Pricing for Needs vs Desire

Coffee is everywhere, so very few operators have the freedom to charge whatever they want just because they are the only coffee operator for miles. Everyone’s pricing strategy begins with a cost-plus exercise or markup pricing but as you get to know your customers and their needs better, you develop a good sense of where your prices belong on the demand curve. Aside from costs there is a more subtle consideration at play.

It is and it isn’t about the beans but, for the sake of this discussion, let’s assume we have the same coffee across a broad spectrum of customers. What you pay for a coffee in a styrofoam cup at a petrol station outside Colesburg at four in the morning is not the same as what you expect to pay for that same coffee in the afternoon, sitting outside on the patio at the Mt Nelson Hotel (Americano R35).

Needs vs Desire

Yes, overheads are relevant to what you charge but it doesn’t end there. That petrol station outside Colesburg is open 24 hours and for that convenience most would be happy to pay a small premium for a cup of coffee to see them through the next six hours of driving. And that coffee at the Nelly – exactly how much value does the splendor of that place add to the price of the coffee?

In the Colesburg petrol station scenario we are satisfying a “need”; with the Mt Nelson and all it promises, we are satisfying a “desire”. A need belongs in a similar category to a staple, like bread. It will need to be priced competitively to succeed whereas a desire has far more pull and generally comes at a premium.

Whether you aim to satisfy a need or a desire: service, staff, cleanliness, product placement and ambience are levers that you can control and that affect the value of your offering. That and of course all the small extras – double shots, syrups etc.

Whether you’re a skimmer or an undercutter, if you know your customer well, then you should have a good sense of where that price sits on the demand curve, and price accordingly. If not, your customer will let you know soon enough.