Menchies and other self serve frozen yogurt shops are evil. No one should have unlimited access to caramel and fudge. It is just wrong.

I am completely fascinated by the business model.  Self serve yogurt franchises are proliferating, and clearly provide a mechanism for selling more products at a significantly lower labor cost. In a world where products are easily reverse engineered and replicated, attention to service model innovation is critical.

There is a Red Mango yogurt location close to my home.  In the space neighboring the store, there is a sign that indicates the store is relocating next door and will be going to “self serve”.  It is clear that in this location, Red Mango is acknowledging their traditional service model is under attack by the self serve locations such as Swirly’s and Tutti Fruiti.

Throughout Southern California, Golden Spoon is one of the predominant regional chains with loyal raving fans flocking to their locations for their tasty yogurt.  But its suddenly dated service model is creating competitive disadvantage. Its product may be exceptional but will undoubtedly lose share to the service innovation of their competitors.

The fundamental question that must be answered by the entrepreneur is “what job needs to be done” to satisfy the customer?  Technology has been an enabler to all types of transformation.

The NFL has a new service called NFL Ticket Exchange.  The job to be done is to fill stadiums with ticket holders at the optimum revenue.  But the traditional model of selling season tickets was somewhat threatened by a bad economy, and spiraling ticket prices.  With many season tickets finding their way onto to Stubhub and other online outlets, the NFL had lost control of an aftermarket of ticket distribution, so they created a new platform in the form of Ticket Exchange.  This strategy is a form of vertical integration in that it captures margin downstream, while providing a lower cost alternative for tickets that will spur demand.

The broader point is that companies cannot become complacent about service delivery methods. In a world of new realities, think proactively about the job to be done, and how you can radically alter your service model.

While it may seem entirely intuitive today, the concept of the “experience curve” was first offered in a Harvard Business Review article in 1964. The thesis was that as the number of units produced goes up, the cost per unit should come down.  Within the service economy, there are similar expectations. The bigger you are, the easier it should be to apply overheads and bring costs down.

Almost every industry is more competitive than it was 10 years ago.  Customers are more demanding than ever, expecting Nordstrom’s service at WalMart pricing. We have one client whose customers actually have efficiency gains written into their contracts (i.e. their customer EXPECT prices to go down, and not up). In things such as budgets and sales productivity, the entrepreneur must demand incremental improvements every year because that is what customers expect.

In order to survive the experience curve, the entrepreneur must seek out business model innovation.  In a world of reverse engineering, where your product can be mimicked around the world in a matter of days, sustainable advantage is more readily maintained through creating entirely new business platforms.

Amazon earns about a 5% markup and turns its inventory 25 times per year, compared to a discounter that might earn a 20% mark up and turn its inventory 5 times.  Unlike a typical retailer that is dependent on vendors and cash flow to fund inventory, Amazon’s model is “buyer financed”, creating a float of 41 days between the time a customer buys a book and the time the publisher is paid[i]. Thus Amazon has a distinctive cost and cash flow advantage, even over other internet retailers. In today’s environment, a two percent cost advantage can be material, and allow a competitor to undercut a market.

The quickest way to garner the experience curve is through technology.  Organizations can easily benchmark technology spending within their industry through the statements of public companies and the like.  If you are spending 2% of revenue on technology, and others are spending 4%, it is likely that some will outpace you in terms of efficiency, speed and cost.

Another experience curve gambit can be found in quality initiatives such as Total Quality Management, Lean Manufacturing and Six Sigma, all derived from a thirst for quality improvement, efficiency and cost cutting.  Becoming leaner is not a choice as much as a necessity, and the race is underway in manufacturing environments to be the leanest.  The race never ends.

Amongst my favorite Seinfeld episodes was that of “The Soup Nazi”.  As you may remember the story line, The Soup Nazi banished Elaine from his soup kitchen with his announcement “No Soup for You!” While the Seinfeld clan’s attraction to the Soup Nazi may have been soup of extraordinary flavor, the episode offers marketers a more compelling recipe.

In her brilliant book “Different”, Youngme Moon points out that in a mature market, added features that are not highly relevant to the customer offer little incremental value.  She offers the concept of differentiating strategies through “reverse and hostile brands.”

While the Soup Nazi’s fare was surprising good, the service was shockingly bad. I am not suggesting that our clients start insulting customers anytime soon, but there is lesson to be learned from the Soup Nazi.  Disrupters understand the need to find separation, even if it means not offering services and benefits offered by the competition. Southwest Air offers no amenities, but does offer free baggage.  Where United and Delta says yes, Southwest says no and vice versa.

Menchies and similar self serve yogurt shops have exploded on the scene.  Eat all the yogurt you want and we are not going to serve you.  By the way, you are going to spend about a third more than you would otherwise. The model is distressing to our waist line but stimulating to our business sensibilities.  Tart yogurt flavors are particularly hot as they offer the opposite of what we have been conditioned to expect; as sweet is ying, tart is yang.

For a good laugh with clients, I have occasionally handed out calendars from despair.com.  A spoof of the overused motivational posters, they have similar imagery that says things like “Consulting: Why find a solution when you can prolong the problem?” The calendars are popular because they are funny, but also because they are a shock to our senses.  When ordering such a calendar you get an email to the effect of don’t bother calling us. 

To be different may require the marketer to be entirely counter to the marketplace.  The iPad is revolutionary but lacks USB ports and other goodies.  Apple is unapologetic, as consumers intuitively understand the tradeoff.

We are drawn to things we can’t have, and thus one potential strategy in value creation is “the take away”.  To suggest that your product or service is only available to a select group of customers increases its value. When clients ask us to do Executive Coaching we say no (it is not in our core competency) which makes our Strategic Planning services worth more.  Customers know that to get something really good, they may have to give up something in return.

While I am not encouraging anyone reading this to go negative, I am suggesting we need to think more provocatively about creating products and brands that are not only innovative and different but counter to our thinking.  That may include cutting out benefits that we naturally assume are necessary, but may just be redundant. I wonder if George would go for the vanilla tart or caramel latte?

In a bold move this month, Amazon doubled royalties paid to authors for electronic books. Given the surging popularity of book readers and the release of the iPad, Amazon is attempting to lock in its position as the distributor of e-books. The segment tripled in volume in 2009.

As an author, what is of particular interest to me is that this transition represents a seismic shift in the control of a distribution channel. For years, publishers controlled the shelf at popular book sellers such as Borders and Barnes and Noble. Thus authors are highly incented to push distribution through publishers, even though they hog all the profit.

The advent of the electronic distribution channel (which dilutes the value of media through lower pricing) will now offer the originator volume and margin, if they have the gumption to self distribute. What are the ramifications of this trend in other industries?

The golden rule is that for physical products, the last mile of distribution is always the most expensive. This is why home delivery of groceries (Webvan seems so far away) has never succeeded. The grocer can move product in mass more efficiently than the consumer can.

But what about categories of products that are traditionally moved through distributors that will no longer require a middle man or special handling? Could we buy automobiles direct, or water for that matter? Could television be streamed straight to our TV’s without the need for cable or a dish?

If your business is reliant on distributors, or you are one yourself, it may be time to consider if your model could be disrupted and by whom. Do distributors in your space add value to the product or diminish from it? As internet applications continue to proliferate, it is time to think provocatively about what radical changes may take place in the way your products and services move through the value chain.