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In the age of $4 lattes, historic Los Angeles restaurant Philippe’s has managed to buck the trend. For decades the downtown eatery — known throughout the region for its famous french dip sandwiches — has offered a cup of coffee for a mere 9 cents, a pricing quirk that played an important part in the restaurant’s charm.
But the rising cost of coffee has proved too much for Philippe’s, which announced this week that it would be forced to raise the long-frozen price, according to Rick Rojas at the Los Angeles Times.
From Rojas’s story:
Since 1977, the legion of longtime customers at the restaurant on North Alameda Street north of downtown Los Angeles had grown accustomed to putting a dime on the counter and getting a hot cup of coffee in return.
But on Wednesday, management posted a surprising sign on the door: Starting Feb. 2, the price of an eight-ounce brew is going up 400% — to 45 cents. Add 5 cent tax and the total price is 50 cents.
Philippe’s isn’t the only retailer raising coffee prices. Earlier this month, Starbucks also cited rising costs when it announced it would be raising prices in select locations.
Compared to a cup of Starbucks coffee, Philippe’s remains a steal. But the restaurant’s customers are probably much more likely to notice the new price offering.
Is earning an extra 37 cents per cup really worth the potential damage that the price increase could cause to the restaurant’s historic allure?
Probably. In all likelihood, the restaurant could raise the price by 800% without too much of a furor, given the price would remain below a dollar. Many customers were unfazed, telling The Times they were surprised the increase hadn’t come a long time ago.
That’s because when it comes to pricing, companies should take into account behavioural economics, which has shown that once you’re forced to break a dollar, the difference between 45 cents and 95 cents isn’t really that much.