One of Harvard Business Review‘s pieces on marketing in these tough economic times left me feeling ambivalent. In “Five Rules for Retailing in a Recession,” the authors outline how retailers can discover that “a larger universe of growth and productivity opportunities is open to them than they might believe.”
Some of the points in the article make so much common sense, it’s hard to argue with them. For example, “Go After Bad Costs.” Defined as costs that add nothing to what the customers are willing to pay for (e.g., expenditures to improve something that is merely table stakes in the category), “bad costs” should be the first cuts to offset declining margins.
But underlying most of the authors’ advice was a principle that I’m just not sure I agree with. To explain, the article makes the case for focusing on “Switcher” customers. Switchers are customers who spend only a portion of their category share of requirements with you. Using Starbucks as an example, the authors’ research revealed that about half of Starbucks’ customers are spend an average of only 40% of their coffee-related dollars at the firm’s coffeehouses.
The article goes on to advise retailers to understand the gaps between what Switchers are looking for and what the chain is offering and then close them by changing their merchandise assortment and shifting strategic planning, budgeting, and other core processes to better serve them. This all sounds very logical on one level — after all, you want to focus your efforts on meeting customers’ needs, right?
Well, not exactly. I fear that adopting such an approach may not make sense if so-called Switchers are not the kinds of customers you want to invest in. “Switchers” may actually be “Swingers” — people who like to frequent a variety of outlets. Heavy category users in particular tend to “shop around” simply because they are in the category so frequently and would be bored if they went to one place all the time.
Or the total category spending of switching customers may not be significant enough to make trying to get a larger share a worthwhile endeavor. Or they may simply be people who are looking for something that you don’t offer and that you shouldn’t offer.
Take me, for example (it’s all about me, right?! ) According to the HBR definition, I would be classified as a Starbucks Switcher. That is, of every 10 coffeeshop visits I make, approximately 4-5 are to Starbucks, 4-5 are to a neighborhood independent shop Mystic Mocha, and the remaining 1-2 are to other random places. I go to the Starbucks when I’m outside my neighborhood, when I need a clean, comfortable place to meet clients and colleagues, and when I’m traveling and want to ensure I’m going to get a product that I know and like. I usually go to Mystic Mocha when I’m craving one of their products (peanut butter mocha — yum!) and I only go there when I’m by myself or with a close friend because it’s a small place in a hard-to-find location with an earthy-crunchy vibe that I love but others may not.
If Starbucks were to heed the advice of the HBR article, they would try to steal some of my visits to Mystic Mocha — but it would be a fruitless and senseless effort. Fruitless because I like visiting Mystic Mocha regularly and don’t want to stop going there; senseless because Mystic Mocha meets a very different need from Starbucks and I value each brand for fulfilling each unique need.
Part of Starbucks’ brand equity lies in their in-store environment which makes the chain appropriate for business coffee meetings and in the consistency of their products and customer experience across their 16,000+ units. I wouldn’t want them to try to fill the role Mystic Mocha plays in my coffee life — it would be inconsistent with the Starbucks brand and it would detract from what I like about them.
Instead I would advise them to focus on the elements that are at the core of their brand and invest in excelling at those. To grow, they should increase the perceived value of those essential equities to get existing customers like me to pay more and promote the brand to others, and to appeal to new or lapsed customers who are looking for what Starbucks has to offer.
Which brings me to my point. Instead of changing to try to please switching customers, I would suggest that retailers — and all companies, for that matter — first define what they want their brand to stand for and the types of customers they want to serve. In fact, as heretical as it might sound, I would say that customer-driven strategies are doomed to fail. That’s because it is not financially and/or operationally feasible for a scaled enterprise to satisfy all desires of all customers. Today’s customers are too diverse and too demanding.
A company that tries to service all the different requirements of its category’s user base operates with an organizational form of ADD, chasing new offerings and benefits like dogs chase squirrels –- that is, a lot of action but little success. Instead companies must prioritize which customers to satisfy and how to satisfy them. They do this by putting their brand in the driver’s seat of their organization — and then using it as a filter for every decision they make.
I’m curious to hear people’s reactions to this — please share your thoughts.
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