CHAPTER 1
What You Don't Know Can Hurt You
Customers are skeptical. They've been lied to by just about everyone who's hadthe opportunity to do so. From role models who can't keep extramarital affairsfrom wrecking their golf game to behemoth corporations betting against their owncustomers' investments to politicians regularly resigning for engaging in thevery activities they legislated against, no one has been telling the truth. Youneed an element of trust to get genuine customer buy-in, but we've spent ageneration and a half teaching the public to trust nobody.
This creates a problem for today's business leaders. How do you connect withthese empowered, educated, skeptical consumers? This is a question of someurgency. If you don't have the answer, you have to figure it out now, and youhave to keep your business thriving at the same time. There's absolutely no timeto hesitate. If you cannot connect with your customers in a meaningful way, youwill become irrelevant to them. When you're irrelevant, you're replaceable, andyour customers will inevitably replace you with a brand that they do feelconnected to.
Irrelevancy arrives in those still moments when an organization is facinguncertainty. These are the times when the company is trying to figure out whatto do. Choosing the right course is difficult: if you opt for the wrongdirection, you'll saddle your company with the burden of invisibility whenyou're least prepared to bear it.
Let us show you how that happens.
Do You Want Fries with That?
Initially modeled on European cafés, Starbucks had a good thing going. We findStarbucks absolutely fascinating as a company. At the beginning, it made someexcellent decisions from a brand-building perspective: Starbucks became astrong, and arguably an iconic, brand. Yet in the wake of this success came aseries of inexplicably bad decisions that could imperil the brand's dominantposition.
Starbucks captured its initial fan base by offering an experience unlike anyother that was commonly available in America at the time. Customers responded toand valued the fact that Starbucks offered a unique experience. Starbucks'sinterpretation of the coffeehouse as a comfortable, upscale "third place" wherecustomers could relax, self-actualize, and gain valuable social currency wasirresistible. Neither work nor home, Starbucks provided a place where peoplecould spend their leisure time, socialize, and connect.
The success that Starbucks enjoys is due in no small part to its amazingcreation of an organization-specific culture. Customers understand that youcan't order a small regular coffee at Starbucks. Instead, you have to ask for aFor Here Single Grande White Chocolate Mocha.
Starbucks is about far more than selling coffee. It sells community.Specifically, Starbucks sells exclusive, aspirational community. Starbucks wasspecial because it wasn't for everyone.
While clearly Starbucks hasn't abandoned that initial concept, it has made somechoices that seem to be aimed at pursuing what appeared to be low-hanging fruit.There's a chance that this will fundamentally hurt the Starbucks brand over thelong term.
When customers were confronted with drive-through windows, a move towardautomating in order to serve more customers, and price-driven promotions, theyfound that they weren't having a unique experience anymore. They were simplybuying more expensive coffee in a setting that was eerily reminiscent of thefast-food joints they'd been trying to avoid— and now those fast-foodjoints have pricey coffee drinks of their own. Starbucks has lost itsdifferentiator.
What makes organizations go off track?
Can Anybody See Me?
What type of person are you least likely to see in a Burger King? Yes, hard-corefoodies won't be there, but for a long time, 18-to 35-year-old males, the coredemographic of the fast-food industry, weren't there either. Instead, they wereat McDonald's. Why?
McDonald's had rapidly adopted the concept of the third place and focused on theexperience that its customers got along with their large order of fries. BurgerKing had chosen to focus on the quality of the product.
There was only one problem with that approach: the largest part of the desiredaudience didn't actually care all that much about the quality of the burgersthey were wolfing down. It's not that Burger King's "have it your way" campaignwas bad, per se— it's that it featured a message that the customers had nointerest in hearing. The brand became irrelevant. Even now, Burger King isundergoing a convoluted dance to discover that sweet spot where it becomes adefault choice for the drive-through diner once again.
What's the best way to recover lost market share from your competition?
You Can't Reach That Bar?
Managing customer expectations has long been considered the Holy Grail ofmarketing. It's certainly an elusive goal. We'd say it's impossible to achieveif you don't take one critical piece of information into account: customerexpectations are not forged by your company; they're created by yourcompetitors.
The customer who is in your store is not judging your merchandise, service, andambience strictly on their own merits. Your business does not exist inisolation. You do not have the first website your customers have ever seen.Yours is not the first tech support call line they've ever called. You have nothired the first receptionist they've ever met.
In particular industries, the standards have already been established in theminds of many customers. You know the names. Every industry has its own IKEA,its own Harley-Davidson, its own Rolex. These companies have established thebaseline for excellence. Every retailer wants its customer service to beconsidered just as good as Zappos'. Harley-Davidson defines what it means to bea motorcycle. Rolex is synonymous with luxury watches.
These organizations are continually creating the world's view of a category.They are shaping the perceptions, images, and memories that create leadingbrands. These are the standards your customers have been exposed to. This iswhat they have in mind when they develop their expectations.
Apple resets the customer expectation bar on an almost daily basis. Steppinginto an Apple store is a markedly different experience by design. The GeniusBar, with specially trained employees who will answer any techquestion—over and over and over again until you're happy with your abilityto use your Mac, iPhone, or iPad—is a powerful draw. The stores lookdifferent. Apple has eliminated cash registers from some of its stores becauseit doesn't want customers to view shopping at these stores as the typical retailexperience.
Customers have responded to this to a degree that exceeded even Apple's ownexpectations. Stores that were projected to earn $1,000 per square foot earnedfour times that amount.
Compare that to those businesses that are providing the typical technologyretail experience. Witness the demise of Circuit City, or Best Buy's recentdecision to slow its expansion plans. These companies are not merely fallingbehind, they're standing still in the road watching the dust cloud movingfarther and farther away. Customers who have experienced what Apple isoffering—and note that so far we're talking only about the customerexperience, not about the actual products—find the typical experiencewanting. Good enough isn't good enough when there's someone else who iscontinually doing better.
Apple's impact, of course, is on customers, not categories. The customer who hasbeen trained to expect a certain experience when shopping for computers willhave those same expectations when shopping for apparel, jewelry, gifts, andelectronics and when selecting service providers, medical care, financialguidance, and so on.
The challenge for business owners is great. If you're not providing yourcustomers with a unique and satisfying experience, you are perpetually failingto meet the bar set by an organization that is.
How do you meet that challenge?
Fast, Cheap, Good: Pick Any Two!
Domino's Pizza had built an empire on the promise of fast, cheap, good pizza.However, while it delivered on the fast and cheap portions of the equation, thepizza fell far short of being good. Customers who had equally priced optionsavailable were abandoning the brand in droves until, forced into a position ofdesperation, Domino's did the unthinkable: it started a campaign that told thepublic that what it had been doing was terrible, and that it was time for thecompany to improve its product. It solicited customer feedback, asking forpictures of its pizzas. Then it used those images as part of an ongoing "MeaCulpa" campaign, promising improvement and encouraging customers to be part ofits turnaround.
Reinventing the pizza from the crust up may in reality turn out to be nothingmore than dumping some new spices into the sauce mix, but it speaks volumesabout the lengths to which an organization can be forced to go if it is torecover after it has failed to perform in the way the customer expects.
How do we prevent catastrophic failures in expectation management?
What Else Is Happening?
Every situation we've talked about so far has one thing in common. There is onetrait that unites all of them. From Starbucks's awkward foray into the fast lanethrough Circuit City's shuttered doors and Domino's fundamental failure toprovide good pizza, we're looking at scenes that play out in public, in realtime on the world stage, visible to all. Anyone who has access to the businesspages or is stuck in the airport watching CNN for long enough will hear thesestories. They're familiar narratives, even if we don't know what they mean.
But they're not the only problems companies are experiencing. Behind the scenes,off-camera, quiet catastrophes are also playing out in real time, imperiling thevery existence of very good companies that are struggling to maintain themselvesin one of the toughest economic climates we've ever seen. The fact that theseproblems aren't as visible, aren't as in-your-face, and aren't as immediatelyterrifying to management and shareholders doesn't negate their impact.
In fact, when the media do pick up on these problems— something that isincreasingly likely, and is happening much faster now that social media areintegrated into almost everyone's life—they have just as much potential tobreak a business.
They're secret trapdoors, embedded in the familiar trail of, "This is how we'vealways done it." You'll be walking along, with everything appearing to be fine,when suddenly a problem emerges, and you discover that there's empty spacedirectly beneath your feet, where you once took solidity and security completelyfor granted. Falling puts you and your organization into reactive mode, cleaningup messes and managing spin. This isn't a position any company wants to be in,especially when resources are scarce and crisis management forces them away fromrevenue producers, such as innovation and production.
Taking On the Trapdoors
GM was once the nation's leading auto manufacturer. It was so successful that itwas one of the largest corporations in the nation. It was said that "what's goodfor the country is good for General Motors, and vice versa." Yet today, itdoesn't enjoy quite the same level of prestige, in terms of both productivityand popular acclaim.
GM's slide from dominance was marked by repeated examples of flawed decisionmaking: a focus on automating production that let quality slide substantially, acontroversial decision to abandon division branding in favor of an overarchingumbrella brand that the public did not either respect or trust, and a never-ending cycle of acquisitions and subsequent divestments of foreign carcompanies, including Fiat, Suzuki, and Isuzu, brands that its target market didnot favor. At the same time, GM discontinued or sold lines that had tremendouscustomer loyalty, including Oldsmobile, Pontiac, and Saturn.
GM accepted massive amounts of government bailout money as part of the "too bigto fail" debacle. It then aired an ad claiming that it had repaid all of thebailout money; this brought a tremendous amount of scorn and governmentalcensure down upon the company when it was revealed that the money that GM hadused to repay the bailout money had actually been borrowed from anothergovernment program.
What's missing from this picture?
United Breaks Guitars
To say that the airline industry has had a rough decade is a little like sayingthat water is wet or that the sun is expected to rise in the east tomorrow. It'sa given at this point, with the industry's largest carriers struggling to remainviable, much less competitive.
One might think that given an environment in which costs are escalating,opportunities for profitability are limited, and regulation severely restrictsorganizational flexibility, a company would perhaps focus on those elements ofits business that it has more control over. These areas, such as customerservice, provide the best opportunity for an airline to positively differentiateitself without incurring tremendous expense.
Southwest Airlines has done a superb job of this over the years, a fact thatContinental, American, and Delta are well aware of. More than a few articles inindustry journals have been devoted to analyzing and deconstructing Southwest'ssuccess, in the hopes that it is duplicable.
United, however, clearly seemed to have missed the memo. In 2008, musician DaveCarroll witnessed United baggage handlers handling his guitar with less thantender loving care, throwing the expensive instrument onto the tarmac. WhenCarroll discovered that his $3,500 Taylor guitar was broken, he filed a claim.
Nine months later, still without any compensation from United, Carroll did whatmusicians do. He wrote a song, performed it with his band, and posted the videoon YouTube. It was viewed half a million times in three days, with more than 11million views to date. This has been a public relations nightmare for United.
Could this have been avoided?
When the Left Hand Doesn't Know Whom the Right Hand Is Selling To
Many organizations suffer from a lack of clarity about the company's customerbase, what the people in it value, and why they're loyal. This disconnect canhave disastrous consequences, especially when it manifests in ways that make itadmirably clear that the company doesn't value its customer base.
Mark Zuckerberg, the founder of Facebook, has been quoted as referring to thesocial network's first users as "stupid f*cks," which has done little to endearhim in the eyes of those who are beginning to view the company lessenthusiastically with each new security concern.
In 2009, SCI FI announced that it was changing its name to Syfy, in part todistance the channel from the stereotypical image of the science fiction fan asa nerdy adult, living in his parents' basement and spending his time on World ofWarcraft raids. Not only did it turn out that SCI FI's fans were invested in andattached to the stereotypical image and resented the overt goal of changing theassociation, but the new name was also slang for syphilis in several languages.Fans who felt scorned and disrespected by the rebranding effort wasted no timein sharing that bit of information online.
What can keep a company from self-destruction?
Your First Customers: Attracting and Retaining Good Employees
There is an inverse relationship between economic circumstances and employeeretention. The worse the job market is, the easier it becomes to hold ontoqualified people. The conviction that there are no other jobs to be found is apowerful incentive to tolerate unpleasant circumstances, substandard pay, andother negative working circumstances. That being said, organizations that thrivebased upon the expertise, initiative, and enthusiasm of their employeeschronically experience challenges in identifying and retaining great people.
At the same time, socially conscious customers are placing increasing emphasison how organizations treat their employees. Exxon Mobil, Laclede Group, andCracker Barrel Old Country Store were all recently listed on the Human RightsCampaign Index as among the worst companies to work for based upon their HRpolicies. Walmart, undoubtedly the world's largest retailer and one of the mostsuccessful businesses ever seen, is regularly savaged by critics who cite itslow pay, gender inequalities, and substandard benefits as reasons to stay away.A company can lose considerable amounts of business because of issues that ithad previously considered to be wholly internal matters.
How do we conduct business under such scrutiny?
Does It Have to Be like This?
Reading through these examples, one theme keeps coming to the fore: companiesget into trouble when they get too far from what their customers want them tobe. Not knowing or deviating too far from that set of customer expectationscauses organizations to make mistakes at every level in the organization. Thewrong choice from the wrong person—whether it's the CEO assessing newlocations and brand extension opportunities or the frontline worker faced withan angry customer—can do irreparable damage to a brand. Social networkingnow gives anyone and everyone a platform upon which to vent her outrage, withthe result that brand damage moves faster and is more painful than ever before.
What Are We Missing?
We are suffering from a crucial lack of certainty. Faced with the dynamic andomnipresent challenges that business presents, how do we make good decisions?The only way to avoid the consequences of making bad choices is to make goodchoices.
How do we do that? We begin with the need for good information, but that's onlythe starting point. Good information in and of itself is wonderful, but successlies in the interpretation and application of the lessons that are hiding in thedata, lessons that often aren't immediately apparent to the casual observer.
We must be able to act with precision and speed, continually positioning ourorganizations to be receptive and reactive, listening and leading at the sametime. Not only do we have to be ahead of the curve, but we have to be able tosee the hairpin turn three miles on!
(Continues...)
