Pricing

This is the second post in a series that I started with Trust.  I want to examine a bit more closely what we communicate and can accomplish with pricing.

I hope you don’t mind if I use two theoretical espresso establishments.  One sells a shot of espresso for 60p, they carry no obvious branding as to which coffee they are brewing.  The second place sells its espresso for £1.80, three times the price.

What is interesting about this is that the 60p shot is probably less appealing than the £1.80, but you wouldn’t necessarily expect the £1.80 shot to be amazing or three times better.  In a world where most espresso is no good, the chance of finding a great one at that price (60p) seem absurd.  1We still make judgments on coffee’s quality based on its price but we’ve learned to limit our expectations when the price goes up.  There is, however, a threshold limit to that expectation.

Imagine now a place with a £4 single espresso.  As you receive the drink you probably say out loud “This better be good.”  Quite rightly – it had better be good, because this business has made an implied promise of how good your experience will be.

Those of us in the industry are always frustrated when coffee news on blogs and news websites receive hundreds of surprisingly angry people deriding the very idea of quality coffee, angrily denouncing coffee “snobs” or mocking those businesses trying to do better.

No, what will happen is that these people will go to the training sessions and forget them very soon after. Why? They work in coffee shops and it really doesn’t matter. It’s just coffee.

I think the coffee industry has to accept that we created these people, their anger and bitterness a result of our actions.

These people have probably tried to buy a better cup in the past, and in trying to do so have probably bought a more expensive cup.  It might be that that experience was in a Starbucks, or perhaps in an independent.  Either way they were so disappointed that they still feel the need to vent that anger on message boards.

Coming back to setting prices, and what we communicate with them.  If you own a cafe then look at your prices – what do they say about your coffee?  What did you base those prices on?  Was it on the chains you compete against or was it based on the prices listed in a business whose quality you want to emulate?

At this point I want to clarify that I am not suggesting pricing coffee in such a way that it develops the tag of exclusivity any further than it already has.  I hate seeing coffee as something exclusive – I want coffee to be inclusive.  We need to drive consumption, as higher consumption of better coffee is pretty much a win/win for everyone in the chain – from consumer back to producer.

That said I do want to wrap this post up by saying that I think we often fail to communicate properly through our pricing.  One of the last things we think about is: “What is this cup of coffee worth?”

  1. It is worth noting that a few places in London that do great espresso do it very cheaply – I am not saying cheap and delicious espresso is impossible  ↩︎

12 Comments

  1. Interesting james, the point you raise about the price – quality relationship is, i think a major problem at the moment.
    I know from experience of working for small and large chains, that margin is king, and espresso in particular is an excellent way of padding that margin.
    It seems at the moment that where the chains go 90% of the independents follow, somthing you’ve alluded to in previous posts, this includes milking the shot as a cash cow in some instances and losing the focus on quality.
    Its encouraging that more and more small cafes are focussing on the quality they offer and endeavouring to charge a fair price.
    no one expects a cafe to under charge, the bills have got to be paid, but it’s nice to have espresso and feel as though you have got your money’s worth.

  2. Another very interesting post James.

    Pricing is a huge and extremely relevant issue, particularly at the moment and it clearly links back to your trust post.

    I spent some time with a client today going through all the hassles of changing his menus (both printed and menu boards) as well as re-programming his till for the new VAT rate. Let’s put aside, for one moment, the utterly moronic decision to reduce VAT and concentrate on the trust and the price. Initially he wasn’t going to bother because of all this hassle and the fact that the 2.5% really was inconsequential but to do that breaks the trust and reeks of profiteerinag and, regardless of how much hassle it is. you really want to mess with that perception at your peril.

    Charge too much, abuse the trust and appear to be greedy and you make life very difficult for yourself.

    Starbucks has changed the pricing equation for all of us. Regardles of what we may think about them they have created a pricing structure that allows us to price coffee at a level that makes sense in high street locations. The public doesn’t know the economics behind this obviously and many of them still tut and huff and puff as they work out their own “cost of making a cup of coffee” and arrive at the inevitable conclusion that we are all making a fortune in this business.

    The issue is that operators abuse this position. The classic scenario that I relentlessly see is people opening with almost no concept of how to create great coffee and a great experience and feel they have earned the right to charge “10p less” than Starbucks and then wonder why they’re out of business in six months. They think it’s fine to say “Starbucks coffee is shit, everyone knows that” and to be able to compete with some utopic and utterly delusional image in their own mind of how they run their own (shit) business.

    So pricing is absolutely vital and it’s a very complex formula. It needs to be brave but avoid greed. It needs to take into consideration competition, cost of basic product (but only a little), staffing costs, training costs, marketing costs, positioning within the market etc. etc. etc.

    Once you have developed and earned the trust then you can go about shifting and tweaking price to justify all the incredibly hard work that has gone into its creation.

    But trust and pricing is a very delicate mix at the moment and in the current climate operators need to be VERY carfeul about appearing to be greedy.

  3. I took the view that I sell so few espressos that I’d charge £1 and not worry about what I could charge for it…. I even try harder if someone orders one because I presume they like coffee more than the ‘large soya decaff latte’ crowd.

    It has of course backfired. A table of four oldies, in on recommendation, chose the cheapest coffee on the menu. A bemused Barista Boy pulled four good shots and had to endure an earfull of ignorance when they came to pay….

  4. There is a great chapter in the book “The Undercover Economist” about coffee drink pricing, which I found very interesting. A worthwhile read all round.
    The question is “How far will customers go out of their way for a great cup of coffee?”

  5. Well, pricing matters for all articles. The choice also depends on one’s affordability. Post gives good information for visitors.

  6. In a world where most espresso is no good, the chance of finding a great one at that price (60p) seems absurd. 1We still make judgments on coffee’s quality based on its price but we’ve learned to limit our expectations when the price goes up. There is, however, a threshold limit to that expectation.

  7. Pricing is something that’s always been on my mind. About 18 months ago, we started off on a six month study of our costs and pricing. On November 1, 2007, we made dramatic changes to our menu and our pricing structure based on that study.

    At our espresso bar, a double shot of espresso costs US$2.00. A cappuccino: US$3.25. For some, it may seem quite a lot but when you break down the costs of the ingredients we use, it’s an appropriate amount – and is certainly more expensive than Starbucks (a necessity).

    For me, the equation is simple. We will charge these prices because they are appropriate for the quality you are receiving. Some operators look to decrease their costs by sourcing lower priced (and lower quality) product. We do the opposite: we are constantly looking for the absolute best quality we can find, and we’re more than willing to pay more for that quality and charge appropriately. It is our standard.

    Quite frankly, if we’re unable to pursue this kind of business model then I’d prefer to be out of business and back to making serious money selling my soul to the Hollywood Machine.

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