Courage to Build a Customer-Focused Organization

Something’s eating at the heart of old-school western business, and it isn’t just a hangover from the tough economy or recent financial sector excesses. Not that long ago, iconic brands were faltering, commoditization was rampant, margins were plummeting, planning horizons got stuck quarter-to-quarter, suppliers and distribution partners were bickering, and opportunities for growth were increasingly being sought in greener pastures overseas. But like children swept up in a messy divorce, it’s the ultimate consumer’s buying experience that got caught in the middle.

You see, now that the dust has settling on the great 21^st Century economic malaise, the basic game is still be the same. Winners will still be those who delight end customers by breaking with the pack and offering them distinctly better experiences than others are. But in today’s hyper-connected world, providing better experience alternatives means making a difference in more than just your product’s features and its price.  It involves re-thinking every aspect of how your end customers learn about, find, evaluate, choose, buy, own, use, update, and share, maybe even talk about, your product, service, or solution. This is distribution.

More than ever, what customers say they crave most are better buying and ownership experiences in the distribution channels available to them, not lower prices or bigger selections. And this fundamental dynamic holds true whether your end customer is in a mature, western market or a growing emerging one. Good times or bad, customers choosing among options will always discriminate on a complex range of variables, and only a certain segment makes their decision on the single dimension of price (unless all the options are identical!). Even in tough economic times, consumers make careful trade-offs around dimensions like durability, safety, usability, personalization, returnability, installation and much more when comparing prices. This is as true in Iowa as it is in Beijing, Mumbai and Rio.

And dramatic advances in internet and mobility technology mean that new improvements to your end customers’ experiences are being pushed further and further downstream into your distribution activities and partners. The net result is that all these touch point experiences will come together to either reinforce or destroy your customer’s experience with, and therefore perceptions of, your brand. And your future.

What customers say they crave, then, are more authentic interactions at every touch point in the experience-creating channels for your offering. They  want to be treated as individuals, not abstract members of segmentation schemes. Future innovations in distribution channel experiences simply can’t be described in the arcane language of ‘customer satisfaction’ research and ‘buyer insight’ studies.

Creating competitive advantage through your distribution channels comes from looking harder and more creatively at white spaces in your industry. White spaces in distribution, once spotted, may seem hard to reach or dangerous to explore. Some members of your management team will want to turn away from such daunting prospects, calling their retreat a “return to fundamentals.” The familiar may indeed be more comfortable (i.e., “doable”), but treading on old ground will typically do little to help your company change the actual experiences your customers have downstream in your channels.

This is where Frans Johansson’s thinking becomes helpful. Johansson, author of the fascinating book The Medici Effect: What Elephants and Epidemics Can Teach Us About Innovation, synthesizes medical, mathematical, and business research into a fresh perspective on converting natural fears of white space unknowns into managerial terms. He views white space as opportunities that arise in the margins, or the unknown, where two or more industry players or marketplace activities intersect.

Using this perspective, you can start to see your supply chains and your distribution channels as simply a stapling together of one industry intersection or activity after another, all the way from components supplier to assembler to wholesaler to retailer, and with all sorts of other ancillary industries such as logistics added in at different points along the way. Often, managers in under-performing chains or channels experiencing intense cost reduction pressures, inadvertently start regarding these intersects as necessary evils - the inefficiencies and loss of control that a company must endure in order to avoid doing all the customer experience work itself. But more powerful and enduring gains in the marketplace can be made if instead you view every one of these intersects as a white space opportunity, and see that orchestrating all of them in fundamentally new ways is the biggest opportunity of all.

Classic prospect theory teaches us that, without even realizing it, managers often take bigger risks in relatively safe environments than they are willing to take in hazardous ones. It is not so much that managers cannot live with uncertainty; the real problem is that they and their organizations fear losing. In the relative comfort of one’s industry, it is easy to do badly but it is hard to lose entirely. There may be some off years, some bad quarters, and the odd product failures, but the chances of going out of business are fairly low in the medium term. The long term, as they say, is another story. And the day of reckoning may be here for many companies.

That’s why Johansson says it takes “intersectional courage” to work the white spaces between industries. Managers fear the unknown risks involved in tackling new space. Ironically, however, taking the plunge may be less risky for your company than continuing to operate in the old corporate confines of tried-and-true processes. Staying afloat in a tough competitive environment is not exactly risk-free. But for a variety of reasons, it can be hard for managers to make an accurate comparison between white space and normal business risks.

But here’s what you will likely find most frustrating on your journey: those whitespaces are more than likely hiding right out in the open. What makes such golden nuggets so hard to see is the dense fog of conventional wisdom and constraints-based thinking that the old generals in your business have long espoused, and which you are struggling to break free.  As new leaders, you must stop fighting their last war!

Of course, this is not a journey for the timid, the faint of heart, or the risk-averse. But as one senior leader recently said to me – “What’s our alternative? Follow the lemmings over the cliff?”. Maybe Woody Allen was right that ‘just showing up is half the game”. But what about the other half? And what about winning?

 

Richard E. Wilson is managing director of the advisory firm Chicago Strategy Associates, and a former clinical professor of marketing at the Kellogg School of Management and Director of the school’s Center for Global Marketing Practice. rick@chicagostrategy.com

Hyundai Understands Marketing 101

Even strong automakers’ sales flattened or dropped over the last two years. But not Hyundai’s.

Its August-to-August revenues were up nearly 50%. Granted this rise was off a relatively small base (although not that small; Hyundai sales are now about the same as Chrysler’s). But still, for a company that’s been selling in the States for over a decade, it was a whopping jump.

Why are consumers suddenly buying Hyundai’s? Tighter budgets certainly make low-price sedans more attractive than SUVs. But as I’m happy to see the Times reporting, that’s not the whole story. The big reason is better value, as value should be evaluated: 'benefits - price'. All too frequently today, brand players and pundits confuse "lowest price" with "best value". The assumption in this line of thinking is that consumers essentially incorporate no other criteria in their selection decision. Hyundai understands the distinction well.

Consumers and car mags think the product is improving. And Hyundai management was aggressive with improving the consumers total experience. For example, they were first to let consumers who lost their job return a car within 12 months of purchase, heretofore an unheard-of warrantee.

Hyundai is a classic market-entry success story. A renegade entrant comes in with an offering below the old market minimum, then gradually learns new ways to provide benefits and better value in more compelling ways than other low price  competitors.

What I like, though, is that Hyundai provides the textbook example for the case I’ve been making to manufacturers ever since the financial crisis took hold. Yes, you have to get your costs under control. But do it sensibly and with care not to negate long-term brand, distribution, and marketplace advantage. Indeed, this may be the best of all possible times to create new advantage.

For established competitors in 2009, that meant investing in differentiated customer experiences. Hyundai did. I haven’t seen any figures on lost-job car returns, but my hunch is they’re not high. People find they like the car. One man, the Times reports, says, “I used to drive Cadillacs all the time. I don’t need to drive a heavy car like that anymore. No disrespect to G.M. or anybody, but my next car will be a Hyundai, too.”

And What an Outlier It is

Forbes.com wrote on its website about a contemporary phenomenon that many new generation Marketers recognize as the dawn of a new age. Eyes are opening to the reality that sustainable (and profitable!) growth strategy is first and foremost rooted in tangible, meaningful, and demonstrable differenitation - as determined by the end customer.

Here's an excerpt of the Forbes.com piece (authored by Rich Karlgaard):

"Apple is now 33 years old, but it seems like a perpetually new company. Jim Cramer so loves Apple, he said Tuesday night Apple's stock was headed to $300. I have no clue where Apple's stock is headed, but I do think its blowout performance since the iPod launch in 2001 has everything do to with Apple's keen sense of cultural shifts, which keeps the company at the edge of new. The genius of Steve Jobs has always been to marry his good-enough layman's understanding of technology with his world-class design eye and his preternatural understanding of cultural moods.

Apple always seems one step ahead even when it comes from behind. Apple didn't invent the personal computer, but it made the computer personal. It didn't invent the MP3 player, but the iPod put it all together. Smart phones existed before the iPhone. The forthcoming Apple iPad (or whatever it is called) will stand on the shoulders of the Amazon Kindle and maybe crush the Kindle. That's my speculation as a rabid Kindle lover.

The lesson of Apple is to think deeply (or differently) about what touches customers in an enduring way. Apple proves that great design and product coherence--stuff that looks cool, works well, and thus justifies higher prices--can work even in a recession.

Apple is a secular company with a religious following. It understands that people want transcendence and hope, especially during a difficult period. Apple's products, to those who like them--myself, I love my MacBook Pro but still prefer a BlackBerry to the iPhone--have a quality that reaches beyond today's drudgery and reminds us of what is possible. Movies did that in the 1930s. Apple is doing that now. Which is why Apple is an outlier."

Legacy brand leaders: is your company stepping up?

Microsoft Escalates Vertical Integration Wars

The WSJ reported today that Microsoft has decided to enter the rapidly escalating battle over how the consumer electronics market space is being fundamentally restructured (Microsoft Seeks to Take a Bite Out of Apple With New Stores).

Unlike Gateway's anemic efforts at forward integration into retail (1997-2004), I anticipate Microsoft's moves, along with those of other leading players, will dramatically reshape the landscape. Those moves include Best Buy's backward integration in private label (see: In Hard Times, Is Best Buy’s Best Good Enough? ), Wal-Mart's and wireless service reseller Tracfone's entry into mass market electronics (see: Wal-Mart Wireless Expands), Samsung's designs on the content and apps end of digital retail (see: Samsung Seeks Some iPhone Magic ) and Amazon's rabid appetite to dominate the conventional 'click and buy' internet merchant space (see: Can Amazon Be the Wal-Mart of the Web?).

But back to Microsoft's forward integration into consumer electronics retailing: here's the bottom line perspective from the company:

"Our customers have told us they want more choice, more value and better service, and that's what we'll deliver through our Microsoft Stores" David Porter, corporate vice president . Microsoft retail stores, WSJ, 10/15/09

This is only the latest entry of another major player in what is shaping up to be a battle of the titans. Noisy dithering by wall street analysts, journalists, and other pundits over who's making the most aggressive price reductions, who's sourcing smartest, who's ramping up their M&A engines for greater scale and efficiency, and who's "getting the value message from consumer" is simply obscuring a more fundamental and ultimately dramatic business model restructuting hidden in plain sight.

So, buckle up - it's going to become a (much) bumpier ride competing in the consumer electronics space! (due credit to Bette)

Channel Collaboration Brings Wireless Innovation to Market

Sometimes real news isn’t new. Sometimes it’s enough to discover that something you barely noticed has subsequently blossomed.

In today’s New York Times, David Pogue reminds us of a market-making collaboration between two companies more than two years ago. But back in 2007 it was hard to tell how big the collaboration’s payoff would be. Now we know.

The two companies are Apple, maker of iPhones, and Cingular Wireless, a network provider later rebranded AT&T Mobility. Apple had developed “Visual Voicemail,” which would let people check their incoming voice messages by glancing at a list on their phone screen and chosing the order instead of being tied to sequential listening to each message one at a time. No doubt, phone users would love this feature. Problem was, big wireless networks at the time weren’t designed to link with software that converted voice data into visible readouts.

For both engineering and business reasons collaboration was key, and in this case an exclusive relationship between supplier and carrier probably proved indispensible. As Mr. Pogue points out, the engineering costs were too high for Cingular, or any carrier, to absorb without relaible assurances about adequate product sales. In this situation, that was done by gaining sole rights to iPhone’s sales. An exclusive also benefited Apple, which could then concentrate on perfecting a single phone for use on a single network, an approach very much in keeping with Apple’s preference to wait for its pitch then swing for the fences.

Was Visual Voicemail either company’s only reason to go exclusive? I doubt it. But VV probably helped focus executives on both sides to get past the head-to-head negotiation mentality and accent the value for each party of focusing on new solutions and usage experiences for end consumers.

Working together like Apple and Cingular apparently did remains the exception. But intensifying competition in all industries is going to make it the rule. Where relationship exclusivity helped both companies win big, tomorrow’s collaborations will be essential simply to win small.

Healthcare Distribution - A Must-Read

In my twenty-five years of work on distribution strategy, I have never read a more fascinating analysis of distribution system challenges and opportunities as the one recently published by Dr.Atul Gawande, a surgeon, writer, and a staff member of Brigham and Women's Hospital, the Dana Farber Cancer Institute, and the New Yorker magazine.

If you have not yet read his piece in The New Yorker, I strongly encourage you to take the time. It's an absolute must-read analysis for anyone interested in designing and managing higher-performing, lower-cost complex distribution systems.

Enjoy!

Retail Repairs

Economic tides are reshaping the auto industry’s retail shoreline. New-car dealerships are being washed away, as brands like Pontiac disappear or like Saturn and Hummer are, hopefully, sold. What’s left are repair businesses, nursing more mileage from existing cars (or dishwashers or dress shoes) , as consumers shift their mindset from  a manic buy/use/dispose to  keep/repair/keep longer.

What we are seeing more and more is commoditization of basic product attributes, as the center of differentiation gravity moves into post-production: distribution activities that meet new sets of consumer needs. Smart players will find ways to generate plenty of growth and margin there. It’s going to be continued retail channel  revolution.

At this stage, it’s hard to envision the reconfigured landscape of auto sales and service channels five years out. We do know that there is a lot of raw material out there for tomorrow’s owners and entrepreneurs to work with: service centers, parking lots, parts inventories, skilled automotive technicians, and maybe most important, a mature infrastructure to funnel whatever is needed from suppliers to installers.

The strongest G.M. and Chrysler dealers may flourish, sopping up added business in a more thinly populated franchise environment and buying books-of-business on past sales to take over service contracts. And it’s easy to imagine marginal G.M. and Chrysler dealers converting to service centers without showrooms. Replacement parts and periodic overhauls have long been for most dealerships where the real money is.

A big question is how the automakers will adapt. Obviously they’re going to have less market power. Remaining dealers, probably multi-brand or service-only, will have more. The way that Detroit comes at this new equation will have much to do with its survival.

 

Fighting the Wrong War?

There’s a price war on among the large on-line hotel booking services, started by Orbitz and followed grudgingly by Travelocity and Expedia. Savings to the Orbitz consumer should run around $7 per night, on average.

I don’t see how Orbitz can come out ahead on this. Can you?

Of course, price-cutting typically does make sense when shoppers can see no real difference between competing alternatives.  And I’d be willing to bet that in 99 out of booking 100 occasions, they can’t - in either the price or the overall shopping experience. Why should a consumer think twice about minor disparities in rival booking fees?

 Bigger considerations will wash over all of this. Hotels vary in look and feel, amenities, location, and prestige, not to mention base price and daily deals.  Personally, I don’t think consumers can even tell if Orbitz is saving them a bit of money. I decide based on the all-in package deal. Don’t you?

More to the point for bookers, don’t on-line consumers prefer a website largely for its navigation characteristics? Personally, I hate sites that force me to reenter the airport names, number of tickets, time of departure, and so on every time I try a different destination or travel date. The aggravation and lost time cause me to write off the site entirely. Grrrrr....

More value in the customer experience is where on-line bookers should be competing head to head. Ironically, on this front Orbitz may already doing well. I know scores of Orbitz loyalists. Their repeat business has nothing to do with cuts in price, and everything to do with Orbitz’s cleverness in cutting their time spent and improving their ability to find a great destination.

Shouldn't they hold the line just like physical stores that have something better to offer? Didn't research just come out that discounts cheapen consumers' perceptions of a product long after the discounting stops?

 

 

Into the (Discount) Looking Glass

You have to admire Eileen Fisher, who designs luxury women’s apparel and sells it through department stores. She’s exasperated with her retailers (not uncommon among manufacturers).  They’re deep-discounting her entire line, along with others, almost as soon as her garments touch the racks. And she’s doing something about it (not common at all).

 The Wall Street Journal reports Ms. Fisher has suggested retailers use “scalpel markdowns” to prune only the weak SKUs while preserving margins on the vast majority of her items. She’s also preparing to rent space in host retailers herself. Store-in-store, as this technique is known, will allow her to control merchandising and impose needed discipline on pricing. 

She  might want to consider another alternative.

A couple years ago the Supreme Court showed new-found openness to certain types of price discipline.  In ruling on Leegin vs. PSKS, the Court basically reversed a sweeping precedent created almost a century ago, a time when manufacturers were the only ones that were big and strong,  and retailers were almost all small and relatively weaker in setting market policies. Today’s situation is nearly the reverse; it’s now the manufacturer who often stands in need of legal recourse.

If a producer can demonstrate, the Court has now decided, that it's distribution system is doing extra things to create more choice for consumers, then it should be permitted to require its retailers to uphold the price minimums needed to fund those extra costs. Not in all cases, and only under certain circumstances, but a watershed new channel strategy opportunity nonetheless.

I think Ms. Fisher should look into some new contracts. Establishing legally structured price management tools to ensure adequate activity in the retail system would likely be a lot easier than forward integrating into company-owned retail. If she approaches her partners adroitly, and it looks like she’s good at this, I predict the stronger influence she seeks over consumers' experiences will actually lead to stronger working relationships with retailers. 

Of course, she should work closely with her lawyers to do all this in a legally defensible way. They always want a piece of the action!

 

 

 

super-ReValu?

SuperValu, America’s no. 5 food retailer, just announced it will stop delivering goods that consumers order on line.

The end  of a distribution channel?

Not exactly, and that’s what caught my interest. 

SuperValu has listened to its customers (in surveys 60% of on-line shoppers say in-store pick-up is actually more convenient for them) and they’ve looked at the economics of individual specific operating activities (channel flows). They aren’t eliminating the channel. They’re sculpting it. Shoppers will still get the convenience of on-line ordering and store-staff picking of selections from the store aisles. They just won’t get that ($$$) drop-off at their doorstep that is so hard to coordinate and frustratingly inconvenient.

Retailers — and manufacturers — should do a lot more of this: determine what experience provides end customers the most benefit. Compare that benefit to its cost to you.  Will shifting some activities to a partner (e.g., delivery via local trucking companies) improve net value? Will restructuring the offering in a novel way that comes at consumers’ need from a different direction (e.g., pick-up at loading dock available when store is closed) add more value?

There are always improvements to channel systems and better alternatives. As a rule of thumb, the most resilient distribution systems are multichannel and adaptive. 

Bottom line: avoid shutting any route to market entirely. Try reshaping it instead.

Side-by-Side

Yet another story of electronic medical records this morning in the New York Times. What intrigues me most about this one is the accompanying photo. It shows a doctor and patient reviewing her data on screen side by side.

Side by side. That is a huge shift in the relationship.

I don’t know how your doctor deals with you but mine walks into the examining room with a paper file folder of records he keeps on me and scans his notes. Sometimes he tells me what he’s reading, sometimes he doesn’t. Either way, it’s privileged information – privileged to him. He would never think of showing me what he’s written, and I would never think of asking for it. It’s his.

Pretty soon, his records will be mine. And not only his but the case histories on me compiled by all my doctors, hospitals, and (hopefully this is pretty far out) my nursing home, pacemaker, motion sensors, and other smart devices. I’ll have a password and some sort of editing powers. Sure, I won’t be a doctor but I won’t be just the subject of his investigation either. I’ll be the chief administrative officer. Doctors will be coming to me, to my database, for the most complete – the best – information on me.

Which reminds me of something I heard from web guru Andreas Weigend. Andreas was chief scientist at Amazon when Amazon was putting in place the amazing business/technology model that has captured the high ground in retailing. In the past, Andreas said, consumers came, hat in hand, to companies. They searched for what they needed then snuck a peek at the price tag.
In the future that will change, dramatically. And not just for medical records, but for all kinds of business transaction. “Make me an offer,” Andreas says, is going to be the consumer’s opening gambit. “I need a 46-inch plasma HDTV that turns itself off at night,” the consumer posts. Companies submit their bids. Search work shifts to the provider. Power shifts toward the consumer.

That’s huge change, basic to any business. If you’re an executive, take another look at the guy in the scrubs above. Imagine he’s you. I need to think more about this but here are some implications. In a customer-centered business world, companies that offer the most complete, most narrowly targeted package will win.

This will require unprecedented levels of cooperation between providers in the end-to-end distribution system. And the provider in the best position to take charge and design that customer-specific solution will no longer be the retailer. It will be the manufacturer.

Will Sundays Be the Same?

I’m saddened to read that another local paper, The Chicago Sun-Times, is going bankrupt, one in a string of recent Chapter 11 filings by newspapers across the country.

Yes, I know that newsprint is just a medium not the message. And I'm not even a Sun-Times reader. But I’ll certainly add my name to the long list of mourners for the passing of that simple routine, holding the world in our hands, or one newsroom’s view of it, for a few minutes each morning.

I’m pro-technology. In fact, my favorite handheld device is my Kindle2. So any mourning I might profess has less to do with the loss of the print format, than with the looming loss of a specific type of content - vetted information from sources and individuals I trust.

The Internet has brought many blessings, and greater knowledge and easier access to it is certainly one. But there has been unfortunate collateral damage too. In a "wikipedia content world", each of us has thousands more viewpoints to choose from than twenty years ago. But group-think, especially with little to no contribution accountability, feels weak and dangerous. Pundits argue that the "crowd" will discipline contributors. As in the Salem witch trials? Ugh...

And most importantly, in aggregate, do thousands of spontaneous opinions give us a more balanced picture, or more pleasure, than one single beloved print copy arriving at the front door?

Playing Politics With the Auto Bailout

A recently published letter to the editor (NYT, 12/13/08):

Your Dec. 9 Business Day article about car dealers opens the door on one of the most challenging impediments to growth in the American auto industry: inefficient and uninspired retail distribution.

Though there’s plenty of blame to go around in this national marketing tragedy, Mark Aleve of General Motors is correct in pointing out that if there were fewer dealerships with higher sales, they could invest more in facilities, people, training and advertising.


In the end, the auto industry has been caught up by a powerful change sweeping consumer markets. A long period of retail cost-cutting and price discounting has led to consistent underinvestment in broader consumer experiences.


Instead we’ve had poor service, me-too assortments, little assistance and declining trust in product quality. Luckily for Toyota, it figured all this out well before building its American retail system.

It’s not too late for G.M., Ford and Chrysler to get back in consumers’ good graces.

Pop-Ups Aren’t Start-ups

What’s behind the move to so-called “pop-up” retailing? Pop-ups are small boutiques that sell a very specific and timely set of merchandise out of opportunistically procured retail spaces for a temporary period of time. They may surface and disappear in a matter of weeks. They're fast, and they're fashionable.

The latest blitz, into trendy parts of Manhattan, was just launched by Target Stores to merchandise John Derian for Target, a line of home furnishings by a name-brand designer. Target’s is backing the store with advertising bombardment that creates excitement, buzz, and walk-in traffic.

But when I said ‘what’s behind’ a pop-up like John Derian for Target, I meant that literally? How does a retailer do it? After all, there’s a lot of behind-the-scenes work involved: Getting fashion designers on board, connecting their new patterns to manufacturers, running the fabrication operation, QC-ing the output, coordinating all these retail route-to-market efforts so that the consumer-oriented activities fire at the right moment, not too long and not too short. It’s hard. And it’s not really something a retailer like Target normally does.

The answer is limited backward-integration. Target takes responsibility for orchestrating the work performed by varied players in its supply chain. Indeed, that’s very different than traditional retailing.

But let’s not confuse backward-integration with backward-ownership. Especially where pop-ups are concerned, you don’t want to own any more than you have to. That would be too slow, too risky, and too long-lasting. Get in, get out (if nobody comes). Pilot new customer experiences, or products. Limit your risk, maximize your impact. That’s the ticket.

And that’s what I like best about pop-ups. They decondition the management reflex to buy first, integrate later. With pop-ups, the reverse is far better. Even a product manufacturer can do it for awhile, then if you have to for expansion purposes, buy into retail later.

More than likely, the demonstrated results will provide real muscle in campaigns aimed at influencing key retail partners to move in a new direction. Real sell through data. Real sales per square foot data. And most importantly, real customer response and satisfaction data. The kind of information a product maker needs to create expertise - and consumer-experience influence.

Pop-ups. I love ‘em.

Microsoft Jumps in to Customer Experience Revolution

Competition in consumer markets is restructuring in daring new ways right now. The more familiar battleground of product against product or retailer against retailer is being trumped by larger contests between coordinated systems.

This new go-to-market landscape has product manufacturers and retail partners collaborating to create new business models that win over consumers from other combinations of players. To beat competitors and gain share, companies are starting to see they must create tighter and more strategic system wide alliances to drive differentiated new experiences for consumers.

And now, we find Microsoft the latest branded product maker to jump head first into this new customer experience revolution. While pundits debate the merits of an idiosyncratic ad campaign, we are very impressed with the company's early forays into go-to-market system thinking.

As part of its new $300 million marketing campaign and image makeover, Microsoft Corp. plans to deploy its own customer-service representatives at retailers such as Best Buy and Circuit City to help people with their PC purchases.
The world's largest software company plans to have 155 "Microsoft Gurus" in U.S. stores by the end of the year, and expand based on the project's success, said Tom Pilla, Microsoft's general manager of corporate communication.

The experts will answer questions about PCs and Microsoft products and demonstrate how the company's products work together -- help designed to get customers "thinking Microsoft."

"Think of that as borrowing a page from Nordstrom, with that retail customer experience," Pilla said, referring to the upscale department-store chain known for customer service...." (Rachel Metz, Associated Press)

I have for some time lamented the absence of branded product manufacturer leadership in growing consumer markets. And their abscence is not only bizarre, it’s the norm. Branded product manufacturers long ago ceded customer experience responsibility and retail system influence to downstream players, helping to fuel these retailers growing power.

So I applaud the company's strategic direction and predict that if they follow up these initial marketplace moves with more, it will fuel what is at best today a brush fire of change in the consumer electronics and software marketplace.

Winning Upstream - Online Distribution Battles Heat Up

The go-to-market battle for new consumer technology products is as heated as ever, and we're seeing signs that a major restructuring of the retail landscape may be in motion. After years (decades?) of lackluster retailing models, retail strategy buzz is more and more about improved customer experiences. We're finding that it's increasingly old-school thinking to assume that differentiation and market share growth will accrue from myopically focusing on global supply chain efficiency and lowest price.

But influencing the consumer's total experience in favor of your company's products and solutions does not require capital intensive forward integration into end retailing, especially of the brick-and-mortar variety.

Consumer products manufacturers are finding instead that social network-intensive online environment can be leveraged as a valuable go-to-market distribution lever. Jonathan Yarmis of AMR Research writes brilliantly in his AMR Research blog ("The iPhone and the Kindle: Backing Into the Retail Store") that 'it is imperative for organizations to think about how they exploit the usage-based systems to complement, and in some instances supplement, their selling-based systems.' I highly recommend reading his description of the accelerating encroachment of hardware manufacturers and Internet retailers into the retail space.

Successful 21st Century consumer product and service marketers are changing the playing field in three important ways:

1. Focusing go-to-market strategy on critical Service Output Demands - individual elements of end consumers' desired experiences.


2. Restructuring marketing channel flows by leveraging online communities and applications to link target consumers with winning solutions


3. Locking in marketplace advantage by pre-emptively building partnerships with new types of intermediaries and go-to-market partners

Winning Upstream - Online Distribution Battles Heat Up

The go-to-market battle for new consumer technology products is as heated as ever, and we're seeing signs that a major restructuring of the retail landscape may be in motion. After years (decades?) of lackluster retailing models, retail strategy buzz is more and more about improved customer experiences. We're finding that it's increasingly old-school thinking to assume that differentiation and market share growth will accrue from myopically focusing on global supply chain efficiency and lowest price.

But influencing the consumer's total experience in favor of your company's products and solutions does not require capital intensive forward integration into end retailing, especially of the brick-and-mortar variety.

Consumer products manufacturers are finding instead that social network-intensive online environment can be leveraged as a valuable go-to-market distribution lever. Jonathan Yarmis of AMR Research writes brilliantly in his AMR Research blog ("The iPhone and the Kindle: Backing Into the Retail Store") that 'it is imperative for organizations to think about how they exploit the usage-based systems to complement, and in some instances supplement, their selling-based systems.' I highly recommend reading his description of the accelerating encroachment of hardware manufacturers and Internet retailers into the retail space.

Successful 21st Century consumer product and service marketers are changing the playing field in three important ways:

1. Focusing go-to-market strategy on critical Service Output Demands - individual elements of end consumers' desired experiences.


2. Restructuring marketing channel flows by leveraging online communities and applications to link target consumers with winning solutions


3. Locking in marketplace advantage by pre-emptively building partnerships with new types of intermediaries and go-to-market partners

Starbuck’s – Still Opening Near You?

What to make of all the headlines about Starbuck’s? *

. . . That even an outstanding retailer can oversaturate its market and self-cannabilize its stores’ sales?

. . . That risky 'category adjacencies' and product line extensions (for Starbuck’s, into selling CDs and DVDs and breakfast sandwhiches and home wares) are tricky and likely to fail?

. . . That pushing elaborate loyalty programs are becoming the strategic equivalent of a drowning man flailing his arms?

. . . That retail real estate moves are a core competency better handled by local entrepreneurs in each geographic area than a bloated central corporate bureaucracy (a strategic advantage successfully realized by Walgreens and Wal-Mart)?

All sad and true.

The harder lesson, for Starbuck’s or for any company, is to keep its focus on customers from evolving to a company that is 'customer compelled' .

In the end, Starbuck’s remains a terrific company. No better sign of that than its (unusual) ability to recognize when it’s taken a wrong 'go to market' turn, admit that, and correct decisively as it is now doing. I believe with Howard Schultz's leadership, they will do fine. But its emphasis has to shift, from infilling the U.S. to adapting its service and business models to the customer experience requirements and singular distribution challenges of many other country markets.

Not easy. A ton of details. Some relinquishment of central control. But to judge from 95% of Starbuck’s track record, well within its capabilities.

* See, for instance , the latest Financial Times story.

A New Supply Chain Perspective

Last month I had the pleasure of speaking a couple of times to executives and managers from Latin American companies gathered at the annual VISUM conference in Mexico City (http://www.sintec.org/contenido.asp?seccion=128&idmenuGN=85 ).

VISUM is all about supply chains and much of my audience was procurement folks. For them, I had a simple message. If you take the conventional procurement view of a supply chain system (see diagram at right), you believe the chain ends at your company. But that’s a limited view. The company sits in the middle of the real supply chain, which extend s all the way to the company’s end customer.

If you’re a procurement person, why should this distinction matter to you? Because you can’t do your job properly if you don’t take a total system view, you won’t do your job properly. Worse, a limited perspective, which tends to focus on procuring parts and materials for the lowest cost, may compromise the company’s larger vision of delivering an optimal customer experience.
What if, for instance, in going for low cost you trade off timeliness of delivery on a key component?

If the whole assembly of what you make has to wait for this component to show up – late – your customer’s entire order could be delayed. If your customer is a business, its projects could get backed up. Bad customer experience. Your customer’s customers could become unhappy. Bad end customer experience. They could fire your business’s customer. That customer could pull its business from your company.

In other words, saving a little on the component just isn’t worth it.

I concluded by saying, If I manage to convince you of three things today, I’d like them to be:

1. Customer experiences are important. They are becoming the critical factor in whether or not your company’s products sell or don’t sell.
   


2. You in the supply chain help create them. Your work effects not just the price and quality of products. It effects whether a customer has a good or bad experience buying and owning your company’s product.
   


3. Creating them is exciting. You should be looking for opportunities to get involved. It will make your work more interesting. It will give you a bigger role in your company.
   Those suggestions go not only for Latin America but all of the Americas, and anywhere in the world.

Hey GM - It's The Customer Experience!

A few days ago, General Motors announced it was closing four plants that make high gas-consumption vehicles such as trucks and SUVs. Observers have been almost gleeful. Oh how the mighty are falling. They shoulda seen it coming. The Hummer is now a contaminated brand. And so on and so on.

Well, yes. Now let’s move on. How can GM can make the best of a rapidly souring situation? One big lever, largely neglected so far by the press, is to strengthen GM’s dealer system and insulate it from the PR and financial fallout that the car company inevitably faces.

GM has, very roughly, 10,000 independent dealers in its distribution network. These businesses were already struggling to sell vehicles. Now their guilt-by-association quotient has risen, yet again. If it wants to retain any semblance of a healthy distribution system, GM has to get busy with a hundred channel management steps that reduce the hurt that dealers are bound to feel.

First and foremost, GM must work closely with its dealers to fundamentally reinvent the customer experience they offer. Lexus/Toyota’s striking success in that area has been widely discussed for decades. Now is the time to be decisive. Weed out backward-looking, old-school channel partners; invest in the willing.

GM also has to make changes beneficial to dealers in its inventory carrying policies. It has to pitch in with local advertising that plays up dealer virtues and describes GM’s new horizons, whatever they may be. Possibly it has to relax its constraints on dealers taking on other brands, without subsidizing those rivals in the process. In short, GM needs to be accommodating, even paternal, to a degree it historically has not been. And it needs to be creative, to a degree that . . . you get the picture.

As usual, distribution problems barely register in the media coverage. But they are nearly as big for GM as plant closings. They are definitely more significant than an added layer of tarnish on the reputation.