Emotion-based Revenue

Revenues are affected by price and by sales volume. Revenues go up if the firm increases the price while maintaining at least the same sales volumes. Revenues will also go up if the firm sells greater volumes of product without lowering the product price. So it gets down to two questions: If a firm adds emotions to a product, will product sales increase enough to pay the costs of creating the emotions? If a firm can deliver emotions in a product, can it increase the product price enough to pay for the cost of creating the emotions?

At McDonald’s, Customers Are Lovin’ It

Let’s start with the sales volume question and consider one of the most high-volume businesses in the world: McDonald’s. McDonald’s serves 50 million meals per day. Consider the coordination of buying, preparing, and selling so much food, on time, day after day, all over the globe. What an unbelievably efficient system! More than simply delivering food, it must be prepared correctly for geographically tailored menus and tastes, and all food consumed must be safe to eat.

Consider, as a hypothetical example, a situation where one person in a billion served could get salmonella. If even a single person got such a disease, it would be a major problem for McDonald’s. Given that there are six and a half billion people in the entire world, it would seem that it would take a long time for a billion people to even be served. McDonald’s serves 50 million meals per day every day, so in our hypothetical example it would only take three weeks for someone to get quite ill. In reality, they don’t! The McDonald’s system is superbly refined for safe delivery of an extremely high volume of meals.

In light of their amazingly high volume of meals served, it is easy to begin to think that McDonald’s real business is food output. McDonald’s is an operations business, coordinating global inputs, inventory, processes, and outputs. In reality, that’s just one half of their business, making sure food is available to those who want it.

The other half of McDonald’s business is to generate demand, which is to provide reasons for individuals to choose to stop at their restaurants rather than those of competitors. To do so, McDonald’s has to provide something valuable to real individuals who are making real-time decisions. McDonald’s works to provide value to two groups of consumers in particular: kids and adults-on-the-go.

Kids get to play at McDonald’s. In some outlets, they may experience the challenge of climbing towers and the thrill of descending through tubular slides, and they share the excitement of other children. Children relate to Ronald, the Hamburglar, and the fantasy of visiting the home of these characters. And of course, there is the toy that comes with their Happy Meal. Even if children never touch their fries, they want to come back. By providing fun to children and not just food, McDonald’s ends up not only with sales volume but also with repeat business, or “customer retention.”

While children choose McDonald’s for the fun, adults choose McDonald’s because of its simplicity and efficiency. If an individual is hungry and needs a meal fast, isn’t it so easy to pull up to the ubiquitously nearby McDonald’s and quickly satisfy the need? Thinking about yourself, are you one who visits Mc-Donald’s because of the taste of the food and for how healthy it is for you? Is it because McDonald’s is the best-tasting and healthiest meal for that point in time? Or, knowing that the food tastes good enough, are you someone who visits McDonald’s because of its simplicity and efficiency?

Simplicity and efficiency are essential to quick-service restaurants. In addition, there is emotional value. For children, the Golden Arches lead to anticipation and fulfillment of fun, the joy of being at McDonald’s. For adults, it is not only that McDonald’s is simple and efficient, but also that McDonald’s feels uncomplicated, feels efficient. There is the feeling of security in knowing that McDonald’s is all about the efficient provision of a decent meal. When adults need a quick meal they seek out McDonald’s. When they see the Golden Arches, they get a sense of relief and “problem solved,” assured about its efficiency, and comfort in its simplicity.

To understand the importance of these emotions, imagine that you stop at McDonald’s and it doesn’t feel fast enough as you wait in the drive-through line. Now you are even more stressed, tapping your fingers, grumbling about anything and everything, all because the feeling isn’t right. There is much that McDonald’s must do to remain a fast-food leader, part of which is to provide the product emotions that lead so many people to repeatedly choose this restaurant instead of the alternatives. When aggregated from individuals to markets, this feeling yields great sales volume and high customer retention.

The Emotions of Tradesmen

Besides leading to greater sales volume and higher customer retention, emotion can lead customers to be ready and willing to pay more for the product. Think of the emotions that stem from product quality, such as the feeling of luxury, of security, confidence, pride, prestige, assuredness, and others. While it may be clear that these emotions are valued in a luxury product such as a weekend stay at a Four Seasons resort, what about something ordinary, like a tool? During use in construction or repair work, tools are sure to get beaten, scarred, dented, and dirty, so would product emotions be relevant to and valued for tools?

Consider the case of Black & Decker. Before 1991, Black & Decker’s tool line had a dismal 9 percent market share among professional tradesmen. Even so, multiple product tests for their professional-grade tools found their product quality on par or better than all major competitors, even those like Makita which had 50 percent market share for the professional tradesmen segment.4 In the arena of professional industrial users—large, commercial contractors and manufacturing assembly lines—Black & Decker was one of the leading firms. The performance level of Black and Decker’s professional-grade tools was not the reason for its low market share among tradesmen.

The difference in the two professional tool segments, industrial and trades-men, provides a clue to understanding Black & Decker’s situation. Both segments have very similar tool needs. Both need reliable and durable tools, for they lose money with any downtime from tools that stop working. Considering Black & Decker’s different rate of success between the two segments, one must think about the differences in how the two segments operate.

A key between tradesmen and industrial workers is the tradesman’s self-reliance in getting their next job; they are not handed work orders to tell them what to do next. Tradesmen prove their own worth, and their tools are a badge of their professionalism and skill. Black & Decker tools couldn’t be used as a mark of professionalism because they looked just like the same tools found in any homeowners’ garage. One tradesman was quoted as saying, “On the job, people notice what you’re working with. If I came out here with one of those Black & Decker gray things, I’d be laughed at.”5

In 1991–1992, Black & Decker rebranded its professional-grade tools as DeWalt. The rebranded line was given a new look. Rather than the black and gray of the Black & Decker tool line, DeWalt tools were manufactured in a bright construction yellow. Under the Black & Decker name, the tools were already high quality but DeWalt tools were launched as a prestige brand. Similar to separate first-class check-in lines at airports, the company created separate DeWalt entrances to their existing Black & Decker service centers, where DeWalt users were provided loaners during repair if their tools broke. The rebranded tool line was massively successful. By 1994, DeWalt had 40 percent of the tradesmen segment and Makita’s share was down to less than 30 percent.6

The DeWalt rebranding case is interesting because it so clearly separates the value of product quality from the value of product emotions. Under the brand name of Black & Decker, a brand known for popcorn poppers and Dustbusters, their tradesmen-grade tools had very low market share despite the high levels of performance and manufacturing quality. The tools had great success when sold under the new DeWalt name, because DeWalt offered professional emotional value, which supported the confidence and capability of tradesmen. Today, DeWalt is a visible leader in professional tools, priced as a premium product and commanding high sales shares, a double win for profitability.