It’s hard to deny the incredible success of Apple Stores.  In just a over a decade since the first store was launched in May at Tyson’s Corner, VA they’ve grown to 245 locations in the US and 358 across the globe.  Fortune magazine in 2007 named Apple “America’s best retailer” and rightfully so.  According to RetailSails’ research this year, Apple Stores generated over $14 billion in sales for the trailing four quarters.  That means that for the 327 stores at the time of this study generated $5,626 per sq ft of floor space, beating out the second highest Tiffany & Co. with $2,974 per sq ft!  

So, you're thinking the equation is: Apple Products + Fanatical Customers = Success.  Not so fast, let's take a closer look...

Apple wasn’t doing well in the traditional big box electronics stores in the late 90‘s.  And so, in 1999 Apple hired Allen Moyer, a former Sony exec who had worked on the company’s retail development projects.  One such project he worked on was the Metreon complex in downtown San Francisco.  There Sony had opened its own Sony Style store where consumers could try out the latest Sony products.  It was in the middle of a densely populated, destination city by design - for upscale traffic, lots of it.  

This was the genesis of the big idea.  Then along came Ron Johnson, who left Target for Apple in 2000, reporting directly to Steve Jobs.  Johnson is credited with most of the strategy and the brilliant execution from there on out.  In fact, the first store was designed in a rented warehouse as a prototype - Apple Store version 0.1 if you will.

According to the 2007 Fortune magazine article accompanying the ‘best retailer’ listing, Jobs discovered, during this process, that the layout of the store was by their traditional product categories instead of how the customer might actually want to buy things to accomplish specific tasks like photography, video, music, information, etc.  And since this was just a mock up they were able to redesign the store layout and get the layout right when they went “live”.

Another very key element of the Apple Store strategy was the Genius Bar, which for the first few years wasn’t all that used by the customer.  But, this innovation which is in great demand today, came out of a focus group panel that brought a variety of people together from all walks of life where they were asked what their best service experience was.  16 of the 18 focus group panelists mentioned a hotel example.  So they asked the question “Well, how do we created a store that has the friendliness of a Four Season Hotel?”  Their answer was: “Let’s put a bar in our stores.  But instead of dispensing alcohol, we dispense advice.”

In Ron Johnson’s (he’s announced that he will be joining J.C. Penny as CEO) blog on the HBR Blog network he states clearly why all this effort paid off so richly for Apple, saying:

“Any store has to provide products people want to buy.  That’s a given.  But if Apple products were the key to the Stores’ success, how do you explain the fact that people flock to the stores to buy Apple products when Wal-Mart, Best-Buy and Target carry most of them, often discounted in various ways, and Amazon carries them all - and doesn’t charge sales tax!  People come to the Apple Store for the experience - and they’re will to pay a premium for that.”

There it is - The Experience

Johnson goes on to pose a quite profound, obvious yet often missed question, “How do we reinvent the store to enrich our customers’ lives?” 

What would your company do if you really started asking this question for your customers?  Apple took an old bricks and mortar vehicle and reinvented it by asking and and answering this question.  They weren’t focused on the revenue and profits, they were focused on creating a superior customer experience.  The revenue and profits will follow.  It doesn’t take a genius to figure this out - but it just may take a Genius Bar!  So what’s your “genius bar” experience that you need to deliver for a superior experience?

Oh, by the way, often when you’re pursuing your own “genius bar” experience you’ll run into the “experts” who will predict your sure failure.  Retail consultant David Goldstein did just this when he confidently stated in 2001:

"I give [Apple] two years before they're turning out the lights on a very painful and expensive mistake."

Keep your eyes on the customer they’re the experts you want to listen to!

We’ve seen some pretty interesting decisions from three very large and respected companies these past several weeks that have had a significant impact on literally millions of customers.  

First there’s Quantas where CEO Alan Joyce decided to ground all his airplanes betting that a temporary shut down would force the government to send their labor dispute to the FWA who would, in turn, impose a binding arbitration (in their favor) on both sides.  According to the Economist the move “delighted rival airlines” who “welcomed their defecting customers with open arms.”  The longer strategy apparently is a major restructuring (layoff, route reductions) so that they can set up a a new premium airline based somewhere in Asia along with a joint venture to operate a low-cost carrier in Japan.  

Then we have the Bank of America (they weren’t the only bank just the poster child) who after implementing a small monthly fee for debit card use decided it wasn’t such a good idea after all as customers expressed their anger and frustration in a variety of public ways, the most notable being with their feet.  Apparently credit unions and smaller, local banks gained a fair amount of new customers this past few weeks.  David Darnell, co-chief operating officer said, “Our customers’ voices are most important to us.  As a result, we are not currently charging the fee and will not be moving forward with any additional plans to do so”, according to a recent USA Today article on the subject.

And then, the “old news” of Netflix’ subscriber loss from one-two punch of increased prices (I wrote about this in a previous blog)and aborted plans to split off the DVD rental service into a separate company called Quickster.  In a rather terse email from the “Netflix Team” customers were told “It is clear that for many of our members two websites would make things more difficult, so we are going to keep Netflix as one place to go for streaming and DVDs.”  Netflix has thus far lost 800,000 customers from these moves, (200,000 more than they estimated), and it’s share price has been hammered falling from a high of $298.73 to $75.28, a plunge of 37% according to Bloomberg.

Desperate times require desperate measures?  Calculated risks?  What were they thinking?  

All these questions come to mind when considering these three separate, but in my mind, related, situations by companies each in very different industries.  In all three cases the companies have made significant changes to their respective customer experiences.  One by leaving customers stranded in airports, another by charging an additional $5 monthly fee and yet another by changing their service offering’s packaging and pricing.  All experience significant customer backlash, trashing hard won loyalty and, in two cases publicly backtracking on their decision in whole or in part.

These are not small, insignificant decisions, so what’s going on here?  Sure, no one is perfect and not every decision works out 100%.  But this seems, to me, like a gross lack of understanding of their customers, even contempt for them.  I have no idea what internal studies, research, focus-groups, consultants, etc. were brought in to justify such moves.  But, it wouldn’t surprise me to hear that they spent hundreds of thousands of dollars on the research that led to these decisions.  And still they each got it wrong, terribly wrong.  

When B of A’s Darnell said that their customers voices are “most important” to them, I wonder.  What voices were they listening to before they made the decision?  Clearly it wasn’t the customers that caused them to backtrack.

These are all good companies, providing valuable services to millions of customers.  I choose not to believe the are the “dark side” as represented in the “occupied” streets and parks in cities across our nation.  But they clearly are not making decisions that are leading to anything close to a superior customer experience.  And, increasingly customers are becoming "mad as hell and not going to take it anymore."  

How do companies lose touch with their customers so badly as to make these kind of decisions?  I don’t pretend to have inside information on these decisions and companies but this all looks to me like customer experience is taking a backseat to the shorter term economic interests of the company.  The paradox is that in making these decisions, without a true understanding of their customer experience, they are shooting their own economic interests in the foot.  I believe that the primary job of every company that cares to provide differentiated value and reap the rewards of growth in brand preference, revenue and profitability is providing a consistently superior customer experience.  The alternative just isn't very appealing.

At the same time, there is a dramatic shift in power taking place.  Many have indicated that this is going on, one being Glen Urban in his book first published in 2007 called Don’t Just Relate - Advocate.  In his book Urban describes five sources of increased customer power:
  • Increased access to information
  • Access to more alternatives
  • More simplified direct transactions
  • Increased communication between customers
  • Increasing control over contacts
The following year Li and Bernoff’s book Groundswell, laid out a strategy for addressing the growth in customer power through the effective use of social media for both listening and responding to customers.  This shift in power is not new news.  

The plain fact of the matter is companies, now more than ever, can’t afford to be ignorant or indifferent to their customers’ experience.  If they don’t continually improve it they will quickly and, sometimes, dramatically hear about it - only it will be too late.  

Customers (B2B & B2C) are more attuned to value as never before and they won’t settle for less than the best their money can buy.  The question is are you listening, learning and responding now more than ever?  


    John Geffel

    Value is a much abused, misunderstood and misused word, everyone thinks they provide it but so few show real evidence that they do!

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