The Journey Analogy

Edge strategy acknowledges that the boundaries defined by a product do not typically mark the beginning and end of the journeys that initially prompted customers to engage. These journeys often start before a company actually sees the customer and tend to continue well after they have transacted.

Let’s start with the most literal of examples and think about all the steps of a real journey. If someone was traveling from New York City to Los Angeles on a business trip, an airline would have a very narrow lens on that customer’s actual purpose. Despite multiple touch points at check-in, airport security, boarding, flight, and baggage claim, the airline would draw false conclusions about the customer’s objectives based solely on its own interactions. To get a complete picture, we need to think through all the steps. The customer might have planned the trip through an online travel agency, purchased a new travel bag, and parked her car at an airport lot before the airline even saw her. After she left the airline’s sight, she might have taken a taxi, checked into a hotel, and then met with a client for dinner. If the customer’s end mission was actually to make a big sale to her client, what a distorted picture the airline would have by inferring that her mission was simply to take a flight!

What an airline offers that passenger may actually change if it knows the true purpose, or mission, of her journey. The preoccupied businesswoman on her way to make the big sale is certainly going to be in a different mindset than the retiree sitting to her left returning home to his spouse, or the college student on her right on his way to spring break. They will all have different pain points and very different needs leading up to, and exiting, the airline’s care.

Opening the aperture further allows us to see the whole journey for what it really is: a much longer sequence of events involving multiple transactions across a variety of partners before a desired outcome is achieved. Setting aside our trip analogy, we can recognize figurative “journeys” in almost every type of business. Customers of nearly every product or service seek to achieve an end, an end that is typically much bigger (to them) than the actual transaction. They, too, are on a sort of mission, and products merely help in this endeavor. Does a customer buy a flat-screen TV because he wants to own an electronic device? Or rather because he wants to sit on his couch and consume entertainment? Is the mission of a trip to the grocery store the acquisition of items for the pantry? Or might the underlying mission be a hot meal for the family?

Occasionally, customers see a product as helping complete an entire mission. More often, customers view products as simply playing a role in a larger effort that involves other steps (and other products or services) to achieve the mission. The end-to-end set of steps required to reach a customer’s ultimate mission is what we call, figuratively, the “customer journey.” Most companies intersect with only a subset of steps in a journey, implying that the portion of the journey a company overlaps has its own edges. A journey edge demarks that portion of a customer journey (to achieve some mission) that a company currently sees.

But is this level of participation fixed? Customer journeys often have frustrations and frictions. Sometimes, customers simply lack a good map of where they are going. If, in a natural and complementary way, you can walk just a couple of steps further with your customer toward the completion of his or her mission, then you likely have a journey edge.

Extending the Framework

Thinking in terms of journeys encourages you to expand solutions, to encompass needs that immediately precede or follow the core transaction. Finding journey edges involves asking the question: What mission is my customer ultimately hoping to accomplish with my product and would he or she give me permission to help more toward this end?

Returning to the framework we introduced in chapter 2, let’s assume that your core offering does a pretty good job approximating the customer permission set. You don’t have a perfect eclipse, and indeed there is some work to do around the edges of your product, but your offer is more or less what your customers expect from you. Now, let’s think about things in the more holistic context of the customer journey. We can imagine another broad circle, surrounding the customer permission set, which represents what the customer ultimately wants to accomplish on her journey (see figure 3-1). This circle we call the “customer mission space” since it represents a broader objective for which your product is merely a stepping-stone.

The customer permission set that you are trying to address is smaller than the customer mission space that is required to complete the customer’s journey. Maybe your customer historically never thought you could be of further help. Maybe you just never thought to ask if you could walk a couple more steps along her journey. Either way, there is an opportunity to redefine your current participation along the edge of the current customer permission set (see figure 3-2). If your customer lets you help with a little more, at the fringe of what you do already, then you have found an opportunity at the journey’s edge.

As we discussed in chapter 2, product edges question the sufficiency of a single product boundary in a world of diverse customer needs. Product edges imply that enhancements, or optional features, are required to satisfy different customers. Journey edges go a step further, challenging the premise that any variant of your product is adequate. In order to satisfy the more broadly defined, underlying need, you must begin to append not just attributes, but additional (highly synergistic) products or services to your core product.

An important aspect of journey edges is that they remain, in fact, edges. By contrast, vertical integration strategies often tend to go well beyond our definition. Vertical integration contemplates moving outside the core business into completely new stages of a value chain. While capturing upstream or downstream margin might be a worthy goal, it has a very different risk profile from moving only slightly further along a customer journey. Vertical integration often requires significant development or acquisition of brand-new assets and capabilities. The majority of what you need to make vertical integration successful is typically not present when you commence the strategy.

For this same reason, ventures that require investing into a separate, adjacent space also rarely qualify as edges. Journey edges are distinct from these bolder strategies because they are incremental in nature: expanding slightly on permission that already exists versus seeking to establish a new permission. Said another way, they are highly complementary to the core offering, and so the foundational assets that enable them should largely already be present.

Analyzing the Customer’s Endgame

Many ancillary businesses that today seem almost core at one time started out as journey edges. For example, retailers often augment sales with accompanying support such as assembly or installation services. Think of a home goods retailer selling an unassembled outdoor grill as a box of parts and leaving its customer’s mission incomplete. When that retailer also sells assembly and delivery, it takes another step in the journey to the customer’s true mission of cooking in his backyard. Another example is the business-to-business service contracts that are layered on top of software sales. Maintenance, installation, training, delivery, anything at all that turns do-it-yourself into a do-it-for-me solution originally resulted from exploring the edge of where core products intersect with customer journeys.

Let’s take an example from Colfax, a multibillion-dollar industrial products company.² Its ESAB division—with manufacturing facilities throughout Central and Eastern Europe, South America, and Asia—is one of the world’s leading manufacturers of welding consumables and equipment.³ Welding guns and TIG torches, as well as the consumable filler used to enable the tools, are the company’s core business.⁴ However, the company also has a robust edge strategy. Along with these products, ESAB provides, at the edge of its core product business, many related services. These include welding education, product training, and value-added engineering (consulting) assistance.⁵ Some of these are revenue streams, and others, as we will see in chapter 7, are bundled with the product to sell larger solutions. In either case, the company has made choices about moving, just incrementally, beyond the sale of product and closer to the customer’s end mission. ESAB’s approach, like the discovery of all journey edges, essentially boils down to four steps.

Whole Foods Market’s Winning Edge

When Whole Foods Market was founded in Texas in 1978, there was no evidence that the company would eventually be serving sit-down meals to diners. Back then, it was a classic grocery business, albeit specialized in organic products.⁷ Over the ensuing period, however, what was originally a deli counter expanded into a vast array of premium services in the form of ready-to-eat options.⁸ Sushi bars, barbecue stands, Mexican food stations, and espresso bars are now backed by professional chefs and an attentive support staff that clears tables and keeps a sit-down dining area spotless. How did this come to pass?

Whole Foods is a remarkable example of a company that recognized the journey edges in its business. The company then used value-added services as a means to expand its relationship at or near these edges. Whole Foods explicitly describes this approach to the market. Referring to journeys as customer “modes,” the co-chief operating officer, A. C. Gallo, told Wall Street analysts that Whole Foods’ strategy was to configure its offer to accommodate these different customer missions. According to Gallo, “One mode is ‘I want to just get ingredients.’ Another mode is ‘I want to get something already partially prepared I can take home and finish.’ And another is ‘I want to get things already cooked.’”⁹

Whole Foods already possessed many of the foundational assets required to build a prepared foods business. It already had stores and foot traffic. It had relationships with customers and was able to capitalize on existing interactions in a natural way. Whole Foods also enjoyed a strong supply chain with gourmet, organic ingredients (with far better buying power than most hospitality companies). The move did need some investing in prep kitchens and building a section, sometimes on a second floor, to accommodate diners.¹⁰ But it only required marginal changes to the labor model. Overall, the initiative was much more efficient and effective than what a third party starting a similar greenfield concept could accomplish.

The results of this journey edge strategy are staggering. In 2014, Whole Foods boasted sales of $2.7 billion in prepared foods and bakery—accounting for about 20 percent of the company’s revenues.¹¹ Industry gross profit margins from prepared foods are typically 55 percent, which is one-and-a-half times what Whole Foods realizes in its overall business.¹² We see this phenomenon repeatedly. If a complementary system is constructed appropriately, the core business enables an ancillary business to earn the outsized margins that power the company.

What makes this a quintessential journey edge strategy is that prepared foods were a natural extension of what Whole Foods was providing for customers on a day-to-day basis. The new business was more than related; it was directly complementary to the core. Moreover, the edge characteristics of the business were never lost on founder John Mackey. He let the world know that he was not interested in extending Whole Foods’ brand into an adjacent food service space. “Let me be clear that we do not want to open fast-food restaurants,” he once told analysts. “We are food retailers, and we’ve got a great strategy, and as you can see, we’re producing great results. I think we ought to stick with it and not get distracted.”¹³

A Chinese Journey

There are many potential journey edge applications. In our analysis of hundreds of global companies, we found that nearly 30 percent exercised a journey edge of some sort.¹⁴ A combination of strategies and tactics, the most common manifestations could loosely be called types of consulting (17 percent), training (15 percent), and installation (8 percent).¹⁵ We have also found examples of journey edges in many different countries. The powerful idea to slightly reframe the customer relationship through ancillary options is culturally agnostic and pervades geographical boundaries.

Take another example, on the other side of the world from Whole Foods headquarters, in Shenzhen, China.¹⁶ Colour Life, a publicly listed company on the Hong Kong exchange, is one of China’s leading property management companies.¹⁷ In 2014 the company managed more than five hundred residences (apartment complexes) across China.¹⁸ The company’s relevant foundational assets were a centralized and automated property management system, a direct presence in each of its residences, and, most importantly, a large tenant base.¹⁹

Colour Life initially had two core business lines. One, property management itself, includes such things as security, gardening, cleaning, repair, and maintenance. The second, engineering services, includes equipment leasing, installation, and maintenance. However, Colour Life distinguished itself by introducing a third line aimed at improving its residents’ quality of life. The company did this by providing online and offline service platforms for residents, where qualified local vendors could promote their own services and products.²⁰

The company realized that its customers had many unmet needs that began right where its relationship officially ended. It also recognized that a host of vendors were eager to provide just these services to its clientele. To provide the services directly would require a risky step into unfamiliar adjacent businesses. But to facilitate the deals, lubricating transactions, was right at the edge of what Colour Life was already doing.

The insight was that customers were not merely renting maintained space; they were making homes. As such, they needed everyday conveniences such as fresh groceries, cut flowers, decorations, household item repairs, and anything normally associated with the upkeep of apartments. A vendor network would allow residents to quickly and conveniently get help with a variety of steps along the journey of residency.

The innovation was to create both digital and physical marketplaces for vendors to sell these goods to their tenants and liberally deploy foundational assets. The company leveraged existing community centers to provide bricks-and-mortar space for local vendors. Online, it built a purchase platform for locally sourced basic necessities. This online solution utilized its existing centralized network operations center, an investment originally used to make more efficient use of labor forces for certain services.²¹

“Community leasing, sales, and other services” is the third business line where Colour Life reports its edge revenue. Altogether, it is about 17 percent of the company’s revenue.²² The bottom-line impact is where the edge-based leverage shows up. Average property management profit margins in China tend to run between 5 percent and 10 percent. By comparison, Colour Life’s profit margins averaged approximately 30 percent in the three years ending in 2014.²³

Where Journeys Begin and End

A final, intriguing characteristic of journey edges is that they tend to present themselves even if you do nothing to enable them. Companies commonly discount this evidence as a special case. In fact, some companies end up giving away their edge, not realizing the potential they are squandering.

If a business is at, or pretty close to, the actual beginning or end of the customer’s journey, then odds are there is no partner assisting with the initiation or completion of the mission. In these cases, the customer often seeks counsel from whoever is closest to this step of the journey. The interactions we witness at the beginning of journeys often involve such things as scoping options, designing a solution, or assessing the economic feasibility of a job to be done. Salespeople might do some of this for free, just to close the core sale. Likewise, at the end of journeys, we see interactions in extending product life, reconfiguration, and product disposal. We think these are a great place to look for opportunity.

As we will see in chapter 9, the consumer electronics giant Best Buy is a great example that underscores this point. The company built “Geek Squad,” a technical service team, which was seeded initially by a small acquisition and was focused on taking the next step of its customers’ journey after purchase. When someone buys a home theater system, it needs to be installed, and Geek Squad can do that for a charge. As a computer ages, it often develops problems that need troubleshooting and fixing: Geek Squad can do that, too. With a Geek Squad desk in the corner of the store, Best Buy’s edge is to sell one more step of the journey to as many customers as possible. As we will see in chapter 9, the strategy was very successful.

But how did Best Buy know to move into this business in the first place? Was it a guess? A simple juxtaposition of double-digit service margins with the razor-thin profits of “selling boxes,” with hope that it would work? The answer really surprised us.

The company, given its strong sales and customer service culture, was already active in ancillary services; it just wasn’t charging for them. Sales associates were helping customers with in-store installation of batteries and disc drives. They were helping customers identify complementary auxiliary items (that the company often did not sell) to facilitate home solutions. When a few customers returned to the store with a postpurchase issue, associates were helping to troubleshoot. None of these ad hoc services was high volume and, as a result, remained largely unnoticed. However, there was evidence that (1) many product sales were insufficient to complete their respective journeys, (2) customers clearly needed help with these steps, and (3) customers would give Best Buy permission to assist.

When Best Buy, one by one, turned its normal stores into Geek Squad–enhanced stores, it imposed a formality that previously did not exist. By hanging stock-keeping units and prices on activities, Best Buy was enabling income from activities that were happening in small volume already. By no longer giving away the edge, Best Buy simply changed how many customers could enjoy these intuitively complementary services and built a process to deliver them more consistently.