Chapter 2 of Harford's The Undercover Economist talks a lot about how coffee shops and grocery stores price discriminate in order to get more money out of us. I work at a local Target store (which also contains a Starbucks) and I experience every bit of these "discriminations" virtually every day.
Let me start off by saying I work as a cart-pusher. Colorado weather, which we all love, ruins my day virtually every single time I work. Often times I come inside the building and want a nice, hot, drink to help me warm up. I then proceed to walk in to Starbucks and look at the vast amount of beverages on their menu. Don’t get me wrong, I like Starbucks (just not all of the fancy drinks), however sometimes I just feel like a plain, ordinary, cup of coffee. When I ask for this, the baristas frequently look at me like I am crazy. They can’t believe that I want plain coffee over a White Caramel Mocha Caffé Latte Frappuccino with a cherry on top. Since I am not a huge fan of all the fancy drinks, I don’t regularly fall victim to Starbucks high prices. However, many times I see people order the same, complicated, overpriced, fancy drink that the person in front of them ordered because they want to feel special. As Harford says “I feel very special” when referring to getting the White Chocolate Mocha over the regular Mocha. They do just as Harford says in getting “Turkeys to Vote for Thanksgiving.” They simply take basic products, add special features to them, and charge a premium for those features.
Target has done virtually the same exact thing as Starbucks in terms of price discrimination. Usually when we go grocery shopping we will see a few name brands of a certain product, as well as a store brand. The store brand is almost always cheaper. However, target has taken this to a new level. They created two store brands. Market Pantry is their brand for the ordinary items and Archer Farms is the name they use for the premium items. However, the items are almost always identical except for a small detail here and there. Noodles are a perfect example of this. Market Pantry noodles come in regular plastic packaging, and look like normal noodles. Archer Farms noodles come in fancy packaging and come in different colors. All target really did, in this case, was add some food coloring to the noodles and change the packaging. Then they significantly marked up the price. I’m sure that many people purchase the Archer Farms noodles not because they are better tasting, but because they give people the feeling that they are more “upscale.”
On a side note, the example that Harford uses about discounts at Disney World, if you live locally, also applies to my work life. Target tends to charge somewhat higher prices than its main competitor, Wal-Mart. To counteract this, Target offers its employees a 10% discount on all products purchased. There is a catch. These days, most people pay using debit or credit cards. In order to get your employee discount, you have to pay either with cash or a Target Credit Card. Target conveniently has an ATM by the registers, which is mostly used by employees (Target probably makes a profit off of the ATM fees). Also, the interest rate on Target Cards is very high. In most cases it is a whopping 23-29 percent. So even though employees get 10% off up front they end up paying more than that back in interest if they use a Target Card.
The above are just a few examples of how grocery stores and coffee shops pick our pockets!