Every food retailer changes its product mix from time to time. Fresh Pond Market changes in direct response to customer requests: the wine shop, the new varieties of herbal teas, the heirloom tomatoes in the produce section, the gourmet chocolates near the cash register that you have to know to look for. What doesn’t change is the connection to individual customers, which is what keeps people coming back. And both pieces reflect the individual-customer-based approach that has made Fresh Pond Market a community fixture.
Five minutes away is Porter Square Books, which opened in 2005—after Amazon and the giant chains had swept the field. How was that even possible? And why is the store doing better today than ever?
Dale Szczeblowski, Carol Stoltz, and Jane Dawson, three of the store’s five owners, crowded into their small back office one Tuesday morning to talk with us. Staff members popped into the room from time to time to ask questions or to get a customer issue resolved. The store, as always, was filled with browsers and buyers, busy, but not frenetic—an inviting place to be.
“How do you do it?” was our only question.
Their answer began with the word service—a term that’s so generic it almost amounts to a nonanswer. But as they spelled out the details, it became clear that the service they provide is all about offering varying customer types, down to the individual reader, the book-related products and services they particularly value. Like Fresh Pond Market, their store has become a platform offering a wide array of products that can be organized and configured around customers’ varying, ever-changing needs.
“We treat people who come in here as if we were inviting them into our home,” Dawson said. “As if they were guests. If someone asks for help finding a book, you never just point to the stacks—you get out from behind the counter, walk with them to the shelves, and put the book in their hand.”
“If the book’s not there, we can get it for them in a couple of days,” Szczeblowski added. “In most cases, that’s plenty of time.”
“Keep in mind, this store doesn’t stop at the four walls,” Szczeblowski said. “When there are conferences in town, we’ll often do the bookselling table at the conference, and we work with local schools when they do book sales for fund-raising.” Szczeblowski was describing a service provided to meet the unique needs of two customer types who might otherwise buy their books elsewhere, or not at all—conference attendees and families of local schoolkids.
“Don’t forget the readings,” said Stoltz. “Every Wednesday morning, we have a reading hour for toddlers, one and a half to four years old. Doria [a Porter Square staff member] loves to read for the kids, and of course the kids love it, too.”
“We have readings for adults, too,” said Dawson. “We can’t always get the big names that the big stores get, but we do okay. We’ve had Annie Lamott, Tracy Kidder, David Sedaris, and Alexander McCall Smith. In fact, it was our buyers who discovered McCall Smith and introduced him to America. He’s loved us ever since.”
“We’ve got twenty-five people working here, full- and part-time,” Szczeblowski said. “They love to talk books with the customers. What did the reviewers say about that novel? What’s hot in nonfiction? Who’s the best new mystery writer? What will my six-year-old nephew like? They always have tips, ideas, and recommendations, and they enjoy talking about them. And many of our best customers enjoy it, too. For them, it’s not just ‘Come in, find the book, buy the book, and leave.’ It’s a conversation that never really ends.”
That notion of a never-ending conversation is a thread that links Fresh Pond Market and Porter Square Books. They’re businesses in which social norms operate alongside market norms, fostering human connections and the offer variations these connections encourage: Mr. Wilson’s almond butter, the toddler who fell in love with Amelia Bedelia at a Wednesday reading. If anything separates small-business survivors like these from the chain stores they’re up against, that’s it.
A third example is Skenderian Apothecary, which has done business on Cambridge Street for decades. Today Joe Skenderian and his brother Bob run it.
The Skenderians tackle the variation challenge somewhat differently than Fresh Pond Market and Porter Square Books. The brothers’ strategy emphasizes two variation tools: the use of proprietary information to tailor product offers for individual customers, and the creation of organizational solutions to meet specific needs. Of course, as the down-to-earth people they are, the brothers don’t really think of it as a “strategy,” just as a way of caring for customers as human beings who deserve respect and consideration. Joe Skenderian told us about it:
Look, there are two ways to run this business. One way is where the patient calls in, they pick up their prescription, they pay, and they walk away. That’s what most people experience at the pharmacy today.
The second way is a lot different. You might call it talking to the customer. Asking them questions. What are their concerns? What’s their situation? What do they want to know about their medication? And making them comfortable enough to ask the questions they really want to ask.
Our ears pricked up. Proprietary information—the gathering of data about the customer, not as a marketing tool but as a way of helping people demand what they really need and want rather than settling for something else. Skenderian provided a simple example:
You know, when you talk to customers, you just can’t help finding things out. There’s a family here in Cambridge that are our customers, a blue-collar family, hard-working people. I didn’t know there were more than eighty of them, here in this area, all under different names. I only figured it out a little while ago, and it’s a funny thing how it happened. A while ago, some kids came in—leather jackets, nose rings, colored hair. We treated them with respect, listened to them, answered their questions. Like we do with everybody. Turns out they’re part of this family, and they aren’t always treated well at other establishments.
Well, word got around, and the way they were treated at our pharmacy was really appreciated by other members of the family. They had always been good customers, but now they became incredibly loyal to us. They recommend other customers to us all the time.
At a large corporation, “proprietary information” may mean files stored in a vast database and analyzed using complex software. But at a small business like Skenderian Apothecary, it means knowing people’s faces and treating them the way they like to be treated.
Skenderian went on to explain the organizational arrangements their system requires:
You have to set up your business to be able to operate this way. My brother and I take turns in the store, and we have three pharmacists working for us. So we have the flexibility to take the time for the patient.
You know, if you really know the patient, it always makes a difference. Things you learn today make a big difference down the line, when the patient comes in five years later with a different condition. And your chances of avoiding a bad drug interaction are really lousy if you’re not familiar with all the medications they’re taking.
Sometimes paying attention pays off in the long term, but sometimes it happens much sooner. Last summer, for instance. A young woman walked in here with her two young children. She was wearing shorts, and I noticed one leg seemed bigger than the other. I pointed to her swollen leg and asked if she was in pain.
“It’s killing me,” she answered.
We talked for a few minutes, and I asked her to go to the emergency room to have it examined right away. Cambridge City Hospital is just three blocks away.
Two hours later, she was back. She’d been treated for a blood clot and came back with a prescription for blood thinners. Of course, if the clot had broken off in her leg and traveled to her lungs, she could have had a pulmonary embolism, and the kids would have been without a mom.
Now you don’t get a chance to help a patient like that every day, but if you don’t know them and you aren’t constantly asking, you don’t even get a chance to try in the first place.
A
s the stories of Fresh Pond Market, Porter Square Books, and Skenderian Apothecary illustrate, the scale and scope of small businesses give them a unique advantage over their larger, richer corporate rivals when it comes to responding to very different types of customers. It’s actually possible for the staff at a corner store to know every customer who walks in the door and to tailor product offerings to their particular needs and wants.
It’s the ultimate in demand variation—one customer at a time.
DEMAND VARIATION can happen almost naturally in a small-scale, human-faced business like a local grocery store. (Almost naturally—because there are plenty of small businesses where customers don’t get the kind of personalized treatment they receive at stores like the three we just described.) It plays a powerful role in other kinds of organizations where one-on-one human interactions are vital in creating demand—consider, for example, the way Teach For America’s Yoona Kim devotes 95 percent of her effort to adjusting her teaching style to the varying needs of individual students. But variation can also be a powerful demand-creating tool even for a gigantic international business operating the technological marvel that has been called the eighth wonder of the world.
People had been talking about the idea of linking Britain and France by a tunnel since as far back as 1802. Those nineteenth-century tunnel plans were scuttled by political and military worries—there were always Britons fretting over the idea that some new Napoleon might march a French army through the tunnel and so conquer England.*
The pacification and unification of Western Europe following World War II improved the prospects for a Channel tunnel, and finally in 1986 a joint British-French corporation known as Groupe Eurotunnel S.A. was founded to make the idea a reality. Eight years later, the project was completed. It cost some £9.5 billion (three-quarters of it borrowed), about double the original estimate. On May 6, 1994, Queen Elizabeth II and French president François Mitterrand presided over opening ceremonies for the “Chunnel.”
It was an impressive technical achievement—the second-longest railroad tunnel in the world and the longest undersea link anywhere.† More important, with the launch of Eurostar train service via the Chunnel, a new era of convenient rail travel between two of the world’s great capitals—London and Paris—had begun. The engineers, construction crews, and business visionaries had successfully realized a nearly two-century-old dream.
They had built it—but then nobody came.
“Nobody” is an exaggeration, of course. But not much of one. Prior to the start of Eurostar service, experts had predicted that 15 million travelers would use the line annually. But in the first full year of service (1995), only 3 million tickets were sold.
The architects of Eurostar had placed a very large, very costly bet on future demand—and lost, big-time. Eurostar’s management team had no choice but to rethink their business and develop a new strategy for finding the missing demand.
One problem, they realized, was the “black box” forecasting model they’d used to forecast demand. A set of macroeconomic projections and a set of assumptions about factors like competition from air travel were fed into a single complicated mathematical formula. A monolithic ridership number emerged at the other end. It was a complex, sophisticated system, and no doubt a great deal of intelligence and labor was devoted to creating it—but the results it produced were wildly inaccurate.
Eurostar realized it needed to start over again—to create a system for analyzing and forecasting demand that acknowledged the sheer heterogeneity of demand for Eurostar. The new forecasting approach replaced the black box with a “glass box.” Through extensive interviewing of Eurostar passengers and potential passengers, they constructed a list of various customer types, each with its own characteristics, history, expectations, preferences, and values. The process involved science, math, and a bit of intuition as well as hard data.
For each customer type, new ridership forecasts were developed, factoring in macroeconomic and competitive information. Then all these separate forecasts were built up into a total while remaining easily accessible, segment by segment, for updating, rethinking, and revision. Hence the “glass box” moniker.
Applying variation principles to Eurostar’s customer base gave the company a fighting chance. Like wiping the greasy lenses of a pair of eyeglasses, it replaced Eurostar’s previously blurry, indistinct image of the Average Customer with a clear, realistic picture that revealed the line’s potential ridership in all its complex diversity.
The first realization was that some categories of possible Eurostar travelers held far greater potential for demand growth than others. (Great demand creators understand that all customers are important—but, like the symphony trialists, some customer types are particularly crucial to growth.)
There was, for example, a group called Silver Set Anniversary Night travelers—older couples who used Eurostar for quick overnight getaways to celebrate special days in romantic style. (As you might guess, this segment includes more Londoners who travel to Paris for their anniversaries than the reverse: “Paris” goes with “romance” a bit more naturally than “London” does.) This was a relatively affluent group, which might make them an appealing audience for Eurostar’s marketing efforts—except for the fact that anniversaries come only once a year, creating a natural ceiling on these couples’ travel frequency.
Another customer type was Overseas Travelers—tourists from North America and elsewhere who might use Eurostar to tack a few days of Continental travel onto a holiday in Britain. This might seem a likely source of big potential growth, but a bit of research into the marketing practicalities largely dashed that hope. Cost-effectively targeting a relative handful of American tourists who are scattered over a nation of continental scale and share no single, affordable communications medium is difficult. The conclusion: Overseas Travelers would likely be a source of future demand for Eurostar, but a modest one that would be hard to reach and develop. The company’s search for growth needed to focus elsewhere.
The more the Eurostar team analyzed the numbers, the more they found themselves circling around the same group of potential customers: businesspeople for whom a trip from London to Paris—or vice versa—was an opportunity to meet with clients, woo customers, canvass suppliers, or scout out the competition. These business travelers had money to spend, had frequent reasons to travel, and put the highest priority on exactly what Eurostar could do best: saving time.
Just as studying variation in the symphony audience had thrown a spotlight on the critical importance of trialists, a similar analysis had revealed that business travelers held the key to the growth of cross-Channel train travel.
The Eurostar team immediately put these findings to work. The original two-level Eurostar ticket plan—a standard one-way seat for £95, a first-class seat with meal for £195—was replaced with a more diverse system that catered to varying passenger types. For those wanting simply a fast trip at the most affordable price, a standard ticket at £99 was available. Someone willing to pay a bit more for a quieter car and the opportunity to earn frequent traveler points—a budget-conscious business person, for example—could buy an economy plus ticket at £110. Business first class at £175 offered perks designed to make the life of an executive faster and more comfortable—ten-minute check-in, taxi service, and a dedicated lounge. And luxury leisure travelers could spend £196 for a premiere first-class seat that included, among other benefits, a meal with champagne.
The new system paid immediate dividends. After Eurostar’s sputtering debut with just 3 million riders in 1995, passenger totals rose steadily for five years: to 4.9 million in 1996, 6 million in 1997, and eventually to 7.1 million in 2000. People obviously liked having the opportunity to buy a travel experience that more closely matched what they really wanted from their trip.
The numbers were hopeful. But the line was still far from the break-even point. Could customer variation enable Eurostar to climb all the way to the seemingly unscalable peak of
profitability?
DESPITE THE EXCITING potential revealed by the de-averaging study, Eurostar continued to struggle through its first decade of operation. Service breakdowns and delays earned the line a spotty reputation. Richard Edgley, Eurostar’s first managing director, spent much of his time making damage-control statements to the press and giving out more than £2 million worth of free tickets to customers whose trains had arrived more than half an hour late during the line’s first year alone.
Edgley’s successor, Hamish Taylor, described the situation he inherited as “simply suicidal.” He pushed for service improvements, including—most crucially—the building of a new high-speed rail link between London and the Chunnel, which would bring the English portion of the journey closer in speed to the Continental leg and cut precious minutes off the overall travel time. Taylor managed to improve the revenue picture slightly, though when he departed in 1999 Eurostar was still losing more than ten pounds for every passenger it carried.
New managing director Gordon Bye ran into his own string of problems—a global recession, an already aging fleet of trains, and more service breakdowns. Low-cost airlines, led by easyJet and Ryanair, had aggressively pursued vacation travelers and by 2001 had grabbed a significant share of demand on the London-to-Paris route. In September of that same year, the terror attacks in New York and Washington devastated worldwide business travel and further depressed revenue growth. Ridership, which had peaked at 7.1 million in 2000, fell in each of the next two years.
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