For every Panera bakery café, or Kendall-Jackson wine, or Williams-Sonoma store, there's a company that has missed or ignored the new marketplace dynamic and is losing market share as a result. Sales in department stores, for example, have been declining over the past eight years, with no turnaround in sight. General Motors got stuck in the middle, between highly engineered German imports in the luxury market and high-value Japanese and Korean models in the economy class, and has seen its market share erode for 20 years. Grocery stores, squeezed between Costco and Wal-Mart supercenters at the low end and Trader Joe's and Whole Foods at the high end, are desperately trying to figure out a way to compete.
In Silverstein's view, companies mired in the middle have two choices. On the one hand, they could decide to get down and dirty, strip out all costs, and offer the cheapest possible alternative in the marketplace (as Dell has done with computers). On the other, they could decide to play the game, commit a team toward the initiative, do the research, and develop a product with a full set of technical, functional, and emotional benefits (as Apple has done with the iPod). The hazard is in doing nothing. Says Silverstein: "If you stay the same, you're going to lose sales and lose momentum, and the profitability will be sucked out of your business. You'll be Kmart."
If, instead, you're Ron Shaich, you will take your successful new-luxury product and push yourself to keep innovating. "There's a reason we're doing these volumes," he says, surveying the long lines at the bakery counter. "People have to walk past competitors to get here. We better be doing something special."
The little buddy in the laundry room
Is there any household appliance less likely to inspire love and devotion than a washer or dryer? For years, that's what manufacturers thought. They figured that if they built a product that was reliable and cheap, they could make up in volume what they couldn't achieve through premium pricing. Then along came Duet.
In 2001, Whirlpool introduced a front-loading washer-dryer combo tagged at $2,300--a staggering price, considering that most models retailed for about $600 a pair. But the Duet had features never before seen in an American appliance. It could wash big loads, yet used a skimpy 16 gallons of water--28 gallons less per load than a conventional washer. It used less electricity yet cleaned clothes better than competitors' models. It could handle silks and lace, as well as sleeping bags and comforters.
Most unexpectedly, it inspired real affection among its users. "We've been surprised by the passion women have when they talk about it," says Ali Evans, Whirlpool's brand manager for fabric care. "They call it their 'buddy' or their 'baby.' They invite people over to see it and use it. People say it's changing their lives."
What's Duet's secret? Besides delivering a better wash, it's giving women something even more precious. "By doing larger loads, women can do fewer loads, and the chore of doing laundry is minimized tremendously," Evans says. "It's giving them back some freedom and time."
Meet my children: Sarah, Josh, and Fluffy
According to the American Animal Hospital Association, the number of people who call themselves the "mommy" or "daddy" of their pets climbed 28 percentage points between 1995 and 2001 to a whopping 83%. You know who you are. Small wonder then that sales at Petco, the upscale pet retailer that sells everything from premium cat food to $450 doggie mansions, are booming; second-quarter sales soared 12.4% over the same period in 2002. "People think of pets as family members," says Don Cowan, Petco's director of communications. "They want to pamper them more than ever."
That may explain why 90% of the food sales at Petco are of premium brands such as Nutro and Eukanuba, which cost as much as 58% more than basic beastie chow. "The extra buck you pay per day will deliver tremendous emotional benefits," says Silverstein. "You'll know you're feeding the dog you love the very best food you can."
It will also, Cowan says, deliver significant technical and functional benefits. Compared with, say, Wal-Mart's low-cost, fiber-filled Ol' Roy brand, premium pet food provides better nutrition and absorption (which means less, uh, waste), he says. "People are willing to pay more for the science that goes into this product, and not just because of the poop factor." But for the product that is inevitably left behind, Petco is also happy to sell you a deluxe Oopsie Poopsie scoop set for only $20.99.
Take the long way home
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