Starbucks Case

Starbucks began as a seller of whole coffee beans in Seattle, Washington in 1971 with the intention of finding the best coffee in the world and bringing it to people who would never otherwise have the opportunity to have it. Starbucks became a corporation in 1985 and became the leading coffee retailer in the world. There are over 16,000 Starbucks coffee stores internationally. In addition to coffee sold in its retail stores, it also produces teas, ready to drink coffee beverages, ice cream, packaged coffee, flavorings, and it even has its own music and books. Its retail stores also sell fresh foods like sandwiches, pastry, and salads (Camacho 2007).

In discussing the structure of the coffee market, Martin Pitek shows that Starbucks has managed to inflate the price of its coffee products while maintaining a fierce hold in the marketplace. People have remained loyal to the Starbucks brand, and its line of luxury beverages as competition began to mimic Starbucks’ beverages. Throughout the rise and fall of economies, Pitek says, Starbucks has capitalized on its ability to differentiate itself from its competitors such as Dunkin’ Donuts and McDonald’s, fast food chains that followed Starbucks in introducing coffee as a way of life. Starbucks has managed to create a brand that makes it hard for competitors to imitate (Pitek 2009).

Georgia Flight, in her essay for CNN’s Money online division, reminds us about a memorable movie scene in 1999's Austin Powers sequel. As Dr. Evil plots to take over the world from his headquarters in the Seattle Space Needle, an outside shot of the Needle shows the iconic landmark emblazoned with a Starbucks logo. Talk about a symbol of global domination (Flight 2007). But it is not just the logo, and it is not even the coffee, it is a way of life that Starbucks has introduced the world to, and with an annual revenue of over $8 billion, Starbucks proves that the enjoyment of consuming a commodity may be more important than the commodity itself. In fact, the commodity is propelled into a luxury item with a price tag to prove it (Holmes 2001).

Pitek cites the 2013 National Coffee Drinking Trends Report when talking about bargaining power. While substitutes like Dunkin’ Donuts and McDonald’s have items that taste very much like the specialty coffee beverages sold by Starbucks, they fall short of creating the feeling of luxury that only a coffee house can deliver, the study suggests. For this reason, the premium that Starbucks placed on its coffee beverages was hard for competitors to realize. In order to gain new customers, competitors like Dunkin’ Donuts and McDonald’s worked on creating products that were substitutes for Starbucks’ beverages through maverick marketing strategies. Understanding the market is paramount to understanding how to control the setting of prices. Pitek says that the above referenced study shows that 18 to 24 year olds are the largest contributors to the