Remember the failed Daily Express "Cruise for £310" promotion? Mark Koch does. It nearly cost him his company. Michael Taylor meets a man who has looked into the abyss
I could have walked away, but I didn't," says Mark Koch of his experience of possibly the most disastrous company flotation of the last decade. As chief executive of MKM, a Manchester-based business that sets up customer reward programmes, he has had to face the discomfort of appearing as some kind of pantomime villain on BBC TV's Watchdog, twice. And witness a collapse in the share price of his business, listed on the Alternative Investment Market (AIM). It had all followed a "Cruise for £310" promotion in the Daily Express that went horrendously wrong.
How wrong it was will probably become a textbook case of how not to do a promotion in years to come, ranking up there with the "free flights for a Hoover" offer of 1993. It worked like this: readers of the Daily Express collected tokens towards a special offer of a cruise for £310. These schemes usually bank on a sizeable number of punters failing to meet the stringent criteria. The promotions make money for the holiday promoter by hoping that the customer will also bring a partner or friend, who pays a decent price for a holiday. This promotion, however, attracted a high proportion of single people, who passed every test. Also, freak weather in the Gulf of Mexico caused some cruises to be cut. The effect was that demand far exceeded supply and customers were left empty-handed.
"It was a promotion that had a few errors in it and it went wrong and I'm putting it right," Koch says. He also points out that he could have activated a clause in the contract saying the adverse weather nullified all the offers, but he didn't.
MKM offered all the disappointed participants different cruise dates or alternative offers to the value of £31,000, such as a free European city break including flights and hotel, free European flights to six destinations, or a free two-night cruise for two people to Amsterdam, plus holiday vouchers worth £3650.
Koch has also settled with Express Newspapers. "I just wanted to hold my head up high. In any walk of life, if you give 100 per cent and do it with integrity you can always hold your head up," he says.
"The greatest business people in the world have made mistakes. They've been tough enough to ride it out. You have a choice in life. You fold up, or you walk through the wall.
"All the staff in the business, the customers, Express Newspapers, WH Ireland stockbrokers, the shareholders. Everyone who I have had to respond to, I have done."
So, in order to achieve any kind of redemption, Koch had a whole pile of things confronting him. Foremost in his mind was the financial impact.
When MKM published the results for the year, they reflected the havoc that the Express promotion wreaked on the business. There was a one-off cost of £31.16m, which pushed the business right into the red, compared with a tidy profit of £3670,000 the year before. And while turnover for the year was up from £36.45m to £310.28m, it will be about £34.8m in 2006.
Despite frequent friendly requests to do so, Koch declines to offer any insight into the nature of his settlement with Express Newspapers, or its notoriously combative owner, Richard Desmond.
But to understand the scale of the disaster, you have to look at the business at its peak.
MKM was formed in 1989 to offer promotions such as free flights, hotel accommodation, holidays, theatre and other leisure offers. They make their money by selling vouchers and sourcing offers for clients. MKM also gets commission from tour operators and income from the sale of travel services such as luxury tours, flights, hotels, car hire and travel insurance. In its field the business had gained a decent reputation. In 1999 MKM was acquired by Air Miles, part of British Airways, but Koch spotted an opportunity to buy the business back in 2002. He'd sold for over £322m and, soon after 9/11, bought it back while BA's management had bigger concerns.
In June 2004 he floated the business on AIM, raising £31.4m at a share price of 44p a share.
Following the disaster of the cruise ship promotion, the price hit a low of 5p. To signal some intent that Koch still had faith in the business, he unveiled a fundraising share issue that made a further £31.2m from an open offer of new shares at 5p. Of that total, Koch and his brother Victor invested £3350,000. Also on board was Sound Financial, a company run by entrepreneur David Mond, who had invested £3550,000.
And the reason that Koch is convinced there's a business worth fighting for is the number of customers who stuck with him, even though there was censure from the Advertising Standards Authority. "We've been supported by HSBC, First Direct, the Royal Mail, Marks & Spencer and we've won new business from 118 118 and Proctor and Gamble," he says.
He's also learned some lessons. "The reason successful people are in the minority is because many others sweep it under the carpet until the pile under the carpet gets too big.
"I've become more responsible to more people. Everyone who came into contact with me said the same thing eventually - fair enough," he says.
"I've also put my own money in. I didn't have to.
"It wasn't an enjoyable experience - for me, for my brother Victor, for the employees. But I got them all round and told them that I was going to get them through it. It wasn't a happy time. I had to let 36 people go, including five senior managers. I've got a smaller team now, but they're really good quality."
"We still have the right commitment and passion and the company will get back to where we were, and better."
Tanned and well turned out, Koch comes across as passionate, but not so full of himself as you'd expect for someone who sold his first business, Norfolk House, at the age of 29. He's never married, though he's been engaged four times. He's close to his brother and his family, who look up to the swagger of Uncle Mark, quite the guy about town in the smart south Manchester suburb of Hale. Even as we're having lunch in Amba, a decent enough lunch venue for a Friday, he turns heads, partly because there are a few people who know him, but also because he has one of those auras that attract a certain type of woman of that locale.
Not many people get to experience what it's like to be a media bogeyman. Koch does. He was pilloried on BBC TV's Watchdog, first for a BT free flights promotion, then for the cruise fiasco. He was then hounded by the rest of the national press, no doubt keen to catalogue the plight of their hapless rival Express and all those who were affected.
Even on this Koch expresses a modicum of empathy with his pursuers. "The big lesson I've learnt is that they all have stories to get. The only way to overcome them is to face them and to tell it like it is," he says.
How did the stress affect him? "Everyday it was something else. But you learn. We now dot the "i's and cross the "t's like we never have before," he says.
"I'm more resilient than I thought I was. I've come through it all and looked forward. I've had to take the positives from the situation I've been in. More than anything, MKM can become a better company.
"There are good people who stuck by me. There are those that deserted me. Some I wish well, some I don't. They're the cowards. And I'll say that to their faces."
So what of the future? His stockbroker, WH Ireland, which has helped him, has issued research notes with a "buy" notice, claiming the Express nightmare was coming to an end. "The immediate problems were resolved to MKM's satisfaction and results show a return to profitability is happening faster than our estimates originally showed," he says. If MKM succeeds in rebuilding its client base, in line with our fairly undemanding forecasts, then a re-rating will be justified."
But Koch says the business he's in has changed too. "Nowadays the customer is waiting for the offer. When we started, loyalty meant Green Shield Stamps and that was about it.
"Transparent is all you have to be. If you have hidden catches then you're in big trouble," he says. Quite
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