Tuesday, August 05, 2008

Starbuck's Clever New Price Discrimmination Deal

CNN Story Here:
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.

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.
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.

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."


Will Luther said...

When I get off the metro and swipe my metro card to ride a bus, I am charged a lower rate. Starbucks could learn from this.

They require you to bring a receipt now. But if you make both transactions with their card (as they'd presumably prefer) it should already know you were there this morning. This would allow them to (1) lock up more customers by lowering the cost of a second purchase (I hate carrying receipts) and (2) makes arbitrage more expensive (there are only a few people I'd let take my card but I'd give a receipt to anyone).

Of course, I am assuming the cost of owning a card is quite low. ...I imagine most people drinking two starbucks beverages a day have a card already. And probably a slight twitch from all that caffeine.

Viagra Online said...

It is a good idea, I'm going to sell also my morning tickets as well, I see a lot of potential by doing this. sv77

viagra online said...

It was a great offer, I actually started to go to starbucks only because this promotion.

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