"This is in response to our customers telling us that they want more options for relaxing in our stores in the afternoon and evenings and reflects what we've learned from our "learning lab" stores (also in Seattle)," read a statement from Starbucks, "We hope to continue to learn from our experience at Olive Way and then consider bringing this concept to select stores in neighborhoods where it is relevant."
Since the fixed assets - both the brandname and restaurants - would represent common costs for both morning and evening beverages, there are likely to be economies of scope between the two.
I am curious as to whether there are any diseconomies (of brand extension?) for this move. For example, I see lots of college age customers frequenting starbucks at night (reading), and I wonder if adding wine will "push" them out and somehow make the brand less "cool."
ReplyDeleteHarley-Davidson shows Bikers Aren’t Interested in Wine Coolers
ReplyDeleteHarley-Davidson motorcycles have brand extension down pat (lighters, clothing, you name it) – but there’s a reason for the saying, “Too much of a good thing.” Harley-Davidson took their brand extension to a whole other level when they introduced a line of wine coolers in the mid-1980’s. Yes, when I think bikers I think tough guys and biker babes, leather jackets, tattoos, bandanas…and wine coolers?
The BIG Lesson here is simple: NEVER alienate your central target market!
The economies of scope for a company/brand does not only depend on decreasing the cost of production but depends on a number of other factors as well. For Example, Jack Daniels can definitely achieve economies of scope by introducing a cola or other beverage in the market as production facilities can be shared and management experience in the beverage industry can be leveraged. But will this move be good for the company is hard to imagine as it may liquidate the brand-equity for Jack Daniel which is known worldwide for its whiskey.
ReplyDeleteStarbucks is known for serving the best quality of coffee at a high price. Customers are willing to spend $5.00 for a cup off coffee because of its great taste. Then Starbucks expanded their beverage menu to add teas to it. It featured the Teavana Chai that Oprah Winfrey fawned over. This expanded their customer base to those that drink coffee and/or tea. Since, Starbucks has Wi-Fi service, it attracts customers to come in to relax, study, read and to meet people.
ReplyDeleteNow, they are considering of enhancing their beverage menu to include wine and beer to be served after 4:00pm. This can be a good way to expand their menu options and their clientele. Can adding wine and beer be economies of scope? I believe it can because selling beer and wine together would be profitable instead of selling them separately. Hopefully, not only will it keep their loyal customer base but will add new customers as well.
Suzette Monteverde, Empire State College, Dr. Singh, ECO-65155X
Stan Fernandes
ReplyDeleteESC Managerial Economics Spring 2016
February 11, 2016
This article about Starbucks offering to sell beer and wine after 4pm is a good example of economy of scope. Economy of scope occurs when the cost of producing two products together is less than producing them individually. Another good example of this that comes to mind right away for me is Dunkin Donuts / Baskin Robbins. Dunkin Donuts gets most of its sales from breakfast (Hufford, 2016), but is seeing increased sales of “cups and cones, beverages, desserts, sundaes and cakes”. (ibid.)
By combining these two different products that attract customers at distinctly different times of day, Dunkin Donuts is able to realize an extended revenue stream at the stores into the later hours of the day, with no significant increase in facility costs, other than the cost of labor and operations to serve the ice cream.
I would caution that this type of economy of scope may not necessarily continue if hours are extended all night. Managers have to be aware of the needs and buying habits of consumers. Consumers who purchase coffee at Starbucks may be interested in a quick morning pick me up, and not necessarily an evening night out relaxing and sipping adult beverages while sitting in a “coffee shop”. I would recommend that Starbucks perform a market test to check the viability of wine and beer sales.
Reference:
http://www.wsj.com/articles/dunkin-beats-estimates-despite-same-store-sales-drop-1454588449