A small Queensland coffee shop has set itself apart with its innovative business model. Dr David Parker, an expert in service operations management with UQ Business School, explains what others can learn in a series of conversations with the owner. This article was adapted from the original in Management Services magazine.
It had been two years since Anne Wright had established CoffeeAnneCake, a small coffee shop based in Southport, Queensland.
It had several competitors close by, for example Gloria Jeans and Starbucks, but Anne Wright, the owner-manager, believed that she had the advantage of a better location and much friendlier staff – amongst other important factors that her ten years as a management services professional in the catering business had taught her were important.
In the early days, sales had been slow and a snap survey of customers exiting had revealed some disturbing insights. While 25% had major complaints at any given moment, only 4% of the problems had ever been related to Anne. Moreover, she only got around to fixing them when time permitted.
It had become clear that customers would rather privately register their disapproval with their feet than publicly deliver their disquiet directly to the waiting staff. “Why aren’t customers truthful with us?” Anne once asked.
The answer, three major reasons: First customers don’t know HOW to register complaints because service providers don’t make it easy for them to do so. Second, customers believe it won’t really do any good. And third, they fear some type of retaliation by the service provider. There is an old adage in the catering business: “Never be rude if I’m preparing your food!”
If customer emotions are so vital to customer loyalty, why do so many organisations shy away from aggressively soliciting complaints? Some lull themselves into thinking, “no news is good news”. Some fear that if they go after and receive customer complaints, but then take no corrective action, they might be perceived more negatively than if they had left well enough alone.
However, we know that those customers who have been directly asked for feedback, are much more likely to give favourable reviews than those who have not. Customers who have had a service problem which was quickly corrected, are more loyal than those who have never had a problem.
Today, Anne Wright is a little older and wiser. CoffeeAnneCake has the standard two and four-seat tables both inside and alfresco style, with umbrella shaded tables on the pavement. Anne says. “I read somewhere that people make decisions as to which café to use, using a subconscious three stage process - pre-engagement, engagement and post-engagement.
“At the first stage, all our instinctive senses are aroused and we become motivated from both subliminal as well as visual stimuli, for example, cues from the other customers in the café (“can I associate myself with them?”), the décor, lighting, ambience, decoration, noise, music, colour scheme, layout, tables, seating arrangements and so forth,” she said.
A question of choice
These are very personal criteria of choice, but certain features are associated with attracting particular customer target groups. Physical, visual aspects of any café send a strong message to potential customers – it is one of the most important attracting-signals.
“Stage two, engagement, in essence captures customers’ potential commitment to purchase and experience of what the café has to offer,” Anne says. At this stage customers have entered the premises and are looking for signs and prompts as to what to do next – should they sit or wait ….. and where might they prefer to be located?
Importantly, this is the first encounter with staff – and the strongest perceptions are often gleaned from what is said initially. Staff appearance and body language (postural echo) are important cues that are analysed in less than 10 seconds by customers. Also of importance, is the menu and choice of food and beverage – with value for money also being a consideration.
An acceptable waiting time for serving, the quality of food and drink, hygiene factors, friendliness and professionalism of staff, and visual entertainment all play a part in providing an enjoyable customer experience.
Anne says: “Post-engagement captures both the final activities involving payment, farewelling by staff and the leaving by customers. It is also a time for reflection, when customers make a spontaneous assessment of the experience and determine whether to return and if to recommend to friends.”
Such an outcome is derived from a hybrid of qualitative factors, with no single reason being dominant. If all three stages meet customers’ personal approval and the café is perceived to be a place to be returned to, then it becomes ‘a regular preferred venue of choice’.
Anecdotal evidence supports the notion that a good café has a relaxed feel to it; it is engaging and is a comfortable place to sit and chat. The aroma of coffee subtly, deliciously scents the air; giving everyone a chance to unwind. A good café is busy but not noisy. There is a fluid flow of people yet customers are not distracted by the sound of everyone coming and going. People can have a conversation or just read a magazine or newspaper. If the target audience dictates, it might also be a place to work – a second office and to have meetings. (This usually means having a wifi internet connection).
Good cafés have their own identity. And it is the little things that often make a real difference to whether a café becomes ‘a regular preferred venue of choice’; for example the likes and dislikes by customers of jam in plastic sealed containers or butter in wrapped portions, availability of daily newspapers, type or any music, and other characteristics of the cafe.
For Anne Wright the requirements to maintain a successful café are clear – to continually seek the answers to the following questions: What do we do to differentiate from the other café choices that customers have? What are the top four elements that make CoffeeAnneCake successful?
Would customers recommend us – and if not, why not? If yes, how can we improve things? How would customers describe CoffeeAnneCake – and are we happy with the description? Is the décor working for customers? Is the menu selection acceptable?
The big turnaround for CoffeeAnneCake was when Anne’s son Alex joined the business. He had completed a computer science course at the local college. “I love new innovation and labour saving devices,” he said, “so when I saw what mum was doing in her business, I was captured by what improvements were possible.”
“I remember a conversation I had with Alex one day that really made me think about my business model,” Anne said. She realised that her business was similar to most others. But some had differentiated themselves and were now very successful. For these businesses the innovation was in the way they operated. They had overcome the limitations of conventional cafés – space, time, menu, and so forth – by introducing new, technologically-based ways of doing things. This was business model innovation.
Business modelling
A business model defines all of the activities that translate the resources into value for their customers, staff, community, stakeholders. This includes defining things such as: Who is the target market? What value are we creating for them? How do we reach them? What resources and activities do we need to create this value? Which partners do we need? What are the costs and revenues?
Once these questions were answered, Anne had defined her business model. There didn’t appear to be a problem with the food and beverages, but customers could get food just as good from the competitors. Much of Anne’s attention had been focused on supplying the product (cooking) and ensuring that ingredients were of high quality. But someone needed to think about the questions of customers’ needs and value propositions, of costs and revenues.
The building of a great business model requires skills that are very different from those required to solve culinary problems and doing so takes time. However, a great business model will show the best way to unleash the delights of good food, the best way to build a business, and the best way to maximise profit and grow the business. Fortunately for Anne, her son Alex had ideas for business model innovation.
“The location of CoffeeAnneCake is at the centre of a business district that includes many IT companies, for example UNISYS, Cisco, Hewlett Packard, to name just a few and down the road there is a university,” Alex said.
“It is these organisations, or rather those that work for them or visit, that defines the majority of our customers. These are people that want serving fast, due to lack of time; they want to hold short meetings on the premises, and are looking for convenience,” he said.
Meanwhile, Anne has been experimenting changes to the menu with the inclusion of more salads and fruit platters. “We now have extensive vegan and vegetarian choices alongside our more traditional food – lasagna, pasta, filled baguettes, baked potatoes, and soup of the day. But no fast food – burgers and such,” Anne said.
Meanwhile, Alex has introduced numerous technological additions. In fact, CoffeeAnneCake has attracted news media attention with its ‘gadgets,’ and as a result of the coverage customers have markedly increased. For example, there is wifi menu selection at each table. Customers can order in advance and pay via a mobile phone app, which pushes their order through to the kitchen when customer is within 5km of the café. It also saves their preferred choices of coffee and offers loyalty rewards of muffins and biscuits.
There is an hourly coffee delivery to local IT companies, with users receiving reminders via their mobiles. The café offers catering for local companies – from coffee for staff meetings to complete meals – and corporate accounts, allowing employees to simply swipe their card and get billed at the end of the month. CafeAnneCake will even accept payment via bitcoin!
Customers can upload amusing pictures of themselves on to flatscreen TVs, play games on a Playstation, and play their own selection of music via an iPad at the table and save their preferences.
The app pulls off customers’ Facebook relationship status so singles on different tables can identify each other and send messages. Diners can also publicly rate the chef on tablets and patrons ordering can see the ratings of the dishes.
Anne says that she leaves all the technological wizardry to Alex, but admits she is amazed at how many people are attracted by it all. “We used to have a problem with customers not telling us what they thought about our service! That couldn’t be further from the truth today,” Anne says. Thankfully most of the emails, Facebook ‘likes’ and twitter messages are supportive. When there is a problem – normally technology fails for a short while – operations are put right quickly.
However, while CoffeeAnneCake has been leading the pack until now, there are already signs that the competition is adopting similar business models. Having technological advantage is never enough, as it can be easily emulated. Hence, Anne and her son Alex need to continually innovate. What to do, however, is the challenge.
What next?
Research is needed to identify where opportunities lie to continually satisfy the customers. At the very best they have six months before their competitors introduce similar attractors. So what might they do? Should they continue to try and out-run the competition by discovering ever-new technology applications or should they develop an innovation business model that would take them in a new direction? Or should they focus on the coffee and food again for a while and go with the standard model of innovation diffusion and stop being the early adopters (high cost option) for a while? Watch this space!
A longer version of this article is available in the summer 2015 edition of Management Services magazine.