STARBUCKS: CASE STUDY

Starbucks: case study

Starbucks: Case Study

Question 1

How will Starbuck's offer of "$1 coffee and free refills on traditional-brewed coffee to attract the price-conscious consumers amid a weak economy" impact their brand equity and brand image?

Background

Before making an attempt to answer the question, it is imperative to discuss some background related to the question would provide an in depth knowledge of the case and would aid in answering the question thoroughly.

Starbucks and its competitors

While Starbucks was busy in the launch of other products and the expansion of the number of its stores, the competitors of the Starbuck were playing well in the market of the coffee. In 2006 McDonald's introduced a new coffee and promoted it as premium roasted. According to the consumer reports this coffee introduced by the McDonald's was better than the coffee of Starbucks. McDonald's development of the product was not only restricted to this, but they also introduced a new product line with the name of McCafe. Moreover, McDonald's and Dunkin' Donuts also took measures to reduce the operational cost by using an automated process. This automated procedure of making coffee was much more efficient and cost effective than the process used by the Starbucks. Another worth mentioning factor is of the prices. The prices of the coffee of McDonald's and of Dunkin' Donuts were comparatively lower than the prices of the coffee of the Starbucks (James 2006, 15).

Economic downfall

It was the period of 2007, when the economy of the United States of America faced a sudden increase in the prices. The price of the oil got double, and the prices of the gasoline increased from $2.00 to $3.00 per gallon. It was not only the gasoline and petrol that showed the sudden increased in the prices, but the commodity of food such as milk also showed a shift in the price levels. This change in the prices of the milk had a direct impact on the business of Starbucks and it competitors. At that time of inflation selling, a cup of coffee for $3.50 was a serious concern for the Starbucks. In order to respond to the condition of economy Starbuck decided to run the test of selling a cup of coffee for $1.00 so that they can retain their customers (Steven, and Ethan 2005, A1).

Starbuck's policy of selling $1 cup coffee and its impact

As the main competitors of the Starbucks offer the same product in the low price so in order to handle this issue Starbucks decided to introduce small cup of drip coffee for $1 and in addition to this offer, of free refills. This test was run in the hometown of the Starbucks that is Seattle. This offer is 50 cent less than the other retailers of coffee in Seattle who ordinarily charges 8 ounces of cup of Joe, through prices that vary store from store. If we compare this offer of the Starbucks with other competitors it would revealed to us that a cup of coffee at McDonald's and Dunkin' Donuts ...