McDonalds Iced Coffee and shifting the criteria

By Rajesh Setty on Mon 14 Jul 2008, 8:29 AM - 6 Comments

On Saturday, I wanted to have a cup of coffee. There was a long line at Starbucks (makes one wonder why they are closing 600 stores) and I was not in a mood to stand in the queue. Next door was McDonalds. I had read advertisements about their new flavored ice coffee and decided to try it.

There were two choices and the person asked me what size coffee I preferred – “Medium or Large” and I said “Medium”. Then she looked at me as if I was from another planet. I thought something must be wrong and looked at the board. The two choices were:

Medium – for $1.89 + tax

Large – for $1.99 + tax

The difference was 10 cents. I asked whether I was one of the few who had ordered a medium drink. She said “You are the first one today” and in her mind, she must be thinking – “Yes, you are. Moron!”

Thinking about it, it just doesn’t make logical sense that for a lot more coffee they just want only 10 cents more. Obviously everyone is picking the larger version. Why would they not – it’s only ten cents more and a lot more coffee.

Why would McDonalds do this?

Well, there has been a lot of research that has gone into this field. Let me explain it in simple terms and then point to a research study.

Iced Coffee is new to McDonalds and hence there is no precedence for the customers to find out whether it is priced right or not. They can’t compare the price of an iced coffee to the price of a burger. So if they introduce only one size with one price, the chances are you will let the consumers guessing whether it is rightly priced or not. By shifting the criteria intelligently, you are now asking the consumers to compare the price of a medium iced coffee to a large iced coffee. And making a typical consumer think – “Wow. the large sized iced coffee is a deal”. In this whole process, the consumer has forgotten to question whether the iced coffee (medium or large) is priced in the right range in the first place.
Dan Ariely explains this concept beautifully in his book Predictably Irrational (website, book) where he talks about “Why Everything is Relative even when it shouldn’t be” in the first chapter. For a deeper discussion on the topic, please refer to the book and other works of Dan. You will enjoy reading about this and other research findings by him.

Have a great week ahead!

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Posted in the Business Models category.

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Fabio Rocha on July 16th, 2008

Very good post! But maybe I missed you in some point.. the whole comparison thing is great and the way stop guessing whether it is rightly priced or not is really true. But if you were going to get an Iced Coffee anyway, despite of the comparison thing, the large coffee was indeed a great deal, wasn’t it?

my 2 cents..

admin on July 16th, 2008

Fabio, thank you so much for your question.

You are absolutely correct that if I have decided to take iced coffee – larger one (10 cents more) will be a great deal. Personally, I thought I won’t be able to consume that much coffee anyway. So it didn’t make sense for me to get a large cup just to throw away a portion of it.

Also, the point here is that McDonalds moved the conversation from “Is the coffee priced right” to “Which is the better deal” cleverly. That is where shifting the criteria comes.

I can’t say it as well as Dan Ariely does it. So you will enjoy reading his work to get more.

Have a wonderful morning.

Best,
Raj

Dan Hawthorne on July 16th, 2008

This is one of the things about human beings that I’ve always found terribly interesting. We tend to think that our memory is a lot like a camera, snapping accurate pictures of everything we see and experience. However, it’s much less clear.

We like to have things to compare to, and we almost need them. Your comparison post makes me think about that common illusion about the moon. You walk outside and you see the moon low on the horizon and exclaim, “Wow! The moon is huge tonight!” But, in reality the moon is the same size as when it’s high in the sky. The only difference is that you have ground objects near it to be able to compare to. And when you have some comparison, it looks larger… much like a cup of iced coffee.

Charley on August 20th, 2008

The price of their coffee is great, but the consistency of how it is prepared is not. Everytime I have placed an order for the same flavor, it tastes different each and every time. I also find that not every employee is trained in how to prepare their iced coffee. So you place your order and you must wait for the “trained” employee to come fix it. It is rediculous. I have taken back some coffees I bought on my way to work because once I got to work and tasted I found I could not drink it. So I returned it after my evening shift to have it replaced by a supervisor. They need to do something about the training and mixing of the drink. For those with very perceptive taste buds, it does make a difference on how it is mixed.

coffee on February 1st, 2009

if you want a good laugh, then google McDonald’s iced coffee and read some of the stories about it’s aftereffects…

Rajesh Setty on February 1st, 2009

Coffee,

Welcome here. As you can see, I used McDonald’s coffee to make a point about pricing models – the post was NOT about whether McDonald’s coffee was good or not..

Thanks again.

Best,
Raj