For years I have wondered why boarding a plane takes so much time. In most flights I have been on, there are 3 groups of people. First and Business class passengers, then families with young kids, old folks or disabilities, then finally all the economy class passengers. Most airlines follow a standard invitation scheme, where they invite the first 2 groups to board first, and then they invite economy passengers by row/section numbers. I, almost always in the last group, often get frustrated, trying to make my way to my assigned seat. In the article we'll explore alternative proposals to improve boardingRead More
Starbucks is definitely premium coffee, here in Asia. For a caffeine enthusiast, he has a wide set of options for picking the coffee that suits his preferences and his budget constraint. He could start off with $1.20 coffee at the local coffee shops/hawker centers, graduate to $1.50- $2.50 at the local coffee chains and then finally move on to $4-$10 coffee at the premium chains like Starbucks, Coffee bean etc.
Why do people pay so much for Starbucks?
Obvious reasons are a great assortment of choices- espresso, soy lattes, decaf, skinny etc. The outlets offer great ambiance be it for reading, meetings or dates. And of course the premium branding. Paying 9 bucks for the largest sized Frappaccino, gives you a satisfaction that you are earning just enough ;)
For a long time, the price premium ensured that Starbucks attracted only the right set of customers. Working busy people who are loyal and visit frequently, and are willing to spend on the overpriced coffee and the sandwiches. Rentals at prime locations are expensive thus a steady customer segment is crucial for their operations.
Recently, I noticed a trend in Singapore, with students flocking in coffee chains like Starbucks, Spinneli and Coffee bean, and spending extended periods of the day with their pile of notes.
An opportunity to avail the undisturbed ambiance for a small premium, seems to justify their behavior.
The once loyal customer segment is frustrated by the lack of space each time they visit their favorite outlets. Singapore is a small country after all. The outlet managers are worried by the drop in sales and often prompted to chase out the students for space, who in a few years could have been potential loyalists.
So how can Starbucks manage this situation?
Let's first look at Starbucks' objective. Drive sales and profit. Simple right. If you look at a typical coffee drinker, he starts off his day with a fresh brew, has another after his lunch, and maybe one more in the evening. Even though Starbucks offers the ocassional salad, Brownies and pastas, it's not your typical restaurant. Thus it needs the students, writers, bloggers and web designers during the lean periods of the day.
So let's think of a solution.
In a perfectly effecient world, the best strategy would have been charging customers two components, price for just the coffee and a usage fee (by mins/hours) for the experience, both priced at a slight markup above their marginal costs. However it's impossible to do that in a real world. It's a cafe not a hotel.
Can we design a more realistic solution to realize similar outcomes?
For a start, since customers are willing to pay a premium for the "Starbucks experience", take outs should be priced cheaper than normal. For instance a Decaf Latte selling earlier at $5, now goes for $4.50 at the take out counter whereas it sells for $6 inside. The take out price captures the first component as in the efficient case. This lower price also means the marginal coffee enthusiast has yet another reason to choose premium coffee over the cheaper local alternate, trading off few minutes of in-house seating to drinking it outside or most commonly at his desk.
The premium customer who decides to drink it inside is also generally the one more inelastic to higher prices, thus is also expected to order more of the sides driving more revenue during peak periods. He inturn should continue to be rewarded with loyalty points and gift cards.
Above seems like a long winded solution but we still haven't figured a way to charge the customer proportional to his time spent. A few years back Starbucks gave out session hours to their free wifi network based on the bill spent. However tethering has ruined this elegant method. And it anyways never worked for the tradition reader/student who could still function without internet.
So can you think of a better way? Do drop your comments. Thanks.
Image source: http://kncifm.radio.com/2011/04/12/a-new-study-says-your-coffee-addiction-may-be-genetic/
I often share a taxi home with friends, dropping each of them off first, before eventually reaching mine. There are days when I get off before the rest. Typically the last person pays the full bill and allocates (if he wishes to), each of the other riders, their fare share.
This fair share often varies based on the bill payer and his own logic of allocating the total fare.
Logistically, it is simpler since seldom any of us carry the perfect change and end up paying with our cards. And since the final share is always lower than what we incur traveling alone, no one complaints.
However, is there a more efficient solution? And is it equitable?
Let's first look at the fare split. Imagine if 4 of us take 4 different taxis to home, we end up paying $6, $9, $15, $18. Now taking a taxi together, costs us $30.
As a group we managed to save (48-30) = $18
Now efficiency depends on us choosing a route that minimizes the group's time as well as total spend. It is independent of the individual split. However equity does depend on the allocation methodology.
There may be many ways to do this but let us think about one specific situation. If the last person has the power to allocate the individual share, rationally, to maximize his own self interest, he just needs to give a non-zero save back to the rest. For instance charging $5.95, $8.95 and $14.9 to the rest. Since all the three are still better off than before, the last person needs to shell just 20c for his $18 ride. Obviously, assuming there are no utility gains that needs to be compensated back to the first 3, had they travelled alone. Eg. Privacy, comfort etc.
Now is it equitable? And do we see people doing this? Well, I personally haven't, because people aren't always rational. Behaviorial economics teaches us about predictable irrationality.
We are driven by guilt, altruism and morality. We are elated to see personal gains but also a lot unhappier seeing others gain more.
Let us take a stab at it again. How about distributing the $18 saves back in the same proportion as their initial travel spend, had they travelled alone. Thus distributing $18 back- $2.3, $3.4, $5.6 and $6.7 respectively with each reducing their initial travel spend by 38%.
Since the Taxi fare also captures opportunity cost of distances and waiting time, compensating the last guy more in absolute terms makes a lot of sense.
Another split logic we commonly use is passing 10, 20, 30, 40% of saves in the order of getting down. But it fails miserably if all 4 live close to each other, with the last guy pocketing 4 times more save compared to the first even if they are just a mile apart :)
So how do you split your taxi fare. Do leave your comments. Happy cabbing !