Starbucks can be considered as a part of a perfect competition market because it fits all four major conditions (by textbook “Microeconomics”, John E. Sayre, Alan J. Morris)):
· The industry is represented by many small buyers and sellers all of whom are price-takers
· No preferences shown
· Easy entry and exit by both buyers and sellers
· The same market information available to all
The main reason for re-aligning Starbucks business practices was the fact that many stores became unprofitable. They became unprofitable because Starbucks was “blended in” with many small and cheap coffee stores. The idea of “special, homemade” coffee was lost and it “has led to competitors of all kinds, small and large coffee companies, fast food operators, and mom and pops” to take their niche (http://starbucksgossip.typepad.com/_/2007/02/starbucks_chair_2.html).
Starbucks was trying to gain back the special customers’ attitude by moving their business into another, more expensive area. Going back to the conditions perfect competition, Starbucks was trying to get “out of the box” of perfect competition.
I assume the strategy was:
· Let the customers show their preferences for their product
· Use their unique expertize for little coffee shop atmosphere
Therefore, they closed the number of stores. It was impossible to get to upper standards of operating the business with existing fast-food practices, which came into play with greater quantity of stores.
“In total, the company forecast up to $348 million US in charges related to the closures, with $200 million to be booked in the fiscal third quarter ended June 30” (http://www.cbc.ca/news/business/story/2008/07/01/starbucks-closures.html).
Those charged are short-run. I think company will gain in a long-run by raising prices for coffee and providing unique service to the customers.
“Starbucks Corp. recently announced that it would be expanding its coffee offerings as well as offering a new line of pies and tarts. Additionally, the coffee giant will also begin selling a single serve coffee maker this year.
Moving forward, mounting commodity costs and greater competition will likely be headwinds for specialty eateries for the remainder of the year. However, successful new product lines and ad campaigns in combination with the recovering economy could lead to gains in both the short- and long-term” (http://www.marketwatch.com/story/analytical-reports-on-starbucks-corp-and-panera-bread-company-eateries-respond-to-greater-competition-2012-03-14?reflink=MW_news_stmp).
I personally think the prices in Starbucks are too high but many customers don’t think so. What Starbucks sales most likely are emotions and special experience with coffee.
On the top of it Starbucks provides the highest quality coffee to its customers.
“Years of focus and expertise have led to the Starbucks Roast Spectrum. Each coffee bean requires a unique balance of temperature and time to reach its individual peak of aroma, acidity, body and flavor. Our coffees are classified by three roast profiles – Starbucks® Blonde Roast, Medium Roast and Dark Roast – so you can easily find the flavor and intensity that’s perfect for you”( http://www.starbucks.com/coffee/learn/roast).
If Starbucks lower the prices they would experience immediate demand increase for their product as they would attract customers from their competitors. At the same time, they wouldn’t be able to provide the same level of service and their profits will get back to the same level (or lower) as there would be no differentiation between Starbuck and their competitors.
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