Since we posted “Grocery Bag Wars“ on January 7th, Atlantic Superstore, part of the Loblaw chain said it is “evaluating” their 5 cent bag charge at their Maritime stores. See CBC article “Grocery giant reviews fee-for-bag program“ posted January 28th.
You know the term “selling ice to an Eskimo?” I think it could be an important lesson in the value of a tight marketing plan paired with a complementary pricing strategy. But let’s sell snow to the affluent instead.
The other day I saw the most beautiful scene outside my window. Large puffy white flakes of snow fell gently down. What a blessing! In the colder parts of the world snow is supplied in varied amounts completely independent of demand. As the winter drags on and the snow accumulates, budding entrepreneurs may be wishing for a way to get rid of the white stuff, and make a buck or two in the process.
The Product
What form will this new product take? Snow in its native form would be difficult to transport to markets where there is demand without significant refrigeration and packaging. As such it would need a higher price tag just to cover costs. Perhaps it could be marketed as the basis for a new natural snow beverage: maybe an icy complement to premium Canadian vodka, the target market being the wealthy in countries without snow.
The Cost
Having a clear sense of the cost of providing the product to customers is important to not losing one’s shirt. What costs should be considered? The broad categories would include:
Marketing
Our market research shows that no one else is offering this product. The closest comparator is blended ice, which bears no novelty factor. The product is easily replicable, so building brand recognition and reputation quickly are key. It is recommended that the product be tightly marketed to the highest margin buyers possible, including high-end bars in the world’s top hotels, showcasing it as a taste of the Canadian north.
Pricing
Product pricing should match the marketing strategy. Imagine sitting in a 7 star hotel in Dubai, 50 degrees Celsius outside and sipping the Canadian Arctic? It is the fresh, all natural Canadian snow that makes the drink, and with careful communication of this the marketing of 2 oz servings of the snow in spectacular packaging that makes a $1000-$1500 exclusive drink could net the snow vendor significant compensation.
While the snow accumulates to the degree that there is no place left to put it, Canadians may feel incented to sell their snow to those without. This exercise demonstrates that with a little imagination and a solid marketing plan and pricing strategy, even a public good like snow can be turned into a premium product.
Starbucks’ strategy had gone off the rails. Happily for Starbucks, the solution to its flagging performance is in its mission statement.
In its 2008 annual report, Starbucks acknowledged a decrease in customer traffic in the US and Canada due to internal and external factors. Their response was to close stores in the US, restructure its upper management, and make changes to the food and beverage menu.
Two missions?
In theory, strategy should flow from a company’s mission statement. In the case of Starbucks however, this is not an easy task. Why? Because the company has two of them. The first appears on the company fact sheet dated February 2008:
And the second on their website:
“To inspire and nurture the human spirit— one person, one cup, and one neighbourhood at a time.”
So from the get go, the company is running in two different directions.
Let’s assume that the first statement which refers to offering the finest coffee in the world is outdated, because it surely doesn’t. That leaves us with the second statement: a somewhat abstract declaration. Its accompanying guiding principles refer to:
The grade
Using Starbucks’ own measuring stick, how does it stack up?
First, the coffee: More often than not, I hear the words “strong” and “burnt” associated with Starbucks coffee. My experience with their caffè mocha, my preferred drink, is that it is an overly sweet inconsistent drink. Sixteen years ago when I was living in Vancouver, Starbucks was a destination where the in-crowd sipped lattés. Since then, the competition has evolved, and our tastes matured. Starbuck’s has updated their interiors, but the coffee is the same old, same old. So – quality coffee, perfectly made to inspire and nurture? Starbucks gets a failing grade.
On the community side, I think it deserves a better mark. It is after all one of very few environments where professionals, families and those who are just looking to read while slowly sipping, co-exist. The stores, at least in Oakville, also support local events.
Why does Starbucks insist on wandering in the wilderness by continuing to introduce substandard fare? In June 2009, it offered a new line of food with its inspiration drawn from real bananas, instead of banana flavouring. And what possessed them to introduce instant coffee dressed up like the 1970’s version of Sanka? It hardly screams quality.
Practice what you preach
The Starbucks mission is to inspire and nurture. Why not do just that? Offer great freshly brewed coffee, properly sweetened consistent drinks and lose the Sanka. And why not purchase baked items made fresh by local bakeries? That would be a leg up for the community, wouldn’t it?
Until Starbucks returns to its mission statement, its unfortunate reality is to be the McDonald’s of mid-level coffee. Found pretty much anywhere, nothing special, just something familiar.
Tick, tock, tick, tock….Does that sound determine your living? If you’re a professional services provider, it doesn’t have to.
Hourly based billings
Hourly billing is simply a client paying for an hour’s worth of effort, with the expectation of some service being performed. The positive aspects of this method are that an hour is a tangible, well understood measure on which to base billing. If provider is new to an area this method of billing shifts the risk from the service provider to the client. On the negative side, there may be an ethical issue as the provider may be incented to bill more hours than are necessary to perform the service, and since it’s not tied to outcomes, it makes it hard for client to see the value in what they are paying for. Unhappy clients may shop around for a better deal. The provider’s quality of life may be diminished living a life tied to the clock. Their earnings are also capped by the number of hours that can be billed in a year.
So what’s a professional services provider to do?
Charging based on value provided
One option is charging based on an estimate of the value that the service creates for the client, keeping in mind the cost of providing the service and what the market will bear. An example of this method might be as follows. A lawyer specializing in privacy law is asked by his client to draw up a privacy statement. If the lawyer, who has done many before alters an existing statement and bills as if it was drafted from scratch, it would be unethical. However if the engagement letter described a desired outcome (the privacy statement) for a specific price, no conflict would exist.
The benefits of choosing value-based billing are that the client sees a clear link between the cost and the outcome (the privacy statement). The lawyer’s job satisfaction increases because he can focus on the more interesting aspects of his practice instead of drafting everything from scratch, but he still gets paid as if he was.
There are cautions though. The lawyer needs a good understanding of what the job will entail to price it correctly, including the ability to mine the firm’s financial and statistical systems to gain a good understanding of the costs and pricing norms for the services offered. That’s where I come in. This information must then be specified in the engagement letter.
Other pricing methods
There are still more options. What if the lawyer took it a step further and commoditized his privacy statement service by offering an easy to use template for sale. This would allow him to market his services to a wider audience, perhaps to small businesses that don’t require a highly customized product. Taking it even a step further, he can add a notice in the template offering customization services for further fee.
Other professional service providers may prefer to offer subscription-based services. Still others may provide services in return for an equity share, perhaps to start ups that are lacking in cash flow but rich in potential.
The possibilities are only limited by your imagination! Figure out what the customer needs, and charge for it.
In this posting I’ve talked about what hourly billing is really paying for, and offered other suggestions as to how a service provider might bill to free them from the clock.
Tick tock, tick tock….not so confining anymore.
Happiness can feel like an unattainable goal when the punishing pace of today’s work environment pushes the rest of life into the background. But regaining our perspective on our true life’s passion may be a matter of identifying and monitoring what is important to us.
As children, we were pushed by our parents to decide what we were going to be when we grew up. And after years of studying and paying our dues, we finally got that dream job, just as our parents had hoped. While our career guaranteed us financial security, and our parents that we wouldn’t move back home again, has it guaranteed us the life we desire?
Articulating your passion
The reality of the dream job can mean being too busy to think. While being busy may be better than being bored, being too busy leaves little time to think about why we are doing what we are doing – both professionally and personally.
About 18 months ago, I decided to make a concerted effort to examine my personal goals. In the past the focus of such an examination would have been my career. But as I get older and hopefully wiser, I am seeing life as more than just supporting a career, but as the main event.
Having previously thumbed through a copy of The Passion Test by Janet Bray Attwood and Chris Attwood at a wellness fair, I decided to track down a copy and read through it. I was impressed by how well the first half of the book guided the reader through the process of envisioning one’s life passion.
In brief, the book encourages the reader to imagine their ideal life, including who, what, where, when, why and how, to determine the 10 to 15 most important things that give their life joy, passion and fulfillment.
A personal dashboard
This sort of introspective examination doesn’t come naturally to the analytical mind, so having taken the time and perhaps pains to identify the persons, places and things that make our heart sing, the process itself would be a waste of time if the list was relegated to gather dust on a shelf. Instead, we can take it a step further and objectively monitor our successes and identify any areas that require action. A personal dashboard of sorts.
So what would this personal dashboard look like? Perhaps it might be a simple spreadsheet including categories such as Personal, Financial, Family & Friends and Professional, that group the life passions identified in the exercise. Each of these life passions can be considered indicators within each category. Some indicators may be short term in nature, while others longer term.
Each indicator could be measured on a monthly or quarterly basis. A rating would be ascribed based on whether the individual feels they are living the passion described by each specific indicator, somewhat living it, or not living the passion, by rating them one, two and three respectively. Within each category the indicators might be weighted based on their importance to the individual. Each category might also be weighted. A rating can be made for each quadrant based on the weighted indicator ratings within the quadrant, along with an overall rating. Thus the indicators roll up for an overall life passion score.
Revisit the list of goals to confirm you are on track with what you see as priorities, and update it as needed to reflect the changes in priorities that inevitably occur throughout our lives.
Living your passion
To quote Deepak Chopra, “what you put your attention on will become stronger”. By first identifying and then tracking your personal goals, you will soon realize your passions.
Since the City of Toronto implemented its plastic bag by-law in June, grocery store chains have left a patchwork of bag policies across other jurisdictions, making the simple act of grocery shopping an agonizing experience.
It begins at the check-out, when customers must in some stores guess whether they will be charged for bags. If there is a charge, the customer must estimate how many bags will be required to contain their order. This is further complicated by whether the clerk will bag or not, and if so how efficient the clerk will be at filling the bags.
Since the advent of bag fees, it seems that bagging can no longer be assumed, even when a bagging policy is in place. Superstore abandoned their bagging service after offering a reusable bag. Fortinos claims to bag, however experience dictates that it depends on the clerk that serves you. The same goes for Sobeys. In the early days, Metro was still solidly bagging; however this policy appears to be slipping, as are the pleasant smiles and chitchat, while Longo’s continues as usual with their complementary bags and bagging service.
It needs to be said that the cashiers have been left ‘holding the bag’. It is they who have been saddled with the unpleasant task of asking a customer if they would like to purchase bags, a question often met with a snide retort. They are also left to awkwardly fumble with whatever style of bag a customer may choose to supply.
So who benefits? Stores offering five cent plastic and reusable bags make a healthy margin, while customers leave the store stressed and frustrated with their check-out experience, and front-line workers suffer from lower job satisfaction. According to Health Canada, food placed in reusable bags may even be at risk of contamination.
Loblaw, recently citing the poor economy for slower sales volume, vowed to keep their market share by offering discounts. While we all like a bargain, it would appear they have failed to grasp that for the customer, time is significant consideration. Many customers can’t afford the time to shop at multiple stores in search of deals, hunting down their list of items in foreign isles.
Customer loyalty translates into significant revenue for a grocery store. If a customer spends an average of $200 per week on groceries, it translates into $10,000 per year in revenue. Compare this to $15.00 in annual revenue from plastic bags, or the one-time $6.00 or so from reusable bags. These token bag charges are more than just money to the customer; they represent shameless opportunistic profiting by stores in the name of the environment; reusable bags as yet another thing to remember; and the bagging stare-down at the check-out as just another uncomfortable situation which the customer is happy to avoid.
In the middle of all of this angst, Wal-Mart and Zellers, the new entrants into the Canadian grocery market have taken a different tact, offering complementary bags and bagging service, no exceptions. Their customers leave satisfied.
Years ago, grocery stores would take your order, retrieve the items, and if you wanted, deliver them to your home. Since then, selection has infinitely improved while service has all but disappeared. A time-honoured method of attracting and keeping customers is customer service. Canada’s grocers would do well to reinstate their bagging policy and offer complementary compostable bags, which can intern be reused in our municipal composting bins. Sadly, a quarterly earnings-focused myopia has rendered some grocery chains incapable of see their customers’ torment. Customers are destined to wander in the grocery store desert, searching for the store that cares about them.
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