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Brandon Mills
Manager,
ZS Associates
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Jason Bell
Associate Principal,
ZS Associates
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John DeSarbo
Principal,
ZS Associates
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Kyle Heller
Associate Principal,
ZS Associates

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What Technology Companies Can Learn From my Caffeine Habit

Posted by Pramil Jain on Tue, Dec 15, 2015

shutterstock_314283185I used to get my daily dose of caffeine at Starbucks, but gradually, I have started going to Philz Coffee, the hip San Francisco-based coffee shop rapidly taking over the Bay Area. It’s even becoming my new workspace, especially on the weekends.

While fueling up at Philz last weekend, I started thinking about the possible reasons for this shift in my coffee drinking behavior. Is coffee better at Philz? It’s definitely different, but both places serve equally good coffee. Were there some service-related issues at Starbucks? Never! The staff has always been nice. Are there better food options at Philz? That shouldn’t impact my decision, as I very rarely get something to eat. I wasn’t able to find anything related to product or service that was influencing my decision making, so why Philz?

Being a consultant, I always prefer to support my thoughts with some data, so I surveyed 30 customers each from Philz and Starbucks. Below are some interesting results.

   

Question

Starbucks

Philz

How satisfied were you with the drink and overall experience at this “coffee shop X”?  (# of customers who rated their satisfaction at more than an 8 on a scale of 0 to 10, with 10 being the highest)

25%

26%

How often do you go to “coffee shop X”?
(Avg. number of days per month)

18 days

11 days

For each of your visits, how much time, on average, do you spend at “coffee shop X”?

27 min.

49 min.

For each visit, what is the average number of drinks that you order for yourself?

1.2 drinks

1.6 drinks

Average age of respondents

38 years old

27 years old

 

While these results indicate that both Philz and Starbucks are very highly rated by their customers, one interesting finding is that an average customer spends more time (almost double the amount) at Philz than the average customer spends at Starbucks. Also, customers visiting Philz are more likely to have multiple drinks. I later found out that Philz discounts refills by $1 when a customer reuses a cup. (This is a cute, little tactic to increase repeat purchases.)

Philz is part of the third wave coffee movement in which coffee retailers aim to offer high-quality, artisanal coffee drinks, rather than positioning coffee as a commodity. “You won’t find any lattes, cappuccinos, espressos or pre-brews,” the company’s website says. “Instead, you'll find over 20 customized blends made from high-quality beans from around the world.” In my survey, many Philz customers reported being pleased with the variety of coffees and how baristas try to make the coffee personalized to their taste.

As I was expecting, more young people visit Philz, according to my survey, which seems to be what Philz is aiming for, with its more casual atmosphere, long communal tables with electric outlets, and free Wi-Fi.

Philz is a newer player on the scene than Starbucks, having been founded in 2003, and it has a much smaller footprint—26 locations, and only about 74,000 Facebook fans compared with Starbucks’ 36 million—but Philz has been able to effectively penetrate the coffee business in California by focusing on a distinct target market, a niche product and a unique experience. That formula also can serve as a recipe for success for a technology company that’s trying to compete against the big fish.

There are many big players in the technology industry and it’s nearly impossible for a new company to compete with them. While the big technology companies want to capture bigger and bigger customer pools, newer and smaller tech players can, instead, identify a small but profitable customer target base. In the initial stage of the business, most organizations don't have the time or resources to be able to cater to everyone. Identifying a target market will allow them to focus their budgets and efforts on the customers with the highest profit potential. By focusing resources on a specific customer segment, even a new company can become the “Philz” of its space and can serve its customers better than the “Starbucks” seemingly on every corner.

Topics: tech, Differentiation, segmentation, target market, niche, Pramil Jain, Philz

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AUTHORS
Brandon_Mills-10924_headshot_small
Brandon Mills
Manager,
ZS Associates
Jason_Bell_11099_headshot.jpg
Jason Bell
Associate Principal,
ZS Associates
John_DeSarbo_thumbnail
John DeSarbo
Principal,
ZS Associates
Kyle_Heller_thumbnail-1
Kyle Heller
Associate Principal,
ZS Associates
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