Small businesses can capitalize on the shift of consumer spending to experiences over commodities. When a business creates an experience around what they sell, they can charge a significant premium over the competition, as demonstrated by the successes of Apple and Starbucks. See the following article from The Street for more on this.
What do Starbucks(SBUX), Disney(DIS) and Apple(AAPL) have in common?
They’re successful businesses. They’re in commoditized and highly competitive markets. Yet each commands a premium for its products and services. What makes them so much more successful than their competitors?
The answer is experience. I’m not talking about how long they’ve been in business. I mean the experience they create for their customers. We have become a society of consumers and businesses that value — and will pay extra — for experiences. Experience is a differentiating factor to companies in competitive and commoditized markets.
When you customize a product or build a custom product, you’re providing a service. When you customize a service, you’re providing an experience. In case you haven’t realized it, you’re in the service business. The business of providing manufacturing services has become a commodity service. Moving from providing services for your customers to providing experiences may be just what separates your shop from the rest.
Experience matters. Coffee beans are a commodity. Enough beans to make a cup of coffee cost about 3 cents. Maxwell House converts those commodity beans into a product and charges 20 cents for enough grounds to make a cup of coffee. Your local cafe or convenience store provides the service of brewing the coffee, and it gets $1 for a cup. Starbucks provides an experience (and a little warm milk) and gets $4 and up for a cup of coffee. There are several places to buy a good cup of coffee for less than $1 within a few hundred feet of my local Starbucks, yet there is always a line to pay $4.
Disney theme parks are the ultimate experience business. All states have theme parks and lots of great attractions, yet millions of people travel across the country every year to visit a Disney theme park. When you calculate vacation time, travel expenses and tickets to the park, we pay a huge premium for the Disney experience.
Apple has defied the odds and survived because the company changed the customer’s perception and experience with its computers. This is not the clunky gray box that you stare at all day at work. Apple enabled customers to experience a colorful and loud machine that made them creative and showed them how to “think different.” The iPod and its surrounding products strictly follow this lineage and commitment to experience.
It’s not possible for me to tell you how to turn your service business into an experience business. If I could, everyone would do it, and the service would be commoditized. It’s something you have to figure out on your own. Believe me, it’s worth the effort. Create an experience for your customers or you’ll be competing in a commoditized market with thin profit margins and tough competition.
This article has been republished from The Street. You can also view this article at The Street, an investment news and analysis site.