Beanavioral Economics

Beanavioral Economics | Coffee Cup

If everyone is comparing the price of their product to a cup of coffee, what does a cup of coffee compare itself to? And what might that mean for fundraising?

In this blog Omar Mahmoud, Chief of Global Knowledge at UNICEF International, explores how brands use comparisons, especially with coffee. He also identifies some learning for fundraising from this approach.

Join Today for less than a cup of coffeeYou can have amazing skin care products, join a fitness center, get insurance coverage, use the city’s public transport, join the staff union or make a donation for less than the price of a cup of coffee. It seems that we are getting fed-up with our usual currencies (Dollars, Euros, Pounds, Francs, etc.) and inventing new currencies; digital currencies, virtual currencies, cryptocurrencies, and now caffecurrencies. As Bernard Ross quipped “Coffee is the new currency.”

As is usually the case, the evolution of a trend leads to product segmentation, so now you can get an insurance for less than the weekly price of a latte.

I am awaiting a sign saying “You can get the basic product for the price of an espresso, the premium one for a cappuccino.”

Lessons from Coffee

Framing and Benchmarking

You can get AMAZING skin care products for less than the cost of a cup of coffee!In an established category such as soap, chocolate, or toilet paper, people know what the range of prices is, and can therefore judge whether an item’s price is low, average or high. If a marketer wants to sell at a high price vs. the category norm, they try to create a sub-segment within the category, often labelling their brand as Premium, Super, or explicitly placing it outside the category (e.g. Dove is not a soap). Another technique is to put it in a context outside the category, thus changing its frame of reference. That’s why Nespresso capsules are not sold in supermarkets to avoid an unfavorable price comparison to instant coffee. A shower gel placed next to soap, in the cleansing products section, would seem expensive. A shower gel placed next to skin care, in the beauty care category, would appear reasonably priced.

Coffee brands give themselves a variety of names, often without using the name coffee; Ristretto, Espresso, Cappuccino, etc. Milk becomes Latte. Sweet turns to Dolce (Can you already see the Italian fountain in Rome?) And introducing celebrities; new teas now carry the Oprah name. Use the famous scarcity technique by introducing “Limited Edition” coffees. These are all ways of reducing the chance of consumers comparing their prices to, ironically, a cup of coffee.

Fundraising Implication: Make your organization stand out from the crowd. Branding, innovation and differentiation, ensure the category doesn’t become commoditized. If not different, at least make it distinctive.Offer different options of financial support; one-off, regular donations, buying real or virtual gifts, etc.

Life insurance is cheaper than you might think…Tea is not coffee: The psychology of a drink. People have two reasons for doing anything; the declared logical reason and the deeper, stronger, psycho-logical reason. Logically, we drink coffee to wake-up and to boost our energy. Psychologically, coffee is a ritual that gives order to our often-chaotic day. The morning coffee announces the start of a working day. The late morning and early afternoon coffee breaks are our declaration of a need for a quick rest and change of pace. By the way, one story says that the coffee break was invented through an advertising campaign by behavioral psychologist Watson, for Maxwell House. Coffee can be an expression of a need for intimacy. We usually drink coffee in a cozy place, not in wide-open surroundings.

It’s an experience, not a product: A purchase of a product or service can be a transaction (an exchange of money for a product/service) or a relationship (a transaction intended to be the first in a series in which both parties gain and are willing to continue communicating).

Fundraising Implication: Identify the psychological drivers of donating, not the logical stated reasons such as wanting to do good, give back, make the world a better place, etc. Explore the deep emotional drives starting with survival, power, control, belonging, fear, anger, and ladder up to higher motivations such as fairness and justice.Link the deep unchanging motivations to the contemporary cultural trends and hot issues.

Home security for less than your morning coffee…Coffee Brands, not commodities: Like many products that become commonplace, coffee faced the risk of being perceived as a commodity, making people believe all coffee is essentially the same. However, coffee makers and café managers were aware of such a risk, and therefore made every effort to ensure their brand is distinctive, even if not truly different. They did so by creating their own brand tag line, varieties of coffee with special names, new sizing options (e.g. Grande, Venti, Trenta, Mini, etc.). Asking what those terms mean would be a sign of lack of sophistication.

Variety– For every occasion its own coffee; cappuccino in the morning, café latte later on, espresso after lunch, and a café Viennois as a special treat,

Thinking of Pricing drives innovation, variety and upgrades:

There is only one main rule in pricing commercial products; charge as much as you can (and then check if you can add a bit more).

  • There is a very broad range of coffee prices, within the same café, with the highest priced coffee indexing about 300 vs. the lowest priced coffee.
  • Most coffees (Regular coffee, Espresso, Latte, Cappuccino) come in 3 sizes (Small, Medium, Large), with 3 prices. 3 seems to be an optimum number of choices.
  • The difference between the prices of Large vs. Medium sizes is smaller than the difference in the prices of Medium vs. Small (e.g. $ 3.90 (Index 100) vs. 5.60 (Index 144) vs. 6.60 (Index 170)). This encourages those not choosing the small size to opt for the large size, which is clearly a better value for money than the medium size. The profit margin is usually higher on the largest size.
  • There is often a highly premium coffee positioned as if in a category of its own, with an emotionally laden name (e.g. Paradiso).

Fundraising Implication: Offer donors some, but not many, choices.Segment, target and profile, not only in terms of audiences, but also occasions. Occasions may be life stages, times of year, special events, or even week or day times.

Consider positioning the different donation amounts, not just as different pricing points, but as opportunities to make a qualitatively different contribution, possibly by highlighting what that gift amount can buy and do.

For less than a cup of coffee, your strata fees are covered.

Going places

Cafes offer people a third place, in addition to home and work, where they can enjoy time in a delicate balance between solitude and companionship. They could pay a much lower price for the same coffee if they drink it at home or in the office, but it won’t be the same coffee, and definitely not the same experience. People are craving change, whether alone or in the company of friends, acquaintances, or even strangers. Some cafes now offer chatting tables.

Coffee can also take us to other cultures in Brazil, Vietnam, or Ivory Coast. A morning Cappuccino transports us to an Italian coffee bar, a Café au Lait to the Champs Elysees, a Viennese coffee to Mozart, and a Turkish, or Greek, coffee to the Middle East.

You’re off to great places!
Today is your day!
Your mountain is waiting
So get on your way.

– Dr. Seuss. Oh, the places you’ll go!

Fundraising Implication: Make the donating experience a rewarding one, involving other donors and members of the organization. Make it like putting together a play (Interactive, creative, working with a team, and getting recognition for results delivered), not like being part of an assembly line (Automated, impersonal, mechanical, and endless). Let an aspirational analogy drive the framing of your donating experience.Familiarize donors with the people and places they are donating to.

In summary, coffee succeeded in positioning itself in a way that is distinctive vis-à-vis all other drinks, including tea, to create an experience. The many rituals around the consumption of the product, allow companies to grow the category by introducing product variants, packages and sizes, and by offering premium options inspired by different places and cultures. It is the combination of these factors that enable coffee to charge higher prices to such an extent that today any other product seems to be cheaper than a cup of coffee!

Omar MahmoudOmar Mahmoud is a market researcher with over 30 years of experience in multinational corporations and international organizations. He is currently Chief of Market Knowledge at UNICEF International.

He has held global, regional, and local positions andworked on several global brands including Pringles, Pampers, Pantene, Ariel, Always, Oil Of Olay, Gerber, Ovomaltine, Isostar, Otrivin, Voltaren, and UNICEF. His areas of expertise include Branding, Innovation, Insights, Advertising Research, Concept Development, and Behavioral Economics.

Omar taught Market Research, Marketing, and Business Thinking at The International University in Geneva.

He is a regular speaker at universities, business schools, and international conferences and his publications include articles and award winning papers on marketing, market research, and decision making.

He is the co-author, with Bernard Ross, of Change for Good, the best-selling book on decision science in the social sector.


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