When we understand customer sacrifice, we discern the difference between what a customer accepts and what he really needs, even if the customer doesn't know what that is or can't articulate it.
While companies employ total quality management (TQM) techniques to drive up customer satisfaction, they must employ Mass Customization techniques to drive down customer sacrifice. And while TQM programs help reduce the waste associated with mass produced goods and services—by eliminating redundancies, bottlenecks, and other inefficiencies—focusing on customer sacrifice eliminates the waste that occurs whenever a business performs an activity or expends a resource that a particular customer does not want. Indeed, because TQM programs often result in new features (of a good) or dimensions (of a service) geared to improving the satisfaction of the averred “average” customer, the solution to effect increased satisfaction becomes the source of additional sacrifice. No matter how many improvements are made, the offering remains uniform for all customers.
But individual customers differ in the exact combination of features or benefits they desire. They constantly face trade-offs, trying to decide if enough beneficial components exist to tolerate the marginal and offset the detrimental. Rarely do wants and needs match exactly the one bundle that constitutes a company's product, so whenever a customer buys any mass produced offering, he accepts the undesired components along with the desired, and this means that the company wasted resources in production or delivery. With products such as consumer electronics, for example, manufacturers constantly add incremental features in the hope that a new one may prove desirably novel. The same oversupply dynamic occurs when a hotel furnishes every room with an iron and ironing board that go unused ninety-nine out of one hundred nights, or when many of the bags of pretzels and cans of soda an airline worker piles on a beverage cart end up right back in the galley.
Designing for the average is the root cause of customer sacrifice; every mass produced product comprises a bundle of take-it-or-leave-it features or dimensions offered to all customers. The more features bundled, the greater the likelihood of introducing an element that disqualifies the product with a particular buyer (either because the buyer flat doesn't want the element or doesn't want to incur the perceived higher price for a marginal element). Similarly, talk about “designing for the customer” in many organizations really means designing for “the average customer”—who doesn't really exist. Unless people keep particular customers—real, specific, and known individuals—in view, such efforts only trigger initiatives to perform activities and expend resources without knowing the individual levels actually required.
Consider the airline industry. Customer sacrifice fills every flight across hundreds of service dimensions.7 Let's examine, for simplicity's sake, a single dimension among many: the aforementioned beverage cart. Once a plane reaches a safe and comfortable cruising altitude, the beverage cart comes down the aisle, and the flight attendant asks, “Would you like something to drink?” A diehard Pepsi drinker would naturally request one, only to be asked (on most airlines), “Is Coke OK?” Backing off from his true desire, the customer generally accepts the Coke. He sacrifices. On the next two, three, or maybe four flights with the same airline, the same question, request, and answer arises. Finally catching on, the customer begins asking for—what?—Coca-Cola! Learning that the airline does not carry his favorite beverage, the airline finally trains him to expect an unwanted alternative. Only then can the airline meet expectations. (And, of course, for those airlines that offer Pepsi, the Coke drinkers sacrifice.)
To the airline, that individual represents another satisfied customer because he always receives what he expects. But underneath this faux satisfaction lies a source of innovation that can turn an ordinary airline service into a memorable event: the opportunity to help customers experience less sacrifice. Every time a provider of a good or service interacts with a customer, both parties have an opportunity to learn. Eventually, one party changes his behavior as a result of that learning. Unfortunately, all too often that's the customer. He starts asking for something other than what he really wants—or perhaps he simply goes away.
CHAPTER 5
Experiencing Less Sacrifice
SOME BUSINESS COMMENTATORS SAY THAT conditioning customers (that is, coercing them to lower their expectations) to accept less than exactly what they want breeds good business practice, especially if a business reduces its costs without overly dissatisfying the customer. But herein lies another sure route to commoditization, for it unduly focuses the company on internal costs at the expense of customer needs. An attitude of “They won't mind” leads inevitably to operational practices replete with customer sacrifice. It may lead to higher costs if the company sidesteps an opportunity to ascertain individual needs and eliminate wasteful practices stemming from expending resources and effort that some customers simply do not want. More importantly, embracing this mindset makes you miss the opportunity to innovate and create customer-unique value that sets new expectations for the experience.
Consider cable and satellite television. Every provider in the industry requires customers to select from various bundled packages of channels. These cable companies force individual customers to receive some channels they do not want in order to get the one channel they do want. Offering “on demand” programs and movies only masks the fact that customers do not get to determine the specific mix of channels they want in supply to their homes, let alone determine the particular channel numbers assigned to each network (so that when channel-surfing, the stations would scroll through in an order determined by the customer). Such customization is possible technologically, given that the programming exists in digital form. In fact, there is no reason viewers could not treat individual programs (and not only networks) as modules, pulling favorite shows off the shelf from various networks to create a kind of “MyChannel” that would place hour-by-hour preferences on a single channel, eliminating the sacrifice of having to sort through hundreds of channels to find favorites each time the TV set is turned on. (Such functionality would bring to TV viewing the kind of playlists now available for music listening via an iPod or other MP3 players.)
Viewers can use digital video recorders (DVRs) to customize their TV viewing, but only on a delayed basis—and usually skipping through the commercials. If cable providers were to proactively provide the means for customized live viewing, people might watch more commercials, benefiting the network providers (and cable companies might be able to charge these networks to have shows placed on a “Serendipity Channel” for individual customers, with the lineup of seemingly random shows determined from actual viewing preferences). Just as the advent of TiVo led such providers to supply DVRs to customers, companies like Roku may put enough competitive pressure on them to finally lead to greater customization capabilities. As Daniel Roth put it in Wired magazine, the future should not require viewers to “still watch television the old-fashioned way, piped over cable or beamed in by satellite and available only in bloated packages of channels programmed by network executives.”1 Exactly.
Searching for Uniqueness
No longer should customers settle for standardized goods and services when companies can efficiently deliver, through Mass Customization techniques, only and exactly what each customer desires. If your company (like cable and satellite TV operators) resists doing so, some competitor surely will do so soon, forever disrupting the dynamics of your industry. But early entrants often find that ascertaining customer needs that lie buried beneath the surface of countless “how did we do” surveys isn't easy. Indeed, customers have sacrificed for so long that they often have difficulty discussing their exact preferences. Even after the concept of sacrifice has been explained to them, most customers remain unable to articulate the gaps between what they settle for and what it is, exactly, that they want.
Some skeptics cite this difficulty as evidence that customers cannot be counted on as sources for new ideas and innovation. The problem with customer i
nput, however, doesn't derive from the inability of customers to identify and articulate their wants and needs; it stems from the context in which companies solicit that input. People tend to answer the questions posed to them. Often, their answers are as much a function of the Mass Production mindset that framed the questions as they are an accurate expression of customer needs. Harvard Business School professors Dorothy Leonard and Jeffrey F. Rayport, proponents of what they call “empathic design” (which is derived from watching customers in their own environments), say it this way: “Sometimes, customers are so accustomed to current conditions using company offerings that they don't think to ask for a new solution—even if they have real needs that could be addressed.”2
Traditional research techniques—such as focus groups, “futures” scenarios, conjoint analysis, and, yes, surveys—can still be leveraged to detect customer sacrifice. Just dust off your most recent research studies (which were likely searches for a commonality that would point only to shared—and preconditioned—expectations among customers), and examine them anew through a different lens: search for the uniqueness within the responses that suggests dimensions of sacrifice previously unnoticed or mistakenly thought insignificant. Even a single customer interaction can provide clues about an otherwise unarticulated sacrifice dimension across which all customers settle for less (or more) than what they want. Those thought to be outliers may in particular point to dimensions of sacrifice that “average” customers simply could not articulate.
Companies must also craft a new set of probes into customer behavior— “What do you really want?”—that displaces inquiries about satisfaction that ask merely, “How did we do?” For example, pneumatic valve producer Ross Controls of Troy, Michigan, innovated its ROSS/FLEX process to get its best customers (automakers, material-handling machine manufacturers, etc.) to work with its engineers (who are called “integrators” because they effectively combine the normally distinct functions of development, manufacturing, and marketing) to design the exact valve system that would create dramatic improvements in the customers' assembly-line performance. By focusing on the sacrifices customers currently face in their production lines, the integrator designs a prototype valve system starting from a library of modules. If the first prototype doesn't meet fully the customer's needs, the integrator makes adjustments and tries another one, and often a third or fourth, until a customized valve system eliminates all the known sacrifice.3
Because of its inherent interactivity, the Internet provides a great place for understanding sacrifice. Think of how relentlessly Amazon.com learns about each of its individual customers to create a unique purchasing experience for each one. It learns your name to welcome you back personally. It learns your address and credit card details to eliminate the need for you to type such mundane information. It even learns more than one credit card should you want to, say, differentiate between business and personal purchases, and it remembers the names and addresses of everyone to whom you've ever had Amazon.com ship a gift directly; each of these details can be reselected with a click of the mouse. It remembers every purchase you've ever made, even asking you whether you really want to proceed should you click to buy something you've purchased before. And of course Amazon.com uses that purchase history, via its collaborative filtering engine, to recommend other items that you very well might like based on the similar purchase histories of your fellow Amazon.com lovers. It even lets you deselect particular purchases so as not to include them in its recommendations, whether because they are one-time gifts or because of some other anomaly.
Cultivating Learning Relationships
A continually expanding array of interactive technologies—including electronic kiosks, the World Wide Web, personal digital assistants, and smartphones—enables companies to better learn the particular wants, needs, and preferences of not just thousands but millions of individual customers. The combination of Mass Customization in operations with what marketing gurus Don Peppers and Martha Rogers call one-to-one marketing forms the basis of a learning relationship that grows, deepens, and becomes smarter over time.4 The more customers teach the company, the better it can provide exactly what they want—and the more difficult it will be for competitors to lure them away. Even if a competitor were to build exactly the same capabilities, a customer already involved in a learning relationship with a firm would have to spend a considerable amount of time and energy teaching the competitor what the current firm already knows. That's why customers of Ross Controls remain loyal to ROSS/FLEX. A $20 billion division of General Motors (the company that seems to have patented supplier squeezing) won't buy pneumatic valves from anyone else and won't let its suppliers go elsewhere. James Zaguroli, Jr., CEO of Knight Industries, related that when a competitor tried to win his business away from Ross, he told them, “Why would I switch to you? You're already five product generations behind where I am with Ross.”
Figure 5-1: New learning curve
In effect, mass customizers that cultivate such learning relationships drive down a new learning curve, as seen in figure 5-1. Everyone's familiar with the old learning curve, in which costs come down with volume—the very basis of Mass Production. Here, customer sacrifice comes down over time as the company interacts with customers.5 Think again about Amazon.com. Every time it learns something about you, it lowers the sacrifice you encounter the next time you shop with it. Every time you make a purchase, it incorporates that information into its collaborative filtering algorithm to better recommend something else you might want.
Now imagine that you are a diehard Amazon.com customer and one of its competitors—say, Walmart—develops exactly the same capabilities as Amazon.com. It can provide the same selection of goods (the modules of the customized Amazon.com architecture), learn your address, credit cards, and gift recipient information, even make the very same recommendations over time in the same way that Amazon.com does. Would you switch? No way! It would take you months to teach this new company what Amazon.com already knows. In the meantime, you would miss out on many custom recommendations that the new company would neglect to make while it was still learning your needs.
In this way, firms can keep their customers forever—with two provisos. One, the company doesn't excessively hike up its prices or cut back on service once in a learning relationship, and two, it doesn't miss the next technology wave. (Amazon.com, for example, developed its own e-book reader, the Kindle, to ensure it does not lose out should book purchases move rapidly from physical to electronic.) The advantages of this approach improve a company's fundamentals in significant ways:
Premium prices: Because your offerings are tailored precisely to customer needs, your customers receive greater value and, as a result, willingly pay a premium price.
Reduced discounts: Every time you sell an offering at a discounted price, you in effect pay customers to experience greater sacrifice. The less they sacrifice, the less you must push the product at promotional prices or discard it outright.
Greater revenue per customer: Because you know more about each customer than does any competitor, customers keep coming back to you every time they enter the market for what you offer.
Higher number of customers (at lower acquisition costs): Because your customers find the experience so pleasing, they tell their friends and associates, many of whom will also want to do business with you. These new customers will tell others, and so on, and so on.
Increased customer retention: The more each customer teaches you about his individual wants, needs, and preferences, the more difficult it will be for him to obtain an equivalent level of value from a competitor.
Most important, those companies that systematically reduce customer sacrifice—eliminating the negative cues of the relationship—heighten the experience their customers have when using their goods or partaking of their services, thus fulfilling needs left unaddressed by their mass produced counterparts.
Responding to Various Kinds of Sacrifices
Mass Customiz
ation bids us to return to an axiom frequently ignored in the homogenized world of Mass Production: every customer is unique, and all deserve to have exactly what they want at a price they are willing to pay. Customers once were willing to subsume their uniqueness to benefit from the low prices of standardized offerings, but no longer. Companies must therefore efficiently and systematically reduce the customer sacrifice that occurs whenever a unique individual encounters standardized goods or services designed for some imaginary average. Surely no one-size-fits-all approach will serve to eliminate sacrifice; that would run contrary to the very notion of Mass Customization. Indeed, four different categories of sacrifice need attention. Each detracts from an individual's overall experience with a company's offering in a very specific way, and this requires a different customization approach if it is to be eliminated.
In response to individual customer sacrifice, mass customizers can change or not change the actual product—the functionalities of a good or the dimensions of a service. Similarly, they can change or not change the representation of the product—its description, packaging, marketing materials, placement, terms and conditions, name, stated use, or anything else outside the good or service itself. (Whereas a company's modular architecture lies in the domain of the product itself, the environmental architecture lies in the domain of its representation.) As seen in figure 5-2, these strategic choices yield four distinct approaches to customization: collaborative, adaptive, cosmetic, and transparent. Each is appropriate for reducing a different kind of sacrifice that, in turn, provides the basis for a particular type of experience.6
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