The False Semblance of Business (and its gift to entrepreneurs)

The False Semblance of Business (and its gift to entrepreneurs)

by | Oct 30, 2015 | Business | 0 comments

Earlier this month, I gave a lecture on critical thinking to an association of Hungarian economists in Targu Mures. At the end of the conversation, I was asked two questions: what was my first impression of business in Romania when I arrived here six years ago? And, what advice do I have for a young person looking to start a business?

As occurs all too frequently, it was not until after I gave my answers and sat down that I realized I wished I had answered them differently. After only a few minutes of reflection did I see how the two answers were perfectly related and how important they both are now as much as ever. Here is how I wish I had answered:

My first impression upon coming to Romania was of a reality that unfortunately remains as true today as when I arrived. Actually, I noticed it even before I arrived. After changing planes in Italy, I was on a Tarom flight to Bucharest looking through the in-flight magazine when I saw an advertisement for a Bancpost-American Express-Tarom credit card.

Having spent 12 years at the world’s largest credit card issuer and the pioneer of affinity/cobranded cards (and then several years after that teaching and writing on the topic), I immediately shook my head and saw what a financial failure that product was likely to be. I knew firsthand that this type of three-branded arrangement existed in other places, but replicating what you see from outside – without understanding the very challenging particulars that lay beneath – was a recipe for disaster. And from what I was reading, this was not going to work.

It was not until after I landed and began to live here that I found more and more examples of exactly this syndrome, whether in banking, in media, at retailers, in restaurants, or even inside American-inspired bars and cafes. Yes, the veneer looked the same – the products and logos and menus and concepts – sometimes, in fact, they were even more American than they were in America.

But it didn’t take long to discover that the product and messaging and service and flavors were but superficial in appearance and misunderstood. Indeed, there was generally a lack of any deeper understanding of the structure and of the strategy within the businesses and products that are required for success.

Six years later, unfortunately, I see little improvement. There still remain too many examples of this fundamentally wrong approach. And too many companies, from banks to newspapers to retailers to restaurants, still fail to understand. Most of them, especially Bucharest newspapers, seem to have no concept as to why they’re in business.

As I know the credit card and loyalty businesses rather well, let me give you a few examples I observe from that sector. In the several years after my introduction to that Tarom credit card (which, by the way, has moved to another bank), I came across the BCR Zambet card, a confused and expensive product that I’ve criticized before for not knowing what it was or why it existed. And after obtaining the bank’s internal presentation some time later, I could see the confusion. There were lots of superficial benefits, but little recognition of the challenges.

Then I noticed Raiffeisen’s cobranded SMURD MasterCard, which I confess led to a sad laugh. The demographics might be good, but clearly the basics of card affinity are not well understood. And then there’s a Steaua card – again, a good idea in other places, but a seriously dubious product here.

Or look at the other big banks and the hundreds of things that were copied and brought here: a credit card for doctors, for small businesses, for entrepreneurs, for students, for shoppers. Discount cards. No-interest borrowing. Points and rewards. Elaborate cash-backs. In each case, I guess, someone saw them in other countries, or read about them somewhere.

But also in each case I can tell you it doesn’t take long to see that too much is wrong – from ineffective benefits to badly constructed messaging to misconceived positioning to card designs without purpose to descriptions intended more for bankers than consumers – overall creating dozens of different products either virtually indistinguishable from each other or giving potential customers no good reason to want them.

And while I don’t know their profitability, these card programs must be attractive to issuers. Some banks are now willing to effectively pay you 100 lei to sign up or some other amount if you bring them your friends. But that’s not likely to work either as short-term acquisition does not necessarily translate to long-term utilization – not with the customer marketing that you find here at the banks.

In fact, of all the bonus and loyalty cards being offered here (whether from banks or any of the retailers), not one that I’ve seen is truly conceived and structured as anything but a product – not a program – and loyalty, to succeed, is not a product to be sold. No. Paying cash for new customers is not a way to build loyalty.

The fact is these could be tremendously successful if done correctly in this market. But there is not a bank or retailer here that seems to fully understand how to correctly position these loyalty, advantage, bonus points, or affinity programs – whatever you want to call them. Instead, it appears they have merely designed card products to look the way they think they should and they are probably wondering why none of them succeed as well as they do in other places.

In other words, what I found when I got here – and still find all too often – is that Romania has businesses that do everything done elsewhere. But all too often, they throw products on the shelves and compete mostly with price and waste a lot of money on new customer acquisition. And when all is said and done, it appears they lack the essential understanding of why these products exist or where they’re headed in the future.

One of the more common excuses I hear is that this or that product was already tried and it didn’t work. Or times have changed and the product won’t sell. Or it’s only been 20 years – you have to give it more time. What this typically means is the person has failed to understand. My guess is they did try that product as they saw it someplace else with the attitude that “I’m a smart person, I can see how it’s done.” But the truth is, they cannot. They never tried the product the way it actually exists someplace else. So they never tried the product the way it needs to succeed.

And that, very simply, takes me to the answer to the second question I was asked.

What advice do I have for young people and entrepreneurs looking to launch a new business? It sounds so obvious, yet it’s so often overlooked. Understand your business – better than anyone. Because once you truly understand what goes into a successful product and then design it accordingly, what you’ll be offering is precisely what your customer wants – not only what you’ve seen without understanding from a distance.

Your business does nothing without customers. And the best type of customers are the ones who like you. Customers who value you. Customers who like doing business with you no matter your industry or the flavor of your product.

And how do you create that? Through the design of your products, the delivery of your services, the internal procedures of your business, and the treatment of your employees. Everything aligned to satisfy your customers.

Whether you are a bank or a newspaper or a shop or a neighborhood restaurant, it’s not enough to offer your product and then pay for new customers. You must inspire your employees, create a business that others enjoy and be a good neighbor (whether you’re local or on the web). Your customers will feel it and the profits will come.

And never forget that it all starts with you.

Yes, the opportunities are out there. Others’ lack of understanding is like a gift made for you.

That’s how I wish I had answered those questions.

Not-So-Small Small Change

Not-So-Small Small Change

by | Jul 18, 2015 | Business, Life in Romania | 2 comments

The young woman looked at me like I was crazy. I had just handed her 21 lei to pay for groceries that cost 20.91 lei. She finished helping me bag the items, handed me my receipt and began to ring up the next customer when I interrupted her, forced an awkward smile, and asked her for my change. She looked confused. I repeated my request. “You owe me 10 bani,” I said, knowing there was no way she was able to give me nine. Forcing an awkward half-smile of her own, she looked down, and picked up a 10-bani coin from the small collection of coins that had accumulated near the plastic bags – you know the pile, that collection of assorted coins people don’t bother to pick up after she places them on the counter rather than in their outstretched open palms (which I happen to find incredibly rude, but that’s a different topic).

Now, because I could not explain to her at that moment why I did this, I’m explaining to you. I don’t need 10 bani. (For you someplace else, that’s officially 2.5 cents in America using the current exchange rate, though it’s more equivalent to a dime or more in people’s pocketbooks here). In fact, few people I see in stores here need 10 bani. Or, I should say, few people need only 10 bani. And banks here don’t hand out paper sleeves for you to wrap coins in and there are no automatic change machines to “cash in” your cash. So lots of this loose change gets left at the registers.

But not by me. Why? It’s true that sometimes I benefit when the cashier ignores that I owe her five or 10 bani and she tells me not to bother. But that is not nearly as common as her expectation that I should ignore the fact that she is the one who is doing the owing. No. More often than not, cashiers will wait for me to produce a paper 1 leu and then place eight or nine coins on the counter for me to pick up.

So the issue is not the money. It is the assumption of these people, and the tacit complicity of the grocery stores, that grates at me. As I said, five or 10 bani to me is not very important. Not in isolation. And, the assumption goes, it is not important enough for the store to bother about either. But think for a moment what is happening here. Consider the thinking. And consider the result at the end of the day when this same type of transaction has been repeated over and over and over and over. (Don’t worry. I’m not going to use the old silly argument that begins by asking what if what happened to me happened to everyone.)

The MegaImage store where I most frequently shop has seven cash registers. In casual conversation with an employee there, I’m told the store easily has several thousand customers each day. A worker at one of those tiny MegaImage stores that has just one cash register in a different neighborhood tells me they have several hundred each day. Now, we could attempt to estimate this by assigning a 1 percent chance that each purchase equals a different amount of bani – you know, 9.00 lei, 9.01, 9.02, 9.03, etc. We could then estimate whether it’s more or less likely to receive the change from the cashier, or if she is likely to let me not pay the four bani, or if the total is 9.05 and I give her 9 and a 10-bani coin, whether I’d get back five bani, etc., etc., etc. From that, we could estimate how much change would be left over.

But really, let’s keep the math simple. Let’s say just 44 times a day at each store (that might be a very high 10 percent of transactions at one store but only 1 percent at others), someone doesn’t bother to receive (or pick up) the five, 10, 15, or even 20 bani that is owed to them. Let’s assume that the cashier will forego on average five or 10 bani from a customer. This would mean there is an average of 10 bani remaining each time in favor of the store.

If it happens 44 times at each store by the end of the day, that is equivalent to one euro. Not a big deal. But we assume it happens every day, 365 times in a year. That is 365 euros a year that this store might be “keeping.” Again, who cares? Well, the MegaImage group has more than 400 stores in Romania. So cumulatively, the company could conceivably be collecting 146,000 euros each year from all this “irrelevant” change just floating in or out of their system. That might not seem like much to MegaImage (it’s 2 percent of just 1 percent of its revenue), but for some folks out there, this adds up to real money.

Now if I knew the employees were slipping all this into their pockets at the end of their work shift as they balanced the printed receipts with the cash-in-drawer tally, I’d be fine with that. If this is the case, however, I’d prefer there was just an explicit tip jar at the register. Or they could do something similar to what you find in the US where there are often small bowls at the register with customers’ discarded pennies and a sign that says “Take a penny, Leave a penny” to help you provide exact change.

Or how about another option: how about some jars at each register in which all those unneeded coins are collected for children, for education, for battered women, for the homeless, for blood donation, for the hungry? Doesn’t that make a lot more sense than expecting me to carelessly “donate” it to the store that I’m already paying just so the cashier doesn’t have to bother to go out of her way and complete her job by giving me my money? In fact, isn’t that what companies do to demonstrate they care and that they are part of our community? Isnt’ that what they do to increase my sense of loyalty to them?

This sounds, I suppose, as if I’m attacking MegaImage. I’m not. Well, I am, but that’s not my intention. I’ve seen their press release about at least one community fund it established that appears to have donated about 14,000 euros last year (about one-tenth of the amount of our spare change scenario). And certainly, the company is not the only, nor is it the largest, retail chain where all this small change, from an accounting standpoint at least, mysteriously disappears. It merely has the misfortune of being the store in my neighborhood where I prefer to buy groceries.

So, let’s return to that register and explain this quite simply. No, young lady, it was not the 10 bani that I needed. I just wanted to put a stop for a moment to the tacit suggestion that you take customers for granted and that institutionally, perhaps, you don’t recognize the impact that even small change can have. And to repeat this once more, I’d much rather give that money to charity than just ignore it existed. But, of course, for me to do that, you would first have to give me my change – and please, just this once, try to place it in my hand.