Turning a Commodity into a Premium Product

In the marketing world, having your product labeled as a commodity can be a death sentence. Often, one consumers believe all products within your category are more or less the same, the only way to distinguish yourself is by offering the lowest price. This is no fun! It drops margins down to the minimum and also leaves little room for creativity for good marketing.

At least this used to be the case. Starbucks is a shining example of what a company can do to turn a commodity into something more, and they have done it with good strategy and effective marketing. It started with creating a unique in store environment. Instead of having a small, in and out type of location, Starbucks started the process by putting couches, tables, playing music and offering WiFi in their cafes. This move was important to differentiate itself from the competition. Starbucks also offered endless customization and emphasized customer services from their baristas.

Instead of pounding these differentiating factors into consumer minds through commercials, magazine ads or other advertisements, Starbucks made another interesting strategy decision; they let word of mouth and curiosity drive customers to their cafes. This move saved them money that they could reallocate toward expansion and improving the cafe experience.

Finally, Starbucks made it's boldest move at the register; by charging almost double for a comparable product to what was offered at Dunkin Donuts and 7/11. Paired with the cafe experience, customers were happy to pay the extra since Starbucks was now perceived as a luxury product. Getting coffee at Starbucks was less about a quick caffeine hit or a warm drink. It meant being social, or relaxing, or studying with music, and this change left competitors scrambling to match the brilliant shift in the product category.

Sometimes in marketing less is more, and Starbucks made this an integral part of their philosophy. They  teamed their marketing department with their business strategy team and realized that a minimal marketing campaign built curiosity and drove consumers to the cafes. All in all, this formula turned their coffee from a commodity into a premium product with enormous margins. We will see if more commodity producers can replicate this success to build differentiation and minimize the price wars that come with being commoditized.