Economics

Starbucks' Secret Short Cappuccino

|

starbucks drip coffee

Starbucks has long offered a secret short cappuccino–the same amount of espresso in a smaller cup. The price is lower, and most coffee snobs agree that the shorter cappuccino is better and more authentic since it has the proper ratio of foam to brown sludge. But the short cappuccino (and its latte counterpart) appears nowhere on in-store menu boards or on the Starbucks website.

Why? Read this tidy economic analysis from the always excellent Tim Harford:

This is the Starbucks way of sidestepping a painful dilemma over how high to set prices. Price too low and the margins disappear; too high and the customers do. Any business that is able to charge one price to price-sensitive customers and a higher price to the rest will avoid some of that awkward trade-off….

The difficulty is that if some of your products are cheap, you may lose money from customers who would willingly have paid more. So, businesses try to discourage their more lavish customers from trading down by making their cheap products look or sound unattractive, or, in the case of Starbucks, making the cheap product invisible. The British supermarket Tesco has a "value" line of products with infamously ugly packaging, not because good designers are unavailable but because the supermarket wants to scare away customers who would willingly spend more. "The bottom end of any market tends to get distorted," says McManus. "The more market power firms have, the less attractive they make the cheaper products."…

The practice is hundreds of years old. The French economist Emile Dupuit wrote about the early days of the railways, when third-class carriages were built without roofs, even though roofs were cheap: "What the company is trying to do is prevent the passengers who can pay the second-class fare from traveling third class; it hits the poor, not because it wants to hurt them, but to frighten the rich."

For more on discrimination against and by Starbucks, go here, here, and here.

NEXT: The Real Victims of Divorce: Constituents

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  1. “We Frighten The Rich.” ™

    That’s a keeper. Starbucks should go with it.

  2. Brilliant, but not as brilliant as some other pricing practices.
    Also, why not just put the short cappuccino on the menu but not charge any less for it, or a meaninglessly lower charge? People will get confused as to why it exists and when ask will be told it’s more authentic. That’s all they need to do in order to sell less product at the same price.

  3. Harford’s whole “Undercover Economist” is worth a read. He is an interesting kind of liberal- the kind I can get along with. He is explicit about the tradeoffs in his proposals that are less market friendly, and that in itself is refreshing.

  4. As a Brazilian coffee grower once remarked, when asked if the Starbucks craze had helped boost coffee demand and prices (which it hasn’t apparently):

    “Starbucks is not in the business of selling coffee, Starbucks is in the business of selling milk”

  5. Starbucks sells milkSHAKES.

  6. I am proud that I knew about the short already. I never ordered the thing, though as it wasn’t really that big.

  7. Kelis sells milkshakes.

  8. Anonymous Bastard is correct. Realizing that ultimate truth helped explain why people were spending so much on coffee. It’s so they could buy milkshakes while claiming to be drinking coffee. My wife dropped the green-tea frappuccino with blackberry stuff when she found out that it clocked in at nearly 800 calories. Note Starbucks’ insidious use of the healthyesque “green tea” with an 800-calorie drink.

    This self-deception is the sole reason that Americans are getting fatter. No one thinks a Big Mac is low calorie. I have spoken.

  9. My milkshake brings all the boys to the yard. That’s right, it’s better than yours. Damn right it’s better than yours.

  10. Starbucks has long offered a secret short cappuccino

    Good to know

  11. Dude, I read that Slate post a year ago. It doesn’t look like anything changed recently… Why blog it today?

  12. Why does Reason post articles online (free) well after they hit the (vastly overpriced) print edition ?

    If I keep asking questions like this, do I get disinvited from the free lunch seminars?

  13. Timothy,
    Your milkshake never brought me anywhere. Just saying.

  14. Geez, that’s an old story! I thought at first Harford was beginning to recycle his stuff; but, no, the Slate article goes back to Jan. 2006. Just catching up on your back reading, Ms M-W?

  15. What if I go into the Starbucks and ax for a “short cappuccino” and they look at me like I’m retarded?

    What then?

  16. yo,

    Just wink and say “I’m cool.”

  17. Well put, Libertate. 🙂

    I was once told that Mercedes-Benz could sell their sedans for less in the US, but wouldn’t for fear of losing sales.

    (Not sure if it’s still true . .)

  18. Brilliant, but not as brilliant as some other pricing practices.
    Also, why not just put the short cappuccino on the menu but not charge any less for it, or a meaninglessly lower charge? People will get confused as to why it exists and when ask will be told it’s more authentic. That’s all they need to do in order to sell less product at the same price.

    I agree – while I understand Harford’s principle it’s still not clear to me why Starbucks would even offer the short drink if they don’t want people to know it exists.

    Aren’t they losing some sales from people would pay for the short drink (but not the larger ones) but don’t know to order it?

  19. dunkin donuts 4 ever

  20. I’m willing to bet the only reason this is on this blog is cause it was on digg not too long ago. Yesterday or Sunday, I think.

  21. I have that exact IV set up in my bedroom. I love that picture. Oh, the piece was good too.

  22. Did you guys know that McDonald’s secretly offers both the “Small Mac” and the “Eighth Pounder”?

  23. barris,

    That is untrue. However, they do secretly sell “The Whopper”.

  24. Aren’t they losing some sales from people would pay for the short drink (but not the larger ones) but don’t know to order it?

    Certainly. This is the very heart of the difficulty Harford talks about and there is no perfect solution. If they made the low cost drink known then some people who do now pay for higher priced drinks would switch to the lower priced one. Presumably that loss would more than counter the gain from attracting those who buy nothing now.

  25. The real reason Starbucks doesn’t put the short on the menu is because Americans aren’t “real” coffee drinkers. It used to be there, but nobody ordered it because it’s too strong. Americans LIKE milked down coffee. That’s why the Frap accounts for (literally) 50% of Starbucks sales.

    When the Frap was introduced to Schultz, he scoffed. He is a coffee purist and didn’t think it to be real coffee. Luckily he relented, and it has gone on to be Starbucks single biggest seller.

    Garth,
    “As a Brazilian coffee grower once remarked, when asked if the Starbucks craze had helped boost coffee demand and prices (which it hasn’t apparently):

    “Starbucks is not in the business of selling coffee, Starbucks is in the business of selling milk”

    This is true, because Americans WANT milk. Other markets (China, Mid-East, South America) have much different menues than here.

    And Starbucks HAS helped to raise the price of some coffee, but only the coffee it buys.

  26. The real reason Starbucks doesn’t put the short on the menu is because Americans aren’t “real” coffee drinkers. It used to be there, but nobody ordered it because it’s too strong.

    That explanation would make sense if they simply stopped offering it, as would be expected of a poorly selling product. But, it doesn’t explain taking if off the menu yet continuing to offer it to those who ask for it. If there are enough people who will ask for it, even when it’s not on the menu at all, that it is still worthwhile for Starbucks to sell it, then it would certainly be worthwhile to tell people about it – unless there is some other reason for keeping it off the menu besides consumer tastes.

  27. Is the Frappucino at Starbucks the same milky, watery stuff they sell in the little bottles at the grocery store? Sometimes I buy that crap when I need cold coffee in a hurry; but man, it’s awful, and sickly sweet too.

  28. Another secret drink is the crappuccino — two hollow chocolate lumps floating in lemonade. It’s True! Just give a knowing wink when ordering.

  29. Order the short cappuccino animal style. Same thing but with grilled onions used instead of roasted coffee beans.

  30. barris: Did you guys know that McDonald’s secretly offers both the “Small Mac” and the “Eighth Pounder”?

    On the other side of the scale, they also sell a single five-pound lump of poultry flesh — ask for the “Chicken Nug.

  31. McDonald’s still has the Two Cheeseburger Value Meal too, you just have to ask for it. It’s somewhere around $4.

  32. At select Wendy’s, you can still order a cup of Crystal Pepsi.

  33. I remember seeing, about 15-20 yrs ago, a statement that when the Macintosh was starting out, Apple was advised to keep their business-related software pricey, because business types would be convinced that word processors and spreadsheets for $50 had to be lousy, and ones for $100 just had to be more powerful. (With inflation since then, you can of course multiply these by several factors).

Please to post comments

Comments are closed.