Starbucks Raises Prices, Stakes In Coffee Wars

Starbucks is raising its prices. Again. The brand attributes the increase to its effort to continue providing value while also balancing the company's "business responsibilities."

In New York, for example, an extra espresso shot is up from 55 cents to 70 cents. Additional syrup is 40 cents, a more than 30% increase. A grande triple soy vanilla latte is now $6.25 instead of $5.55.

Actually, Starbucks is both raising prices on more complex beverages while slightly lowering prices on a few simpler drinks -- but all the headlines are about the price increase. This price hike might end up working on several levels.

Though the price jumps are being implemented (quietly) now, the announcement came months ago. At that time, University of California, Berkeley Haas School of Business professor J. Miguel Villas-Boas told the New York Times:

“Given that McDonald’s is capturing some of the consumers less interested in the premium that Starbucks offers, then the consumers left out for Starbucks are the consumers willing to pay more, so Starbucks says, ‘Let’s charge them.'"

Another good reason it might end up working? It already has:

"As it reported a 77% drop in quarterly profit, the company on Wednesday also said it will adjust its pricing in some markets, raising prices of some of the more complicated drinks, while lowering those on basic drinks."

That's a Wall Street Journal report on the brand's pricing strategy... from April 2009. Just a few months after that report came news that the price adjustments had, in part, helped Starbucks' bottom line.

Starbucks may again see a jump in profit after its latest gambit. However, cost-cutting measures and price revamping, squeezing more cash of out fewer customers, may make for great short-term profit announcements, but it is not a sustainable route for long term brand health.

Starbucks needs to find a way to atone for this price increase in the face of increased competition in its segment. Sure, its "destination brand" coffee shop concept was groundbreaking a decade ago, making the brand a global juggernaut. Indeed, the very segment Starbucks made possible is now crammed with competition, hungry competition, willing to offer more for less. Even McDonald's is elbowing in on Starbucks brand turf, not only offering more gourmet coffee drinks but also free Wi-Fi, a service Starbucks long-ago started charging for.

Simply put, Starbucks' brand could be in real trouble if it continues down this road of charging more as it offers -- comparatively -- less.