Fast Company

Crash Course: How to Dominate, Differentiate, and Meet the Market

What do your customers really want? In an interview, Ryan Mathews, coauthor of the forthcoming book "The Myth of Excellence," offers some surprising answers. Forget the lowest price or the biggest discount. Show a little respect -- and tell the truth.

At the heart of The Myth of Excellence, the provocative new book by futurists Ryan Mathews and Fred Crawford, is a five-by-three matrix that consists of the attributes of businesses and the levels of performance businesses can achieve. Fast Company sat down with Mathews recently, and he gave us this crash course on that model.

Can you walk us through your core model?

We've broken all transactions down to five attributes: product, price, access, service, and experience. Now, if you remember the notion of Maslow's hierarchy of needs, we think there is a similar hierarchy within each of those attributes: If you dominate the market in one of the attributes, we assign that attribute a numerical value of five; if you differentiate your business on that attribute, we assign it a four; and if you simply meet the market -- that is, if you're as good as the market but no better -- we assign it a three.

What we discovered is that for a company to have clarity, honesty, and transparency with its customers, it really can't dominate or even differentiate itself on all five attributes. If it tried to be best at all five, it would run the risk of confusing its customers -- or it would leave a lot of money on the table. For example, if Tiffany's were selling 5-karat diamonds for $3.95, it would have great products at a great price -- and a big problem! Because customers wouldn't be able to make sense of those attributes combined in that fashion.

So a winning strategy for a company is to dominate in one attribute, to differentiate in a second, complementary attribute, and to meet the market in the other three attributes.

Take us a little deeper. Can you describe the attributes and the levels?

These five attributes are pretty easy to understand. Price -- do you dominate on price, differentiate on price, meet the market on price? Product -- how good are your products? Access -- how easy are you to use? Experience and service -- they are a little trickier. Experience is how I feel about meas a result of having done business with you. Service is how I feel about you as a result of doing business with you.

For each of these attributes, there are three levels. Take service, for example. At the base level of service -- that is, if you just want to meet the market -- you have to accommodate me. Then, if you're going to differentiate on service, you have to educate me -- because that will make me feel more comfortable with you. Finally, if you want to dominate on service, you have to demonstrate to me that you're prepared to customize things for me. Or take experience. At the base level, experience is an internal measure: I have to feel respected. At the second level, I not only feel that you respect me, but I also feel that you care about me -- when I do business with you, I feel that you care. And finally, at the highest level, I feel that you not only care, but also that you care so much that you're prepared to do things on my behalf, things other people aren't prepared to do. And those things make me feel very good.

How do companies get this mix of offerings and levels wrong?

We found that an offering has to make sense to customers on their own terms, not on terms that work for the company. Here's an example: Fred and I were called in to take a look at one retailer that thought it had done everything right. It tripled its inventory, gave its customers much more choice, reduced the price on 35,000 items, remodeled every one of its stores, put its employees in uniforms -- it even brought in an outside consultant to help turn the company around. The result? The company lost money every quarter for five straight years!

Fred and I went in, ran our research methodology, surveyed the existing customers, management, and employees, and did what I call "participant anthropology": We went shopping with customers. I found an employee who was at a fairly low level in the company and asked her if I could go shopping with her mother, a woman in her late 50s or early 60s who was kind of poor. I offered to take her and her friends to a restaurant of their choice -- even to buy her a new dress so she'd look better than her friends -- if she'd let me go shopping with her.

Well, the mother took the bait, and I had an amazing experience! We went into one of the company's stores, and her body language told the story. She kept looking down at the ground. "What's the matter?" I asked her. "Nothing, nothing," she said.

Finally, I used a time-honored research technique: I took her to a bar. Five or six beers into lunch, she finally said, "Did you see the way that women came dressed to that store? They were wearing really nice dresses." I said, "So what does that tell you?" She replied, "It tells me that this store is for rich people, not people like me. I don't really belong there."

So even though the company thought that all of its improvements were benefiting this woman -- with a wide range of goods, more choice, a cleaned-up shopping experience -- in fact, the company didn't know its customers.

It knew "customers" -- it knew that customers want lowest prices, best quality products, clean stores. But it didn't really know what its customers wanted to make them feel comfortable in the stores in an authentic way.

Read the feature: New Rules: Why Values Beats Value

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