Over the 15 years our company has been in the location-based entertainment industry, we have visited hundreds of new projects. Often, within the first 10 seconds of walking in the front door, we knew that many, probably the majority, of those projects would soon be roadkill. Usually it took about a year until the novelty wore off for those projects to see their true business potential (not good). Around the end of the sophomore year or early in the third year, the cash ran out and the debts grew to a magnitude that required the doors to close.
What is so frustrating to us is that this cycle continues to repeat itself with new centers, even after so many years of industry experience and lessons learned. For some reason, entrepreneurs continue to make the same mistakes. We have written many articles in this eNewsletter as well as in industry trade magazines and journals about various aspects of designing and operating successful location-based entertainment facilities (LBEs), from feasibility, to design and quality-of-place, to focused assortment, to facilitating the experience. All these things are important to success, but there appears to be some essence, some critical success factors or qualities entrepreneurs still miss when they develop and operate their LBEs.
We believe we have identified one of those essential factors - food and beverage - and have been writing about it extensively over the past year in this eNewsletter. But food and beverage alone is not the total answer.
For some time we have been grappling with identifying that essence so many LBEs lack. We've written about aspects of it, but could never precisely describe what it is. New research in the hospitality industry by Ki-Joon Back, a professor at the College of Human Ecology at Kansas State University, and Kyung-Eun Lee, a research associate and doctoral graduate at the university, have identified that other critical essence to success and given it a name - brand personality.
According to Back, there are three parts of a brand for a location-based facility that influence guests' perception of a brand's personality:
The first and last are self-explanatory (more on price later. See our January 2004 article Moving from Serving Customers to Facilitating Experiences for a discussion of service). It is the concept of imagery that seems to be the link at which true guest loyalty, and thus repeat business and success, is either gained or lost. Professor Black's research shows that how well a brand accentuates a guest's desired image of himself is critical to making the guest a permanent, loyal customer. People want to project a certain image of themselves, so most will choose a brand that projects that same image. The better a hospitality business' or LBE's personality matches the personality of a guest, the more likely he will become a loyal, repeat guest. Professor Black says, "Customers become brand loyal because they have an emotional relationship with a brand, much like they do with people." Yes, it all boils down to emotions - how a particular brand fits your image of yourself and how you think it makes you look in the eyes of others.
You don't have to look very far to see examples of this in other industries. Starbucks is a great example. Its coffee emporiums attract a certain, somewhat sophisticated clientele based upon the brand's image, which includes the stores' ambiance and customer service that allows you to order a drink customized a thousand different ways. And Starbucks' customers are more than happy to pay a premium price for their drinks because Starbucks projects an image of how the customers want to be seen by others. So by visiting Starbucks and using their products, Starbucks customers, in a sense, borrow that personality as their own (pseudo or not, perception is reality to customers). In our article, Not all Populations Are Created Equal, we wrote about two coffee shops, one a Starbucks, and the other a somewhat bohemian independent shop right next door -- both thriving with completely different customer bases. Each had a niche market, with customers whose personalities matched each coffee shop's personality or brand image.
Panera Bread restaurant is another excellent example of how the right personality brings success. Panera has the highest customer loyalty rate of any quick service restaurant. No wonder the company averages $1.8 million in sales per store. Why? Because, Panera is smart -- that is, smart looking and feeling. The restaurants have upscale ambiance to match an upscale market looking for a little elegance and fresh eatings (not something you find in McDonald's). Customers willingly will spend more at Panera than at a fast food restaurant. Why, it's a cool place to be seen, and you feel stylish when you are there. Panera's offers more than good food; it offers an image customers connect with emotionally. Panera, like Starbucks, has a distinct personality that emotionally resonates with a particular segment of the population.
Look at the auto industry. For years, the auto industry has known that people choose cars that reflect how they want to be seen by the world - whether it is a stylish image of success, perhaps with a BMW, or a down-to-earth practicality, perhaps with a Saturn.
In the home building industry, research shows that the most successful model homes are decorated and furnished about one economic rung higher than the income of potential buyers, as buyers aspire to be seen as one notch higher than where they are economically.
Dr. Back's research showing that self imagery is central to brand identity and success validates the theory of consumer behavior known as trading up or the New Luxury. The Boston Consulting Group has been doing research on trading up since 1998, and vice president Michael Silverstein has authored a new book about it, Trading Up: The New American Luxury. Basically, Silverstein has defined New Luxury as the phenomenon of middle-market consumers ($50,000+ incomes) trading up to higher-quality products and services that cost more than traditional ones. Examples of New Luxury companies include P.F. Chang's China Bistro, Panera Bread, Restoration Hardware, Starbucks, Williams-Sonoma, Ben & Jerry's, The Cheesecake Factory and Callaway Golf.
Silverstein says, "What sets these [New Luxury] companies apart is their ability to understand and make products that respond to consumers' desire for extra functional and emotional value." Silverstein describes New Luxury as delivering emotional reinforcement. What is interesting is that these middle-market consumers are practicing what Silverstein calls 'rocketing' - splitting their purchases by trading up in categories that really matter to them and trading down in others that don't matter, such as with generic brand grocery products.
New Luxury is a distinct genre of products and services. Unlike Old Luxury items intended for the very wealthy, New Luxury appeals and is accessible to a much broader demographic. Whereas conventional goods compete primarily on price, New Luxury competes on value. New Luxury commands a premium price (and profit margin) due to superior quality, performance and emotional appeal. New Luxury is an important concept to understand, as companies with New Luxury products and services are growing at a far faster rate than other non-New Luxury companies in the same product and service categories.
Emotionally engaging customers is an important ingredient to New Luxury success. New Luxury items reflect the lifestyle of their buyers, or as Dr. Back describes it, their consumer self-imagery. Consumers want to build their personal brand (how they present themselves to the world). Therefore, they buy brands that reinforce their desired brand image, that make positive statements about who they would like to be. They buy selected brands to help define their personal brand image in the eyes of others.
New Luxury goods and services are also associated with social and human values that are important to their consumers (more of that emotional connection). It is important to New Luxury consumers that the goods and services they buy reinforce their good intentions toward the world - reinforce their emotional spaces of morality and values. They want goods and services that demonstrate social consciousness. They want to know the stories about the companies that make the products and produce the services they buy. Paul Newman's products are an excellent example of this aspect of New Luxury appeal.
The New Luxury category avoids class distinctions and is not promoted as elitist. Rather, it generally appeals to a set of values shared by people at many income levels and in many walks of life. It is a value-driven concept based on three primary attributes:
New Luxury defies the conventional wisdom that says, "The higher the price, the lower the volume." New Luxury does not compete on price. Instead, it commands a premium price of between 20% and 200% more, due to higher levels of quality, function and emotional engagement. However, New Luxury is priced within the reach of the top 40% of households earning more than $50,000 a year and is not out of the question on an occasional basis for the 20% of households making between $30,000 and $50,000 per year. (see Out-of-home Entertainment is Increasing for information on how families in the top 40% of income control 62% of all away-from-home food spending and 73% of all out-of-home entertainment spending)
from Trading Up: The New American Luxury by Michael J. Silverstein and Neil Fiske, page 52
As a business strategy, New Luxury is very appealing, as New Luxury companies are some of the fastest growing with the highest profit margins and fastest profit growth. If you have any doubt about this, just look up the financials on any New Luxury company, such as JetBlue Airways (JBLU), P.F. Chang's China Bistro (PFCB), Panera Bread (PNRA), Starbucks (SBUX), The Cheesecake Factory (CAKE) and Williams-Sonoma (WSM) and see how they preformed in 2003, considered by many a recessionary year. You'll be amazed.
Positioning location-based entertainment as a New Luxury experience is the success strategy for the future. Just as Panera's, Starbucks, P.F. Chang's and The Cheesecake Factory have distanced themselves from the pack in the restaurant industry, so too can LBEs see superior growth and profits by successfully getting consumers to trade up. However, this requires much more than just offering entertainment attractions. If you want to position an LBE as New Luxury and get consumers to pay a premium, you need to offer:
Then wrap these offerings in a pleasant, upscale environment that engages consumers emotionally with the LBE, and offers them the opportunity to connect with each other.