Economics of Pricing

Today I read, a very interesting article over at Slate.

The subject of the article was about Starbucks' invisible short sizing for coffees. It is supposedly a better coffee due to the fact that it has a higher espresso to milk ratio, the milk has better froth due to the smaller quantity, and it's cheaper. But you won't see it on any of their menus. Why they offer it and not publicise it was what I found most interesting about the article.

A dilemma that a lot of businesses face when selling a commodity is how they price it. Too low and they won't make enough money, too high and the customer will go elsewhere. If a company offers a low priced product that appeals to everyone, who would buy the more expensive products with the higher profit margin? The trick is for the company to offer these products but make them unappealing to anybody who can afford that little bit extra.

Have you ever found yourself buying the more expensive box of tissues because you don't want to see a plain black and white box in your house? Join the club!

Tags:

• starbucks
• coffee
• pricing
• economics