Opening A Coffee Shop Pt. 2. — The Problem With Being Too Coffee Focussedby Michael Cleland
Opening a Coffee Shop And The Problem With Being Too Focussed On Coffee
If the theory of competitive advantage provides a background for understanding how cafes create unique value, then perceived value explains specifically why doing so can attract a greater share of consumers. This article details the individual components which contribute to a customer's perception of value, and considers the applications within the independent industry of coffee.
Cost Leadership, Differentiation and Segmentation, proposed in 1980 by Michael Porter, are three competitive strategies implemented across all industries. These have proved successful as a means of developing valuable attributes, unique within competitive markets. This is also known as a competitive advantage which, if perceived by consumers, results in a position of competitive superiority – a greater share of the market. The purpose of the listed strategies is to create greater value relative to competitors. Cost Leadership achieves this by lowering costs, Differentiation by increasing benefits and Segmentation by isolating and catering to groups of customers with shared needs. The extent to which the value developed through these strategies is perceived by consumers will dictate whether their respective commercial potentials are realised. The extent to which value is perceived hinges on how well value is communicated.
Cafés compete to attract a profitable share of the broad coffee market. Those which do this by serving a higher standard of beverage, perpetuate a section of the coffee industry which is usually tied to greater social responsibility and re-order of value towards farmers, These cafés can be seen as creating two valuable points of difference- a better product and a socially responsible image. This means they can be categorised as differentiation strategists. Based on the assumption that consumers will buy from the business they perceive as having the greatest value, cafés following this method of differentiation possess a source of competitive advantage. Whether this is realised commercially in the form of greater market share, depends on whether consumers are aware of the points of difference, the amount of value they attach, and ultimately how this compares with alternatives. The theory of perceived value explains the process by which consumers form perceptions of value in greater detail.
As an application of this, take two identical cafés in competition with one another, each being identical in every possible way. Following a Differentiation strategy, Café, ‘A’ may implement a change which increased the level of service dramatically. This would cause a unique increase in benefits and therefore perceived value. In response to a subsequent loss of customers, Café, ‘B,’ may respond by applying a Cost Leadership approach and minimising the wait time for coffee. In theory, assuming consumers value short wait times and good service equally, this will neutralise the competitive superiority gained by Café, ‘A.’ The result would be a scenario where, although through altering different variables, both cafés return to the same perceived value.
The issue with a ‘coffee-centric,’ strategy.
Independent cafés serving a higher standard of beverage, within a segment of the industry committed to social responsibility, have increased value by increasing benefits. Benefits are increased primarily by the quality of the product and the positive image attached with social initiatives and ‘real’ accountability. In doing this, the business is differentiated from competitors, and potential is established for competitive advantage. Whether this potential is realised depends on the extent to which these benefits are perceived by consumers.
It is proposed here that the value created by increasing the quality of the coffee and higher levels of social responsibility is not perceived accurately by a significant proportion of consumers. Moreover, that without stimulating engagement, followed by a process of perpetuated sequential learning, this is unlikely to change. Without this, it is suggested that the inherent value cannot be realised as perceived value, therefore inhibiting the commercial viability of cafés pursuing solely this form of differentiation.
As an exercise to test this, select two coffee experiences, for example, as a guest in a chain store and a renowned, quality focused independent cafe . In each case, assign a value between 1-10 to each of the components contributing to both total benefits and total costs. For example, professionally executed table service may score highly. In contrast, ordering and collecting at a coffee cart, would score comparably low. Waiting less than a minute for a coffee is relatively insignificant in terms of costing time and could therefore result in a low value. A wait such as fifteen minutes would score comparatively high. Tallying the individual components which comprise both benefits and costs will arrive at the respective totals. Calculate perceived value by dividing total benefits by total costs. Resulting from this process is a quantitative, and comparable measure of perceived value from the viewpoint of the reader.
Finally to complete the exercise, reflect on how value is perceived from the viewpoint of a hypothetical consumer, representative of the broad public. This consumer being someone whose knowledge of coffee has been formed by experiences with cafés and coffee, which until recent years, existed in the absence of widespread independent alternatives. He or she routinely consumes coffee but has had little if any exposure to analytical tasting and the comparatively small segment of the coffee industry which offers a higher quality product. Contemplate in which ways their assessment of value may vary.