The tipping point and small business pricing
Updated: Dec 12, 2019
What the silly drinking bird teaches us about pricing
Remember those little glass bird dolls – with the silly red hats? You would position its beak within reach of a glass of water when its head was brought forward. There was a colored liquid in the bird’s belly and when you gently touched its head it would rock slowly back and forth and with each rocking movement a little more liquid would flow up the neck until enough liquid filled the head to – you guessed it - tip the head down into the glass. At this point the liquid would begin to flow back down into the bird's belly until the bird would stop rocking. You could start the whole process again by gently pressing on the bird’s head. Well that bird is the embodiment of the Tipping Point Concept. There are tipping points in sociology and in nearly every other field; in this blog I will talk about the tipping point as it relates to business, specifically pricing.
As I have said so many times in the past, pricing is one of the most difficult issues every business, large or small, new or well-established must tackle. There are so many ‘moving parts’ to pricing that it is always a daunting matter. One of the issues that all business owners have to deal with is the tipping point in pricing and the best way to understand it is to bring you the example of the Cofix coffee chain. http://www.cofix.co.il/en/
The Cofix pricing concept
In case you are new to the country: the Cofix coffee chain of fast-in-fast-out coffee shops offers not only a cup of coffee but just about everything in the shop – from pastries to sandwiches and soup in winter and even sushi - for 5 NIS a portion. They opened their first stores in 2013 and were a game-changer in the Israeli world of small coffee shops and many other small individual coffee shop/kiosks copied their model and lowered the price of a cup of coffee to anywhere around the 4-5-6 NIS mark. In their wake many other Cofix-wannabe chains opened with similar names and concepts.
It was a great marketing ploy since all a customer needed was one round 5 shekel coin to drink a hot, pretty-good cup of coffee (a bit smaller than the usual size). Throw down a 10 shekel coin and you got a cup of coffee and a pastry and you were on your way. Since then the chain has opened bar/restaurants and supermarkets as well, centered around the same one-price-for-nearly-everything concept.
Going from 5 shekels to 6 shekels
In January of 2017 Cofix raised their coffee shop prices to 6 NIS stating that for years they fought against ‘market forces’ but they couldn’t hold out any more and had to raise their prices to survive.
Now 6 NIS is still damn cheap – but I believe the combination of the big marketing splash of ‘only 5 NIS” coupled with the “issue” of having to add a one shekel coin to the 5 shekel coin to pay for a product, just made people angry. There was push back and a serious loss of business – and Cofix returned the price of coffee and many other items back to 5 NIS.
The tipping point business lesson
What really happened here is a business-life lesson for all business people - it is the lesson of the tipping point. Rarely will you ever see such a definitive, obvious moment of the proverbial tipping point, as the one shekel tipping point for Cofix coffee. Now one shekel will not break anyone’s bank and to be honest 6 NIS for a cup of coffee is still a good price, but the combination of the massive two-pronged marketing campaign when the chain opened based on their ‘everything for 5 NIS concept’ and the “we believe in being fair to the consumer” coupled with the rise in consumer awareness in Israel, especially via social media, created a perfect storm. For the Israeli public that additional one small shekel coin represented a Mason Dickson line, crossing that line meant war and, in this case, the public won.
Small business takeaway
So what’s the take away for small businesses? Firstly most small businesses will not and cannot make the national marketing splash that Cofix made when opening. Most small businesses cannot and should not make pricing their only differentiator. Cofix was selling to a mass market and saw the law of big numbers (in this case sell a lot of cheap coffee to a lot of people) – on their side.
Small businesses cannot depend on mass markets to survive especially in the service industry, where resources such as manpower and supplies may be limited. When your market is small and limited you have the benefit of being able to pinpoint with surgical skill exactly who your target market is, what they want and in many cases what they are willing to pay for any given product or service.
Following the tipping point
Keep in mind that a tipping point can go in either direction, place the price point too high and you may price yourself out of a market, but you may also find you have priced yourself into another market – a more high-end market. Price yourself too low and people may feel your product has no value and may be scared of buying from you. Think of the difference between shopping in a brick and mortar high-end boutique located in Kikar Medina (in Tel Aviv) versus shopping on Ali Express. The high-end boutique will only draw a certain kind of clientele while Ali Express (and their ilk) customers do not expect the highest or even second highest quality and will treat their purchases as such.
You cannot always control market forces or the tipping point in your market’s pricing range, but if you identify the right target market niche for your product/service, understand their pain and effectively market your value and keep your finger on the pulse of your competition, you should be able to build a successful and profitable business.
Do you want to open yourself to a more successful business? Are you lost in the social media jungle? Let me help you re-energize your business and rediscover your passion in your profession. We’ll work together to improve your marketing strategy and online exposure and find the perfect target markets for your business. Contact me today to schedule a free introductory meeting.