Exercise 6.2 – Competing as Starbucks

So I will start with  answering  to our question, is Starbucks considered part of perfect competition is yes/no and the answer is NO.There is no perfect competition in the coffee industry. Every now and then every major coffee seller has to adjust its strategy and growth based on the market and competition. Starbucks recently closed 600 of its stores to realign its growth strategy and compete effectively with its competition. Whereas in a perfect market there should be no need to close stores when new stores are already in plan.Starbuck stores were closed to restructure finances and its profit line

Starbucks forecasted up to $348 million in charges relation to closing 600 stores. Still the company felt it will be better in the long run to close these stores and company will still be saving money after paying all these charges. Starbucks profits in the short run were affected by this decision but their share prices rose on the same hand. As all the investors were looking for the long run gain after closing the under performing stores by saving on long-term costs. According to me, yes coffee is expensive at Starbucks but then again Starbucks is not just selling coffee, its selling on customer preferences, its selling on its brand and uniqueness. There are many coffee sellers, if coffee was a perfectly competitive market there was no way Starbucks could charge twice, in some situations 3 times the price of other coffee sellers. Price would have been determined by buyers and anybody selling over that price would have gone out of business.
As Starbucks brand is built on its reputation of being exclusive, unique and different from all other coffee sellers, reducing their coffee prices might even hurt Starbucks to some extent. They might get new buyers who could never afford Starbucks coffee before but at the same time they will risk loosing all their loyal customers who go to Starbucks for its uniqueness. As Starbucks brand is built on its uniqueness this will directly go against their mission statement and hurt the brand on the long run.