Escaping the Commodity Trap

Pricing is an important part of any product strategy. As such it should include not just the price of a unit of whatever you’re providing but the total cost of acquisition. That is, price includes costs of searching, acquisition, waiting time, and whatever else comes between desire and fulfillment.

The assumption in rationalist economics is that lower prices ceteris paribus (to borrow another fiction from economics) will increase demand. Perhaps – if your product were a pure commodity. If you’re providing, services, software, sugar cookies, or almost anything else; neither low nor high pricing is obviously correct. Pricing implies attributes of your product, which you do not explicitly state.

I had time to ponder this recently while waiting in line at a bagel shop. Bagels are hardly exotic. Their very fbagelamiliarity, like pizza, ice cream, and smart phones, allows for endless debate. Needing a couple of bagels and already being in lower New York City of a Sunday morning, why not stroll an extra half mile to semi-famous Black Seed Bagel shop.

The unassuming space was perhaps 20 feet wide, but easy to find by the queue outside. Behind the counter was a table strewn with bagels and behind that two large ovens. Diners hunched over the few high tables in the dim dining area. Most just stood where they could squeeze in waiting for their numbers to be called, so they could pick up their sandwiches and leave.

Having to wait in line does afford chance for stray conversation. The two twenty-something women in front of us assured us that these bagels were worth the effort. After getting to the head of the line, I asked for “multi-everything bagel,” only to be told they were out of them. I settled for a sesame and a multigrain.

The clientele were not here for a bargain. My survey of a dozen providers around Boston and New York found a median price of one dollar. At Black Seed, they cost $1.50. At the current New York city minimum wage of $8.75/hr one could add $3 to the total tab for waiting time or perhaps $3.00 per bagel. That afternoon, we stopped at the venerable Zabars on the upper West Side. The wait was minimal and the bagels $ .95 each.

Were Black Seed’s “better?” Back home over a late supper of smoked salmon and bagels, we did a taste test. Zabars beat Black Seed and local standard Rosenfeld’s. Black Seed’s multigrain bagel, in the picture, was airy in the sense that it had extra empty space. This “benefit” both reduces calories, provides transparency, and allows you to see what’s in your sandwich.

De gustibus non est disputandum, but the Black Seed experience was distinct. In contrast, the nearly frictionless transaction of buying bagels at countless other places seems immediately forgotten.

Whether Black Seed’s physical product is superior or its cafe’s inviting is, of course, irrelevant. Through social media, a superior online presence, and inspired marketing It has escaped the commodity trap.

As an anonymous bard might have phrased it:

As you wander through life
Whatever be your goal
Keep your eye on the bagel
And not upon the hole