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The Perils of Free Coffee

As prices go, “free” is an interesting one. Dan Ariely plays with the idea in his book Predictably Irrational, as does Seth Godin — and Chris Andersen has gone so far as to suggest that “$0.00 is the Future of Business.”

There are, of course, a lot of different kinds of “free.” Giving away a free razor or a free computer printer in order to lock a customer into buying your razor blades or printer cartridges is one model; giving away free merchandise as a pure marketing play is another.

I have a pair of stories to share about free coffee. The first was sent in recently by a reader, Etan Bednarsh of New York:

Today is Free Iced Coffee day at Dunkin’ Donuts. Attempting to take advantage, I just went on a field trip from work with my boss and co-worker. When we got there, though, the line was out the door — a very long wait. It obviously was not worth the cost of the iced coffee to wait in line for a $3 drink.

That said, we were already jones-ing for iced coffee, so we went to Starbucks and paid for Starbucks iced coffee (which I am now sipping at my desk).

This made me wonder — does the long line incurred by giving out free coffee serve as a reverse incentive, driving Starbucks to do more business on a Dunkin’ Donuts promotional day?

I am guessing that Starbucks in general doesn’t profit much from Dunkin’ Donuts running a free-coffee promo; I am guessing that Etan and his colleagues happened to be in close proximity to a Starbucks and had the time and inclination to change their plans — a sort of free-coffee perfect storm that probably doesn’t strike too many people. But I may be entirely wrong.

The free-coffee experience I had not too long ago also concerned Starbucks:

It was mid-morning and I was walking from the East Side of Manhattan over to the West Side, through the northern end of Central Park. It’s a lovely walk, especially on a cool morning, as this was.

I stopped at a Starbucks to get a coffee for the walk but found, as Etan did, a long line outside: it was free coffee day. In this case, Starbucks was dispensing free “tall” cups of coffee on the sidewalk. Because of the length of the line, and because I wanted a larger coffee than “tall,” I went inside to buy what I wanted.

But the doors were locked. Huh? I tugged again. One of the clerks giving out the free coffee gave me a disapproving look, told me the coffee was free this morning, and I should get on line. Hmm. In this particular case at this particular store, Starbucks proved to be really bad at price discrimination. Here I was, a loyal customer willing to pay good money for a product similar to the one they’re handing out for free, and they didn’t want my business. Was the promotional value of the free coffee so large that it offset the opportunity cost of telling your paying customers to get lost?

As it happened, there was a Dunkin’ Donuts nearby, but since I dislike DD coffee, I made my walk with no coffee whatsoever.

What kind of lesson does Etan’s story and mine provide? Stores should be a little more careful when they throw around free coffee. It may not be making as many people happy as they think.