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.”