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!