The $7 Cup of Starbucks: A Logical Extension of the Coffee Chain’s Long-Term Strategy

This week Starbucks began selling a cup of coffee for $7. This may seem ridiculous, but it’s the logical next step of the chain’s long-term marketing strategy.

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This week Starbucks began selling a cup of coffee for $7. This may seem ridiculous, but it’s the logical next step of the chain’s long-term marketing strategy: To convince consumers that a product that used to sell for less than a buck is in fact worth much more.

In almost 50 locations throughout the Northwest, coffee drinkers can find a curious item next to peppermint mochas and gingerbread lattes: Costa Rica Finca Palmilera, a hard-to-grow bean also called “Geisha” that sells for $7 for a “grande” and $40 for a half-pound bag.

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In a way, the release of Starbucks’ highest-end (and most expensive) coffee to-date is similar to what the fast food industry has been doing – offering premium items in order to compete with so-called “fast-casual” restaurants like Panera Bread and premium burger joints like Five Guys.

Starbucks is starting to see smaller, high-end roasters like Stumptown Coffee Roasters out of Portland, Ore., Blue Bottle Bottle Coffee Company in Oakland, Calif., and Intelligentsia from Chicago start to grow in size and popularity. The funny thing is that Starbucks’ success helped spawn this new generation of roasters by showing that consumers are willing to upgrade their $1 cup of joe to $2, $3, even $4.

Now, high-end roasters are expanding in cities throughout the Northwest and along the East Coast. And eventually, they could begin chipping away at Starbucks’ dominance.

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Starbucks’ new offering is designed to capture that super-premium customer who may be looking elsewhere and has money to spend, says Edward Jones analyst Jack Russo, who studies the industry. “It’s clearly not going to be a big part of their overall business,” he says. “But if you look at a lot of companies out there — restaurants for example — they’ve moved people up in their menu, offering more premium items. Beauty companies have been doing the same thing, offering premium-type products. What Starbucks is doing isn’t different from anyone else.”

Russo says that with the economy showing signs of recovery, the company may have seen this as a good time to unveil a coffee that you’d think most consumers would sneer at. At first glance, $7 seems ridiculous. But that’s the thing about Starbucks’ entire strategy: They’ve successfully convinced Americans that a few bucks more for a cup of coffee isn’t that big of a deal.

The whole thing is probably best summed up by Jimmy Kimmel, host of ABC’s “Jimmy Kimmel Live.” In addition to rigging a Starbucks taste test showing unassuming participants trying to determine the difference between high-end and regular joe — both cups of coffee were the same, yet most thought one was the $7 cup of Starbucks — Kimmel said this: “Although while it’s ridiculous to spend $7 on a cup of coffee, it’s not that much more ridiculous than spending $4 on a cup of coffee.”

10 comments
SINcitySEAL
SINcitySEAL

This coffee is a "Hard to grow bean". The average coffee plantation worker earns $8 a week and collects 200 pounds of coffee a day. The company spends $.006 per pound of coffee for collection alone, but will charge $40.00 per pound at retail price. That's a 6666% mark up price. There is no true value for consumable commodities beyond what the consumer is willing to pay. I'm not sure if this is impious or brilliant.

gargs.madhur
gargs.madhur

So a short answer would have been that people would still buy it. Right?

JohnSmith3
JohnSmith3

The derogatory name used to be Four Bucks.  Perhaps people should start calling it Drawbacks.

I cannot fathom why people want to buy their swill.  It tastes burnt, it's overpriced, and is often watered down just to fill the cup.  My homemade coffee tastes better, and in a thermos I can take a day's worth with me when I go to work.  (Hell, McRotten's coffee tastes better than Drawbacks.)

The hit song "Gangnam Style" is a biting commentary on the Korean habit of  "conspicuous consumption" - people buying overpriced junk they can't afford to make it look like they're rich.  The Koreans have a term, "soybean paste women", for young women who spend a thousand won on a cheap lunch and then go spend six thousand on an expensive coffee.  It's ludicrous.  If people had any sense, Drawbacks would be out of business.

DexKerma
DexKerma

What someone is willing to pay for something is very subjective and involves a certain amount of hedonism. People drive their luxury cars and line up at trendy coffee shops for more then just a coffee fix. ;-)

woodysback
woodysback

It's amazing to me that people will whine and cry and moan and wail when it comes to paying four dollars for a GALLON of gas, but don't bat an eye at paying seven dollars for a TWENTY OUNCE cup of coffee. It proves that the American people or sheep as I call them will line up in droves to buy their sludge because another greedy company tell them that they have ti have it. I haven't seen such a huge ripoff since they told us we have to have a bottle of tap water in our hands at all times. I am now totally convinced that the people in this country have totally lost their minds. Stop being sheep!

pianomanrsn01
pianomanrsn01

I stopped buying Starbucks' coffee when it was $2.50 a cup.  It would be a grey day in hell before I would spend three times that on coffee that is not as good as my home-ground all arabica bean brew which costs about 12-15 cents a cup.  I keep a small coffee maker at my office and use a well insulated thermos when I want to have something on the road.

rihannk
rihannk

Wake up and smell the (other decent coffeehouse's) coffee people!!!  Reasons why I don't drink Starbucks - 1) Their coffee is over-roasted worlwide.  2) I have never had a decent cup of Jo in a Starbucks.  It has a very typical rancid, over bitter taste (worldwide).  3) It is crazy to pay this amount of money for a coffee!  A decent espresso made from top grade beans should not cost more than US50c.  If you invest in a decent coffee machine (USD1000) and grind and make your own coffee at home using USD7 of coffee a day at home you'll "pay off" the machine in 142 days and be able to make at least 14 espressos!  3) You'll get a much more rewarding intellectual experience if you invest the time spending in a Starbucks surfing the (not) free wifi by investing in a barista course and teach yourself how to make real kick-ass coffee.  I promise you if you take time to learn about coffee you'll avoid a Starbucks forever. Oh, and did I mention that Starbucks are moving their coffee buying away from sustainable growers to buy from countries where the practises are less "sustainable like Vietnam and China.   By doing so they are raking in more profits and delivering more dodgy coffee to their customers!  Stop supporting exploitative brands dressed up as wholesome!

IneffAble
IneffAble

Starbucks and Apple can go to hell, and the people that pay for those products while turning a blind eye to how they get produced (unfair wages and labor practices) can follow into hell with them.  Whatevers.  "Now let's rob a bank, give the money to the poor, then rob the poor, and shoot the money! YEEHAW *POW POW POW*"

my-new-life-in-asia
my-new-life-in-asia

I live in Taipei, where Starbucks shops are always full. It's all about the brand, indeed, and about effective marketing. Starbucks has managed to convince people that it's cool to buy overpriced coffee to sit in a cramped, loud shop, without free internet, without power plugs for your lap-top. The only thing you get are a table, a chair and mostly mediocre coffee or sweets. To be honest, why do I have to pay 200 Taiwan Dollars for internet access when in nearby coffee shops it's free? Perhaps they'll soon bill customers for the electricity they consume (oh no, I've given them a new idea!)

informationcloud
informationcloud

I wonder if the profits of starbucks $7 cups of coffee will be reflected in their compensation to coffee farmers... eehem