A $2 cup of coffee?

We got the following e-mail from a reader. It is a great example of using Freakonomic thinking to make sense of an otherwise jumbled world:

The reader (who asked to remain anonymous)writes:

Thought I would send an interesting anecdote about incentives:

I go to the Starbucks in my office building twice a day for coffee. I bring a Starbucks insulated cup and most of the clerks get to know me. Apparently, though, even in the world of half-caf, double-shot, soy lattes, with only one pump, my coffee order is confusing. I rarely am charged the same price twice in a row. There is uncertainty, it seems, on the size of the cup I bring and the amount of discount I am supposed to get for bringing it. My best guess is that the proper charge is $1.68, but on any given visit, I am charged anywhere from $1.84 to $1.43.

There is a pattern, however. When a new clerk starts, I usually am charged a price in the higher range by that clerk. After a couple of weeks, the same clerk usually will charge me the right price. This seems reasonable;?cup sizes and discounts that only a few customers get take a couple of weeks to learn. But then, after another week or so, I start getting charged less. Is it my winning smile that has finally won over the clerk? I don’t think so. You see, whatever amount they charge me, I simply dump the change into the tip bin. I figure once they start remembering me as someone who gives his change as a tip, they suddenly underestimate the cup size or find additional discounts for me. To me it’s just a two-dollar cup of coffee every time, but it’s interesting to see the pattern emerge again and again.

Another question worth pondering from a Freakonomics point of view: why does our reader always put the change in the tip bin?


Amadeo

The tip system, when conducted properly, allows for business transactions between the two people at hand rather than customer and establishment. A regular tipper (when recognized) will get discounts and freebies. As many employees don't feel that companies really have concern for them. The constant tipper displays some degree of recognition that there is a person taking their order and not just a random "server". Employees appreciate the recognition and thus single you out for any benefits possible. You, in their eyes, have become a person as well and not a random "customer".

Rowan

This brings to mind for me an interesting perspective. At some point perhaps the lines of who is the actual employer to the barista begin to blur. If I were being paid by a large semi-faceless company one rate, and a nice smiling bunch of customers a higher rate. I would more than likely become preferntial to the latter. Like loopholes, discounts are out there and can be quite easily found if one takes the time to look.

Anonymous

Change is a nuisance. And the transaction goes faster. It's inconvenient to keep purse open and wait for change. Inconvenient for men to carry change. And if he/she thinks the proper charge is $1.68, then change is 20% tip.

Cookie Monster

Me always have trouble with change, me have no pockets! Also, change look like little cookies and that can cause big problems after a while. So me always put change in tip jar!

lindsey

And going to the Starbuck's ten times a week is a heck of a lot of change.

James VI

I think another question should be: Why do you Americans feel the urge to tip AT ALL?" I mean, do you get pleasure from paying an extra 20%? As a resident of Australia, I don't think I've EVER tipped at all. Perhaps this would mean that clerks in Australia would have less incentive to give a discount.

Thomas

Can someone explain the cult of Starbucks to me?

courierblue

I don't make a lot of money (this is not a figure of speech, in some years my income dropped into four digit territory), but I always tip. Less at counters and more in diners, but always. Why?Perhaps I want to defy free market logic that reduces me to a self-interested rational decision-making machine that only lives for low prices.

Anonymous

Another question from the anonymous writer's action is - why are you paying $2 for a cup of coffee that costs $0.50 to make?CW

nanoking

Where's Tyler Durden when you need him?

durian republic

Do you think they intentionally price items such that customers are more predisposed towards tipping? I mean, if the coffee costs $1.75, you're more likely to keep the quarter for laundry. For $1.68 cup of coffee, you're likely to get a quarter, a nickel, and two pennies back - heck of a lot of metal that don't worth much if you go to Starbucks twice a day. The solution - give them away as tip.

Peri

I won't spend money at starbucks anymore, unless I absolutey have to.It is funny to watch students at the WP Carey School at @ ASU throw good money away at the Starbucks located in the heart of the business college. My two dollars can be better spent.They ask so much for a cup of coffee, they ought to be able to pay their employees very well.I'm saving my change for my retirement.

lefty_grrrl

I work at a large coffee corporation. I appreciate tippers because that tip money puts gas in my car. In the midwest, baristas start at $6.75/hour; not exactly well-paid. However, the mighty coffee company pays for all hourly employees who average roughly 20 hrs a week to have health insurance, which starts after 90 days of employment. Not bad, and rare in the service industry. We also get a 401(k)- with matching - after a year, discounted stock prices, a 30% discount & health benefits for our spouses, domestic partners (no matter their sex), and children. If you want to know more about benefits, ask a barista b/c there are many more than the ones I've listed. And, we get a free lb of coffee every week. (Sometimes, I've given mine to my favorite customers b/c I don't drink coffee at home.) Yes, the coffee is expensive, and sometimes I feel like I work at a drug clinic. But, I do take pride on remembering regulars' quirky beverages & making them to perfection. I like to be recognized for the personalized service I provide each customer, regardless of their "level" of drink. However, tipping isn't obliged. If someone doesn't tip, I don't feel stiffed. But if you get one of those half-caff, 2 pump vanilla, organic milk, no foam, xtra hot, 3 splenda lattes 3x a day, you should tip us - especially if I remember your drink. I'm treating you like you matter; expecting the same treatment from you is not unreasonable. The giant company encourages us to give free drinks to people who are having a bad day, are celebrating a birthday, or for any other reason that may ensure that the customer leaves our store satisfied. Don't ask us for free drinks, though - it's a turn-off. And, if we do give you a free drink, tip us anyways - it makes us feel appreciated, & we will remember your thoughtful act. Won't you remember ours? By the way, were you aware that "barista" means "bartender" in Italian? Do you tip bartenders? Even if they only pull a lever to fill your beer mug? Or use an opener to remove a bottle cap? Yes, you do. They provide a personalized, attentive service to you. So do I. If you're rude to the bartender, they'll forget you exist, or will be too busy to get to you. Caffeine addiction is not the only reason Starbucks is thriving - it's the appeal to the customers' need for personalized attention that keeps you guys coming back.

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Huffa-Puff

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Anonymous

yes looks like tipping is not important for some people,That's because they've never worked on the other side of the counter or their monthly wages are 10 salary/light/years times higher than a b-artist.Save the bartenders and baristas, The cup for donation is at your left.by the way, starbucks and any other coffee houses make a disgusting brown tinted water, far far away from the real italian xpresso,My advice, buy your own coffee machine, you will save money, and free some disk space in the servers.

kanagawa

Another question worth pondering from a Freakonomics point of view: why does our reader always put the change in the tip bin?The reader puts all his change in the bin so that the clerks will charge him less for coffee, of course. :-)

Anonymous

My guess is that the professor was not asking about why the reader (r) tips at all but why r tips different amounts/percentages based on the amount of change r receives. I think it's because of r's 'mental accounts' where change from the coffee has the same value regardless of whether it's $.32 or $.57.

pursegirl

I understand the convenience of Starbucks being in your building, but why support a corporate, hometown wannabe? I hate the created ambiance of the fake chic stores/restaurants/coffe shops,bookstores. At Anthropology you can get fake old books for about $40 each. Or you could spend a day garage saleing and getting to know your community and find much cooler, authentic old books for around a dime. Or free. I have to say I hate Starbucks. I also hate coffee. I do love a Chi latte with soy, however, and choose to walk across the street to La Prima Tazza, a truly hometown coffee shop where you can fill your own cup and take it to the independent theatre next door- instead of frequenting the Starbuck directly opposite my office door. This Chi does cost me $2, however, as I too leave the change in the tip jar. I do it because I want to pay extra for the fabulous way in which MY barista offers up my fave drink. And for how much they love what they are doing. And because they go next door to the local brew pub after work and probably spend all their wages knowing me and my friends. In other words, theri paycheck (and tips) come from my town, and mostly stay here. God forbid a town perks up by the name of Starbuck. Keep on tipping.

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rationalexpectations

It appears as though this coffee drinker is sincerely altruistic. Is this rational? Apparently, men are more altruistic when its cheap and women are more altruistic when its more expensive. Mens demand curves are more price elastic than womens...

Anonymous

A waiter's income in the US is based on tips. He or she receives a very small base salary - $2.15 an hour in Texas but higher elsewhere - and then actually makes his or her money on tips. In most other countries, waitstaff live off a salary from the restaurant and might make a little money from tips. That's why service is generally better in America.