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Editor's Desk by Bob Strong, Editor Let's look at Starbucks Coffee House. First question is what does Starbucks have to do with beef? At first glance - not much. Then when you look at what they have done with a commodity, it's worth studying. According to authors B. Joseph Pine II and James H. Gilmore in their book, "The Experience Economy," Starbucks has added the experience to an ordinary cup of coffee. "This book offers an escape from the all-too-easy practice of competing on the basis of price." Beef, because of its popularity, has traditionally been used as the lost leader - to attract customers and sell groceries. "Beef sold for a 20-30-40 percent discount...Buy one, get one free...Guaranteed lowest price. In a word, it was commoditized." Until recently, beef has always sold on price. This is changing with the introduction of branded, beef items and their willingness to put their name or brand on a product, and back it up with a guarantee. Back to Starbucks... coffee - a true commodity, is worth little more than $1 per pound to the companies who harvest coffee or trade it on the futures market. This would make a cup of coffee cost about one or two cents a cup. Now when a manufacturer grinds, packages, and sells those same beans in a grocery store, the price to a consumer jumps to between 5c and 25ca cup. Brew the ground beans in a run-of-the-mill diner or corner coffee shop and that service now sells for 50c to a dollar per cup. So depending on what a business does with it, coffee can be any of three economic offerings - Commodity, Good, or Service, three distinct ranges of value customers attach to the offering. When the same coffee is served in a five-star restaurant or Expresso bar where the ordering, creation and a heightened ambience or sense of theatre is present - the consumers gladly pay anywhere from $2 to $5 for each cup. Businesses that ascend to this fourth level of value, according to Pine and Gilmore, establish a distinctive experience that envelopes the purchase of coffee, increasing its value several times over the original commodity. The good eating experience the beef industry wants the consumer to have with eating beef falls in a quite similar category. What the consumer is paying for is in part the experience. There are parallels here that fit the marketing of beef. The branded beef products and high-end steak restaurants, some of whom stage birthday parties or special greetings, all have engaged the customer in a personal, memorable way. To have a pot roast like mother cooked, the atmosphere or staged event is an experience. The spendable income and the rising affluence of the average American allows them to pay a higher price for a memorable experience of quality and atmosphere not previously associated with beef, on a larger scale. Whether it's Starbucks or a high-end steak house, people will pay a higher price because of the value of the favorable experience. I don't believe beef is mentioned in Pine & Gilmore's book, but the concept of marketing beef is. If there is anything that will drive the consumer to buy more beef at a higher price, it is a memorable experience. How good was that last beef eating experience? Was it enjoyable at the restaurant? Did you have fun with family and friends out on the patio? Did they or you tell someone about it? |
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