Behavioral Economics and Starbucks’ Cup Problem

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Introduction

In 2013, the world’s largest coffee chain, Starbucks Coffee Company (Starbucks), introduced a US$1 reusable cup in its stores in the US, Canada and in the UK. The company came up with the idea of a plastic reusable cup to reduce its environmental footprint as it often faced criticism from environmental enthusiasts for generating 4 billion single-serve cups as trash each year that ended up in landfills or as litter. As of 2013, Starbucks was the world’s largest coffee house chain. It served hot and cold beverages, whole-bean coffee, microground instant coffee, full-leaf teas, pastries, snacks, packaged food items, hot and cold sandwiches, and sold items such as mugs and tumblers in its stores. In the US, the list price for a tall coffee was around US$1.60.

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More than the offerings, the company focused on selling a ‘third place’ experience, and the stores became places for relaxing, chatting with friends, reading the newspaper, holding business meetings, or browsing the Web. The ‘experience’ brought spectacular success for the store. Starbucks was considered an iconic brand and most of its customers were passionate about it........

. Of the customers, 8% were repeat customers. For the year ended September 30, 2012, the company had earned revenue of US$ 13.29 billion and net income of US$ 1.38 billion (See Exhibit I for Starbucks’ financial data). As of 2013, Starbucks operated in 62 countries, employing around 200,000 people worldwide whom it called partners. The company had a total of 9,405 company-operated and 8,661 licensed stores worldwide......

Starbucks relied on high-quality Arabic coffee beans, which grew only in certain environmental conditions. The company had encountered changing soil conditions, increasing pest infestations, soil erosion, changing weather, temperatures, and rain patterns and other threats to the Arabica coffee bean harvest. Starbucks recognized that a change in climate could have a negative impact on coffee-growing communities and the long-term sustainability of its business....