Companies & Industries

How to Avoid the Commodity Trap


Marketers can do three things to fight the inevitable forces of commoditization: innovate, bundle, and segment

Posted on Marketing KnowHow: December 17, 2007 12:58 PM

The 2007 "Marketing KnowHow" blog post that drew the most comments was "How To Be A Customer." The post recommended five good customer behaviors: be demanding, respectful, reliable, surprising and engaging. It's clear, judging from the volume and passion in your comments, that the notion of "respect" in particular resonated most with many of you.

Some of the salient remarks you made: Ann Sathasivam emphasized the need to respect suppliers' advice. Simi Situ argued that, if the customer is king, the customer must treat vendors with respect and walk in their shoes. Raj Bose cautioned that, as a customer, one "should also respect oneself while trying to be respectful" because too much intimacy between buyer and seller can undermine professionalism. Likewise, Biodun Soyombo pointed out succinctly that "respect is reciprocal."

Since there was so much interest in the topic of how to be a customer and, in particular, respect, I thought I'd honor your interest by discussing it further.

At its core, marketing depends on mutually satisfying exchanges. Yet most marketing advice focuses on what the seller should do, not what the customer should do. In the same way, almost all the leadership literature focuses on what leaders should do, while followers are all but ignored. In looking all the literature, there's one word that appears very rarely yet is of supreme importance: respect. Marketers and salespeople have to respect their customers to succeed.

At a recent global marketing meeting of a quick-serve restaurant chain, a manager presented a slide showing the customer base split into thirds: a loyal, heavy-user segment, a mid-range segment and a price and promotion sensitive segment. The third segment was named "the bottom feeders." This drew a chuckle from the audience, but one manager asked this question: "What if our consumers whom you are calling bottom-feeders knew that that's how the company where they spend their hard-earned dollars thinks of them?" All present immediately saw the point: if you have contempt for your customers, you cannot be their servant.

Consider the case of Gerald Ratner. He built the largest jewelry chain in Britain in the 1980s, before famously destroying 500 million pounds in shareholder value in 1991 by describing a decanter and glassware set that his chain sold for 9.99 pounds as "total crap." He further commented that a pair of earrings were "cheaper than a Marks & Spencer prawn sandwich but probably wouldn't last as long." The message these remarks conveyed, intended or not, was that his chain's customers were "suckers."

Respect for your customers is essential to marketing success. Respect requires listening and it requires humility. One of the New York window washers who founded Snapple put it like this: "We never thought of ourselves as any better than our customers." Sam Walton lived to this same standard his whole life. But how many successful entrepreneurs move on to lavish lifestyles, try to drag their brands to higher price points to improve their respectability, and in the process lose touch with the customers that brought them to the dance?

That's why it is so important for CEOs to set an example to their organizations and get out into the field face-to-face not just with their immediate business customers but also with their end consumers. A.G. Lafley, CEO of Procter & Gamble, is in consumer homes at least once a quarter. Terry Leahy, CEO of Tesco plc, the global UK retail chain, is in stores two days each week, listening to customers and motivating his front-line employees. It would be all too easy to sit behind a desk reviewing consumer research data on a computer screen—but, to develop new consumer insights, there's no substitute for spending time at the customer coalface. And, if the CEO sets the example, the rest of the organization will follow.

Consider the situation at Starbucks. Starbucks was flying high in 2002, with the stock reaching an all-time high and new outlets opening every day. Yet the loyalty of Starbucks' core customers was eroding as waiting times increased in ever more crowded stores. And the baristas' ability to engage customers in conversation, to show them the respect that they felt they deserved for paying $3.50 for a cappuccino, was strained to the limit. Starbucks was collecting consumer research data that highlighted these emerging problems, but the message took didn't get through to the boardroom. Everyone owned the customer at Starbucks; as a result, no one owned the customer. Starbucks reacted in time, adding extra store personnel to relieve the bottlenecks. But, to this day, Starbucks wrestles with how to balance respect for its original customers who value a relaxing ambience in which to drink their coffee and at the same time satisfy a new set of convenience-oriented take-out customers for whom service means speed rather than conversation.

My last example is personal. Two years ago, I dented my car and took it to a body shop for an estimate. A large tattoo-covered man stood behind the counter. And behind him, on the wall, hung a sign that did not inspire confidence in the respect that this establishment had for its customers. The sign read: "We screw the other guy and pass the savings on to you." I inquired meekly: "I hope I'm not ‘the other guy'?"

The golden rule of respect applies in both directions in all successful marketing exchanges.

Provided by Harvard Business—Where Leaders Get Their Edge

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