There’s a popular story in retail circles about a man in Anchorage Alaska who visited his local Nordstrom department store to return a set of tires. After explain to the manager that he wasn’t satisfied with the purchase, he received a full refund – despite that fact that Nordstrom doesn’t sell tires. This customer had actually purchased his tires from a company that had sat on the very same piece of land at some point in the past.
While stories like this one have become widely-recounted examples of Nordstrom’s legendary service, they hardly seem to represent a profitable business model. The idea is to make money, not to give it away. You can’t grow a company by offering full refunds, especially for products you don’t even sell.
Or can you?
There are two primary models for driving business today. The first involves product innovation. In this model, a company is always working to reinvent their product lineup. By offering a steady stream of new products, as well as improvements and additional features to existing ones, they seek to stay ahead of the competition. They seek to position themselves as pioneers in their industry and attract customers looking for the latest and greatest.
Of course, this model has drawbacks. It’s difficult to stay on the top. As soon as a revolutionary new product is introduced, competitors work to offer up their own version of it. What was touted as yesterday’s must-have innovation, is today’s commodity. Those playing catch up benefit from the costly trial and error of the trend setter. Their products are usually cheaper and often better since the heavy lifting has been handled by someone else. So, innovators must always be innovating to stay on top.
The second prevailing model involves price discounts. In this model, a company drives efficiency and expense management in pursuit of low prices. They compete by always offering the best prices, either through every day positioning or the advertisement of frequent sales. They see volume as the path to prosperity. They seek to position themselves as the best value and attract customers looking for the cheapest way out.
This model also has drawbacks. There’s always someone else willing to cut their prices to compete. Engaging in the price war means you must find some way to keep going lower, despite pressure to maintain a reasonable margin. This means that corners get cut – cheaper materials, cheaper labor, fewer features, and lower quality all become legitimate paths to improving the bottom line. And while you attract a lot of customers with low prices, those customers are inherently disloyal. Having been caught via the lure of a bargain, they become trained to shop based on price at the expense of value.
Both models are costly. It takes a lot of effort to make them work, and both create a customer base ready to jump ship at a moment’s notice. Such is the case when short-term revenue outweighs long-term growth. But there is another business model that can be used. It’s hard to find, but it’s the one growth strategy that makes the most sense. It’s the one used by companies like Nordstrom and Disney World and Chic-fil-A.
It’s the service-first model.
Companies that adopt the service-first model aren’t interested in being the lowest cost provider. In fact, they typically command premium pricing. You pay more for their products than you would elsewhere. And service-first organizations aren’t typically the innovators – at least not in a “we have the latest gadget” kind of way. You’ll often find them in commodity-based industries. Nordstrom sells clothes and cosmetics, just like any number of other department stores. Chic-fil-A sells fast food, just like thousands of other restaurant chains. Disney World is a theme park, and the competition is fierce.
Service-first organizations see their mission as providing an unmatched experience. It’s the experience that keeps customers coming back despite competitors that might be shinier or cheaper. It’s the experience that customers pay for; and they gladly pay a premium for it. Nordstrom clothes are not cheap. They don’t offer coupons and they rarely run sales. When they do, it’s as a thank you to those loyal customers who’ve shopped with them in spite of seemingly overwhelming reasons to take their business elsewhere.
Interestingly, a service-first model is the one most companies claim. The problem is, you can’t do it all. You choose, knowingly or unconsciously, a philosophy that dictates the course your business will take. One track always takes precedence over the others. And it always shows. Regardless of what you advertise, the people who matter most (your customers and employees) will figure out where your heart is. Make a list of companies you feel are truly service-first. I’ll bet the list is short.
I find the great irony of business is that those who deliver the best service experience don’t talk about it much, while those who actually chase another business model are the ones who most fervently claim to be service-oriented. They’re all bark, little bite. This list is quite a bit longer, isn’t it?
So, do you compete on product? Do you scratch and claw your way to the next short-lived product innovation?
Do you compete on price? Do you slash and burn the infrastructure to drive prices as low as they can go?
Or do you compete on service? Do you simply offer an experience that exceeds that of the competition – one so valuable people gladly pay premium prices to be your customer?
What business model makes the most sense to you? Choose wisely.
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