What started me wondering was Starbuck's plan to close 600 stores. Supposedly the stores were "under performing" and the company realized that it had too many locations unnecessarily cannibalizing the sales of others. But this was more than simply maximizing retail location value. The company had undermined its brand in three ways, as marketing expert John Quelch notes:
- First, the early adopters who valued the club-like atmosphere of relaxing over a quality cup of coffee found themselves in a minority."
- Second, Starbucks introduced many new products to broaden its appeal.
- Third, opening new stores and launching a blizzard of new products create only superficial growth.
People buy because of emotion, no matter what they say. Even if someone has a practical need, that person will find the most emotionally-satisfying way of filling it. Hardware, software, and high tech services are no exception. Most people in the industry have assumed that the way to success is to make more and sell more. That gave them a strong incentive to trim pennies out of costs and rush new versions of products to capture repeat and upgrade sales. In turn, the strategy effectively put a premium on slashing reliability and support â€" which has ended up sacrificing customer satisfaction.
If you have any doubt, look at some customer satisfaction data. At the bottom of the pack are satellite and cable television providers. Not much better is wireless telephone service. Cellular phone manufacturers rank about the same. Computer software is up there with energy utilities and the U.S. Post Office. People find supermarkets more satisfying than personal computers. TV, DVD, and VCR electronics is relatively high, but, jeez, talk about a product category that has had a long time to figure out how to make products.
But not all high tech works this way. When mainframes ruled the data center, so did expensive specialized software packages that customers leased along with maintenance contracts. Today you can see the same in high end audio systems, where a pair of speakers can easily run $5,000 or more. The company may not become huge, but the margins can be mighty nice.
In a world where the number of millionaires keeps climbing, perhaps more high tech companies can realize that growth for its own sake is not necessary smart business, and that good things â€" like fat profits â€" can come in small packages.