According to 80/20 Economics, Starbucks is guaranteed to have at least one customer who spends $537. This will happen today, tomorrow and the day after that.
So what are these top-spending Starbucks customers buying to the tune of $537? Hundreds of lattes? No. They buy a few lattes, a couple of scones and an espresso machine.
Starbucks website offers two espresso machines: one sells for $275, and one Rolls Royce of the espresso world goes for $2,699.95. This price differential is no accident. It’s what 80/20 Sales and Marketing author Perry Marshall calls the Espresso Machine Principle, and it is a paramount strategy to any successful business.
The Espresso Machine Principle operates on the idea that there will always be customers at the top of an 80/20 Power Curve who are willing to spend more money for a better quality product. If you want to make more money per sale—and avoid bankruptcy—you cannot assume all of your customers are equal. Starbucks would be out of business if they only sold cups of coffee ranging from $1 to $5.
The Espresso Machine Principle also applies to non-caffeinated fields. It applies to anything you might want to sell. Think about hotels with $1,200-per-night suites or international flights that offer $10,000 first-class seats and $20,000 luxury sleeping pods. That price tag bodes a little better for the airline’s bottom line than the $385 seat in coach.
This concept is not only about selling to affluent customers. The principle of the espresso machine applies to all aspects of sales, including the cost of the product, how often customers repeatedly buy the product, how many units the buy at once, and even people who often buy a high quantity of units.
If your website sells only one candle or book or scarf for $29, you’ve narrowed a customer’s urge to buy the product and propensity to spend money down to 100:1. You’re cheating yourself out of buckets of money. Instead, you should offer products that sell for $29, $290 and $2,900. This will widen your customer base and double your sales. Businesses that do not have product offerings spanning a 100:1 range miss hundreds of opportunities to sell to their existing customers.
The key behind 80/20 economics is that at any given price point, 20 percent of the customers will spend four times more money. This doesn’t mean you could sell a cup of coffee to one customer for $1 and an identical cup to another customer for $10. But, there will be customers who want to pay $4 if the coffee is higher quality.
When people spend money, they are looking for an answer to the question: “What problem can you solve that nobody else can?”
In the case of Starbucks, they solved the problem of a boring brown liquid served in a paper cup. They created the concept of gourmet coffee in a luxury environment with decadent ambiance—cappuccinos and lattes, jazz and comfy couches. Any business, whether it’s insurance, metal stampings or jet airplanes, can be transformed into a luxury option to draw out more top-spending customers, the same way that Starbucks transformed coffee.
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