Trader Joes: Lesson in Value Proposition

One topic I talk about often in business presentations is value proposition.  It’s a simple concept that few people seem to grasp, even though we each deal with it many times a day.

Value proposition is simply why you bought the product you bought.  But, answer to that isn’t always as simple as you think it is or very clear.  There can be many factors.  Some you may be aware of and some you may not be.  Sometimes we think we understand the value proposition, but it often turns out to be something else.

Trader Joes offers an excellent illustration of value proposition.  It has a successful value proposition as evidenced by  its success.  People want what Trader Joe’s sells.

When I first walked into a Trader Joes, I commented to my wife “this seems to be like an Aldi for organic.”  I then read this article about Trader Joe’s a few days ago.  It turns out there’s some truth to my observation.  An excerpt from the article:

Few customers realize the chain is owned by Germany’s ultra-private Albrecht family, the people behind the Aldi Nord supermarket empire. (A different branch of the family controls Aldi Süd, parent of the U.S. Aldi grocery chain.)

Aldi and Trader Joe’s are both low-priced grocery stores that carry fewer off-brand items in smaller footprints than other grocery stores. On those factors they are very similar.

But, after researching the history of both chains on wikipedia, it occurred to me that the ownership mattered little to producing these similarities as both chains resulted from successful, independent black swans (experiments that worked).

And, while they are similar on some basic descriptors, they serve consumers who want very different things.  Aldi serves cash constrained, practical, bargain shoppers, while Trader Joe’s appeals to a different crowd.  As the article put it:

Who’s a fan of Trader Joe’s? Young Hollywood types like Jessica Alba are regularly photographed brandishing Trader Joe’s shopping bags — but Supreme Court Justice Sonia Sotomayor reportedly is a fan too.  Kevin Kelley, whose consulting firm Shook Kelley has researched Trader Joe’s for its competitors, jokes that the typical shopper is the “Volvo-driving professor who could be CEO of a Fortune 100 company if he could get over his capitalist angst.”

Many business managers and owners could benefit from understanding the simple but subtle art of value proposition.

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BMW Just Gave Away Their Secret to Success

I was watching the Olympics and saw the ad, that is currently playing on BMW’s website.  It gives away the secret to their success. If only other businesses would listen.

The narrator in the ad says:

We realized a long time ago that what you make people feel is just as important as what you make…

Yes.

That is value proposition. Many businesses and products that had what seemed like good products failed because they didn’t realize this.

I remember once, a long time ago as a young engineer in my first job working with an older engineer that was hooked on Corvettes.  He had bought many over the years.  He was trying to call GM to get some spare parts and was having a terrible time with the customer service department in getting anyone who not only knew something, but would actually treat him with respect.  Here’s a loyal customer for goodness sake.  This gentlemen was nearly in tears as he described to me the experience and explained that had ended his love affair with the Corvette.

Here Chevy had a hit product and loyal customer.  Yet, they still managed to make him feel bad enough to cause him to reconsider being a customer.

That’s not how you want to make your customers feel.

BMW’s commercial ends with:

…and at BMW, we make joy.

Listen up CEOs.  How do you make your customers feel?   With a good many companies they make me feel just slightly enough better than the competition to keep me coming back which leaves the door wide open for competitors.

How you make your customers feel can be an intangible, and high value, competitive advantage.

Thanksgiving Menu Part II: Value Proposition

Value proposition is one of those subtle and nuanced things that drives successes and failures in the marketplace.  Businesses go broke because they don’t do a good job with value proposition.  Likewise, businesses who do provide value proposition – or what the customers want – do well.

It’s subtle and nuanced, because very often, even the businesses don’t know exactly why their customers like them or not.   Sometimes the customers can’t even articulate it very well, or they may give you one of the five real reasons why they perceive more value from one business over another.

In my home town, I often choose a gas station that I favor less because it’s in a safer and easier to access location for me.  That’s a case where convenience and safety wins out over a better ran business, for me.

The Thanksgiving Menu/Bathroom Policy at Latte Land (written about in the previous post) highlighted this idea of value proposition with me.  The managers of Latte Land mistook good coffee (which they have very good coffee) as the only part of the value proposition for their customers.   But, many customers view it as a package deal.  I buy coffee, I get to use your restroom.  Or, as the woman behind us asked, “They want me to pay more to fill me up, but then not give us a place to empty out?”

It’s at extreme conditions, like those of Thanksgiving evening in Latte Land, where the truth of value proposition comes out.  That’s when managers should listen. For many people, part of the value proposition of buying coffee is getting to use the restroom at the place.  A customer may never say this in a marketing focus group or survey.  It’s so basic that most people don’t think about it.  Using the coffee shops restroom might not be a service they always use, but they feel that using it is included in the purchase price.  We assume it, just like assume people will wear clothes in public.  And, by closing their restroom down when some people needed it most, it was a nearly equal to someone not wearing clothes in public.  It was viewed as an over reach by customers.

When Latte Land raised prices and removed the use of the bathroom, the truth came out.  Customers view part of the value proposition as making sure that customers have a place to empty their bladders.  As I previously recommended, they could have done that by simply directing customers to the event facitlities down the street.  It wouldn’t have been completely satisfactory to everyone, but it would have been better than what they did.

Thanksgiving Menu

Last evening, I took the family to the annual Christmas light ceremony at one of the local shopping areas.  This one is a big deal in my town.  A few hundred thousand people typically gather for this one. 

We wanted some hot chocolate and coffee so we decided to brave the line at one of the local coffee shops, Latte Land, which is usually well run.  I wasn’t surprised to see they had a temporary “Thanksgiving Menu” displayed that had a smaller selection, fewer sizes and higher prices.  I would do something like that myself.  The lesser selection helps them focus their operations on speed and the higher prices recognize the higher demenad for that night.  Judging from the length of the line, they could have charged more.

But, the overreach seemed to be in their bathroom policy and the way they executed.  It was no surprise to me that their bathroom was not open.  Had it been, it would have been mobbed.  But, this didn’t go unnoticed.  Several people had to go really bad, my son included.  I eventually had to escort him to the nearest bush. 

I didn’t have a problem with their bathroom policy, but I would recommend better execution. 

Their execution:  They taped a handwritten sign on the bathroom door that said “Restroom out of service.”  I saw several people make comments to the staff, “You’re charging me extra and I can’t use your bathroom?”  To which, the staff responded with flustered looks, shrugged shoulders or ignored the clients all together hiding behind the shroud of their overwhelming demand.

My recommended execution:  Since the lighting ceremony is a festival that attracts hundreds of thousands, the shopping area provides porta-potties to handle the extra demand.  Latte Land did such a nice job with the print and lettering on their special Thanksgiving Menu, I would recommend they put the same effort into their special Thanksgiving Bathroom Policy.  They could have printed up nice signs for the front door and bathroom door that said, “We apologize that our bathroom will not be available during the Christmas Lighting Ceremony.  You will find festival facilities located one block north from our location.”  While that might not have set well with clients, that would be upfront and lets them know where they can go.

Further, I would have trained my staff to respond nicely to questions about the policy.  Something like, “We’re very sorry.  We understand your frustration.  But, if the bathroom was open, we wouldn’t be able to serve coffee because the line to the bathroom would be too long.  Porta potties are provided just one block north of here.”

Again, this would have still frustrated many, but it’s upfront, honest, official and, most important, helpful.  Much more so than the hand scrawled note in the back and the flustered looks.

Resolving Service Problems

As a friend described a customer service issue he had with a business that was successfully resolved by the person he was dealing with, it occurred to me that the person did three things well.

  1. Identified problem.  The customer service person kept his composure and asked questions to identify exactly what the problem was.
  2. Understand problem.  After he identified the problem, he asked a few more questions to zero in on how the problem impacted the customer’s value proposition .
  3. Offer common sense solution.  After identifying the problem and understanding why it was a problem, the customer service agent offered a solution that addressed the shortfall in value proposition and was acceptable to the customer.

This may sound obvious and simple, but consider how many service problems you’ve experienced where the business agents never made it to step one.