Abstract

US-based Starbucks Coffee Company (Starbucks), the largest coffee chain in the world, generated 4 billion single-serve cups as waste each year that ended up in landfills or as litter. Recycling also posed some serious problems as the existing ecosystem was not “designed to take the individual Starbucks cups” due to the presence of a plastic coating inside the cup. Starbuck’s customers and other stakeholders wanted it to solve the problem. In 2008, Starbucks took up the target of serving 25% of the beverages in its company-operated stores in reusable cups by 2015. It also committed itself to making 100% of its paper cups in company-operated stores in North America recyclable by 2015. The company took various initiatives to curb the waste including offering a long-standing discount of 10 cents to any customer who brought along a reusable cup but with little success. In 2012, the company was forced to reduce the target of serving beverages in personal tumblers to 5% by 2015 as it was able to achieve less than 2%. In 2013, Starbucks introduced a US$1 reusable cup in its stores. The questions before the company were: How could more customers be encouraged to use reusable mugs? Was the 10 cent discount incentive enough to drive behavior change of its customers? How could the customers be motivated to take responsibility for their actions and do their part in solving the cup problem? This case is meant for MBA students as a part of the Managerial Economics/ Behavioral Economics course. The case can be also used in a Consumer Behavior course in Marketing.

Learning Objectives

The case is structured to achieve the following Learning Objectives:

• Understand issues and challenges in convincing consumers to adopt reusable cups.
• Understand underlying concepts and theories in consumer behavior and behavioral economics.
• Understand consumer’s optimal choice under the budget constraints.
• Understand consumer’s benefit optimization under the environmental constraints.
• Understand behavioral economics concepts such as prospect theory.

Keywords

Behavioral economics, Pricing strategies, Managerial economics, Consumer behavior, Rational behavior, Consumer choice, Consumer preference, Budget constraint, Utility maximization, Expected utility theory, Prospect theory