The Starbucks Factor

One of the most important sections of a sales letter is the part where you deal with price.

When you introduce the price, all of a sudden your reader's buying resistance shoots through the roof. You must do something to shatter this resistance.

One technique is to calculate the real value of the product (based on, say a person's hourly rate or normal cost to attend a seminar), then slash the price so it appears ridiculously low.

Then there's "The Starbucks Factor"...

This is where you take the price of your product and amortize it over time until the price is "less than the cost of a cup of Starbucks."

I've used this technique myself. I've seen other people use it too.

But my inspiration for this blog post comes from Nora Ephron's newest book I Feel Bad About My Neck. On page 66, she talks about the ridiculous amount of money she paid for her apartment at the famous Apthorp building on the Upper West Side of Manhattan in 1980.

Watch as she takes an emotional decision and justifies it using "The Starbucks Factor":

The rent was fifteen hundred dollars a month--which was, by Manhattan standards, practically a bargain. Trust me, it was. In addition, I had to pay the previous tenant twenty-four thousand dollars in key money (as it's known in New York City) for the right to move in. I didn't have twenty-four thousand dollars. I went to a bank and borrowed the money. No one in the building could believe that I would pay so much in key money for a rental apartment; it was an astronomical amount. [...] It seemed to me that if I lived in the building for twenty-four years, the fee would amortize out to only a thousand dollars a year, a very small surcharge--only $2.74 a day, which is less than a cup of cappuccino at Starbucks.

This, by itself, is fascinating. You mean people not in marketing know about this principle?

A few sentences later, Ephron goes on to explain her thinking. This is even more helpful:

(I should point out that I don't normally use the word "amortize" unless I'm trying to prove that something I can't really afford is not just a bargain but practically free. This usually involves dividing the cost of the item I can't afford by the number of years I'm planning to use it, and if that doesn't work, by the number of days or hours or minutes, until I get to a number that is less than the cost of a cup of cappuccino.)

I guess David Bach is partly to blame for popularizing this whole approach to price justification. Although I'm not sure that's what he intended. He calls it "The Latte Factor" and points out that saving three bucks a day can automatically make you a millionaire.

Well, as it turns out, three bucks a day can also automatically help you sell more products and get people to spend more money.

Next time you justify price in a sales letter, think of creative ways you can make the price look insignificant. You don't have to use "The Starbucks Factor." It may quickly wear out its appeal and become ordinary, if it hasn't already.

Just think creatively and I'm sure you'll come up with a clever way to make the price of your product seem so low and appealing that your prospects will open their wallets and buy.

Comments

[drsuccess]

Great post!

I use it all the time. That said, there's also the converse.

What I've found is to use numbers in this manner: the bigger the benefit, or the lower the pain. (And conversely, when trying to teach your audience about the problem you are solving, especially when you want to agitate them, then the lower the benefit and the bigger the pain.)

Here's what I mean.

A $1,000 spread over the number of days the product will be used is what you just talked about. In this case, $2.74 a day.

But when building value at the point you are mentioning the price, you compare the price of your offer NOT against the price of a competitor's offer but against the ultimate cost of not buying yours (either of going ahead with your competitor, or of not taking action at all).

Some people call this "apples-to-oranges" comparisons. For example, let's say you know of someone who spent a lot of money in advertising a poor ad. A $500 placement here. A $225 placement there. And so on.

The total is over $20,000 paid in placing advertising , over the course of a year, that had little to no response.

Let's also say you sell a copywriting course for $1,000. Then you can compare the price of your course to the potential cost of not knowing how to write copy.

In this case, you would compare a small $1,000 investment (or more preferably, a $2,74-a-day investment) to a potential $20,000 mistake.

So which is it? $2.74 a day? Or $20,000?

It's also the same with discounts. Bigger numbers are cognitively and unconsciously recognized as "bigger" in the mind, even if it's spun in a different way. (And they also are proven in split-test results, too.)

For example, what's better: you sell a $1,000 course. You offer a 25% discount. Do you say 25%? Or $250?

The latter oftens wins in split-tests.

Another scenario: you see a $25 ebook. Do you say "25% discount?" Or "$6.25 off?"

In this case, 25% wins.

Again, the bigger the number (when it comes to benefits, such as discounts), or the lower the number (when it comes to price), the better the response.

Michel Fortin

[Ryan Healy]

Two excellent points, Michel.

1. Use apples-to-oranges comparisons.

2. When to use percentages vs. actual dollar amounts to show how affordable or how expensive something is.

[John A. Manley]

Michel, you're great at explaining things, with good examples.

I appreciate the way it's not altering the truth at all, it's just expressing it differently.

John

http://www.realitycopywriting.com

[punctuatecopy]

The Latte Effect is very useful, especially for goods and services that are meant to enjoy over long periods of time. In fact, several of the other suggestion in previous comments are great from the short-term perspective, too.

I also find that deemphasizing the issue of cost by instead focusing on continued quality and value can be an effective tool as well.

[tower defense]

I appreciate the way it's not altering the truth at all, it's just expressing it differently.