Don’t Be Unique, Be Better

“The customer is king” has long been proclaimed by businesses large and small the world over. But how many customers feel like royalty today? Ask people about their purchasing experiences and you will hear stories in which they were treated more like serfs than kings. One will tell you about the lights that failed in his newly designed kitchen; another will complain about her attempt to get service through a call center; a third will sigh about the time her wireless company gave her a cell phone to use overseas that did not work; and a fourth will describe how he had to return to his car dealer a second time so that the mechanics could fix their own mistake. These tales of woe are endless, and not even the best, most admired companies escape mention.

Fifty years after Peter Drucker first proposed the “marketing concept” — the idea that companies can make their shareholders rich by meeting customers’ needs — there is still a large gap between theory and practice. We lay much of the blame for this on companies’ obsession with uniqueness and differentiation. According to conventional wisdom, businesses must offer something unique in order to compete successfully; the rub is that this task is becoming more and more difficult as products and services become more and more similar. The only solutions, this line of thinking continues, are to differentiate your offerings through branding and the communication of emotional values or to completely change your industry’s rules.

While there is some truth in each of those assertions, we believe they have been overstated and overgeneralized and have, as an unfortunate result, distracted firms from listening to their customers and consistently delivering on the basics. Our analysis of a wide variety of companies leads us to conclude that what customers want is not more differentiation but products and services that are simply better at providing generic “category benefits” — those routine benefits customers expect to get when they make a purchase. In short, they want things to work as advertised.

A prime example of a company that meets basic needs at the highest level is Toyota, which has a market capitalization greater than that of General Motors, Ford and DaimlerChrysler combined and is the most admired carmaker in the world. Toyota’s focus on reliability and customer service may bore gearheads, style gurus and ad-agency creative directors, but its shareholders are not complaining. The company succeeds not by differentiating itself along lines that would matter to relatively few of its customers but by excelling at certain aspects of car production, sales and service that its competitors could excel at, too — if they chose to focus on them.

Most companies, however, write off generic category benefits as mere table stakes in the competitive game. The real betting, they mistakenly believe, begins when they start tinkering with the margins of their offerings. But this failure to attend to the importance of delivering category benefits is one of the prime contributors to today’s continuing high levels of customer dissatisfaction, whose costs — in the form of refunds, returns, bad word of mouth and expenditures on new-customer acquisition — are enormous. The good news is that this dilemma presents a low-risk, high-return opportunity for most businesses. The first step, however, is difficult. Top executives must be prepared to buck the conventional wisdom and rethink what people really want from a product or service. Until companies take this step, the customer will never be king.

The Unthinking Customer

Customers rarely buy a brand because it offers a unique feature or benefit. Rather, they usually buy the product that they perceive as offering the best overall combination of category benefits —or (if they really see no material differences) they simply buy the cheapest or the first they see or remember. This is a hard lesson to learn. Executives care passionately about the unique features of their offer — “Our fax machine has the smallest footprint in its class.” Customers rarely share this passion. The painful truth is that the differences between competing fax machines are far more important to the companies that make them than to all but the most geekish customers. The same is true in almost every category.

Suppliers and buyers live in different worlds. For the supplier, the only thing that matters is whether the customer buys the supplier’s brand, and at what price. This is a winner-take-all game — there is no prize for coming in second. The customer sees things differently. His decision to purchase is triggered by a simple need. He is putting an addition on his house and needs a bag of cement, or he is traveling to Chicago on business and needs a hotel for two nights. When customers buy cement or time in a hotel or anything else, they are heavily influenced by what they already know about the category and the brand they select. In fact, customers frequently buy things without thinking at all, as everyone can attest: You are in the store’s yogurt section, you need yogurt, you see your favorite brand in its usual place, and you put it in the shopping cart — done.

Such behavior is not rational in economic terms because customers are ignoring information that could help them make a better decision, at least in theory. But it is quite rational when one considers that time is limited, shopping around is a chore, and favorite brands work pretty well. In the words of the mathematician and philosopher Alfred North Whitehead, “It is a profoundly erroneous truism … that we should cultivate the habit of thinking of what we are doing. The precise opposite is the case. Civilization advances by extending the number of important operations which we can perform without thinking about them.” What is true of civilization as a whole is also true of us as individuals: We advance partly by increasing the number of things we can do without having to think hard about them, shopping included.

Such is the urge for simplification that in practice, customers — especially individual consumers — often consider only one brand. One study published by three French academics in 1995 found that, even for cars, 22% of French buyers considered only one brand, usually the brand they already owned. For a high-ticket, infrequent purchase in a very competitive category that also involves most buyers emotionally, this is remarkable.

Brand familiarity and salience play a big role in most markets. You may be aware of six courier services and regard them all as equally good, but if Federal Express is top-of-mind and has proved reliable, you will likely use it again and again, largely on the basis of its salience: It stands out from the crowd without necessarily offering anything unique. And every time you use FedEx, its salience will be reinforced in your mind. Your loyalty does not imply a strong emotional bond, nor that you think there are big differences between FedEx and its competitors. What matters to you as a customer is, first, the existence of the courier-services category and, second, that you have found a reliable supplier.

Comparing Oranges and …

The primacy (to customers) of categories over brands is illustrated by comparing the fates of One 2 One Personal Communications and Orange SA, the third and fourth entrants into the U.K. wireless network market. In 1991, both companies were awarded identical, simultaneous licenses and had access to identical technology. But their performance was far from identical.

The two incumbents, Vodafone and Cellnet, were well funded and well established, but customers had formed a negative image of the industry. To begin with, they had to sign lopsided contracts in which providers could vary any and all charges, while subscribers would incur a significant penalty if they wanted to cancel their service. Some contracts even disowned liability —if the network broke down, the customer still had to pay. Other aspects of these agreements were also skewed in favor of the providers. For example, subscribers were charged for their calls by the full minute, rounded up; thus a call lasting 61 seconds was counted as a two-minute call. And the networks were not reliable, leading customers to complain frequently about failed attempts to make connections, weak reception and static interference, dropped calls, crossed lines and calls that were not received.

In this environment, One 2 One chose a conventional entry strategy. Seeking to differentiate itself from the incumbents, which still made most of their money from business customers, it positioned itself as a low-cost network for people who wanted to chat with their friends. The company concentrated its network in cities and mainly targeted young people as customers. This urban focus enabled it to launch in September 1993, fully seven months before Orange, and with a textbook strategy — clearly targeted and differentiated.

In contrast, Orange rejected conventional wisdom and simply aimed to deliver a reliable, high-quality customer experience with good value for money. Among other things, Orange offered per-second billing, a simpler tariff (pricing schedule) and caller ID as standard. Per-second billing was not so much inspired as simply fair and equitable, but Orange was first to market with it. Features such as free itemized billing, free insurance, an extended warranty, a 14-day money-back guarantee and a 24-hour handset replacement service were not the product of cutting-edge R&D; they were just plain common sense. At the time, these were the features that would meet the brand’s promise — to deliver generic category benefits in a way others had failed to do. Orange learned from the incumbents, and, seeing their failings, chose not to follow them. It took care of the basics they had neglected and gave the mass market what it wanted. It also developed outstanding advertising, but that would have provided little lasting advantage if Orange’s offer had not been better than its competitors’ at the time of launch.

Not one element of Orange’s offer was proprietary or complex enough to provide a sustainable advantage. Indeed, in the two years after Orange entered the market, Cellnet, Vodafone and One 2 One all copied several of its innovations. They also reduced prices aggressively. By early 1996, both Vodafone and Cellnet offered copies of Orange’s bundled pricing tariff. By then, Orange was about 5% more expensive than Vodafone and Cellnet and 20% to 30% more expensive than One 2 One. But the company didn’t change its strategy. It continued to add more commonsense features that represented market firsts, such as voice recognition capability and providing credits for calls disconnected by the network. Again, most of these features were not high-tech; they were simple, utilitarian augmentations of the wireless offering, and they all left Orange open to competitive retaliation. But Orange remained the clear leader in delivering the best overall customer experience.

One 2 One, meanwhile, ran into problems with its strategy. Although it had focused on building a robust infrastructure in cities, its network often proved unable to handle the high volume of free calls during off-peak evening hours. Nevertheless, despite the company’s well-publicized problems with reliability, One 2 One was bought by Deutsche Telekom AG for £6.9 billion in August 1999, near the height of the bubble. Two months later, however, Orange was bought by Mannesman AG (now Vodaphone Holding GmbH) for £20 billion. On an exceptionally level playing field, Orange’s “simply better” strategy and execution had created almost three times as much shareholder value as One 2 One’s textbook differentiated strategy.

The Customer Connection

Every company serious about customer focus should aim to be the best at the things that matter most to customers. One important way to identify those things is through direct customer contact —but it needs to be the right kind. In one study, we asked CEOs how they allocated their time. The CEOs of the best-performing companies in the sample said they spent 18% of their time in face-to-face contact with customers. The equivalent amount of time for CEOs of the worst-performing companies was, to our surprise, 15% — not much less. Why the small difference?

Follow-up interviews revealed that the CEOs of the low performers spent much of their time with customers socializing at cultural or sporting events. Top executives of high performers, on the other hand, were less interested in such socializing; they wanted to get down to business and especially to know how their company was performing relative to its promises and the customers’ expectations. They also persistently asked their customers how they could do better. Executives have told us that when you put yourself on the firing line and make it clear that your interest is genuine, you will hear a lot — and you will often hear it expressed with passion. Such passion may account for the particular effectiveness of this direct feedback channel and make it, for some, too scary to handle.

Innovation is another key to giving customers what they really want, but genuine customer-focused innovation is rarer than one might expect. It would be more prevalent if companies concentrated on identifying and providing category benefits better than the competition. Executives should beware of the buzz around “latent needs.” Ever since Emerson’s infamous “better mousetrap” and doubtless long before, there has been no shortage of business ideas that cropped up “before their time.” But such ideas often fail when the alleged latent needs turn out to be so trivial, or to apply to so few customers, that the resulting market opportunity is minimal or nonexistent.

Nor should executives be spooked by the fear of losing the opportunity to be the first mover. As Gerard Tellis and Peter Golder point out in a 1996 SMR article, market leadership usually goes to a later entrant with the vision, resources and executional skills to drive and dominate the market during its main growth phase. Neither Matsushita Electric Industrial’s JVC brand of VCR nor Procter & Gamble’s disposable diapers led their markets, but the companies did create these mass-market categories by focusing on innovation to meet and exceed real needs and expectations.

Occasionally, a Sam Walton, Ed Land or Jack Welch comes along and redefines categories, creates great new products or develops radically new business models. Such innovators are to be admired for addressing real customer needs, including needs that were previously undetected. But few will enjoy success with an approach predicated on being unique; most would do well to focus on innovating to deliver the category benefits better and more reliably than the competition.

This approach is equally valid for businesses serving relatively stable, mature markets, such as Toyota, CEMEX and Shell, and for those in high-growth markets, such as Orange, Medtronic and Sony. It provides a solid platform for an established brand to introduce new lines, new forms and even extensions into new categories, as long as the brand meets and reinforces positive customer expectations. And it may be particularly important for small players, if they are to succeed, to have at least as good an understanding of the important category benefits as the market leader does. They will need such knowledge in order to gain maximum leverage from their more limited resources and market presence.

Be Realistic

Although our view runs counter to much of the conventional wisdom about competitive positioning and differentiation, it is certainly not a counsel of despair. It forces executives to be realistic about what is feasible but still leaves plenty of scope for beating the competition and creating shareholder value. Uniqueness and great advertising are terrific if you are already leading the market in delivering generic category benefits. Changing the rules of the game can on rare occasions be enormously profitable. But for most businesses in most markets, the first priority should be to become simply better than the competition at giving customers what matters to them most.