It Doesn’t Stop at Advertising and Marketing: Why Operations are so Important and Why they are Linked

You don’t learn to walk by following rules. You learn by doing, and by falling over.
— Richard Branson, CEO, Virgin Group

Vartkes Iskenderian is one of the four brothers who helps run Zankou Enterprises, along with the company’s 260 employees. At 30 years of age, Vartkes is young and dashing—he’s often mistaken for talk show host Jimmy Fallon. He’s also very well educated. Vartkes has a Bachelor Science degree in marketing from Cal State Northridge, Los Angeles. He studied at UCLA Anderson School of Management’s MBA program but left midway through the program to turn his attention to the family business, where he felt he was needed. Vartkes gives us his insights here about strategic management and one of its key elements—strategic marketing.

Peter Drucker said in 1973 that strategic marketing is seen usually as a process consisting of analyzing environmental and market-competitive business factors affecting the corporation and its business units; identifying market opportunities and threats; forecasting future trends in business areas of interest for the enterprise; participating in setting objectives and formulating corporate and business-unit strategies; selecting market target strategies for the product markets in each business unit; establishing marketing objectives as well as developing, implementing and managing the marketing program; positioning strategies in order to meet target needs.

Obviously, that’s a long definition. But we also have a shorter definition: Identification of one or more sustainable, competitive advantages a firm has in the market it serves or intends to serve, and allocation of resources to exploit that.

So, what is competitive marketing or strategic management to me? I agree with Drucker’s definition and the other one to a large degree, and I disagree with them to a lesser degree. What Drucker said was obviously very broad. It included a lot of the operations side of business management. But strategic marketing is actually just that. It’s hard to distinguish between the marketing and operations sides of the business equation. Both are intertwined.

It may help to see the definition of operations and that of marketing. An operation is the condition of functioning or being active. It often includes running, working, and performance during a course of action. Running a smooth operation is essential to any business, especially a restaurant business. Marketing, by contrast, is the action or business of promoting and selling products or services, including market research and advertising. Both are extremely important and are often times intertwined.

Great discipline within operations is required to execute a business. Great marketing is also required to understand what a company is; what kind of value it offers; how the market is going to understand the company and make decisions that will benefit the company; and how to position the company in the larger world. That’s a very simple definition of strategic marketing. How it’s executed is what differentiates a business from others in the market.

Let’s take Zankou Chicken as an example. We’re a Mediterranean, fast casual chain. How many other Mediterranean, fast casual chains are there? Not that many. That is one important differentiating factor for us. But why are we different from other Mediterranean restaurants? Well, we put a lot of emphasis on the quality of our food. We depend on high volume to get the profits we need. If we get the same volume as most other companies on average, we probably wouldn’t do well. Our customers keep coming because we provide such good quality—fresh food, the highest quality meat that’s tasty and never frozen—at a competitive price. This is one of our great competitive advantages.

Now, how do we make sure the public knows this? We have to constantly educate the public—and that’s where marketing comes in. It’s called taking care of the whole package—everything from A to Z. I call it A to Zankou: How does the customer know about your business, all the way to how does the customer feel after they’ve had your food. How much cognitive dissonance do they have? How much buyers’ remorse do they have?

In psychology, cognitive dissonance is the mental stress or discomfort experienced by an individual who holds two or more contradictory beliefs, ideas, or values at the same time, or is confronted by new information that conflicts with existing beliefs, ideas, or values. The less cognitive dissonance customers have, the more word-of-mouth advertising they will do for you—completely free of cost. At the end of the day, if they feel good about having spent their money, the more likely they are to return to buy our food. All that is marketing. It’s the same with top companies such as Toyota—the more customers like their cars, the more likely they are to be loyal customers who buy the same brand name.

And that’s where the importance comes in of establishing yourself as a premium brand—a higher value brand that consumers are willing, able and happy to pay for. It all comes down to value: What is the customer paying and what is he getting in return? One way of gauging value is to ask if the value that customers get on a product is a lot more than what they’re paying for it. The more valuable the product seems to them, the more likely those customers will purchase it again. And remember, a customer’s perceived value is reality.

So if I buy Lexus cars for $50,000, how do they compete with other $50,000 cars? If Lexus beats its competitors for what’s available in the market for that price range—let’s say they have an amazing safety standard, or they offer an amazing warranty that will fix anything that goes wrong, or an amazing navigation system—the easier it is for customers to purchase a Lexus. Of course, a lot of other factors also weigh in. Social conformity, for example—how society sees the product, regardless of how good it is.

Conformity is the act of matching attitudes, beliefs, and behaviors to group norms. Norms are implicit, unsaid rules, shared by a group of individuals, that guide their interactions with others. This tendency to conform occurs in small groups and/or society as a whole, and may result from subtle unconscious influences, or direct and overt social pressure.

Value in marketing, also known as customer-perceived value, is the difference between a prospective customer’s evaluation of the benefits and costs of one product when compared with others. Value may also be expressed as a straightforward relationship between perceived benefits and perceived costs: Value = Benefits / Cost.

The customers get benefits and assume costs. Value is thus subjective (i.e., a function of consumers’ estimation) and relational (i.e., both benefits and cost must be positive values).

Often times consumers have a high perceived value for a product due to the company’s excellent marketing when, in fact, that product may not be so great when rated by objective standards. The perceived value is the entire experience, whether the product is a Lexus or a bagel.

Let’s say, for example, you walk into a café and you look at the beautiful décor. The furniture and surrounding are green and brown—these are earthy colors. You instantly think you’re in place of nature. The music is appealing, and so are the people. The service is good. And what you’re served is good, fresh quality food, and it’s probably organic. Oh wait, it is organic! All of that ties in together—and it all comes down to attention to detail. There’s no confusion—no cognitive dissonance.

Marketing plans are written out well in advance so that companies can reach their marketing objectives. So it’s absolutely crucial to have a written strategy that is communicated to all the employees of a company. It’s the same for a company’s mission statement, which is an extremely important document.

After all the years I have spent in business, I’m still learning every day how important a company’s philosophy is. And it ties back to the principle of having a strategic plan. What’s the heart of a company? What does it stand for? If a company doesn’t know the answers to these questions, it won’t know whom to hire. It won’t know whom to fire. It won’t know when it’s succeeding and when it’s not. And everybody will be discombobulated—all over the place. The more a company is focused on a few things—its core philosophy—and it works on those few things, the more it’s going to excel because everyone’s pursuing the same goal.

Ideas constantly come up within a company and it’s easy to forget what the actual goal is and why you decided on it. So before you act on all those great ideas, you should really have a plan—a road map. If you don’t have such a map you don’t know how to get from Point A to B, from here to New York. You could be in America for a hundred years but you still may not be able get to New York because you just don’t know how to get there.

The same is true of businesses. It could take a hundred years for them to get where they want to go because they don’t know where they’re going. So, the goal must be set first—and then you work backwards. If your goal is five years from today—or a year from today—you say to yourself, A year from today we want our customers to feel a certain way about our business, that we want to sell more to a certain demographic, or whatever. You should set the goal and then try to reach it from where you are. You ask yourself questions such as, “How do we get there?” What is it going to take? Who is going to get us there? Why are we doing this?

A lot of times, people tend to forget the “why.” But that’s what’s going to convince you and your team why what you’re trying to do is important to stay on course. If you or one of your team members have a different idea along the way, it will be the leader’s responsibility to remind everyone to stick to the initial idea—remind everyone about what was agreed upon and why. And that’s why all of that has to be documented, explained, constantly reiterated and printed out for everyone to see. If people at the top don’t feel strongly about the marketing strategy, then everyone else will feel that way. It takes a lot of communication to get where you want to be.

Companies often consider customers’ lifetime value. So what can companies do to keep customers for life? There’s a great book on the subject called Hooked: How to Build Habit-Forming Products by Nir Eyal, Ryan Hoover (Editor). It’s about how to get customers to crave your product or service. It all goes back to adding high value—through a meticulous culture. For example, I could paint a picture of a house for you. It could take me 10 seconds to do it. Or I could spend a week on the painting by spending time on how to make the house look better and getting some expert advice. Which picture are you going to like more? Obviously the more well developed one. It’s that simple. The more time and energy a company spends on a product or service, the more people are going to appreciate it. And the more likely they are to keep coming back.

Take Jiro Ono. He’s the Number One sushi chef in the world. He has a three-star Michelin restaurant in Japan called Sukiyabashi Jiro. U.S. President Barack Obama dined at the restaurant with Japanese Prime Minister Shinzō Abe on April 23, 2014. He reportedly did not finish his sushi though Prime Minister Abe said, “Obama said it the ‘best sushi I’ve ever had in my life.’”

There’s a documentary about him on Netflix called Jiro Dreams of Sushi. He doesn’t even serve appetizers. His food is very expensive. You’re in 15-20 minutes and you’re out. There’s no great service. All you get is a high quality product, meticulously made, with great attention. And every single day, Jiro is looking at ways to improve the product. That takes consistently doing the same thing over and over again and creating a strategy or process for doing that. The way he cooks his rice—he’ll do it a certain way and he’ll make sure everyone on his team understands how to do it exactly that way. It could take days, week, and years to do something—only to realize that it’s better if you did it another way.

The Japanese have had this philosophy for decades. From tech to food, no matter what the company is, they’re dedicated to making minute improvements every single day through investments in time, energy and focus. And it doesn’t always require money to improve quality. Often it’s just getting your team involved and having the strategies in place. Toyota is a great example. The culture of the company developed from the founder to every single employee. The philosophy behind it is known as kaizen—continuous improvement. Every single person has the ability to help the company get better. Kaizen literally translates to “Good change.”

Every strategic management plan must include what’s known as a SWOT analysis—that is, knowing a company’s Strengths, Weaknesses, Opportunities and Threats. It gives you a good picture of where you are and what you need to work on. Because remember, without knowing where you are, you’re never going to know where to go—and what it’s going to take to get you there. You have to ask yourself how to capitalize on your strengths. What are your weaknesses and how do they affect the market?

For all the importance of strategizing, there’s a certain point at which you have to move forward into action mode. You have to ask yourself whether all the time spent strategizing is working in reverse—that is, if we start working now, what’s the worse thing that could happen. You put one foot forward and see what happens. Of course, every situation is different, and there are different variables. It all depends on how much it’s going to cost to move forward, how many people the action is going to affect. But if you have put in the right time, you will know when you’ve done enough to move forward. If you think too much, you might have paralysis.

Although strategizing implies thinking, strategic management is not something that can be—or should be—done only from home. You’ve got to get out there. Because when you get out there in the trenches that’s where you will get to see people and anticipate problems. You come into contact with issues that your team members think they can improve. You feel people out—see if they’re right for a certain job and whether they’re performing to the standards that you have set. And the only way you can get a feel for all that is by going out and seeing it for yourself. It’s a process of constant communication.

Price elasticity—keeping costs down while maintaining high quality—is another very important factor. A company needs to know how any increase in the price of a product may affect customers’ purchasing decisions. If a company doesn’t understand this dynamic, then when it increases prices they might experience an adverse effect. That is, they might think they’re going to increase profits by raising prices, but in fact it might work the other way. Because there’s always a certain point beyond which customers don’t want to pay for your product or service.

Customers always have in their mind what the value of a particular product or service is. By having the right price, you look at the bar. If the value of your product or service is above the price you provide, then customers are likely to buy what you’re selling. The closer your price reaches the value of your product or service, the less likely customers are to buy it. So you always want to have value—and the perception of value—out there for everyone to see. In fact, the perception of value is really the true value of a product or service. That is, how do customers perceive your business—and how do they compare it to other alternatives. The higher the value, the bigger the difference between the value and the pricing you’re providing. If your price keeps going up, however, some people might not perceive that value to be that high.

But in certain industries it’s very doable to increase prices. You may think that all is well and you have no competition. But the truth is there is always competition. Taking this example and applying it to us, customers may not always want Mediterranean food, for example. In that context, any other restaurant that offers value is a competitor. So before you increase prices you have to know your industry well and know your competition. Raising prices should never be a game you play; it should always make sense.

Before increasing prices, make sure that you have looked into every alternative available. Can you negotiate a better price with your vendors? Can you cut costs somewhere in the company? Can you increase productivity? Anything that keeps you from raising prices is a good thing. Remember that the higher up prices go in an industry, especially in the restaurant industry, the more sensitive customers may be to the change.

But if you must raise prices, ask yourself if costs are going up everywhere and if customers know about it. If they do, then their perception of cost and value are in sync. And again, value isn’t just the quality of the product or service. It’s also the quality of service, the accuracy of service, and a host of expectations that go with all that.

How do we know that a particular media or advertising strategy is actually working? That can be difficult to gauge, especially with social media. But you can start with specific items. That is, promote a certain item from your product mix and do a projection about where you think sales are going to go. And then keep an eye on whether the product is selling more or less, timed with your social media campaign. Find a way of tracking the demographic details of customers who are buying the product. But remember, trying different strategies is easy. What’s difficult is keeping track of whether those strategies work or not.

Finally, my top three Do’s for Strategic Marketing:

1) Have the right people around you and put them in the right places

2) Be organized.

3) Follow through on your promises and make sure your team is doing the same.

My top three Don’ts

1)  Don’t micromanage. You can sometimes micromanage when you’re making products—food or machines. After all, you have to tell employees the right way to make products if they’re doing it wrong. There isn’t only one right way of making things.

But when you’re communicating with people, there are many right ways of doing things. Some people feel more comfortable doing things one way, as opposed to the other. So, micromanaging in that sense is bad because you’re limiting someone’s best and most effective way of doing things.

2) Don’t ever be content with where you are—always try to improve—don’t glorify yourself, and don’t ever become complacent. What you did yesterday is already past. The future is what matters more.

3) Don’t do too many things at once.

You cannot do everything at once, so find people you trust to help you. And don’t be afraid to say no. Jane Seymour

We cannot do everything at once, but we can do something at once. Calvin Coolidge

References

• http://en.wikipedia.org/wiki/Cognitive_dissonance
• zankouchicken.com
• http://www.success.com/article/how-to-build-a-premium-brand
• http://en.wikipedia.org/wiki/Conformity
• http://en.wikipedia.org/wiki/Value_(marketing)
• http://en.wikipedia.org/wiki/Sukiyabashi_Jiro
• http://en.wikipedia.org/wiki/Kaizen
• http://en.wikipedia.org/wiki/Price_elasticity_of_demand

Editors Note

According to Emma Johnson, a Success Magazine contributor, here are 8 ways to helping create a premium brand like Vartkes was talking about.

Here are eight key concepts when creating or evolving into a premium business:

1. Build the premium into your core values. Establish documents outlining the goals, motivations and tactics of the firm, and how each employee, vendor and partner will exemplify those values.

2. Focus on customer service. Bolivar Bueno, founder of The Cult Branding Co. and co-author of The Power of Cult Branding, says small, nimble businesses are exceptionally poised to beat out big competitors with personalized customer care. “The key to succeeding as a premium brand is creating and controlling every aspect of the customer experience,” Bueno says.

3. Measure metrics for success. Create a system for measuring customer service and quality control. “Aim for a 5 out of 5 in every category, and constantly assess your performance,” Bueno says. “Get the entire company on board with a mentality of excellence.”

4. Narrow your marketing and sales focus. It can be very efficient to focus all these efforts on the sliver of the market that wants and can afford your product. Meanwhile, a business built on price-beating is forced to cast a much larger net.

5. Communicate your difference. Sales and marketing efforts must explain why your business is, in fact, premium. What do customers say about you? What results do you promise?

6. Cultivate hardcore fans by going above and beyond. One premium pet store competes against big-box mammoths by giving away whole pies during the holidays. A tire store owns its local market on the promise of driving anywhere in the region to fix a flat.

7. Charge the right price. “Premium prices create expectations,” Bueno says. So the business must ultimately support those expectations with actual value.

8. Easy on the discounts. Businesses that are new or in a lull can be enticed to offer coupons, deals and big sales. Beware. “Discounts are the crack cocaine of marketing,” Bueno says. “The first time you do it, you get a bump in sales, you feel awesome, and you want to do it again and again.” A wayward step on that slippery slope morphs you into a discount brand. (Don’t forget: Many online deals live on in perpetuity.)

• See more at: http://www.success.com/article/how-to-build-a-premium-brand#sthash.6fKUgJWI.dpuf

Kaizen

Kaizen (改善?), Japanese for “good change”. It has been applied in healthcare,[1] psychotherapy,[2] life-coaching, government, banking, and other industries. When used in the business sense and applied to the workplace, kaizen refers to activities that continually improve all functions and involve all employees from the CEO to the assembly line workers. It also applies to processes, such as purchasing and logistics, that cross organizational boundaries into the supply chain.[3] By improving standardized activities and processes, kaizen aims to eliminate waste (see lean manufacturing). Kaizen was first implemented in several Japanese businesses after the Second World War, influenced in part by American business and quality management teachers who visited the country. It has since spread throughout the world[4] and is now being implemented in environments outside of business and productivity.

Price Elasticity

Price elasticity of demand (PED or Ed) is a measure used in economics to show the responsiveness, or elasticity, of the quantity demanded of a good or service to a change in its price, ceteris paribus. More precisely, it gives the percentage change in quantity demanded in response to a one percent change in price (ceteris paribus, i.e. holding constant all the other determinants of demand, such as income).