Free coffee06 Feb 2007
I can usually form a firm opinion about a business model within a few minutes (and there are a lot of times when I'm wrong), but I just can't make up my mind about this one. I think this could either be a doomed experiment from someone who has money to burn, or a genius idea (no in between).
Here's why I think it's genius:
- The shop gets a ton of publicity, especially compared to the amount of publicity that any old locally owned coffee shop opening up across the street would get (zero).
- They will attract a lot of new visitors who want to use the experience as a psychology experiment: "would I feel too guilty if I stiffed the shop on payment?" This woman felt so guilt for not paying, she drove back and paid double what she would have.
- Their overhead involved in coffee sales is very low, and there's a lot of potential for high ticket, high margin ways to make money of customers sitting around in your store drinking inexpensive coffee.
Here's how it could fail:
- When the publicity and novelty wears off, only the customers who are attracted by the possibility of low/free prices would remain. The customers who would gladly pay $5 for a cup of coffee would do so because of the quality of the product or the setting, which might not necessarily be at Terra Bite Lounge.
- Owning a coffee shop sounds a lot more glamorous than it really is. Even if the experiment is initially successful, the owners are still left with a coffee shop to run.
- They're battling Starbucks, who has 11 stores in Kirkland, WA (population 45,000). Starbucks is already winning their battles against local coffee shops, and they're doing so in spite of having higher prices.
Of course, if the owners do have the money to burn, then there's no fault in running the experiment. And they're pledging to donate profits to charities, so that would be a win-win if successful.
What do you think? Doomed experiment or genius business model?