A theory is only an opinion

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I had an interesting experience at a trade show in Melbourne recently. A bloke approached me and introduced himself as one of the lecturers in hospitality at the local TAFE college, and, after a bit of general discussion, asked me what percentage of turnover I recommended you spend on marketing on a restaurant or a café.

My answer caused him to become almost apoplectic, and I was berated quite strongly for not knowing what I am talking about before he stalked off in a bit of a huff. I was left quite puzzled by this encounter and began to wonder what they were teaching the students who come through the college.

I answered his question in two parts: first; if your business is new, you need to establish a customer base quite quickly and you would normally devote quite reasonable sums of money to the initial marketing campaign in the first year of operation. I have seen operators devote as much as 10% of their turnover to marketing during this period.

This initial marketing should continue, but in diminishing amounts over the next two years until at about the end of the third year, if you run your business properly, external marketing should become unnecessary. Once a restaurant or café is established, it should not have to spend any money on external marketing, providing its operating standards are sufficiently high. It was this assertion that so annoyed my friend the lecturer.

He maintained that all businesses require external marketing, without exception — and in review, this is what most marketing textbooks say, so I can understand where he is coming from. My problem is that I have read most of the textbooks, then gone out and worked with many, many different hospitality businesses — and find that textbook theory and reality often differ quite markedly.

Most hospitality businesses operators do spend regular amounts of money on marketing; I’ll grant you that. But over the years I have also worked with quite a large number of very successful businesses at different market levels from fast food to fine dining who have not even had a marketing budget, and who are full most of the time. If you see this often enough, you have to wonder how this can be?

It’s basic maths and good management, really. All hospitality businesses have a ‘trading radius’ — that area from which 90% of their customers come. This area should form your main marketing focus. When a person from this area perceives your business as ‘above average value for money’ they will recommend your business to an average of five other people within a short time after their visit. This word of mouth marketing is highly effective.

If the customer perceives you as average or below average in value, 60% of them will tell 10 other people not to bother going there, and the remainder will tell up to 20 people. It is very easy to ‘pollute’ your available market this way, as a lot of business owners have found out to their financial detriment. If your proportion of dissatisfied customers gets too high, the weight of their negative recommendation will start to kick in quite strongly and your total customer numbers will decline.

Conversely, if your business is well run and delivers consistently above average perceptions, the majority of customers will go away happy and tell others about the experience, and a lot of those people will come to you for that experience themselves. Customer numbers will then build and external marketing expenditure will eventually become redundant.

If a restaurant or café owner has to spend marketing dollars to boost customer numbers after the business is well established, I would argue strongly that something is wrong. The probability is that they are simply replacing customers that they have lost due to poor standards, rather than building patronage by delivering high standards until they reach capacity.

My belligerent lecturer was not in the mood to listen to my reasoning; full of the dogma of his occupation, his response was to aggressively ask whether I had ever studied marketing. I stifled the strong urge to fight fire with fire and ask him if he had ever run a business. In reflection later, I had to question what is more important here — what the textbooks and lecturers say, or what occurs in the reality of the marketplace?

My intention here is not to devalue the importance of good marketing, but to challenge the thinking that seems to be moving our tertiary institutions further and further away from the needs of industry, towards sausage machining graduates who don’t meet the needs of commercial reality. This incident is only the tip of the iceberg, what other misinformation is being disseminated out there to eager students?

I’m sure this guy fervently believes in what he is teaching, but the evidence at the coal face suggests that the authors of the textbooks his course is based on are either biased in favour of their discipline or mistaken as to the true needs of the industry. If our lecturers were able to get out and about and actually work with a variety of highly successful businesses as I do, they might be better positioned to make informed decisions about the material they present to students?

I think it’s almost impossible to teach management unless you are actively involved in practical management and you stay current in today’s rapidly changing economic environment, otherwise it’s all just theory.

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