At C-Level

Bakers Dozen

In 13th-century Europe Henry III instituted the Assize of Bread and Ale, a statute which regulated fair trade practices for bakers and tavern keepers.  In addition to setting prices, quality standards were also stipulated, with punishments that could sometimes be severe for non-compliance, including loss of limb. As lore has it, to avoid any possible malfeasance, bakers starting adding an extra roll when selling a dozen, in case one was burnt or of poor quality.  Hence the term "Baker's Dozen."

In today's market, the penalty for failing to deliver quality is less draconian, but no less severe.  If a product is tried and found wanting, consumers have plenty of other options and will take their business elsewhere.  So although government is no longer waiting to sever a limb, over time the negligent vendor may still lose an arm and a leg.

Of course, we all make mistakes sometimes.  Even those that have achieved the near-mythical six sigma defect rate by definition deliver inconsistent quality.  So maybe the bakers dozen isn't a bad strategy.  Give the customer something extra, as a matter of course.  Admittedly, most of the time you'll be over-delivering, perhaps leaving money on the table.  But sometimes, when things don't go as planned and your customers pay the price, getting that extra roll might make the difference between losing business or getting another chance.

We try to do that at SagePoint.  We plan to wow our clients with every project, giving them more than expected.  That way, if we ever miss the mark, our clients still feel like they got their money's worth and come back for more business.  Of course, we try hard to never miss the mark.  But just in case, we wrap up every project with a bakers' dozen, to make sure our customers never go hungry.  It works.

KFC, OOS, DOA

Ninety-nine percent of restaurant promotions are derivative.   So it shouldn't surprise anyone that the wildly successful Denny's Free Grand Slam deal would be quickly copied by someone.  And while imitation may be the sincerest form of flattery, it is not necessarily the best prescription for marketing success.  Just ask KFC.

The Denny's formula was brilliant: Give away a meal.  Replace a major media campaign with a single high-profile announcement (for them, the Super Bowl) and rely on blogs, Twitter, email and word-of-mouth to spread the word.  Then make sure you can execute.  Denny's did this by limiting the offer to dine-in customers only, so the table turns became the governor that saved the kitchens from imploding.  The result, as reported in this blog a few months ago, was a resounding success, strategically, tactically and financially.

This did not go unnoticed at KFC, which surely prides itself on having smarter marketing folks than Denny's.  In the midst of a strategically brilliant and well-executed launch of Kentucky Grilled Chicken, they smelled an opportunity more aromatic than its 11 herbs and spices.  Take the Denny's formula, but instead of the costly Super Bowl ads, launch it on Oprah (the Walter Cronkite of our generation).  Then let the bloggers, Twitterers and email-mongers take over.  A free Kentucky Grilled Chicken meal has got to be as big a draw as a Denny's Grand Slam breakfast, right?

Well actually, it was bigger, fueled by Oprah's imprimatur and the apparent ease of dropping by a conveniently located KFC outlet for a chicken dinner to go.  Unfortunately, as has been widely reported in the press, things did not go smoothly.  There were millions of problems downloading the coupon from Oprah.com (including mine, which I could never successfully print) and massive chicken Out-Of-Stocks in KFC's around the country.  As a result, the company resorted to offering customers rain checks that had to be mailed in.  To make amends, KFC gave the disappointed customers the rather modest and overwhelmingly unsatisfactory compensation of a free Pepsi for their troubles.   The result?  Grumpily hungry customers.  Negative PR.  And a disastrous promotion, even if it did generate massive trial of the new grilled chicken.

So what can we take away from this experience?  Mostly what KFC should have already known.  But just in case, here are a few lessons:

1. Simple is good.  Complicated is bad.  In an attempt to police double-dipping and control demand, the KFC promotion required you to print a coupon with unique bar codes from Oprah's website.  I'm sure this was a major factor in getting Oprah in on the deal.  But as previously mentioned, the bar code technology was a major problem, causing frustration, customer support issues, etc.  Contrast this to Denny's--Come on by and we'll give you a free breakfast, no strings attached.  Every marketer should heed the advice of Will Rogers: "Nothing you can't spell will ever work."

2. Operations first, marketing second.  This is an age-old problem in fast food.  It's what nearly killed McDonald's in the '80's and '90's.  The customer experience is the best way to build--and the fastest way to lose--brand equity.  Denny's recognized that their worst case scenario was long lines around the building (which is pretty good advertising, by the way).  If people didn't like the look of the line, they could turn around and go home.  At KFC, on the other hand, you had a steady stream of angry customers marching up to counters and wondering why there was no chicken, leading to explanations, excuses and confrontations that could not be worse for business.  I could write a book on this, but the Cliff Notes version is as follows: Big Marketing Ideas cause unnatural demand spikes that are operationally difficult to manage, causing long-term damage to the customer base while Marketing is off celebrating their short-term victory. 

3. If your franchisees aren't committed, don't do it.  This is a hard lesson and what makes a franchise system so very difficult to run.  Believe me, there is no person more capable of leading a group of franchisees than YUM Brands' CEO David Novak.  I've known David for years and seen him in action.  I'd follow him up Pork Chop Hill no questions asked.  So if his persuasive leadership didn't convince the franchisees to pony up on their food orders then this promotion was Dead On Arrival.

Naturally, KFC is spinning this as a terrific success, with five million coupons redeemed.  But sometimes success can hurt you worse than failure.  I bet it left a nasty aftertaste with Oprah, too.

Costco Wisdom

Great interview in Fast Company with Costco CEO Jim Sinegal.  If you want to increase your odds for success, save the money on consultants and instead learn to lead by these principles, which Sinegal espouses:

• Take the long view.  Yes, short-term success can make people rich.  But as we're seeing vividly in today's market, it can also make them poor.  Better to create something of enduring value.
• Treat employees extremely well.  Many companies view labor as a line item on the P&L.   Accountants notwithstanding, they should be on the balance sheet, as a capital asset.
• Don't listen to analysts.  They have a different agenda than the leaders of the company (we hope).  Analysts will try to run your business by maximizing EPS on quarterly cycles.  Don't let them.  That's a recipe for eventual failure.
• Know and respect your competitors.  Some noveau CEO's take pride in ignoring the competition.  Big mistake. 
• Know your business from the ground up.  Maybe the basement up.  This can only happen by direct and frequent contact.  Managing by Walking Around has never gone out of style, only out of practice.
• Be willing to try new things and be willing to live with failure.  I had no idea Costco.com sold coffins.  Sounds like a dumb idea to me.  Turns out it works.
• Stick to your guns.  I'm guessing there have been thousands of temptations for Costco to fudge a little on their 15% in-store margins.  The strategy is more important than the incremental opportunities.  Many companies have suffered death by pinpricks. 
• Be honest.  In the long run, it's easier.  Plus, you sleep better.

Reading this interview gave me one more reason to like Costco.

Casual Dining is Reeling

Few industries have been hit harder by the economic crisis than Casual Dining.  My alma mater, Darden Restaurants (DRI) is trading below $17, from $40 a year ago.  Brinker (EAT) has gone from $25 a year ago to $6.70 today.  Similarly, Cheesecake Factory (CAKE) is down about 75% vs. year-ago. While perhaps the market is overreacting, the dramatic trends should not be surprising.  Some recent research shows that 71% of Americans are reducing their dining expenses.  The  market has concluded that the casual dining heyday is over: Traffic is declining quickly and won't bounce back for a long while.

Good restaurateurs understand that the answer cannot be higher prices and lower portions.  That's a death spiral waiting to happen. 

If I was running a casual dining chain, I'd build my strategy on the premise that people are eating out less, so they want a really special experience when they visit a restaurant.  Consider these:

1. Shift the mix to premium quality and higher-priced items that generate more penny-profit, even if it means discounting them or reducing prices.  

2. If you don't take reservations, now would be a good time to start.  I bet long lines aren't your problem these days, even on Saturday nights.

3. Take service to a brave new level.  Get your service manager on the floor during all business hours, greeting every customer at least once, comping a dessert, leaving business cards, learning names, getting emails, etc.  Make each of these guest feel very special.

 
4. Advertise like each visit will be an extraordinary experience, even if you're not Ruth's Chris.  (For some reason, I'm reminded of the Austin Powers provocative but unpretentious trailer back in 2000: "If you're going to see one movie this summer, see Star Wars. But if you're going to see two, see Austin Powers.")

5. Mine your database.  Invite old customers back for something special.  Better yet, call them.  (Yeah, I know that sounds crazy, but you can bet the story will be told.

6. Stick to the basics.  Unless you've got a killer product idea, you're better off promoting what you're famous for and good at.  It's not worth advertising marginal product news, as you'll be disappointed in the returns.

7. Try to make the place look full.  Close off the view of empty rooms and sections.  If need be, close part of the restaurant for remodeling.  Attract large groups (meetings/businesses/gatherings/etc.) on weeknights with generous offers, even if it's at breakeven economics.

8. And of course, need I say, QSC?  Don't cut labor if it leads to slow service, dirty bathrooms and littered sidewalks.

9. Corporately, it's time to close your lowest-performing stores that are showing losses, or worse yet, burning cash.  In the same quarter, add the severance packages from the home office people you choose to let go. Wall Street will give you some credit for these actions, and it's doubtful the stock will get hit much worse from a single drunken sailor story about your awful quarter.

10. And then hang on.  If you've been doing this awhile, you know the good times will return, eventually.

Actionable Listening

Todd Defren in his PR-Squared blog points to a bleeding-edge customer-care trend—something he calls Actionable Listening (vs. the so-1990’s “Active Listening.”) Active Listening is answering the phone and learning to sound empathetic. Actionable Listening is scanning the horizon for problems and quickly fixing them. That requires two things—technology and empowerment. (Well, three really. You also need a pretty heavy dose of commitment to the customer, perhaps the ingredient in shortest supply in these troubled economic times.)

Defren cites a great example of Comcast, historically a customer-service disaster which is trying to right itself. Not long ago he complained on Twitter about his Comcast service. He immediately received a call from Comcast to check his line and address the problem. How cool is that?

I had a similar, although less dramatic experience with Actionable Listening not long ago. I had some questions about my American Express bill. I always pay in full and on time, but saw a finance charge on my bill. So I called. Turns out I had completely missed paying my previous month’s bill. But without hesitation, the rep dropped the charge, even though I hadn’t complained or been angry. After all, it was my mistake. I admit to being floored by her proactive offer, and equally so by the organization that had empowered her. Yes, I’ve been an Amex member for decades and have spent a lot of money there, information that I’m sure was available to her. Still, her response was an exceptionally nice touch, and further cemented my kinship with American Express.

Too many companies think answering the phone and sending a computer-generated response within 24 hours is a metric for excellence. Wrong. Good enough is not good enough any more.