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Starbucks Gets Cheaper and More Expensive

"Starbucks Corp. customers can expect to pay up to 25 cents more for their caffeine fix," says the Wall Street Journal.

Starbucks "is cutting prices for the first time," says Reuters.

Both statements are correct. Basically, cheaper drinks will become cheaper, and more expensive drinks will become more expensive. The cost of a cup of coffee or a small latte will drop by a nickel or two, while the cost of large drinks, frappuccinos and extra espresso shots will go up. The changes will vary by market, but spokeswoman Valerie O'Neil declined to give details.

CEO Howard Schultz announced this plan in April during the second-quarter earnings call. "We will be fine-tuning our pricing in several key markets to better reflect geographic, cost of goods and labor considerations," he said. "As a result, there will be minor changes that will lower prices on some of our more popular items such as tall lattes and slightly increase prices on our larger and more complex beverages.

New competition from McDonald's "McCafe" has put pressure on Starbucks, and in Seattle, local ads specifically targeted Starbucks with slogans like "four bucks is dumb."

When Starbucks raised prices in 2007, the move caused a drop in traffic. The latest price tweaks will include more hikes than decreases, but the company is apparently hoping that the nickels off of more basic items will soften the blow.

Baristas also received memos saying they should "expect customers to be sensitive to pricing changes in this economic climate."

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