Chipotle and Excellence in Pricing and Content Marketing

This is a story with two threads. One about Chipotle’s recent announcement that it will increase prices and the other about its hit Scarecrow video and associated iPad game. I will bring these two together to show you the excellence in pricing and how any content marketing activity must help serve this pricing purpose.

First the pricing news. In its last quarter earnings statement Chipotle said it will increase prices in 2014 .  This despite reporting spectacular improvement on all metrics

  • Revenue increased 16.7% to $2.37 billion

  • Comparable restaurant sales increased 4.3%

  • Restaurant level operating margin was 26.9%, a decrease of 110 basis points

  • Net income was $247.8 million, an increase of 14.4%

The decision to raise prices has nothing to do with how your current profits are growing. Their reason for this price increase?  You guessed it, costs.

 it may raise prices in the middle of 2014 to offset higher food costs. The price increase will be between 3% and 5%, CEO Steve Ells said

Nicely done, as we have seen before. And the stock market reaction? The bid up the stock, showing confidence in this better price realization.

I want to make sure you see that the food costs are used only as plausible reasons to help customers digest the price increase. Let us look at its current food costs and its share of revenue.

Their 2013 third quarter revenue was $827 M and food cost was $277 M. Purely for financial accounting purposes their percentage gross margin is 66.5%. As you can notice they are not just scarping by, trying to grab last morsel of cilantro rice from the bottom of Burrito Bol. That means they did not set the price based on food costs to begin with and hence to say they will increase prices because of food costs is just effective messaging.

That is one half of the pricing story.

Say costs increase twice as fast as inflation, by 4%. On average 3% to 5% price increase will recoup them if demand did not drop. How can they make sure the demand does not drop?

The other half is making sure customers continue to pay $8.20 for a burrito and feel good about it That requires investing in the brand and making customers feel great and hip about the brand.  That is served by their Scarecrow video.

Content marketing experts jumped on the incredible view metrics of this video to draw their own lessons about telling stories, talking about bigger picture etc. But think about the ROI on such content marketing effort. Imagine yourself going in front of CEO for an ask for running a content marketing campaign.   Social media experts may convince you to ignore ROI and focus on,  you got it, “the bigger picture”, “return on engagement”, “share of conversation”.

Here is some sane words on this from Eric Jacbson, CFO of  Amplifinity,

there is only one definition of marketing ROI. It is…

ROI = (Net Present Lifetime Value of Customer) / (Marketing Cost to Acquire Customer)

This brutal metric is the only way to know if a marketing initiative is working.

The second cold truth is that almost nothing works.

It is all about tying the bigger message and stories to price increases they can pass through without any associated demand drop. As you chomp down your spicy sofritas you feel good about being part of a bigger story and hardly even notice the price increase.

All those feel good stories are for naught if you cannot tie it back to ROI in the form of increased prices without drop in sales.

Who does your pricing and content marketing?

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