Are you Kidding Me?

There are times when you run across a news story and just have to wonder if the author, or the company on which he or she is reporting, perhaps, are having a small practical joke on their readership. As I noted in our discussion of April Food’s jokes perpetuated by businesses, this sort of thing isn’t actually common, at least in the United States. Everyone like a good joke – almost everyone, at least – but very few people enjoy being made fun of by people who are also asking them for money in the form of consumer purchases, and even if they do it’s difficult to imagine anyone who would like this sort of practical joke enough to increase their consumption of the company’s product. But some people do insist on trying advertising of this type, and thus I had to look twice when I saw the story online about United Airlines putting smaller seats onto some of its aircraft…

You can pick up the original story off the Chicago Tribunewebsite if you want to, but basically what United is doing is re-configuring the seating on its CRJ regional aircraft to include an extra row of economy-class seats – in effect, adding 4 passengers to the capacity of each flight, or just over 6% more. They are doing that in part by introducing thinner seats – specifically, seat units with thinner backs and bottoms, although as far as I can tell, not any narrower than the existing seats on the CRJ models. The company insists that all of the seats (including the new ones) will have just as much legroom as ever; that the space savings in the thinner seats frees up enough room for an extra row of them, and further, that the new seats are light enough to make up for the weight of four extra passengers as well…

Now, if the company is telling the truth about the seat sizes – and there’s no reason they should try to make the seats any narrower, since there would still be no way they could fit an extra seat into each row – there shouldn’t be much effect on your personal experience in flying on one of their “upgraded” CRJ units. Flying on a CRJ is already a miserable experience if you are over 5’10” or weigh more than 200 pounds, but unless the new seats are less comfortable to sit in (which would be a real challenge in itself) I’m not sure why the average flyer would care. Unless you are actually sitting in the new last row of seats there shouldn’t even be much impact on how long it takes to board or deplane the aircraft. And it is possible that this is the move that all of the airlines have been looking for…

Consider that United is going to put this modification onto about 500 aircraft; if each airplane averages just two flights per day (allowing for maintenance and down time between flights) that’s 1,000 flights, or about 4,000 additional passengers – about 1.5 million additional customers per year. If each of those passengers is paying $100 for their tickets, that’s $150 million per year in additional revenue, supposedly without any increase in costs relating to salaries, advertising, aircraft depreciation or maintenance, or even fuel. The airline will literally be drawing more profit from each of its airplanes on each of its flights, rather than attempting to squeeze more money out of customers with an additional round of preposterous add-ons and infuriating service fees…

It remains to be seen if this new strategy will work, largely because it remains to be seen if the new seats are actually as comfortable to sit in, if the legroom and personal space are really unchanged, and if people react well to learning that their new seats are “thinner” than they were previously. But compared to slapping on new fees for breathing, sleeping or sneezing while on board, this concept looks like it might just work. Even if, on the face of it, the headline is enough to make you wonder if they’re kidding…

Baking Up Value

Let’s keep the product development and value theme going for another post and consider a new development in one of America’s most over-developed consumer products: the common hamburger. If you’ve been watching the news over the past few years – and I hope you are; it would be sad if the only place you get your news is from me – you’ve probably seen stories about the various crimes against nutrition and occasionally sanity perpetrated in the guise of specialty hamburgers. There’s a 5,000-calorie chili cheeseburger called the Landfill Burger from Max & Erma’s; various “challenge” burgers ranging from two or three pounds up to the 123-pound “Main Event” offered by various pubs; even the 9-patty tower of madness called the T-Rex Burger offered at selected locations by Wendy’s. But until now there have been very few examples that offered additional value for the customer without costing the company extra in terms of materials, labor, reputation or the occasional product liability lawsuit…

A story off the NBC News site brings us word of a new product being tested by Wendy’s for possibly deployment later this summer: an upscale burger with a pretzel-style bun. The company has been introducing a number of new products as they attempt to maintain parity with McDonald’s and Burger King in rolling out new food items, and it appears that Wendy’s is trying to position itself as slightly more upscale than the competition, much the way Target did in its three-cornered fight with Wal-Mart and K-Mart. Pretzel-style breads and rolls have been gaining popularity in several markets over the past few years, and if Wendy’s can get this product to market before the competition duplicates it they should be able to market the sandwich as an “upgrade” over more common burgers, and therefore worth paying a premium to obtain. What makes this concept so brilliant is that the value created for the customer isn’t going to cost the company much of anything…

Pretzel-style buns are somewhat more complex to produce than conventional bread rolls, but not that much more complex or expensive. Certainly not compared to the costs associated with adding extra cheeses, sauces, or worst of all additional meats to the sandwich as most previous “premium” burger products have done. But this addition will produce a tangible change in both the appearance and taste of the final product – an improvement, in fact, to anyone who likes pretzels – at very minimal cost to create and effectively no additional cost to deploy (the new buns can be produced at the same bakery, shipped in the same trucks, heated in the same warmers, and so on). All they need now is an effective ad campaign, and they should be off to the races…

Even if this does work it’s difficult to say how long any advantage the company gains will last. Pretzel buns are potentially valuable and are currently rare, at least in the fast food industry, but they aren’t particularly difficult to imitate. If Wendy’s is successful with their new product, I would fully expect to see other companies offering pretzel burgers (imitation) or some other kind of non-tradition hamburger bun (substitution) as soon as the impact of the value added becomes clear. On the other hand, McDonald’s has been selling the “McRib” product off and on for at least twenty-five years now, and Burger King only just brought out their equivalent sandwich this spring. This could get interesting…

Trendy Water?

Over the years I’ve brought you any number of stories about things that are supposed to add value to a product – or provide value to the customer – that are better examples of wishful thinking than they are of the value added concept. My favorite one is still the “Instant Ice Cube” product – “Just pop in the freezer!” – which turns out to be less hype than a disposable ice tray filled with purified water that you can freeze, take the ice out of, and then (hopefully!) recycle, all for just ten times the price of a regular ice cube tray and a bottle of purified water that you could use to make over and over again for days. The product never sold that well, partly because the price was completely ridiculous, but mostly because pouring water into an ice cube tray isn’t difficult enough that people would be willing to spend an extra $10 on it; hence, no actual value was added to the product. At the time, I could not imagine a more laughable attempt to add value to a product, but it turns out that there is…

A story this week on Salon tells the story of a new Nestle product called “Resource” – a bottle of purified water marketed at women who are looking for more of a lifestyle accessory than a hydration resource. That’s it; that’s the entire value added by this product. Apparently, the company has developed an advertising campaign that shows women doing things that would appeal to women who are (or want to pretend that they are) trendy, fashionable, and upper-class, in the hopes that customers will purchase the bottles and carry them around as an actual accessory or status symbol…

Now, as loopy as this sounds, it’s not the first time this sort of thing has been attempted. Many years ago there was a campaign by Perrier extoling its supposedly “natural” carbonation and the quality of its water as being superior to all other sparkling waters then on the market, and we have also seen companies try this with “still” mineral waters like Evian and Fiji Water. But in all of those cases the company added (or at least claimed to have added) something to the basic nature of the product; getting the water from exotic sources with superior taste or bubbles or whatever. Resource isn’t on the market yet, but so far there isn’t any indication that the company has any special argument for why you should buy it other than its value as a lifestyle accessory or a status symbol or anything else that you couldn’t also get by pouring water into an empty Resource bottle and then carrying that around with you instead…

I could be wrong about this, of course; there were apparently enough people out there who were buying the plastic water bottle with $40 worth of crystals hand-glued to the outside (and tap water on the inside) for that company to last a couple of years. And there is also no indication that Nestle plans to price Resource any higher than the drinking water they already sell, in which case this is no sillier than Arrowhead water or good old Sparklets water doing the same thing. But if Nestle is going to try to sell this stuff as a premium product they’d better start looking into anything else they can include to add some additional value…

That’s Disgusting!

Anyone who has ever stayed overnight in a hotel or motel has probably experienced a moment of disquiet on walking into their room for the first time. In a high-end facility it’s easy to convince yourself that the Housekeeping staff has laundered every piece of cloth in the place and sterilized everything else until you could do surgery on the coffee table or assemble electronic components in the sink. But even those exceptional cases you know for a certainty that hundreds, if not thousands, of strangers have slept in the same place in which you’re about to, and in middle-price and economy properties you’re counting on the efforts of a single hideously over-worked and under-paid employee to take care of everything in the measly amount of time the company allows per room. It’s almost enough to make you want to take a black light and inspect the room – and, if fact, Best Western has started doing just that…

A story running today on the CNN Travel page explains that Best Western International has just announced a new cleaning program that will include ultraviolet sterilization procedures for just about everything in their rooms that can’t be washed, comprehensive washing of everything that can be washed (not just sheets and towels but pillows, blankets, and so on) for each new guest, and the use of black light inspections to detect “biological matter and other particles.” The company insists that its facilities have always been this clean, but since the technology now exists to guarantee that every room meets their standard every time, it’s only sensible to deploy the equipment. Pilot projects have demonstrated that this program adds significantly to guest satisfaction for a minimal increase in operational costs…

What makes this initiative interesting in a business sense is how much value it adds for the customer relative to the cost incurred. We’ve talked in this space about attempts to add value in hotel properties that do nothing of the kind (e.g. business centers and restaurants that are not open when needed) or that actively subtract from the value of the room (wi-fi services that cost extra, complimentary breakfasts that a diabetic can’t eat, etc.), but one of the universal requirements of hotel guests is that the room (and its contents) be clean, or at least clean enough to use without anxiety about what previous guests may have done there. If Best Western’s new "I Care Clean" program can increase their customer base by even a single percent it should pay for itself in a matter of days, if not hours, and there’s no telling how much business it might generate from improved customer relations…

And who’s even mentioned the potential savings in Health Department fines that will be avoided by the new cleaning and inspection program yet?

The whole idea behind the “value added” strategy is to increase the value provided for the customer at the lowest possible cost to the company. If Best Western can provide rooms that are cleaner than you would find at a Four Star hotel for a fraction of the cost, they have an excellent argument for why you should give them your business as opposed to any competitor. If they can do so at minimal additional cost to themselves, they should also succeed financially. Of course, just buying the gear isn’t enough; they’ve also got to train the Housekeeping staff to use it – and make sure that local management follows through. As with most value added programs, it’s not enough to just say you’re implementing one; you have to actually produce the value when the customer arrives. But this one seems like it might be worth keeping an eye on. And if you own a business, you might consider whether you could try a similar approach…

Don’t Knock It

I was skimming through a bunch of news aggregation sites the other day when I ran across a new idea in value added that I thought might be worth sharing with you (assuming that anyone is actually reading this). We’ve talked about the concept of Value Added strategy in this space a few times, but for anyone joining us late, it’s the idea of adding something to an existing product in order to make it more attractive to potential customers, which usually means giving the product a function or value it didn’t have previously – hence, literally, “adding value” to it. There have been some dandy examples hitting the market in the past year (my favorite is a product that purports to be a primer and paint all-in-one, but I have to admit that the wireless photo-printer is good, too – snap a picture, hit print, and your pictures are ready on the printer rooms or miles away), but some products are harder to add value to than others – such as real estate, for example…

I don’t mean to suggest that value added is a new concept in real estate; far from it, in fact. Most of the developments in the real estate industry over the past century or so have revolved around adding value to a house to make it something beyond a large covered area in which to store your belongings. Thus, you have such additions as central heating and cooling, built-in appliances, network cable runs, and communities of people with similar social and economic needs with facilities you can use, like pools and basketball courts. The problem is that, as so often happens with added features, all of these things have become standard, or even expected, to the extent that they are no longer selling points. These days people will expect new appliances and pre-run cabling in any new house, and concierge services in any community or development. Even community facilities and services are starting to pale, leading to increasing efforts to come up with some new amenity that will draw the purchaser’s attention. I’ve never seen anyone try offering free booze until last week, however…

A story on the Associated Press by way of The Southern.com tells the story of a woman trying to unload a townhouse in the Chicago area who has decided to include a $1,000 credit for the bar across the street after failing having trouble finding a buyer. I’m sure that the sort of people who disapprove of alcohol, bars, or anything else that people do for run will start complaining about this offer any time now, assuming they haven’t already – but the idea struck me as pure genius. Partly because this offer has the potential to add very real value to the property (anyone who drinks on a regular basis would find such a credit to be extremely useful), but also because the bar in question is a neighborhood landmark that has been in business for 113 consecutive years, and anyone wanting to meet the neighbors, make friends in their new neighborhood, and generally feel a sense of community right after moving in could make use of such a credit in ways that have nothing to do with alcoholism…

I find myself wondering if other sellers shouldn’t be looking for similar perks to offer with their property. If you were selling a family house in a suburban neighborhood you could offer a credit at a local daycare facility or preschool with the sale; if you were selling a resort property on an ocean or river you could include a boat, a surfboard, or credit in a local shop selling beach and swimming apparel; if you were selling a house in a bedroom community outside of a major commercial center you could offer a credit to the local auto repair shop or gas station, and so on. Some of these would work better than others – if the preschool is one of the ones with a nine-year waiting list and your offer included a spot on next year’s roster, the perk might be worth more to some buyers than the house itself – but the possibilities are certainly there. As silly as the idea might sound at first glance, it’s entirely possible that you could turn the Real Estate Crash around on this one simple concept: more value added…

I’m not saying it would work. But don’t knock it until you’ve tried it…

Would You Believe…?

I was leaving my favorite coffee house yesterday when a paper on the coin-op rack outside caught my eye; it was a USA Today issue, and the headline said “Airline bag fees as high as $450.” I thought it must be a misprint, or at the very least, that I was reading it wrong. So when I got home I looked the story up on the USA Today Website. Turns out they weren’t kidding; the era of the $400-plus airline fee is upon us. According to the website, Continental, American and United are all charging $400 or more for an overweight bag (anything from 71 to 100 pounds) on their international flights, with American taking the record at $450 per overweight bag. Now, as absurd as this might seem, it is still just for overweight bags on very long flights; the regular fees can’t be this outrageous, can they?

Well, if you continue reading, it turns out that they can. Spirit Airlines, who have been leading the way in airline fees for some years now, is charging $38 per bag for domestic and $43 per bag for international flights – and that’s for your first bag. Spirit also charges $30 for carry-on bags, if you pay for them in advance online, or $40 if you wait until you get to the airport. But they’re hardly the only ones pushing the envelope in this area; Delta is charging $250 to change an international ticket, and even some of the discount carriers will charge a quarter to a half of that for the same “service.” Probably the most outrageous of all, at least from where I’m sitting, are the charges to book a “free” ticket using frequent flyer miles; US Air charges up to $90 for these if you make your reservations by phone, and up to $50 if you make them online. Rather a lot for a “free” service, I can’t help thinking…

Now, we’ve all heard the arguments in favor of airline fees, and I regret to say that some of them even make sense. It’s true that if you don’t need certain of these services, you can save a lot of money by not using them – and it’s also true that if you don’t need a specific service, it doesn’t make sense that you’re being automatically charged for it. Unfortunately, that’s not how these programs are turning out. On most airlines people are bringing ever-increasing amounts of carry-on bags in order to avoid paying the fees for checked baggage, which is making boarding slower and more difficult and contributing to increased crowding in what are already overcrowded overhead bins and seating rows. There’s also some indication that the increases in fees are making it harder for people to fly, and are therefore cutting down on the number of passengers, which is just making the industry’s revenue problems worse…

At the heart of the matter, though, is the fact than many of the airlines have started using fees as revenue generation methods, in order to cover the increasing cost of jet fuel, landing fees, and other expenses. In theory, these fees would appear to be more palatable to customers than just raising fares – and indeed, most flyers are still choosing their flights based on price, not on which airlines offer the lowest fees. What keeps getting overlooked in this discussion is that Southwest Airlines, the only major carrier that does not charge baggage fees, is also the only major airline that has been consistently profitable in recent years. I can’t say for sure that this is cause and effect without examining the books of the companies involved – but the conclusion about constant fee increases looks straightforward enough to me…

The Next Round

We’ve been following the ongoing Coffee Wars for some time now; both in the sense of making posts about them in this space, and in the sense that members of my household are coffee consumers and take note of the changes. Just last week we obtained some McFood on the way to work, and my wife commented that the new McCafe products were very convenient for people who want cheap breakfast food and don’t feel like going to Starbucks. I’ve also noted in passing that McDonald’s offering of a $1 32-ounce iced tea product has been playing havoc with Starbuck’s iced tea drinks, most of which are both smaller than 32 ounces and cost more than a dollar. Now it would appear that the Starbuck’s strategy team has noticed this too, because they’re taking action about it…

A story available from Reuters by way of MSNBC notes the introduction of a new Starbuck’s size, which will be available only for iced coffee, iced tea and iced lemonade drinks. Called a “Trenta” in an effort to retain the company’s commitment to made-up words for things, it’s expected to be 7 ounces larger than the current largest size, and cost about 50 cents more. Early trials indicate that the new size will be popular, especially during the summer months and in states that do not experience cold weather as such, and that customers who want larger portions will probably buy it. The question not being addressed, either by the article or by the new product offering itself, would appear to be how this will help Starbucks to compete with either a $1 iced tea or the opportunity to obtain junk food along with your coffee and tea products…

Given the specialization of the Starbucks product line, which is built around coffee and tea drinks and a smattering of food items appropriate to eat with them, the company has always been more vulnerable to attacks by fast-food companies than the food-generating competition has been to their incursions. They also have to deal with the ongoing threat from convenience stores, which had been offering 32-ounce iced tea and even 32-ounce coffee products at much lower prices than a Starbucks outlet for years now. The company has had some success with strategies like infiltrating the fast-food market directly (using their low-cost “Seattle’s Best” brand) or co-locating in bookstores and the like, but the key innovations for Starbuck’s will probably have to come from non-coffee products, like the Starbuck’s Music operation, and value-added tactics like attempting to position their outlets as neighborhood coffee houses (offering meeting and work space, and social opportunities in addition to food and drink), since the company can’t expect to compete on a low-cost strategy and win…

In many ways, it’s a classic case of mixed strategies in competition, with Starbucks attempting to differentiate its product as being better (and offering more value), and McDonalds and the other fast-food companies attempting to provide parity at a much lower cost – the traditional low-cost strategy. It seems unlikely that the larger product will make that much of a difference in a strategy where the size of the product or cost per ounce isn’t really the focus to begin with; the people who want a very large cup of iced tea for cheap will probably still go to McDonalds – or to the Circle K up the street. But if the new product helps Starbucks to sell a more profitable product to their existing customer base it should improve their bottom line even without drawing in any new customers. And, of course, there’s no telling what their next move is going to be…

Begun, the Coffee Wars Have

Actually, there have been coffee wars going on in the United States for decades, and in recent years the efforts of various national and regional coffee-house chains to resist the all-conquering Starbucks brand have provided business teachers like me with hours of easily-accessible lessons. It’s just that one rarely gets the chance to paraphrase Yoda in the title of a post – and it looks as if the spread of the ongoing coffee wars into additional sectors is beginning to gain momentum…

According to a story in USA Today by way of Cincinnati.com, Burger King is about to respond to the highly successful McDonald’s premium coffee product line with the introduction of coffee-house coffee, plus lattes, mochas, iced varieties and related beverages. What makes this new lineup so interesting – and potentially so problematic for the competition – is that the coffee Burger King is going to be selling is made and distributed by Starbucks. It’s the “Seattle’s Best” branded coffee – the results of an earlier attempt by Starbucks to expand their market share by developing a different brand (and to some extent a second chain of coffee houses) – which means that the company won’t technically be competing with any of its own retail locations, but this still has significant potential for both companies. Burger King now has a real answer for the “McCafe” product line (as opposed to its fairly unimpressive “BK Joe” product concept), and Starbucks is getting back at McDonald’s – which has been taking aim at Starbucks ever since their premium coffee line came out…

It remains to be seen if this development will improve Burger King’s position in the larger ongoing fast-food wars. With so-called “premium” coffee now available in fast-food restaurants, convenience stores, gas stations and bookstores as well as coffee houses, the key to marketing that product category is probably not going to be stand-alone coffee houses, just as the key to marketing soft drinks is no longer the ubiquitous “soda fountain” operations of the earlier 20th Century. If you can get what is essentially the same beverage at Burger King for $2.00 that you would wait twice as long and pay twice as much for at a Starbucks, you are not likely to bother going to the coffee house – unless that was the whole point of your purchase all along…

As I have previously noted, Starbucks isn’t really selling coffee. Since the Starbucks beverage you pay $3.50 for is made from perhaps 20 cents worth of coffee and another 10 cents worth of milk, clearly the point isn’t just buying coffee. People go to Starbucks for convenience, for the experience, for a lifestyle, sometimes for a certain degree of community – and all of these are things you can’t get in a burger stand, except possibly the convenience. To remain competitive in the midst of these expanded coffee wars, Starbucks (and the other coffee house chains) will have to emphasize the ways they create value for their customer that don’t involve speed, convenience or lower prices. They will need to move away from the fast-food model and return to the concept of a non-exclusive neighborhood social club from whence they came; more “Central Perk” than McDonald’s…

Or they can try to fight the burger chains, matching their weakest features against their competitor’s strengths, and vanish onto the scrap-heap of history next to the neighborhood soda fountain…

Two Good Points

I was reading the online news this week when a story caught my eye about first class airline tickets becoming a thing of the past. We’ve discussed airline ticket pricing in this space before, so most of you already know that first class tickets are the largest single profit center on most flights – even if you double or triple the amount of service a first class passenger receives the 500% to 5,000% markup on the tickets will tend to make up for it. Of course, many of the people flying first class these days are just using free upgrades earned with frequent flyer miles, but (as we’ve also discussed in this space) that’s getting harder to do, and even when it’s possible those frequent-flyer coupons can only be “earned” by activities that bring in vast amounts of money to the airline in the first place. It seems highly unlikely that the airline industry would abandon that sort of profit center during an economic downturn, especially considering that it’s one of the last selling points they have that discount carriers like Southwest Airlines can’t provide. But then I considered the source of the article…

If you follow the link provided, you will notice that this story comes to us from the Melbourne (Australia) Herald-Sun and is based almost entirely on the performance of first class sections on Qantas Airlines. I’m not mocking Qantas, certainly; it’s a good company and a reasonably well-run airline, but I don’t really think that we should consider the flagship airline of Australia to be representative of all airlines in all parts of the world, which is what this story implies, and what the headline (“First Class to Become a Thing of the Past!”) declaims. Even assuming that the Herald-Sun is correct, and first class travel in the South Pacific and Southeast Asia is on the decline, this really doesn’t tell us much about how such fares are doing in more heavily traveled areas, such as the trans-Atlantic routes, the main trans-Pacific routes, domestic travel in the U.S., domestic travel in the E.U., or travel anywhere in Africa or South America…

In fact, it seems likely that the reason Qantas is having trouble with its first class tickets might have something to do with the super-premium service offered aboard the Airbus A380 and Boeing Dreamliner aircraft entering service in other parts of their market. Even without the use of premium tickets (and we know that the claim that the competition does not make use of such fares is factually incorrect) the competition is still drawing passengers with the promise of greater luxury and comfort. Qantas has not, traditionally, attempted to position itself as a high-end provider in the market, and thus has trouble being taken seriously as a competitor against airlines that feature private compartments, full-sized beds, and similar ultra-luxury options. This is unfortunate, because Qantas does, in fact, offer some very nice accommodations at quite reasonable prices. But, if they are not able to sell any of those tickets, then abandoning those fares may actually be a good strategic move. We’ll have to wait and see…

I call all of this to your attention because there are actually two good points to be made from this same article. One would be, of course, that just because a local provider is abandoning a market segment as unprofitable does not mean that this segment will die off in all markets world-wide. And, just as importantly, don’t assume that just because the strategy a specific company is planning to use makes no sense in YOUR region of the world, that it also makes no sense in their region of the world. One of the realities of the Global Economy is that it’s no longer safe to assume that market conditions in somebody else’s corner of the field exactly mirror the conditions in yours…

In fact, it never really was. It’s just that today you will get news stories (and blog posts) bombarding your in-box in which some bright person will be trying to get you to expend much more attention and energy than the tempest in their local teapot really deserves…

Flying Sideways

We’ve often spoken of lateral thinking in this space, although I don’t always call it that. Any discussion of competitive advantage in business – certainly any discussion of strategic management or organizational theory – will eventually include the concepts of creativity and innovation, and why having a sufficient amount of each is critical to the long-term survival of the company. What often surprises people – even people who should know better – is that the goal here isn’t having as much of each as you can possibly get in every department and work group of every commercial enterprise. All forms of innovative thinking introduce uncertainty into the calculations of running the firm, and uncertainty is inherently difficult to manage; this is why so much of the early work in Scientific Management was focused on making a company as mechanistic – as automatic – as possible. Consequently, the more common problem is getting management teams to show any creativity at all – despite the fact that sometimes the answer is as simple as just not booking certain seats on an airliner…

A story being reported by the Globe and Mail Online brings us the case of WestJet, a Canadian airline that was facing the interesting problem of wanting to transport passengers to destinations in Hawaii, but lacking the long-range aircraft necessary to do so. At the same time, the carrier was also seeking new ways to add value to its tickets, as most airlines are currently doing, because of the falling revenues in that industry. Ordering new, longer-ranged aircraft (like the 767 or 787 from Boeing, or the equivalent Airbus) would cost a small fortune and cause a delay of some years – by which time any current demand for travel from Canada to Hawaii would almost certainly have been absorbed by other carriers. But all of the company’s current aircraft were medium-range machines like the Boeing 737, which doesn’t really have the range for the Calgary to Hawaii run. Which meant either increasing the airplane’s designed range – or lightening its load…

Which led to the rather clever scheme WestJet is proposing, of leaving some of the middle seats empty, effectively creating a premium economy class, where passengers willing to pay a small premium (they’re thinking about making it $20 US) would be guaranteed of having an empty seat next to them. The lower weight requirements should lower the plane’s fuel consumption enough to cover the extra distance, but such a program would not require any modification to the existing fleet, let alone the acquisition of additional aircraft. Unlike the introduction of a Business Class section or even an Enhanced Coach Class section (more room between rows of seats, for example), such a program wouldn’t cost anything to set up; the same aircraft could even be used at full capacity on shorter runs when not needed for the flight across the Pacific…

Whether or not the relevant government authorities will approve this scheme remains to be seen, of course. And there’s no word yet on whether WestJet will keep the prices for this new class of seating down to a pittance level (to attract more customers) or if other carriers will try it simply as a means of increasing value to the customer (providing more space in return for a higher fare. But for our purposes, it can serve as an excellent example of lateral thinking – and a reminder that some crazy ideas are also brilliant ones…

Starbucks Update

It’s funny how often we’re seeing additional information about the current events I wrote about four or five months ago, especially when you consider that these stories really have nothing in common except for the oddball writing about them. In today’s example, I will ask all of you who still can to remember a post I wrote back in California about Starbucks attempting to expand their business through the introduction of new product lines, new promotional angles, and even new business partners. I was dubious about how well any of it was going to work, and apparently I had good reason to be…

A story being reported on The “Cluster Stock” website last week indicates that the Starbucks empire is indeed coming into difficult times, with 600 locations closing in the U.S. alone, and a 60% drop in its stock price from the peak a few years ago. One would expect the company to do something about the weaknesses in its business model, the primary one being the relatively high cost. In a worsening economy, it’s getting harder and harder to persuade your customers that it’s actually worth paying $3 for a cup of coffee (or $4.50 for a specialty coffee drink), and new competitors (like the Biggby Coffee chain profiled in this space a few weeks back) are taking full advantage of that weakness. Starbucks might also be able to do something about their food options or convenience issues, but they’re already faster than most of the companies in the industry, and food isn’t really their core competency. But apparently the company is balking at the idea of lowering prices…

According to the story (originally carried by Reuters), the CEO of Starbucks is maintaining that the firm will not lower prices, but will instead “look for fun ways to offer value.” One wonders what, exactly, this will entail. Their new “everyday blend” of coffee (profiled in my last post about them) does not seem to have been the sales booster the company was hoping for, and their special $2 iced coffee deal (if you’d already bought a regular coffee at Starbucks that day and still had the receipt to prove it and came in during the specified hours the special was valid) was so confusing that most customers didn’t bother to try figuring it out, and so precious that most people wouldn’t have bothered with it even if they did understand it. Similar offers, as well as short-term sales on seasonal products, new products or discontinued merchandise are unlikely to do any better, either…

The curious part, at least from my perspective, is that the margin on a cup of coffee is already the best aspect of running a coffee house. As I noted last fall, in my post about starting such an operation, most of the food choices sold by businesses of this type are break-even propositions at best, with only a handful of companies (generally ones that bake their own food products for sale) actually turning a profit on anything other than coffee. Of all of the things they could possibly do to add value to the consumer, the one that is least likely to impact the bottom line in a Starbucks operation is a price reduction. So why aren’t they even considering it?

It’s possible that the company is adhering to an old salesman’s adage: never lower your asking price for something; it makes it look as if the thing was never worth what you were asking in the first place. You have to wonder if Starbucks is trying to avoid letting their customers find out that they’ve been paying $3 for a beverage product that actually costs between 40 and 60 cents (depending on the formula you use), or if they’re just worried that if they lower the price to $2.70 the public will expect them to keep it that way. But in either case, the company needs to stop fooling around with “fun ways to offer value” and come up with something that their customers will actually be willing to pay for…

To SUV or Not To SUV

The local ABC affiliate station in Chicago is reporting that starting this fall, the Chicago Police Department will replace 150 to 160 of their existing Ford Crown Victoria police cruisers with new Chevrolet Tahoe SUVs. The Department cites such advantages as the SUVs handle better in bad weather and allow the officers to sit 13 inches higher, presumably to see over the rest of traffic better. On the one hand, speaking as someone who lives in the community where Chevy Tahoe units are built, this sounds like a good thing for Michigan. The problem is, when you consider issues like fuel and repair costs, I’m not so sure it’s a good thing for Chicago…

A quick check of the relative stats on “Fuel Economy.gov” shows that a Crown Victoria averages 18 miles per gallon (mpg), while a Tahoe manages just 16 mpg. It’s a difference of about 70 cents for each 25 miles driven, or about $410 per year at 15,000, although one suspects that police cars are driven harder than that. Still, that’s a difference of at least $60,000 per year extra to fuel the SUVs, which isn’t that bad, but those projections assume that gasoline stays under $4 a gallon, that the SUVs are kept in optimal driving condition, that they aren’t left idling, and so on. In theory, the differential could go much higher, and that doesn’t include the fact that SUV tires and parts are more expensive, or that the maintenance takes much longer…

Now, I’m sure you’re wondering what difference a small change like this is going to make on the budget of an agency the size of the Chicago Police Department, or on a city the size of Chicago, for that matter. Even allowing for the increase in carbon footprint or how much more room an SUV take up in traffic, why should anyone care if the city is buying new gas hogs? Well, I don’t suppose 150 SUVs are going to make much difference, but consider if the CPD were to purchase the Chevy Equinox instead. It’s a crossover, not a true SUV, but the police are not likely to use their SUVs for towing or construction duties, so that shouldn’t matter. More to the point, the Equinox has an average mpg of 21, 31% better than the Tahoe and almost 20% higher than the Crown Victoria…

Now the City of Chicago is saving $600 per vehicle per year over the Crown Victoria, and $1,000 per vehicle per year over the Tahoe, just in fuel costs. It’s a much more attractive idea, and one that won’t get you second-guessed on the evening news, mocked on the Internet or flamed on Fark.com. It also lowers the city’s carbon footprint and dependence on oil, which could only help. And the Equinox is also made in the Lansing area, so I’m still in favor of it from an economic standpoint. But what if the Chicago PD went with Ford Escape units instead? The Escape has an average mpg of 26, and the hybrid version manages 32, twice as high as the Tahoe and nearly twice as high as the Crown Victoria. That gives us a savings of nearly $3,000 per unit per year, $450,000 total, and a really great press release…

Why does he tell us this? I hear some of you asking. Unless you actually work for General Motors in the Lansing area, these choices are unlikely to have much effect on your life, and unless you spend a lot of time in Chicago it’s unlikely you’ll ever notice the difference. I call this to your attention because while the City of Chicago can afford to blow off a $450,000 per year savings if they really want to, your business probably can’t. A Chevy Tahoe is an extremely capable vehicle, and if you actually need any of the SUV’s functionality during the course of your business then by all means go and get one. Heck, get 160 of them if you like. But if not, you might consider something more efficient – or at least cheaper to operate…

The Little Things

Sometimes it takes a massive effort to find a competitive advantage; huge amounts of money, years of hard work in developing customers and relationships, scientific innovation or creative thinking. And sometimes it's a simple as working out what will make things easier for your customer without significantly increasing the company's costs -- in other words, how to provide added value to the consumer without incurring additional expenses. Familiar examples would be things like the in-room coffee service you find in business hotels like this one -- the ready-to-use coffee package costs the hotel chain very little, but it's worth a lot to some travelers to be able to brew themselves a cup of coffee in their room late at night or early in the morning. It's also another perk to list on your facility description...

We encountered a new example of this today when we went to the FedEx/Kinko's near the hotel to make some copies of a receipt for a mail-in rebate. I'll spare you my rant about mail-in rebates and how any company that sets a time limit (it's usually 30 days) in which you have to mail in the receipts should be boycotted. My actual point here is that if you are using the self-serve copiers at a FedEx/Kinko's, you're probably not going to have any of the standard office supplies or equipment with you either. Thus, if you need to remove a staple from the documents you're trying to copy, draw a straight line, write something down, paperclip something, or staple your documents back together, you're probably going to be out of luck. Which means you will either go and ask one of the FedEx/Kinko's employees if you can borrow a staple remover, stapler, ruler, pen, glue stick, or whatever else you need but don't have with you, or else just avoid going out to make a copy in the first place. It's going to make life difficult for the employees in the copy center and/or discourage customers, both of which would cost the company money...

To defeat this problem, the FedEx/Kinko's people set up a small plastic caddy near each of the self-service copiers, containing all of these office equipment mentioned above. If you need to unstaple a document, make a note on it, copy it, and then staple it back together, you just use the stuff provided for that purpose. In fact, if any of you have ever done business in a FedEx/Kinko's, you've probably done just that, possibly without ever noticing that the items you needed were provided for you. Of course, the company does have to deal with the possibility of people breaking, walking off with, or intentionally stealing their office equipment and supplies. They appear to have dealt with this by purchasing the cheapest possible models of each item that still work (the cheapest stapler, the cheapest pen, and so on) in quantities so large that the unit price must be laughably small. Having trained on the supply system at UCLA, I can tell you from personal experience that you would not believe how cheap some of this stuff is if you buy it in sufficiently huge quantities...

Now, I realize that this isn't exactly rocket science; the basic idea seems almost too obvious to comment on in the first place. Except for the fact that I've been in a number of competing copy centers over the years, and none of them seem to have figured out this concept. What makes the FedEx/Kinko's strategy so exceptional is that between the value added they are providing their customers and the staff time they are saving, it hardly matters how much of this equipment gets broken or stolen; a complete set (including the caddy) for a copier station would cost less to replace than half an hour of an associate's time -- and it's unlikely a whole set would go missing at once...

When we consider the things our own companies could do to become more profitable, most people will focus on ways to add value at little additional cost, and completely neglect the concept of lowering costs, especially in terms of saving staff time spent on non-essential tasks. Most people tend to develop a set of costs (material, labor, operations, etc.) and then just adhere to those numbers without further thought. Even when they do consider cost-cutting measures, most people will focus on lower material costs, lower utility costs, lower salaries, and other direct benefits to the company. Measures that make life (and their jobs) easier for the employees, which inherently improves their work environment and improves productivity, are generally ignored. In fact, in many companies, management seems to have an adversarial or even resentful attitude toward their workers. But when you take a closer look at the leading companies in almost any industry, you will find that they make every effort to improve working conditions, increase morale, and give the work force every possible advantage...

I don't think this is a coincidence...

It has often be remarked that you can't get the big things right if you don't get the little things right first. I would suggest that sometimes the big things are, in fact, the little things...

Some Simple Ideas

We are still adjusting to our new surroundings in Michigan, and as a result we have been wandering around looking into businesses both new and familiar. Most of the national chain companies you would expect to find anywhere have already colonized Michigan, but the regional businesses one would expect to see in the Southwest are absent here, and not all of the same niches are being filled. The business climate of the upper Midwest seems to be different from any of the other regions I have visited, and even some of the familiar companies are doing things differently here. I have already noted several relatively simple concepts that are unheard of in Los Angeles, and yet appear to have great potential, especially in this environment…

Take, for example, the sandwich company known as Jimmy Johns. They appear to have franchised operations running in about 35 states, including California, but have not reached the West Coast cities yet. It’s a fast-food sandwich company that would compete for market share with Subway, Quiznos, or Blimpie. But where the competition has attempted to widen their product line, offering salads, soups, wraps, hot/toasted sandwiches, cookies, and other products, Jimmy John’s appears to have narrowed their focus to just making sandwiches (and chips and drinks, of course). Instead of offering a wider range of food products, the company concentrates on speed and high-quality ingredients. As a result, their production time is faster than any of the competition, and the limited number of traditional sandwiches they do offer taste better than any of the competing products…

Now, this is hardly an advanced, high-tech concept. The company has effectively abandoned those segments of the lunch market that want salads, wraps, soups and the like to their competition, and is instead offering a lunch service so fast that anyone should be able to make use of it, and food that is generally superior to the competition’s equivalent. If you are looking for any of those other food products you would probably not select this chain, but if you just want a simple turkey sub, for example, I can’t imagine why you would go anywhere else – especially on a short lunch break. It’s unusual to see a company electing to emphasize both speed and quality in their business model, but within this context it works very well – and it’s worth noting that the Jimmy John’s we visited was also cheaper than the competition (presumably because of the simpler equipment and supply requirements)…

The other new idea we encountered last week was even simpler: a large, empty room with seating for about thirty or forty people around several large tables. What makes this a business concept is that the room is located in the basement of the Barnes and Noble location just off campus in East Lansing, and signed “Spartan Reading Room.” It’s a study center, ostensibly for students from the giant university across the street (Michigan State’s athletic teams are called the “Spartans,” and therefore so are all those who attend the school), but actually open to anyone who wants to come down there and quietly read or study. It’s probably not much of a draw during the summer, when school is out and the town’s population has dropped by more than half. But I’ll bet you can’t get a seat down there during finals week each semester, and it’s probably a hugely popular location any time the library is crowded or the weather is bad – which is going to be fairly often…

Now, I realize that both of these are relatively simple concepts, and may not be anything that your business can make use of. But they do beg the question: what simple innovations could YOU come up with, if you thought about it? In both cases, we’re talking about simple ideas that do not cost the company anything to provide (in the first case they actually lower operations costs), but offer increased value to the customer. It’s an idea worth thinking about…

It's Too Easy

You may remember a few posts back when I mentioned that some days it's just too easy to write this blog. I suppose if I were trying to write some fluffy, upbeat web log about good business decisions, strategies that work, and people who appear to be doing things the right way, I’d have fewer days like these. And in fairness, I do to try to bring you the occasional example of someone who’s doing it right, at least when I find someone I think we can all learn from. But for the most part, a business blog that attempts to be both entertaining and educational is going to be something of a Gong Show Gambit in itself, since there is next to no chance of my ever running out of weird, strange, ill-advised, crooked, or just plain stupid business concepts. Even by those standards, however, today’s story stands out…

Tuesday’s “Threat Level” column on the Wired website brings us the story of a website called “YouveBeenLeftBehind.com”. I don’t have much to add to Kevin Poulsen’s excellent reporting on the subject, but for those of you who don’t want to follow the link, the web site he’s talking about is a literal Doomsday service that will store a message for you which will automatically be sent to up to 62 heathens of your choice after the Rapture happens and you are taken bodily into Heaven. They will also “encrypt” and store all of your financial information (to be sent to the heathen of your choice the day after the Rapture) since with no body available, a probate court will take 7 years to rule you legally dead, and there will only be 7 more years left in the Universe between the Rapture and the End. And all of this for a nominal service change of only $40 per month…

It’s hard to say what would be more fantastical: if the people behind this venture are joking, or if they aren’t. If they’re having one on us (or more correctly on all of the religious types who believe the Rapture is coming in their lifetime and also believe that they will be taken during it), then this is quite literally the most brazenly cynical activity I have ever seen or heard of. Even a few thousand customers will give the company millions of dollars in revenue each year for a service that literally costs nothing to provide (even if there IS a Rapture during the life of the company), all because they are willing to exploit some people’s religious convictions (or superstitions, depending on your point of view) for money. Even more amazing, however, would be if these folks are serious…

It’s hard to imagine what purpose, exactly, a message sent to one of those unfortunates “left behind” during the Rapture is supposed to have. If you believe that it is possible for those left behind to repent and be saved before the End of the World, then it’s difficult to imagine what a message from someone who has already left would add to having the Messiah arrive (or return, depending on your point of view), the Rapture occur, and the Government of the Beast take control of the Earth. Unless, of course, you believe that the people to whom you are sending these messages are too thick to realize that the End of Days are occurring and Armageddon is imminent…

If you don’t believe in this sort of 11th-hours redemption, then the only possible use of such a message is to say goodbye to all of the people whom you like enough to spend money on but don’t expect to be seeing again in the Afterlife. I can’t help thinking that this sounds like gloating, which in turn does not sound like something you want to be doing if you want to be picked up during the Rapture…

From a business standpoint, it must be conceded that if anyone actually signs up for this service (and there is some indication that people are doing so) then the company is offering its customers a service they could not easily arrange for themselves for a relatively affordable price, and that if this service actually benefits someone (e.g. provides some peace of mind, the opportunity to gloat, or the chance to make sure that your heirs know where you left all of your financial resources) then they are in fact providing value in return for the money.

I still hope they’re kidding, however…

Overnight Shipping

In my post about Comfort Levels I mentioned that, like most people who have conducted business using e-commerce, I have had some very bad experiences with private shipping companies. Dropping packages is only to be expected, of course; this is why you pack things carefully before sending them off. Dropping them from more than 10 feet onto hard surfaces is a little less tolerable, and dropping them out of moving vehicles (I've always wondered if that one fell off of a baggage truck on the way to or from an airplane; it certainly had tire marks and smelled of jet gas) is exceptionally bad, but the one that really left the lasting impression on me was the infamous "pond water" episode. I'm not making any of this up, folks; when I opened that package, the inside of the envelope was still wet, and it smelled like stagnant pond water. Which would not have been so bad, but the overnight package in question contained my airline tickets for an upcoming trip...

For some reason I am reminded of a table in the old Advanced Dungeons and Dragons books, which explained how the game simulated the vulnerability of inanimate objects to various types of attack. So "Immersion in Water" was a deadly attack to paper, and would be bad some kinds of delicate fabric, but would not damage glass or metal artifacts; while "Crushing Blow" would destroy glass and would be really bad for delicate metal objects, but would not harm most fabric or paper items...

"Why does he tell me this?" I hear some of you asking. Because there is nothing the average business owner is going to be able to do about shipping companies paying someone minimum wage to handle packages; even major operations like Amtrak and Amazon don't appear to be having any luck getting FedEx not to drop packages or UPS not to immerse them in pond water. This does not mean we should concede the battle and just put up with our shipping company annoying our customers, however. It means that we need to adapt to the new business conditions. For example, if the item being shipped can be damaged by water, dirt, dirty water or similar contaminants, we could use one of the new sealable plastic mailing envelopes/bags to pack our packages in. To avoid impact damage it's hard to beat the old Styrofoam packing kernels, and on occasion I have packed an object tightly into a small box, then packed the small box into a larger box filled with packing kernels. In extreme cases one could use several such layers of boxes packed in foam within boxes, or even make the outermost box a wooden crate instead.

Of course, all of this will drive up the price of your shipment, but it's surprising how cheap some of these materials are if you buy them in bulk. More to the point, if your shipments arrive intact, even when battered beyond recognition by the shipping company, you customers will generally notice -- and more to the point, even if they don't notice they won't be complaining. A much bigger issue, encountered by several people I know as well as my household, are shipping company personnel who will fail to make their deliveries altogether. Apparently, since they get paid the same amount for making 30 deliveries as they do for making 70, some route drivers will just mark some packages "No Such Address" and take them back to their distribution point, thus ending their day earlier. As bad as this is, the occasions when I've had other people's packages land on my doorstep often makes me wonder if any of my neighbors have received MY missing packages -- and just decided to keep them.

Fortunately, for this problem there is a remedy available to the business owner: refuse to pay for any package that does not get delivered when and where promised. Don't procrastinate, and don't let it slide; demand your money back for any occasion when they fail to provide the service for which you are paying. And if they "lose" or "damage" a package, demand that they replace the missing merchandise. If this requires paying the extra $2.40 for Insurance, go ahead; it's worth it just to see the clerk's face when he realizes he can't just blow off this request. If you follow through every time with this strategy, you may or may not start getting better shipping service -- although I've heard of companies getting special upgraded service just because management at the shipping company's local office is tired of having to pay for their mistakes (literally and figuratively). You will, however, save yourself and YOUR customers time, aggravation and money if you follow these simple rules. And that's the point, isn't it?

One Viewer’s Opinion

There has been a lot of discussion lately as to why many of the recent motion picture releases coming out of Hollywood have been underperforming. Now, I’m sure you’ve already heard all of the commentary on the dumbing-down of America, the competition from other forms of entertainment, the threat of illegal file sharing and DVD piracy, and the difficulty in marketing successfully to an increasingly saturated consuming public. You’ll be relieved to know that I don’t really have much to add to any of those points; I’m going to come at this from a much more basic level. A business level, in fact: I would like all of you to consider for a moment that the problem facing the movie business these days is simply one of Price Point.

For anyone not familiar with the idea, the price point is the price level at which the highest profit can be made on a given product. As the price of a product rises, the seller’s profit per unit rises, but the number of units sold drops. A product that sells 100 units when the price is $1 might only sell 80 units when sold for $2, and might only sell 10 units when the price reaches $5. If the product costs $.50 to make, then we make $50 selling it for $1 ($.50 per unit profit x 100 units = $50) and $120 selling it for $2 ($1.50 per unit profit x 80 units = $120), but only $45 selling it for $5 ($4.50 x 10 units = $45). That’s right; we can actually make more money selling this product at $1 each than we can selling it for $5 each; and we can make a lot more selling it for $2. If you plot the sales and profits of ANY product or service against bottom-line profit on a graph, you will eventually find the point where the profits are the highest – the price point.

Of course, in real life, there are a lot of factors that go into how many copies of a given product will sell at any given price level. The existence of competitors will be a factor; value will be a factor; prestige associated with the product and status conferred by ownership will be a factor. If your customers are not aware of your product they won’t think if buying it, and if they can’t obtain it easily they may not make the effort to do so. Setting the price point is a complex science, and many large companies employ teams of researchers full-time to work on this one topic. Which makes the movie studios’ apparent disregard for this issue seem a bit naïve…

Clearly, there is a limit to how much anyone is going to pay for two hours of entertainment, especially when there are many other options available. Paying $5 to see a movie might seem reasonable; paying $11 seems considerably less so, especially when you can rent a DVD for $4. Paying $44 for four movie tickets, plus another $5 or $10 for parking, to take a family of four to see a movie does not compare well to $4 for a DVD rental, and it does even worse when we factor in weather, inconvenience (driving and parking), uncomfortable viewing environments, crowds, and really bad movies.

And that brings me to the point. When the only entertainment choices available were live theater (expensive and hard to obtain), radio (not very visually interesting) and the movies, the studios could charge a lot and not really concern themselves with product quality. In a world with home video games, DVD movies (especially with big-screen home theater systems), hundreds of channels of cable and satellite television, elaborate pay-per-view services, and the endless entertainment possibilities of the Internet, it’s just not reasonable to expect people to pay as much for a night at the movies. And that doesn’t even take the quality issue into account. The bottom line is that the folks in Hollywood can blame video piracy all they want to, but this will not change the fact that they are pricing themselves out of their market. They must make some effort to either lower prices or find some way of adding value to their products…

Subtracting Value

All right; so how do you subtract value from something as simple as a hotel room? A given location or design may be sub-optimal in many respects (e.g. size, location, convenience), but once you’ve built the building, how do you actually make the facility LESS profitable than it was to begin with?

The first thing that comes to my mind is our old friend, The Second Law of Business: Do Not Annoy the Customer. Admittedly, different things will annoy different people, but there are some that are relatively easy to predict. Not being able to use something I’m paying for, for example. If the hotel’s gym is only open during hours I’m at work, for example, or if the Business Center is not available when I need it, or if the pool is the size of a postage stamp and full of small children swimming in diapers, or if the complimentary breakfast contains nothing I can eat (I’ve seen all of these things on the road), it’s going to annoy the crap out of me. If the restaurant is closed (by the Board of Health or just for repairs) and you can’t hold a meeting in the lounge because there’s karaoke from 1:30 PM to Midnight everyday, that’s going to annoy me. If the reservations people have lost my reservation and want me to pay extra for a higher-priced room because that’s all they’ve got left, that’s going to annoy me. More to the point, any of those things will annoy ANY business traveler, and if even a few of them happen on the same trip, we won’t ever be back…

In the rooms themselves, charging for amenities that the customer thinks should be included in the room rate – or even charging more than the customer thinks is reasonable – can remove all potential value from the items in question. For example, local phone calls don’t have to be free, but when the price for them becomes absurd (I’ve seen $2 plus $.25/minute – for local calls!) not only won’t people use the phone, but you’re also breaking the Second Law again. Mini-bar items are another example; if something you can get for $1 at the market on the corner is $2 in the mini-bar, you might sell some of them. But if it’s $5 dollars you won’t, and if it’s $8 dollars you’re just wasting space. Even worse, though, were bottles of water left in the room that were free on the first day, and $3 each the next day. Not that anyone mentioned that the next one wasn’t on the house, of course. I had to wait and find it on my bill when I checked out.

By the same token, an in-room whirlpool bath, in-room safe, steam bath or sauna that does not work is of no value; one with an extra charge to use it is a negative value; and one where you do not tell the customer there’s going to be an extra charge until they find it on their bill at checkout is illegal in many states. And if a customer has selected your establishment because they wanted one or more of these amenities, only to find they can’t have them (or can’t afford them), you might as well not have bothered in the first place. In fact, one of the only hard and fast rules with all “value added” features is this: “If it costs you money and it does not add value for the customer, it’s actually value subtracted.”

Not quite important enough to be the Third Rule of Business – but it’s definitely worth remembering…

Adding More Value

So, outside of the room itself, what other factors add value for a hotel guest? Well, I can’t speak for everyone, but for me it all begins with our old favorite, location. A hotel located miles from wherever my business takes me (or, on vacation, hours from anywhere I want to go) is not worth much to me, even if the room rate is fantastic. Location also impacts secondary issues like noise (is there a rail line or an Interstate just outside?), safety (are we in a bad neighborhood?) and habitability (is there a market, a convenience store, an office supply store, a coffee house, or a bar nearby? Or do I have to drive for an hour to get anything I might need in the field?), particularly on a long stay.

Then there’s food. I don’t need a good restaurant in the hotel if there’s one in walking distance – at least, not on a business trip. On vacation, room service is occasionally nice, and sometimes (e.g. in the morning before an early flight) it can be critical. But as you might guess from the title of this post, I’m the type who insists on value. I don’t mind paying a high price for good food and good service, but paying exorbitant rates for mediocre food and a 200% markup to have someone deliver it to my room, half an hour late and cold, will make me hit the ceiling. And if the food or service are bad enough, I’ll take all of my meals somewhere else – and probably my business, eventually.

On the other side of the coin, those complimentary breakfast rooms you sometimes see are a great value, especially for a business traveler. The ones that really stand out in my memory are the ones that add some form of protein to the usual toast, fruit and cereal. For a small increase in cost (for hard-boiled eggs, or even scrambled ones) the hotel has dramatically increased both how good the meal is for you and how much value it has for me (as I can’t eat a lot of fruit or sugary cereal). At one of the Hawthorn Suites we stayed at, in Texas, the complimentary breakfast included eggs, sausages, waffles, toast, cereal, fruit, various juices, milk and coffee. Of course, everyone knows that they take their breakfasts seriously in Texas, but for a service included in the price of the room, I felt this was really impressive. Their facility in Atlanta had a great breakfast bar, too.

Why does he tell us this? I hear some of you asking. Because none of the things I’ve been detailing in my last two posts are all that difficult, or all that expensive. These are value added measures in their purest form, and there is no real reason short of complete stupidity for any business to ignore measures this simple that can make this big a difference to their bottom line. You don’t even need a degree in hotel management to see how these issues could be the difference between success and failure. The odds are fairly good that if your business has any customer service or consumer service functions, that you have a similar opportunity to increase your profits by adding value – and the same basic chance to fail by ignoring that opportunity. In my next post we’ll take a look at the other side of the issue: measures intended to add value that don’t – or worse yet, remove it…

Adding Value

It seems like I’ve been on the road a lot over the past few years, which is odd when you consider that none of the jobs I’ve held recently involved travel – at least, not officially. But between teaching, consulting, personal travel, family obligations, and the cross-country odyssey my wife and I experienced in sending our daughter off to college, I’ve driven and flown well over 20,000 miles in the last six years, and stayed in enough hotels that I’m starting to have trouble keeping them straight, and in the process I’ve seen a huge range of efforts to add value to what would otherwise be a nicely-decorated prison cell (e.g. four walls, a roof, a bed and a toilet). Some of them work, some of them don’t, and some are so lame that they bear repeating…

First off, let’s start with the in-room amenities. Other than a bed, a desk, at least one lamp, a telephone, and a chair, what can you add to a hotel room that won’t defeat the purpose (e.g. require raising the room rate)? Well, most hotels offer a television set and cable TV these days. Some offer free premium channels (HBO or whatever), and some offer pay-per-view movies (adult and otherwise), but it seems that basic cable has become almost the baseline standard; if you check into a hotel that does not offer at least CNN, The Weather Channel and ESPN, you’d probably be disappointed. In-room video games might be a bonus if you are traveling with children of the right ages; Internet access using the TV as the monitor (which I’ve also seen) can be great for people who don’t like to lug their laptop with them on vacation.

Adding a data port to the telephone in the room does not take much effort, and is great for everyone who still has a dial-up modem in their laptop. A high-speed connection takes a bit more effort – but not that much more, especially since the hotel probably has one already; it’s just a matter of running cable to the rooms. Business travelers will prize a desk large enough to actually work at, and a good desk chair; families might also find it useful. An in-room coffee maker is useful for business travelers and anyone else who can’t function until they’ve had their first cup in the morning, but I’d rather have a fridge, myself. Even on vacation, I’m more likely to keep soft drinks in the fridge and make use of a microwave (if there is one) than any other features. Frankly, a mini-bar just isn’t the same; I’ve always had to move everything around to make room for my stuff. And I’m not sure the profits you can make from selling drinks and snacks at mini-bar prices are actually worth the cost of stocking one, the hassle of making sure your customers actually pay for what they use, and the problems that occur when the kids get into one…

Oddly enough, a second telephone in the bathroom is one of the most useful additions I’ve ever had – not that it comes up that often, but when you’re working (or traveling alone, for whatever reason) it’s nice to be able to get the phone easily. When you’re traveling with a companion, one of the more useful things is a second sink – one in the bathroom proper, and one outside it in the dressing area, so that both of you can get ready at the same time. Bathrobes don’t do much for me, and neither do complimentary beauty aids, but in both cases, I appreciate the effort.

Of course, all of this assumes that the room itself is clean, well maintained, and free of any other problems; if the window is stuck, the sheets are stained, or the room comes with free pets (of the multi-legged variety) it’s not going to matter what kinds of goodies you’ve got available…