The Future of Success (6 page)
Brand-portals can keep their reputations for trustworthiness only if they continue to act as agents for buyers rather than sellers. They cannot be double agents. If a brand-portal directs buyers to a bad deal, or even a good one that’s substantially inferior to one buyers might find elsewhere, buyers will lose confidence in the brand-portal as a whole—and that loss of confidence will harm all other sellers who depend on it for access to buyers. Every seller naturally wants to be linked to a highly regarded brand-portal, but the brand-portal’s continuing value depends on its being linked only to sellers who can deliver. A brand’s value deteriorates when it’s no longer a terrific guide to what’s terrific.
A brand-portal may, of course, advertise or promote particular products and services. But if it wants to preserve buyer trust, the brand-portal must distinguish between promotions and advice. When Amazon.com told its customers that certain books were “destined for greatness,” or were “what we’re reading,” because the publishers of those particular books paid Amazon.com a handsome fee in return for such encomiums, buyers had reason to be skeptical about everything else Amazon.com recommended. When the AltaVista search engine places certain Web sites at the top of its search results because those sites paid for the privilege, it subverts buyer faith in the quality of the search. When drkoop.com—billed as “Your Trusted Health Network”—recommended certain hospitals and health centers because they paid drkoop.com to recommend them, visitors to drkoop.com may have appropriately wondered whether they were receiving the best health-care advice. Even the Harvard brand would lose some of its luster if buyers came to suspect that it could be used by any seller willing to pay the price; Harvard’s lawyers, seeking to protect the value of the brand, know that Harvard Beer and the Harvard Diet would not burnish the Harvard image.
A brand-portal may also lose its identity if its scope becomes so broad that buyers no longer know what to trust it
for.
Disney can build up a trustworthy reputation for family entertainment, but not for beer and soft drinks. Amazon.com might be able to extend its trustworthiness to music and videos, but probably not as readily to vitamins and toothbrushes. Few would trust Microsoft to do their family finances (although they may well trust Microsoft as a source of financial software).
LARGE OR SMALL?
The dynamic I’m describing—the competitive necessity for small, entrepreneurial sellers to link up with large, trustworthy brand-portals, and for the large brand-portals to shift from making things to becoming one-stop buyers’ agents—explains a seeming paradox of the modern economy. This is the simultaneous explosion of “niche” businesses along with a new wave of mergers and consolidations.
In fact, the two trends perfectly complement each other. Small, entrepreneurial groups are continuously finding new ways to produce better Xs for less $Y, and invent new Zs. These small enterprises are at the heart of the Schumpeterian process of innovation. Large brand-portals, meanwhile, are providing buyers with convenient, one-stop guidance through what’s becoming an increasingly complex thicket of products and services. To survive and grow, brand-portals, too, must continuously find better ways of guiding.
The merger boom of recent years is fundamentally different from the boom that occurred between 1885 and 1910, which created General Motors, General Electric, AT&T, U.S. Steel, and the giant trusts, as well as similar consolidations abroad, such as Germany’s Siemens. Then, the goal was to stabilize the market and gain economies of production scale. Now the primary goal is to market global brands. Today’s media, telecommunications, and financial giants will succeed to the extent that they offer more convenient, recognizable, and trustworthy brand-portals—giving buyers better one-stop access and quality control, while giving entrepreneurial sellers more information about buyers’ needs. Mergers will be less successful, perhaps calamitous failures, if their main purpose is to gain economies of scale for making a particular product. Speed and cleverness now count far more than production. In this, the giant bureaucratic organization cannot hope to match the small, entrepreneurial business.
The emerging relationship is symbiotic. Entrepreneurial groups specialize in creating great products. A comparatively few large brands (not necessarily owning many tangible assets or employing many people) function as trustworthy consumer advisers. It is possible, of course, that an entrepreneurial group may become so well known for a superior product that it eventually reverses the relationship. ESPN, the sports network, used to pay cable companies to carry it; now cable companies pay ESPN for the privilege. ESPN has become, in effect, a brand-portal all its own. But most of the time the two kinds of enterprise will complement each other—the first providing content, the second attracting the eyeballs. These alliances are the organizational building blocks of the new economy.
DESPERATELY SEEKING STICKINESS
Even when you attract a customer, your challenge as a seller is not over. You will have to keep the customer. She is able to abandon you instantly—click, surf, graze, roam, switch, and you’re history. You’re more dependent on her than she is on you, because the cost to you of winning a new customer is much higher than the cost to her of finding a new seller. The lyricist Oscar Hammerstein put it more succinctly than any modern business strategist: “Once you have found her, never let her go.” Figure out how to make her stick with you.
There are several techniques to enhance your “stickiness.” The simplest is to continue to reduce your price and otherwise add to the value of what you offer, so the customer won’t have any reason to switch. Monitor your rivals carefully. If they find a new way to cut costs or improve quality, or invent something better, do the same immediately. Above all, pamper your customer. Delight her. Surprise her with your solicitude. Offer her special benefits if she remains loyal to you. Repeat purchasers of the 1950s were treated to endless quantities of S&H Green Stamps that they dutifully licked and pasted on thin rectangular pages into booklets that, when accumulated in sufficient number, could then be traded for toasters or carpet sweepers. But the Internet gives sellers many more options for rewarding loyalty. You can give buyers a wide range of discounts by sharing data with other sellers—airlines, car-rental companies, hotels, and theaters. Loyal Harvard alumnae (read: repeat donors) are rewarded with special trips, seminars, and visits with doddering faculty; loyal members of the Metropolitan Museum (repeat donors), with exclusive invitations to preview the next exhibit of Impressionists or antiquities; loyal hotel guests, with VIP check-in by the concierge instead of a line at the registration desk.
Encourage her to give you more details about herself so you can custom-tailor goods and services more exactly to her needs. The more data she gives you and the more you do with them, the closer your relationship will be—and the harder it will be for any rival to intrude. By now, my clothier (note the “my”—the ultimate sign of stickiness) knows the size of my head, neck, chest, waist, even my feet; my favorite fabrics, preferred colors, tastes in patterns and styles; where I have shopped before; my occupation; my favorite leisure activities. With every transaction, the company’s software “learns” more about me—and can respond better to my needs next time, even anticipate them. I am bound to my clothier not out of loyalty or affection, but by its increasingly better-tailored responses to my every sartorial wish.
British Airways greets its frequent flyers with their favorite drink and newspaper, based on their choices on prior trips. An online florist maintains a list of birthdays and anniversaries its customers have celebrated with flowers in the past, alerts them by e-mail when the dates are again pending, even remembers what arrangements they purchased on the last occasion, and lets them send off a new arrangement at the click of a mouse. A hotel chain remembers that a guest played golf at one of its facilities, and when he reserves a room at another, automatically asks if he’d like to book a time for golf.
So-called “intelligent agent” software can cement the relationship. Amazon.com greets repeat purchasers at its Web site with customized recommendations for other books and music they may enjoy, based on analyses of previous orders. With additional data, an intelligent agent can deduce deep-seated preferences for a whole range of items. If a customer displays a preference for a particular kind of music, food, and book, for example, the agent can suggest a movie that may be equally appealing—by comparing the music, food, and books she has chosen to those of other people with similar tastes in music, food, and books, then noting which movies these others have enjoyed and deducing which of these movies she might enjoy, too. Your customer isn’t as unique as she may prefer to think; somewhere in cyberland exists another person with her identical tastes. The more data the agent can gather about her, the closer it can come to finding her taste clone.
Big brands are ideally suited to aggregate such data. Customer databases will be another of their valuable assets, providing a means of linking repeat customers to sellers most likely to satisfy them. Should anyone be concerned about privacy, the market is likely to respond, at least in part. Presumably buyers who prefer that only certain purchasing data about them be used, and only for certain purposes, will be attracted to brand-portals that respect their preferences. And brand-portals sensitive to the possible misuse of such data will gain a competitive advantage over others.
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Of course, while stickiness is good for you as a seller, it’s not necessarily good for your customers. Although they can get better-tailored goods and services as a result of the information they give you about themselves, such stickiness makes it harder for them to switch to one of your rivals. From your point of view, needless to say, that is exactly the point; if a rival had as much information about them as you do, he might be able to offer them even better deals. What is likely to happen eventually is that buyers will catch on to the commercial value of their own personal data. They’ll “warehouse” it in data banks of their own making—“Me.com’s”—which will give them the option of downloading the data to any seller in order to get the best deal. The emerging economy gives consumers power they have no reason to cede, and rivals for their business will ensure that they won’t.
ULTIMATE STICKINESS
If all else fails, there’s a final technique to help induce consumer loyalty: Create a system of interconnectivity that becomes so widely used that every seller has little choice but to use it, and every buyer who wants access has little choice but to buy from it. Ultimately sticky systems are like languages: If many people use one, others in the vicinity must do the same if they want to communicate efficiently. English is becoming the world’s first universal language, because so many buyers and sellers are using it that other buyers and sellers around the globe have to use it to be part of the global market. Unlike real languages, ultimately sticky systems are owned by private firms that can charge a fee to use them or advertise on them.
Initially, America Online wanted to create a closed system whose content (news, entertainment, and so forth) would be available only to those who paid for it. But it turned out that AOL’s purchasers were less interested in AOL’s content than in the ease with which they could communicate their own content through AOL’s chat rooms and “instant messaging” system, which alerts e-mail users when one of their friends is also online and available to chat. So AOL changed strategy, connected its closed system to the Internet, and provided unlimited access for a fixed monthly fee. Soon, its system became a standard for online communication. And the more people who used it, the more of a standard it became. Stickiness resulted from the simple reality that consumers could not easily switch en masse to another e-communications system—even one that might be superior.
It’s the same with marketplaces. When enough buyers and sellers congregate at any specific location, other buyers and sellers must go there as well in order to have an efficient means of trading. This ancient process—which gave rise to towns at natural ports, river forks, and mountain passes, and created specialized districts for trading particular things (stocks and bonds on Wall Street, diamonds in Amsterdam, pork bellies in Chicago)—is operating in cyberspace as well. When enough buyers and sellers of memorabilia, ephemera, and attic junk congregate in eBay’s electronic auction house, other purveyors are drawn there because it’s the best place to find good trades. Thousands of other Web sites are competing to become marketplaces specializing in the buying or selling of shares of stock, cars, homes, and sex, among other things.
But even ultimate stickiness is limited. Rivals will try to “unstick” your customers by offering a better or cheaper means of communicating. Some may offer free connectivity. In the summer of 1999, Yahoo and Microsoft began distributing software that could connect with AOL’s popular “instant messaging,” thus giving all Yahoo or Microsoft users access to the AOL system without paying AOL, and making AOL significantly less sticky. AOL executives claimed that Yahoo and Microsoft were infringing on its property, and muttered vaguely about a lawsuit. But in the end AOL relented; Yahoo’s and Microsoft’s deep pockets made litigation too costly, and besides, many of AOL’s customers wanted to connect with Yahoo’s and Microsoft’s.
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E
VEN IF YOUR
rivals don’t unstick your consumers, the government may. Excessive stickiness can hobble innovation. That’s why, under the laws of the United States and of most other capitalist nations, owners of brand names lose their exclusive trademarks when the brand becomes so widely used as to become part of the general language. Otherwise, continued private ownership would prevent rivals from offering competing products because the rivals wouldn’t have words to describe them. “Aspirin” was once a trademark, but when buyers began using it as a generic description of a kind of pain reliever, it moved into the public domain, so that any competitor could sell its own brand of aspirin.
