Is it the Tip or the Total?

I just read Dave’s Dispatch about the impact of tipping on guest traffic at full service restaurants, suggesting that traffic is declining because guests are avoiding tipping. I think it goes to the broader question of VALUE.
  • Tipping increases the total price tag of the experience in the same way that full service increases the total overall experience. If we think of the total experience compared to the total price tag, the VALUE EQUATION may balance either way with the guest walking away having experienced the essence of real value, which is that illusive feeling that the price versus the experience was “worth it.” In many ways, I think the value impact of tipping may also be driving the growth of CARRYOUT sales in the current economy. Guests not wanting to compromise the food quality and taste may opt to carry out their favorites and save both the tax (in some states) and the tip.
  • This whole topic reminds me of a conversation I had years ago with the head of research for Denny’s. When they took a major price increase on their Grand Slam breakfast from $1.99 to $2.99, their guests didn’t complain about the PRICE, they began complaining about the SERVICE. In other words, average service was fine for a $1.99 breakfast, but a $2.99 breakfast set a whole new bar for the overall experience. Fascinating.

The VALUE EQUATION used to be simple: Value=Price/Quantity + Quality. But the more our industry evolves, the more complex the equation becomes. (OK, it’s not rocket science, but it has become a pretty sophisticated calculation.) The key thing for me is that “Value Added” means you have to add what people value.

I was out to lunch with my neighbor the other day to a favorite casual restaurant and ordered from the regular menu…no “value deals” were offered. On the way home, she mentioned being glad about our choice and referenced an offer that a national chain was running: for $1.00 more you can have all the soup and salad you can eat. Her comment to me was, “I don’t want all the soup and salad I can eat…I just want a nice bowl of soup and my favorite salad…all I can eat doesn’t make it a value no matter how little I pay for it.” And there it was…her definition of VALUE. It added no value to her that she could have all she wanted. So the real secret to creating VALUE for our guests means understanding what they consider VALUE ADDED.

Land Cardwell blogged about it a couple of times:

  • After the spring Marketing Executives Group (MEG) conference Coca Cola presentation on consumer empowerment and how it is shifting in the current economy, Lane shared Coca Cola’s VALUE EQUATION.
    • Value= (Price + Quality + Service + Ambience) + Incentive (where incentive might be strong brand reputation, uniqueness or an actual offer).
  • This really rang true to me. Lane also cited Ron Paul from Technomic. Ron’s Restaurant Leadership Conference white paper subtitled “The Winning Restaurant Formula” maintains that, “Consumers consider dining at restaurants an important Quality of Lifefactor.” Regardless of price point, Winning Restaurants will combine “consistently solid basics + resonating points of difference.”

I couldn’t agree more. Both of these EQUATIONS suggest that there are critical emotional connections that can tip the equation in your favor. As you know, I employ the “strategic eavesdropping” technique to gather research on a routine basis, and I overheard a guest make a comment the other day that one restaurant chain’s value offer showed, “They care about me by giving me a deal.” Fascinating.

  • I read an Orange County Magazine editor speculate that people were flocking to a $35 Swedish massage offer because of the “Self Esteem Factor”…the deal allowed people permission to splurge a little and maintain their self esteem even though they were economizing. The VALUE ADDED is the feeling of being pampered.
  • I also love the VALUE ADDED promotion upscale casual chain, Maggiano’s came up with: “Today & Tomorrow.” In a departure from “buy one get one,” chefs created special items to be taken home for dinner the next day. The VALUE ADDED being not having to cook the next day…a compelling enough offer to drive new visits and a good enough product to build the brand.

In today’s VALUE TSUNAMI, that may be the “new normal.” Your VALUE POSITIONING may be as important as your BRAND POSITIONING when it comes to getting and keeping guests in these tough times. And the secret of powerful positioning is the emotional connection it makes with your guests.

Until next time…I’d love to hear your thoughts.