A New Consumer ClassBy CIOinsight | Posted 07-19-2002
Expert Voice: Charles Grantham on the Real-Time Consumer
America's great middle class, called the Silent Majority in years past, is becoming increasingly noisy and demanding online and off, but in ways nobody expected at the start of the Internet boom. No matter that the dot-com craze has cooled dramatically, the genie's out of the box: Behavior and attitudes are changed forever, asserts Charles Grantham, an author of several books about the impact of the Internet on society and work.
Grantham says the fledgling real-time economy is producing a fundamental shift in the psychology of all customerswhether they're buying cars or engine moldings for assemblyand it's continuing to force big changes in the way companies must make, market, deliver and process goods.
Are companies ready? Grantham says they're notbut they ought to be. "Communication technology is continuing to shift the fundamental psychology of most consumers in their attitudes and behaviorthroughout the marketplace," he says. "They can get their books in a day on their doorstep, so why not their groceries? Their dry cleaning? Their garden furniture? They're becoming more demanding in just about every sector."
Grantham says the implications for companies and business strategy are enormous, chiefly because now, businesses must think about offering that he calls "information-added value" to all transactions.
CIO Insight: You say that customers, once they have been exposed to the Internet, behave differently. Their expectations about what's possiblespeed, conveniencechange.
Grantham: It's not simply that they buy something online and wham, their expectations change, and that's it. What we're seeing is that consumer expectations are continuing to change; customers are continuing to become more demanding. This isn't static. The bar is being raised now, continuouslyonline and off. The Internet triggered a fundamental change in the balance of power between customers and sellers. We all knew it would happen, but we all thought it would be more isolated than it's becoming now. The customer isn't king yet, but he is expecting to be, more than before, demanding to be treated with more attention. Communications technology, applied to the marketplace, gives individuals more attention through interaction. Now, many people are used to getting that attention and interaction, and they want more.
Think of the time you first discovered Amazon. You bought a book, and now you believe every book merchant should also do things like Amazon does. Further, now you believe that your groceries, your dry cleaning, your watch, your plumbing should also be available this wayno matter who from, online or off. Your kid's school uniform? You should be able to go onto a school's Web site and watch your kid "try on" that uniform virtually; just type in their measurements and then get a perfectly fitting uniform delivered to your doorfast, Amazon.com-style. Your online book-buying experience now has you thinking that if your local school or your local Safeway can't deliver your stuff in 24 hours, what's going on?
It's an entitlement thing. You see what's possible when one merchant applies the Internet to the shopping experience in an important way, and then you want everyone you deal with to be able to offer the same type of experience or convenience value. And that entitlement thing spreads to other markets, to other roles in your life. It laps over into the workplace. You are a more demanding consumer now; you're also more demanding on the job. You want more from a business; you want more from a job.
The locus of control has shifted away from the organization to the individual. These new rules of the game are evolving daily, challenging businesses to accommodate what I call this new society of one, this new individualism we're seeing in customers, workers and throughout society.
To be sustainable, companies are going to need to absorb the lessons of this new social psychology of customers, employees and competition.
Overall, what this means is the creation of the real-time customer. It showed up first in e-commerce, of course, in the auto industry, where people were starting to price-shop for autos online. People marched into showrooms armed with comparison-shopping data from the Net, much like a few of them used to when they read Consumer Reports. It was business' worst nightmare. They couldn't snow customers anymore, or at least as easily. But now, you're seeing a more educated consumer everywhere. You're seeing this customer-power effectand it has huge implications on how you run a business today and how you run it tomorrow. Your strategy has to change, not just about how you sell something, but how you make it, deliver it and so forth. So we've got this snowball rolling downhill, and it's picked up speed, and there's no going back. No business can tell a customer who's getting steamed and wants someone to accommodate him, "Well, you know, pal, that's just not the way we do business."
Since the early days of the Net, marketing experts have predicted consumers might want to be pampered more.
What's new here is that nobody expected this new behavior to be quite so pervasive, or occur so soon in the evolution of the Internet. Nobody thought that expectations from one sector would just automatically carry over to another. New customers want you to handle them better. Don't do that, and you'll experience a steady loss of your customer base. It's that simple.
And there's something else going on. Customers now expect to get information along with the things they buy and the transactions they conduct. They want an experience, they want knowledge wrapped in with the widget they buy. They want context. In healthcare, of course, it's not just, "Give me a prescription for the medicine." Now I want to know what it does, what it does to my body, how it interacts with other medicines and if there is, perhaps, a natural remedy available that does the same thing.
A New Consumer Class
A New Consumer Class
What do you call this phenomenon?
It's really the emergence of a new Consumer Class. It's the shift in people's belief systems about what their relationship is as a customer to a businessand as a worker to a business. If I'm running a business, I'm going to have to really rethink everything. I need to seriously redo my social relationship with my customers and with my workers. Sure, a lot of people have talked about the need to do this. Now, though, you need to start thinking about "hiring" customers and actively working to retain your best employees. In the past, they came to youand stayed. Not anymore. You've got to work at it harder. You can't take anything for granted.
A lot of people in business today just aren't ready for this shift. Even now, most businesses still think they can fill a store with things and stand behind a counter and simply take money for the things they sell. Now, though, you've got to give them information, an experience, a context for the things they are buying from you. We're in an information age; even our commercial transactions now have to be information-rich. It's with information-added value that you're going to get people into the store, keep them there, and keep them coming back for more in ways some businesses never imaginedand against competitors who are figuring out how to change in the same way.
So, I'm making information part of the product?
People don't just sell widgets anymore. They're selling experiences tied to the actual thing, the widgetso that they're selling a construction experience, if desirednot just a hammer. Businesses that don't at least offer that context in their interaction with customers are going to lose them.
Consider Home Depot. They get it. Sure, you can simply go there and buy a hammer. But you also have a choice. Every Saturday at 10 a.m., there's going to be a one-hour tutorial on how to properly use the hammer, or tell you why an electric screwdriver might in some cases be a better deal. And if you really want to get into it, they provide you, as part of their process, more education about how to build a deck or lay tile or whatever. I call it the Martha Stewartization of America.
I think this rising level of customer sophistication is surprising to a lot of industries. The fact that prospective buyersof everything now, from plumbing equipment to door stopsare armed with all kinds of information is actually quite frightening to some merchants. Many, if not most, businesses are still of the mindset that product is king and scarcity is the principle of price-setting, and that you, the business owner, know your business better than anyone else. That, too, is changing. A customer today probably knows more about a specific marketplace than the people selling goods in that same marketplace. You can't make money off the lack of information that a customer has anymore. Now you've got to figure out another way.
New Business Strategies
New Business Strategies
How does it change business strategy most profoundly?
It means that businesses have to go back and restructure everything from their brand to the technologies that they use and the pricing points. It requires a total rethink. And the bigger the business is, the harder that is to change, and there comes the resistance. You can't just say, "Let's put up an e-commerce site and let people send us e-mails and ask us questions about products." That's nothing. That's passive. We're talking about real levels of involvement that will be required here. Time- and money-involved. Nurturing. A lot more work on the part of the business to pamper the customer. A lot more time and money is going to have to be spent now to keep customers and get more of them. And I'm not just talking about being nicer. I'm talking about involving them in every inch of how you approach strategy.
Take Gensler Architecture. Instead of taking a "we know what you need" attitude, they started asking customers about what's going on in their business and how they thought that might affect their use of space. And what they found was that consumers now want information tied to what Gensler was offering before. So Gensler came up with information offerings, if you willadvice on how to make customer offices more flexible to the rise and fall of work force size and so forth. This is an example of a firm moving from delivering the "what," in this case building and interior designs, to the "how," methods for making workspaces more flexible, and the "why," why such flexibility will make their clients' employees more productive.
Unlimited growth used to be the ultimate goal of business; today our psychology tells us not to waste resources. We're in a period of concentrationcrunching time, space and distance. We have to move our business cycles, shorten them to more accurately match the accelerating tempo of today's marketplace. Psychology has shifted from competition based on price to competition based on value. People want more, faster. Do you want to be in the hula-hoop business or the health and exercise market? We need offensive strategies, which consciously evolve in the wake of whatever the environment has given us. The old view was that business was built around products; today, they are formed around service relationships with consumers.
Adding Value to Experiences
Adding Value to Experiences
There's always been an advantage in convincing your customers that what you can sell them is better than what they can get elsewhere. Does this new thirst for data-rich consumer experiences up the ante?
I think that as more and more products become commodities, margins become very thin. So to increase your bottom line, you're going to have to start wrapping stuff around that product that has a higher margin. So you need to put the educational component around it. You need to put into the transaction what I call "effective in use" elementsin other words, here's how you can take what you're buying from us and improve the quality of your life or get something done you need to get done. Are people willing to pay for that?
I think clever businesses at first see it as a cost because we've got to start the process, but over time they can build the business model that generates revenue on the back end of that. I think that's where we are now, trying to figure out what that revenue model is. You need to offer more of the service and educational component up front. That's how you raise prices today, or justify your decisions to keep prices right where they are.
Don't just sell the widget and the knowledge about how to apply the widget. Sell the experience, the context in which to use the widget. Charge more, or, at least don't lose too much money by refusing to lower your prices to match a competitor. Gym shoes are gym shoes, but Nike, by giving you lifestyle stores complete with a mini-basketball court inside, gives you an experienceand a way to make you feel better about shelling out $100 for a pair of gym shoes. Starbucks figured out a way to sell you a $4 cup of coffee by turning a counter into an urban salon or lounge, and a simple cup of java into an elite treat. There are many examples. Companies can pay for these experiences out of increased profits per cup, per shoeand the really successful ones can still make more profit than before.
How does technology play a role here?
More and more CIOs are going to have to be responsible for helping their companies provide these information value-added services to go along with the products they already sell. I call them information supplements. Should customer service reps report to marketing, or to the CIO in charge of developing information supplements?
There's also a contribution companies can make in terms of response time to customers. In the past, you stopped to chat to a customer or he might be offended. Today, you can't simply assume there's one way to treat someone well. And you have to have a whole different kind of respect for his or her time. If you treat a customer as a valued customer, and respect that the time that they spend with you is an investment, it's the basis of a trusting relationship. So if you're a salesman, you preface something with the question, "Do you have five minutes?" and the person says no, he's only got three, well then you use three, don't use 10. But in many cases, folks don't do that, and I think in today's busy world that's a prime requirement. Technology can help you respond faster.
How about simply starting by improving the way a company automates its customer service?
I think you're seeing some changes, where on one side of the equation some companies have automated ordering, shipping and inventory handling to take the cost out of the operation. Some companies like Lands' End are reinvesting some of that cost-savings in these very well-trained, online customer service reps. I'm a cigar smoker. Order cigars online from Thompson Cigar in Florida, and it's all automated. But on the back end of that, if you want a recommendation for a new type of cigar, you can call somebody and get a human. So you're saving money using automated service on the order and delivery side, but Thompson is using what it saves with automation to pay for humans on the other side, to retain good customers and pamper them in order to compensate for the loss of humans elsewhere in the transaction.
You see that, too, in the employee-company relationship. When customer buying expectations begin to change, they start to splatter over into other aspects of people's lives where folks begin to see themselves as an empowered customer and also as an empowered employee. People will remain loyal to groups that treat them equitably and fairly. As long as there's equity and fairness in the transaction, I don't think loyalty is the real issue. But upset that for a second, and poof! People are off to the next store, to the next product, to the next workplace.
Charles Grantham is a research fellow at the Haas School of Business at the University of California at Berkeley and the chief scientist of the Institute for the Study of Distributed Work. His latest book, Consumer Evolution: Nine Effective Strategies for Driving Business Growth, will be published later this year by John Wiley & Sons.