Earning Premium-Brand Status

Thanks to Heath at FC Now for the link to The Guru Red Manifesto. As I was clicking through the "Operating doctrine and rules of engagement," I came across the following:

The Customer is Not Your Friend

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.

Comments

[eFABE]

I am way behind the times in finding this very interesting and useful blog. I am trying to understand what premium actually means and this certainly goes towards helping me get there. Thank you. This reply may never be seen, but I thought I would leave it anyway.

[trupti]

hi jennifer, found your article particularly relevant to the field that i work in - airtime sales on a tv channel.

the price we can command for 30 seconds in the market is influenced to a large extent by what competition is charging for similar products (programmes), and at the end of the day, we can only up the price depending on the 'image' we enjoy in the market, and how much we can innovate - the perspectives we provide, the customisations we provide for clients, and how we present the same content in a unique manner.

[Mike Smock]

Hi Bob,

Sun Tzu is our patron saint. Not because its gung ho, or macho but because the Art of War advocates winning without fighting. Sun Tzu introduced me to the concept of maneuver theory.

I was introduced to Sun Tzu by chinese partners in the late 80's. At that time I was Chairman and CEO of an engineering and fabrication business with 600 employees. I was looking for ways to reduce friction with my unions and increase my operating tempo - which led me to Boyd.

Have you read Boyd's Organic Command and Control? Great lessons for enterprises today attempting to improve organizational cohesiveness. It think this is the paper that Boyd introduced the notion of essential humility.

Last, the Marine Corp in their command and control manual describe the difference between detailed and mission command and control. Ironically some of the most forward thinking I've read on organziation developement is the Corp's take on mission C&C which emphasizes decentralized decision making, trust and unit cohesiveness.

I was a big fan of yours back in your Chrysler days. I'm an Ann Arbor boy. You still have a place back there?

[fouroboros]

Bob Lutz: LAW 1 The Customer Isn't Always Right

Jennifer, if you agreed when I scrawled "marketing is leading" and "great brands lead and mobilize affinity' then "A Customer's Search" is the need that brands must acknowledge before Customer Service can happen. They are looking for answers, and effective brands often rescue them from dead ends--making repeated unsatisfying and therefore wrong choices. In this way, customers often don't know what they're looking for until they stumble on it. But once found, they've got a "mate" for life so to speak. Go here for a graphic we use in explaining this concept called "The old conversation"

Mike: Read some of your stuff. Very interesting. I'm a cycle, sequence, rhythm and pattern guy too, but I do agree with Tom's sentiment.

The gung-ho element in business causes far more long term frictions and drags on profitability than the short term gains justify. I get to clean up the messes of guys who claim Braveheart and the Great Santini as their favorite movies and influences. The militaristic approach too often allows impatient business people to insist on simplicity, confusing it with clarity. I too am familiar with OODA, first as the son of a USAF F-100/4/16 driver-instructor and then as a business tool. OODA can be a trap as well as tool in its seeming Black Magic ability to the undisciplined--and the last thing business people need is more false feelings of omnipotence. We worked Boyd's cross-disciplinary approach for our selves to great result and now share it with others. We know a lot of shit and people think we can see around corners. Wrong. We just intuit, interpret and connect as Boyd teaches. To mis-quote Gibson's William Wallace, nobody is "nine feet tall with lightning bolts shooting out of his ass"

I haven't read through your site deeply but I suspect I agree with much of what you're saying but am curious where Boyd's "essential humility" factors in. Look forward to digging in.

[Mike Smock]

Hi Jennifer

Read your response... I'd enjoy a debate. I'm 3/4 of the way through Quicksilver. Looking forward to the next installment.

m

Hey Tommy,

I would call it proudly old-school. The rules come from a couple of guys who have been there.

Read a couple of pages of the rules and you'll see how we monetize.

m

[Tom Asacker]

Best blog yet, Jennifer! Thanks.

1. "The relationship between customer and vendor by definition is built on tension." This is old school thinking again. It's the "Marketing as War" mindset that pervades business. Even the word "vendor" conjurs up a guy hawking hotdogs on the streets of Manhattan. Hardly a metaphor for a mutually beneficial business relationships built on knowledge, insights, risk-taking and trust.

2. "Any customer strategy first and foremost must begin with the objective of maximizing short-term profit." I'd love to know how the authors maximized their short-term profit by distributing their manifesto for "free." ;-)