The Experience Economy

To demonstrate how this works, let me share a concept from a phenomenal book called The Experience Economy by Joe Pine and James Gilmore. What I learned from that book is when coffee first hits the market as a commodity, it costs about $1 a pound. Not much differentiation at this point other than the type of bean. Once it is packaged and appears on the shelf at the grocery store, it becomes a good.

How much does a pound of coffee cost at the grocery store? Having presented this message thousands of times, I have found that very few people know how much they pay for a cup of coffee! We just enter the store like zombies and grab our brand. LOL!

Coffee in the grocery store can range from $2.99 per pound (it’s actually 12 ounces of coffee and 4 ounces of air—kind of like potato chips these days!), on up to more than ten bucks a pound. Now, we have gone from one dollar a pound to three to ten times the price!

For what? Packaging. The brand.

How is your packaging? How is your brand? Most small business owners are at the forefront of their businesses. Did you know that the way you dress, the way you carry yourself and the way you communicate assigns a value to you and your business?

The next level is the service level. If you go to Denny’s and buy a cup of coffee, what are you really paying for? You’re not really paying for coffee right? You are paying for the service of someone to brew that coffee and make it available to you.

How much does a cup of coffee cost at Denny’s? About $1 per cup. How much of that weak coffee can you make from a pound of coffee? About 60 cups! So the price per pound goes up to about $60 a pound at Denny’s.

When you think about your marketing message, are you talking enough about your unique service? When you sell the benefits of a unique service rather than just the work you do or the product features, you begin to set yourself apart and can therefore charge more than the commodity price.

How to get people to stand in line and pay you the highest prices for your product or service.

Finally, the next level is the experience. This would be having a cappuccino in Italy outside one of the historical landmarks. When we were there eight years ago, it was about $8 a cup. Another example of the experience level would be Starbucks. People stand in line to pay the highest prices for a cup of coffee—a commodity that has been around for thousands of years.

I have a picture I took in the Baltimore airport. There were 63 people standing in line at Starbucks. And that was just in a few minutes time. There were hundreds of people that stood in that line. Now here’s a little disclaimer: the other two coffee places in that area were closed. But that’s a message by itself. Why were they closed? I can only assume that management felt there weren’t enough flights going out at that time to justify running the lights, and I can just hear them say that their employees don’t like coming in that early anyway!

But Starbucks understands something the other coffee places don’t. They understand that those 63 people are going to walk onto an airplane with hundreds of other people on it with something very important in their hands—not just a cup of coffee, but the logo on the cup. The brand. As each person sitting on that airplane sees that logo, it makes them wish they stood in line for it. They might be thinking, I’m going to attack that man and take that cup of coffee!

Now the question becomes “Can you do this in your small business?” And the answer is yes you can. Stick around for next week’s blog.