The coffee market has seen a hike in prices during 2011 for a couple reasons: Production difficulties for coffee producers (“long-persistent La Nina weather phenomenon”), and an increase in demand for smaller emerging markets. As a result, several major coffee companies, including market share leader Starbucks Coffee, have imposed an increase in coffee prices.
Starbucks Coffee is a well positioned leader that occupies a strong brand name in the coffee market. The company’s massive innovations set themselves with successful points of difference against its competitors. Its points of parity also set a high bar for the rest of the market. Despite their imposed price increases, the company effectively overshadowed this action by introducing their newly reformed loyalty program: My Starbucks Rewards. The benefits are advertised in “levels”, and stars are given out based on number of transactions, rather than the dollar amount. This tactic could be advantageous for the company in the long run, as the average customer is given a considerable amount of incentive to return in the future. Starbucks uses this marketing strategy timely and wisely, promoting it weeks ahead, but launching on the same day that the price increases come into effect.