Many coffee shops already have loyalty cards, where each 10th coffee is free. This is going further (way further) in the same direction: offer a monthly all-the-lattes-you-can-drink subscription! Consider that repeat daily business is the name of the game for these places, and it’s a wonder that we’ve never seen it tried - can anyone figure out how to price the subscription to maximize revenue?
A few thoughts:
- You’d have to tie it to an individual and make it non-transferable. I think you could profitably supply me with all the lattes I can drink for a fixed price, but there’s no way it’s profitable if I buy a single subscription for my entire office.
- The right price from the consumer’s point of view would be a bit less than the cost of 18 lattes (5 per week x 4 weeks/month x 0.9 to account for loyalty cards).
- The right price from the coffee shop’s point of view is higher than that - they’re taking a risk that I won’t start drinking three a day. I imagine they can do this because the marginal cost of making more lattes is small compared to their huge fixed costs.
- In exchange for this risk they’re getting guaranteed revenue, in advance, and the guarantee I won’t ever step foot in a competitor’s shop. You can have two loyalty reward cards and go to whichever shop is closest, but there’s no way you’d ever buy two subscriptions to competing shops.
- To mitigate the risk of abuse you could ignore the one-a-day market and target only the two-a-day heavy purchasers (since there’s an upper limit to how much coffee it’s practical to consume). Price it below what it would cost to buy two a day for a month. You’ll probably convert a bunch of your one-a-day drinkers to the subscription for a little more.
- You could market this as a conspicuous luxury item: make it a nice thick golden card that status-seeking scum-sucking yuppies will proudly flash at the register.
