Sodas are one of the biggest rip-offs at the register, so it seemed surprisingly reasonable when McDonald’s a few years back announced a big pricing shift: All of its soft drinks, small or large, would cost $1.
The profit margin for selling fizzy sugar water is about 90%, so fast-food joints have plenty of breathing room for price. But what was the catch? Why would the world’s Coke-selling king of the Supersize undercut their own profit?
America has long had a love affair with soda, which bested tap water for drinkers’ choice in the ’80s. By the late ’90s, the average American was drinking 56 gallons of soda, or more than an oil barrel, every year.
But the $75 billion soda industry has recently faced its own reckoning at the hands of a more Red Bull-swilling, health-conscious public. American soda sales fell in 2013 for the ninth year in a row. Global soda sales growth is slowing, too.
The $1-soda gambit, though, wasn’t really about soda. It was all psychology. The thought of a great bargain can trigger the deal-hungry part of our brains, convincing us to choose McDonald’s over Burger King — even if we never wanted a large soda in the first place.
As one economics professor wrote, “There’s something really satisfying about getting so much MORE for the same price as getting less.” In essence, McDonald’s sacrificed a few measly cents per drink for something much more long-lasting: loyalty. Added the professor:
It is more important to keep customers feeling happy, empowered, and coming back than it is to worry about who is refilling and who is not. In the end, the restaurant who gets return customers is the one who wins, not the one who charges less. McDonald’s strategy is much more about creating loyal and happy customers than it is about making a certain amount of profit.
The dollar-pop bet paid off quickly for McDonald’s, becoming a routine part of their summertime marketing campaigns. Ronald’s mental trick has even become ingrained: We now feel like we’re saving money paying $1 for something that costs about 15 cents.