Looking to bring more value-seeking consumers through its doors for a late afternoon caffeine fix, Starbucks Corp. said it will now offer its morning customers any iced grande beverage for $2 after 2 p.m.In economics, we call this 2nd degree price discrimination, where you pay a lower per unit price as your consumption increases. For example, your local electric company knows those first 100 kilowatt hours are very important to you (keeps your fridge cool, alarm clock powered, etc), but after that you become more flexible in your energy consumption. So your willingness to pay for those first 100 kwh is very high, but diminishes rapidly after that.
The price is a big cut from the normal price of most grande-sized iced drinks. A grande iced latte, for example, costs about $4. To get the discount, customers must present a receipt from their morning Starbucks visit.
Starbucks is looking to do the same thing. They know that those who typically get their caffeine fix in the morning have a lower willingness to pay in the evening (like me). Recreational or social coffee drinkers are more prevalent in the evening (like my wife) and have a higher willingness to pay. Setting one price for both groups mean you miss some customers from the morning, and you give up charging a higher price to the evening customers. By offering evening discounts to morning drinkers, they have a means of effectively separating the two groups, and with any luck they might eventually be able to set higher prices for the recreational drinkers than they otherwise would.
Now comes the part where I start selling my morning Starbucks receipts to my evening coffee drinking friends ;)
P.S. My customized Starbucks card states "I Heart Capitalism."