Sally Jewel knows there are a thousand other places where outdoor enthusiasts can buy trail boots, maybe even at a better price. But Jewel, the CEO of outdoor-gear retailer Recreational Equipment Inc., also knows there's simply nowhere else hikers will find the REI experience: testing boots on an indoor mountain to see how much their toes hurt when they tromp downhill, or trying them on a climbing wall to check traction. At REI's flagship store in Seattle, hikers do just that, and at REIs across the country, shoppers also test gas stoves, practice setting up tents, and ask real explorers--who happen to be store clerks--which sleeping bags they would use on a mountain trek.
The in-store learning works both ways. When women shoppers looking to get active began flooding stores in recent years, REI responded with a new line of products based on what they asked for: tops with built-in bras for hiking and sleeping bags with extra room at the hips and extra warmth at the feet. When its staff heard complaints from shoppers about being pressed for time, REI responded with more gear for activities that can be done in a day, instead of focusing only on multiday adventures.
In a world where customer service is routinely terrible, REI has created a customer experience that is unique in retail. "We used to be product-driven--assuming we have the experience in gear and relying on customers to trust us to pick the right products," Jewel says. "Our breakthrough four years ago was to shift to being market-driven--paying attention to who these customers are and how we can adapt to the way they want to recreate."
If indoor mountains and climbing walls sound gimmicky, don't be fooled. It's not the individual pieces but the combined effect that's important. In his most recent book, The Future of Competition (Harvard Business School Press, 2004), University of Michigan professor C.K. Prahalad writes that developing brand value by increasing the quality, not just the frequency, of interactions with customers, is a strategic imperative in a market overcrowded with too many brands for customers to care about. No longer content with the emotional imagery of advertising campaigns, shoppers now demand experiences in exchange for brand loyalty. As Prahalad puts it, "Experience is the brand."
The REI experience extends beyond its store walls. REI's Web site stocks thousands of products; customers can access it from kiosks in stores, and clerks can use it to place orders at checkout. The site was profitable in its second year and contributed $84 million in revenue in 2003. That successful multichannel strategy, with seamless click-and-mortar operations, is a part of REI's success. So too is its effective vertical integration as both a manufacturer of original products and reseller of other brands, which kept overall sales growth at 9% during a tough retail year. And so is its active base of co-op members who pushed the company to nearly double its stores to 70 since 1996. But in the end, perhaps REI's success relates back to Prahalad's insight. Says Kate Delhagen, who follows retailing for Forrester Research: "People care about the REI experience."
OnStar's president, Chet Huber, had a simple measure of success in the early days: a bulls-eye target on the wall of his office with a big "50" in the middle. Every time the company notched 50 new customers in a single day, Huber celebrated. "That was the home run we were looking for," he says. "Now, of course, we're doing about 1.5 million new customers in a year. We've had some days when we get 15,000 customers."
It took some doing to get there. Launched in 1996, the General Motors "telematics" service monitors users' cars and provides 24-hour emergency communications. Huber's initial hope for OnStar was simply to create a recurring source of revenue for GM--something to ensure a continual flow of money between car purchases. But its costs were steep: OnStar needed call centers nationwide and partnerships with emergency and roadside services in order to deliver on its "safety, security, and peace of mind" promise. With relatively few customers, it was hard to see how OnStar could make money.
So Huber made the move that changed OnStar's fate. He approached GM's board of directors and said he wanted to install OnStar in non-GM cars, too. Within the industry, Huber's idea sounded like sleeping with the enemy: GM was giving away a proprietary techno-logy it had spent millions to develop. "Launching a new innovative technology and service is an accomplishment in itself, but actually selling this to competitors is unheard of," says Thilo Koslowski, vice president and lead automotive analyst at research firm GartnerG2. There were risks for those competitors, too: OnStar would collect information about their customers when it signed up drivers, and would be getting an early look at their new car models.
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