The cobra effect

Many of the creative and innovative business strategies presented to me by my REVDEV (revenue development) team leaders during our monthly marketing development sessions seem to make perfect sense at the time when the presenters are energized by their own latest ideas, and by their potential revenue enhancement implications.

But when they fail to act as their own devil’s advocates, by cautiously and prudently reviewing all the possible outcomes prior to implementation, many of these fantastic-sounding strategies can crash and burn even if they have been approved by the entire marketing team, which includes me as its head.

If we look back through history for examples of what looked like good strategies at the outset but later turned out to be abysmal failures, we can start with one of the most famous strategic errors committed in this part of the world, the “cobra effect,” a term still widely used in local marketing circles, which stems from an anecdote set at the time of British rule of colonial India, when the British government was deeply concerned about the number of venomous cobra snakes in Delhi.

The idea for a solution was simple enough: the local and provincial governments would offer a bounty for every dead cobra, a strategy that was quickly proven to be successful, as large numbers of snakes were killed for the reward. However, enterprising persons soon began to breed cobras for the easy income. When the government became aware of this, the reward program was quickly scrapped, causing the cobra breeders to set the worthless snakes free and, as a result, the wild cobra population further increased, which clearly shows that the very strategy designed to solve the problem actually made the situation much worse.

Good or perhaps bad examples of the cobra effect from my own diary of business bloopers here in Karachi include the following:

1. A golden idea loses its shine

Several years ago when occupancies were low due to terrorism and civil strife, we thought it would be a good idea to offer a free night’s stay as an added benefit to our Avari Gold loyalty card members. The offer immediately proved very successful as we saw card sales skyrocket, which brought in much needed additional card sale revenues. However, we also noticed that many of those same members were also loyal guests, who frequently stayed with us and paid far more for one single room night than the actual cost of the loyalty card, which of course depleted our corporate account revenues.

This outcome should have been identified by the revenue team before the decision was made to proceed; however, everyone seemed to be fixated on the additional card sale revenues instead of the possibility of depleted room sales. And so a valuable lesson was learned, with a subsequent decision made to offer a free weekend instead due to the fact that our hotel is very quiet over most weekends as our business is 100% corporate. As a result, we saw our restaurant spend from these weekenders substantially boost our F&B sales, a development that was much more satisfactory for all concerned.  

2. Simple as ABC — perhaps not

When we created the original marketing strategy for our ABC (Avari Business Class) program upon the opening of our new wing in 2008, we thought private limousine transfers to and from the airport would be a strong USP for this fast-growing business segment, if they were included in the room rate, which was around 200 dollars at that time. Everyone thought this new service would indeed be an attractive and unique point, as the cost charged by the limousine company was only around 10 dollars per trip. However, four years later, with the room rates pretty much unchanged due to the market actually shrinking here in Karachi, we are now being charged 20 dollars per trip, which is a heavy cost burden to bear, especially if we have 40 to 50 airport runs a day, which is not unusual during busy periods.

It’s easy enough to say hike up the room rates in accordance with inflation, which is running around 20% at least, but in this oversupplied market, that’s simply not a viable option. So instead, we have introduced a free minivan shuttle for the lower rate categories, which operates to a published timetable, and we are gradually introducing concessionary private limousine charges for the mid- and upper-tier rate bands, in order to recover the rapidly escalating cost of this much in demand service.

3. Lady Avari discounts … additional new revenues or just additional new costs

While reviewing my first budget presentation here in 2007, I noticed Mondays were the quietest days of the week in our restaurants. I was informed that was a result of local people dining out at least two or three times over the weekend, so Mondays were almost considered fasting days, which was why several of our restaurants were closed with their kitchen and service crews given the day off.

Determined to change this trend, I reopened all the restaurants and offered a 50% discount to all female guests under a newly created Lady Avari promotional campaign slogan. Needless to say, the promotion was initially a huge success as our previously closed restaurants soon filled up with groups of ladies eager to enjoy our discounted food. However, the food cost shot up, and many of our male business customers complained of being discriminated against and even edged out by the large numbers of leisurely ladies, who practically took over our signature restaurants for their various social gatherings.

So after much debate and discussion, we moved all the ladies’ groups to private rooms with inexpensive menu offers, and reduced the Lady Avari discount to 25%. Although we did lose a few female and male guests, we did manage to substantially increase our Monday food and beverage revenue and keep our loyal ladies and gentlemen happy and well fed.

What did we learn from these marketing bloopers? Well, everyone now prepares much improved marketing presentations that take into account all possible short- and long-term gains and losses, and there is now a realization amongst our young team that while a new idea may seem brilliant at first, we must always keep in mind the cobra effect — unless we are prepared to be bitten where it hurts.