retail news in context, analysis with attitude

by Kevin Coupe

There was an intriguing piece on the New York Times website over the weekend that dealt with the recent decision by Starbucks to increase prices in the northeast - but did so from an unusual perspective, focusing on how decisions can affect consumer perceptions in unexpected ways.

What has happened in New York City is that the price of a tall coffee has increased to $1.85. With tax, it now comes out to $2.01.

So much for the death of the penny, something that often comes up when people try to figure out how to cut money out of the federal budget. (It costs 2.41 cents to make a penny, the government says.)

“It’s the stupidity of it,” one customer tells the Times. “It’s what I’d call ‘the annoyance factor.’ It’s ridiculous. Why the extra penny? Who has pennies? Didn’t anyone think this through? Couldn’t they round down or even up? Why leave it at a penny?”

Which is a good point. Except that a Starbucks spokesman tells the Times that the company is aware of what a tall coffee costs in New York City, and that it “wasn’t an accident.” In addition, the company says that “only a small proportion of customers buy just a tall coffee when they visit a Starbucks, and that an even smaller proportion pay in cash.” So it isn’t really much of a problem.

Except for the people who want a tall coffee and want to pay cash.

I have no idea what the right thing is to do here. Charge $1.84 for a tall coffee? Eat the penny on every sale?

But the larger point is an interesting one. Call it the law of unintended consequences, but it is fascinating to see the turn that this story took. Starbucks raises prices, and the complaint seems to be less about the increase and more about the fact that it inconveniences some shoppers ... a complaint that no doubt is being vocalized on various websites and now in the New York Times.

It is just a penny. But really, it can be much more than that. And that’s what marketers have to think about these days.
KC's View: