Remember when charging $2 for a cup of coffee sounded wacky? When Starbucks arrived in cities across the U.S., it didn’t just bring a better (to some) cup of joe. It also created an environment intended to increase coffee enjoyment—bringing comfy chairs and room to sit. In most of my local Starbucks, those chairs have been replaced by less comfortable, more efficient versions—but the price point of coffee has been moved higher forever.Well, he's right about the $2 part--high priced coffee was a major inflection point (and let's not even talk about putting on a bit of whipped cream and cinnamon and charging $5.95). But I'm not sure it has anything to do with providing a nice environment, or, indeed, providing anything at all. There had been coffee shops with comfy chairs for years that simply didn't have the
There are limits here, of course. If tomatoes are going for a buck a pound at the Farmer's Market, I won't get to go home happy just by charging a buck ten. But there seem (in retrospect!) to be an amazing number of products where, if you say: "how about paying twice, five times, twenty times, what the product is really worth?"--the customer will say "oh--okay."
There's probably an impressive range of stuff for which this turns out to be true. My own pet example is still greeting cards. Children: those things used to sell for pennies--i.e., just about what, on a liberal definition, they are actually worth. Maybe the iconic genius of modern capitalism was former Nixon Treasury Secretary William E. Simon, when turned $330,000 into $66 million in 18 months when he flipped Gibson, an obscure second-tier provider of cardboard and crayoning into a first-class money machine.
The other great example, of course, is executive compensation. How else to explain, e.g., Stan O'Neal walking away from the charred wreckage of Merrill Lynch with a $160 million severance check? I love it: Stan O'Neal as the decaf soy macchiato of the corporate world.
Weber, by the way, doesn't seem to believe his own analysis. A nanosecond after that stuff about chairs, he concedes:
In most of my local Starbucks, those chairs have been replaced by less comfortable, more efficient versions—but the price point of coffee has been moved higher forever.And in any event, his real topic is not coffee, but the Kindle, Amazon's overpriced and underpowered laptop computer--the question of how, and if, it will succeed. Weber's analysis: the secret is that it is overpriced and underpowered. Go read him for yourelf.