If you worry about adding to costs when you enhance the customer experience, there's a chart in the current BusinessWeek that might give you some comfort:
- Coffee as a commodity has a value of about $.01 - .02 per cup
- Ground coffee in the grocery store has a value of about $.05 -.25 per cup
- Adding service, a la Dunkin Donuts or Tim Hortons gets you up to $.75 - $1.50 per cup
- Adding experience, a la Starbucks, gets you up to $2.00 - 5.00 per cup
I think we are all sick of the ubiquitous Starbucks example, so I welcome other examples in comments. However, the point here is simple: the value of the service you deliver increases exponentially when you bring in experience components.
What the heck is an experience component, you ask?
It's what happens inside your customer:
- Emotional benefits, like feeling happy, content, relaxed, comfortable
- Psychological benefits, like feeling successful or confident
- Sensory benefits, like taste, smell, and a soft place to sit
- Rational benefits, like convenience or a better interest rate
The brilliant Starbucks strategy to create the "third place" is clearly only part of the story. Because some people already had a third place: it was their local coffee shop, their Tim Horton's, or their diner. That part wasn't as new as everyone says, although we didn't have a good label for it before.
The new thing, the brilliant thing, was designing a third place for people who can afford a $5.00 cup of coffee on a regular basis. And that was indeed brilliant.
So instead of trying to cut a few pennies from your per-unit costs, consider trying to add to the experience in a way that engages all the benefits: rational, emotional, psychological and sensory.
You will reap the margins of robber-barons if you do it right.