On 10th January 2005, McDonalds USA announced it was entering the premium coffee industry. It would sell premium coffee at a premium price. A business recognised for fast food at a low price point is re-engineering itself to provide an up-market coffee, yet coffee is looked on as the second most common commodity product after oil.

Is this an opportunity to go head to head with Starbucks? I think not. I believe a Starbucks consumer will remain a Starbucks consumer and will not shift to McDonalds, but as Starbucks philosophy states; there is a retail opportunity for businesses that develop a third place.

What is a third place? Consumers spend time at home, their first place; at work, their second place and then often have a favourite third place.

As a Brit the traditional third place for blue collar males was the pub. For many Generation X it may be the gym. For many baby boomers it is Starbucks.

One of the keys to success is that if you have a retail opportunity to develop a third place and succeed, you can start developing premium priced products. I believe part of McDonalds strategy is to strengthen their third place in the minds of their target market.

Third Place Retailers

In the UK 60% of people who visit their local garden centre bought a cup of coffee. Garden centres intentionally or unintentionally have developed a third place for their target consumer. Restaurants and bars are an obvious third place for another segment of the market place. Third place retailers can include furniture companies (IKEA in some locations) farmers markets and specific shopping centres.

What makes a retail organisation become a third place in the consumer's mind? They are retailers who really understand their target market and make that target group feel like they are in a home away from home. They select store graphics and furniture that make their customers feel at home, plus they inevitably provide a refreshment offer. Why go to this much trouble to make the customer feel at home? Consider Starbucks, where their target customer visits them on average 18 times a month and purchases a premium priced product.

Third place retailers also realise that it is more than the visual graphics. The look is important, but equally important is how the customer feels and that relates to customer satisfaction, not customer service. Customers want to feel they are individuals and to be treated as such. This means team members need to be trained in customer service, but also have an understanding of the customer as an individual and what pleases them as an individual.

Lovemark Loyalty

Some retail consultants use the term lovemark loyalty for organisations that have achieved this business success. A lovemark is a brand that the consumer loves to own (BMW, Starbucks, Virgin and Burberry all aim to be lovemarks.)

Customers can fall in love with the product, but not the store. To fall in love with the store it has to be a love zone in the customer's eyes. In other words the people employed have to genuinely care about the customer, the product and the store environment.

Many may believe this to be self explanatory, but I recently purchased my lovemark car. When my wife and I went to the show room to pick the vehicle up, the love zone customer service was a long way off the mark. My wife was ignored and we were left waiting, without an explanation, for twenty minutes. I was also advised they would contact me within one month to check on their customer service, three months later, Im still waiting.

The key to success is that as the perceived image of your product increases, the standard of customer satisfaction from your team members also needs to increase. It is a real challenge and often misunderstood by many businesses. For those that do, third place retailing presents huge opportunities.