Pret rewards its employees generously. Pay for frontline U.K. workers starts at seven pounds per hour, about a pound above industry average. Any employee singled out for customer praise receives a specially designed sterling silver star from Tiffany; weekly bonuses are disbursed based on ratings by a mystery shopper. And all employees are eligible for more substantial awards. For example, the manager of the store that wins “top shop” designation based on quarterly sales results receives a check in the $20,000 to $30,000 range.
Pret summarizes its personnel policies this way: “We hire happy people and teach them to make sandwiches.” Based on the reactions of customers, this simple system works remarkably well.
THE THIRD DIMENSION of Pret’s trajectory—making the product conveniently accessible to more people around the world—involves expanding the store network. (A friend in London tells us, “I always assume there’s a Pret nearby whenever I want one,” which is not the case in any other city in the world—not yet.) But rapid expansion while maintaining the improvement in food and service quality might well put a strain on even the most brilliantly organized company. And Pret is no exception.
Flush with its early success in Britain, Pret entered the U.S. market in 2000. Soon more outposts were established in Japan, Hong Kong, and Singapore, and plans were drawn up to open shops in Holland and then elsewhere on the Continent. Pret appeared to be on track to go global within a decade. But then some of the cogs became jammed. In Japan, a Pret franchisee expanded too quickly. Quality suffered, and the Japanese Pret stores were soon shuttered. Spotty international results contributed to a company loss of £20 million for 2002.
In 2003, Metcalfe and new CEO Clive Schlee announced that henceforward Pret would eschew franchising, the better to maintain control of its most valuable assets—its magnetic product and its steep trajectory. “We could have spread rapidly all over the place by franchising,” Metcalfe says. “I would rather do less and try and do it well.”
Store manager Tracy Gingell is happy to explain Pret’s patience-makes-perfect expansion model. “When you begin to franchise out,” he volunteers, “what’s to stop a store manager from buying the five-dollar case of chicken instead of the thirty-five-dollar case that’s organic? No one’s going to know the difference. That’s why we don’t franchise. We have one vendor, and when we order chicken it’s the organic farm-raised. There’s no way to cut corners.”
Pret’s expansion now continues at a deliberate pace. By 2010, Pret had more than 250 stores worldwide—213 throughout Britain, 26 in New York, 2 in Washington, D.C., 1 in Chicago, and 8 in Hong Kong. To help ensure that the expansion serves customer needs, Pret actively seeks out feedback from the public as to the location of future shops. (A message on the company’s website states, “If you have an opportunity in one of the towns, cities, schemes or streets listed below that you think we should consider please contact [us].”)
The strategy seems to be working. In 2010, Pret’s global revenues were projected to be around £320 million. Perhaps most significant, annual revenue per store hovered around £1.2 million—more than 50 percent higher than Eat, the most direct competitor, with other rivals, such as Greggs, much further behind. In 2009, the chain enjoyed same-store sales increases of 11 percent, which it believes are the highest in the food business. The intensity of the demand that Julian Metcalfe discovered more than two decades ago is as strong as ever.
Yet the pressure to keep improving is equally intense. Potential rivals to Pret are numerous, with more appearing every year. Consumer preferences are continually evolving, driving Metcalfe and his team to keep inventing exciting new menu items that will attract new customers while retaining the loyalty of old ones. The stagnant global economy has forced Pret to find ways to reduce prices (a £1.99 ham sandwich is now on the U.K. menu). And every new city where Pret opens a store requires creative analysis of and adaptation to local tastes and customs.
And, of course, constantly looming overhead is the risk of entropy—the slow, subtle, yet ultimately fatal decline in quality and excitement that could kill Pret from the extremities inward if the company fails to develop thousands of employees to serve as Pret’s cocreators of demand.
It all adds up to a daunting trajectory challenge. Thankfully for Pret and its fans, the fertile, obsessive brain of Julian Metcalfe is working on it night and day—augmented by a growing team of thousands of Tracy Gingells, channeling Metcalfe’s spirit and energy. The years to come will show whether Pret can manage to stay two, three, or more steps ahead of its many competitors in the race to serve the world’s lunch.
*By spring 2011, a few months after we met him in New York, Tracy Gingell had moved on to manage a Pret store in Chicago.
6.
Variation
(vary-AY-shun) noun 1. the different hassle maps experienced by different types of customers 2. the art of respecting and responding to differences in customer needs, preferences, and behavior 3. the science of developing cost-effective ways to provide individual customers with products that precisely fit their varying needs
SELLING THE SYMPHONY:
IT’S NOT JUST ABOUT THE MUSIC
One of the subtlest, and most important, challenges confronting the would-be demand creator is the Myth of the Average Customer.
Consider, for instance, the work of a marketing manager for one of America’s great symphony orchestras. His job is a tough one: to figure out how to attract a stream of customers who are willing to pay high ticket prices and make their way downtown to hear live performances of classical music—all in preference to any of the dozens of other forms of entertainment, many of them free, competing for their time and attention.
This challenge has long been a daunting one. But now it turns out that the secret to unlocking future demand for classical music depends on discarding the Myth of the Average Customer and instead embracing the reality of a world in which people—and their demands—are endlessly, amazingly varied.
Most music marketers have always assumed that convincing potential new subscribers to give the symphony a try is the key to growing demand. “Get people through the doors!” is the mantra practically every orchestra marketer repeats. The assumption is that, once people venture into the local symphony hall to hear a concert, the sheer beauty of the music will draw them back.
There’s only one problem with this theory: It just isn’t so. Every year thousands of potential new listeners are persuaded to attend their first classical concert. The concert hall is beautiful, the performances stunning, the music ravishing. Yet most of those one-time visitors never return. They respond to follow-up solicitations with an indifferent shrug or even outright hostility.
As a result, orchestra marketers have to spend every year scrambling to find yet more thousands of customers who can be persuaded to try a concert, just to make their budgets and keep their orchestras afloat.
The trial trigger may have worked magic for Nespresso. But for the symphony, it simply doesn’t.
The problem is something called “customer churn”—demand that is fleeting, inconsistent, unreliable. With its relatively high-paid performers and its costly downtown concert hall to maintain, a symphony orchestra needs to generate a strong and steady level of demand in order to survive. When the churn rate is consistently high, creating demand is like racing to fill a bucket with a large hole in its bottom.
The apparent failure of orchestras to convince one-time attendees to become longtime supporters poses quite a puzzle. Are the renowned artists at great American orchestras not talented enough to please audiences? That seems unlikely. Is classical music simply too “highbrow” or “old-fashioned” for modern listeners? That’s a counsel of despair, suggesting that the ultimate demise of the orchestra is probably inevitable.
The real problem is the Myth of the Average Customer. Designing a product offer to appeal to some archetypal customer is always wasteful. It leads to overage (providing features many individuals don’t want), underage (omitting
features they do want), and sheer inaccuracy (choosing features based on guesswork and approximation rather than reality).
Instead demand creators have to constantly focus on demand variation, asking how customers differ from one another and how they can respond to those differences. Then they can break down customers into as many subgroups as necessary to get close to what they really feel, experience, and want as individuals rather than as members of the mythical average group. This process of “de-averaging” can be a complex challenge—but it also offers huge opportunities. That’s why great demand creators love variation. It gives them the chance to serve more people, more precisely, and often more profitably, than traditional average-customer approaches.
In 2007, nine symphony orchestras joined forces, hiring a team of researchers to analyze symphonies’ marketing challenges. The results from this Audience Growth Initiative—or, as it was informally called, the “churn project”—were presented in mid-2008 to a gathering in Denver of hundreds of musical professionals from orchestras around the country.
The study confirmed that churn was a major issue for the nine orchestras in the consortium. On average, 55 percent of symphony customers changed from one year to the next—a big, costly problem. Among first-time concertgoers, the churn rate was even worse—an almost unimaginable 91 percent. So much for the supposed magic of “getting them through the doors.”
But when the researchers got past the average figures and started focusing on customer variation, a possible solution began to emerge. The symphony audience, they found, was divided into several starkly contrasting groups. They included the core audience—subscribers who attend numerous concerts every year for many years; trialists—first-time concertgoers who attend a single performance; the noncommitted—people who attend a couple of concerts in a given year; special-occasion attendees—people who attend only one or two concerts a year but return consistently, year after year; snackers—people who consistently purchase small concert subscriptions for many years; and high potentials—people who attend a lot of concerts but have not yet purchased a subscription.
So there were at least six different customer types—dramatically different from one another. In Boston, for example, members of the core audience were found to represent just 26 percent of the customer base, while buying 56 percent of the tickets sold. By contrast, trialists were 37 percent of the customers but bought only 11 percent of the tickets. Statistics from all nine orchestras found remarkably similar patterns.
The core group held the key to today’s demand. Though they made up just a quarter of the audience base, they provided the bulk of the revenue flow that made the very existence of live classical music in America possible. (Revenue analysis showed that, between ticket purchases and donations, a single core household yielded an orchestra some $4,896 over a typical five-year period.)
So satisfying the core is essential. And fortunately, it is a skill that the best orchestras have mastered. Subscription data confirm that, once a person becomes a regular supporter of the local orchestra, he tends to renew his subscription year after year, often for decades.
But what about tomorrow’s demand? How could American orchestras escape the curse of customer churn and the seemingly endless marketing treadmill?
The answer lay with one variant customer set: the trialists—that relatively vast stream of customers (over a third of the ticket buyers in any given year) with their horrifying churn rate of 91 percent. By contrast with the core families, who provided almost five thousand dollars in orchestra revenues apiece, the typical trialist family in the study had a five-year value of just $199.
So the problem wasn’t generally “to reduce churn” or to “keep more customers.” It was, quite specifically, to convert trialists into steady customers, transforming them from one-time samplers of classical music into snackers, high potentials, and, eventually, into members of that ultravaluable core.
But how to do this? To answer this question, the research team had to figure out what the trialists actually cared about, so that a product could be created that was magnetic for them, not for the mythical average audience member.
The researchers moved into phase two of their study. They set about to create variant hassle maps of the symphony experience for the different customer types—especially the all-important trialists. Identifying and eliminating the stumbling blocks that were discouraging trialists from returning could be the key to future demand.
The technique the researchers applied was factor analysis. With the help of orchestra marketers, they brainstormed an initial list of seventy-eight different attributes of the classical music experience, including everything from the architecture of the auditorium and the service at the bar to the guest conductors leading concerts and the availability of ticket information on the Internet—practically anything they could think of that might have an impact, good or bad, on the trialists’ experience.
Then, using online surveys and other tested techniques for examining customer behavior, they whittled the list down to sixteen factors with the greatest real impact on the hassle maps of the audience subgroups, especially trialists.
The results were fascinating, and often counterintuitive. It turned out that factors like the relative prestige and quality of the local orchestra were not terribly important in attracting return visits by trialists. Neither was the beauty of the concert hall, the opportunity to hear contemporary music, or the selection of refreshments.
And what did make a difference? At the top of the list was parking. The simple ability to travel to and from the concert hall with a minimum of fuss was the single most powerful “driver of revisitation,” as the researchers put it. It was the key demand trigger for trialists.
Parking was something few orchestra companies had ever focused on. “The subscribers never complained about parking, so why did we really have to worry about it?” as one symphony executive told us. But the silence of the subscribers was deceptive. Veteran members of the core audience had long ago devised their individual travel solutions, eliminating parking from their hassle maps. But for trialists, parking was a significant hassle—big enough to prevent thousands from becoming orchestra subscribers.
For many orchestras, fixing this hassle is as simple as negotiating a special rate at a nearby parking garage and including detailed driving directions in the ticket mailing. Yet this simple step turned out to be a powerful demand trigger.
The study identified a handful of other triggers, some of them equally simple. For example, it turns out that trialists enjoy the performance much more when the conductor takes a few minutes to offer personal comments about the program—the history behind a selection, the life story of the composer. (In retrospect, it seems obvious: Most Americans are unfamiliar with classical music and need some context to give meaning to what they are hearing. But picking this item from the original list of seventy-eight was far from obvious.) Similarly, the ability to quickly and easily exchange tickets makes an enormous difference in the comfort level of trialists, for whom the traditional “No refunds, no exchanges” policy is a potentially deal-breaking hassle.
Finally, the research team tried to determine what kind of follow-up offers would be most likely to entice a typical group of trialists. Would romantic compositions on the program do the trick—or would twentieth-century music prove more magnetic? Would an opportunity to meet and greet the musicians draw a crowd? What about vocal soloists versus instrumentalists?
Orchestra directors and marketing executives could guess at the answers—and in fact that’s what most of them had done for decades. Instead, the research team used hundreds of small-scale experiments to develop and test a series of “killer offers” tailored to particular orchestras and the tastes and preferences of local trialists. For instance, for unconverted trialists in Boston, the team recommended a single-ticket offer that included a Saturday night concert; a program that included music by an especially popular composer and both familiar and unfamiliar selection
s; a “bring a friend for free” and a “free drink at the bar” offer; and free ticket exchanges.
Taken together, all these product enhancements—the tailored concert program, the free ticket for a friend, the convenient parking, and the rest—add up to a hassle-free music experience for trialists.
We sometimes assume that individualizing a product to address demand variation must be prohibitively expensive—after all, a bespoke Savile Row suit costs a lot more than an off-the-rack model from a department store. The orchestra study proves otherwise—as do the experiences of many other demand creating organizations that have found cost-effective ways to vary their product offers while keeping them affordable.
The unveiling of these findings to orchestra managers from around the country has sparked a quiet revolution in the marketing of classical music. One orchestra after another has begun to adopt and test its own responses to demand variation, with initial results that are startlingly hopeful.
When the Boston Symphony Orchestra tested the killer offer designed specially for trialists against a traditional ticket offer, the killer offer drew 34 percent more ticket purchases—the equivalent of 5,100 additional ticket sales over the course of a season. The New York Philharmonic found that the killer offer outperformed a standard offer by five to one. The Cincinnati Symphony offered half of its Summer Pops trialists a traditional subscription, the other half a customized single-concert offer; the latter offer outsold the subscription by twenty to one.
Now more and more orchestras are adopting variation-based programs, with remarkable success. The Pensacola Symphony, which had recently lost a hundred subscribers—one-seventh of the total—in a single year, gained three hundred new subscribers and was oversold for the entire 2008–2009 season. The Stockton (California) Symphony added three hundred subscribers and boosted its ticket sales for the season by four thousand. And the San Antonio Symphony, which had filed for bankruptcy as recently as 2003, enjoyed sales for its “Classics” series that were 27 percent higher than the year before. These across-the-board demand increases are especially notable during a time of slow recovery from the deepest recession in memory.
Demand_Creating What People Love Before They Know They Want It Page 22