The bit about "coffee" and "$5" and "less than" and "marginal utility" have to do with the value of $5 to the average Starbucks customer reading things on the Internet, and nothing at all to do with the nature of coffee other than that coffee is not Important to people's lives.
The point of the comparison is that coffee means so little to people that the cost of a cup of coffee is a good proxy for "how much you should spend without thinking".
That it is an imperfect proxy is something that obviously will not be lost on a site full of nerds like us, but s/trees/forest/g.
Why not price the coffee at $30 then for millionaires? Surely the marginal utility of $30 to them would be similar to that of $5 to someone earning $60k? Why would one pay $5 for the same amount of gas one month and $3 in another month when the marginal utility derived from the purchase of gas is precisely the same?
Ignoring the price effects induced by the supply/demand characteristics and intrinsic nature of the good in question (inelasticity of gas demand, in this case) leads to bad pricing as much as incorrectly estimating the marginal utility of a product to consumers.
All manner of ridiculously expensive gewgaws are priced that way exactly in order to exploit the marginal utility of $30, or $100, or $5000 to millionaires.
The problem with pricing Starbucks that way is that a huge chunk of Starbucks strategy involves there being a Starbucks on every quarter, ready for any passerby be they millionaire or middle class, and while it is notoriously easy to do price discrimination within a band of $1-$10 prices, it is very hard to do price discrimination across a $1-$100 spectrum of coffee.
"huge chunk of Starbucks strategy involves there being a Starbucks on every quarter"
The other chunk of Starbucks strategy is that it's not about coffee.
Speaking strictly of the product (and not the experience which of course is equally important) Starbucks secret sauce is essentially that it is a "sugar delivery system".
I've yet to be in a Starbucks (and I"m in them every single day) where the majority of the beverages that are sold are not black coffee but drinks with a high sugar and even mocha content that are addictive on several levels.
Sure. That's why they get away with selling bad coffee. If you're going to load it up with sugar and cinammon and whipped cream and three shots of caramel the quality of the coffee is largely irrelevant.
"Why not price the coffee at $30 then for millionaires? Surely the marginal utility of $30'
If they could figure out a way to differentiate the product either in taste or image they actually could sell coffee or a coffee drink at a higher price in addition to what they are selling now.
PR wise it could prove strangely to be a bad move thought and might send the wrong message.
This is currently done with liquor to mention only one product where people pay outrageous sums of money for something that is not clearly better (taste tests of grey goose come to mind). And who would have imagined that people could charge for bottled water? Or that people would pay money for luxury ovens? Unheard of back when I was growing up.
The difference is that coffee is a completely different kind of market: producing a small quantity of very good coffee does not give you much help in producing it in large quantities without at a linear increase in the costs (and actually has hard limits based on growing conditions, available labor, etc.) whereas software can be infinitely replicated.
The price of a cup of coffee is useful only in establishing the threshold for how much money the average person is likely to spend without significant thought.
>Why not price the coffee at $30 then for millionaires?
That happens all the time, including for coffee.
Coffee at a "high end" hotel / coffee shop etc does not cost the same as coffee at your local coffee joint --while the coffee itself has marginal difference. And there are places that sell $30 hamburgers (even $1000 hamburgers).
Same for brand name clothing etc compared to lesser known or bargain brands. The cloth / manufacturing quality in tons of cases is exactly the same, to the point of both being made in the same factory in China.
The point of the comparison is that coffee means so little to people that the cost of a cup of coffee is a good proxy for "how much you should spend without thinking".
That it is an imperfect proxy is something that obviously will not be lost on a site full of nerds like us, but s/trees/forest/g.