How does Starbucks respond to increased competition and falling incomes?

By cutting price:

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. For example, Starbucks will offer a "grande" size iced coffee for less than $2, shaving as much as 45 cents off the price, depending on the market.

The moves come as Starbucks is struggling to attract and retain consumers in a recession. Starbucks said U.S. comparable-store sales fell 8% in its latest quarter as traffic fell 5%, and average transaction totals fell 3%.