Steps to build your own café

Psychology plays an essential role in bringing in and retaining customers for any business.

Meet TeX, who has graduated with a degree in psychology. He started his new café named “Brewed Illusions”. Let’s get into TeX’s mind and understand his plan to get that money in.

Brewed Illusions

Tex: Hi I’m Tex, so I’m going to tell you how I strategically planned everything out.

Let’s start out with pricing. Coffee would be the most popular seller; I’ve planned three sizes: Petite, which costs $3 for 150mL, Majestic, which costs 4.5$ for 225mL, and Grand, which costs $5 for 300mL. There is no 4$ choice, and this lack of symmetry prompts shoppers to consider value for money. The volume per dollar for Petite and Majestic is 50mL/$ and 60mL/$ for Grand.

Those that choose Petite would do so anyhow, but when it comes to Majestic, most customers would be prepared to pay an extra 0.5$ to upgrade to Grand, as they obtain 75mL more by doing so. This is known as the Decoy effect.

Decoy effect

When a third, asymmetrically dominant alternative (the decoy) is introduced, customers’ preferences between the two options change. The next best place to have tricky pricing is with snacks. Let’s say we have three items, a blueberry tart for 15$, a brownie for 12.5$ and a pastry for 10$.

Anchoring Effect

The Blueberry tart feels quite pricey, and the pastry for $10 suddenly feels much more affordable. Though the pastry is still pricey, it appears to be a far better buy. This pertains to the anchoring effect, in which people make decisions based on the first piece of information they receive and here the tart is the anchor. When this is combined with the Scarcity principle, we have a perfect recipe for achieving high perceived value. Having some higher-priced items labelled as “limited stock” or “almost sold out” would immediately inspire shoppers to create a higher value when supplies are limited.

Including a most popular board would highlight specific things; this would be a wonderful opportunity to promote a specific item on the menu with better margins. If 5 out of 100 customers choose an expensive drink, but it is promoted as “Most Loved!” then minority opinion is given disproportionate weight, resulting to more of the following 100 customers choosing it. This is called Availability Heuristics, People overestimate the significance of information they can recall quickly, which is usually due to recent exposure.

Another clever technique to persuade consumers to spend, particularly those who are undecided, is to implement a sampling process, but not simply by providing free samples. Making little samples of 40 or 50mL for $1 and then providing a discount on the original drink if they enjoy it. Most consumers who spend that first dollar are more likely to get a drink at a lower price, such as a Grand for $4 instead of $5. This is known as the sunk cost fallacy, in which people make judgements based on cumulative prior investment (“sunk cost”) rather than the decision’s present day worth.

Retention of customers is just as crucial as gaining clients. Having a loyalty programme is the greatest way to keep customers coming back, so I’ve established a monthly membership card that is already stamped the first time they order, and instead of just having one final prize, I’ve added a mid-progress award to make it more involved.

membership card

If, on average, only 2 out of 10 people complete a loyalty card, providing a starting stamp might increase that rate to 4 out of 10, essentially doubling loyalty programme returns. This is called Endowment effect, where people tend to value things more once they own them.

The final crucial step would be to instill trust and brand recognition in the minds of customers. Having a more involved staff makes a difference in this situation. Giving a customer positive reinforcement validates their choices and increases the likelihood of them purchasing it again. Including phrases such as “Excellent choice” or “One of the best we have” provides the buyer greater control over their decision.

confirmation bias

This is known as confirmation bias; offering a boost to a customer’s choice enhances the likelihood of that item being purchased again. With positive reinforcement, 6 out of 10 repeat customers ordering the same item may increase to 7 or 8 out of 10. This is only enhanced by the addition of a few prizes or publications, even if they are framed articles or fabricated awards, which would raise overall sales by instilling trust. This is known as the authority principle, in which people tend to obey those seen to be in positions of authority.

As you can see, TeX used these strategies to ensure that, while customers thought they were making independent decisions, their decisions were discreetly affected at every point. That’s how much we’re influenced by everything from shopping centres to restaurants.