Price, Upsized

In case you haven't been paying attention, prices of coffee at Starbucks in the Philippines have gone up.

It used to be that a tall latte would cost an even Php 100 -- a convenient amount, to be sure, since there does exist a peso note in just that denomination. If only for that reason, you'll always catch me ordering some variation of the tall latte each time I'd visit a Starbucks.

But I ventured into a Starbucks over the weekend and was surprised to find that my trusty latte costed an additional Php 10 more -- inconvenient, to be sure, since I'd now have to pay with both a note and a coin. Naturally, this price adjustment wasn't limited to just the tall-sized drinks, but across the board for all drinks on the menu.

Yet what's interesting to me is how Starbucks has managed this change. When I ordered my usual (now ten percent more expensive) tall latte, I was treated to a complimentary upsize for my drink. So was everyone else: anyone who ordered a drink was given a similar upgrade to the next bigger size at no extra cost. The baristas made it a point to inform each customer that this offer was for a limited time only (it ran its course on March 6th).

On balance, it's a pretty simple and savvy move. In the short term, customers get used to paying the incrementally more expensive price and feel they're getting a discount in the process. With enough word of mouth, this promo might even have resulted in more business for Starbucks while in effect, especially among the caffeine-dependent crowd. On the other hand, customers are bound to forget about both the price increase and the promo in the long run; yet for those who remember, the resulting goodwill is priceless.

Starbucks is known for a variety of gimmicks aimed at engendering customer loyalty: free coffee when a new branch opens, baristas trained to remember your choice of drink at branches you frequent, and in this case a complimentary upgrade of your drink because they've raised their prices. There's no denying that these are only small gestures for the company; yet they are effective ones that make good business sense precisely because they strike a nerve in the consumer psyche.