Cupcakes, Coffee, Product Development and Pricing

Posted on Aug 16, 12 in Blog Consumer Financial Utilities

I remember my mom making cupcakes. Opening up the Pillsbury cake mix, blending all the ingredients, filling up the little paper cupcake shells. Popping them into the oven. They are probably one of the easiest desserts to create. You could think of them as a commodity item.

Check that…they used to be.

If you’ve been following the developments in the cupcake world, you can see that it’s like the Starbucks experience all over again. Now there are shows (Cupcake Wars) and shops (Sprinkles) dedicated to the once-humble cupcake.

You can’t find a regular cupcake like mom used to make unless you make it yourself. Even the local grocery store has to bling out their cupcakes just to compete.

It really is an amazing transformation that can happen with any product or service. Instead of taking costs out of your product, try adding back quality and increasing price in conjunction with value.

That’s why cupcakes are $5 each when they once were $.50.

Of course the Starbucks example is legendary. In my lifetime I could once buy coffee for $.10 a cup (and I like to think I’m not really that old). Coffee over $1.00 was unheard of, unless you were in New York City or Paris.

The latest craze to hit consumers is the Greek-styled yogurts. The story about the Chobani founder, Hamdi Ulukaya is a classic example of adding back quality, raising price and redefining a product category. The founder purchased a yogurt plant from the giant Kraft Foods. Instead of introducing another “commodity” yogurt, he completely changed the game. Now all the yogurt manufacturers are trying to get their Greek yogurts into production and distribution just like Chobani.

Avoid racing to the bottom in your product category by taking out ingredients, services, support and value. Instead, add more than the other guy and price appropriately. There is always room at the top for quality.

Companies ultimately define themselves. You are only a seller of commodity products if you choose to be.

Mark DeBellis