Thursday, February 28, 2008

How Starbucks is like a condo developer

Now, I may not be as sophisticated as the authors of "Freakinomics,"
and have, say, statistics to back up my theories, but I think I'm on
to something here. As the housing market slips slowly downhill,
housing developers are reluctant to lower their prices because they
don't want the people who already bought into their development to
feel like chimps. So, instead of lowering prices, they keep offering
more upgrades for the same price. Granite? You got it. Hardwood?
It's yours.

Which brings me to Starbucks. Espresso drinks are luxury items, and
one of the first things that people start cutting from the budget when
things get tight. Starbucks doesn't want to lower their prices,
because that would a) make them look weak, and b) cut into their
profit margin. So the solution? Start offering free upgrades, just
like the developers. After all, the unit cost of that free extra shot
of espresso is pretty small, and it makes the customer feel like
they're getting more value for their $3.50. Which, Starbucks hopes,
will keep them coming back for their caffine fix each morning.
Sneaky, ain't they?

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