It's a usual afternoon with gloomy sky and little rain, having just sneaked out of work, I'm slowly sipping off my cappuccino at a Starbucks coffee bar nearby, it's indeed one of the world's greatest pleasures having time for relaxation, watching off pedestrians by passing the rather busy street in front of Low Yat Plaza, some of them carrying their new gadgets walking out of KL's largest IT mall in a very slow pace, some chit-chatting at tables near me, some with their working suits on and accompanied by their laptops, and I keep wondering how the working class could enjoy their life so well , and somehow I'm feeling they are having some Internet conference on going. I guess Malaysia is more or less influenced by the coffee cultures of those western developed countries, but somehow there's a huge distinctive phenomena between the developing countries like us and the developed western countries, that westerners would enjoy their life to the maximum despite of their job status, from general clerks, to supervisors, to department managers or maybe as CEO, no matter what position they're in they're serving they just get their fair amount of salaries, what I mean fair here is that, really fair wage rates with minimum over exploitation towards employees, so whether the job position is to be low ranking general clerks or managerial board of directors, so in those much developed countries, it's very normal to see peoples from all different backgrounds spending their own sweet time in coffee bars, whereas for a developing country like us, a relaxation at the coffee bar would seem rather luxurious, a simple words, its our luxury comparing theirs as necessity. But however I would say the rising coffee culture to be a good phenomena that we are catching up tailing their steps, despite off a Starbucks that cost nearly a 10times more in price, however, you're paying rm10 for a nice mug of cappuccino or the renowned hot chocolate, in exchange for a priceless time-slow-down shaking off hecticness, it's for you to judge whether it's a worth or no.
I'm having with me my cigarettes, a book written by Tim Harford, The Undercover Economist, and my cup of cappuccino added 4 packs of sugars to get the average-not-too-sweet-or-bitter taste, slowly sipping off the good taste of the coffee and writing this in a draft paper. =)
We all know that it's no merely a few years since coffee bars franchising industry rose to prominence and became a luxurious way of time passing entertainment for fellow Malaysians, it's also clearly that having one in almost every corner of the streets, somebody is making huge money behind all this, and I wonder how they managed to turn our random activity into necessity in no more than a few years.
To sort that out, I walked into the coffee bar, the place where the cash in counter located and had some observations. There I saw some racks, each has an open top container on them , inside were their different types of coffee beans, each type is said to be specially planted, by doing this they're passing us the thought that their coffee beans are special and nowhere else to be found, and most importantly, they're implanting an image into us that the coffee beans are the prime cost behind the whole business, but is that true? or our own conventional thinking tells us, the rent, expensive rents causes them to price their coffees at a slightly higher margin, but is that true also? Tim harford said in his book The Undercover Economist, stating it's not the expensive rents which cause coffee bars to overprice their product, rather, it's the scarcity of the product itself, which coffee bars set them on a high marginal selling price, thus causing the landlords to set the rent higher, this is simply because the landlords are not stupid and they just wanted to grab a fair share of the big pie. And those who worked before in coffee bars would probably know that coffee beans make up such a small proportion of the total cost of the business. So what is the cost that they needed to pass on to consumers like you and me? Think like this, if they simply charge you rm1 for your coffee, you would have thought that the whole coffee bar just don't have enough tables to occupy all their customers, Tim Harford says that, for restaurants business, table space is surely to be a huge business cost to be considered, the longer your customers occupy them the cost will be relatively higher too since it simply prevents the flow of new wave of customers. So it's normal to see that on restaurants menu, desserts are often expensive.
And if they are charging an expensive price on their coffee products, how would they attract the price savvy consumers? You would have think, again they would lower the price to achieve equilibrium since the price savvy consumers are purely price elastic, surely that would be a good idea, but they do not want to lose out their margins also, so from their menu I saw this little business trick that they use. They have a great variety of alternatives come to offer, a regular cup of cappuccino or hot chocolate is priced around rm10, you have the option to have some cream puffs on top of your coffee, that would cost you an extra few dollars, or you prefer adding caramels on top of your hot chocolate, that would cost you extra too, you might have thought that they are simply to offer you more varieties but what they are doing is actually to price target different group of consumers. The lavish ones simply wouldn't mind paying an extra few dollars just to feel special, and mind telling actually it's very true that every product of theirs costs almost the same for them to produce, just only they have set a wide price range, so thrify consumers like me would stick to the regular cup of cappuccino, they preserved their margins, thus they never lose out any consumer groups, how great.
I think it's time again for me to get my ass back to work, have a nice day!
