October 10/17, 2016: Volume 31, Number 9
By Steven Feldman
On Wednesday, Oct. 19, I will be the guest speaker at the Chicago Floor Covering Association’s annual State of the Industry dinner. Apparently Mark Cuban, Jay Leno and Colin Powell were busy that night. The subject of my presentation? You’ll have to fork over $40 to find out. One thing’s for certain: Retailers and distributors will come away with some new perspectives on how to approach customers along with initiatives they might be able to implement in their businesses, all focused on the customer.
One topic on which I will touch is the power of perceived value. Here’s an example:
Let’s say I wrote the following in a column 40 years ago: “I have a great idea for a business. I’ll open a whole new type of coffee shop. But instead of charging 60 cents for coffee, I’ll charge $2.50, no $3.50, ah make it $4.50. Not only that, I’ll have only a few tables and chairs, no free water, no free refills, no waiters and no busboys. I’ll serve the coffee in cardboard cups and have the customer clean everything up after he or she is finished.
Would you have said: “Feldman is a genius! Let’s open a chain of these all over the world?” Nope. You would have jettisoned me to the nearest sanitarium.
Well, the joke would have been on you judging by the success of Starbucks. But there’s more. The coffee is burnt at Starbucks. Now, if you get burnt coffee in a coffee shop, you might say, “It’s the bottom of the pot. I don’t drink coffee from the bottom of the pot.” But when it’s burnt at Starbucks, you say, “Oh, it’s a dark roast, a special bean from Argentina.”
You want coffee in a coffee shop, that’s a buck. Or at least it was when Starbucks opened its doors. But at Starbucks, if it’s Cafe Latte: $3.50. Café Creamier: $4.50. Cafe Suisse: $9.50. For each French word, another 4 bucks. Now we’re into Italian sounding words like Frappaccino. When I was a kid, we called that a Slurpee and it was a whole lot cheaper.
You want a refill in a regular coffee shop, they’ll give you all the refills you want until you drop dead. You can walk in when you’re 27 and keep drinking coffee until you’re 98. And they’ll start begging you: “Here, you want more coffee?” But not at Starbucks. No refills at Starbucks.
Now, do you remember what a cafeteria was? In poor neighborhoods all over this country, people went to a cafeteria because there were no waiters and no service; they could save money on a tip. Cafeterias didn’t have regular tables or chairs either. They gave coffee to you in a cardboard cup. So because of that you paid less for the coffee. You got less, so you paid less. It’s all the same at Starbucks—no service, a cardboard cup—except in Starbucks, the less you get, the more it costs. By the time they give you nothing, it’s worth four times as much.
You like anything in your coffee? Milk? Cream? Sugar? Cinnamon? They don’t give it to you; they tell you where it is. “Oh, you want sugar? It’s over there. Milk? Over here. Sugar? Sugar is around the counter to the left. Now you’ve become your own waiter. But here’s the topper: You walked around for an hour and a half selecting items, and then the guy at the cash register has a glass in front of him that reads “Tips.” Let me get this straight: You’re waiting on tables and you owe him money?
Then there’s a sign that asks you to clean your table when you’re finished. No waiters or busboys. Now you’ve become the janitor and have to start cleaning up the place. Old men are walking around cleaning up Starbucks. “Oh, he’s got dirt, too? Wait, I’ll clean this up.”
Starbucks can only get away with it because they have created perceived value.