Case $1$:

Crumbs Bake Shop rode the gourmet cupcake boom to great heights. The company was founded in $2003$ in the Upper West Side of New York City by Jason Bauer, who designed and baked giant, high$-$quality cupcakes with decadent flavors, such as cookie dough, caramel macchiato, and red velvet. The cupcakes came with a hefty calorie count of $600$ calories and a premium price of $$3\mathrm{.}50$ to $$4\mathrm{.}50$ each. Crumbs grew quickly from a single bakery in $2003$ to nearly $80$ bakeries in $10$ states by $2013$ and hoped to grow to $200$ stores by $2014.$ The firm was honored by Inc. magazine as a $$breakout company$$ in $2010.$ It went public in $2011$ and saw its stock price rise to $$13$ per share. However, as fast as the company rose, it fell even more quickly. The firm lost $$18\mathrm{.}2$ million on $$47$ million in sales in $2013$ and saw its cash reserves dwindle from $$6\mathrm{.}3$ million to $$893,000.$ The chain closed nine stores in late $2013$ and six more in early $2014$ as managers tried to save the company. However, it all came crashing down in July $2014$ when Crumbs was delisted by the NASDAQ Stock Exchange after its stock dropped to $30$ cents a share. The firm then filed for bankruptcy and closed all of its remaining $48$ stores. What went wrong?

Crumbs experienced two of the pitfalls differentiators can fall into. First, the rapid growth of the company strained its ability to sustain the high quality of its products. As it moved from an entrepreneurial firm in which the entire baking process was overseen by the founder to a publicly traded company in which the baking was done by low$-$wage workers, customers started to question whether their cupcakes were worth $$4\mathrm{.}50$ each. As one customer, Ari Stern, commented, $$It$$s

impossible to control quality when you$$re worrying about your shareholders instead of your

product.$$ Second, customer tastes can be fickle. As a result, a highly desirable differentiated product can fall out of favor before firms can react. Crumbs differentiated itself from other bakeries by offering large, $4-$inch cupcakes with rich flavors. While demand for these types of cupcakes took off after they were featured in Sex in the City, demand quickly slackened as people became more concerned about the calorie count in them and the gluten$-$free craze took hold.

Crumbs may not be done yet. The firm emerged from bankruptcy in August $2014$ with a new ownership team led by self$-$styled turnaround guru Marcus Lemonis. The new owners planned to reopen about two dozen Crumbs locations in major cities, such as New York, Los Angeles, Chicago, and Boston.

Discussion Questions

$1.$ What lessons can we take from Crumbs Bake Shop$$s experience?

$2.$ What actions can Crumbs take to increase its chances of survival in a market that no longer puts as high a premium on high$-$end cupcakes?