Best! - No Need to Be Cheap If You Are...

Mike Hohnen

Description

Inspired by the principles developed in the "Service Profit Chain", Mike Hohnen takes you through each of the steps needed to create an outstanding service business.

We live in a world of abundance – there is plenty of choice everywhere. And since 2008 we have experienced significant drops in demand as consumers became more careful. The result is a widening gap between supply and demand in virtually any category you can imagine.

When that happens, many companies have a knee-jerk reaction, and the recipe is more or less always the same: initiate rigorous cost-cutting programmes, reduce staff and/or services, offer discounts in many forms, and increase advertising aggressively.

This, however, is the equivalent of trying to steer and brake as your car begins to skid on black ice while going through a sharp curve.

As you hit that declining demand curve, you need to perform what at first seems like a counter intuitive move: hold your price, increase your services, improve your quality, and narrow your focus in the market.

In this book, you will not only understand why but also see how you can do that.

Sujets

• Business Development
• Economics
• Development
• Business

Informations

• Publié par: eBookIt.com
• Date de parution: 14 août 2013
• Nombre de lectures: 0
• EAN13: 9781456606800
• Langue: English
• Poids de l'ouvrage: 1 Mo

Extrait

Best! - No Need to Be Cheap If You Are...
 
by
Mike Hohnen

Copyright © 2013 by Mike Hohnen
All rights reserved
III
 
 
Published in eBook format by eBookIt.com
http://www.eBookIt.com
 
 
ISBN-13: 978-1-4566-0680-0
 
 
No part of this book may be reproduced in any form or by any electronic or mechanical means including information storage and retrieval systems, without permission in writing from the author. The only exception is by a reviewer, who may quote short excerpts in a review.

Thank You!
I read somewhere that it takes a village to write a book – in my case it’s more like a global village and it wouldn’t have happened were it not for Anne Krogh Nielsen and Rasmus Møller in Copenhagen encouraging me to get started. Pierre de Rancourt de Mimérand in Oman, not only encouraging but enthusiastically pushing and prodding in order for the project to be completed. (It’s easy to start a book, but actually finishing it is a different story.) Pierre again tirelessly read the first draft and gave me valuable feedback. Anne Sørensen in Santa Cruz (Chile) field-tested the ideas on her own property HOTEL TERRAVIÑA, and Adrian McGinn in Paris took a critical look and added valuable insights before we finalized the book.
And behind the scenes – as always in my life – supportive and understanding, whatever the latest crisis, is Eva – without whom not much of what I do would be possible in the first place.
Making It in the Bazaar
“When information is abundant and equally distributed we get market places – a bazaar.”
– Ridderstrale, Jonas; Kjell A. Nordstöm, Karaoke Capitalism 1
 

I t’s still early.
They go about their work with quiet determination, using as few words as possible. Just the odd shout to move someone out of their way as the trolleys are rushed up and down the aisles. Tables are raised from the folding trestles. Tarpaulins for shade. Then build the pyramids. Tomatoes, eggplants, each one polished to look its shining best, zucchini, lettuce, and bundles of carrots still with their tops on. Each booth gradually unfolds and becomes a stillleben on its own.
As it does, it looks more and more like all the others – beautiful – but aisle after aisle, they are all the same.
A waiter from the local cafe brings black coffee in small cups – no saucer, just a teaspoon protruding, ready for a serious dollop of sugar. Stir and gulp – and they are ready for business.
“Tomatoes, tomatoes. Buy my tomatoes – only 3.99 if you hurry.”
A new day has started in the bazaar.
Age of Abundance
Ask any vendor in the souk and he will argue that HIS tomatoes are much, much better than everyone else’s tomatoes. Just as I am sure that whatever it is you do, you will tell me that you do it much better than your competition. But, chances are, the fundamental service that you provide can be delivered just as well by somebody else at a comparable quality and price. Consequently, like it or not, if you’re not very skilful, you will end up – or have already ended up – in a commodities business. (Fig. 1.2)
The core characteristic of a commodity is that there is no qualitative differentiation; therefore, the price is determined by supply and demand. Copper and petroleum are typical examples of commodities.

But, providing the basic service in a hotel is no longer considered exceptional – it is expected and they all do it – thus, basic service also becomes a commodity.
The reason we easily end up as a commodity has to do with abundance.
No matter what business we are in, sooner or later we find ourselves in a situation where supply exceeds demand. In most cases, this happens sooner, not later.

In general, most businesses identify a need in the market that is not being served and they create their offering to meet that need. But if the “product” works, they are seldom left alone for
long, and others join in. What nobody saw initially is now obvious to everybody and we end up with a bazaar. The reason this happens is that, as a segment gets crowded, the offerings tend to go through a process of homogenisation, everybody tries to please everybody, best practices are established, and in the end the only differentiator left to work with is price.
Examples of Segment Saturation Are Everywhere
Sony managed to produce 297 variants of the Walkman® before the iPod® made them all irrelevant virtually overnight. Colgate® currently produces 32 brands of toothpaste plus four different brands for kids. Yet, that has not prevented others from thinking they can corner the market for toothpaste. In 2010, 350 new brands of toothpaste were launched worldwide.
In the supermarket industry, a mid-sized supermarket will carry around 30,000 different items, but that’s an outcome of a hard bid from manufacturers. In fact, each year manufacturers propose more than 17,000 new items that they would like supermarket chains to put on their shelves. In the publishing industry, the competition is even fiercer! More than 130,000 new titles are put on the market in the UK every year alone; alas, on an average, less than 100 copies each are sold.
The situation of oversupply is put even more into perspective when you realise that one of the fastest growing and most successful real estate concepts on the planet is Shurgard. What do they do? They store our stuff – all that stuff that no longer fits in our attics, garages, or basements. The storage business in the United States as measured by turnover has already exceeded that of the entire Hollywood film industry.
A Perfect Market
As a result of the significant oversupply combined with an increase in information flow, many industries are experiencing something close to what economists would call a perfect market. This typically occurs when the following conditions are present:
• All market information is available to buyer and seller.
• No participant has enough market power to set prices.
• There are low barriers to market entry or exit.
• There is equal access to technology.
Share trading and foreign exchange arbitrage are situations that resemble a perfect market. A more down-to-earth example that we can all relate to is the classic vegetable market where vendors offer their tomatoes and other produce from stalls, while shouting, “Tomatoes, tomatoes! Buy my tomatoes! Only €1.20!”
If the vendor in the next stall is unhappy with business, he’ll inevitably try to sell his tomatoes at €1.10, and will probably try to increase the volume and frequency of his shouting – also called advertising. As long as an oversupply of tomatoes exists and his tomatoes are of similar quality, size, and ripeness, the price war will continue to a point where both vendors manage to barely earn a profit. Technically, this is known as “salami margins”, as profits over time are reduced into thinner and thinner slices.

This is obviously a mug’s game and the only way to break the pattern is to be in a position where you can offer tomatoes that are better, bigger, riper, tastier or whatever, and command a better price. The name of the game is to create a monopoly situation – even though it may only be temporary. Then you reinvent yourself again and create a new monopoly situation.
You can create a monopoly situation by having a type of tomatoes that the other vendors don’t have, or you can cultivate relationships with your customers that are difficult or even impossible to match. Go to any French open-air market and you’ll see that shoppers have preferred suppliers in a marketplace with 50+ stalls. Each vendor sells more or less the same tomatoes, but relationships drive a large part of the traffic. As a newcomer, you may get frustrated when the lady in front of you in line starts telling the vendor about the last “goo” word that her granddaughter uttered, while the vendor listens patiently and answers all of her questions, while you think, “Can we please get on with it?” What the vendor is doing is cultivating relationships, and those in the know realise that they’ll also get their turn to tell their tidbits from life.
With the development of new forms of communication, especially the Internet, the “perfect market” situation occurs in a much wider variety of situations and markets than we were normally aware of. The ease and speed with which information flows create a high degree of transparency, low barriers to entry, and equal access to very similar technologies. Hotels, restaurants, airlines, car rental firms… They are all at risk of getting caught in the salami-margin trap. If they do, then they will end up as purveyors of commodities.
All Things to All People
Technically, what happens is that, as demand declines and/or supply increases, many companies react intuitively by trying to expand their offerings through both product variation and new market segments. They try to cast a wider net.
The recipe is more or less always the same: initiate rigorous cost-cutting programmes, reduce staff and/or services, offer discounts, and aggressively increase advertising. This, however, is the equivalent of trying to steer and brake as your car begins to skid on black ice while going through a sharp curve. The result is that you spin out and lose control completely…

Similar to taking a snow and ice-driving course, you practise what in the beginning seems to be a counterintuitive manoeuvre. As you thunder into that declining demand curve up ahead, you need to hold your price, increase your services, improve your quality, and narrow your focus in the market to increase your visibility to a select segment that will love you no matter what.
Taking the other route trying to be all things to all people will only result in your being nothing to anybody… except possibly cheap. And how much fun is that?
Surviving in the bazaar is no easy feat. No matter how innovative the product or service was when it first hit the market, we soon realise that the half-life of new technology or new service concepts gets s