How one cup of coffee will change the way you think about pricing

Written by Nick Noble in 2017

If you’re anything like me, I love coffee. In fact, I drink a cup almost every morning. Usually, I go to the Starbucks near my house because it’s convenient. And always, without fail, I have to make an interesting decision.

Deal or no deal

That’s the choice a potential customer is given when there’s only a single buying option on the table. So many companies do this, and end up telling would be customers to buy their product, or leave.

Can you guess what usually happens? Yeah, they leave.

Starbucks isn’t one of those companies.

At Starbucks, you can’t simply ask for a cup of coffee. There’s one more step, even if you only want a plain old cup o’ joe with absolutely no frills.

Even if you just try to order a plain coffee, the reply seems like a no brainer:

What size would you like?

Aha! Very sly. 

As the consumer, you’re no longer thinking Do I even buy this?” 

Now, the question is Which one do I buy?”

Let’s look at your options:

  • Tall, which is 12oz and costs $2.85
  • Grande, which is 16oz and costs $3.45
  • Venti, which is 20oz and costs $3.95

Ok, each version of the product has a 4oz difference, so the proportions increase equally. Cool. 

But then why isn’t the cost also evenly incremented?

The difference between the Grande and the Tall is 60¢, but between the Grande and Venti it’s only 50¢.

Plus, going from the Tall to the Grande is a whole number up ($2 to $3), making it seem like even more of a difference.

Why would they make one option seem like an inherently bad deal?

It sounds super counterintuitive, but consumers want the biggest bang for their buck. 

When they look at these three options and their prices, they subconsciously notice the inequality:

If I get the Venti, I’m getting 4 more ounces of coffee for what seems like a much lower cost. 

Even if you didn’t want that much coffee to begin with, you still feel like you are winning. You got yourself a deal.

As for Starbucks, that extra 10¢ really starts to add up.

This is known as the decoy effect

If they just had two options, say the Tall at $2.85 and the Venti at $3.95, they would have a problem:

In this scenario, there is no clearly better choice. 

Sure, the Venti has a higher price tag, but who’s to say that extra $1.10 isn’t totally worth it? 

Leaving it up to the customer to answer this question is just as bad as not giving them a choice at all. Doing this means that they can’t really come to an informed decision, which could lead to analysis paralysis (a.k.a. no sale because they can’t decide which one is better).

So let’s make it easy for them

By adding that third Grande option, Starbucks has given potential customers a reference point to compare costs with. But, it’s an unreliable narrator. 

It has to be skewed one way or another, in this case making the Venti the clear choice. Otherwise it would just add to the stress of decision making, and it’s my assumption that Starbucks would miss out on even more sales than with two options.

The Grande is a decoy, and it makes all the difference. Who knew coffee was such a great wingman? 

What’s the impact?

I can’t tell you how successful this has been for Starbucks, because I haven’t seen their numbers. But when I’ve applied this technique, it’s boosted the sales themselves up to 5x.

That’s right. Simply by giving multiple choices and a clear winner, way more people will buy your products. 

If you don’t believe me, try it and let me know how it goes. I think you’ll be pleasantly surprised. 

As for me, its time for my morning coffee.