Kitchen Fees, Sightline Pricing, and Premiumization
As changes accelerated by the pandemic continue to ripple through the economy, more businesses are experimenting with alternative business models.
Here are today’s highlights:
Are you wasting your money creating marketing personas?
How Michael Girdley expects to generate more than 200 applicants for a leadership role.
American manufacturing is showing weakness.
Gene Marks says there are three reports every business owner should review regularly.
Matt Lerner says marketing personas are worthless: “At PayPal, I once wasted $1 million on a marketing segmentation to build personas. Here’s what we actually learned, plus what I now do instead. First of all, the research was exquisite. Ipsos started with dozens of interviews, then fielded thousands of surveys and clustered their findings into a segmentation. It teased out nuances among our merchant segments: eBay sellers, DTC, multi-channel, etc. Each persona had psychometric scores for risk tolerance, price sensitivity, ambition, tech savvy, etc. Eventually I asked myself, How will this help our marketing? And I realized it never would. These differences were fascinating but inconsequential.”
“Imagine you own a beachside restaurant, and you’re trying to get more customers. Which one of these facts is more useful to you?”
“One, Tammy is a 39-year-old divorced mother of two, from Atlanta. She works in compliance, earns $58,000 a year, throws right, votes left.”
“Two, Tammy is on the sweltering hot beach with two kids. They’re getting hungry, and one of them has to pee.”
“Option two wins. It tells us that ice-cold air conditioning and a no-fuss kids menu will draw Tammy in, where No. 1 leaves us guessing.” READ MORE
THE 21 HATS PODCAST: DASHBOARD
The Three Reports Every Business Owner Needs: This week, Gene Marks says he’s found that too few business owners really know how their business is performing. He suggests three reports that they should review regularly -- beyond their monthly financials -- if they want to get a better grip on managing their business. Plus: Gene explains how businesses can save money on energy and why everyone should hire a CRM consultant (like Gene, for example).
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
Michael Girdley explains why he shares his lessons learned on Twitter:
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As workplace norms evolve, are personality tests keeping pace? “Each year, some 100 million workers worldwide take psychometric tests, meaning tests designed to study personality and aptitude. The industry exploded in the late 1990s and early 2000s as the tests were computerized, Dr. Chamorro-Premuzic said. Now, psychologists are exploring what changes need to be made to workplace personality tests — both to grapple with longstanding questions about their validity and to address the changing norms of hybrid work. It’s a moment when, managers say, the tests are more useful than ever but not always up-to-date.”
“Some managers find them particularly useful for remote teams, because personality tests can prompt much-needed conversations about who workers are as humans, and how they like to interact.”
“Critics are quick to point out that some of the tests, such as the Myers-Briggs Type Indicator, which churns out four-letter distillations of personality, are about as reliable at predicting success in a professional endeavor as sorting candidates by astrological signs or Magic 8 Balls.”
“Investigations by the Equal Employment Opportunity Commission have uncovered bias at play in some hiring processes that overly relied on personality tests without scholarly psychological backing.”
“But personality testing has also gotten more rigorous in recent years. Organizational psychologists have developed assessments that are more fair and grounded in research.” READ MORE
Yes, low-wage workers are costing more: “Many low-wage jobs have become middle-wage jobs. And incomes are increasing faster for poorer workers than for wealthier ones, a dynamic known as wage compression. As a result, millions of low-income families are experiencing less financial stress and even a modicum of comfort, though the country’s surging rents and rising pace of inflation are burdening them, too. The yawning gaps between different groups of American workers—Black and white, young and old, those without a college degree and those with one—have stopped widening and started narrowing.”
“Last month, Target announced that it would pay new employees as much as $24 an hour and extend health benefits to anyone working at least 25 hours a week. The company is hardly the only one coughing up cash to lure in new workers or retain those on staff. Starbucks recently set a national minimum wage of $15. McDonald’s, Dairy Queen, and Subway franchises have been offering signing incentives.”
“The pandemic sparked a giant, economy-wide game of musical chairs, spurring workers flush with stimulus cash to reassess their employment options and forcing employers to make their job offerings more attractive to workers.”
“The government gave low-income workers a financial cushion, which meant they could take their time in picking a new job. And it ensured that there was ample demand in the economy, so businesses were eager to hire.” READ MORE
After two years of strong growth, manufacturing is weakening: “New orders for manufactured goods contracted for the sixth straight month through February, according to surveys by the Institute for Supply Management. Manufacturing output is down 1.7 percent from its post-pandemic peak in May 2022, according to a three-month moving average of Federal Reserve data. And the Commerce Department’s measure of civilian capital equipment orders, excluding aircraft—the building blocks of business—was down 3.4 percent in January from its recent high in November 2021, after adjusting for inflation.”
“Weaker manufacturing data suggest that consumers and businesses are starting to retrench in the face of economic uncertainty, said Jonathan Millar, senior U.S. economist at Barclays.”
“Although manufacturing accounts for a relatively small share of gross domestic product, about 11 percent, it has historically been an early indicator of recession.”
“Production of appliances, furniture, and carpeting was down almost 15 percent in January from the previous year, according to the Fed. That coincides with sales of previously owned homes falling for 12 straight months.” READ MORE
Restaurants are experimenting with kitchen fees: “In 2015, the owners of Tres Gatos and Casa Verde in Jamaica Plain [Massachusetts] decided to implement a 3-percent ‘hospitality administrative fee’ — a surcharge meant mainly to boost pay for the dishwashers, line cooks, and other back-of-house workers who often earn significantly less than their tipped counterparts. ‘We think that within five years the majority of restaurants will have adopted some measure to address this critical issue,’ the owners wrote, explaining the decision. It turns out, they were right.”
“These surcharges, once an anomaly, have begun popping up on bills at dozens of eateries across Boston, from a walk-up bagel joint in Roslindale to a sit-down Italian-inspired restaurant in Cambridge to a downtown brewery.”
“‘Historically, there’s always been a back-of-the-house, front-of-house divide,’ said Steve Clark, president and CEO of the Massachusetts Restaurant Association. These fees, he said, are ‘an attempt to level the playing field’ by adding a set percentage, usually 3 percent to 6 percent, to a customer’s bill, with the proceeds doled out to back-of-house employees, usually depending on how many hours they worked.”
“And, at least at Democracy Brewing, which now has a 3.5 percent kitchen-appreciation fee, it’s making a difference. Since implementing the fee a little over a year ago, kitchen employees have seen their paychecks grow by about $3 to $5 an hour, Razsa said, with most now taking home at least $20 an hour. Some workers have been able to quit second jobs, Razsa said, and he believes the fee has helped reduce turnover.” READ MORE
Movie theaters are testing variable pricing: “As they struggle in a fast-changing business, multiplex operators — some carrying astounding debt because of pandemic shutdowns — have started to experiment with pricing in ways that have startled moviegoers. AMC Entertainment, the world’s largest cinema chain, is testing ‘sightline’ pricing, giving seats at evening screenings different costs depending on their location. Chains have also started to charge more on opening weekends for expected blockbusters like ‘The Batman’ and ‘Spider-Man: No Way Home,’ with plans to ramp up the practice.”
“On Saturday evening at AMC Lincoln Square in New York, for instance, patrons interested in the boxing drama ‘Creed III’ could choose from three IMAX screenings (a $7 to $11 surcharge, depending on seat location), three screenings with Dolby audio and visual technology and reclining chairs ($8 to $12 more), and two standard screenings ($18 for a regular adult ticket).”
“To shore itself up, AMC has offered $5 movie tickets on Tuesdays, introduced home popcorn products in partnership with Walmart, enhanced its Stubs loyalty program, announced plans to turn some theaters into Zoom conference rooms for corporate events, and invested in a struggling Nevada gold mine. (Yes, really.)” READ MORE
Businesses are embracing a new buzzword, “premiumization”—even for products as seemingly pedestrian as doughnuts and lubricant: “Businesses are hoping to keep the good times rolling after several years in which they seized on strong spending by consumers and rapid inflation to raise prices and pump up profit margins. Many firms are embracing offerings that cater to higher-income customers — people who are willing and able to pay more for products and services. One sign of the trend: the notion of premiumization was raised in nearly 60 earnings calls and investor meetings over the past three weeks. It is an indication of a changing economic backdrop. Inflation and consumer spending are expected to moderate this year, which could make it more difficult for firms to sustain large price increases without some justification.”
“Krispy Kreme spent last year attracting customers using deals — including a ‘Beat the Pump’ discount that matched the price of a dozen glazed doughnuts to the national average price of a gallon of gas. But it is planning to do less discounting this year, an executive said on a call, aiming instead to generate ‘excitement around our premium specialty doughnuts,’ which include fancier, higher-priced offerings around holidays.”
“WD-40, the firm that makes the lubricant of the same name, has found that customers will pay more for products with enhancements, like a can with a ‘smart straw’ to spray the lubricant in two different ways — in either a precision stream or more of a mist.” READ MORE
Black and Latino developers are not making a lot of progress: “Out of roughly 112,000 real estate development companies in the United States, about 111,000 of them are white-owned. Those numbers are bad, but at the top of the market, they’re even worse: Of 383 top-tier developers that generate more than $50 million in revenue annually, one is Latino; none is Black, according to a new report. ... The dearth of diversity at the top matters because that’s where developers can have the most impact on communities and drive the most economic growth. The lack of representation begins with lack of capital, as Black and Latino people hoping to break into real estate development often can’t even access the seed money to get started.”
“A racial wealth gap means that many aspiring Black and Latino developers don’t have such investment-savvy friends and family with discretionary dollars: The median net worth for white families is $188,200, compared to $24,100 for Black families, and $36,200 for Latino families.”
“‘Most people in our community don’t have an uncle or a friend that could bring that to the table up front,’ said A. Donahue Baker, 50, a developer based in central New Jersey. ‘So that automatically reduces the number of minority applicants available.’”
“Just as homes in Black and Latino neighborhoods appraise for less, so too do developers’ projects in such areas. A development in Newark may be valued at half as much as in a predominantly white area 30 miles away, Mr. Baker explained: ‘That’s significant because the costs are the same.’”
“The small group of Black and Latino developers who manage to pierce the ceiling at the top of the market often outperform their white counterparts in terms of typical transaction size, the study found.” READ MORE
Thanks for reading, everyone. — Loren