Starbucks Rolls Out $1 Coffee and Free Refills
January 23, 2008 by Susan Gunelius
Filed under Brand Extension
Starbucks (NASDAQ: SBUX) is known for its gourmet coffee for the most discerning coffee drinkers. Looks like that upscale image is getting a makeover. The company began offering a $1 “short” cup that’s smaller than Starbucks coffee previously offered, and free refills will be available for brewed coffees.
Starbucks has been seeing its business struggle in recent years with speculation of the root cause pointing at new competitors have entered the market such as McDonald’s (NYSE: MCD) new gourmet coffee. I have to wonder if loyal Starbucks customers would change from visiting Starbucks to stopping by McDonald’s for their coffee. It seems like two very different brands that would appeal to different target audiences.
Fingers are also pointing at a slowing economy as a possible reason why Starbucks shares are on the decline. People just don’t have the extra discretionary income to buy extravagently priced coffee.
Starbucks isn’t giving any hints as to what their long-term business strategy is behind their new $1 coffee and free refills, nor have they provided any reasons for the new strategy. Has the Starbucks brand fizzled out and lost its appeal? Is the excitement over for the must-have, trendy, income-level defining Starbucks brand? What do you think? Can Starbucks save itself?
Tags: Starbucks, Starbucks dollar coffee, Starbucks short cup, Starbucks free refills, Starbucks $1 coffee, McDonald’s, McDonald’s gourmet coffee, branding, marketing, brand strategy
McDonald’s wants the fancy-pants $4 lattes and Starbucks wants the down-and-dirty $1 drip. Sounds like a primary campaign more than competitive coffee.
Personally I don’t think McDonald’s is a threat at all, because both of these companies have built up tremendous brands that are too deeply rooted in the consumers’ minds.
Starbucks is likely to see a surge in footfall from this policy, especially at stores located near a bunch of offices — instead of heading to the kitchen, workers will just jump down to street level for a free refill. And of course while they’re there, they might as well buy a muffin, and some mints, and a CD. Overall, I think it will work financially, but I hope it doesn’t do damage to the brand.
And yes, I already blogged about it.
http://www.perezfox.com/2008/01/23/starbucks-goes-for-broke/
Very interesting. I’m curious what this does to the brand. I’m meeting someone at a Starbucks tomorrow night. We’ll see if it smells more like the Starbucks of old. I sure hope so
Will this help? Time will tell, though free refills do mean I’ll stick around longer, potentially connecting my Macbook up and surfing on a paid for T-Mobile connection, eating a muffin, or just telling more people to meet me there.
Prescott, I agree with you - McDonald’s has such a different brand image, I don’t think loyal Starbucks customers will abandon them.
By the way, I’m on my way over to your blog to check out your post. Thanks for including the link!
Phil, You make a great point that loyal Starbucks customers will now hang out at Starbucks even longer than they may have before with the free refills. I think new customers will also give Starbucks a shot with lower prices and free refills. I am anxious to see how the changes affect the Starbucks brand in the long run.
My good friend, who manages a Coach store, said that the drop in Starbucks earnings last year was the single scariest thing for their store. When folks start cutting back on “luxuries” like $4 latte, that’s a sign that the market is slowing. And once you’ve given those luxuries up, it’s hard to be wooed back.
I think this is smart. We have a new Starbucks near us and I know my husband would be inclined to go more if he felt like he was getting a “deal” - like free refills. He would bring his laptop, drink lots of coffee and probably end up there for lunch where he’ll spend too much money on lunch. But he’ll *feel* like it’s okay because of the free refills.
Companies that respond quickly to change survive if they make the right choices. I think this is the right choice.
I’ve been drinking less Starbucks since they raised prices back in November. My usual drink (grande non-fat, no foam latte) used to cost $3.97, but now it costs $4.06. That might seem very slight but trust me, that extra six cents is annoying, requiring me to break that invisible $4 barrier. NYC has 8.375% sales tax so I’m trying to cut back on buying [prepared] food altogether. If this $1 scheme comes to New York, I’ll be likely to buy a cup, then split it with a friend and top the rest off with milk. Now that’s savings!
I see 2 potential reasons behind this strategy. #1 - let’s go with a $1 price point for a limited time and then raise it up after this sampling period is over. Starbuck’s may be out to show the McDonald’s coffee drinkers their joe is better and then raise the price. Another strategy may be what I’ve long called the Taco Bell move. Taco Bell competes with Taco John’s in my market. Consistently Taco Bell is 30 cents cheaper than Taco John’s. They make it up in volume - pure and simple. 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? All in all, this should be very interesting to watch.