There’s an interesting article in Reuben Swartz’s Dollars and Sense: The Pricing Blog entitled: Why Starbucks Coffee Is Cheap that presents a rational and explains that “if caffeine is what you want, and you want it in volume, Starbucks is your low-cost provider“.
While that may be true as far as ‘pricing’ is concerned in the total realm of “caffeine providers” which includes Coke, Pepsi, Red Bull and amongst others is that really what people”buy” when they go to Starbucks? I drink nothing but de-caf regardless of whether it’s soda or coffee but I still prefer Starbucks and my local cappuccino bar to the coffee from my local delis, bagel shops, and other establishments.
So what am I buying and what am I paying for?
It’s the “Experience” I get. If Caffeine is a commodity and as long as the consumer views it that way then Starbucks is one of the low-cost providers (I think the delis and bagel shops beat them there and are the ultimate bottom line leader in the low price for caffeine category) when compared to buying Coke, Pepsi or some energy drink. But in their book The Experience Economy: Work Is Theater & Every Business a Stage author Pine and Gilmore describe something different that often goes on and certainly takes place for me when I buy my coffee in that I’m buying the ambiance and “eatertainment” as the authors describe it of the cappuccino bar. In fact, I’m not only not buying the caffeine I’m also probably not really buying the coffee either. I buy my coffee in Starbucks and my local shop, Perks, because of the experience it gives me. I’m buying it there for the way it makes me feel.
I agree that the real driver of Starbucks’ pricing power is the experience. I was just pointing out that for the disturbingly large number of people who drink 3 “vente” coffees per day, Starbucks may be an economical choice. 😉