As a small business owner, one of the things I do from time to time is scan our online reputation. A quick Google search, a hop over to Yelp, a check of the forums at various coffee web sites, etc… it’s not something I obsess over, although like any business owner, I do like to see people saying nice things about us, and it does pain me on those rare occasions when there is a legitimate gripe.
Three Reasons the “Local Premium” is Fiction
March 25, 2011 by muddydogcoffee
During a recent reputation-surf, I came across a comment about us that made me grimace: “great coffee, but is it worth $12 a pound just because it’s local?” The author added that our $12 price was a 30% “local premium”, which is ludicrous (in fact, the average price of premium coffee in the Triangle at the time of that post was $12.91 per pound). The thought that we, or any other company, can or does charge extra just because we sell to customers who happen to live near our business is, well, absurd. Oh, that it were possible!
There are many reasons why you MAY pay more for something from a local supplier. But geographic proximity of the business to the customer, per se, is unlikely to be one of those reasons. So let’s talk about why in MIGHT seem that way.
Reason One: Clever Trickery (on the part of the “non-local” alternative)
Coffee is a great example of a product that is prone to cleverly packaged to deceive consumers. Specifically, smaller package sizes are used to make the beans seem less expensive. A $9.95, 12 oz. bag is actually $13.27 per pound. People say they see through this ploy, but in my experience, many (most?), in fact, do not. They buy based on package price, not unit price. We’ve thought about playing that game, but so far we have resisted.
Reason Two: Small Business Inefficiency
This, unfortunately, is a fact of life. Large business has many logistical advantages derived from their scale. Efficiencies in buying. Efficiencies in distribution. All these things add up to the ability to aggressively price their goods. So I concede that it’s possible for big business to underprice small business. I can tell you with certainty, however, that’s not the case with us. I survey prices of big coffee regionally every quarter, and make sure we are priced at or slightly below the average of premium coffee prices in the Triangle. But I just told you big business has efficiency advantages, so how could I possibly price below them? Lower margins is the honest answer. We live with less take-home pay just so we can be competitive. In my experience, most small businesses use the same model.
Reason Three: Small Business has Superior Quality
It’s tempting to compare our coffee to what you can get in a grocery store. Did you ever stop to think that maybe it’s actually better? Like a LOT better? Maybe the cost differential you’re seeing is a result of us sourcing better green coffee, then using better technology and more care to roast it perfectly.
I could go on forever. The point is that things are not always what they seem. And if you have a criticism of a small business, why not bring it to their attention, and give them a chance to at least explain what you think you’re seeing, before posting an anonymous, hit-n-run review online?