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Coffee Trends: What’s In A Price?

What’s In A Price?


April 29, 2008
By Brian Martell

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Gimme your best price or I’ll shop the business elsewhere!  Don’t you just love the sound of that phrase? It kind of trips off the
tongue … like the hammer of a loaded .44 being cocked back with the
barrel pointed at your temple. It is almost as pleasant as, “your
competitor is at least $5.00 a case less expensive than you are,” or
everyone’s favourite, “I only look at price, don’t bother me with the
other details.”

Gimme your best price or I’ll shop the business elsewhere!

Don’t you just love the sound of that phrase? It kind of trips off the tongue … like the hammer of a loaded .44 being cocked back with the barrel pointed at your temple. It is almost as pleasant as, “your competitor is at least $5.00 a case less expensive than you are,” or everyone’s favourite, “I only look at price, don’t bother me with the other details.” 

Alas, what’s an OCS salesperson to do? Most purchasing agents aren’t out to make your life a living hell, they are trying to understand what it is you’re selling and come across in the most effective way to make a salesperson tell his story; by making him sweat. You see, in any transaction, the price is but a function of the perceived value of the product or service being offered and the price may be too high or too low, it all depends on how effective the salesperson has communicated his offering to the buyer.
Communication is the key; not only to good sales, but also to good business. When the message is clear and precise, it helps motivate staff, keep margins in line, improve efficiencies, and help get your unique story to the customer.

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So what is in a price anyway?  Let’s look at some of the cost factors that go into providing a good OCS operation?

The essential ingredient in OCS is the level of service provided by the operator. A wise (now retired) coffee service provider once said to me, “Brian, the cost is in the service, not the coffee. If I treat the service as nothing more than the coffee, then I make the service a commodity of the lowest bidder.”
 
What he was getting at was that his “story” involved a value-added component that understood the needs of every office and provided an unparalleled service. The customers perceived the value of the service as greater or equal to the amount they were being charged, and were content to stay with the provider, even in the face of stiff price competition.

So how did he get away with charging more than almost every service in the city? Simple, he communicated better than his competitors the value of his service over theirs. For those who are more nuts and bolts on the financial end of the spectrum, consider the following: to have a good service requires having good employees (even if you are the only employee, you still have to be one that you would want hire); the means to deliver the service (good vehicles); good equipment in good repair; and of course, good products. All these things cost money, not to mention the cost of rent for the office from which all this service emanates. Once you are done calculating this, you need to determine what all these assets are capable of providing to your customer – this will be the foundation of your story.

What kind of response time do you want to advertise with your customers for equipment repairs (quicker costs more)? What kind of equipment do you want to place with your customers (faster, more versatile machines will add to the cost and the price)? How often are you going to deliver to them (more often means more expense)?  What kind of product selection are you going to carry (larger product lines means bigger warehousing and/or more running around and larger costs)?

After all the numbers are crunched, the more posh the service, the more costly it will be and the more must be charged. But what of the lowly salesperson who has the “El Primo” service but only communicates the budget capabilities? Not surprisingly, he will be deemed “too expensive.”

As business people, we are perennially buying and selling something, and it is always incumbent upon the salesperson to make it crystal clear that his products and services have high value – and why they are worth the price. But it is also important that buyers understand what it is they are buying and not get stuck with the lowest value.

The products and services you buy go a long way in helping you achieve your ends by gaining the best value for your money which, in turn, helps you offer the best value your customers can buy. The operator who decides to go to an inferior product not only leaves himself open to a bad reputation as a supplier of “cheap” goods, but also robs himself of gaining better value.

Buying inferior vehicles to deliver your service is of little value if the trucks are in the shop more than on the road. The least expensive coffee can turn out to be the most expensive if your customers start to turn elsewhere for their coffee. Imagine having invested thousands of dollars on equipment in a location and then choosing the least expensive coffee available, only to see your coffee sales plummet while the cost of maintaining the machine remains the same; it just doesn’t make any sense.

Knowing your business means making it a point to know the value of all the factors of your business. Once you have a true appreciation of those values you will be able to clearly say what is in your price.
Questions or comments?  Reach Brian at Brian@heritage-coffee.com.  o