In 2003, Starbucks debuted the Pumpkin Spice Latte or PSL
for short, which grew to be the company's most popular seasonal drink. Rival
coffee chains scrambled to adopt this new flavored drink and keep up with their
competitors hoping to see their own profits soar. The pumpkin spice craze has
grown far beyond coffee to include ice cream, craft beer, baked goods, etc. only
to have the flavor disappear just a few months later. Why so? Marginal analysis
and diminishing returns.
The pumpkin spice industry in 2019 was worth $511 million
dollars, which is up 4.7% from the prior year according to Nielson data.1
Marginal analysis is how consumers decide whether to buy something or not. When
you consider the benefits like happiness or satisfaction along with the cost of
an item and you decide to buy, this is you engaging in marginal analysis. Sometimes a good cup of coffee can change your whole day! Diminishing returns explain why the seasonal drink is only around for a few months. If Starbucks were to keep the PSL around all
year long, the amount of output would lessen as the excitement for the drink
lowers. Therefore, companies choose to take things away and then give them back
because they know if it were around all year long, we wouldn't want it as much.
That is why the first pumpkin spice latte of the season may be the best one, as your excitement for the drink fades with every latte you consume.
Emotions are a very powerful motivator for purchases. Beyond
the introduction of the flavor, seasonal products can associate to feelings of
the consumer. When you pass by the local Starbucks and see that the PSL is
available, you get excited about cooler weather, carving pumpkins, and the
upcoming holiday season.
Companies weigh your habits and spending behaviors to
optimize revenue for them. Starbucks sees a profit jump in sales once the PSL
latte is debuted, and though it may only be for a few months, the increase is
enough to allow them to enjoy for many months. Eventually the company's costs
outweigh the benefits of offering the seasonal drink, and by then the seasons
have changed and a new seasonal drink is introduced. Peppermint mocha season
will be here before you know it.
The pumpkin spice craze is enjoyed by many and we will probably see more pumpkin-inspired products in the future. If your weekend plans include
visiting a pumpkin patch, stop by your favorite coffee spot to pick up a
pumpkin spice latte and celebrate the arrival of the fall season.