Growth IQ
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Make no mistake: regardless of what industry you are in or what segment you serve, there is no way around this. Becoming a customer-led company, one that is obsessively focused on customers and their experiences with a brand, isn’t just one of the ten growth paths, it is the growth path that must become the foundation for each subsequent path. That is exactly why I made it the first one in Growth IQ. Think of it like this: in order for a company to use the Customer Experience path as a growth enabler, CX must become the “nucleus” that sits at the intersection of all business units, all functions, all decisions, all employees. Everything.
While the Customer Experience path may ultimately be the most rewarding of the ten growth paths, especially for the customer (after all, who wouldn’t want to have the loyal customer bases of Southwest Airlines, Shake Shack, Starbucks, Disney, Amazon, Apple, or Sephora?), it is also often one of the most difficult to pull off. Transforming customer experience requires complete company buy-in. Each employee must understand his or her role in delivering the product or service to the customer. From the accountant to the cleaning crew, everyone plays a part. Everyone.
For some companies, transforming CX requires modest adjustments. For others, the aspiration may mean, at least in the short term, that they need to reevaluate all aspects of the business. Either way, it must first start with the willingness to make the shift. Then, and only then, will it translate into an overall mission—a “true north” for the company to rally around.
STORY
1
SEPHORA
A BEAUTIFUL EXPERIENCE
In today’s retail environment, where very little is constant and clients’ expectations are ever-evolving, one thing has remained true for SEPHORA: there is no better way to create meaningful connections with clients than through personalized experiences and a customized approach to beauty.
—CALVIN MCDONALD, president and CEO of Sephora Americas
THERE SHOULD BE NO QUESTION that there has been a distinct shift in buyer behavior over the past decade. We only need to look at our own shopping habits to confirm that. Smaller-format and more experience-oriented retailers are beginning to hold their own against the larger stores.
One of those companies redefining retail is Sephora, which has been a trailblazer in the beauty (retail) industry for decades. In 2016, it gained market share across all regions and recorded double-digit growth in both revenue and profits. More than a hundred stores were opened in 2016 and it has opened seventy new stores in the United States in 2017 alone.
From its early days, Sephora has been focused on inventing new ways to make the beauty shopping experience fun and engaging for its customers. Originally, it didn’t sell anything but other companies’ products. So, what made them so unique? Many would say it wasn’t what they sold but how they sold it—and how their customers felt when they engaged with the brand and its employees. There should be no question that Sephora has been on, and continues to be on, the Customer Experience path as it pursues additional growth opportunities.
Sephora was among the first beauty retailers to organize stores by product instead of brand, launch an e-commerce platform, launch native mobile apps, utilize data from its Beauty Insider (loyalty) program to send personalized communications and recommendations, integrate with Pinterest, use advanced technology such as beacons in stores, introduce mobile point-of-sale (POS) systems . . . the list is long.
Its newest concept, the Sephora Studio, a smaller store concept with high-tech beauty upgrades, pushes the CX envelope even farther. Research found that 43 percent of consumers would pay up to 10 percent more for a personalized shopping experience, and brands that create personalized experiences by integrating advanced digital technologies and proprietary data for customers are seeing revenue increase by 6–10 percent—two to three times faster than those that don’t. That’s great news for Sephora, which, according to the Sailthru first annual Retail Personalization Index, provides the most personalized customer experience in the beauty business. It’s therefore no surprise that between 2010 and 2017, Sephora’s U.S. revenue was expected to grow at 10 percent per year, far outpacing industry average.
EXPERIENTIAL RETAIL
Consumers haven’t disappeared, and they are not spending less: their tastes (the market context) have changed. The always-on economy allows consumers to vote not only with their dollars but with their ongoing loyalty. Sephora does not want to be another store where customers go to just buy something. Instead, it aspires to be more like a community of like-minded people where anyone can learn, try, and play with its vast array of products.
When you think of innovation in cosmetics and beauty products, you typically picture clever new brand names, creative packaging, arresting point-of-sale images, and celebrity endorsements. But Sephora, founded in Paris in 1969 and now owned by luxury conglomerate LVMH, is a very different company.
Named after the most beautiful wife of Moses, the company has leveraged its masterful ability to expand into new markets (Market Acceleration), innovate new beauty products (Customer and Product Diversification), and develop both digital and mobile platforms (Optimize Sales), all with a comprehensive and pervasive focus on CX to become one of the world’s largest beauty retailers. This willingness to innovate with products and the way it engages with its customers has defined the company from the beginning.
In its early days, Sephora, and its entrepreneur CEO, Dominique Mandonnaud, recognized that the context of the beauty business was changing from boutiques to large, multiproduct stores and from small lot production of a finite number of items to vast catalogs of increasingly consumer-defined product lines.
Mandonnaud also was one of the first to recognize the increasing interconnectedness of discrete industries, such as cosmetics and perfumes, into a more monolithic “solutions”-oriented industry called “beauty.” Thus, the history of Sephora is the story of how Mandonnaud and those who followed him combined these different businesses and turned them into interactive (and eventually digital) customer experiences.
Sephora’s ascent has a great deal to do with its unique approach to merchandising and the experience it wants its customers to have while shopping. The store’s fluid layout allows shoppers to bounce from brand to brand and product to product with little effort.
One of Mandonnaud’s first product innovations was what he called “assisted self-service”—essentially meaning that, unlike the rule at other cosmetics stores of the era, he let customers actually try products before they bought them. He used it to sell more products to existing customers (Customer Base Penetration), attract new customers (Market Acceleration), and further Optimize Sales. Needless to say, this concept was copied and has since swept the world of beauty retailing. Sephora led the charge on changing the brand loyalty paradigm away from the old model toward a “try-more-buy-more” proposition.
The first sign that Sephora was going to do something new came in 1999, right at the peak of the e-commerce boom, when the company announced its first online store (Market Acceleration), targeted at the U.S. market. As the Internet matured, a new kind of retailing emerged, one in which consumers were increasingly interested in the experience they had with brands online.
In an era when almost every other beauty product company was still selling its products in supermarkets, drugstores, and pharmacies, such a move was unorthodox, even somewhat shocking. Indeed, many of Sephora’s competitors didn’t take the same step for another decade—giving it a big head start. Beyond the significant first-mover advantage it may have had in the market with many of these things, you have to remember that just because a company copies something another company—maybe even a competitor—does, it doesn’t mean that company will enjoy the same results. It was the combination and sequence of multiple things—growth paths—that made Sephora successful.
In 2006, the ever-innovative Sephora once again was pushing the envelope when pursuing the Custome
r Experience path. It wanted to get closer to an entirely new set of customers—those who weren’t interested in patronizing an exclusive beauty and cosmetic store. It began by opening small—typically fifteen hundred square feet—“pop-up” stores inside JCPenneys in the United States. By the end of 2017, there were nearly 650 of them in operation, covering 75 percent of all JCPenney stores.
This combination of the Customer Experience path and the Partnership path provided the ability for customers to purchase Sephora online and pick up their order at a JCPenney store the same day—ultimately meeting the customer’s expectations for accessibility and convenience. Since its initial launch, JCPenney has “significantly expanded” the assortment of Sephora products it carries online. The department store also revealed that it would soon add a feature that would enable customers to book makeovers with Sephora beauty consultants in its stores. This partnership went against the standard view that the era of brick-and-mortar retailing was over, or even that competitive retailers could lean into the Co-opetition path to serve a common customer. Was this successful? During the November–December (2017) period, JCPenney posted a 3.4 percent sales increase as home, beauty, and fine jewelry led the store.
We constantly challenge ourselves to discover new and better ways to make the customer experience even more inspiring.
—CHRISTOPHER DE LAPUENTE, chairman and CEO of Sephora
Crucial to Sephora’s success was the sequence in which it struck these partnerships, launched its own initiatives, and worked with previous competitors. A large part of what allows Sephora to continue to find growth opportunities while others may struggle is the usage of the data it collects. From point-of-sale machines, loyalty programs, online purchases, and social media campaigns, Sephora’s ability to learn what its customers want and what they may want in the future helps it stay ahead in delivering a compelling customer experience over time, resulting in repeat and loyal customers. It isn’t just about personalizing the shopping experience, both online and off-line, that gives Sephora a significant CX advantage; it goes way beyond that. From its Beauty Tip Workshops, Color IQ, data collection and analysis, and augmented reality, Sephora isn’t afraid to try progressive, unproven ways to continue to drive repeat purchases, loyalty, and growth.
Don’t let current success cloud your judgment and make you complacent. Finding strong success in one market or customer base doesn’t mean it’s the only one. Case in point, Sephora learned that there are two different types of beauty products customers: those who know what they want and those who want to try the items first, which meant that even as Sephora was showing strong growth on its own and through its partnership with JCPenney, it began selling its products on Amazon, once again using the Co-opetition path to serve its common customers better. Whether it is in its own branded retail storefront, in a pop-up in JCPenney, or via (an online) partnership with Amazon, when it comes to growth, nothing is off the table if it meets customer expectations and satisfies pent-up demand—and most definitely if it helps deliver an even more compelling CX, Sephora is in.
SEPHORA:
KEY TAKEAWAYS
A company that is founded with a deep commitment to CX, has executive support, and has the required investments in place has a much easier time pursuing, even doubling down on, the Customer Experience path as a growth engine—especially over those companies that approach CX as an ad hoc nice-to-have. The former may find themselves having to make minor adjustments along the way, whereas the latter will need to make significant changes in people, systems, processes, and culture regarding the Customer Experience growth path.
Keeping the human and technical investments in balance is what makes Sephora’s pursuit of CX so effective, especially for younger shoppers who are increasingly seeking a compelling and different CX.
Take advantage of big data, analytics, and CRM systems to identify and engage with your most loyal customers. Those most-valued shoppers can be engaged at a deeper level with relevant educational content, personalized promotional offers, and other messages that nourish positive brand sentiment.
STORY
2
SHAKE SHACK
RADICAL HOSPITALITY
We’re not in the hamburger business; we’re in show business.
—RAY KROC, “Founder” of McDonald’s
SINCE 1919, WHEN A&W HIT the scene, and then White Castle (1921) and then McDonald’s (1940) and then Kentucky Fried Chicken (1952 . . . known as KFC since 1991), there has been no slowdown in the number of fast-food restaurants opening around the globe, nor in the intensity with which they compete with one another. After all these years, one could surmise that fast-food restaurants continue to compete on product (what food they sell) and price. However, the traditional fast food many of us (over the age of forty, anyway) grew up with is evolving—due in large part to the context of the market changing.
There are two notable shifts to consider: One, consumers becoming more conscious of what they’re eating and demanding food that is healthier, less processed, locally sourced, and better tasting; and Two, as well as customers wanting a “restaurant-like experience” at a more reasonable price point. Those two things have opened the door for new competitors to enter the fray and battle for fast-food dollars. Enter “fast casual,” a new genre of restaurant that emerged with Panda Express in 1983, which was worth $47 billion in 2016, and is leading the restaurant sector when it comes to growth in 2017.
You may think, as I once did, that I’m primarily in the business of serving good food. Actually, though, food is secondary to something that matters even more. In the end, what’s most meaningful is creating positive, uplifting outcomes for human experiences and human relationships. Business, like life, is all about how you make people feel. It’s that simple, and it’s that hard.
—DANNY MEYER, CEO of the Union Square Hospitality Group
One of the brands taking advantage of new market context and customer demands is Shake Shack, the brainchild of Danny Meyer. Shake Shack had humble beginnings. It started in 2004 as a hot dog cart in Madison Square Park in New York City—part of a community art project. It quickly became so popular that it received a permit to open a permanent kiosk, expanded its menu, and consistently drew a line of customers forty-five minutes long.
Meyer set out to combine the leading CX and product quality of his other higher-end restaurants (especially the meticulous way it produces its beef and sources its products locally), all while serving its food in the fast-casual concept. Similar to Dominique Mandonnaud, the founder of Sephora, everything Meyer did was rooted in the CX above all else, which puts the company squarely on the Customer Experience path—CX has been part of the company’s DNA—its true north for success since its inception.
SHAKE SHACK’S PHILOSOPHY RUNS DEEP
Meyer believes that 49 percent of CX comes down to food, “which is more or less service.” But the other 51 percent is made up of thoughtful things you do—the customer service and enlightened guest hospitality. In other words, it’s people. To ensure Shake Shack stays on track, it uses real-time feedback (providing comment cards, roundtable discussions, and monthly dining vouchers for its staff) to deliver a consistent dining (customer) experience. Nothing is off-limits, and no detail is too small to consider improving.
Shake Shack’s entire philosophy with CX is centered on putting its employees first as a way of providing both great service and acts of thoughtfulness. Meyer, in his book Setting the Table, said he believes that he can guess what type of experience he will have, in any restaurant or business, solely based on how the staff members “appear to be focused on their work, supportive of one another, and enjoying one another’s company.” Too many companies believe that improving CX requires being hyper-focused on the customer, but Meyer demonstrates that CX can be improved by focusing on the employees as well. John DiJulius, author of The Customer Service Revolution, has said: “You
r customers will never be happier than your employees.” Tom Peters (a.k.a. the “Red Bull” of management thinking) tweeted DiJulius’s quote, with the setup: “Says it all.”
Shake Shack might have started out as a Manhattan hot dog cart, but now it has more than 136 locations across the globe, with overseas franchises in cities such as Moscow, Dubai, Istanbul, and London. As it expanded both domestically and internationally (Market Acceleration path), the fact it had a loyal and vocal (via social media) customer base validated its strong brand commitment to CX and inspired people to give Shake Shack a try. Its dedication to quality and customer service bucked stereotypes of traditional fast food, the notion that fast food had to be precooked or even prepared quickly in favor of quality ingredients and CX. Shake Shack spends barely any money on marketing, instead focusing on the quality of food and the hospitality of its employees to create “raving fans” of the brand. This focus has helped Shake Shack stay popular in an era where diners have far more “fast-casual” choices.
Randy Garutti, Shake Shack CEO, said to a roomful of its employees at the opening of its sixty-sixth Shake Shack in Boston, Massachusetts, in 2015: “Put us out of business because you are so damn generous with what you give the people who walk in this door. If there’s a kid crying, who’s going to walk over with a free cup of custard? I challenge you to put us out of business with how generous you are. Go do it. Give away free stuff.”
I go back to what I said at the beginning of this chapter: customer experience isn’t a “nice to have,” an afterthought, something you occasionally do—it must become part of your company’s DNA, its true north, especially if you want to pursue the Customer Experience path as a way to grow your top-line revenue. For Shake Shack, this isn’t merely about the occasional things its employees do—it’s who they are.