A weekly video series on how to attract and keep customers, faster and more efficiently. Our first video is up! Only 15 min long, I explore key concepts in customer centricity.
A weekly video series on how to attract and keep customers, faster and more efficiently. Our first video is up! Only 15 min long, I explore key concepts in customer centricity.
If your strategy isn’t right, the best execution in the world won’t get you where you need to go.
In any strategy that involves customers (which encompasses nearly every strategy created by virtually any department within the organization), one major pitfall is making decisions from a single perspective. It’s like a hiker planning a route up the mountain from his or her current vantage point. From that particular vantage point, the solution might seem clear.
But what might they see if they get in a helicopter and fly around the mountain? Perhaps they'll discover a totally new path, or... perhaps discover that they've chosen the wrong mountain.
Inside-out strategy is created from the company perspective. Who we are, what we do, what we're great at, who's our target customer. While this is the most common approach, the cons often outweigh the pros. You’re a hammer in search of a nail, fueled by the hope of “if we build it they will come.”
Conversely, an outside-in perspective starts with the customer problem to be solved, and ideally how they should feel when they do business with you (since emotion drives purchase and loyalty in nearly every sector). Then work your way backwards into your business model and product/experience design.
The third option is “both/and” for existing businesses: start with your capabilities and project outward to define the customer outcomes (tangible and emotional) among which priority customers. Then flip to outside-in to define the ideal future-state experience that delivers those outcomes, and identify the gaps between your current-state and future-state experiences. Lastly, design your strategy to close the gaps.
For example: You might say, we provide tools and resources that empower our customers to (x). That's inside-out thinking, starting with yourself. The resulting outcome is that customers feel more in control. Control is an emotional outcome that resonates with customers who feel confident in themselves and their own abilities, but just need some help in doing (x) easier and faster. (Contrast that with customers who lack experience and would rather outsource, which would deliver a sense of freedom -- being unburdened -- and confidence in the vendor. That mindset requires a totally different business model).
So... given our customers' need for control, what is the future-state experience that is best suited to delivering on that emotion? We know we can deliver part of it (since we already offer tools and resources) but what else do these customers need from us? That's outside-in thinking and requires exercising your empathy muscle. Make sense?
Toggling between what you do well and what customers really want from their vantage points (outcomes, not features and benefits) will help you land on the best answer.
In a similar fashion, we can rely too much on insights that emerge from data & analytics, allowing strategy to emerge in a bottoms-up fashion. I believe we've over-rotated to a dependence on analytics; not saying it's not important, mind you -- we now have an incredible wealth of data at our fingertips that enable us to pinpoint target and personalize experiences. However, we've lost the view of the forest for the trees. Focusing solely on differences and nuances can drive us down into rabbit holes, reinforce silos and spread resources way too thin.
The top-down view is the more traditional approach of brand and business strategy -- finding the common denominators instead of the differences to identify your strategic territory to own as a brand. You can't be all things to all people… you can't design an infinite number of variations of products and experiences. What is your frame of reference? What is your emotional territory that you'll own and nurture over time? I would argue that owning an emotion or a need state is the most effective kind of territory to own, simply because emotions don't change like the wind. Human nature is pretty stable. Apple, Nike, Salesforce, AirBnB, FedEx, Amazon Web Services and too many others to mention have built their businesses on one or more core need states in our Customer Archetype framework.
So, the top-down view finds the common denominator and defines a clear target for the organization to enable alignment and momentum towards shared goals. The bottom-up view operates within this container to better understand priority customers and their behaviors, and enable personalization and cost-appropriate service levels.
A micro-perspective might look at specific touchpoints or customer interactions. A macro-perspective recognizes that these touchpoints and interactions are strung together to accomplish a specific customer outcome or objective. While we often need to repair touchpoints -- for example, creating a mobile app that streamlines the process of hotel check-in -- a sole focus on touchpoints can be enormously misleading. Customers can be very satisfied with one particular interaction but miserably upset at the inability to easily achieve an outcome.
When I called my cable service provider for the third time in an attempt to get my service repaired, I was asked to rate my satisfaction with this particular call. I was delighted with the agent, who was friendly and very helpful. But I was angry at the fact that I had 3 lovely interactions that never resulted in repairing my service. We should all be focused on measuring the macro, not just the micro. The challenge comes when different departments own various touchpoints within a single journey from the customer's vantage point. This is why macro-focused (and outside-in) processes like journey mapping can be so powerful; journey mapping enables various departments to understand their impacts on the customer experience and on other departments.
The most important thing to remember when exploring multiple vantage points is to define the "connective tissue" in the strategy that knits all these opposites together.
Dear reader, does this all make sense? What are the challenges to 360-degree strategy from your perspectives?
I'm digging through all my posts looking for writing samples across my 3 blogs and wanted to consolidate them here in one place. These were either popular enough to generate good conversation or are a good demonstration of how I think. Enjoy!
Brand as Ecosystem (customer experience, brand)
Maslow & Branding wrap-up post (with links to sub-posts)
My thoughts on the future of insights: Why Open Data Won't Change the World
Unbounded Collaboration white paper (still work in progress)
I have loads of other content based on more recent experience on customer analytics, customer experience, etc that unfortunately never made it into blog form. If intererested, just ask.
Great summary of the different types of meetings from Rands in Repose:
Alignment meetings sound like this: “It’s red, are we all in agreement it’s red? Ok, swell. Wait, Phil thinks it’s blue. Phil, here are the 18 compelling reasons it’s red. Convinced? Done now?”
Creation meetings sound like this: “We need more blue. How are we going to do that? Phil, you’re our blue man. What should we do here?”
There are other meetings out there, but you will learn to avoid them. One being the therapy meeting. They sound like this: “Show of hands, who likes to talk about blue? Or red? I don’t care. Let’s explore our color feelings for the next 60 minutes.”
As consumer expectations rise and trust in corporations decline, the need for ethical business practices is greater than ever. Yet in a recession, companies seeking to cut costs will likely postpone important CSR initiatives or cut spending in favor of core business initiatives.
But it doesn’t have to be either-or. Companies that consider social and environmental initiatives as potential innovation platforms and brand builders — not expenses — will come out ahead...
For prioritization frameworks and retail industry example, continue reading on my business blog.
I read two articles this morning about how Google's new spreadsheet doesn't come close to competing with Microsoft Excel. Jake at GMSV writes,
"Too bad 'Excel for Dummies' was already taken. Google uncrated its latest indignity to Microsoft and its Office suite this morning, a Web-hosted spreadsheet program for the collaborative management of structured data. A half-assed version of Excel, Google Spreadsheets uses many of the same formulas and file formats as Microsoft's ubiquitous product, but is missing the program's more powerful features -- macros, charting, autofilter and drag-and-drop capabilities."
"Google Spreadsheets looks interesting, and we're looking forward to playing with it when Google starts inviting people into the controlled beta. But without advanced features like macros or pivot tables, Google's newest Lab experiment just isn't close to Microsoft Excel."
Ok, show of hands... how many of you actually use pivot tables and macros? The 80/20 rule would suggest that 80% of Excel users use 20% of its features... and that's probably being too generous. Sure, enterprise users wouldn't go for Google's hosted version due to security risk, but that's beside the point.
Google's strategy is not to create me-too Microsoft products that are loaded with tons of features. As I see it, Google is taking a much longer view, going for unserved and overserved markets that Microsoft apparently doesn't want. And they're doing it brilliantly, under the experimental "beta" banner that tells people not to take them too seriously. This is the strategy outlined in Clayton Christensen's book, The Innovator's Solution. (If you're in business and haven't read this book, stop reading this post and order it now. Seriously.)
Let's make this into a much broader discussion around the general principles.
The Japanese car manufacturers were initially not perceived as a threat to American car manufacturers. The Japanese started at the bottom of the market, selling inexpensive and lower-quality vehicles that didn't yield the high margins of bigger luxury cars. They were considered 'safe' competitors because they tackled a market that the incumbents didn't want. Yet the Japanese slowly and quietly gained experience, improved quality, kept costs low and crept up-market. Now American car makers have been pushed into a corner; they still lead in trucks and SUVs, but not much else.
So going back to Google's "half-assed" version of Excel: if they're following the classic path of industry disruption, they should be pleased when they hear scoffing remarks about their beta products. This allows them room to establish a foothold at the base of the mountain, serving customers that Microsoft (apparently) doesn't want. They can gain experience, add new features, gradually move up-market, and eventually take the high ground.
If Microsoft really wants to keep Google out of its territory, it must not cede the bottom of the market. We're way overdue for a cheap, stripped-down version of "Office Lite" for all those new computer users domestically and internationally who don't need the extensive functionality of the current product. But if Microsoft acts like a typical incumbent, they'll be more concerned about potential cannibalization of its current product and will keep pushing to add new whiz-bang features that target an increasingly narrow user base.
How do these principles apply in your business? If you work for an incumbent in a mature industry, is there a sizable market that could use your product, but with fewer features and at a lower price point? This is probably where a smart competitor will attack.
I've been living in San Francisco for three weeks now. People have asked if I was concerned about earthquakes, and to be perfectly honest, I hadn't given it a thought. But April 18th was the 100-year anniversary of the Great Quake of 1906, and I've been reading and watching about how another Big One is predicted to hit within the next 25 years. Experts say that the greatest threat to Bay Area residents is not the actual quake, but complacency. We believe that it won't be that bad, or that it won't happen in our lifetimes. Yet the threat is real.
Whether it's the threat of an earthquake, deregulation or an upstart competitor, most of us succumb to complacency. I worked on the GTE account when they were going through telecom deregulation. They made no visible changes to their business before the ruling passed, despite indications that up to 80% of their customers would defect to new providers. The same thing is now happening with the cable TV industry as legislatures rethink local franchise laws that would quicken the phone companies' entry into the television market. If the comments and emails on my Comcast blog post are any indication, Comcast has been complacent about investing in their customer experience... and they'll pay the price when competition hits.
Healthcare and education should expect major quakes as well... along with any other business that is basking in the perceived security of size, market position, government regulation or subsidies. We all lip-synch "there's no constant but change," yet most businesses are structured with the kind of rigidity that prevents any kind of meaningful response to a shake-up in their industries.
The bad news about earthquakes is that there's no way to predict when it will hit. Yet a shake-up in business can be predicted, so there's really no excuse. Here's a quick checklist for 'business shake-up preparedness:'
Hurricane Katrina, the tsunami, and the 100-year anniversary of the Great Quake have been categorized as wake-up calls. And yet we still go through our lives with blinders on -- myself included. How differently would we live, love and work if we were open to all the inevitabilities of life? If we lived in anticipation of change instead of in denial or complacency?
Or better yet... instead of anticipating a shake-up, why not initiate one? That's so much more exciting than the status quo. It's going to happen anyway... you might as well be the one in control.
Tim Manners writes about the "vulnerable soft underbellies" of Apple and NetFlix in a recent Fast Company article.
Apple won't let us do what is ultimately the most important thing. It won't let us easily change the damn battery when it dies... This is not the stuff of which undying customer loyalty is made. They have needlessly left themselves vulnerable to any competitor able to design something of comparable aesthetics and smart enough to let the consumer have life-and-death control over its battery.
The famous Netflix promise is that you can rent as many movies as you want each month for a flat fee. Well, not exactly. Netflix recently acknowledged that it slows down the rate at which it fills the orders of its heaviest users, a practice critics call "throttling."... As with Apple, it took a class-action lawsuit before Netflix would publicly acknowledge that it is giving preferential treatment to its newest -- and least loyal -- customers.
A strategy that punishes one's most loyal consumers is hardly sustainable.
There are so many examples of this. In the wireline telecom world, service providers promote a low per-line rate while adding special surcharges that almost double the advertised price. Consumer electronics are made to last only for the life of the one-year warranty. Wireless and cable providers give special discounts and promotions only to new customers, not to existing ones. Software companies like Symantec offer frustrated virus-infected customers no way to reach a live customer service rep without paying $40 to $70 for the call (which is why I ditched their software).
What is your company doing to sabotage its success with customers? Do you even know the areas where customers are frustrated and may cause them to jump ship? Are you willing to break away from "industry-accepted practices" in order to give customers a more desirable experience?
BTW (shameless self-promotion plug here), we've got a pretty cool online customer dashboard where our clients can measure the gap between what's really important to customers and their satisfaction level with each attribute... then track progress in closing those gaps over time. It's a great way of identifying your vulnerable spots from your customers' perspectives. Ping me at jrice at mantrabrand.com if you'd like to know more.
I just started reading "The World is Flat" last night and was struck by this quote by David Schlesinger, who heads Reuters America:
"Change is hard. Change is hardest on those caught by surprise. Change is hardest on those who have difficulty changing too. But change is natural; change is not new; change is important."
I opened with a very similar thought in my presentation last week at the Online Computer Library Center (OCLC) symposium at the ALA conference (go here for a very short synopsis). Wow, talk about an industry that's about to get hit with a sea change... and of course it's already started. I had the idea that Netflix, not Google, might be libraries' greatest competitor; Netflix taught the world that we don't need to leave our homes, drive to physical locations where what we want might not be on the shelves, or pay late fees. I got an email the next day with a link to BooksFree -- the Netflix model applied to books. I also received a link to a post on E-Ink,
"...the world's largest flexible organic active matrix display. The displays measure 10 inches diagonally and are laminated with E Ink Imaging Film making them .4 mm thick. This material conveys a similar appearance as printed ink-on paper and can be contorted and rolled without damage. Power is required only when an image is being updated, and is held indefinitely. Plastic electronics are forecast to be a $250 billion USD industry by 2025, including electronic newspapers, roll-up monitors, and other innovations."
As much as I love books, how cool will it be to download 100+ books into a single reader interface that reads and feels like paper and allows us to annotate, search and send snippets to others? Talk about disruptive technology.
Yesterday I spoke at Tulsa's Business Marketing Association about how the grassroots economy and social technologies like blogs, wiks and forums are impacting businesses today. Fundamental human needs (connecting, learning, contributing), combined with new technology advances, are creating a fundamental shift in our society.
One of my favorite posts over the past two years is titled Blogging and the Singularity. If you're not familiar with the Singularity, it's the point when societal, scientific and economic change is so fast we cannot imagine what will happen from our present perspective. The idea is based on the premise that the rate of change is exponential, not linear; the rate of change in the past is a snail's pace compared to what we'll see in the next 10, 20, 50 years.
"Change is hardest on those who have difficulty changing too."
Humans don't like change. We hunker down in our comfort zones and don't see change until it hits us over the head... and at that point it's usually too late. I just finished reading "Seeing What's Next: How Theories of Innovation Predict Industry Change" by Clayton Christensen. If you've never read anything by Clayton, I encourage you to do so. (He also wrote The Innovator's Dilemma and the Innovator's Solution.) His fundamental premise on industry disruption is one that, IMHO, every business person should be familiar with.
How current are you with fundamental consumer and technology trends? With the tenets of the grassroots economy such as co-creation, transparency and customer/employee empowerment? With the opportunities among underserved or unserved customers that cry out for disruptive innovation?
None of us should be in any business but the change business. We must not only keep up with the facts of change, but also (and perhaps more importantly) release our death-grip on the way things are right now. It's completely futile. Is your business structured for flexibility and change? Are you?
This is really cool... Jason Fried from Basecamp is demo-ing their software during the lunch break at the Blog Business Summit. Basecamp is a blog-based project management tool that's pretty amazing. It's billed as a client extranet tool, but it's also used by accounting firms, banks, public schools and wedding planners. "Project communication and schedules are centralized, automatically organized, archived by date and topic, and accessible from any computer." There's also an RSS feed so you can be notified if there's been any changes to the project. If you need a project management tool, check this out.
Thanks to John Moore at BrandAutopsy for the link to Bruce Mau's Incomplete Manifesto for Growth. Here are the top 25 items of a list of 43... My favorite is number 17. When I got there, it was like visually tripping into space. It's a great reminder to allow for some 'creative chaos' intead of planning everything to the last detail.
1. Allow events to change you. You have to be willing to grow. Growth is different from something that happens to you. You produce it. You live it. The prerequisites for growth: the openness to experience events and the willingness to be changed by them.
2. Forget about good. Good is a known quantity. Good is what we all agree on. Growth is not necessarily good. Growth is an exploration of unlit recesses that may or may not yield to our research. As long as you stick to good you’ll never have real growth.
3. Process is more important than outcome. When the outcome drives the process we will only ever go to where we’ve already been. If process drives outcome we may not know where we’re going, but we will know we want to be there.
4. Love your experiments (as you would an ugly child). Joy is the engine of growth. Exploit the liberty in casting your work as beautiful experiments, iterations, attempts, trials, and errors. Take the long view and allow yourself the fun of failure every day.
5. Go deep. The deeper you go the more likely you will discover something of value.
6. Capture accidents. The wrong answer is the right answer in search of a different question. Collect wrong answers as part of the process. Ask different questions.
7. Study. A studio is a place of study. Use the necessity of production as an excuse to study. Everyone will benefit.
8. Drift. Allow yourself to wander aimlessly. Explore adjacencies. Lack judgment. Postpone criticism.
9. Begin anywhere. John Cage tells us that not knowing where to begin is a common form of paralysis. His advice: begin anywhere.
10. Everyone is a leader. Growth happens. Whenever it does, allow it to emerge. Learn to follow when it makes sense. Let anyone lead.
11. Harvest ideas. Edit applications. Ideas need a dynamic, fluid, generous environment to sustain life. Applications, on the other hand, benefit from critical rigor. Produce a high ratio of ideas to applications.
12. Keep moving. The market and its operations have a tendency to reinforce success. Resist it. Allow failure and migration to be part of your practice.
13. Slow down. Desynchronize from standard time frames and surprising opportunities may present themselves.
14. Don’t be cool. Cool is conservative fear dressed in black. Free yourself from limits of this sort.
15. Ask stupid questions. Growth is fueled by desire and innocence. Assess the answer, not the question. Imagine learning throughout your life at the rate of an infant.
16. Collaborate. The space between people working together is filled with conflict, friction, strife, exhilaration, delight, and vast creative potential.
17. ——————————. Intentionally left blank. Allow space for the ideas you haven’t had yet, and for the ideas of others.
18. Stay up late. Strange things happen when you’ve gone too far, been up too long, worked too hard, and you’re separated from the rest of the world.
19. Work the metaphor. Every object has the capacity to stand for something other than what is apparent. Work on what it stands for.
20. Be careful to take risks. Time is genetic. Today is the child of yesterday and the parent of tomorrow. The work you produce today will create your future.
21. Repeat yourself. If you like it, do it again. If you don’t like it, do it again.
22. Make your own tools. Hybridize your tools in order to build unique things. Even simple tools that are your own can yield entirely new avenues of exploration. Remember, tools amplify our capacities, so even a small tool can make a big difference.
23. Stand on someone’s shoulders. You can travel farther carried on the accomplishments of those who came before you. And the view is so much better.
24. Avoid software. The problem with software is that everyone has it.
25. Don’t clean your desk. You might find something in the morning that you can’t see tonight.
Business has gone through so many fads: TQM, push marketing, viral marketing, CRM… now we’re all about customer centricity: if we can make the customer central to the organization, well, that’s the key to success. Yes, I confess that I’ve been on that bandwagon myself, so what I’m about to say may shock you:
Stop focusing on the customer.
Stop focusing on your product.
Stop focusing on your sales techniques.
We all want to categorize everything. We want to put each element of business into neat little boxes. Then we can point to one element and say, “this is the key to all our problems.” It’s just like fad diets: first, calories were the problem. Then, fat was the problem. Now it’s carbs. Finally, consumers are starting to figure out that it’s more complex than that; it’s more about balance. And just as there is no fast fix for dieting, there’s no fast fix for business.
Right now we’re focusing so much on the customer that we’ve lost sight of the big picture. When we focus on the customer, we see a person out there – separate from “us” – that we need to identify, label and categorize. Companies like Best Buy are segmenting groups and assigning names. Sure, it’s resulting in sales. Yes, it’s better than trying to sell the wrong product to the wrong person. It's a step in the right direction, but it's not the answer. It’s just part of yet another fad that won't deliver on everyone's expections, and then we’ll all go rushing off to figure out the next piece of the puzzle to fix.
And that is the fundamental problem: focusing on the puzzle pieces and not the puzzle itself. We are artificially creating separation between the company and customers – and between different departments within the same company – when in fact we are all part of the same system. The customer is simply a component of that system; no piece is more or less important. It’s what I call the ecology of business. We need to switch our focus from components to connections. A brand is an ecosystem. The strength of the brand is directly proportional to the number and strength of the connections within the system. Connections, not components, are the brand drivers.
It starts with the ecosystem's foundation: the company and its employees. We need to move beyond a focus on a specific department (silo mentality) to a focus on the interconnections between individuals (system mentality). What are the most critical connections in your company? Why not have VPs over key connections instead of components? What about giving more power and compensation to the individuals who are directly responsible for customer connections? The individuals working your store or call center are the puzzle pieces that connect directly to your customers. They are equally as important as the CEO; perhaps more so.
And of course, how could we have a conversation about connections without mentioning weblogs? I stumbled across this long but very good post on the subject by Colin Henderson. He quotes Ray Ozzie of Groove Networks: “Weblogs can help us achieve a greater ‘return on connection’ from employee, customer, and partner relationships.” So by extending the role of ‘connection creation’ deeper into the company, the overall system is strengthened.
(UPDATE) Finally, we should consider the connection between the brand system and the larger social ecosystem in which it operates. We could call it "social responsibility" (component view) or simply see it as yet another connection that must be monitored and strengthened. Common values provide additional points of connection between all individuals within and between systems. It's why companies like The Body Shop have strong brands; they see themselves in context of the larger social system, and the additional 'value connections' between individuals serve as reinforcements. "A cord of 3 strands is not quickly broken."
I’m trying to figure out how to post a holistic system view I developed using a visualization tool from TheBrain. It’s very cool… stay tuned.
For a related post, click here.
I was reading the interview with Kevin Roberts, author of Lovemarks, on Tom Peters' site. This statement by Kevin jumped off the page:
I think the role of business is to make the world a better place for everyone. We're going to do that by giving people choices, giving them self-esteem. But fundamentally, we'll do this by including the 2.3 billion people who exist on less than $2 a day, and turning them into active participants in a free, capitalistic, choice-driven, self-esteem-driven market.
Ok, let me make sure I understood that: Self-esteem comes from buying crap we don't need. Got it. Wow, this has been the subtle message of advertising for decades, but no one has so clearly articulated it before. Thanks, Kevin.
To preface this post, I must say that I have a lot of respect for Nick Wreden. His book Fusion Branding is a terrific overview of building strong brands that are NOT dependent on traditional marketing. We share the belief that brands are built by organizations, operational excellence and customer experience, not by advertising. It's the first branding book I've read that goes into detail on supply chains, technology and pricing. I absolutely recommend it.
All that to say, I'm surprised by Nick's blog comments on Apple Computer's 1984 TV spot as "the worst ad ever made." He says...
First, it set Apple on the downhill path that made it an also-ran in the computer market for so many years. At the time the ad ran, the computer market was a dog-eat-dog battle between Microsoft, Apple and CP/M. Corporate America saw the ad, thought hey, Apple doesn't like us, and began to standardize on Microsoft....
Second, it was a one-time ad.... Single ads are a waste of money; only advertising campaigns can be effective.
Finally, it spawned this myth that the goal of advertising was to "break through the clutter" by pushing the envelope... A better goal for advertising -- generate measureable profitability.
Wait a minute... these comments are written by the same man who says that brands are built by operations, not by advertising? There's no way that this ad "set Apple on a downhill trend." It's not about the advertising.
For the real story on Apple's downfall, read Fast Company's cover story from January on Steve Jobs and innovation. There are a laundry list of executive decisions that drove Apple into niche-player status, including a closed operating environment and an obsession with controlling the entire process of innovation. "Fewer developers mean fewer new products to run on Apple machines. That means fewer options for end users, which influences purchasing decisions, and therefore sales and profits." Corporate America didn't standardize on Wintel because of an ad.
The purpose of the 1984 spot was to create awareness. It accomplished that goal admirably, and spawned legions of Mac lovers. It probably generated more ROI than any other ad run. It's not the advertisement's fault that the company made decisions that stunted its growth. Let's not put so much weight on advertising to make or break a company. No advertising, or even bad advertising, is not going to damage a company that's doing all the right things in terms of operations and customer experience. Based on the Fusion Branding book, I think Nick would agree...
(Updated) Re: my last post on Microsoft and bundling…
I wanted to respond to an email I received stating that the bulk of consumers want everything in one unified package, and that operationally it’s difficult to support both bundles and discrete items. To answer, I’ll make a correlation to my experience with the telecom industry:
1. If a company is the only one to provide a selection of related products or services, customers will prefer to buy them as a bundle. They’re going to buy the pieces anyway; it might as well be convenient. This was the case when telecom was regulated; if you were in GTE territory, you bought all their services because there wasn’t a choice. Similarly, Microsoft has had a monopoly over the PC software industry; with no competitive options, customers and retailers would naturally prefer bundles.
2. As the industry starts to mature and competitors arise to attack the market leader, some customers will seek out alternatives to various elements of the bundle. The number of customers defecting is based on satisfaction with the market leader’s product compared to the newcomers’ products. In GTE’s case, post-deregulation saw a mass exodus of customers because of strong dissatisfaction. In Microsoft’s case, people are generally pleased with the software and, at this point, the competition still isn’t advanced enough to provide most people with a real alternative. If customers are satisfied, then the company benefits from inertia.
3. As the industry matures and competitive products become more like the market leaders’ at a lower cost, commoditization starts to occur. At this point, consumers have real, viable choices; early adopters from stage 2 actively promote the new choices if they meet customer expectations. In the telecom industry, a lot of customers were burned by poor service from the alternative carriers and they went back to the market leader. In Microsoft’s case, if Linux, Mozilla, and any other new upstarts meet customer expectations at a cost of $0, then they’ll accelerate the commoditization of the software industry and spur more widespread defection from Microsoft. Also at this point, some percentage of the customer base still prefers bundles for convenience, but certainly not all. Telecom companies sell bundled services: local and LD is the most common and basic bundle, but they also try to add more products like DSL, web hosting, etc to the bundle. Yet customers either want stand-alone services, or highly tailored bundles in which they don't pay for what they don't use. And they can get exactly what they want because there are so many competitive options.
4. At this point, I think it’s interesting to look at the model provided by Clayton Christensen in The Innovator’s Solution. He observes that the market leader will continue to make incremental innovations to please the most demanding and highest revenue customers, while the market disruptors begin scooping up the customers who are overserved by the market leaders’ offerings. Microsoft’s offerings are incredibly advanced, huge, expensive programs that enable just about anything you might want to do… great for a large corporation, but overkill for most consumers. We’re not at stage 3 yet, and it might take a while due to inertia and the fact that Microsoft is the defacto standard… but for Microsoft to maintain its enormous market share, I believe it will need to offer unbundled (or re-bundled), less complicated and less expensive products that will effectively compete with the market disruptors. In other words, they need to disrupt their own business and begin competing on the basis of meeting customer needs instead of relying on bundling and distribution. In a similar vein, the telecom industry is faced with the disruptive technology of VoIP. I have a telecom client in Florida who recently launched a VoIP service for business that enables unlimited long-distance calls for a very low flat fee. This was an incredibly difficult decision because they lost a lot of revenue when their current long-distance customers switched over to their VoIP service. But it was a smart decision, because market disruptors like Vonage were already starting to steal customers with their free long-distance service. My client was forced to disrupt its own business model in order to retain customers and revenue as their business became commoditized.
On the operational issue… yes, I’m sure it’s a huge challenge. I don’t work there so I don’t know how to address that issue. All I can do is point out market dynamics, look at parallels with other industries, and come to some conclusions on where I think the market is headed. It’s a huge dilemma for Microsoft, and for any other company that has built its business on a bundle of integrated services. The second law of thermodynamics says that everything moves from unity to chaos, and I believe that companies ignore that law at their peril. Check out the Origin of Brands for more on this topic.
Check out the interview with Seth Godin at Global PR Week 1.0 where he comments on the integration of blogging, branding and PR. Here's a snip that resonated with me:
PR MACHINE: McDonald’s vp of marketing, Larry Light, introduced a new marketing strategy which entails using many stories rather than employing one message to reach everyone. He called this new strategy “Brand Journalism.” How do you think this will affect McDonald’s public relations outreach and media management...will the company tell different stories to different media outlets if it wants?
SETH GODIN: I think the vision is just fine, IF McDonald's also changes the product. Spin isn't going to be enough. The challenge is going to be to make stuff worth talking about, and then giving the PR people the freedom to follow through.
PR MACHINE: ...If you say that the brand journalism conversation is going to happen with or "without you” don’t you think PR folks should attempt to manage it [the conversation] by continually staying involved with it (by interacting with it and perhaps attempting to proactively direct it)?
SETH GODIN: I think (but what do I know) that PR pros can add a huge amount of value by focusing on P, not R. By working with the company as the voice of the public, helping them understand how to make stuff worth talking about. Moving upstream ever closer to the core of the factory.
The last statement referred to PR pros, but it's applicable to marketers, sales, brand strategists, agencies... anyone working to promote a brand. Too often, companies without a remarkable core turn to PR, marketing and sales to drive the brand; but this is a band-aid approach that enables the execs to avoid the real issues. It's like the fad diets that promise weight loss without exercising. Sure, you might lose weight initially, but it's neither healthy nor sustainable. There are no quick fixes in life... not in health, and not in business.
There's often a hestitation on the part of sales and marketing to push back and say, "Sorry, but you guys need to create something remarkable before we can promote it." And for good reason. Because according to the standards of the day, this kind of push-back implies a lack of ability. Executives have been trained to think, "If you were really good, you could sell anything to anyone." Good promoters can sell ice to an eskimo... Right? So out of pride and ego, sales and marketing and PR take up the challenge... resulting in spin jobs and overpromises.
I admire the professional marketer, salesperson or account supervisor who is willing to stand up and say, "Sorry, but I can't promote this right now... but let's learn from customers how we can best improve this product and make it worth talking about."
The Tour de France is the most grueling cycling race. One feature of the race is the peloton, the group of competitors that rides together in a huge pack. During the race, smaller groups try to break away from the pack in order to gain an advantage. Sometimes the peloton can track the attackers down, sometimes it can't.
In cycling, just as in business, you do not want to be stuck in the middle of the peloton. You can't try different tactics to attack because you're surrounded. If you sit in the pack the whole time, you will stagnate and never have a chance to win. However, if you try to break out from the middle, you risk causing a huge accident that can knock you and possibly others out of the race.
In my opinion, the problem with Big Lots and Retail Ventures is they are poorly positioned competitively (i.e., in the middle of the peloton). They don't have a niche and can't make up for it by being stronger -- in retailing terms, by turning their inventory...
Compare them to Wal-Mart (NYSE: WMT), who conjures up images of cyclists Jan Ullrich or Miguel Indurain. All three are big, strong, and fast. Between Jan and Miguel, they have won six Tour titles and five second-place finishes. Wal-Mart turned $28.3 billion of inventory in 51 days last quarter! Both feats are very impressive.
On the other hand, I would compare riders like Tyler Hamilton and Iban Mayo (who lost his chance to win the race after getting caught up in a crash in the peleton) to companies like Tuesday Morning (Nasdaq: TUES), recently written up by James Early, and Overstock.com (Nasdaq: OSTK). They are trying to break away from the pack by exploiting a niche (furniture for Tuesday Morning) and building a stronger business model (last quarter, Overstock.com took 40 days to sell its inventory).
I can't go without mentioning Lance Armstrong. Like eBay (Nasdaq: EBAY), which can compete business to business, business to consumer, and consumer to consumer, Lance can compete anywhere. He's not known as a climber, but he rules the mountain stages. He's not known as a sprinter, yet few can beat him in a time trial. Both eBay, which may have the best business model ever, and Lance, the best all-around cyclist ever, are champions that are tough to beat.
This is the first year that I've followed the Tour de France; I'm not a cyclist (yet) so I've been quite intrigued by the level of teamwork and strategy that is required to win. Thanks to a few informative web sites and a cyclist friend of mine who's patiently answered my questions, I'm developing a huge appreciation for the sport. And of course, I can't help but draw parallels to business.
I'd always thought that cycling was a very individual sport; every man for himself. Yet there's a remarkable amount of teamwork going on... not only within each cycling team, but also among competing cyclists. Turns out that a cyclist conserves 40% of his (or her) energy by riding in another rider’s slipstream (the still air behind a rider.) So a lone cyclist that breaks away from the main pack must expend an enormous amount of energy to stay ahead; conversely, a pack of breakaway cyclists (whether on the same team or competing teams) can more easily maintain an advantage if they work together, each taking turns at the front.
Let's look at 4 cycling scenarios and their equivalents in the business world (and all you cyclists out there, feel free to correct me or add your own thoughts!):
1. The lone rider who can maintain a winning advantage in front of the pack may be the strongest all-around rider or a specialist (like a climber or sprinter) who's gunning for a stage win. So if you’re not the Lance Armstrong in your industry, specialization could be the only way to differentiate yourself and capture a win within a section of the market. This relates to a previous post about being all things to all people: companies that specialize on serving the needs of a specific subgroup have an opportunity to capture a dominant percentage of that audience in both initial purchase and brand loyalty. Case in point: Nextel (from today's NY Times:)
The walkie-talkie service, which is embedded in all of the company's 13.4 million phones, is probably the main reason corporate and government workers make up two-thirds of Nextel's subscribers. Such users account for about a third of other cellular providers' customers, according to analysts.
The walkie-talkie function, it turns out, is well suited to hospital employees, factory floor managers and other workers who need to have short, frequent conversations. So unlike rival companies, Nextel has focused on signing up blue-collar workers by, for example, designing phones sturdy enough to withstand heavy use. The advantages have made the company's customer turnover - the percentage of subscribers who switch to other services - the second lowest in the industry, after Verizon Wireless.
2. Within a given team, you'll find specialists and key lieutenants whose jobs are help the team leader win the overall race… and they all benefit from high visibility and $ winnings if they succeed. In the business world, a ‘team leader’ brand can leverage the strengths of smaller specialty brands to win market share to the benefit of all. Case in point: Target has recruited top designer brands like Todd Oldham and Isaac Mizrahi to differentiate itself from other retailers and escape commoditization (from DSN Retailing Today, 4/04):
When it comes to maintaining Target's reputation for cheap chic, keeping up appearances in apparel is paramount. And the way that this retailer has managed to stay at the top of its game can be summed up in two words: Isaac Mizrahi. With the success of the most extensive designer apparel launch in its history, Target has successfully raised the bar in terms of its assortment's fashion credibility.
Not only has it set itself apart from Wal-Mart and Kmart with this exclusive designer label, it has also differentiated its merchandising offering from mid-tier competitors, including Kohl's and Sears.
3. A world-class rider can’t win unless his equipment is also world-class. If you’ve watched the Lance Chronicles on OLN, you’ve seen how Nike, Trek, Shimano, etc. have all worked together to help Lance win the Tour by making his equipment lighter and faster… and they’ve boosted their own brands' strength in turn. In the business world, best-of-breed strategic partners can apply their strengths behind the scenes to help the ‘team leader’ gain competitive advantage. Case in point: Starbuck's turned to Pepsi for its bottling expertise to roll out its Frappuccino drink, spreading Starbuck's visibility and market penetration beyond its retail stores. For more ideas on this topic, check out The Support Economy by Zuboff & Maxmin.
4. By working together, a handful of competing cyclists can more efficiently maintain distance from the rest of the pack, or to catch up quickly to a group of breakaway riders. Case in point: longtime rivals Microsoft and Sun Microsystems versus the pack of Linux advocates (from USA Today).
Combined, Microsoft and Sun stand a better chance of catching up to the Linux movement and its biggest backer, IBM. Linux, the open-source-code operating system created and improved by volunteers, has become the fastest-growing server software, eating into Sun's core business. It has begun to spread into Microsoft's jealously guarded turf of desktop PCs.
So what teamwork opportunities exist for your company?
From CIO Insight:
A few years ago, I attended a session at which management expert Peter Drucker was speaking. At the end of the presentation, one of the participants approached Drucker with a personal question. He said he had a son, a senior in high school, who was trying to settle on what to study as he tried to envision his future and career. The man then asked Drucker what he considered to be the most promising fields of the future that his son should consider pursuing. I will never forget Drucker’s response: “You asked the wrong question,” he said. “What are your son’s strengths and natural gifts? What he decides to pursue in his life and in his career should be aligned with those gifts. Then he will be successful.”
Just like this well-meaning father, well-meaning executives ask the wrong questions about growth—and in doing so miss the true opportunities awaiting their companies as the economy expands. Traditionally, businesspeople have thought of growth as entering an expanding market or adding a new product in hopes of increasing revenues. But that’s only one of four dimensions of growth, and it is not the most important. What does growth really mean? Successful growth starts with being clear on what our purpose is, and on what we want to accomplish as a corporation. This is the most important dimension. The second most important is being clear on what strengths we have that we can leverage to that end. Without purpose, growth is meaningless and chaotic; without strengths, successful growth is impossible. Only when we’ve determined the first two should we turn to the third: what we might add in terms of new product lines, acquisitions or capabilities. The fourth dimension of growth is determining what products, product lines or companies we need to shed because they lie outside our corporate purpose or strengths.
Terrific article... although I do think that there's an important clarification to be made to this list of questions. We must also ask, "Is our purpose meaningful to our customers?" I'm working with a technology client right now and it's becoming blindingly obvious that the company's purpose is not at all aligned with customer needs. They're trying to expand into additional product and service areas, but the fundamental mission is not what customers want to buy.
You can't raise ducks in the desert, no matter how good of a duck farmer you are.
At BusinessPundit, Rob bemoans the interference of the day-to-day work grind with creativity:
Over at FC Blog there has been a lot of discussion about ideas and how to generate them. I've been ruminating on some of the posts and I realized that I don't feel nearly as creative as I used to feel. I think my creativity has been killed by my daily grind. Almost everything I do right now is focused on the operational aspects of a new business. Since I started these long days focused on getting everything in place, I haven't had time to do the things I used to, and I think those things helped make me creative. So what I would like to add to the debate is this question: Are we uncreative because we simply don't have the time? Seriously, creativity takes work. It takes varying stimuli and inputs. I don't have those right now. My thinking has moved from dynamic and non-linear to linear and one-dimensional. I can tell. It really sucks, but I can't break it until I have time to stop this one-track thinking process I have of growing a new business. It's a catch-22, because I'd probably grow the business better if I used some creativity.
I've been thinking a lot about this topic, but more in context with what I can offer my clients. Here's a heads-up for my blog friends... I'm renaming my company and repositioning myself out of the branding game. Stay tuned; I'll hopefully have a new web site & corporate ID in a couple weeks to share with you. I decided it's time to follow my own advice! As many of you know, I've been struggling with the word 'brand' for a long time; there's too much confusion about what it means, and 'branding' is too crowded of a market. But more fundamentally, most execs don't think they have a branding problem. The issue they usually face is being too close to their own businesses... getting mired in operations and 'the way we've always done things.' They'd all like to be creative about where to take their businesses, but as Rob points out, that can be a real challenge.
I think the biggest stumbling block to creativity is not time per se, but finding the right "stimuli and inputs' that generate creative thought. If I can bring that to the table -- not a brand neatly wrapped, but completely new perspectives on their businesses from the eyes of customers, employees and the marketplace -- then I can work with my clients to co-create new directions and opportunities. The process might produce a brand strategy, a new way to go to market, a new product idea, a way to reduce churn, or simply a more effective sales presentation. This is what I truly have fun doing in my work; finding the 'ah hah!' that changes the way my clients see their businesses. More to come on this topic...
There's a great line in "The Hunt For Red October." Maybe you remember it. Jack Ryan, looking at a radar screen, asks "What are those destroyers doing?" The Captain says "They're listening with sonar, looking for the Red October. Funny thing though--they're moving so fast, they could run over my daughter's stereo and not catch it."
They're listening. But moving fast. So they can't hear.
Isn't that what most companies do about listening to customers and employees? Perhaps the execs say that feedback is important. But they're moving so fast, and making so many assumptions, that they can't hear. The golden nuggets that transform business aren't to be found floating on top; they're down deep, and require deeper listening and probing to find them.
We've heard the jokes about candidates for President in years to come whose old opinions will be dragged up from their blogs. And I'll just bet that will keep would-be pols from blogging. But that's a bad thing, for transparency is just what is needed in politics. I spoke with a journalist recently who said he couldn't blog because he'd probably reveal some opinion that might keep him from, say, covering the White House someday. Organizationally, he's right; that's what his bosses would say. But that, too, is a bad thing, for transparency and honesty and candor are just journalism needs.
Fred's right: About the only business he can imagine where transparency is a bad thing is national security.
As for the rest of us: It could be the beginning of an era of honesty (or at least candor): the age of transparency. That (you'll be sorry to know) is why I think Howard Stern is so appealing to so many; it's his blunt honesty. That is also why reality TV is so big; we love seeing people stripped of their pretense.
Sadly, most of society is not transparent at all. You don't know what goes on it the boardrooms of the companies whose stock you own. You don't know what happens in most of government. You want to know more about how the news sausage is made.
If citizens' media leads to any big social change -- emphasis on "if" -- it could be a drive toward transparency by example. If Fred Wilson and Mark Cuban and Margaret Cho and you and i are willing to stand out here naked, why isn't the next guy? What does he have to hide? And if he isn't willing to show us his after we show him ours, then do we want to trust him with our vote or our money or our news?
The April issue of Harvard Business Review has an interesting article called "Take Command of Your Growth." The author outlines 5 revenue sources from which to build revenue growth:
- Base Retention (continuing sales to existing customers)
- Gross Share Gain (take business from your competitors)
- Market Positioning (show up where growth is already occurring)
- Adjacent Markets (attack neighboring markets)
- New Lines of Business (Invest in unrelated new businesses)
The first three stem from a company's core business; the other two lie outside the core. The author doesn't mention how a strong brand (or 'corporate self') spurs revenue in these areas, so I’ll fill in the blanks. To lay the foundation for discussion, I define a brand to be the idea about your company in the minds of stakeholders. That idea is created by operations and marketing (what you say and what you do.) If a company’s words and actions consistently deliver on customers’ needs, the brand gains power. That power manifests itself into revenue growth in the 5 areas listed above.
Base Retention: Prospects hear a meaningful marketing promise, make a purchase, and experience the delivery of that promise. Consistency builds trust. Trust builds loyalty. Loyalty leads to…
Gross Share Gain. Loyal customers refer new customers, which is the least expensive way to take business from competitors. Testimonials and case studies support direct sales efforts. Clear definition and communication of the corporate brand helps customers and prospects understand why they should do business with your company.
Market Positioning. Although plenty of companies in high-growth markets are simply order-takers, the few with strong brands ultimately win in the long run. Too often, companies in high-growth markets build up their sales and order entry divisions at the expense of customer service, operations or R&D. Without continuing to deliver on the initial brand promise, these companies put Base Retention at risk.
Adjacent Markets: The strength of a brand makes it much easier to penetrate related markets. Apple’s well-known brand attributes for fun, stylish and simple products directly facilitated its successful iPod launch. And Sony’s brand equity supports any new product launch in the consumer electronics category.
New Lines of Business: Same thought process as above. This is also where companies can capitalize on brand equity through licensing. A colleague of mine thought that Volvo should enter the baby-seat business; its ‘reliable, safe & secure” brand attributes would be transferred to a completely new category where these attributes are highly prized.
Bottom line, a corporate brand should be built with all five of these revenue sources in mind. A brand statement like “We’re the leading provider of xyz products for the abc market” is meaningless to customers and inhibits your thinking about non-core opportunities. Conversely, if you design a ‘corporate self’ with core attributes like reliability, innovation and style, you can be flexible in your top-line growth opportunities while maintaining consistency in your brand promise.
Over the past several years I've gotten uncomfortable with the word 'brand.' Branding has traditionally been associated with marketing communications: the logo, tag line, visuals and tone of voice. I've been fighting a losing battle in my attempt to broaden the definition of brand to include operations. Talk to a CEO about his brand and he immediately says, "oh, that's a marketing decision." Yet if a company's actions don't match its words, the brand is simply a facade that customers so clearly see through.
So this morning I was surfing through the thesaurus in search of an alternate word without so much baggage. It was pretty enlightening. Compare the associations with the following two words:
Brand: Classification, badge, identification, signature, symbol, emblem, stamp, label
Self: Being, essence, personality, substance, texture, distinctiveness, singularity, essential nature
Brand is associated with external 'label' words, whereas self digs deeper into essence. And essence is the true heart of a brand. Self -- used as a modifier -- also has many other meanings: self-important, self-confident, self-respect, self-control, self-centered, selfish. It's a great reminder that brand (self) can have positive or negative connotations, and that self-perception may be completely different from how others perceive you.
"What is your corporate self?" What a provocative question. It circumvents every pat, rote answer that's been spewed out to customers, employees and investors about the brand. It forces a shift in thinking from externals to essence. It also wipes out the silo mentality and departmental battles. Because the word implies one body. What is in the best interest of the hand, eye or foot is usually in the best interest of the entity. All parts work together for the good of the whole.
As I play around with this idea, I'd love the thoughts of my fellow bloggers!
Check out Sky High Airlines' web site for a glimpse of what would happen if companies started practicing transparency today. What makes this site both funny and sad is that it proudly displays the "elephants under the table" (my new favorite phrase from John Moore UK) that most companies have but won't acknowledge or talk about. Here are just a few gems, but go surf around.
MISSION STATEMENT OF THE WEEK:
The mission of SkyHigh Airlines is to be laser-focused on total customer satisfaction, among many, many other things.
"Your Money Sends Us Soaring." "Flying More. Caring Less." "Lowering Fares. Lowering the Bar." "We're Here to Serve You. No, Honestly, We Are." and my favorite, "Excellence Through Compromise."
At the Global Baggage Tracker page:
At SkyHigh, we don't like to think of your missing luggage as being "lost." Rather, that it has embarked on an exciting journey all its own. But rest assured, we're fairly confident your bags do still exist in some form and could be back at home with you relatively soon.
From the Letter from the Chairman, on fees and service charges:
Do you work for free? We don’t. When some one asks us to do something extra during our workday, we expect a little something for the effort. We wouldn’t come into your place of business and ask you for chicken nuggets or to press our shirts for free. It’s all about give and take. And take.
From Employee of the Month page:
After we experienced a sudden drop in employee morale due to shortened smoke breaks and the "unbearable itchiness" of our new uniforms, Michael, SkyHigh's Employee Morale Supervisor, was charged with turning his co-workers' collective frown upside down. Michael responded with a resounding, "Um, yeah, uh, so…" and leapt into action...
Finally, displaying the leadership skills he has claimed to possess since joining SkyHigh, Michael made an impassioned plea to his coworkers: "If all of you just pretended to be a bit happier and more motivated around here, we could stop having these stupid meetings every morning at 5:30!"
The staff responded, sending Spirit scores soaring to a record high. Now, nearly 4.8 percent happier and more motivated, we here at SkyHigh have truly never been more ready (according to tests) to deal with the everyday anguish of keeping our customers un-angry.
"The simplest definition of business is you solve a customer's problem and create sustainable profits over time. Anyone with vision should understand the problem they're solving. The problem with business today is that people think the meaning is about building a monument to yourself. The meaning of business is having an impact on people's lives."
My definition was close:
A business' purpose is to attract and keep customers. Its one basic function is to reliably solve customer problems...
What customer problem is your business solving? Are you sure it's the problem that they need solved?
The customer is not always right. The relationship between customer and vendor by definition is built on tension. Tension characterized by the customer who wants to minimize price. And the vendor who wants to maximize price. These are conflicting objectives. Customer-centric strategies that focus on delighting the customer ignore the economic realities of delivering this strategy. THIS DOES NOT MEAN THAT YOU DON’T LISTEN TO YOUR CUSTOMER OR RESPOND TO CUSTOMER NEEDS. It means the customer voice is one of several voices that need to be reconciled. Any customer strategy first and foremost must begin with the objective of maximizing short-term profit. It is not possible to lead a sales force schooled in delight and collaboration into a market share battle demanding tension and confrontation.
You know, don't you, dear reader, that I'm going to disagree with this statement. At least with part of it.
Yes, sometimes a price tension exists between the company and the customer. But not always. Not when the customer feels like he or she is getting good value for the money. I've done enough research on the B2B side to know that price is often the 5th or 6th item in importance. Why do market leaders like IBM and SBC continue to command higher prices than the competition? Because they're a safe buy. They've developed a level of trust with customers. Why does Apple -- although not a market-share leader -- command higher prices than a generic PC? Because they've delighted their customers with superior aesthetics, innovation and performance.
I have an image/innovation matrix that visualizes this idea (and I'd include here if I could figure out how to include images in posts). Imagine a vertical axis that is Image (overall awareness, market leadership) and a horizontal axis that is Innovation (ie. listening to customers and delivering on their needs in a new and better way... this may take the form of a new package design by Coke, pull-up diapers, or customized PCs.)
Low image/low innovation = commodity prices. This is the tension-filled space that is referenced by the quote above, because customers can't find any reason to justify paying more than minimum dollar. High image/low innovation can command a bit higher price due to the customer-trust factor; conversely, high innovation/low image can command a higher price because of some real perceived value. Yet where companies truly want to be is in the upper-right hand quadrant -- high image/high innovation -- which represents the biggest opportunity for revenue. This is the space where customers don't haggle over price because the perceived value exceeds the actual price paid. To get here, companies must move horizontally by creating innovative solutions to customer problems. This space will often act like a hot-air balloon, pushing the brand up into the high image/high innovation quadrant. Why? Because this is the buzz space. When you have something new to offer -- one that delights customers and solves a problem -- customers (and media) talk. You'll get press. Visibility and image increase... without having to spend a ton of marketing dollars. This is what's happening with Apple, by the way, with the iPod. The iPod innovation has served to push Apple even farther to the right side of the Innovation quadrant and as a result has elevated the entire Apple brand.
And this is why advertising and sales tactics alone can never elevate a brand into 'premium brand' status. Without real substance to the brand (ie. customer experience that represents high perceived value), all those marketing and sales dollars are being poured down the drain. A company must do the hard work and actually earn it.
Thanks to Seth Godin for comments & link to this CNN story:
Have you ever noticed that whenever people take a Polaroid picture (even professionals), they shake the film a little bit before they peel it?
In fact, I've never seen anyone NOT shake it.
Where did shaking start? How did we learn to shake? How does one person learn about shaking--from someone else?
Anyway, all that was answered today: CNN.com - Polaroid warns buyers not to 'Shake It' - Feb. 17, 2004
According to a recent article on cnet news.com, Dell's market leadership has come at a price:
Dell continues to win market share and turn out record quarterly profits, but two recent surveys show that the company has slipped, when it comes to a more subjective measurement: customer service.
According to two new reports that rate the satisfaction of PC buyers, Dell's scores have declined in recent months. While statistically, the results are not catastrophic for a company that prides itself on offering superior service, it's a potentially troubling trend Dell executives acknowledge and have taken steps to address...
While all PC companies talk about the importance of customer service, Dell has been particularly vocal for several reasons. By cutting out the middleman, Dell has a closer relationship with customers, thus taking all the praise from happy buyers--and all the blame when things go wrong. In addition, the PC business is becoming increasingly commoditized, marked by similarly equipped machines and price erosion. One way to stand out from the crowd is to pamper buyers by offering better service and support than competitors.
Isn't this the truth for any business that sells directly to customers? Too many options often lead to commoditization, especially when one competitor starts a price war. I've had several clients who discovered -- rather reluctantly -- that they were in a commodity business after we did some customer research. Customers often don't see any meaningful difference between various options, much to the dismay of execs and product managers. (For more on this topic, see my post on "Stop the Madness!")
Do you know whether your business has a meaningful point of difference that customers are willing to pay extra for? If not, you have one of three options: continue battling the price war, differentiate on service, or do something radically innovative that addresses pent-up demand. #1 really isn't an option if you want to stay in business, and #3 isn't a short-term or cheap solution. The future of business, according to The Support Economy, is providing deep support that goes beyond today's shallow definition of customer service. (I'll write up a recap when I'm finished reading it!)
According to today's McKinsey Quarterly Update, a surprising number of small and midsize software companies survived the downturn. Not all of them should have.
Technology valuations are back up—in some cases, almost to bubble levels. But the revenue picture isn't rosy for all high-tech companies. Slicing the sector by size reveals a discouraging pattern among those with pretax revenues below $50 million: a survey of 2,121 software, hardware, IT services, and semiconductor companies shows that many small and midsize ones are drowning in red ink. The bar graph above suggests that for smaller concerns, a perennial lack of profitability, combined with the growing scale and influence of their largest competitors, is bringing judgment day near. Some companies will have to be acquired; others will try to get bigger by merging with complementary businesses. Still others will find sustainable niches to harvest, often by working within the platform of a larger vendor with better access to customers.
Jeff Jarvis at BuzzMachine did such a great job of summarizing and expanding on the Coming Information Collapse that I'm just going to direct you to this link so you can read for yourself. Here's the opening paragraph:
Eli Noam, a Columbia professor, writes a most depressing piece for the Financial Times arguing that we're headed to a market failure in the information economy -- and, he says, that holds ominous implications for the economies of countries dependent upon the information economy (like Finland, with 35 percent of exports and 15 percent of GDP coming from one company, Nokia ... or like America, eh?).
I'm not sure he's right about this -- I think, instead, that we are headed for a fundamental restructuring from hyperbig to hypersmall.
The most wildly optimistic estimates indicate 2020 will be the year in which worldwide oil production peaks. Generally, these estimates come from the government.
The energy industry has quietly acknowledged the seriousness of the situation. For instance, the president of Exxon Mobil Exploration Company, Jon Thompson, recently stated: "By 2015, we will need to find, develop and produce a volume of new oil and gas that is equal to eight out of every 10 barrels being produced today. In addition, the cost associated with providing this additional oil and gas is expected to be considerably more than what industry is now spending."
Almost every current human endeavor from transportation, to manufacturing, to electricity to plastics, and especially food and water production is inextricably intertwined with oil and natural gas supplies.
And here's the kicker:
It is estimated that the world's population will contract to 500 million during the Oil Crash. (current world population: 6 billion)....
Dr. David Goodstein, Professor of Physics and Vice Provost of Cal Tech University says:
Worst case: After Hubbert's peak, all efforts to produce, distribute, and consume alternative fuels fast enough to fill the gap between falling supplies and rising demand fail. Runaway inflation and worldwide depression leave many billions of people with no alternative but to burn coal in vast quantities for warmth, cooking, and primitive industry. The change in the greenhouse effect that results eventually tips Earth's climate into a new state hostile to life.
Scary, but I have great faith in our instincts for self-preservation and believe we'll be able to pull off some amazing things to ensure survival of humanity. Seems like we're accelerating quickly on the technology front... nanotech and other innovations should help us combat some of the mega-shifts that we're seeing. (Although with everything I'm reading, those doomsday movies don't appear so fictional...)
The Fast Company blog has a fun post about How to Make Love in the Office (now that's an attention-grabbing title). I've only had one office romance... it was about 7 years ago at a place where interoffice dating was frowned upon by management. In hindsight, the secrecy was nine-tenths of the allure, but I'd never do that again... my productivity went down the tubes. My last serious relationship was with a client; actually, he was a company founder with whom I had no day-to-day interaction. Interesting to think about where to draw the line. Working for myself makes it pretty easy; everything I do is project-based, so even direct clients don't stay in client status for long. It's rare enough to meet someone you really click with; usually a solution can be found to pursue the relationship and still maintain professionalism... switch departments, sub-contract out the day-to-day responsibilities if it's with a client, etc. What do you think? Any good office romance stories out there?
A recent article in New Scientist shines a negative light on our favorite office brew:
Taking a coffee break at work may actually sabotage employees' ability to do their jobs and undermine teamwork instead of boosting it, suggests new research.
Dosing up on caffeine is particularly unhelpful to men, disrupting their emotions and hampering their ability to do certain tasks, suggests a report by psychologists Lindsay St Claire and Peter Rogers at Bristol University in the UK.
Many people take coffee breaks at work believing this will reduce their feelings of stress. But theories about the effects of caffeine are conflicting. Some studies suggest caffeine can worsen anxiety and trigger stress, while others show it boosts confidence, alertness and sociability, making certain tasks easier.
But this latest report, released by the UK's Economic and Social Research Council on Friday, backs the view that coffee exacerbates stress, especially in men, and makes people less co-operative when working in teams.
"Our research findings suggest that the commonplace tea or coffee break might backfire in business situations, particularly where men are concerned," says St Claire. "Far from reducing stress, it might actually make things worse."
Phew, it's only bad news for men. I can still have my coffee and drink it too.
I was talking with a client a few weeks ago about innovation. Somehow we got on the subject of nanotechnology, which he pointed out was not as much an invention as, say, the turntable. In other words, just because things are getting smaller doesn't mean there's a paradigm shift. I conceded the point at the time, but have since gotten quite interested in the topic. So I looked up nanotech; Ray Kurtzweil gives the definition as "A body of technology in which products and other objects are created through the manipulation of atoms and molecules." (BTW, Ray's site is my new favorite site... amazing stuff in there).
It seems to me that manipulating atoms and molecules would qualify as a paradigm shift. The first chapter of Engines of Creation outlines the shift this way:
The ancient style of technology that led from flint chips to silicon chips handles atoms and molecules in bulk; call it bulk technology. The new technology will handle individual atoms and molecules with control and precision; call it molecular technology. It will change our world in more ways than we can imagine.
Nanotech is born out of advances in biology, genetic engineering and biochemistry. It will lead to new ways of manufacturing just about anything, pollution-free... and will allow us to manufacture things that haven't even been imagined yet.
Because assemblers (nanomachines) will let us place atoms in almost any reasonable arrangement, they will let us build almost anything that the laws of nature allow to exist. In particular, they will let us build almost anything we can design - including more assemblers. The consequences of this will be profound, because our crude tools have let us explore only a small part of the range of possibilities that natural law permits. Assemblers will open a world of new technologies.
Advances in the technologies of medicine, space, computation, and production - and warfare - all depend on our ability to arrange atoms. With assemblers, we will be able to remake our world or destroy it.
So perhaps nanotech is not as much of an invention as much as an invention facilitator. It’s a bit creepy, if you think about it in conjunction with AI… self-aware, replicating machines… a super killer virus? The Singularity?
I suppose I'm getting ahead of myself... what will nano mean for business in the next 25 years or so? Ray Kurtzweil posits that "because we're doubling the rate of progress every decade, we'll see a century of progress--at today's rate--in only 25 calendar years." This raises an interesting issue, since it so starkly illustrates how short-term most businesses think. How many years in the future do most execs extend their vision? I think a lot of people are going to be taken by surprise by the speed at which 'the future' will be upon us.
It's fun to review an invention timeline, especially everything that was invented in the 1900s alone, and think that the same amount of progress will be made in the next 25 years. Where will you be in 25 years? I'll be 60. Supposedly we'll solve the 'aging problem' when I'm 85... bummer, I hope they can figure out how to not just halt but reverse aging so I won't get stuck in an 85 year-old body!
Ever since we launched FORTUNE's Most Powerful Women list in 1998, we've noticed that many top-performing companies—such as Citigroup, Southwest Airlines, Viacom, and Avon—have an above-average population of women at the top. Now there's some hard evidence that gender diversity and financial performance are linked. A just-released study of FORTUNE 500 companies by Catalyst, the research firm that tracks corporate women, shows that companies with the highest representation of senior women had a 35% higher return on equity and a 34% higher return to shareholders than companies with the fewest women near the top. Catalyst looked at both the management teams and financial performance of 353 FORTUNE 500 companies from 1996 to 2000.
I Googled the topic and found some interesting stats on variances between men's and women's management styles:
More than half of women business owners (53%) emphasize intuitive or "right-brain" thinking. This style stresses creativity, sensitivity and values-based decision making. Seven out of ten (71%) men business owners emphasize logical or "left-brain" thinking. This style stresses analysis, processing information methodically and developing procedures.
Women business owners' decision-making style is more "whole-brained" than their male counterparts, that is, more evenly distributed between right and left brain thinking.
Two-thirds (66%) of women business owners (compared to 56% of men business owners) tend to reflect on decisions, weighing options and outcomes before moving to action. In addition, women are more likely to gather information from business advisors and associates. More men business owners (44% compared to 34% of women business owners) emphasize action and give greater attention to external events and activities than reflection.
What's nice is that there's no right or wrong answer. The different management styles complement each other. When there's a balance between men and women on an executive team, problems are approached more holistically and higher profits would be a logical outcome.
Chris Lawer blogs about the necessary mental shift from "company as value-chain component" to "company as player in customer-value network":
Quite often, the first question managers need to address is quite simply, what domain of customer value are we operating in?. This is then closely followed by the second question, how we can adapt to identify, design and deliver mutual value within the new individual-centric customer space?. Unfortunately, many organisations are so risk averse that they never even get to the second stage....
The first question is terrific and absolutely essential. In order to answer it, managers must understand what customers actually value. Most managers make assumptions about what customers value (and we all know what 'assume' means...)
I'll take my telecom client as an example. Management assumed that they were operating in the "saving money" domain of customer value. However, customer research revealed that they should be operating in the domain of "make me feel important." Now with a new tag line of "We hear you," the company is answering the second question and making operational shifts to deliver on this promise.
In what customer-value domain is your company playing? What changes must be made to better align your operations with that domain? What complementary companies are also in the same domain, and is there a way to partner with those companies to deliver even more value?
I ran across the definition for obliquity today, which led me on a train of thought about the ecology of business:
In philosophy, obliquity is a relatively new theory proposing that the best means of achieving a goal may often be to take an indirect approach rather than a direct one. The theory holds, for example, that individuals whose only concern is their own happiness are rarely happy individuals, and that companies that seek to maximize profits at all costs are unlikely to be the most financially successful. Obliquity has much in common with the principles of chaos theory; both concepts rely on the idea that, in a complex system, the factors involved are too numerous and too intricately connected to be easily understood. Therefore, just as we cannot be sure that long-range weather forecasts won't be affected by some unforeseen influence, we cannot be sure that single-mindedly striving for financial success is most likely to lead to our goal. Rather, financial success could be a by-product of engagement in our work, and a commitment to responsible business practices and our communities.
The concept of obliquity in this sense was introduced by John Kay, an economist and business writer. In his lecture "The Role of Business in Society," Kay explores the value of a holistic approach to business, and the paradoxical success of such an approach over that of a simple focus on maximizing profits. Kay quotes George Merck (founder of the extremely profitable drug company): "We try never to forget that medicine is for the people. It is not for the profits. The profits follow, and if we have remembered that, they have never failed to appear."
John Kay's lecture is a bit long, but here's a snip for you:
Part of the problem is that the claim that business is only about profits has in the past been contrasted with two unconvincing alternatives. One is that the purpose of business is to do good. Those who are in business should shed material preoccupations and we should all work for the benefit of the community. Another is that profit is immoral and, in consequence, all the assets of corporations should be transferred to the state...
I want to test these assertions against a much more powerful contrary position. This is that successful business is not in reality selfish, narrow and instrumental. What makes one a good parent, a fine teacher, a great sportsman, is a combination of talent relevant to that activity and a passion for, and commitment to, parenthood, education, or sport. Similarly, the motives that make for success in business, both for individuals and for corporations, are commitment to, passion for, business: which is not at all the same as love of money.
The defining purpose of business is to build good businesses, as the defining purpose of parenthood is to be a good parent. What we mean by a good business is as multi-dimensional and complex as what we mean by good parenthood, good education, or good sport. But nevertheless, there is widespread agreement on which are indeed good businesses. They are characterised by satisfied customers, motivated employees, well-rewarded investors, and high reputations within their communities. When lists are compiled of the most admired corporations, the same names keep cropping up - Marks and Spencer, Hewlett Packard, Sony. They are admired by everyone: their customers, governments, the financial community, the people who work for them, and other businesses.
This recognition of complexity is much more beneficial than blindly pursuing single objectives like profit, customers or social responsibility. It's important to ask ourselves when pursuing a particular business goal, "At the expense of what?" When executives are blindly pursuing shareholder value, are they doing it at the expense of employee loyalty, which then leads to a declining customer experience, which then impacts profits? This is what I call the 'ecology of business,' which has a lot of parallels with traditional ecology and conservation. The definition of ecology is "the science of the relationships between organisms and their environments." There's another phrase called human ecology, or "the branch of sociology that is concerned with studying the relationships between human groups and their physical and social environments." So business ecology deals with the relationships between stakeholders, corporate decisionmakers, and their environments. Every decision has a ripple effect that impacts multiple stakeholder groups, competitive activities, market dynamics, etc. A good decision-maker will evaluate decisions based on the consequences of those ripple effects.
On that note, John Kay quotes an example of wrong thinking about stakeholders:
"The most ridiculous word you hear in boardrooms these days is ‘stakeholders’. A stakeholder
is anyone with a stake in a company’s well-being. That includes its employees, suppliers, the communities in which it operates, and so on. The current theory is that a CEO has to take all these people into account is making decisions. Stakeholders! Whenever I hear that word, I ask ‘How much did they pay for their stake? Stakeholders don’t pay for their stake. Shareholders do."
This comes from a recent book by Al Dunlap, former Chief Executive of Scott Paper, variously nicknamed ‘Chainsaw Al’ and ‘Rambo in Pinstripes’ for his stewardship of that and other companies.
What a great example of short-term, myopic thinking. How is Dunlap going to provide shareholder value if employees are unhappy? If suppliers get fed up? If the customer experience is short-changed? I've been writing a bit about stakeholder-centric strategies, which directly supports this idea of the ecology of business.
What do you think? Got any examples? Off the top of my head, I'm interested in the ripple effect of Wal-Mart's policies with their suppliers in their quest to provide the lowest price possible (see Fast Company's Dec. cover story on Wal-Mart).
David St. Lawrence offers the following criteria for judging value or worth of companies and individuals:
You can accurately judge the worth of a person or organization, even yourself, by how well these three things are done:
1. Promising only what you intend to deliver
2. Keeping your word once given
3. Following through so as to meet expectations
We instinctively and accurately judge a person by how well they do these three things, whether they are a child or an adult. We trust people who do these things. People who don't do these things are untrustworthy, no matter who they are, how educated they are, or how important they may be.
To quantitatively verify his observations, here are the top 6 most-important attributes in a phone provider as ranked by over 500 small business customers:
1. Takes responsibility (92.6%)
2. Phone/internet services always work (91.6%)
3. Delivers on promises (91%)
4. Communicates honestly and clearly (87.6%)
5. Available when I need them (87.3%)
6. Offers the most competitive price (84.6%)
The company in question had been focusing all its efforts on offering the most competitive price. The executive team was quite surprised to learn that price was not even close to being the most important item on customers' lists. As a result of these findings, we began an internal campaign of "Delivering on Promises" to positively impact customer attraction and retention.
These soft issues aren't often measured or addressed by management teams, but they're the critical factors on whether customers continue to buy from your company. As David points out, they're drivers for organizational trust... and trust is a driver of success.
With his recent comment to my Semantics post, Damon B. resurrected the customer-centric versus buyer-centric debate:
CC, while it does have its short comings, is far superior to being BC. Buyer centricity leaves out some very important customers - most importantly the internal customers. Sure, a CC company can start looking at customers as acquisitions or transactions, but that's a result of the company failing to properly implement the policy. Claiming CC is not correct is like claiming fishing line is inferior b/c it broke when there was too much weight on the line. It's not the fishing lines fault, it was just poorly used.
If a company can not fully grasp how to be CC it will also fail at being BC.
Excellent point, and one we've been exploring in the running "Role of Marketing" dialogue. My most recent definition of marketing's role is to "catalyze communication and relationships between stakeholders." And, of course, that can best happen in a stakeholder-centric organization.
As Damon pointed out, buyer-centricity leaves out the internal customer. But customer-centricity comes with its own problems:
- Is commonly interpreted as the end-user or buyer
- Leaves out other stakeholders such as distribution channels, partners, key influencers, investors and the community in which the company operates.
On the other hand, a stakeholder-centric company is keenly aware of every group that is influenced by its policies and decisions. I'd like to revisit John Moore's definition of marketing as "resolving the conflicting needs and interests of stakeholders" and apply it instead as the definition of the stakeholder-centric organization (SCO). Executives of an SCO must make a comprehensive list of stakeholders along with their respective needs and interests, identify areas of conflict, and actively seek solutions that will resolve those conflicts. This is a great idea-generating exercise for innovative products, services, policies, operational enhancements, etc. that could reside at the intersection of those conflicting interests.
A stakeholder-centric marketer, then, would be involved in identifying core needs of stakeholders (specifically buyers and distribution channels), participating in stakeholder issue-resolution exercises with the executive team, and catalyzing relationships of the various stakeholders according to the resulting objectives, strategies and tactics that emerge from those issue-resolution exercises.
I like where these running blog dialogues are ending up. I'm officially changing my Buyer-Centric category title to Stakeholder-Centric. If anyone has additional thoughts on the subject, fire away!
- We overestimate the short-term impacts of technology while underestimating long-term effects.
- Industries mature according to a pattern. They begin by being vendor-dominated but wind up with the consumer being sovereign.
- New technology always challenges the established order, and eventually a new equilibrium is reached.
The following quote is attributed to Peter Drucker:
"Because its purpose is to create a customer, the business has two basic functions: marketing and innovation. Marketing and innovation produce results, all the rest are costs."
Hmmm. A company's purpose is to create a customer? I can think of plenty of companies who 'created' customers... and have since gone out of business. But according to Peter's statement, these companies successfully accomplished their purpose.
A business' purpose is to attract and keep customers. Its one basic function is to reliably solve customer problems... through innovative products, or exceptional customer support, or a powerful customer experience, or even low price (ie. WalMart). What attracts and keeps customers is the value offered by the company. Marketing comes second.
Many thanks to those of you (Ali, Chris, Mike and Director Mitch) who commented on my last post about Bush's proposal to legalize undocumented workers. You spurred me on to research the facts and come up with a solution instead of simply ranting (although sometimes it just feels good to rant, and it sure generates good healthy debate!). I have some thoughts that I'll post later today -- particularly immigration's impact on business -- but first I wanted to share a well-researched paper on The Social Contract web site called "Sorting Through Humanitarian Clashes In Immigration Policy". It presents the pros and cons of open, closed and restricted immigration policies. Highly recommended reading. Here's part of the summary:
The ethical basis of the current U.S. immigration policy would appear to be to help:
- consumers to benefit from lower prices,
- business owners to restrain the growth in wages and to more easily fill job openings
- families — primarily upper income — to obtain the services of nannies, gardeners and housekeepers,
- the owners of capital to make larger profits (immigration is a key ingredient in the rising income disparity in the nation).
And immigration, according to those studies, currently harms:
• lower-skilled workers, especially the foreign-born,
• poor Americans trying to leave welfare and join the labor force,
• students in crowded schools, especially racial minorities in core cities,
• middle-class taxpayers in high-immigration states who subsidize the average immigrant by $1,500 to $4,000 each,
• hunters, anglers, boaters and outdoor recreation enthusiasts of all types who suffer extra congestion from population growth caused primarily by immigration,
• breathers of air in cities that do not meet clean air standards because of population growth,
• users of the 40 percent of the nation’s lakes and streams that still do not meet clean water standards,
• all who value the wildlife, natural habitat, ecosystems and bio-diversity that are reduced each year by the pressures from population growth,
• traffic-weary motorists and residents of small cities, towns and rural areas trying to preserve their culture of living.
Because the effect of current immigration numbers is so drastic on the rate of population growth, people who place a high ethical value on clean air and water, protecting eco-systems, resisting congestion and sprawl, and preserving community cultures will have to consider great reductions in the overall numbers as they create an ethically ideal immigration policy.
Before deciding what our ethical position dictates in terms of “how many?” we should consider that the U.S. Census Bureau projects that under the current rate of immigration the 1970 population of 203 million will nearly double to 394 million by the year 2050... The Census Bureau states that replacement-level immigration currently is 225,000. So illegal immigration would have to be stopped entirely, and legal immigration reduced from 915,000 in 1996 to 225,000 to allow the U.S. population (267 million in 1997) to stabilize soon after 2050 at around 320 million. If we don’t want to add another 50 million people to the country, we will have to choose an immigration level below 200,000.
Great article in the McKinsey Quarterly (free but registration required) called "Learning to Grow Again".
In recession, most companies know what they need to do: cut costs. But in recovery, corporate muscles that have gone unexercised must be flexed anew. In preparation, boards and top managers would do well to ask three basic questions.
What is success?
In earlier eras, the success of a company was judged by a mixture of measures, including its fundamental economic performance, its reputation with customers and employees, its stock price, and its responsibility to society at large. That changed in the 1980s and 1990s. Academic theory, the takeover boom, and shareholder activism led to a focus on share-holder value, all too often measured through the narrow prism of short-term movements in stock prices....
Factors outside management’s control, such as investor sentiment and overall market conditions, can have a major impact on share prices. Did all those CEOs really deserve to get rich from the rising tide of the 1990s? Likewise, some strong management teams have doubtless been punished unfairly during the downturn.
This raises troubling questions as companies look to manage the next era of growth while avoiding the pitfalls of the last... A more balanced view of success, and the time over which it is measured, would ultimately serve shareholders (and society) better by encouraging more innovation and growth.
How can we nurture talent?
...When the downturn came, there was an abrupt shift from "we value talent" to "you are a disposable cost." The options evaporated, the perks were withdrawn, and the layoffs came swiftly—in some cases, brutally. This tore the social fabric of many firms and left employees cynical. Trust will have to be earned again and a new compact forged between companies and employees.
...The best companies will create jobs and roles where employees feel they have some control over what they do, where professional relationships are valued, where more than lip service is paid to the work-life balance, and where there is a real belief in the social and ethical responsibility of the employer. The companies that translate these principles into concrete practices and build the social and knowledge capital of the organization will establish a source of competitive advantage not easily displaced.
What is the role of business in society?
...Market economies depend on integrity to function; companies should adhere to the values and norms of the communities in which they operate, as the great majority of businesses do. The drive for growth need not be at odds with environmental and other societal concerns...
I posted a comment on the Fast Company blog a few days ago, but thought it would be useful to repost it here -- and no, not because I'm too lazy to write a new post; this was buried in the archives and I think it's an interesting topic. It was in response to a post by John Moore (VP Mkting at Whole Foods) about the recent cover story on WalMart:
As director of national marketing for a grocer, I read with great interest the Fast Company December cover story - "The Wal-Mart You Don't Know." As you know, Wal-Mart is single-handedly responsible for the drive to commoditization that is happening in the retail business. I love what Seth Godin said in his book Purple Cow that a low price strategy is the last resort of a marketer that is out of great ideas. Commoditization is all about exploiting the low price strategy.
The impact commoditization is having on the game of business is tremendous and Wal-Mart seems to be killing nearly everyone with their quest to deliver the lowest price possible.
I have a bit different view of commoditization. A company or brand is in commodity status when it is not offering enough value for customers to pay the asking price. Commodity companies must continually decrease their prices in order to maintain a revenue stream... in other words, they're not 'exploiting the low cost strategy'; they're the self-made victims of lack of value. I have worked with several telecom providers who are trapped in price wars because customers don't perceive any value difference between the various providers.
Conversely, there are many non-commodity companies who are pursuing a low-price strategy, and it's not due to a lack of ideas. Take Dell, for example. They can charge a lower price than IBM because they've innovated their operations. Southwest Airlines and Trader Joe's are also great examples. The common denominator is not that they're less expensive, it's that they've innovated in a way that customers value. They 'could' actually charge more and people would pay it because they're providing a quality product or service; but it would run counter to their established brand.
So WalMart is commoditizing brands? I don't think so. They're simply determining who's willing to be a commodity brand and who isn't. Levi's is prostituting itself to WalMart because it had already lost its brand value. Leaders who know the value of their brands, who know they're delivering value and that their brand has a loyal following, will not succumb to the WalMart commodity-confirming machine.