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Sunday, March 01, 2009
Volume 14 | # 331
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Price is what you pay. Value is what you get. » Warren Buffett

Don't Discount Yourself

It’s not often that I read a news story and find myself commenting on it out loud. What made it even odder was that I was sitting alone in the room at the time I blurted, “Wow, that’s a bad idea!”

The article I read was about Starbucks’ introduction of an instant coffee. That alone puzzled me, but it was the comments made by CEO Howard Shultz that really stood out. He was quoted as saying they “had cracked the code on replicating Starbucks coffee.” A little later, the line that got me talking to myself was Shultz stating, “… for less than $1 a cup, people can have a cup of coffee that’s the mirror image of Starbucks.”

Sure, I understand their ambitions. Premium purchases are down and instant coffee is about a $1 billion US market and a $17 billion global market.

But I’m stunned by the risk a company that has built itself on offering premium-priced coffee takes when it’s CEO states that you can dump hot water into a cup of powdered grinds and “mirror” their (up to now) “premium” product. He didn’t say, “This instant coffee is as good as instant coffee gets.” He implied that it was as good as the stuff their baristas serve in their stores.

How do you defend a premium price going forward after intentionally commoditizing your flagship product? And why would you give customers yet another alternative to visiting your stores? Instead of justifying and helping customers feel good about paying a little more for their products – commitment to coffee producing countries, generous benefits to employees, friendly atmospheres, community involvement, service excellence, etc. - they give them reason to think they may be paying too much for hot brown water.

I’m a professed longtime customer and fan. And I honestly hope I’m wrong in thinking this will do more harm than good to their long-term prospects.

While our business is different, this move should remind us all of the importance of protecting our brand and value propositions. If your only claim to customers’ loyalty is being cheaper than the next guy, good luck defending that position going forward.

Continually ask yourself why and how your products and services deliver value for what customers pay, regardless of price. If you have clear answers, customers will as well. Make sure your value is tied more to what you deliver than what you charge.

Fees Don't Fail Me Now

I’ve spent a part of my afternoon trying to figure out my “bundled” phone/internet/satellite bill. I guess I hope to have a sudden moment of clarity that will make things like a “deregulated administration fee” of $1.55 or a “municipal right-of way fee” of $1.28 somehow make sense.

And why is it $1.28? I suppose they want to make it look like a really exact fee that has some real exact purpose. Because, you know, $1.30 for a municipal right-of-way would raise warning flags!

I’ve even emailed the company with a basic question. I asked if they could please explain to me which charges are for which services. I have two phone lines, satellite service, and high speed internet. I would love to know what some of these charges were actually for, or at least, which product was associated with which charge. That wouldn’t seem to be too unreasonable of a request.

For instance, maybe they could tell me what the “Entertainment Service State/Local Tax” of $5.25 is for. Of course, I also have an “Entertainment Service State/Local Tax Adjustment” of $0.63, bringing my net Entertainment Service State/Local Tax to $4.62. So, I’ve got that going for me.

The response from the “customer service” representative was unintentional comedy. She chose not to even address what the specific charges were for and simply used nice, round numbers in “breaking down” my bundled bill. The numbers she used didn’t even add up to the actual bill.

I thought for a minute about pushing the issue, but decided to save myself the headache. All I know for sure is that my current bundle of services cost about $15 less than the last company’s bundle. So, I’ve got that going for me.

Jokes aside, however, it’s this kind of seemingly intentional obfuscation that erodes customers’ trust. Even if every fee is on the “up and up,” hieroglyphic-like statements sure suggest otherwise. And when employees can’t or won’t clearly explain a fee or policy, folks can be forgiven if they choose to assume ill intent from that company.

Banks are often accused (fairly or not) of being intentionally opaque with their fees. How receptive and competent is your team in explaining fees to customers? The clearer their messages, the more comfortable customers will be with you and their decisions to continue doing business with you.

The more you say, the less people remember. » Francois Fenelon

Disclaimer: The views and opinions expressed in these columns are solely those of the author and do not necessarily represent those of any affiliated entities or sponsors.
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