Remember Wal-Mart's holiday season gaffe last year? In an effort to boost margins, the Bentonville behemoth refrained from aggressive post-Thanksgiving price slashing — and customers balked. "They got caught flat-footed," says Neil Stern, a retail analyst with McMillan Doolittle. "Last year, a woman got trampled over a DVD player. Nobody got trampled this year."
The retailer quickly adjusted (HUGE DISCOUNTS!) and rescued its December numbers. But — and this isn't something we say often — most everyone can feel a little of Wal-Mart's pain. Establish a reputation for great value, top quality, or pulling late-night miracles in time for crucial client meetings, and soon enough, the goalposts move. "Greatness" lasts only as long as someone fails to imagine something better. Inevitably, the exceptional becomes the expected.
Call it the performance paradox: If you deliver, you only qualify to deliver more. Great companies and their employees have always endured this treadmill of expectations. But these days, the brewing forces of technology, productivity, and transparency have accelerated the cycle to breakneck speed.
Just a few of the signs: Impatient investors now hold onto stocks for only one year, on average, down from nearly two years a decade ago. Consumers enjoy lower prices and higher quality for most things they purchase, yet the American Customer Satisfaction Index is slightly lower than it was 10 years ago.
And in what may be the surest sign this issue has arrived on managers' front burners, two consultants have written a parable-style book about it. "The root behind the paradox is unrealistic, unconstrained expectations," says Michael Weissman, coauthor of The Paradox of Excellence (Jossey-Bass), set for release in August. "They tend to chase ahead of your ability to perform."
Just look at what happened to eBay in January. The online auctioneer reported 44% increases in both revenue and operating profits — numbers any CFO could be proud of. But eBay shares dropped 19%. The culprit? A mere penny — the amount by which the company missed analysts' per-share earnings estimates. The company also slightly lowered guidance for the year to come.
Weissman and coauthor David Mosby believe the solution to managing ever-escalating expectations is all about communications — constantly reinforcing to customers, investors, and others exactly what it is that distinguishes you as valuable. The performance paradox hits hardest, they believe, when companies spend more time courting new business than nurturing long-term relationships, or when they assume that customers will recognize improved performance without some help.
But what happens when that distinguishing value is increasingly hard to discern? Most great companies long ago abandoned the simple world where mere satisfaction was assumed enough to sustain loyalty. Now we're waist-deep in the "experience economy," where customers make emotional brand connections and see purchases as sensory notches on their belts.
Tom Peters talks of "dream fulfillment" — the inevitable next rung on the quality-service-experience ladder.
And before long, we may be wondering if experience is enough. "We're already seeing [some] commoditization," says Joe Pine, coauthor of The Experience Economy: Work Is Theatre & Every Business a Stage (Harvard Business School Press, 1999). Consider recent events in the hotel industry. Five years ago, Westin Hotels & Resorts introduced its 250-thread-count confection, the Heavenly Bed. Since then, Hyatt, Hilton, and Radisson all have produced their own upscale sleeping experiences. At Marriott, pajama-clad executives recently held a news conference to herald a $190 million bedding overhaul.
What's next? Sleep nirvana? Strategy ueber guru Tom Peters speaks of "dream fulfillment" — the inevitable next rung on the quality-service-experience ladder. Others have pointed to "transformation" or "integration" as the next buzzwords — amenities and services that enhance or make whole a customer's life rather than merely creating a memorable experience. Kimpton Hotels, one of the first boutique hotel chains, provides an intriguing version of integration with its new strategy of "lifestyle hotels." Its branding campaign revolves around "life-enhancing programs, services, and partnerships" that cater to guests' interests, such as a wine club for oenophiles and eco-friendly floors for the earth-conscious.
Companies that become integral, transformational parts of their customers' lives may indeed be able to escape the incessant wheel of expectations. It's tricky stuff, though. Fulfilling dreams, if not downright flaky, at least requires a sophisticated understanding of your customers. Even then, you still have to make sure that the sheets are clean and pressed, that your earnings meet or beat targets, and that your prices are exactly as low as they're supposed to be.
A version of this article appeared in the April 2005 issue of Fast Company magazine.