As prices go, “free” is an interesting one. Dan Ariely plays with the idea in his book Predictably Irrational, as does Seth Godin — and Chris Andersen has gone so far as to suggest that “$0.00 is the Future of Business.”
There are, of course, a lot of different kinds of “free.” Giving away a free razor or a free computer printer in order to lock a customer into buying your razor blades or printer cartridges is one model; giving away free merchandise as a pure marketing play is another.
I have a pair of stories to share about free coffee. The first was sent in recently by a reader, Etan Bednarsh of New York:
Today is Free Iced Coffee day at Dunkin’ Donuts. Attempting to take advantage, I just went on a field trip from work with my boss and co-worker. When we got there, though, the line was out the door — a very long wait. It obviously was not worth the cost of the iced coffee to wait in line for a $3 drink.
That said, we were already jones-ing for iced coffee, so we went to Starbucks and paid for Starbucks iced coffee (which I am now sipping at my desk).
This made me wonder — does the long line incurred by giving out free coffee serve as a reverse incentive, driving Starbucks to do more business on a Dunkin’ Donuts promotional day?
I am guessing that Starbucks in general doesn’t profit much from Dunkin’ Donuts running a free-coffee promo; I am guessing that Etan and his colleagues happened to be in close proximity to a Starbucks and had the time and inclination to change their plans — a sort of free-coffee perfect storm that probably doesn’t strike too many people. But I may be entirely wrong.
The free-coffee experience I had not too long ago also concerned Starbucks:
It was mid-morning and I was walking from the East Side of Manhattan over to the West Side, through the northern end of Central Park. It’s a lovely walk, especially on a cool morning, as this was.
I stopped at a Starbucks to get a coffee for the walk but found, as Etan did, a long line outside: it was free coffee day. In this case, Starbucks was dispensing free “tall” cups of coffee on the sidewalk. Because of the length of the line, and because I wanted a larger coffee than “tall,” I went inside to buy what I wanted.
But the doors were locked. Huh? I tugged again. One of the clerks giving out the free coffee gave me a disapproving look, told me the coffee was free this morning, and I should get on line. Hmm. In this particular case at this particular store, Starbucks proved to be really bad at price discrimination. Here I was, a loyal customer willing to pay good money for a product similar to the one they’re handing out for free, and they didn’t want my business. Was the promotional value of the free coffee so large that it offset the opportunity cost of telling your paying customers to get lost?
As it happened, there was a Dunkin’ Donuts nearby, but since I dislike DD coffee, I made my walk with no coffee whatsoever.
What kind of lesson does Etan’s story and mine provide? Stores should be a little more careful when they throw around free coffee. It may not be making as many people happy as they think.
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Was the idea of sipping some-but-not-enough coffee so unattractive? That you went without sounds almost like you refused them non-business, which is a strange circumstance.
Did you consider grabbing two coffees?
I went to Dunkin Donuts for free coffee as well but pulling into the parking lot, I saw people simply driving away and without the advertised coffee. By the time I pulled into a parking space I realized why. There was a handwritten sign on the door saying that the location was not giving free iced coffee as they ran out of ice.
I was going to buy some donuts to go with the coffee while there but since they had “falsed advertised” their offer, I do not see myself patronizing that particular location for my future coffee/donut fix. I am sure many people who had that experience will feel same way. Advertising and not delivering will have larger adverse affect than not running the promotion as all.
Pulling out the the driveway, I noticed a large prominently placed freezer full of ice in the adjacent beverage store.
East Coast Phil – My bank gives out dog cookies. My dogs are fully aware of this and I think it amuses the teller in the drive through to watch me fight them off so I can get my deposit slip out of the little tube.
I was curious, after seeing the result of the 23c Papa John’s Pizzas here in Cleveland, if other pizza stores and chains also saw an increase in sales just from people frustrated in the same way Brian Moore (#3 above was). Giving away 23c pizzas seemed as though it might be a PR cost to Papa John’s but an unexpected benefit to other pizza locations.
“What kind of lesson does Etan’s story and mine provide?”
The lesson is that you both should just go to McDonald’s because they don’t give out free coffee, their coffee is cheaper than non-free Starbucks or Dunkin’ Donuts, and their coffee was judged better than Starbucks, Dunkin’ Donuts, and Burger King by Consumer Reports.
This has nothing to do with coffee, but it does fit the theme of a vendor turning down free money from a potential customer (i.e. me). I work in software, and I have occasion to look at tools. Some of the tools I look at are pretty expensive (like mid-size luxury vehicle expensive for one server or one developer seat). I’ve had two vendors go through extensive proof-of-concept trials on site here, and then when I wanted to place an order, the order was refused. In one case, for a developer tool, I wanted to pay full price for just a couple of licenses. This was to start using the product with a couple of ‘real’ developers (as opposed to the proof-of-concept environment) to see if the benefits actually did provide a net gain compared to the cost. This vendor refused to sell less than some (what appeared to me) arbitrary minimum. This minimum was actually more seats that we had developers. No money for them and no software for us. The second case was for some production monitoring and performance analysis tools. Ran splendidly during the P.O.C., and I was really excited to use this product. It was outrageously expensive to use across our whole server farm, but I proposed an alternative where we’d install on a representative sample of the server farm. The paradox was that the total price of the ‘sample’ strategy wasn’t big enough to justify the discount percentage we wanted off of list price. The discount wasn’t arbitrary; I wasn’t just trying to screw down the vendor until they bled. I’d calculated what it would take to continue to build out an internal tool we were already working on and compared the benefit of that tool and when it would arrive relative to being able to use something that was admittedly a bit better and start using it right away. We just couldn’t come to terms over it. I still marvel to this day about how two vendors would invest so much time and effort (which means money through salaries, etc) in the sales cycle, and then not bother to close the deal.
In the Northeast you are never far from a Dunkin Donuts and a Starbucks. I don’t know what the density in NY is but around Boston, which is probably the highest, there is one each per 2-3 blocks. Further due to local geography and convenience factors you would expect them to be clustered close to one another. I wouldn’t expect that Starbucks did better on the whole because of the free coffee, but I do expect that when the lines were long their business was greater than normal.
One of the big-box stores I frequent has dozens of registers, but only a few are ever up at the same time, even when the lines of customers waiting to pay are so long they disrupt foot traffic. I think they’re trying to push people to using the self-checkout lines.