Recently, Starbucks began testing a $1 cup of coffee in the Seattle market as well as free refills. This move is intended to help Starbucks compete with big chains like McDonald's (long known for its own $1 menu) and Dunkin' Donuts. The strategy is also a way to continue building relationships with customers, some of whom might be growing tired of $4 coffee every morning. (Disclosure: My agency has done business with Starbucks Corp. in the past.)
Starbucks' move got me thinking about the power of a single dollar in today's economy. I can easily buy a hamburger, a doughnut, or a cup of coffee with just a dollar or two in my pocket. I get instant gratification (although not necessarily sound nutrition) and barely think twice about the expense. For lower-income individuals, the economics of spending a couple dollars are different but still represent a viable buying strategy. So, I walked over to Starbucks and bought a cup using the spare change on my desk.
What if I wanted to sit at my desk instead and spend that dollar? Which Web site would I go to and be able to click, spend, and receive relatively instant gratification? I could try buying an article at some media sites, but most content is available for free (or part of higher-priced premium subscriptions). I found Four Seasons General Merchandise when I searched for "dollar store," but it seems to be a wholesale operation. I noticed in my search results that I could buy a Dollar Store franchise as well. But there weren't many things to buy for a dollar online.
I went over to eBay and found a lot of items for $1, but after shipping and handling they usually ended up costing about $10. I can buy software for $0.50 at Click Cool Deals, but I still have to dish out another few bucks for shipping and handling. Fundamentally, there's no place online to get a fast $1 deal.
Why does this matter? It's easy for Web marketers to focus on the fact we have a remarkably low cost of sales compared to the brick-and-mortar world and we can endlessly test and optimize offers. But we sometimes lose sight of the fact that spontaneous, inexpensive, and quickly gratifying purchases rarely happen online. The power of the $1 menu the retail marketer can wield is outside our grasp.
Online marketing is a very low-friction model, but it isn't perfect. Consumers still need to eat and drink and buy cheap socks for their kids ($2 a pair in the deal bin at Target). Most Web marketers might not even consider this an issue; they're focused on higher priced goods and higher values. Plus, transporting an item from seller to buyer is always going to add significant cost to the transaction. It doesn't cost me much to walk across the street to Starbucks for my $1 coffee, but I suspect the price would be much higher if it were delivered to me.
Let's take for a given that the economics of doing business online will never be the same as for doing business offline. Yet there are still opportunities for improvement. Online auction giant eBay recently restructured its pricing model to help both buyers and sellers make money and get the best prices. Sellers now don't have to pay until they sell something. Fundamentally, it brings more goods to the marketplace at a reasonable price. Not quite the $1 cup of coffee, but a step in the right direction.
Take a look at your business and think about a $1 menu. What would that look like if you could deliver it? How would you need to change your infrastructure to make it happen, and how would it impact your business? Marketers must look at customer expectations holistically when considering new offers and new business models.
Taking action based on data is an ongoing, ever-changing process. Online analytics and optimization give us great insight into customer behavior and the ability to test everything. What they don't give us, however, is a way to tap into the change rattling around at the bottom of a customer's briefcase. Whether we really want to go after that change is debatable, but the reality of potential new revenue hiding in every nook and cranny is not.
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In 1998, Shane co-founded ZAAZ to advocate a different approach to Web services — one that respects and delivers on the power of the individual and the promise of Web technologies. As CEO, Shane leads the company's long-term strategic vision of working with leading financial service organizations, consumer brands, startups, non-profits, and community-based organizations, helping each realize the potential of the Internet and its meaningful impact on their business.
March 19, 2014