Achieving Differentiation Economically

One of my favorite hotels in the world is the Peninsula Bangkok. The hotel is beautiful, the rooms magnificent, the river views stunning. There are many reasons for the hotel's appeal, but its true differentiation is its people.

Our industry has struggled for years with achieving true differentiation and doing so economically. Few trailblazers such as Commerce NJ and Umpqua have successfully built differentiated brands that stood for a clearly understood value proposition. Customers and prospects knew what the banks were about and flocked to them.

Most banks claim we have a product that cannot be differentiated, and certainly can't be done so economically. As I have pondered this quandary, my relationship with the Peninsula Hotels came to mind. Here's why.

Years ago Dick and I traveled to Hong Kong. The city's most famous hotel, a clear "Grande Dame", is the Peninsula Hotel. When we arrived, just another couple among many, we were greeted by the then Rooming Manager, an energetic and highly professional woman names Rainy Chen. Rainy also saw to it that we got upgraded to a fabulous suite overlooking the bay. We had a fantastic time. There are other fabulous hotels in Hong Kong, but there was no reason for us to try them out. The Penn had everything we could possibly want: great facilities, superb food, wonderful scones at Tea Time, and the personal welcoming touch and amenities we highly value.

A year later we decided to check out Bangkok for the first time. We heard that the Peninsula opened a hotel there a few months earlier. I emailed Rainy and she arranged our reservations. Upon arrival we were greeted warmly and upgraded to a suite.

Today, the Peninsula Bangkok is our "base" for all Southeast Asia travel. We stay at a Peninsula whenever we go to a city that has such a hotel. We travel to cities we've not been when a Peninsula opens there. Every time, we find my exercise step waiting for me in the room, a tea kettle, tons of Splenda etc.etc. In time, the hotels started raising their prices as they became more established. In certain cities they are downright expensive. Yet, we are hooked.

Rainy Chen is the one person who got our business. She is now the first woman General Manager at the flagship hotel in Hong Kong. She continues to take amazing care of us, and we continue to come back, upping the ante (i.e. room rate) each time.

All banks have such stories, but very few institutionalize this approach to building relationships. The Peninsula is a business that fosters making upfront investments in building relationships with frequent travelers (I guess our Platinum AMEX card gave us away the first time). They do many things that others will rightly consider uneconomical, but those are a part of a long term strategy for client retention. It works. When friends travel to Asia or look for a special experience, I recommend the Peninsula and they take amazing care of them, making me look like a hero and creating new Peninsula fans.

This approach is not unspoken. Every executive in the company understands this is the goal and diligently works toward it every day. Countless small elements enter into the equation. Philip Sedgwick's business philosophy is a prime example of how details translate the corporate strategy into daily behaviors and how the competitive edge is continuously honed.

Philip is the Executive Chef at the Peninsula Bangkok. He is an outstanding chef, a great host, and, most uncommonly, an excellent business executive. He considers his business to be not about food, but about unmatched client experience and creating repeat business. Consequently, making great food isn't enough. That, per se, isn't a compelling differentiator. The elements below, on the other hand, are:

• Part timers vs. full timers. Hotels, like banks, can hire full time staff, or they can hire a far less expensive hourly staff. This is true in hotel kitchens as well. Sedgwick's staff boasts 85% permanent staff. His major competitor across the street is at 50%. Sedgwick's costs are higher, but his training expense is far lower. More importantly, the staff can better execute the corporate strategy. They know when to remove the plates as buffet diners go for the refill and how to fold the napkins each time a guest leaves the table. They all understand the prime directive: "Whatever the customer wants...". They never say "no". This is a major challenge when a guest like me comes along, who wants buckets of whipped cream which isn't over-whipped, bread that's slightly over-baked for that extra crunch, etc. Their "can do" attitude makes the place my favorite restaurant in town. Even if the food might be better elsewhere, no one will take care of me as they do or give me every little thing I want (and there are SO many of those little things...).

• Never skimp. Sedgwick abhors "nickel and diming". His value proposition is "economic opulence". For example, he'll buy Maine lobsters, a pricy ingredient, to put even in his buffet restaurant, but he can do it because he is a fierce negotiator and cut the supplier's price by over 50%.

• Attention to detail. Philip's smoked salmon is perfectly trimmed, such that you will never bite into that fishy tasting darker meat at the bottom of each slice. It's gone before you see it. His butter comes from Normandy, and is carefully sliced by a machine for a better look (customer value) and less waste (shareholder value).

• Clear targeting. The hotel is well known among Chinese travelers and other business guests, but did not have a strong local following. Sedgwick introduced an unbeatable deal for the locals: a Sunday brunch with free flowing champagne (the single most expensive drink in Bangkok). He wanted them to come to his restaurants and experience how unique and outstanding they are. Words could not do his food justice, so, in order to get prospects to experience the hotel and its dining, he offered something of value to the target market. They bit, by the droves, and the hotel, unlike its brethren, is much busier than economic times dictate, as are the restaurants.

• Innovation. The cuisine continues to evolve as the hotel works on appealing to a broader range of guests and reflect the changing tastes of the world. Sedgwick is on top of the "hot" trends. "Organic" isn't enough; "chemical-free" is (a food can be organic is up to 4.5% of its ingredients are still chemicals). The hotel introduced a set of "naturally fresh" dishes, including High Tea for the lean and mean crowd. I was sure it would flop, but found myself addicted to the multi-grain scones (you can laugh all you want; they are delicious).

• Listening to customer feedback. Customers said they wanted more fresh food, less pre-cooked, at the buffet. Sedgwick instituted three new stations: pick-your-own grill station, customize your noodle dish and a special make-to-order salad station.

• Anticipate customer needs. Sedgwick tirelessly thinks ahead and broaden his differentiation from other hotels. For example, he is contemplating customizing the mini-bar in the room to specific guest preferences that can be inputted in advance by the guest. As I mentioned, other Peninsula hotels I frequent already have done so, and the return on their investment is huge in terms of the incremental business I bring.

• Bucking the trend. Hotels are laying off people left and right. The Peninsula isn't. In fact, it's making additional investments, including in Philip's food budget, to continue and refine its customer experience. Those investments stand out more today than ever.

• Lure them in with a "tease rate", but don't compete on price. The hotel and its restaurants are undeniably expensive. They do not compete on price. They are among the most expensive hotels and dining spots in town, but even the cab driver that took us there from the airport knew to say in his non-existent English: "Number One." You can't buy that kind of advertising.

At this point you must be asking yourself, what does this ode to the Peninsula have to do with you, and how much did they pay me to write this article. The answer to the first question is: The Peninsula found ways to build its brand on sustainable but economical differentiation. They didn't just say "we differentiate on service" (sounds familiar?). Instead, they identified relationship-building variables and elements that went beyond "service" to areas where competitors could not compete. Most luxury hotels have plush bathrooms and bath sheet towels, but so very few create value for their target customers by giving them specifically what they want. Like the Ritz Carlton in its early days, The Peninsula uses continuous innovation, hiring practices and a clear mandate to delight customers to achieve tremendous retention and revenue results.

Banks can do the same. This requires a better understanding of the target market and its value drivers, as well as a deeper understanding of the profitability dynamics of various products and services. The Peninsula knows that it will break even with XX% occupancy, that food contributes XX% of its revenue stream, etc. Goaling your various lines of business in a similar fashion, and making timely changes when they do not deliver, is essential. So is being counter-cyclical, investing when times are tough and rising above the rest.