Cupcake Economics

22 September 2008

I notice that the cupcakes at Babycakes cost something like $2.75,[1] while those at Bread & Cie cost about $4.50.

Now, regardless of whether the cupcakes at Bread & Cie are in fact better than those at Babycakes, I am prompted to wonder about the effect on sales if Babycakes were to introduce higher-end, more expensive cupcakes, in parallel with the present line.

My guess is that it would hurt, that a significant number of people wouldn't buy the less expensive cupcakes in the presence of more expensive cupcakes, for fear of being thought cheap, and that customers wouldn't buy enough of the more expensive cupcakes to offset the loss of sales of the present line.

[1] Up-Date (2009:08/27): I notice that some people have come to my 'blog looking for the price of cupcakes at Babycakes. I therefore report that the price of cupcakes at Babycakes is now $3.00.

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4 Responses to Cupcake Economics

  • BigTigerMonkey says:

    My guess is that the cupcakes are luxury goods and/or goods sold most readily as items for not only conspicuous consumption, but for rapid last-minute conspicuous consumption (e.g., impulse buys to impress immediate others).

    For example, profit taking on high price cupcakes (and those sold at coffee and desert houses are all high price cupcakes, consider it an axiom), is maximized in an environment where people can take their group (friends, business partners, dates, etc.) and actively engage in impressing their group by buying the members of that group cupcakes for at least a three fold purpose:

    i. Impress the immediate group (and give then yummy cupcakes)
    ii. Impress immediate onlookers (making them want to also be seen as active providers of yummy cupcakes, and consumer of cupcakes!)
    iii. Themselves participate in the consumption of cupcakes to a degree which they would normally be loath to perform (e.g., while they might be shy of eating 50 cupcakes by themselves in a coffee shop, they would do so given the cover provided by points (i) and (ii).
    iv. Give people something to talk about - people invest money to create events which people talk about (most importantly, events in which the crowd goes away talking about them - the purchaser of the cupcakes).

    Note: this is not a cupcake buying-spree potlach described, it is an active (but not necessarily conscious) investment decision.

    So, to sell the most high-priced cupcakes, as a vendor, I would be tempted to foment a cupcake eating contest - akin to the "Nathan's" hotdog eating contest - which, by the way, gets international coverage now-a-days on basic cable.


    • Daniel says:

      I think that most cupcakes are bought for the direct pleasure of their concsumption, rather than to impress others; and, at Babycakes, if one were seeking to impress others, then one would be more likely to buy a piece of cake or of tart, as these are more expensive items.

      The intended purpose of potlach behavior is often (perhaps usually) to impress others, and some potlaches involved the giving of gifts, as opposed to wholesale destruction. So I don't think that you want to distinguish what you're describing from a potlach.

      As to a cupcake eating contest, I think that the suggestion lacks the degree of delicacy that the owners would like to associate with their establishment.

      Plainly, though, if they want your business, then they should sell bundt cakes in various sizes.

      • BigTigerMonkey says:

        In a trendy desert house environment, buying an upscale cupcakes for people is basically a surrogate for buying them drinks. viz., the loud voice, "Hey ladies, can I buy you some cupcakes? Barkeep! A round of cupcakes for the table."

        However, I think we can agree that issues of Cupcake-O-nomics are far from simple.

        It's almost time for the evening constitutional, which must now be extended to about eight hours (no thanks to your bundt cake idea).


        • Daniel says:

          I'm sure that buying a cupcake for someone else can be analogous to buying him or her a drink, but I'm willing to bet that the vast majority of cupcake purchases (even purchases at cafés and restaurants) are for own consumption.

          Babycakes is a fairly unpretentious place — this, in fact, may be the key to their survival within the present context — and were anyone seeking to impress others with a purchase of cupcakes here, my presumption would be that they were trying to impress by seeming to lack a felt need to impress. Buying a round of high-end cupcakes here might be analogous to buying everyone a glass of white wine when what they wanted was a glass of Guinness.

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