Lower cost of goods equals savings — Serving quality equals customer loyalty. Which represents a better value?
Every day, Specialty Retailers sit at a crossroads where the decisions they make can either make or break their businesses. The debate has existed since man started trading, thousands of years ago. Do I serve my customers’ products that cost less, or do offer them higher priced, higher quality products? That question is made even more relevant in this down economy.
Historically, most Retailers in this economic climate take the “low cost route”. That is an understandable knee-jerk reaction to a problem that needs deeper analysis to get to the bottom-line. But, we are talking about human behaviour in scary financial times.: Your decision on this one important point will directly translate into what kind of culinary experience your customers will have in your store, and whether they come back to repeat that experience with you, or with a competitor?
THE INTERNAL DEBATE
You have a product that you have successfully served to your customers for years. But, things have slowed down due to the weak economy, and you are wondering what you can do to build up your bottom line. A supplier comes to you and says, “I can sell you blended iced coffees or chai latte tea for $15 a case less than what you pay now.” That can get the juices flowing; $15 a case less is quite a savings. However, before you move forward take time to consider this question: Why can’t my supplier sell at that price?
Companies who want to enter a crowded category, such as ours, often will offer very low pricing as an initial strategy to get customers to switch. After doing so, historically they raise prices back to standard industry pricing. Be careful not to get caught as a pawn in this strategy. What if your customer doesn’t like the new product as much? What does it mean, financially, if you lose a customer?
This math may help. You currently purchase one case a week from your present supplier; a $15 saving for 52 weeks equals $780.00 per year. Your customer comes in five days a week and orders a drink each day at $3.50 times 260 days per year equals $910 per year. The difference is obvious.
The above math is powerful in its ability to show where true value lies. Lose one or two customers and you haven’t achieved your goal of building more profit. To the contrary, you have lost something very valuable, “Your customers”, but also money. What it also proves is in the Cappuccine hierarchy of value, “Customers” carry much more value to your business than lowered cost of goods. Now, if you were not running a Specialty Store it might change the value equation. But, as long as you are selling Specialty Coffee, the true value holds.
If the above is true then doing everything to get and keep your hard earned customers is appropriate, including actually going back and re-defining the quality of what you serve. If you believe that getting and keeping customers is a good reason not to downgrade for lower pricing, then it could also be a good reason to upgrade to even better products.
WHO ARE YOU?
Remember, McDonald’s is sitting there waiting to get your customers With their offer of low price and consistent mediocrity. If you’re a Specialty Coffeehouse, do everything you can to prove that you are, by differentiating yourself from the McDonald’s of the world.