College students and coffee: many argue that one cannot exist without the other. In an environment where students face academic, professional, and extracurricular responsibilities, many students rely on coffee to survive, and the sheer number of coffee shops at Boston University is a testament to that. From Starbucks, Pavement, and Saxby’s, students have a plethora of options, with each cafe receiving hundreds of customers each day. In an attempt to capitalize on this demand, coffee shops implement pricing tactics to squeeze every dollar they can out of their caffeine-addicted customers. But how effective are they?

One of these tactics, the “Decoy Strategy,” is rooted in behavioural economics and involves presenting a third, less attractive, option as a decoy to make the more expensive option seem more attractive. For example, when choosing between a Tall ($4.95), Grande ($5.45), and Venti ($5.75) Cold Brew at Starbucks, the medium acts as a decoy. While the price difference between a tall and grande may be larger, the incremental difference between the Grande and Venti incentivizes people to choose a Venti Cold Brew, even if they originally intended to get a tall.

Other examples of pricing strategies include dynamic pricing or price anchoring. With dynamic pricing, coffee shops offer discounts or sales in slower sectors or periods to attract customers. For example, to increase catering orders, Pavement heavily advertised the promo code “PVMT24” which provides a 20% discount for those who ordered catering. Price anchoring involves strategically placing higher-priced options next to slightly lower-priced items to make them seem more appealing, just as Saxbys placed their Iced Latte ($4.25) next to the Iced Vanilla Latte ($5.05) on the menu.

These tricks, among others, are just a few examples of the various strategies that coffee shops employ to expand their profits. So next time you look to an on-campus cafe for your coffee fix, make sure to watch out for these strategies to ensure that you’re getting your money's worth!

References:

Callahan, Molly. “Your Everything Guide to Coffee.” BU Today, 1 Mar. 2024, https://www.bu.edu/articles/2024/your-everything-guide-to-coffee/.

Nucleus_AI. “Exposed: The Clever Trick Coffee Shops Use to Make You Spend More.” YourStory, 13 Dec. 2023, https://yourstory.com/2023/12/decoy-strategy-marketing-tips.

Ortega, Maria. “Cafe Pricing - Strategies for Setting Profitable Prices in Your Cafe.” Epos Now, 2 June 2023, https://www.eposnow.com/us/resources/cafe-pricing/.