Customers, Not Consumers

The word consumer first appeared in the early fifteenth century, when it meant “one who squanders or wastes.”⁶ By 1776, when Adam Smith published The Wealth of Nations (in which consumer appears forty-eight times), the word had gained an economic meaning, as the counterpart of producer.⁷ By the middle of the twentieth century, however, consumers had become members of mass markets: living embodiments of appetite, or what REX (Relationship Economy Expedition) founder Jerry Michalski calls “gullets with wallets and eyeballs.”⁸

Consumers have power only in groups, most of which are categories seen by retailers rather than unions representing common interests of individuals. This is why Consumers Union was formed in 1936, and why it remains a powerful institution today. It is also why governments maintain consumer price indexes (CPIs) and consumer protection bureaus and agencies. (When I look up “customer protection agency” on Google, it assumes I mean “consumer” and instead gives me results for that.⁹)

Here’s the difference: while consumers are herd animals (meaning they look that way from above), customers are human in the most profound way—they require respect for who and what each of them are, which is different from everybody else.

No human characteristic is more distinctive than difference. Even genetically identical twins, who begin life as a single fertilized cell, can become as unique as any other two human beings who have ever lived.¹⁰

As individual human beings, the respect we want goes beyond mere courtesy. We want understanding by others that what we bring to conversations, relationships, and transactions are more than words, commitments, and money. We also bring what only we know, believe, think, and can say. None of that can be fully represented, much less duplicated, by anybody or anything else, including “big data” constructions. We have full agency only as ourselves. The agency of those representing us works best when it carries forward the personal essences that are ours alone. Chief among those, for the purposes of business, is our intentions.

Just getting our attention, as consumers, won’t cut it anymore—no matter how “personalized” a seller makes our “experience” as a target of their guesswork.

Beyond the Echo Chamber

Within the world’s value chains, the term vendor customarily applies to upstream sources of goods and services, while customer refers to downstream buyers of those services. The retailer Safeway is a customer of General Mills, and a vendor to customers who walk into Safeway stores. General Mills would never call Safeway a “consumer,” which testifies both to the collective nature of consumers and the individual natures of customers. To their credit, retailers like Safeway also don’t tend to call their customers “consumers” either—at least not to their faces—because workers at Safeway stores interact with customers face-to-face every day.

Trader Joe’s is not alone in not calling customers “consumers.” Target, for example, calls customers “guests” Thus, on the corporate Web page titled “Target’s unique guests,” the word “consumer” does not appear. The page also says clueful things like “Target attracts guests just as unique as its stores,” and “Target guests are thoughtful about how they spend and where they shop. They know that any retailer can match price, but what about value? Target guests strive to make the most of their time and money by recognizing the difference between price and the more enduring concept of value.”¹¹

This consciousness about customers helps distinguish Target from other big-box discount retailers. Yet the word “guest” also carries the scent of euphemism. Several years ago I was talking about VRM with a high-level executive at Target. After telling me about the many ways Target works distance itself from other big-box retailers (commitment to diversity, high percentage of women in executive ranks, commitment to product quality, calling customers “guests” and so on), he summed up his case with this line: “We do everything we can to own the customer.” I replied, “What’s another word for owning a human being?” He said, “Oh my gosh: it’s slavery. Why do we talk like that?” The answer is that business in general talks like that, and mostly to itself.

For example, consider trade shows.

Take the National Retail Federation’s 2012 Big Show, which ran in New York in January.¹² The first item on the agenda was “Critical Developments in Retail Marketing: Understanding Consumers, Building Brands.” The session was sponsored by IBM, and the speaker was Jon Iwata, IBM’s senior vice president of Marketing and Communications. From the agenda’s Web page: “A new IBM study reveals that 71% of retail Chief Marketing Officers feel underprepared to manage the explosion of data. CMOs are excited by the vast knowledge available to them about customers and by the means to reach and serve them in new ways, but they are challenged by how to use that information to understand what’s happening right now, act on information in real time, and even successfully predict outcomes.”¹³

Let’s put this in context. IBM is one of the biggest vendors of IT (information technology) gear and services to retailers. The company was doing big data long before the term “IT” showed up, and its competence around big data is surely a helpful thing for many retailers. But nothing big data offers today, in any business, is a substitute for intentionally delivered intelligence from real customers who are engaged, one-to-one, with retailers in the marketplace—in their own ways, and on their own terms. Fort Business (see chapter 22) can’t do this by talking only to itself, or by looking only to its own vendors for guidance.

Still, retailers are realists, and there are signs, even at trade shows, that customer leadership is inevitable in any case. Here is the description copy for a Big Show 2012 breakout session titled “Winning Today’s Digitally-Enhanced Shopper”:

Today’s path to purchase has become dynamic and fluid with multiple touch points, interactions, and engagement—many of which occur outside of the physical store. While brand influence continues to play a significant role in the path, the shopper’s voice is becoming stronger and the shopper is in control. Mobile, digital, and social change drivers are transforming shopping trips—before, during, and after. Rules have changed. The shopper has gone digital and retailers must find innovative new ways to engage with today’s digitally enhanced shopper. The keys to engagement, influence, and loyalty require understanding the shopper’s mind-set and engaging in the right conversations.¹⁴

“Mind-set” doesn’t cover what customers will bring to the table that retailers are setting. Among other things, we want to know what goes into the products and services we buy, and not just what’s happening at the near ends of supply chains. The main reason we want to know that stuff is that we care about more than paying the least we can. Baiting with bargains is a game that’s less fun for everybody to play when all the true costs are exposed.

Without Gimmicks

Thomas Harper’s Online Etymology Dictionary offers this for the origin of gimmick: “1926 (in Maine & Grant’s ‘Wise-Crack Dictionary,’ which defines it as ‘a device used for making a fair game crooked’), Amer.Eng., perhaps an alteration of gimcrack, or an anagram of magic.”¹⁵ Among other definitions, Merriam-Webster says gimmick means “a trick or device used to attract business or attention <a marketing gimmick>.”¹⁶

There are many marketing gimmicks, but all serve to both attract shopper attention and mask intrinsic worth—at costs to both the seller and the shopper. For example, the “75¢ off any two Old El Paso products” offered to me by the scanning gizmo at Stop & Shop (see chapter 6) has nothing to do with the worth of those products as food, or the value of Old El Paso as a brand.¹⁷ In fact, the discount demeans the brand. Both stores and brands are surely aware of this, and perhaps even build that cost into their pricing calculations. But the masking is still there, and that’s one reason why Trader Joe’s (and a handful of other major grocery sellers—notably Whole Foods) offer a single non-discount price. But they remain the exception. Gimmickry still rules.

In Our Dumb World, which may be the funniest book ever written, The Onion calls the United States “Land of Opportunism”—a place where lotteries “allow thousands to lose instantly” and “the #5 combo” is listed under “traditional cuisine.”¹⁸

In her book Cheap: The High Cost of Discount Culture, Ellen Ruppel Shell digs deeply into the tragic truths that make The Onion’s funny one-liners about the United States ring so true. About the aftermath of the recent financial meltdown, she writes,

Our fixation on all things cheap led us astray. We have blundered before and risen chastened but stronger. From this latest fiasco we have learned the hard lesson that we cannot grow a country and a future on a steady diet of “great deals.”

Americans love a bargain, and that is not about to change. But sometimes what looks like a bargain is really just a bad loan.¹⁹

Discounting is also a drug, which best explains why a business so doomed as Groupon’s original coupon game not only got traction, but a $5 billion to $6 billion takeover offer from Google that the founders turned down.²⁰ When I first saw that news I thought it was an Onion story. In fact, Groupon’s putative valuation at this writing has soared as high as $30 billion. According to Andrew Ross Sorkin, editor at large of the New York Times DealBook, that high-hype mark was achieved by Lloyd Blankfein, CEO of Goldman Sachs, who “flew to Chicago personally to pitch his firm to underwrite what was supposed to be the hottest initial public offering of the year.” The pitch succeeded. Later (on October 17, 2011), Sorkin wrote, “The valuation will be lucky to be more than $10 million.”²¹

I’m no analyst, but I can say with confidence that Groupon is a value-subtract for nearly every enterprise that buys its jive. Its worth to the economy is less than zero because it is pure gimmick, as were Green Stamps and as are nearly all the half-billion promotional sites that come up in a Google search for “coupons.”

An old saying goes, “Cocaine makes you feel like a man. Problem is, the man wants more cocaine.” Coupons are cocaine for business.

To get off the discounting drug, it helps to know that businesses can survive—and thrive—without Groupons, or coupons, or any gimmick at all. As I reported in chapter 8, one reason Kmart tanked while Walmart rocked (at least according to Lee Scott, Walmart’s former CEO) was that Kmart hooked its customers on coupons while Walmart didn’t.

The lesson: when your company and your customers both get hooked on discounts, you don’t have a clear sense of what your products and services are actually worth or how you can increase their intrinsic value.

Some customers, of course, will remain hooked on coupons for the duration. But most customers don’t need coupons, and neither do the companies that distribute them. They also don’t need most of the overhead-fattening practices listed in the chapter 8: advertising and buyback allowances, contests, co-op, dealer premiums, display allowances, diverting, forward-buying, variable trade spending, trade deals, slotting fees, spiffs, and the rest of them. Not if what they offer is attractive and valuable to begin with.

The Bigger Delusion

Live long enough, and you get to see a series of market crashes. The one closest to home for me is still the dot-com crash, which I experienced both as a techie in Silicon Valley and as a journalist covering it, live. Here’s an excerpt from “Lessons in Mid-Crash,” which I wrote for Linux Journal in August 2001:

It’s now obvious that the crashing will continue, right up to the point when every public- and venture-funded technology company that was never a real business ceases attempting to become one. In most cases, that will happen when they finish burning their investors’ money—after crashing their investors’ cars while smoking one another’s exhaust.

When the “internet economy” was still a high-speed traffic jam somewhere back in 1999, I was at a party in San Francisco. Most of the folks there were young, hip “entrepreneurs.” Lots of all-black outfits, spiky haircuts, goatees and face jewelry. I fell into conversation with one of these guys … (who) was on his second or third startup and eagerly evangelizing his new company’s “mission” with a stream of buzzwords.

“What does your company do, exactly?” I asked.

“We’re an arms merchant to the portals industry,” he replied.

When I pressed him for more details (How are portals an industry? What kind of arms are you selling?), I got more buzzwords back. Finally, I asked a rude question. “How are sales?”

“They’re great. We just closed our second round of financing.”

Thus I was delivered an epiphany: every company has two markets—one for its goods and services, and one for itself—and the latter had overcome the former. We actually thought selling companies to investors was a real business model.²²

The situation was even worse than that, because the dot-com crash was just one symptom of a larger economic disorder called financialization, which brought on the housing market crash of the late ‘00s. In American Theocracy: The Peril and Politics of Radical Religion, Oil, and Borrowed Money in the 21st Century, Kevin Phillips calls financialization “a process whereby financial services, broadly construed, take over the dominant economic, cultural, and political role in a national economy.”²³ In his next book, Bad Money: Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism, he writes, “… in less than half a century, finance has ascended from its image as a mistrusted casino (a memory from 1929) to secular altar, from emotional cockpit to Efficient Market, and from a battlefield of scamps to a playing field of such Efficient Market exemplars as speculators, arbitrageurs, credit-derivatives designers, and corporate raiders.”²⁴

Financialization can also cause psychosis within companies: a detachment of the corporate mind from reality, which is the business itself, rather than its worth to Wall Street.

Let’s face it: few entrepreneurs go into business saying, “I just can’t wait to maximize shareholder value.” They go into business because they see opportunity in some obsession or other, and want to make that obsession appeal to customers. Here’s how Peter Drucker put the difference in an interview with Fortune in 1998:

There’s one thing securities analysts will never understand, and that’s business, because they believe that money is real. Securities analysts believe that companies make money. Companies make shoes. No securities analyst can really understand that. Yes, your stock price is exceedingly important because it controls the cost of your most expensive resource—capital … and there is no profit unless you earn the cost of capital.²⁵

Unless your business makes money from money, you make shoes. One hundred percent of the people who wear shoes are called customers, not stockholders. If you make stockholders happy without doing the same first for customers, your company is dancing on the edge of a cliff. Because once customers have a better choice, they’ll leave.

Perfect examples: Nordstrom and Zappos.

In 1999, at the height of the dot-com boom, Nordstom pioneered selling shoes online. With help from Benchmark Capital, a big-name Silicon Valley venture capital firm, Nordstrom put up a slick new shoe store, featuring the latest and greatest in e-commerce Web site design. Here’s what Stefanie Olsen of CNET News.com reported at the time:

The Nordstromshoes.com site, which offers approximately 20 million pairs of shoes, seeks to draw customers online with a new national sweepstakes … The Make Room for Shoes promotion will give away free shoes for life, among other prizes.

Nordstromshoes.com customers can return their purchases to any of Nordstrom’s brick-and-mortar stores. Store clerks can order items through the Web site for customers who are unable to find what they are looking for in Nordstrom’s stores.

The retailer also plans to spend $17 million this holiday season promoting its new online shoe store.

Nordstrom estimates that the online shoe business will grow from $121 million this year to some $902 million in 2003, but competition will be intense. Banana Republic, Macy’s, and Nike, among others, all sell shoes online.²⁶

But the competition didn’t come from any of those usual suspects. It came from ShoeSite.com, which had launched a few months earlier. Around the time Nordstromshoes.com came online, ShoeSite.com became Zappos. The rest is history, including Nordstromshoes.com (that address now redirects to shop.nordstrom.com/c/shoes). Zappos (slogan: “Powered by Service”) out-Nordstromed Nordstrom. While Nordstrom succeeded in the brick-and-mortar by offering high levels of customer service made possible by deep product and size inventories, Zappos beat them at all of that in the online world. In 2009, Zappos sold to Amazon.com for $1.2 billion in stock. It still operates independently.

Zappos won by loving customers and letting them lead. From the beginning, it saw relationships as an investment rather than an expense. It also saw conversation as an advantage, rather than a waste of time. In other words, the more the better.

According to Jane Judd, senior manager of customer loyalty at Zappos, “The key is for personal, emotional connection and to engage the consumer.”²⁷ This means, for example, no time limit on the phone. The current record time for a customer call to Zappos is eight hours and twenty-eight minutes, a sum Zappos regards with pride.²⁸

Zappos also wins by being really different, rather than incrementally so. In Different: Escaping the Competitive Herd, Youngme Moon (Donald K. David Professor at Harvard Business School) writes, “In category after category, it has become apparent that competitive differentiation is a myth. Or to put it more precisely, in category after category, companies have gotten so collectively locked into a particular cadence of competition that they appear to have lost sight of their mandate—which is to create meaningful grooves of separation from one another. Consequently, the harder they compete, the less differentiated they become.”²⁹

It’s easy to miss a great line—a sub-subhead—almost hidden in the stylistic arrangement of text on Different’s title page. It reads, “Standing out in a world where conformity reigns but exceptions rule.” To fully dig what that means, consider Apple, which she calls “yet another reminder, against a sea of competitive homogeneity, of how utterly charismatic difference can be.”³⁰ Listen to Steve Jobs do the voice-over for a one-minute TV ad titled, “The Crazy Ones,” which launched Apple’s “Think Different” campaign after Steve returned to the company. Here’s the copy:

Here’s to the crazy ones, the misfits, the rebels, the troublemakers, the round pegs in the square holes, the ones who see things differently. They’re not fond of rules. You can quote them, disagree with them, glorify or vilify them; but the only thing you can’t do is ignore them, because they change things. They push the human race forward. And while some may see them as the crazy ones, we see genius, because the ones who are crazy enough to think that they can change the world, are the ones who do.³¹

Richard Dreyfus voiced the ad that aired on TV. But after Steve Jobs died, the version with Steve’s own voice showed up on YouTube. It’s eerie, because it makes clear how truly different Steve was—and how determined he was to make his company and its products different as well.

Learning New Moves

What “different” companies do is return to the free and open place that markets were to begin with. Here’s what David Weinberger and I wrote about that place in the “Markets are Conversations” chapter of The Cluetrain Manifesto:

The first markets were filled with people, not abstractions or statistical aggregates; they were the places where supply met demand with a firm handshake. Buyers and sellers looked each other in the eye, met, and connected. The first markets were places for exchange, where people came to buy what others had to sell—and to talk.

The first markets were filled with talk. Some of it was about goods and products. Some of it was news, opinion, and gossip. Little of it mattered to everyone; all of it engaged someone. There were often conversations about the work of hands: “Feel this knife. See how it fits your palm.” “The cotton in this shirt, where did it come from?” … Some of these conversations ended in a sale, but don’t let that fool you. The sale was merely the exclamation mark at the end of the sentence.

Market leaders were men and women whose hands were worn by the work they did. Their work was their life, and their brands were the names they were known by: Miller, Weaver, Hunter, Skinner, Farmer, Brewer, Fisher, Shoemaker, Smith.

For thousands of years, we knew exactly what markets were: conversations between people who sought out others who shared the same interests. Buyers had as much to say as sellers. They spoke directly to each other without the filter of media, the artifice of positioning statements, the arrogance of advertising, or the shading of public relations.

These were the kinds of conversations people have been having since they started to talk. Social. Based on intersecting interests. Open to many resolutions. Essentially unpredictable. Spoken from the center of the self. “Markets were conversations” doesn’t mean “markets were noisy.” It means markets were places where people met to see and talk about each other’s work.

Conversation is a profound act of humanity. So once were markets.³²

Yet talking isn’t all that good companies do. They also dance.

Right now, most retail market categories are dance floors where every customer hears dozens, hundreds, or thousands of companies, each with a megaphone, calling out dance moves. What those companies need to do instead is put down the megaphone, and—in the manner of Trader Joe’s and Zappos—shop along with customers. Dance. Sure, lead sometimes, but follow, too.

Not easy. Throughout the industrial age, business on the whole has always taken the lead—or thought it had to. But for customers to take charge—which they will, at least half the time—they have to take the lead, too.

It helps that vendors and customers both bring qualities to the dance floor that the other does not, and that both need each other for the economy to work and for civilization to thrive. They don’t always need to love each other or even to know each other. But they do need to respect, understand, and learn from each other. They can’t do that to full effect if one side tries constantly to dominate the other.

One thing companies are free to do is please and delight customers with products and services that are truly worthwhile. The chances of doing that only go up if customers are both heard and engaged as equals, and not as slaves or suckling calves.

The Personal Edge

My friend Antonio Rodriguez is a serial entrepreneur who once reported to me an interesting exchange he had with a venture capitalist. When the VC asked him, “What’s your lock-in?” Antonio answered, “Our lock-in is love. We want our customers to love our company.”

You don’t have to like all your customers. But you do have to love them. And love goes two ways, not just one. So does intent. If your business rationalizes trapping customers or baiting them with gimmicks, you don’t have a dance—just a lot of jerking around. But if you truly relate with your customers, you’ll discover moves together that just weren’t possible when you ran the whole show by yourself.