May 8/15, 2017: Volume 31, Issue 24
By Steven Feldman
From time to time I am asked to speak at an industry event. One of the things I like to do is give retailers ways to look at their businesses by using other industries and consumer goods to illustrate key points.
One point I always look to drive home is any product that focuses on itself rather than the process of distribution will become a commodity. Why? Because product can be easily copied whereas a process is harder to emulate.
For example, if McDonald’s only talks about the beef in the burger they’re going to lose market share because a hamburger is a commodity. Dave Thomas, the former owner of Wendy’s, taught us that lesson. He spent $38 million attacking McDonald’s with an advertising program called “Where’s the Beef?”—a pure product advertising push that destroyed the burger market. McDonald’s responded with “Buy one, get one free.”
Then, owner Ray Kroc further responded by asking two questions: Who is our primary, long-term, lifestyle, value customer; and what is their highest need? The best customer at McDonald’s is not the old man drinking a $1 cup of coffee reading a free newspaper. The right answer is 2.3 children in the back of a mini-van with two dysfunctional parents driving. What’s the most important thing you can do for the parents? Give them more beef in the burger, or shut the kids up? A McDonald’s franchisee in Kansas City came up with the answer to Where’s the Beef? It was called the Happy Meal. Put a hamburger, French fries and a Coke along with a little toy in a fun bag and the kids are content. It created differentiation through the delivery of that burger and circumvented commoditization.
Here’s another example from the food industy. Do you know what Domino’s Pizza specializes in? Ask Tom Monaghan—who founded the company in 1960 and sold it for $1 billion in 1998—who he was, and he’d tell you he was the No. 1 pizza delivery guy in North America. He didn’t focus on the pizza, he focused on the process. “I don’t care about the product; I care about the delivery.” Why? “I discovered that nobody calls me who isn’t already hungry. I’m not telling them how many kinds of pizza they can buy or how good it tastes. That would be stupid. I’m telling them how fast they can get it.” He differentiated himself through the process of delivery with an ad program stating, “Thirty minutes or it’s free.” He could have delivered anyone’s pizza.
Last example. Who wants to rent a car? No one, that’s who. People who have to rent a car care about one thing: getting the heck out of the airport. The value of going to a rental car company is not the car. Each company’s cars are more or less the same as the next company. Yet the same car that’s $59 at Alamo is $79 at Hertz. Hertz charges $20 more to get you out of the airport faster. It’s a destination management company. It’s also one of few rental agencies making money. A bunch of rental car companies have filed for bankruptcy over the last two decades. Why? Because they couldn’t figure out how to build value into the rental of an automobile. That’s because there is no value. It’s a commodity. The value is how they get you where you’re going and how they retrieve that automobile.
So what is the lesson to be learned here? The focus can’t solely be on the products you have on your showroom floor. The guy down the street has the same or similar products. If that’s all there is then it becomes a price game. To really win, it has to be about things like service, showroom, experience, speed of installation, solving of problems, likeability. That’s how you win.