Star Bucks Revisited

If coffee is a star commodity, then its recent price trend is anything but famous, having dropped 42% this past year. Our friends at the popular coffee shop, however, are raising their prices on average 1-2% or 5-20 cents per drink. They claim other factors like wages and rent are forcing the increase. Last quarter they also had an 18% boost in profits. It’s nice if you can command that extra return on your investment while maintaining a sales increase of 7% last year.

But wait – all is not perfect here. The competitor showed up with a slam-DUNK, rating higher in customer satisfaction in 2014. When the economy is running a little stronger it seems that the provider with better service will win favor, no matter if the price is higher, the same or lower.

Let’s look at the airlines. Jet fuel is way down in price, but ticket prices have not dropped. Some airlines are merely raking in the money, while others are adding amenities like new seats with power outlets, wifi onboard and entertainment systems to keep passengers coming back.

Trucking is experiencing a similar situation; fuel prices are down but rates have remained high. That is attributed to the shortage of drivers and the need to make up for the last several years of miniscule profits.

I am sure that produce growers will tell us about the same story where the commodity price paid to them is either flat or declining while the rest of the supply chain is increasing the price along the way.

It seems that the bottom line is the company that can deliver the service level desired will win out in the battle for the customer dollar. A commodity price is just one component of a value proposition that is put forth by a seller. The key is to identify what added value your customers are willing to pay for and then deliver that flawlessly, just like a perfect cup of coffee.