The three most read articles at www.gojceta.com during the past year
After more than a year of posting to www.gojceta.com, it seems that the most popular articles were those written with intention to be posted to Alen’s Think Place. In competition with English translations of my articles published in Croatian business and technology magazines during the past decade, the winners were the two posts created out of pure intellectual joy, reflecting my thoughts, without expectation for a financial reward.
The most read article on www.gojceta.com was the story of my experience at the first McCafe’ in Zagreb: “A coffee shop in the hamburger kingdom“. It explored the business model and the McCafe’ service in general.
The other most read article, missing only one visit to equal the McCafe’s score was the story about brand extension of Cedevita multivitamin drink to their line of tea. “Dad does it dissolve in water?” was doomed to be written the day when my son confirmed to me that my own confusion with the brand message goes beyond my own perception.
The third most accessed article was “The bdp triangle“ – my framework to managing successful proactive telephone campaigns described in an article in Croatian business magazine Lider. Despite the fact that the “triangle” was around 10% behind the two winners, I’m very proud of this concept and I believe that it has deserved the position.
I had an honor to have the edited version of my comment to Harvard Business Review case study “Preserve the Luxury or Harvest the Brand?” printed in its January / February 2011 issue. Here is the case…
I posted the comment to the hbr.org community in October 2010 after having read the intriguing case study. The complete text is available in the Jan/Feb 2011 issue of the Harvard Business Review, or on the HBR.org. In short, the case was about an imaginary French winery Chateau de Vallois. Vallois is a typical family business with simple business model combining vineyards cultivation with wine making. They are traditional in producing high quality wines and selling it through the traditional channel which exists for centuries in Boreaux. The negociants are wine merchants that diminish the risk of wine placement, but take the majority of the sales margins in return.
The youngest member of the family, after her MBA study and engagement with a leading consulting firm, wanted to make some change and start branding and selling wine on a much larger scale, targeting lower market segments. The young women’s idea engaged the family into discussion. Others were concerned about Vallois’s ability to market, their capacity to go for large scale, the relationship with negociants and similar.
Personally, I would’t go from exclusivity to wide market. We learned lessons from different industries such as car producers or fashion brands where this was often a bad idea.
I would rather use an even more exclusive wine*, sold directly from the chateau as brand exstension. Brand extension is fair even if adding several percent to profits of a business. Let’s say, in this case a new wine would make only 5% of the total quantity. Its margins would be double than the usual shipments due to direct sales and would add a 30% due to exclusivity. In this case the 5% of the revenue could contribute with additional 13% to the margin, assuming their selling price as base price and that the new production wouldn’t generate excessive additional cost (vine making is their core business anyway).
The new brand extension with exclusive price, channel and quantities would be a lever to increase demand for other wines purchased by negociants. The 5% of the total quantity wouldn’t create problems with the lack of grapes and would not harm the negociant’s market, but rather increase the whole brand value through scarcity of the newly introduced wine. The new wine would allow the owners to gain marketing expertise and establish the new business model with a low risk approach.
*In the original text it stands “vine” instead of “wine”
What was my point?
The approach I suggested was keeping the family business set up, while giving them the opportunity to start building their sales and marketing capability. The approach with even a more prestigious vine brand, sold directly from the vinery, would have been focused on profits rather than revenues.
How did I reach the above calculation?
Negiociants used to resell Chateau de Vallois’s wines with around 100% margin. If the Chateau would have had produced additional 5% of a more exclusive wine with higher margin of 7 value points from 5 quantity units, compared to the 135 value points they gain from 100 quantity units through negocitants (supposed cost ratio is 80 value points per quantity of 100 for both vines), it would contribute with 13% of additional profit margin (7 of 55).
New prestigious wine
Production cost (value points)
Price sold out (value points)
End consumer price (value points)
Ch. de Vallois margin (value points)
What did I mean by lessons from different industries where brands have eroded due to switching from serving exclusive segments to wide markets?
Different exclusive car producers have given up their exclusivity to address a wider market. Not many of them have succeeded. Instead, many have struggled for years to regain the original brand proposition. Some of the examples were Porsche’s front engine GT models discontinued in 1995, or Jaguar’s trip into middle class car production.
The first full year of Alen’s Think Place is represented by 12 peaces of written work. Here are the summaries and links to 5 business articles translated to Englsih, 5 blog posts and 2 reviews of positioning / branding strategies…
The 2010 was the first full year of Alen’s Think Place is represented by 12 peaces of written work:
5 translations of my articles published in Croatian business magazines during the past decade. Mostly on CRM.
5 classical blog posts. Some of those were quick thoughts, and some other were excerpts from my recent articles
2 reviews of positioning / branding approaches (McDonalds and Cedevita)
Alen’s think place is meant for business professionals, mostly for those who deal with sales, marketing, CRM and business strategies in general. I hope that you have found value for yourself and that you will keep finding it at www.gojceta.com.
A pretty long article about Interactive Voice Response set in two parts. Still relevant, but with the major change about the handy nature of mobile Internet access. Read first the part one below 🙂
I had the opportunity to host a CRM seminar for a great group of professionals. Here are the conclusions written in form of follow-up letter to the attendees. I’m sure you will find it interesting too…
Past Thursday I had an opportunity to host a seminar on CRM for a group of experienced professionals. I have announced the education in my recent post, describing challenges and uncertainties around the topic and the potential audience. This post is written in form of a follow-up letter to the seminar attendees, but it might be interesting to many of you who deal with CRM and who are interested in what were the major take-aways from the intensive 6 hours CRM education.
thank you for taking part of this seminar that showed to be very productive and interactive, due to contribution of all of you.
All of my concerns before the education about the homogeneity of the group vanished when I received the first list with your names, your companies and business functions. The group was very compact in terms of CRM understanding as well as your experience in managing customer relationship or implementing CRM systems. A bank, several telecommunication companies and two CRM vendors made a perfect audience for a focused and productive education.
I really enjoyed the experience and I hope you did as well.
There are ten points that I want to stress out and that I’d like you to keep in mind as points to take away from the lecture:
No one needs CRM because it is fancy (’cause others „have“ it too) unless they plan to waist time and money
CRM often doesn’t need „implementing CRM“. In many cases, I’d rather advice you to take a look at you core processes and make it fast, responsible and transparent.
Basics of a healthy customer relationship management lies in you customer focused corporate culture in opposite to the one that arises from product or process orientation (remember our first exercise?)
When you work on aligning your company’s agenda with that of your customers, don’t forget about different motivations of your departments as well as talents and motives of individual employees
Manage customer experience through managing their perception. Perception is often tightly related to expectations. Take care! Expectations are set by your organization’s „CRM processes“, your marketing communication, as well as by your competitors.
Manage touch points. Those are the essential „places“ where customer experience occur. Try to use „Moments of truth“assessment in combination with customer expectations or even emotions as a powerful tool to manage total customer experience.
Customer data derive from customer oriented processes not vice versa
„Critical point of CRM implementation“ is the one where you know what do you want to achieve, why do you want it so much and what is the frame within you are able to do it
The message of the story tale „Wolf and the three piglets“ is that we have to build solid basis for a lasting survival (business) model. The same is with social media and their use in CRM ecosystem (sCRM): invest time, engage to get them engaged
…ah yes, segmentation. Some of you stated that you didn’t get enough. You asked for more. More of theory, more of tools, more of segmentation methods. It is homework for me and a great feedback from your side. Thank you.
When talking about segmentation, is not only about splitting customers into (more) manageable groups. And especially it is not just
about distinguishing them based on their spending (value based segmentation). It is about what does your offering or your organization mean for different customer groups (benefit segmentation). It is about events from the CRM ecosystem that create dynamic
segmentation attributes and micro segments. The segmentation is about the general approach to certain customer profiles, as well as small operational activities. This is in particular case for the segmentation of the CRM era where you are able to track in real time what your customers are doing, experiencing or even saying.
About trends of the future, remember that today’s products can become powerful interactive touch points. Use QR codes in combination with Web 2.0 tools.
I encourage you to try in your everyday work what you have learned. Think customer. Think expectations. Think experience at touch points. Think about service – the fast one, responsive and transparent.
Thank you for your active contribution and for sharing your time, energy and experience with all of us.
P.S. Feel free to comment about your experience or suggestions for further improvements.
After several years, I’ll keep an open seminar on CRM. Read about the challenges and the approach I took to overcome them.
Some time has passed since I held my last open seminar on Customer Relationship Management. In the mean time I had some engagements on universities or in form of in-house education.
From my experience, open seminars are particularly challenging comparing to the other two forms of lectures. In-house educations allow precise matching the content to the audience. Thorough preparation and understanding of expectations of the audience can be performed before the actual education. Usually one or more preparatory assessments and meetings are performed. The company that orders the education is in most of the cases a fair candidate to be used in business cases.
Academic lectures, from the other side, usually have homogenous audience. The lecturer has to prepare more facts, is able to offer long definitions that students systematically write down. Faculty students are unfortunatelly, in general, passive in terms of expectations over the quality of lectures and speakers. This puts lower pressure on the lecturer, despite his decisiveness to invest time to gain the maximum quality.
Open seminars however attract people with very different expectations, mostly totally out of lecturer’s control. It does not help much even when put the maximum effort to understand each seminar attendant’s „why“. You will usually have 3 or 4 different homogenous sets of people within an usual group of 10 or 15. Here are some profiles from my experience:
The general knowledge seeker
I heard a lot about this CRM. I’d really like to learn more about it.
The CRM professional
Let’s see what does this guy have to say that I still don’t know.
The project guy
We are implementing the XY software, we will learn how to do it (usualy 2-3 persons from the same organization)
The victim of transformation
My boss has sent me ’cause we have te fancy HR initiative in our organization, but I don’t care much about the topic. You don’t mind if I leave after lunch?
The bottom line is that you will never be able to make everyone perfectly satisfied with the content. Therefore I usually estimate which of the groups is dominant and then try to narrow the content for that group, without forgetting the rest of the audience.
My first open seminar after several years has some additional challenges comparing to the previous ones. The education provider (Institute for management / Istitut za menadzment) offers mostly soft skills educations such as coaching, fast reading techniques and creative writing. My CRM course stands out from the self–transformational and workshop–like educations. I estimate that the general tone given by most of the lecturers at Institute for management will impact expectations over my content and educational style. Therefore I have decided to adapt the seminar, making it more interactive with more usable material to take away. My next imperative, independent to the Institute for management’s clients, was to modernize the content, make it more attractive and up to date. So I’ll spend some time during te seminar on the Social Media role within CRM and I’ll open a discussion about a new CRM concept. I will share some of my thoughts about new possibilities of Web 2.0 enabled CRM development, which I call the in-the-product CRM.
For some time now I’ve been cultivating the idea to write a few lines about an unusual branding that the Atlantic group applied to their tea product line. Probably the idea would never have grown into a decision, and the decision into action, if there wasn’t the observation of my eight-year old son that has confirmed my suspicions…
For some time now I’ve been cultivating the idea to write a few lines about an unusual branding that the Atlantic group applied to the tea product line acquired from Pliva in 2001. Atlantic’s decision was to keep the teas within the Cedevita line of business and also to use this very popular brand of refreshing beverages to promote the teas. Cedevita was among the most popular drinks in former Yugoslavia. Today it is packed in plastic jars in form of granules that dissolve in water with an effervescent effect that create a fruit tasting refreshing multivitamin drink.
Probably the idea about the mentioned article would never have grown into a decision, and the decision into action, if there wasn’t the observation of my eight-year old son that has confirmed my suspicions. Passing near the “city light” advertisement at one of the Zagreb tram stations, the child begins this unusual conversation:
Lovro: “Dad, will we buy this Cedevita tea?”.
Me: “But my son, we have it at home – an ordinary tea in filter bags.”
Lovro (enthusiastically): “Oh, it is kept in bags, you mix it with water, shake and drink?.”
I (taking a deep breath): “No, my son …”.
Yes, the tea is not an instant beverage in granules, and still it is called in the same way. How’s that possible?
Before of Atlantic’s re-branding, in consumer’s perception Cedevita meant only one thing: an instant vitamin drink. Time ago, when Pliva used to
pack Cedevita in medical jars, consumer perception recognized the drink as a serious diet supplement. Still today, the text on the package states that it is just about it and that the recommended daily dose should not be exceeded. The package itself, however, does not reflect such seriousness any more, and the same goes to the related consumer perception (and habits, I’d add).
We know that the perception of a brand is usually established early in childhood. If we consider that children are the main consumers of Cedevita instant beverage, and that for them Ce-de-vita means exactly this, the confusion when encountering teas with the same trademark does not surprise.
I believe that applying brand attributes of a recognized instant beverage to the tea product line, represents a negative shift in the strategy of such brand. The confusion is further increased by recent investments through package redesign and intensive advertising of Cedevita teas – by ads that, by large portion of our perception, actually promote vitamin instant beverage. Judging by the web pages of Cedevita teas, it seems that even Atlantic’s marketing experts weren’t able to detach from such perception. The pages that belong to the teas represent just a subset of the Cedevita site, therefore the new tea packages are surrounded by orange bubbles on the move, so characteristic for the instant drink sharing the same name.
In this discussion I will disregard the hypothesis that the people from Atlantic deliberately push the more profitable Cedevita instant beverage on the account of (supposing) less profitable tea product line. Knowing this private company by a decisive and pragmatic management, I believe that the line of former Pliva teas, would have been rather sold to competitors than kept to serve as advertising billboard for a more successful product line.
Returning to the Cedevita brand and its communication. Cedevita, comparing to natural tea satisfies a completely different need. Even when we drink it, somehow subconsciously we do not believe that we are doing something really healthy. Effervescent effect when preparing the drink, during which the glass becomes temporarily transformed into a test tube, and sugar as one of the basic ingredients, suggest that we are going to consume a refreshing vice, rather than a healthy beverage. What remains as consolation is that we get the necessary “power of seven vitamins” as a food supplement.
While the primary function of Cedevita is a cold drink for refreshment and thirst, the tea is a warm beverage of health and relaxation. It implies a natural herbal mixture, kept in a previously boiled water. Tea is aromatic. Cedevita is the freshness and the sound of the dissolving granules. The tea are leaves and dried fruit, while Cedevita is the powder with “natural fruit flavor”, as stated on the label.
In this whole discussion the potential synergy of the brand should be taken into account. Cedevita drink, Cedevita tea, Cedevita basketball team … When such unified brand has been stretched through consistent marketing communication at a wider region, then this approach carries a synergistic effect and significant savings. In the case of Cedevita, this region includes Croatia and its neighboring countries. Basketball club that plays in the regional league under the name of Cedevita and marketing campaigns that can be recycled in several markets with little intervention, reduce the cost and increase the synergy effect of a long-rooted brand. But it is exactly this “rootedness” to be the reason for confusion by the communication that places the instant beverage and the tea in same basket.
Cedevita teas and brand internationalization
If we consider the brand in terms of its internationalization and ignore the neighboring countries whose consumers grew up Cedevita, then we raise the question of purpose of a brand shared among instant drinks and teas. While in Croatia and the region, brand recognition can encourage a faster acceptance of Atlanic’s tea product line, this is not the case in other countries. Assuming that Atlantic plan to address a broader market with their teas, the arguments above seem to loose the ground. Even in a market that has never heard of Cedevita / instant drink, the question is how well will consumers associate that name to teas. The name itself evokes the C and D vitamins, or the life (Latin vita = life).
Successful global brands of tea are appealing to lifestyle, environmental production, originality. They try to give a breathe of colonial times and distant places to their products. The aroma of such teas evoke the smell of the wooden hulls of sailing ships, pollen, rain forests and the value that ingenious merchant achieved before the tiny amounts of crushed leaves ended up in our tea paper bags. Looking at the world’s most famous tea brands such as Lipton or Twinings, we can notice the above patterns, also successfully applied by Franck to their campaign for Gunpowder premium green tea. Gunpowder communicates exactly that – exclusivity of each peace of tea leave, for which Franck claims to be specifically cut, highlights its premium quality, appeals to inner peace, and evokes travel. Tin box in which the tea is sold and kept, returns us back to the times of our grandmothers and precious shipments from distant places.
Returning to Cedevita teas. What would be the brand that Atlantic could have had applied to their warm herbal drinks, which would ensure its fair share in the hearts and minds of their consumers? Atlantic have already separated brands of their line of functional teas from those intended for enjoying the warm pleasure. Functional teas are set apart under the brand Naturavita. My objection would be that these teas are also promoted under the umbrella brand of Cedevita (the web with bubbles).
Personally, I would be more inclined to place them under the umbrella of Atlantic’s Dietpharm line of business that covers dietary supplements. As for the rest of the tea line, I believe that some variations of Atlantic’s corporate brand carry the greatest potential for the purpose. My suggestion would be to use the Atlantic ocean as link of the New and Old World: “Atlantic genuine tea”, “Old Atlantic tea”, “Atlantic premium tea”, …
This article is not work of a professional brand manager, but an attempt of a consumer who is educated in marketing to share his thoughts about the confusion created in his perception, by a brand expansion to the “adjacent” product category.
There are many similar branding cases that confuse, such as Podravka‘s use of an extremely successful brand of baby food Čokolino [Chocolino] for its excellent chocolate spread, or even worst, the decision of the city of Zagreb to promote through an expensive ski world-cup race (Zagreb has a ski resort with a very limited capacity).
Although this article represents a critical review of a business decision, it is not supported by relevant research or market survey. I am personally convinced that, even in Cedevita’s “clothes”, Atlantic’s tea product line will have its success on the market, primarily due to excellent distribution and managing of sales channels, but also due to investments in other elements of marketing mix that make some product line successful, such as design, quality, pricing policy, promotion as well as management of costs of good sold.
And finally, I think that what happened to the former Pliva teas is the same that usually happens to user-oriented processes in companies with strong organizational silos. I believe that the experts from Atlantic started their considerations from their own organizational views when branding the line of teas, instead of stepping in the shoes of their consumers. I believe that the organizational view, in this case (as with every other silo), was narrow and was saying only one thing: “We are Cedevita organizational unit, and our teas are Cedevita teas”.
Notes to Text
Atlantic, Cedevita, Cedevita tea, Dietpharm are trademarks of Atlantic Group. Franck, Lipton and Twinings are trademarks of their respective owners. The text reflects personal conclusions of the author, and is by no way influenced by author’s current employer or any other third parties.
In case you use this text or its parts, please quote the author and the source (Alen Gojčeta, www.gojceta.com, June 2010).
Small insight in my latest article published in Mreza magazine (www.bug.hr/mreza). This is a story inspired by a true event and used as an descriptive introduction to the topic of CRM implementation. The complete article is available in Croatian in the April 2010 issue of Mreza magazine (www.bug.hr/mreza).
The story below is inspired by a true business case. I used it as introduction to the topic of CRM implementation in the latest issue (April 2010) of Mreza magazine (www.bug.hr/mreza). Herein translated to English.
At the end of winter 2003, Mr. S, member of the board of a large telecom operator, walked nervously from end to end of his office on the top of a glossy office building. In front of him there where two little men sitting on a leather sofa. One of them, an external consultant, was staring at the floor. The second one, the project manager from the company, was speaking with trembling voice, trying to explain the circumstances that led to the collapse of one of the largest CRM implementations in the world that year. The situation was more difficult because the bad news came too late. Mr. S has reserved, only a week ago, part of a fancy Austrian ski resort to celebrate success with project teams of a “big bang” implementation of almost all modules of the world’s leading CRM application.
Mr. S believed that the implementation of CRM applications will link his company by steady, predefined, user-oriented processes that will remove communication barriers with customers, reduce human mistakes and, ultimately, fend off new operators who where sharpening their balance sheets for the market battle against what they considered a slow telecommunication giant.
This drama has not occurred somewhere above Manhattan Avenues, but in a small Eastern European country.
How and why did tens of millions of Euros invested in the CRM project of Mr. S leak away like sand, into the pockets of consultants and software vendors? This question is asked by hundreds of companies that have decided to implement CRM and take a step forward to customer-oriented business.
The answer is individual for each of them. However, the legendary failures of CRM projects, such as that of Mr. S, or many others which have ended with much less glamour and lost resources, can be explained by few main reasons, summarized in an unique and fundamental mistake of introducing CRM. It stems from the complexity of any CRM initiative. It appears as its starting point, or simply impose itself through perception where “one doesn’t see the forest from the trees”, meaning that problems around complex IT solution make forget why the initiative had been launched at all, and which where the original indicators of its success.
Detailed elaboration of CRM processes, documented in a book of nearly 600 pages served as basis to the mastodon project of Mr. S. Despite millions of Euros invested in the project and its preparation, it was doomed to failure from its first day.
In summary, there where two main reasons. The first was the aforementioned implementation of CRM applications and overestimation of its power, with neglecting the fact that the business is run by people rather than processes drawn by a group of experienced consultants. But the project did not even survive enough to come into the hands of internal users to get the chance to crumble during the day to day operations. It failed already on the basic understanding of the role of IT within customer-centered processes and the respect for the compromise between the cost of the implementation and its return.
Unpretentiousness is the name of the game in the company of successful CRM implementations. Some processes, among hundreds designed to be embedded in the CRM application, were simply too pretentious. They demanded so many adjustments and use of artificial intelligence that those couldn’t succeed. Especially when you take into consideration that computer decision making involves the appropriate information, the same one that is achieved only after years of using CRM systems.
In April 2010 issue of Mreža (www.bug.hr/mreza), the Croatian magazine for IT professionals, my new article on CRM will be published. Actually there are two articles, one about CRM implementation and the other about related sourcing options and the available technology choices. I post here the English preview of the implementation part – a 7 points resume of the proposed implementation advices – the 7 wisdoms for a successful CRM implementation:
A preview of my article from April 2010 issue of magazine Mreža (Network)
Do not “implement CRM“, rather solve specific business needs (sometimes you will want to have it so badly just because others would claim to have it too)
Understand the culture and motivations of individuals and departments and incorporate it into the design of your CRM (even the cleaning woman may have something against your concept of CRM).
Focus on small victories on the road to your great goal (otherwise only the goal would remain, an empty project budget, and travelers tired of the journey).
Describe the desired business outcome to the technology providers, rather than the solution it self (describing a solution is their job anyway).
Manage change at all levels during and after implementation (without a goal, a reason, and a role, even the most persistent ones shall give up soon)
Optimize the user experience of your CRM application (a bad user interface is a grain of sand that can ruin whole systems).
Establish a process of managing your data (data does not know how to leave a client, enter the CRM system, mark it self, link within context and turn it self into information).
McDonalds announcement to introduce McCafe’ line of business brought many controversies during past year or so. One of the comments from a journalist was about hard-to-immagine truck diver who jumped in McDonalds for a fast and cheap hamburger lunch, asking a fancy cup of latte macchiato. Is this a problem? I went to the Zagreb McCafe and “had a taste” in person of the newly introduced McDonalds business model. Read about it in the furhter text and let me know what do you think.
A coffee shop in the hamburger kingdom
A year ago I read a lot about controversies about McDonalds’ decision to introduce coffee shops within their existing restaurants. At the time one of the many skeptics wrote that he couldn’t imagine a truck driver entering a McDonalds restaurant, taking a cheap lunch and ordering a fancy cup of coffee. There where many opinions that McDonald’s intrusion into Starbuck’s playground will turn into failure. There where many believing the opposite though.
Mc’Donalds decided for two approaches to introducing coffee line in its existing business:
1. In US the coffee line of business is integrated into the existing front counters
2. Separate counter and cafe’ – style furnishing within existing restaurants, started in Australia in 1993. This model started to extend to Europe in 2009.
In Zagreb the first McCafe’ was introduced in autumn 2009. I was really curious about what will be the success. These days I had the opportunity to “taste” the business model, through customer goggles. Here is my experience and annotations.
Me and my laptop walked through the McCafe’ door due to a reason different than usual choice of a cafe’. After the temporary suspension of the anti-smoking law in Croatia, McCafe’ remained one of the very rare places in Zagreb where one can enjoy a coffee without having to take the role of a secondary smoker.
Nice cakes, but where is the WiFi?
From customer perspective it was a decent experience (as I didn’t poor the coffee on my keyboard this time, my laptop will not be asked about his opinion :-)). The McCafe’ (at Zagreb at least) is smoothly integrated into the standard fast food area. As my idea was “work-and-coffee“, too many children running around after 3 PM where disturbing eventual phone calls. As some customers claimed to the Business Week’s reporter (http://www.businessweek.com/magazine/content/09_40/b4149070703260.htm?chan=globalbiz_europe+index+page_management+%2Bamp%3B+learning) in her article about McCafe’ penetration in Europe, the smell of French frites and hamburgers does spoil the coffee shop atmosphere. Indeed. During my stay at McCafe’ I really missed a WiFi link and a coffee sized less than a mid cup. What about a “small macchiato”?
When trying to have a look from the back door, my estimation is that the business model is placed on healthy basis. Here is why.
My only concern is that the McCafe’ bar seems often too empty, but the rest of business case seems to be built around productivity and up sell.
First, it is pretty hard to resist some of excellent, yet pretty expensive cakes, when you jump in for a cup of coffee.
Additional argument on up selling that keeps the business running, are many parents that approach the McCafe’ counter after having ordered food for their children at the fast food counters.
Productivity + up-sell is the name of the game
From productivity perspective, McCafe’ shares existing resources (such as cleaning personnel) with the rest of the restaurant and employs fewer personnel than an average coffee shop. Actually only one lady is taking care of the whole McCafe’ experience, including coffee making, cakes decorations, billing and the inevitable “enjoy” phrase.
Comparing with a traditional coffee shop that engages a “running waiter”, in McCafe’ the productivity is additionally enhanced by the fact that customers serve them selves at the bar and clean their desks afterwards by bringing their trays back to the McCafe’ counter. It is worth mentioning that the price of a small cup of coffee is among the highest in Zagreb area (10Kn = 1,3€, cca 2$). More expensive coffee can be found at a few very fancy places and 4+ star hotels.
In terms of cross selling and reusing existing resources, McCafe’ has thought about the possibility to sell cakes “to go”, extending their presence to home parties and celebrations. McDonald’s has extended its business model to coffee line of business, without actually having to innovate, or spend too much. They got all of it already – food “to go”, restaurant management, location, experience management, standards,…
The Business Week’s article cited above, brought an estimation of Jeffrey Young, managing director of London management consultancy Allegra Strategies that the investment for a new stand alone Starbucks in Europe is at least tripple the amount of that for a McCafe’ within the existing McDonald’s facitilites. I’d add that it is the same ratio, if not higher, when talking about the daily business expences (personnel, energy and the like).
All in all it seems that there was no place for skeptics when talking about McDonalds introduction of McCafe’. The new line of business is all about up sell and reusing the existing resources. This was a simple business idea, and simply hard to miss. And here is a simple thought for the end: If these are results of a marriage between hamburgers and cappuccinos, think about the consequences of the merge between mobile (T-Mobile) and land line (T-Com) telecom operators.