Final answer:
When anticipating the arrival of Starbucks, a local coffee shop developed a contingency plan to address the new competitive challenge by leveraging its unique selling points, specializing in certain offerings, and creating an attractive and intervening opportunity to retain and attract customers.
Step-by-step explanation:
When a locally owned coffee shop heard that Starbucks may be coming to town, it developed a contingency plan to establish alternative courses of action they could take if their competitive landscape changed. The coffee shop understands that in a market environment characterized by monopolistic competition, businesses must be prepared to face new entrants that can potentially attract their customer base with different offerings. The presence of a new competitor like Starbucks can lead to customer fragmentation and the shifting of market shares.
To maintain a competitive edge, the coffee shop might consider specialization, focusing on unique products or services that distinguish them from larger chains. Examples include locally-sourced ingredients, specialty beverages, or customer loyalty programs. This strategy would leverage their comparative advantage, enabling them to potentially produce these specialized offerings at a lower cost than competitors like Starbucks, while attracting customers through unique selling points.
A case study involving gas stations and restaurants illustrates the necessity of differentiation in a monopolistic competitive market. A gas station with a stellar location might face competition from new stations offering additional services, just as a restaurant's signature barbecue sauce might be replicated by competitors. Thus, the coffee shop must innovate and perhaps emphasize their community ties, exceptional service, and exclusive products to retain and grow their customer base.
Another strategy might involve making integral moves to create an intervening opportunity for potential customers by offering exclusive deals, events, or a more convenient location. In the case of the coffee shop, they could implement strategies that make their location more attractive, such as hosting local music nights or offering a comfortable workspace for freelancers and students.