Price Perception
Linking price to Quality
The price at which you offer a product is, for some people, linked to the quality of the product. There was a famous study where 40 wine drinkers where offered the same wine in different bottles, at different prices. As the price went up the majority of people thought the wine got better.
While this experiment has been repeated many times, I always find it interesting that it is hard to find the exact number of people who had that perception. There are arguments that our brain chemistry changes once we think something is more expensive.
What I find interesting with these experiments, is those that tasted the wines and did not link the taste to price, are always left out of the equation. In the original study I read 16 people out of 40 did not choose the most expensive as the best.
Linking price to value
In an experiment with Capuchin monkeys (Are we allowed to use that word any more in South Africa? Even if we do not mention jungles?). Anyway, the monkeys were given tokens. Then students offered them grapes for the tokens.
The monkeys where then introduced to a trader. One trader held 3 grapes in their hand and the other one 1. When the trader with 3 grapes took the token, only 2 grapes where given to the monkey. When the trader with one grape was given a token that trader gave the monkey 2 grapes. Eventually the monkeys only wanted to trade with the one that gave them extra, even though the net result was 2. (If you’re interested in the talk, read or watch it here. But this one does not mention the experiment above, it goes in to other details: https://www.ted.com/talks/laurie_santos/transcript)
And your point being?
What is the point of all this meandering nonsense you say?
Well, my point is that on a biological level we are built to prefer something that offers better or equal value to what we spend. However just like we can overcome our fear of fire, to tame it, we have the ability to put price aside and perceive a using our taste buds the quality of a product, rather than rely on price as a benchmark.
We at Quaffee have always believed freshness of roast and quality of coffee should be our drivers for great coffee. While the world of retail is biased heavily to the bulk and loyalty purchasers, we have never played that game. We are so enthusiastic that there are other people out there, like the 16 above in the wine experiment, that can taste quality and remove its link to price. We have always tried to stay away from price linked gimmicks. Yes, for the 26 out of 40 people these are things are needed, but we have always felt driven to offer quality at a good price. Should you buy 250g or 30kgs are time, as long as freshness and quality are what you are looking for. And for the others where price is a driver we still offer the budget coffees, since we also need to keep the lights on.
Price Increase
Which brings us to the fact that we will be increasing our prices along with the VAT increase. However, unlike VAT this will not be a uniform increase. We last increased our prices in March 2016. Since then, what has happened in coffee and South Africa:
- The rand to dollar (which is how we buy coffee) has stabilized and improved, and we hope will continue to be stable at least.
- The commodity price of coffee has been more or less flat for this period – a concern for those on the growing side of the equation.
- Some of the specialty grade coffees we have been getting from Africa and Central America have increased in price.
- A few of the specialty graded coffees from Brazil have remained at the same dollar price so now are a little cheaper.
- The minimum cost of living in South Africa has increased between 5 and 9 percent per year, so what cost R10 in 2016 now costs around R11.10 (so 10-12% increase in total).
- Rents and house prices in South Africa have increased 20-30%.
What does this mean for us? Well, beside the green imported coffees we bring in, our largest cost are salaries. Last year we bit the bullet and took low or no increases. This year I would like all that represent Quaffee to have an increase that will allow them to cope with their financial demands.
So, what does that mean for those of you that drink all the coffees that we love to share with you, and because of you we can buy and share with others.
Well it means that most coffees are going to increase in price. While the Brazilian coffees may not, the African and others probably will by between 8 and 15%.
When will this come in to effect? Like the rest of South Africa, the VAT increases over the Easter weekend. So our last trading day of the month is the 30th of March and we will be loading the new prices on the 31st of March – Easter Sunday.
In Summary
While some people look at price to determine value, we Quaffers like to taste coffee, and then decide if it is good. Good enough for all coffee lovers to drink. Price is something that is charged so we can eat more grapes, not so we can tell our mates how many grapes we could eat.
While some people have told us, our pricing does not represent the product we sell, and that we charge too little, we are always grounded by the fact that there are others out there that love coffee, and are prepared to part with their hard earned tokens to enjoy a great cup of Quaffee.
Yes, there are bills to pay and coffee to forward plan for, but money is just the token we use to do that.
We want to remain sustainable in all forms, if we pay the farmer more then we will charge more, but not so much more that people are buying it because of the price.
One more thing
Some more interesting points about Price and coffee
With the increase of demand for specialty grade coffee* world-wide (not so much here in South Africa, looking at imports alone less than 10% increase in this grade off coffee has occurred in the last 5 years), more coffees are being separated into lots, so that more specialty grade lots can are now removed from the Commodity grade lots over the last decade. This means that there has been a worldwide growth in the supply of specialty grade coffee, while commodity coffee quality has suffered (price not). I for one think this is a good thing. If the farmers are getting paid more per acre because of this then the specialty coffee industry may be the coffee industries knight in shining armour.
With this said, there is also the issue that too much separation of the good stuff out, may leave coffee in the warehouse no-one wants at the price, and that is a bad thing for coffee.
If you are interested in reading more about this debate, here are some links:
How Much Does Your Coffee Actually Cost to Produce? – https://www.perfectdailygrind.com/2018/02/much-coffee-actually-cost-produce/
Specialty or Commodity? How Brazilian Farmers Choose – https://www.perfectdailygrind.com/2016/11/specialty-commodity-brazilian-farmers-choose/
Minimum Green Coffee Prices: Common Sense or Catastrophe? – https://www.perfectdailygrind.com/2018/02/minimum-green-coffee-prices-common-sense-catastrophe/
Specialty vs Commodity: How Yield, Quality, & Prices Interact: – https://www.perfectdailygrind.com/2017/12/specialty-vs-commodity-yield-quality-prices-interact/
Footnote
*the term specialty grade coffee we have not defined here. If you need a definition google don’t lie as it has no image to uphold, so finger pointing can be avoided.
