Monday, June 2, 2014

Selling Water At A Profit

There is a lot to be said for the value of a good, repeatable process.  As a matter of fact, a lot HAS been said about it if the real and virtual bookshelves of Barnes & Noble and Amazon are any indicator.  But in "real life", what does it actually mean to have a "good and repeatable process"?  How does that translate in dollars and cents for your business?

Before answering directly, let's start with this question.  Suppose you're thirsty: If person A offered you a cup of water for 50 cents and person B offered you a cup with the same amount of water for $3, which would you pick?  The obvious answer is that you would go for the cup that costs 50 cents.  Yet, in practice, numerous statistics show that many of us would opt for the $3 cup.  More on that in just a minute.

It is no secret that in the competitive world of bottled water, very often the highest priced brands (Perrier, Vittel, Voss) are perceived as being the healthiest, or "best" varieties.  Yet at the chemical level, their isn't any discernible difference between those brands and the Walmart bulk variety.  Marketing plays a large part in the success of a bottled water product, but there is more to it than that.

Let us now take a look at the world's best soda (some of you call it "pop").  If you wanted to find the best soda in the world, where would you go?  By the statistics and just pure carbonated taste, most of you, including me, would be heading off to McDonald's.  Yes, this assertion might be debated, but I'm standing on pretty solid ground as evidenced by this fact and especially HERE.

Even though McDonald's and the other companies above are selling water, they do it in such a way as to command a huge premium.  All of these companies offer products that are essentially just water, but at prices that would seem ludicrous without something else in play.  That "something else" is the good (great?) and sustainable business processes that are used to ensure that the seemingly generic products are truly superior, if not unique.

Along these same lines, we couldn't leave this discussion without bringing Starbucks into the mix.  Here is another company that sells flavored water (coffee, tea) at a huge premium.  As I was researching Starbucks for this post, I ran across a very interesting Master's thesis by Lauren Roby (Liberty University, 2011).  If you want to read it, fine, but if not here is the point that she makes and I echo:

Starbucks makes it's money by having business processes that lead to consistent, comprehensive quality control on every beverage it makes.  But going further, Starbucks extends their production process to include the construction of a certain ambiance for the customer.  The "feeling" you get when entering a Starbucks location is that, by being there, you are part of an elite group of people.  From the music, lighting, and furniture you just sense that this place is a cut above others.  

Because the business processes of Starbucks control both what you consume and how/where you do it, psychologically you don't have any qualms about paying $5.50 for a 30 cent drink.

The value of well designed and implemented business process can be immense.  Try asking your grandparents or someone from the Silent Generation if they would be willing to pay more than "four bits" (50 cents to the rest of us) for a cup of coffee.  They will most likely answer, "No", but only because they grew up with very stark ways of obtaining products like water and coffee.  The world doesn't work that way any more.

Done the right way, with the right approach, you truly can sell water for a profit. 

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