Starbucks Tries to Sidestep Backlash With Its Price Increase

At first glance, Starbucks' Tuesday announcement that it was raising prices an average of about 1% in the U.S. Northeast and Sunbelt regions may be a dangerous PR move, considering the consumer backlash experienced by Netflix, Bank of America and, most recently, Verizon after their ill-fated pricing/fee initiatives.

Yet unlike those three companies, which backtracked following public outcries, Starbucks' explanation of the increases is detailed, thoughtful and makes some sense. Company spokesman Jim Olson says the increases—including 10 cents more for "tall" brewed coffees and latte drinks—are due to a variety of factors. "These adjustments are the result of balancing the cost of doing business with competitive dynamics in these markets," Olson says. Those factors include distribution, store operations and commodities, including fuel and ingredients for food and beverages, he says.

Another solid strategy to prevent a consumer backlash: Starbucks has not made across-the-board price increases since 2007, choosing instead to adjust prices on a market-by-market basis. However, online comments show that consumers might not take this increase with a smile. Comments on a Huffington Post story include: "This article can be summarized as follows: 'Starbucks raises prices for the sake of raising prices.' Unusual corporate behavior? I think not," and "Starbucks wasn't worth it before, and now they are really not worth it. Save your money and head to Dunkin' Donuts instead."

From a shareholder standpoint the increase has been a positive so far, as the stock rose by 2.2% to $47.04 on Tuesday, Jan. 3, following the announcement.


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