Slate had an interesting article today about why Starbucks doesn’t advertise its “Short” size. Basically, they create a fence that makes it harder to order the smaller, less profitable (but tastier) drink. As an aside, when Starbucks began, they had Short and Tall. The Grande and Vente sizes were added later, to make more money. The Short is still available, but you have to specifically ask for it. This is similar to the story of french fries at McDonalds. They used to have large and small. The old large is the new small, with the new medium and large sizes providing even better “value.” The article also mentions trains whose third class compartments lacked roofs, simply to discourage those who could afford second class from taking the cheaper seats.

Fences are everywhere, and they are important for anyone who has more than one potentially substitute-able offering. One of the most notorious, and effective fences is the “Saturday night stay” requirement for discount airline travel. When I bought a laptop, I couldn’t get the amount of memory I wanted without buying a configuration with a lot of bells and whistles I didn’t want. Software frequently comes in a variety of editions, with fences based on number of users, data files, or other paramters to prevent high-usage businesses from buying the cheap (or free) personal editions. Effective fences allow sellers to target price conscious buyers without lettting value buyers downgrade into less profitable offerings.

Fences can also alienate buyers if they feel you are railroading them into paying extra. The airlines are a good example of this. Their gates were effective, but also encouraged fliers to try to beat the system with various tricks included nested flights. Suppose I want to fly from Austin to New York Monday through Thursday for the next two weeks. If I book two tickets for Monday through Thursday, I don’t get any Saturday night stays, and I pay full price. However, if I book Monday through the following Thursday for Austin-New York, then buy a New York-Austin roundtrip for the middle weekend, I get Saturday night stays on both tickets. The airlines prohibit this type of ticketing and will cancel your ticket if they catch you (so people tend to use different airlines, costing the airline even more business).

Fences work best when they seem natural to the buyer. Paying more for a hardcover book is worth it for eager fans of the next Harry Potter story, while others will wait until the cheaper paperbacks arrive. People don’t make a big fuss about it. People sort themselves into the product segment they want– they don’t feel that they are being sorted.

Starbucks buyers probably don’t feel like they’re being sorted, even if they are.

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