How We See It

Peter Drucker: Restaurateur-Hotelier

10 top ideas from management guru Peter Drucker and what context we can draw for our restaurants & hotels.

 Click here to listen!

Here are the 10 Drucker quotes I talked about in the podcast.

1. “There is only one valid definition of business purpose: to create a customer.”
2. “You cannot prevent a major catastrophe, but you can build an organization that is battle-ready, where people trust one another. In military training, the first rule is to instill soldiers with trust in their officers – because without trust, they won’t fight. “
3. “Listening (the first competence of leadership) is not a skill, it is a discipline. All you have to do is keep your mouth shut.”
4. “Luck never built a business. Prosperity and growth come only to the business that systematically finds and exploits it’s potential.”
5. ” There are keys to success in managing bosses. First, put down on a piece of paper a ‘boss list,’ everyone to whom you are accountable. Next, go to each person on the list and ask,’What do I do and what do my people do that helps you do your job?’ And, ‘What do we do that makes your life difficult?’
6. “A decision is a commitment to action. No decision has, in fact, been made until carrying it out has become somebody’s responsibility.”
7. “It’s much easier to sell the Brooklyn Bridge that to give it away. Nobody trusts you if you offer something for free.”
8. “The ultimate test of an information system is that there are no surprises.”
9. “Until a business returns a profit that is greater than it’s cost of capital, it does no create wealth – it destroys it.”
10. “One can’t manage change. One can only be ahead of it.”

The 5 Basic Rules of Calculating Fan/Follower Value

A question that routinely comes up in social media circles is what is the value of a Facebook fan? (The question also applies to the value of a Twitter follower, Youtube subscriber, email recipient, etc.)

Invariably, whenever the question is asked, some mathematical savant – typically a self-professed digital alchemist – produces a proprietary algorithm that has somehow arrived at answer along the lines of $1.07 (Source: WSJ) or $3.60 (source: Vitrue) or even $136.38 (source: Syncapse), and so begins the race to answer this now quasi-hallowed question of the new digital age. The lure: He who can convince companies that he can calculate the value of a Facebook fan might have a shot at selling them on the notion that fan the more fans they acquire, the more value they generate for their business. (You can imagine the appeal of answering the “what is the ROI” question by explaining to a company that 10,000 net new fans per month x $136.38 = a $1,363,800 value. At a mere $75,000 per month, that’s a bargain, right?

All that is fine and good, except for one thing: Assigning an arbitrary (one might say “cookie-cutter”) value to Facebook fans in general, averaged out over the ENTIRE breadth of the business spectrum, is complete and utter BS.

To illustrate why that is, I give you the 5 basic rules of calculating the value of a Facebook fan:

Rule #1: A Facebook fan’s value is not the same as the cost of that fan’s acquisition.

Many of my friends in the agency world still cling, for example, to the notion that estimated media value or EAV (estimated advertising value), somehow transmutes the cost of reaching x potential customers into the value of these potential customers once reached. Following a media equivalency philosophy, it can be deduced that if the cost of reaching 1,000,000 people is generally $x and you only paid $y, the “value” of your campaign is still $x.

A hypothetical social media agency-client discussion regarding EAV: “Using social media, we generated 1,000,000 impressions that we converted into followers last quarter. At $1.03 per impression/acquired fan, the total cost of the campaign was $1,030,000. The average cost of an impression through traditional media being $3.97, the estimated media value of your campaign was $3,970,000.”

Next thing you know, the client believes 2 things: The first, that the value of each Facebook ‘fan’ is either ($3.97 – $1.03) = $2.94 or simply $3.97 (depending on the agency). The second, that the ROI of the campaign is ($3,970,000 – $1,030,000) = $2,940,000.

So you see what has happened here: Through a common little industry sleight of hand, a cost A vs. cost B comparison has magically produced an arbitrary “value” for something that actually has no tangible value yet. In case you were particularly observant, you may also have noticed how easily some of the authors of the posts I linked to in the intro mixed up cost and value. Ooops. So much for expert analysis.

A word about why cost and value cannot be substituted for one another when applied to fans, followers and customers: Cost may be intimately connected to value when you are buying the family car, but the same logic does not apply to customers as a) you don’t really buy them outright, b) they don’t depreciate the way a car does, and c) they tend to generate revenue over time, far in excess (you hope) of what it cost to earn their business.

Even with the cost of acquiring a fan now determined, why has the value of that fan not yet been ascertained? Rule #2 will answer that question.

Rule #2: A Facebook fan’s value is relative to his or her purchasing habits (and/or influence on others’ purchasing habits).

Illustrated, the value of a fan can be calculated thus:

 a)      Direct Value: If a Facebook fan spent $76 on your products and services last month, her value was $76 for that month. If a Facebook fan spent €5697 on your products or services last month, his value was €5697 for the month.

The value of a fan/transacting customer is based on the value of their transaction. It is NOT based on the cost of having acquired them.

Example:

- Cost of acquiring Rick Spazzyfoot as a Facebook fan: $4.08

- Amount Rick Spazzyfoot has spent on our products and services since becoming a fan five months ago: $879.52

Which of the above two € figures represents the value of that fan to the company?

(If you answered $4.08, you answered wrong. Try again.)

b)     Indirect value: If a fan seems to be influencing other people in his or her network to become transacting customers (or increase their buy rate or yield), then you can factor that value in as well for those specific time-frames. Because measurement tools are not yet sophisticated enough to a) properly measure influence and b) accurately tie it to specific transactions, I wouldn’t agonize over this point a whole lot. As long as you understand the value of word-of-mouth, positive recommendations and the relative influence that community members exert on each other, you will hold some valuable insights into your business ecosystem. Don’t lose sleep trying to calculate them just yet. Too soon.

The point being this: Until a Facebook ‘fan’ has transacted with you (or influenced a transaction), the monetary value of that fan is precisely zero.

One could even say that if each fan cost you, say, an average of $1.03 to acquire, the value of a fan before he or she has been converted into a transacting customer is actually -$1.03.

That’s right: A significant portion of your Facebook fans might actually put you in the negative. Something to think about when someone asks you to calculate the “value” of your “community,” especially if you purchased rather than earned a significant portion of your fans and followers (it happens more than you realize).

Rule #3: Each Facebook fan’s value is unique.

Every fan brings his or her unique individual value to the table. One fan may spend an average of $89 per month with your company. Another fan might spend an average of $3.79 per month with your company. Another yet may spend an average of $1,295 per month with your company. Is it reasonable to ignore this simple fact and instead assign them an arbitrary “value” based on an equation thought up by some guy you read about on the interwebs?

Three points:

1. The lifestyles, needs, tastes, budgets, purchasing habits, cultural differences, online engagement patterns and degree of emotional investment in your brand of each ‘fan’ may be completely different. These, compounded, lead to a wide range of behaviors in your fans. These behaviors dictate their value to you as a company.

2.  Many of your fans may only do business with you only on occasion. Because of this, you have to factor in the possibility that a significant percentage of your fans’ value may fluctuate in terms of activity rather than spend. How many of your fans are not regular customers? How many do business with you each day vs. each month? How many do business with you once a quarter vs. once every three years? Are you figuring your on/off customer-fans into your value equation?

3. Lastly, we come to the final type of Facebook fan: The one that doesn’t fall into the transacting customer category.  They might remain “fans” without ever converting into customers. Do you know what percentage of your fans right now falls into this non-transacting category? Do you really think that their value is $3.97 or $139.73 or whatever amount an agency, guru or consulting firm arbitrarily assigned to them? No. They clicked a button and left. Their value, until proven otherwise, is zero.

With this kind of fan/customer diversity within your company ecosystem, you come to realize that arbitrary values like “the value of a Facebook fan is $x” can’t be applied to the real world.

Rule #4: A Facebook fan’s value is likely to be elastic.

Because the value of a Facebook fan is a result of specific purchasing habits (and impact on others’ purchasing habits), a fan’s value is likely to be elastic over time. If you aren’t familiar with the term, it simply means “flexible.” As in: the value of a Facebook fan will change. It will fluctuate. It will not always be the same from measurement period to measurement period.

Let me illustrate: A Facebook fan might spend $76 on your products and services one month and $36 the following month. This means that her “value” was $76 one month and $36 the following month. If next month, she spends $290, $290 will become her “value” for that month.

Because transaction behaviors change, the value of a fan is also likely to change.

You can average this out over time (the fan’s value might average out to $97/month over the course of a year, for example), or just total her value per month, quarter, or year, depending on your reporting requirements. That is entirely up to you.

Example 1: “Based on her transactions, the value of Jane Jones, a fan since 2007, was $2,398.91 in 2010. Thanks to our fan engagement (digital customer development) program, Jane’s value increased to $2,911.02 in 2011.”

Example 2: Chris Pringle’s average monthly value in Q2 of 2011 was $290.76. His average monthly value in Q3 of 2012 was $476.21. He is one of 17,636 fans we managed to shift from a basic package to a premium package via our Facebook campaign.”

Note: In order to figure this stuff out, you are going to have to either get creative with the way your CRM solution interacts with your Facebook analytics suite or wait until Social CRM solutions get a little more robust. Some are getting close.

Examples of exceptions (where fan value may be somewhat inelastic):

- You are a bank and a fan’s only transaction with you is a fixed monthly payment.

- You are a cable company and a fan’s only transaction with you is a monthly cable bill.

- You are a publisher and a fan’s only transaction with you is an annual magazine subscription.

- Your fans don’t transact with you. They clicked a button and left. If their value was $0 a month ago, it is still $0 this month.

If your business charges for a monthly service that tends to not fluctuate a whole lot, chances are that the value of each of your fans will remain rather constant. This compared to a Starbucks, a Target or an H&M.

Rule #5: A Facebook fan’s value varies from brand to brand and from product to product.

If a fan/customer’s value can fluctuate from month to month and that value can vary wildly from individual to individual within the same brand or product umbrella, imagine how much it can vary from brand to brand, and from product to product.

Compare, for example, the average value of a fan/customer for Coca Colaand the average value of a fan/customer for BMW. (Hypothetically of course, since I don’t have access to either company’s sales or CRM data.) What you may find is that a fan’s annual value for Coca Cola might average,say, $1,620 per year, while a fan’s annual value for BMW might average $42,000. Why? Because the products are entirely different. One costs less than $3 per unit and requires no maintenance. The other can cost tens of thousands of dollars per unit and requires maintenance, repairs, not to mention the occasional upgrade.

Moreover, a single strong recommendation from a fan can yield an enormous return for BMW, while a single recommendation from a fan will yield a comparatively smaller return for Coca Cola.

You can see how the notion that the “value” of a Facebook fan can be calculated absent the context of purchasing habits, brand affiliations, fluctuations in buying power, market forces and shifts in interests and even value perceptions is bunk. Unless of course you find yourself being asked to transform cost into value. Less work. Easier to sell.

So why does this happen?  Tune in next week for Part 2 of this post, in which we will talk about why so many “social media gurus,” digital agencies and “industry analysts” still seem to be having trouble with something that should be pretty simple.

I hope this helped. From now on, if anyone seems confused about the topic of fan/follower/subscriber “value,” point them to this post.

Cheers,

Olivier

Opening A New Business: It’s About Success, Not Perfection

Being at the front-end of designing and opening a new concept, as we are, is exciting work. Except when the ‘perfection’ bug  begins to creep into the process.

First-time operators are the ones who usually begin to bog down the process by insisting that every single piece of the puzzle is ‘perfect’ prior to moving on to other areas – whether it’s the perfect logo, the perfect POS system, the perfect exterior signage, table, chairs, tableware, etc… With an extremely limited budget, you really don’t have the luxury of pretending your back in the corporate world, with practically unlimited resources (and someone else’s money) with a project manager insisting that, “…there’s still work to do before we roll this out!.” Which of course, there is, but it doesn’t have to be done right now.

With an extremely limited budget (who doesn’t have one of those right?) the goal needs to be to get everything done that is critical to the success of the concept, just enough to positively impact that success and not spend one dollar more. There are two main reasons to do this. One, you are creating a new concept with imperfect (and incomplete) information about the market’s response to it. So moving forward when it’s 80% ready and leaving the remaining 20% afterward will give you time to make better business decision based on more and better feedback from your guests. Secondly, you can also refine the concept and it’s elements better when you actually have cash coming into the business to work with.

Of course there are areas that require more certainty than others, namely the layout of the permanent pieces of the FOH and BOH areas as well as the mechanical issues like plumbing, electricity and HVAC concerns. But everything else is up for grabs for the most part and having 100% certainty isn’t critical to your eventual success. The point is to build enough into your concept’s story (who you are, what value you bring to your market, etc…) to create enough short-term success that you can go back and fill in or refine the pieces that can help support the long-term success of the project. With limited resources, understanding and executing this process is crucial. Otherwise, you may have squandered resources that would have been needed elsewhere or may need to have been utilized differently in order to accomplish your goals. A new concept is a very fluid situation and lots of changes will occur from the time you open the door for the first time,  to the time you are able to replicate your success in other locations.

So being able to prioritize what’s important and understanding how much import it is actually worth at a particular stage of development is critical to maximizing resources as well as your chances for success once you put the key in the door and serve your first guest.

Marketing & Your Guest Experience

Understanding the guest experience and continually personalizing it will deliver better results.

Measuring Front-Line Results

Why aren’t we measuring the impact of staff by how well they engage guests and create loyalty? Why are insanely subjective metrics for attitude and teamwork used? (The only team in a restaurant is the management team. Just because a group of people engage in team-like behaviors doesn’t make them a team.) There’s also no such thing as a bad station or bad shift – only bad servers. I’d rather they fight for the loyalty of every single guest.

Focusing solely on sales metrics as the final arbiter of determining a front-line employee’s value, is short-sighted and helps to create a culture of treating the guest like nothing more than a transaction. Are you sure you want to sacrifice LTV for the price of one more slice of apple pie?

Thoughts?

The Secret To Modern Day Pricing Strategies

Smarter Social Strategies: Guest Fundamentals

This week’s episode deals with the issues around which communication platforms get better results or how to talk to guests and make a real impact.

Survey Finds Email Driving More Consumers to Purchase Than Facebook, Text Messaging Combined

New ExactTarget Survey Identifies Consumers’ Varied Preferences for Marketing and Personal Communications

New consumer survey results released earlier this month by global interactive marketing provider ExactTarget (NYSE:ET) found two thirds of online Americans have made a purchase as a result of email, nearly twice the percentage who have purchased after receiving marketing messages delivered via both Facebook and text messaging.

Based on a survey of 1,481 U.S. online consumers, ExactTarget’s 2012 Channel Preference Survey asked how Americans communicate online with brands and with friends and found a growing divide between personal communications preferences and how consumers want to receive marketing messages.

“Americans are changing the way they interact online,” said Jeff Rohrs, ExactTarget’s vice president of marketing. “Our 2012 Channel Preference Survey provides new data that identifies how today’s hyper-connected consumers are engaging with brands and offers exclusive advice on how to avoid the pitfalls of using personal communications preferences as a proxy for marketing communications.”

The study found consumers’ preferences vary significantly for communications with brands and friends. 77 percent of consumers surveyed said they prefer to receive marketing messages via email, while only 45 percent prefer email for personal communications. Five percent said they prefer to receive marketing messages via social media (Facebook, Twitter, LinkedIn), while 13 percent prefer social media for personal communications.

Key findings of the results include:

• Email
  • 96 percent of online consumers use email at least weekly.
  • 66 percent have made a purchase after receiving an email marketing message.
  • 76 percent prefer email over all other channels for customer service messages.
  • 66 percent of teens (ages 15-17) prefer email over all other channels for permission-based marketing.
• Text Messaging
  • 68 percent of online consumers use text messaging at least weekly.
  • 16 percent have made a purchase after receiving a text (SMS) marketing message.
  • 25 percent prefer text messaging over all other channels for real-time travel alerts.
  • 9 percent of consumers ages 25-34 prefer text messaging over all other channels for delivery of tickets to an event purchased online.
• Social Media
  • 70 percent of online consumers use Facebook at least weekly.
  • 20 percent use Twitter at least weekly.
  • 20 percent have made a purchase after receiving a marketing message on Facebook.
  • 32 percent of teens (ages 15-17) have made a purchase after receiving a marketing message on Facebook.
  • 16 percent of teens (ages 15-17) have made a purchase after receiving a marketing message on Twitter.
  • 4 percent prefer Facebook over all other channels for permission-based marketing.

The 2012 Channel Preference Survey research is the 14^th report in ExactTarget’s Subscribers, Fans & Followers research series. The study is a follow up to ExactTarget’s 2008 Channel Preferences Survey and includes comparisons between the 2008 data and 2012 results throughout this year’s report. To download the report, click here (free download, PDF, registration required).

About ExactTarget

ExactTarget is a leading global provider of email marketing and cross-channel interactive marketing software-as-a-service solutions that empower organizations of all sizes to communicate with their customers through email, mobile, social media and websites. ExactTarget’s powerful suite of integrated applications enable marketers to plan, automate, deliver and optimize data-driven interactive marketing and real-time communications to drive customer engagement, increase sales and improve return on marketing investment. Headquartered in Indianapolis, Indiana with offices in Europe, South America and Australia, ExactTarget trades on the New York Stock Exchange under the ticker symbol “ET.” For more information, visit www.ExactTarget.com.

Source: ExactTarget

Restaurant Marketing: The Most Important Component

In today’s episode we talk about THE most important component of a highly successful marketing program.

Restaurant Marketing 101

We begin this marketing series talking about the fundamentals of marketing your restaurant or hotel and how you ensure it is effective and rewarding.