Join Stefan Michel for an in-depth discussion in this video Customer star: First three dimensions, part of Service Innovation.
- In this video, I would like to share with you a case study on service innovation that was not successful because sometimes we can learn more from failures than from successes. Well if that was true for life in general, I would be a very wise man by now considering all the mistakes I have made, but back to our case. We all know McDonald's fast food, what most of you don't know is that McDonald's wanted to diversify and decided to enter the hotel industry. They opened two pilot hotels in Switzerland and instead of calling it McDonald's hotel they introduced the brand Golden Arch.
And while it was a new brand, Golden Arch used the same colors and styles throughout their properties as McDonald's does in their restaurants. They even used a modified logo with a single golden arch. One hotel was located near Zurich airport, the other in Lully, the French-speaking part of Switzerland. Using the international classification system, Golden Arch applied and received four stars and charged the room rate of about 180 francs per night, somewhat in between the three star and a four star hotel.
We will now use this case to discuss each dimension of the customer star and then reflect on why the hotel was not successful. It opened in 2001 and closed in 2003. While McDonald's typically focuses on family with kids and their tourists, Golden Arch had to address the needs of the main segments in the airport hotel, business travelers, individual travelers, tourist groups, airline crews and layovers who are passengers for which the airlines need to provide an accommodation.
The beauty of the multi-segment approach is that the different segments use the hotel at different times. For example, business travelers during the week and tourists on the weekend and during the vacation season. The Golden Arch brand was created because the hotels were positioned to serve a very different segment than McDonald's. However, the positioning did not work because too many elements were not aligned. For example, the promise of a four star hotel experience was not consistent with the rest of the customer star.
The association of McDonald's with a four star is also not obvious. The term Golden Arch has also no meaning for German speaking customers. Even worse, the pronunciation term arch is similar to the German word for posterior, which created a few lame jokes in Switzerland. Remember, the main purpose of defining the customer star is to make sure that all eight dimensions are aligned to support each other. The third dimension that we look into is the profit model which explains the profit potential of a service innovation.
In general, the profit model of hotels is quite simple and driven by three factors, the occupancy rate, the average room rate, and the cost. Golden Arch was launched in 2001 when hotels in Zurich, Switzerland enjoyed a very high demand. It was the second most attractive market in Europe after Amsterdam. Since my family run a hotel in walking distance from the Golden Arch we feared they would enter at a two or three star level. We were very relieved when they chose a four star position.
For Golden Arch, the logic was clear, the average room rate was much higher and the expected occupancy rate in a hot market makes a good business case. If we analyze the alignment between the three dimensions we can see an inherent logic. The four star positioning helps Golden Arch to set itself apart from McDonald's, is attractive for all chosen segments, and promises a healthy profit potential. The problem is that even though the Golden Arch brand is not McDonald's the visuals and brand names are associated.
We are beginning to see how the customer star helps service innovators analyze different dimension, such as segments, positioning, and profit model and evaluate whether they are well aligned or not. In the next video, we will look into the other dimensions of the customer star and apply them to the Golden Arch hotels.
Once you understand service innovation in its different forms, you can design and implement your own innovations. Each chapter combines real-world case studies with a methodological framework to help you become a better "idea hunter" for service innovation. After you identify an innovative model, you will learn how to align and execute your innovation by applying the customer star model and by embedding your innovation approach in your overall business strategy.
- What is service innovation?
- Innovating by relieving and enabling customers
- Linking attributes, benefits, and values
- Innovating value constellations
- Innovating outside your firm
- Designing around the customer's need with customer stars