffee, Starbucks effectively deprives its customers of a “sensuous experience,” that the purchase of coffee at Starbucks becomes merely a pursuit of caffeine.

To bring the point home, Berman comments on the Starbucks guest mindset: “if I’m in line buying a $5 cup of coffee, I don’t want to wait in line behind people buying a $1 cup of coffee.” (full article here)

I agree with Berman completely. But what do you do? It’s no secret that Starbucks has been seeing shrinking numbers lately. There are a couple of options. The painful route: start shutting down many of their stores, and return to their quaint beginnings. But perhaps a less painful route would be to create a new brand that makes it a business of selling cheap, good coffee (think Toyota and Lexus, Pei Wei and PF Chang’s, etc.). That way, the Starbucks brand is not contaminated with pricing gimmicks that smack of Wal Mart and McDonald’s. Not that there’s anything inherently wrong with these two companies, but I just don’t want for Starbucks to become the “low price leader” of coffee. That’s not their brand and it’s not the position they’ve fought so hard to gain. To be admittedly melodramatic, to reduce themselves to bargain prices is to forfeit their brand.

Surely there are strong feelings about this decision on both sides. I’d love to hear your thoughts on the issue.


Follow Up:
Here’s an interesting report from the NYT (1-31-08) on Schultz’s plan. (No doubt, my blog was instrumental in Schultz’s decision 🙂 )
Starbucks to Close Stores and End Sandwich Sales

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  1. […] & press releases – Last Updated – Wednesday February 6  Request a Trackback Starbucks’ Price Positioning Misstep How timely! Just yesterday, I blogged about the importance of pricing in positioning. And while […]


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