Starbucks’ Dual Advantage

BusinessWeek offers a nice analysis of Starbucks’ decision to lower prices on its premium coffee. Rita McGrath describes the “hourglass economy” as thick markets for low cost and highly differentiated products. Accordingly, Starbucks is keeping prices high for premium drinks in its stores but dropping the price of coffee by 10% to draw in more price conscious consumers. This strategy leverages Starbucks’ lean supply chain operations that give it a very low cost structure despite offering premium products. Ultimately, this puts higher cost rivals at a disadvantage because Starbucks can offer a better value proposition.

Contributed by Russ Coff

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s