How to Reduce the Cost of Your Product By 10x
Tips For Making A Latte Customers Happy
If you know anything about San Francisco, you know it has a buzzing coffee scene.
But the caffeine high comes at a high price.
Despite my appreciation for a professionally brewed cup of perfection, I choose to make my own lattes at home (because I also like to make rent). This means that I am on a perpetual hunt for the best — and most economical — bag of beans.
I recently stumbled upon a coffee subscription offered by one of my favorite roasters.
Expecting to see prices around the average $11-$30 per pound, I was shocked instead to see this:
I was initially unable to take my eyes off the “$156” which seemed to stare back at me in all its preposterous glory. $156 for three months worth of coffee just sounds like a lot. It’s certainly much more than what I pay for a bag of beans in person.
So what’s the deal? Is the cost of this coffee subscription greater than the benefit of convenience?
Maybe not.
What’s wrong here isn’t the cost, but the framing.
There are two behavioral economic principles at odds here:
- “FREE” is a powerful force: People will completely reverse their preferences if it means paying nothing versus paying something.
- We feel a pain in paying: It hurts to part with our money. The salience of a payment can be reduced by separating the payment from the experience.
I assume that in an effort to leverage the power of “FREE,” this coffee company then needed to associate payment with something else. What we see is the price framed in such a way that you are paying to sign up for the subscription service, not the beans you will receive every two weeks. So while the pain of paying is low with each bag of beans you receive, you are hit with a steep price up front with that classic infomercial messaging (all yours for the unimaginable low price of $156!) at the get-go.
The outcome is a mixed message.
When you calculate it out, each one-pound bag of beans is $26. While still arguably expensive, it certainly feels much more economical than spending $15 for one cup, and is certainly much lower than $156.
A better way to position this pricing model is to frame it in the lowest possible cup of coffee. Typically, a “small” is eight ounces of coffee. A pound of beans gives you thirty six small coffees which comes out to only $1.38 a cup. Compare that to the $15 8-ounce pour-over photographed above, or the average $4-$5 per cup you pay at most San Francisco coffee shops.
When it comes to framing, it’s important to think about how customers are thinking about the the service you are selling. When we sign up for subscriptions, we like to know how much we are paying for each unit of the benefit we receive (cost per month, cost per shipment, etc). It’s unfair and unlikely that you can hide the actual cost from customers.
Especially in a brewing industry like coffee, you can be sure that prospective customers will pore over all the details of their options before making a choice.
