Substitutes: Coffee and Tea Products Essay

Submitted By kyrenschultz
Words: 770
Pages: 4

Starbucks has addressed the threat of substitutes in regards to the stitching costs on many fronts to mitigate the potential of loss of its customer base. Consider that a majority of coffee drinkers will not substitute away from coffee or coffee related beverages such as espresso or blended drinks for substitutes such as energy drinks or soda. This focuses the switching cost of substitutes to tea products, home brewing, and comparative alternative stores.
The most direct non-coffee substitute for Starbucks with the lowest switching cost would be tea. Starbucks realized this was a threat and addressed this issue head on when it acquired Tazo® Tea brand. Not only can tea be purchased in any Starbucks location they offer premium blended tea products in the store not available at most competators locations at any cost. This factor makes the substution cost of the speciality teas offered high creating an inelastic price for the product. However the cost of switching from coffee to tea when home brewed is very low so the threat of substution is high. Again Starbucks realized this and offers the Tazo® Tea brand for sale in its’ stores as well as retail outlets to capture some of the revenue lost with the low switching costs.
The second threat of substitution is home brewing coffee, espresso and blended drinks. The cost of switching is decreasing as premium coffee makers that make single serving cups at a fraction of the cost are becoming readily available at very reasonable prices. In addition, the cost of high end espresso machines is decreasing as well which opens the opportunity for the consumer to make all types of coffee in the comfort of home. With the current economic conditions and change in competitive landscape Starbucks should be weary of home production as a low cost substution for its in-store products. It seems that Starbucks realized this was also a potential threat and has addressed this issue on several fronts. In regards to the premium single cup coffee makers not only does Starbucks make single serving refills for the most prevelant model Krueg, it now offers its own single cup model available in store and online. Starbucks has again managed to capture some of the potential lost revenue of cusnumers switching to this alternative. Starbucks has also addressed the issue of home brewing with premium espresso machines by offering its coffee beans at many grocery outlets and warehouse club stores and all Starbucks outlets. By providing this alternative to its active consumer base it captures a majority of the consumers that may need to cut back on in-store visits by creating a viable at home alternative that is still tied to its brand.
The final threat of consumers substituting away from Starbucks with a very low switching cost is the threat of direct competitors such as local coffee houses that offer premium coffee products with pricing that is relatively the same as Starbucks. These outlets pride themselves on customer service, speciality drinks and high end experience of being in the outlet with WiFi and…