Grinds Coffee & Tea House, Capitola, CA,
originally uploaded by Larry Cornett.

I have talked about the commoditization of the coffee business before. You can certainly get a good cup of coffee (or name your favorite coffee drink) at many of the coffee houses that sprang up over the past decade. So, when “quality” is no longer the differentiator that it once was, what is a coffee house owner to do? Well, as many industries are discovering, you start focusing on differentiating through the consumer experience.

I visit Santa Cruz, CA occasionally on the weekend when I need a break from Silicon Valley. For those of you who have spent time there, you know what I mean. Each time I am in the area, I go out of my way to visit the Grinds Coffee & Tea House in Capitola. Sure, I could just as easily hit Starbucks. There are at least five in that area. But, I don’t. Why? Because I’m in Santa Cruz and Santa Cruz has a very specific culture and context.

Grinds is a Santa Cruz experience. It is a bit quirky with the bright green exterior, but very authentic, unique, and pleasant inside. It is a treat to go there and get whatever coffee you want made fresh by the cup. Grinds is a differentiated experience and it certainly fits the Santa Cruz context.

Yes, there are economies of scale in providing the same menu and even interior decorating when you are a global business. And, yes, you will attract customers who want “the comfort of the same.” But, increasingly, consumers are starting to tire of the McDonald’s-Walmart-Starbucks effect and want to experience something unique, something new, something with “local flavor.” Sites like Etsy are yet more proof that the pendulum is starting to swing back.

Commoditization. It happens in every industry as it matures. As companies struggle to compete and differentiate themselves, they succumb to pricing pressure and feature wars. We’ve all seen it happen with both goods and services. And, we’ve seen it happen in the technology industry too. Software with even more features than the competitor with the requisite feature chart on the back of the box. Internet access pricing being driven down to almost “free” levels. Web hosting for absurdly low monthly fees with an ever-increasing set of available features.

So, what is a company to do? Well, some have spent time understanding their customers and what it is that creates loyalty. Those companies have learned that earning the loyalty of a customer goes way beyond offering the lowest prices or the most features. In fact, loyal customers will often spend more for less. As a very loyal customer of Apple Computer, I can attest to that. Why? Because we value the holistic experience of that brand and what it provides us.

An excellent book on this trend is “The Experience Economy” by Pine and Gilmore. Published many years ago, it foretold this current shift to more and more compelling experiences to win loyal customers. The following chart shows this trend as we move from an economy of goods and services to one where companies differentiate themselves through what they call “transformational experiences.”

I can personally speak to this shift, as I have experienced it during my current trip to Bangalore India. I have flown on a number of airlines during my career, but only a few airlines have stood out from the crowd and inspired my loyalty. Yes, they all try to compete on price, services, and destinations. But, only a few seem to really understand the value of the in-flight experience. Many claim that they do, but they fail to actually deliver a complete end-to-end experience. To name only one airline that I feel has succeeded: Singapore Airlines. They get it. The attendants are amazingly friendly and attentive. The food is excellent (for an airline). The seats are very comfortable, with a full recline that allows actually sleeping. And, their entertainment system is expansive. I always end up watching way too many movies on my international flights with them. So, when given the opportunity, I select Singapore Air every time. Not always the cheapest and not always the most convenient, but the experience makes it worth it.

I cannot begin to cover this topic as deeply as the book below does, so check it out for yourself. The main take away? The world is changing, as it always does. If you find yourself competing on price and features, as many of us have been, you’re behind the curve. The key is going to be understanding, really understanding, what your customers need and what will inspire their loyalty. Understanding that will allow you to offer a complete end-to-end experience that will change the game for you.