First Starbucks announced their Finca Palmilera $7 cup of coffee made with Geisha beans from Costa Rica.
Now a new coffee, called Black Ivory, is being introduced by a Canadian entrepreneur, Blake Dinkin, for a price of $50 a cup. What’s so special about Black Ivory coffee beans?
They are processed in the digestive tracks, and fished from the excrement, of 20 elephants from northern Thailand. Sounds appetizing, doesn’t it?
What’s so good about these coffees?
Those who have tried these premium coffees say they taste better. They are smoother, more flavorful, and not at all bitter. Good marketers might wonder how much of the rave reviews are related to the actual taste, the price, or the placebo effect.
Most likely, all these factors play a part in the perception of the better taste. In fact, Jimmy Kimmel performed a taste test on the streets of Hollywood. Both cups in the test had regular run of the mill coffee. As with classic tests of bottled versus tap water, those that thought they were getting the premium coffee confirmed that it tasted better while those that thought they were getting plain coffee complained about it. Ah yes, the placebo effect is alive and well.
Why these beans are so expensive?
In the case of the Starbucks variety, the beans can be traced to Ethiopia. The Geisha tree was introduced to Central America many decades ago. As recently as 2010, the popularity and scarcity of the Geisha beans drove their price up to $170 per pound. This attracted many more suppliers, and the supply has driven the price down to between $40 and $50 per pound today.
As for the Black Ivory beans, they are hand-picked Arabica beans that are processed in the digestive tracts of the Thai elephants. Apparently, their journey through the elephant causes the beans to lose their bitterness and gain some very exotic flavors. The process is very labor intensive and time consuming since the journey through the elephant alone takes 15 to 30 hours. Furthermore, many beans are lost in the process, and it is costly to properly care for the elephants. As a result, 72 pounds of raw coffee cherries result in only 2 pounds of Black Ivory beans, which sell for roughly $500 per pound.
Current distribution
The Geisha beans are available on the Internet for different quantities and price points. Starbucks is selling an 8-ounce bag for $40, and supplies are selling out. Starbucks is experimenting with selling its Finca Palmilera coffee for $7 a cup in Seattle and other selected locations— 48 so far. If this test proves successful, they will be distributing this premium coffee and beans more widely.
Black Ivory coffee was recently launched in luxury hotels in northern Thailand, the Maldives, and Abu Dhabi at $50 per cup. Roughly 8% of the total sales go toward the health care costs of the elephant herd. As with the Starbucks beans, the initial batch of 150 pounds that were produced sold out quickly.
Great positioning makes high prices possible
While Jimmy Kimmel and other comedians (Conan O'Brien and Jay Leno) are making fun of the people willing to such pay high prices for premium coffees, marketers know that effective positioning is the secret behind premium prices. Here are nine reasons why.
- Even an unknown product from an unknown company can be positioned (validated) by its price.
- Uniqueness is one of the best ways to command higher prices.
- The scarcity of the coffee beans in both cases support their uniqueness.
- Both coffees have a great backstory that serves to reinforce their uniqueness and justify their pricing.
- Premium products and prices confer status on those that consume them.
- The placebo effect is also operative where many people believe what they are told because people taste with their minds as much as their tongues.
- Positioning products as premium, for whatever supporting reasons, enables the company to make decent gross profit margins so that the desired quality can be achieved and maintained.
- Buyers of products positioned as premium tend to be loyal customers. Buyers that shop on price typically are not.
- Even during difficult economic times those that are not wealthy often buy premium products as a luxury to cheer themselves up.
Will these coffees sell?
By all indications so far, the Starbucks Finca Palmilera and Black Ivory coffees will continue to sell well. Just as Rolex watches, Christian Louboutin shoes (with their distinctive red soles), Vertu phones, Mount Blanc pens, and other premium brands that have lasted the test of time, super premium coffees give their consumers what that they want.
I, for one, will continue to buy the house coffee when I go to Starbucks. Growing up in Trenton, New Jersey, it is good enough for me. However, I would love to market these super premium products because it is loads of fun.