Harold and the Price of Coffee

A man (lets call him Harold) owned a coffee shop and it did ok. He often thought that it could probably do better and  this was because mostly he sold lots of coffee but never made a lot of money. He didn't really know where to begin so he asked his mate (lets call him Trent), that knew a fair bit about small businesses, for some advice.

Trent spent some time with Harold looking at the business – all the usual stuff – promotion, the products on offer, the location, competitors, the price etc. Trent also did a bit of research on other coffee shops in the area and the thing that struck him most was that Harold’s coffee was 30 – 50 cents cheaper than the other coffee shops.

Trent had a chat to Harold about the possibility of raising of the prices because, from what he could see, every other aspect of Harold’s offerings were spot on and the price seemed the only place to leverage.

Harold didn’t like the idea and argued that the reason he got lots of customers was because the coffee was cheaper. However, Trent persisted and convinced Harold that the easiest and most obvious way to make the business more profitable was to increase the prices. Harold’s chin wobbled and his glasses fogged a little but he reluctantly agreed to trial it for a month.

The first two weeks saw sales drop as many of Harold’s regular customers had started going elsewhere. What would normally be busy morning periods had turned into a slow few hours. Harold wasn’t a happy camper and Trent wondered if he had given Harold the wrong advice. They resisted the temptation to drop prices and Harold stuck to his agreement to trial the higher prices for a month.

Slowly but surely, the customers started to return until they were just as busy before but making more money. Harold thought it was probably because he had great coffee and people had decided that it was worth the price increase after all. However, Trent encouraged Harold to ask the customers why they had left but then came back. Harold tried this and nearly everyone said something along the lines off “I initially left when you put your prices up because I wasn’t happy. I went around the corner but the barista wasn’t as half as nice as you. I really missed your smiling face and warm welcome in the morning as it really put me in a good mood before work. I missed you, so I decided to come back and now I think the extra cost is worth it.”

Technically, the customer value proposition is the sum total of benefits that they receive in exchange for money and time (or other). The small but important word in that sentence is sum.

Often businesses think too narrowly about what their customer value proposition is and focus on the pure product/service and the price the customer will pay. For Harold’s customers it wasn’t just about the coffee and the price. The value proposition for Harold’s customers was the whole customer service experience they received.

The interesting thing about Harold’s story is that what made his value proposition more appealing to customers wasn’t something that he had to spend any money on.

So what is it that your company offers customers that increases the value proposition from a simple goods for money situation?

As a consumer, what companies do you frequent that boost their value proposition in interesting ways?

Hat tip to Josh Strawczynski and Marketing Profs whose recent work inspired this post. You can check out the post from Josh that inspired me here and read the Marketing Profs “Get to the Point” email that inspired me here.

Why Social Media Isn’t The Answer For Coles

Via a Tweet from Gavin Heaton I read a post on Walter Adamson’s blog where Walter highlighted the volumes of negative feedback that Coles have received for announcing today that they intend to be more consumer led and embark on a massive reinvention of the brand.

Walter highlighted that on news.com.au that the article covering the announcement attracted 134 comments in 30 minutes -  1.3 comments per minute! All of them were negative. As at time of writing there were 353 comments (a quick scan shows that recent ones are also negative).

It is pretty clear that the readers who left comments don’t know jack shit. Half of them say that Coles and Woolworths jack up the prices and the other half say they lower the prices and drive out the smaller shops. Which is it?

A lot of the comments suggest going to the markets to get cheaper food and better quality. This advice shows a complete lack of understanding of anyone outside how they do things themselves. Let me get this right. To save myself $20 in a weekly shop I should buy the essentials at Coles, get them into the car and the take a 1 hour round trip to get meat and fruit n veg (which will probably cost me $5-10 in petrol). Would be worse if you threw a couple of kids into the equation. Think about the value proposition you heathens!

The sheer volume of negative comments has left Walter “… flabbergasted enough to say that it is going to take more than social media to fix this lot” and he believes that “In the meantime Aldi and Costco stand to make huge headway if they develop and deploy effective social media strategies.”

Whoah, back up there buddy. What?  Since when do a few comments on a news website make Coles’ strategy all about social media? Certainly nothing in the article suggest so.

This is what is wrong with marketing and social media today. Too many people think that social media IS marketing.

Lets unpack what Coles have decided to do. Assuming that what they are sprouting is true, and they will actually take a consumer led approach, then this approach is known as The Marketing Concept (or being consumer centric). I have gone over it before on this blog but essentially it is about creating the marketing mix and a value proposition that is built from the ground up to meet the consumer’s need or solve a problem. It shifts the focus from selling to marketing (and yes there is a difference tut tut).

However, none of this can be done without the first step – market research. How can you truly create an offering without first understanding what the consumer needs or wants?

Social media certainly has a part to play but anybody who thinks that social media will be the driving force behind Coles’ approach is delusional. Sure they can listen to, and engage with, consumers through social media but social media isn’t the strategy.

So I agree with Walter. It certainly will take more than social media but I am unsure how anyone could get the impression that Coles’ approach is social media driven. Additionally, if Aldi and Costco do have an opportunity to develop and deploy effective social media strategies then it won’t mean anything if they aren’t customer centric themselves and are focused on solving customers problems or needs. Social media is a tool and a tool that needs to be considered and then either used or not (but you must listen).

Walter also believes that “In any case, it's going to take just a little more than a brand makeover!” That’s right, I agree. Again however, where does anyone get the impression that Coles think that a brand makeover will do the trick? In fact they don’t. The foundation, once again, will be The re-invention of the brand will a by-product of being consumer led. to be consumer led.

Coles are saying that they want to listen more and the consumers certainly have plenty to say so there can be no excuses for not getting a customer led approach correct.

I personally think that it is great that Coles have gotten back to basics in a marketing sense and will attempt to put the customer in the centre of what they do. I will watch keenly.