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EBSCO Publishing : eBook Collection (EBSCOhost) - printed on 8/19/2016 7:18 PM via RASMUSSEN COLLEGE AN: 86787 ; Bacon, Terry R., Pugh, David G..; Winning Behavior : What the Smartest, Most Successful Companies Do Differently Account: s9076023

Winning Behavior: What the Smartest,

Most Successful Companies Do Differently

Terry R. Bacon and

David G. Pugh

AMACOM American Management Association New York • Atlanta • Brussels • Chicago • Mexico City • San Francisco

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This publication is designed to provide accurate and authoritative infor- mation in regard to the subject matter covered. It is sold with the under- standing that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought.

Library of Congress Cataloging-in-Publication Data

Bacon, Terry R. Winning behavior : what the smartest, most successful companies do

differently / Terry R. Bacon and David G. Pugh. p. cm.

Includes index. ISBN 0-8144-7163-3 1. Organizational behavior. 2. Organizational effectiveness. I.

Pugh, David G. (David George), 1944- II. Title.

HD58.7.B3423 2003 658—dc21 2003009902

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Contents Preface vii Acknowledgments xiii

Chapter 1: The Final Frontier 1 Harley-Davidson’s Journey 4 Differentiating Yourself Through Behavior 6

Chapter 2: We Will Assimilate You 12 The Entropic Action of Markets 13 The Dynamics of Differentiation 15 The Nine Domains of Differentiation 18

1. Product Uniqueness 18 2. Distribution 20 3. Product Market Segmentation 22 4. Customer Service/After-Sales Service 23 5. Breadth of Offerings 25 6. Brand 26 7. Size/Market Dominance 27 8. Low Price 28 9. Behavior 29

Chapter 3: You Are How You Behave 33 What Customers Expect 36 Gaining Ground—Positive Behavioral Differentiation 38 Losing Ground—Negative Behavioral Differentiation 47 Why Positive Differentiating Behaviors Are

Difficult to Imitate 53

Chapter 4: The Four Ways to Create Behavioral Differentiation 57 The Four Types of Behavioral Differentiation 58 Operational Behavioral Differentiation: Setting a New Standard 60

Positive Operational Behaviors 61 Normal or Expected Server Behaviors 64 Negatively Differentiating Server Behaviors 64

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Positively Differentiating Server Behaviors 64 Negative Operational Behaviors 67

Interpersonal Behavioral Differentiation: Showing That You Care 70 Exceptional Behavioral Differentiation: Breaking the Rules 81

Positive Exceptional Behaviors 81 Negative Exceptional Behaviors 83

Symbolic Behavioral Differentiation: Walking the Talk 84 Positive Symbolic Behaviors 87 Negative Symbolic Behaviors 88

The Relationships Among the Types of Behavioral Differentiators 91

Chapter 5: The Gold Standards in Behavioral Differentiation 95 Ritz-Carlton’s Gold Standards 99 Recruiting and Selection 102 Employee Orientation and Continuing Education 102 The Daily Lineup 104 Purpose Over Function—and the Authority to Resolve

Problems 105 The Management of Measurement 107 Tom’s and Shane’s Trip from Hell 109 The World’s Most Customer-Centric Company 119 How EMC Differentiates Itself 120 EMC’s Unique Services Model 121

Customer Service as an Investment 122 Rapid Escalation of Problems 122 Global Service Deployment 122 Phone-Home Capability 123 Guilty Until Proven Innocent 124 Change Control Without a Hitch 125 Measuring Customer Satisfaction 126

Helping Save Customers’ Businesses After 9/11 127

Chapter 6: Random Acts of Kindness 132 What People Want 134 The Bell Curve of Interpersonal Behavior 138 Chainsaw Al and the Queen of Mean 142 Other Examples of Negative Behavioral Differentiation 145 The Jackass Defense 147

iv Contents

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A Tale of Two Captains 151 The Best Damn Ship in the Navy 155

Chapter 7: Exceptional Values 167 The Missing Suitcase 168 An Important Proposal 168 Preparing for the Olympic Games 169 Getting Mutzy into Australia 169 The Value of Medarbetarskap 171 Suits and Servant Leadership 177 Behavioral Differences at Men’s Wearhouse 179 A Web Site with Soul 181 Emotional Intelligence in Action 183 Representing the Customer 187 Exceptional BD at Men’s Wearhouse 188 Why Doesn’t Everybody Do It? 189

Chapter 8: Living the Promise 193 GAT’s Competitive Challenges 194 The Consultant from Houston 195 The Selection Process 196 The Think Tank 197 The Summary Design 199 Drum Roll, Please 204 The Power of Symbolic Behaviors 205 Harley-Davidson and the Experience Business 206 Walking the Talk with God 210

Chapter 9: The Engines That Drive Behavioral Differentiation 220 The Leadership Engine 224 The Culture Engine 231 The Process Engine 237 The Drivers of Negative Behavioral Differentiation 244

Institutional Narcissism 245 Institutional Greed 248 Institutional Insularity 248 Institutional Schizophrenia 249 Institutional Scapegoating 250

Our Expectations of Managers 252

Contents v

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Chapter 10: Why Southwest Airlines Soars: B2C Behavioral Differentiation 262

The Behavioral Differences at Southwest Airlines 266 The Customer Service Business 266

Operations as Internal Customer Service 267 The Southwest Spirit 268 Hire for Attitude, Train for Skill 269 Leadership Bench Strength 271 Places in the Heart 272

Living the Golden Rule 273 The Culture Committee 275

From Customer Loyalty to Customer Advocacy 276 The Behavioral Difference After September 11 279 B2C Behavioral Differentiation 280

Chapter 11: Searching for Stars: B2B Behavioral Differentiation 296

Going the Extra Mile at Hall Kinion 297 Hall Kinion’s Differentiation Strategies 300 Hiring Employees 303 Recruiting Consultants and Candidates 304 Differentiating HK with Customers 308 Hall Kinion University 310 Building the World’s Finest Leadership Teams 314

The Moment-by-Moment Differences 314 Just Fire Me Today 321 Visionaries of Total Human Capital Management 323 Caring as a Way of Being 326

Chapter 12: Creating and Sustaining Behavioral Differentiation 332

Lessons Learned from Companies That Exemplify BD 333 The Secret to Creating and Sustaining Behavioral Differentiation 337 Why You Should Care About Behavioral Differentiation 339

Products 339 Price 340 Behavior 340

Index 343

vi Contents

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Preface

In a tough market, how do you win more than your share of busi- ness? How do you outperform competitors who are as capable as you are and who sell essentially the same products you do, the same way you do, to the same set of customers? How do you differentiate your company and products when your rivals copy your innovations nearly as fast as you can innovate? How, in the toughest global mar- ket the world has ever seen, do you build and sustain enough dis- tinctive value to avoid brutal price competition?

These are the questions our clients have been asking us. For the past twenty-five years, we have helped companies develop competi- tive strategies, improve their business development systems and skills, and create winning proposals and presentations. During that period, we’ve seen the rise of the global village Marshall McLuhan predicted in 1967, and for many of our clients it has looked like some- thing out of a Stephen King novel. The globalization of markets, the rise of foreign competition, the rapid spread of technology, and the growth of the Internet have made it increasingly tough to compete, es- pecially if you sell higher-priced, value-added products and services. Unless you can offer something so unique that no one else can copy it, you face a barrage of competitors who also have state-of-the-art offer- ings and customers who demand more and negotiate harder because everyone wants their business.

Customers today have a bewildering array of choices. If you can’t differentiate yourself in their eyes, you are condemned to market pur- gatory, where your products are essentially commodities and where lowest price rules. How long can you stay there and remain viable as

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viii Preface

a business enterprise? You lower your prices to remain competitive, which reduces your margins. Then you have to cut your R&D budget, trim your staff, hammer your suppliers, and reduce quality. At some point, it all falls apart, as it has for Packard Bell, Montgomery Ward, Commodore, Digital Equipment Corporation, Eastern Airlines, TWA, Grand Union Supermarkets, Sperry-Rand, Kmart, and a host of other once-proud companies that have either been absorbed by stronger ri- vals or have vanished.

Throughout the business world today, barriers are falling and walls are becoming more permeable. The boundaryless organization Jack Welch envisioned at GE has become the paradigm of the new age. Information, technology, knowledge, and people are flowing among companies and across boundaries so rapidly that it is next to impossi- ble to maintain a technological or service edge long enough to sustain real competitive advantage. So it’s become more difficult for compa- nies to differentiate themselves from their rivals—at least with tradi- tional forms of differentiation. Nonetheless, some companies consis- tently outperform their competitors, and we sought to understand why. Certainly, they have excellent business models. They offer state- of-the-art products and excellent services—but so do their less-suc- cessful rivals. The primary difference, we discovered, was not that the most successful firms were outperforming their rivals—they were out- behaving them.

This is a book about winning more business through behavioral differentiation. We believe it represents an enormous untapped op- portunity for many organizations and professionals. Today, the ques- tion customers usually ask isn’t, Who can do the work? They have no trouble finding many qualified providers. The question is, Whom do we want to work with? Business development in the new age is increas- ingly a chemistry test, and the chemistry between the buyer and the seller is shaped by the seller’s behaviors. We believe that behavioral differentiation (BD)* is emerging as the final frontier in competitive strategy. It is the one domain of differentiation where you can still achieve and sustain significant gains. To be sure, it’s not a substitute for product quality, price competitiveness, or customer satisfaction. Among excellent companies today, these are requisites. Without

*“Behavioral differentiation” is the right expression for the concept we are describing in this book, but it is a mouthful, so we will use the acronym “BD” throughout the book to represent this expression as well as the variation “behavioral differentiators.”C

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them, you will not even be in the game. But when you and your rivals all have met these criteria, behavioral differentiation can turn the tide in your favor. It can make the difference when your customers are un- able to tell you and your competitors apart on technical capability, product quality, price, and other traditional differentiators.

The masters of BD consistently outbehave their rivals. To illustrate this point, we will discuss the behavioral differentiators of such or- ganizations as Nordstrom, Marshall Field’s, Enterprise Rent-A-Car, Wal-Mart, Southwest Airlines, EMC, Ritz-Carlton, Harley-Davidson, Hall Kinion, Heidrick & Struggles, Volvo, and Men’s Wearhouse. These organizations excel, year after year, because they understand BD and they have the right leadership, culture, and processes to create and sustain clear behavioral differentiators.

Remarkably, they excel even though their competitors know what they are doing! By any measure, Wal-Mart has been far more successful than Kmart, for instance, although Wal-Mart’s business model and management practices are well known. Why hasn’t Kmart been able to match Wal-Mart’s success? One reason is that Wal-Mart outbehaves Kmart. Likewise, Enterprise Rent-A-Car surpassed its much more established rivals and became number one—largely be- cause it created a strong behavioral differentiator that Hertz, Avis, National, Dollar, Alamo, and Budget are aware of but have not copied. Southwest Airlines has been one of Fortune magazine’s most admired companies year after year—and has been profitable when its major rivals were losing money. Why? Because they outbehaved their rivals in ways the other airlines were unwilling or unable to replicate. One of the key lessons you will learn about BD is that it is difficult to imitate. Knowing what to do is not the same as doing it.

You will also discover how BD can work for you or against you. Positive behavioral differentiators occur when you exceed your cus- tomers’ behavioral expectations. Like a magnet, they attract cus- tomers to you. If you are an acceptable choice in other ways, these cus- tomers will prefer to work with you, and you will win more business. Furthermore, when you behaviorally differentiate yourself with cus- tomers, you raise the bar on your competitors, often without their be- ing aware of it. Conversely, negative behavioral differentiators repel customers—they drive a wedge between you and them and can even cause them to actively oppose you. There is no faster way to lose busi- ness than to alienate your customers—yet these negative behavioral differentiators are very common.

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To help us understand BD, we studied a number of companies that use it successfully. We also conducted research on how con- sumers viewed behavioral differences among lawyers, physicians, nurses, salespeople, waiters/waitresses, managers, and religious leaders. Our hypothesis was that behavioral differentiation applied to professions as well as to companies, and the research confirmed it. The results will surprise you—but they will also look familiar. If you or others in your organization behave in the ways described, you’ll understand why you are winning or losing more business than you should.

As we began this study, we asked ourselves whether positive BD was synonymous with excellent customer service. A lot has been writ- ten about customer service, and we felt that writing more about that subject would not be valuable. We concluded that good customer ser- vice can be a behavioral differentiator, but it often isn’t. If your cus- tomer service practices are no different from your competitors’ cus- tomer service practices, then you aren’t differentiated at all. Besides, BD goes well beyond customer service. It encompasses your advertis- ing and packaging, your policies toward customers, your systems for interacting with customers, your business development practices, the attitudes and behaviors of your leaders, and the interpersonal skills of all your people who interact with customers. To sustain behavioral differentiation, you must weave it into the fabric of your organization. It starts with the leadership of your company, is driven by the culture and values of your organization, is sustained by the day-to-day pro- cesses for getting work done, and reflects both your organization’s skills and the skills of your people. Mostly, it must be a genuine ex- pression of your values and mission as an enterprise.

In today’s hypercompetitive markets, you must exploit every po- tential source of differentiation—including how you and your people behave toward your customers. To make this book most useful, we have focused on practical steps you can take to understand your cus- tomers’ behavioral expectations and to develop and enact the kinds of behaviors that will positively differentiate you from your competitors. We’ve also included numerous case studies and examples of BD— both positive and negative. Finally, we’ve included a number of sug- gestions for how you can identify your potential behavioral differen- tiators and how you can implement those differentiators throughout your organization.

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What are the implications for your business? If BD improved your business by only 10 percent, what impact would it have on your top and bottom lines? Alternatively, what would be the impact if your competitors increased their behavioral differentiation and you did nothing? The world has become a more competitive place. The stakes are getting higher. The race will not be won by the swiftest or the strongest. It will be won by the smartest, and being smart in business today means knowing how your behavior, across the spectrum of your people and in every interaction with your customers, can differ- entiate you from your competitors and help you capture more than your fair share of the business.

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Acknowledgments

We would like to thank the numerous people who have contributed to our research and to this book. A project of this magnitude cannot be undertaken without the considerable assistance, cooperation, and goodwill of many people. First, we would like to thank the many pro- fessionals in Lore International Institute who contributed ideas, as- sisted in our research, or otherwise supported us: Allison Andersen, Andrea Seid, Anna Pool, Barb Singer, Brian Schoff, Brooke Lawson, Bruce Spining, Chesney Frazier, Dan Osby, Darnell Place-Wise, DeNeil Peterson, Don Scott, Greg Elkins, Howard Armstrong, Jen- nifer Vosper, Joey Maceyak, Kathy Uroda, Lat Epps, Linda Simmons, Mark Arnold, Martin Moller, Nancy Atwood, Phyllis Lea, Sean Dar- nall, Sharon Hubbs, Terryl Leroux, Trish Gyland, Val Evensen, Vickie Petren, and Wendy Ludgewait.

We offer special thanks to the following people:

� Jeremy Silman, a chess master whose books taught us a lot about chess—and even more about business and behavioral differentiation. He was gracious enough to give us permission to quote liberally from his books.

� Meredith Ashby and Stephen Miles of Heidrick & Struggles (H&S). They provided extraordinary assistance to us by inter- viewing the following H&S consultants, whom we would also like to thank for their insights and information: Andy Talking- ton, Bernard Zen Ruffinen, Bonnie Gwin, Caroline Ballantine, Daan de Roos, Denise Studi, Detlef Pries, Dominique Einhorn, Emeric Lepoutre, Gerry Roche, Ignacio Perez, John Gardner,

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Joie Gregor, Kyung Yoon, Lee Hanson, Lisa Maibach, Michael Flagg, Nuno Vasconcellos, Thord Thorstensson, Wes Richards, Wolfgang Walter, and Piers Marmion.

� Laurie Voss and Pamela Wise. These researchers from the Lore Research Institute did much of the legwork for us. They re- searched the companies we profile in this book and conducted many of the interviews. They also read the draft and offered numerous suggestions. We could not have completed the pro- ject without their invaluable help.

� Karen Spear, who read much of the manuscript and offered countless suggestions that have improved the quality and completeness of the book. She is a very perceptive reader, thought partner, and critic.

Of course, no book like this is possible without the cooperation and support of the people in the companies we profiled and other business people who contributed ideas and inspiration. We are pro- foundly grateful that they agreed to speak to us and share so much about what they do and how they do it. We would especially like to thank the following people who consented to interviews and gave of their time to help us with this book:

� From Ritz-Carlton: Patrick Mene, Leonardo Inghelleri, Carter Donovan, Mario Dones, and Robert George.

� From EMC: Joseph Walton, Leo Colborne, Walter Rietz, Al Lanzetta, Al Coarusso, Cynthia Curtis, and Don Potter.

� From Volvo: Hans-Olov Olsson, Charlotta Källbäck, Nerissa Morris Hampton, and Sven Eckerstein.

� From Men’s Wearhouse: George Zimmer, Charles Bresler, Dean Sperranza, and Francesca Sterling.

� From Southwest Airlines: Herb Kelleher, Jim Parker, Colleen Barrett, Donna Conover, Ginger Hardage, Beverly K. Carmichael, and Joyce Rogge.

� From Hall Kinion: Brenda Rhodes, Jeffrey Neal, Rita Hazell, Von Goesling, Catie Fitzgerald, and Jeff Glickman. Also, Craig Silverman, formerly of Hall Kinion.

Special thanks as well to Tom Farmer and Shane Atchison of ZAAZ, Inc. They gave us permission to reprint their PowerPoint com- plaint to a hotel chain that made history on the Internet. We would

xiv Acknowledgments

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also like to thank Michael Abrashoff, a former Navy ship captain whose remarkable story is chronicled in Chapter 6; Paul Krauss, a re- tired director of a worldwide management consulting firm who of- fered some keen insights into behavioral differentiation; Lynette De- marest, formerly of GE, who provided insight on GE’s Work-Out process; Bill Hardin of Technip, who gave us a great story about in- terpersonal BD; Louise Powers Ackley, who told us her personal story of buying a Volvo; Joanne Kincer of Encompass, who told us numer- ous stories of BD and also reviewed portions of the draft; Don Tray- wick and Deke Lincoln of BE&K, who shared their experiences with BD; and John Tarpey and Bob Moss of Centex Construction Company, both of whom told us of innovative ways to behaviorally differentiate.

A number of Lore professionals were especially helpful in pro- ducing this book. Tom Fuhrmark created much of the artwork. He is an outstanding graphic artist and a fine softball coach. Our copyeditor was Marci Braddock. With the Chicago Manual of Style in one hand and a red pen in the other, she helped us follow the rules and offered many suggestions that improved the readability of the text. Donna Williams did much of the work to secure permissions, track down quotations, and proofread the drafts. She also did much of the research for Chap- ter 6. Thanks to all of them for their invaluable assistance.

We also want to express our loving thanks to Karen and Marcy, as well as our children and our families. They have reminded us through the years what different and better are all about. Finally, we would like to thank our acquisitions editor, Ellen Kadin, of AMACOM Books. Ellen has been extraordinarily supportive throughout our project and has been helpful to us in many ways. She’s also a New York Mets fan, which speaks well of her.

This book was completed in a compartment on the train to Paris. The lush French countryside outside the window reminded us that some long journeys are worth taking. Yet as pleasant as any journey may be, it’s also a blessing when it ends.

TERRY R. BACON DAVID G. PUGH

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When you survive by reinventing yourself every other day, it’s tough to differentiate on a product difference alone.

—Jack Trout, Differentiate or Die: Survival in Our Era of Killer Competition

It is very important to ALWAYS expect the best move from your opponent!

—Jeremy Silman, The Complete Book of Chess Strategy

Ralph Waldo Emerson wrote that if you can write a better book, preach a bet- ter sermon, or build a better mousetrap, though you build your house in the woods, the world will make a beaten path to your door. He wrote that in the early nineteenth century, an era of optimism, progressiveness, and boundless possibility fueled by a vast and largely uncharted frontier. It’s not that simple anymore. Differentiating yourself through superior products and services confers only a fleeting advantage in the hypercompetitive, global markets we now face. Following us into the twenty-first century is a tidal wave of con- cepts, tools, practices, and consultants that drives companies inadvertently but relentlessly toward a crushing sameness. Total quality management (TQM), statistical process control, process mapping, continuous process im- provement, benchmarking, best practices, six sigma, balanced scorecard, supply chain management, learning organizations—these are the magic wands waved by W. Edwards Deming; Joseph Juran; Philip Crosby; Peter Drucker, Peter Senge; a host of management consulting firms; and Jack Welch (arguably the finest CEO in the latter half of the twentieth century),

THE FINAL FRONTIER

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who proclaimed in so many words that copying others’ best practices is in fact good.

In writing about Welch and General Electric, author Robert Slater said, “The ultimate competitive advantage lies in an organization’s ability to learn and to rapidly transform that learning into action.”1 More and more, that learning is not simply research, problem solving, and innovating within your own company but is also learning and adopting the best practices, product features, and service innovations of your competitors. In the mid-1990s, benchmarking became a widespread tool for studying your competitors’ best practices (as well as best practices in other industries) and adapting their prac- tices to improve your operational effectiveness and margins. Advocates of benchmarking argue that it is smart business—and they’re right. If your com- petitors are working smarter than you are and you can re-create their innova- tions, you’d be a fool not to. In the course of his remarkable career, Jack Welch was the leading slayer of the “not invented here” syndrome. He said it didn’t matter where it was invented; if it’s good, if it will help improve GE’s business, we will adopt it. It’s hard to argue with success, and Welch’s Her- culean drive to improve quality, operational efficiency, and leadership at GE grew the market cap of that corporation enormously through his tenure and left in its wake legions of delighted investors and envious competitors.

According to a 1995 American Productivity & Quality Center study of cor- porations using benchmarking, “More than 30 organizations reported an av- erage $76 million first-year payback from their most successful benchmark- ing project. Among the most experienced benchmarkers, the average payback soared to $189 million.”2 Those are compelling reasons to use benchmarking. In the end, however, the batteries of consultants, process control managers, and TQM experts will lead industries and the companies within them toward a position of near-total entropy in their markets, where there are few distin- guishing features between competitors or their products. In his book, Differ- entiate or Die, marketing guru Jack Trout identifies the central issue facing any company today that tries to differentiate itself from its competitors by in- troducing new and innovative products or services: “The number one com- petitive response is usually me-tooism. Competing products are becoming more and more alike. Technology enables competitors to tear apart, reverse engineer, and knock off product features even before you have the chance to establish your uniqueness.”3 Service companies, introducing innovative pro- grams for customers, find that competitors have matched those innovations almost before the ink is dry on their brochures. E-business innovators learn that whatever creative business model they put on the Web today will appear in a dozen other sites tomorrow.

2 Winning Behavior

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It’s not that innovation is dead—quite the contrary. In 1999 the U.S. Patent Office received over 270,000 patent applications and granted more than 150,000 of them. Innovation is increasingly crucial—but it won’t be enough. Innovations have an increasingly shorter half-life, even with patent protec- tion, as Guy Kawasaki observed in Harvard Business Review: “Unless you’re a biotech or medical-device company, it’s hard to support [the claim that your patents make your business defensible]. If an idea’s worth copying, there’s a will and a way to get around the patent. File all the patents you like, but in- vestors believe that what makes a company defensible is the ability to out- implement, not out-litigate.”4 At best, product differentiation offers a mo- mentary advantage, which may be enough to capture more market share, charge premium prices, or build an established base of your products (which may increase switching costs for customers). But these advantages are in- creasingly tenuous and ephemeral, largely because there is a glut of capacity in nearly every industry, and buyers have become less loyal. Perhaps no words better describe today’s buyers than free and fickle. They have more freedom because the world of competitors is beating a path to their door (rather than the reverse), and they have considerably more options than they’ve had in previous decades. As Jack Trout observes, there were 140 mo- tor vehicle models available in the early 1970s; there are 260 today. He calls it “the tyranny of choice.”5

Our central theme at this point is that numerous market forces have made it increasingly difficult for companies to create and sustain the traditional sources of differentiation in their products and services. This is true in part because globalization has heightened competition in virtually every industry and market. It’s also true because the relentless drive among companies to improve product quality and operating efficiency has tended to level the play- ing field. At the same time, the Internet has vastly increased the amount of in- formation buyers have and greatly increased their choices, giving buyers a new-found freedom that could scarcely have been imagined only a few years ago. Terry’s new watch is an example. When his old watch quit, he went to a local jewelry store to look for a replacement. On display were a dozen men’s watches. The salesman drove hard for a buying decision, but Terry was dis- satisfied with the choices, so he went to the Internet site LuxurySquare.com, where he could choose from over 3,000 men’s watches from numerous man- ufacturers. He searched for the watch that had exactly the features and design he wanted, and he purchased one for nearly $200 below the manufacturer’s listed retail price, which made the local jeweler a victim of the tyranny of choice available to today’s e-buyers.

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A firm differentiates itself from its competitors when it provides something unique that is valuable to buyers beyond simply of- fering low price. Differentiation allows the firm to command a premium price, to sell more of its product at a given price, or to gain equivalent benefits such as greater buyer loyalty during cyclical or seasonal downturns.

—Michael Porter, Competitive Advantage: Creating and Sustaining Superior Performance

Internet auctions are having a similar effect—and they are taking their toll on margins, too. One of the earliest B2B innovators was FreeMarkets Online. They identify industrial products and materials that their clients need to buy in large quantities, create exact specifications for those products, find numer- ous potential suppliers, and then host online auctions where competing bid- ders bid in real time for the contract. FreeMarkets claims it has created one of the world’s most efficient markets; online bidders, watching their margins shrink to new lows, would have to agree. The problem with FreeMarkets, from the seller’s perspective, is that it virtually eliminates the competitive ad- vantages gained by product innovation, value-added differentiation, relation- ship marketing, customer service, and consultative selling. Despite Theodore Levitt’s proclamation that “there is no such thing as a commodity,”6 online B2B auctions are highly effective at commoditizing whatever is being bought and sold. For airlines and hotels that would lose revenue if empty seats and beds aren’t filled, Priceline.com’s ticket auctions offer a way to capture what would otherwise be lost revenue. But for manufacturers whose margins are already paper-thin, online auctions pose a Darwinian threat—and only the leanest and most efficient will survive.

Harley-Davidson’s Journey

Even in less-cutthroat arenas, the crushing sameness we spoke of earlier is growing. Harley-Davidson’s journey and the current competitive landscape for heavy cruisers is an example. In the early 1960s, Harley-Davidson had an outlaw image and produced such poor-quality motorcycles that it was not un- usual to see cardboard under the kickstands of the display bikes so the oil leaking from the engines wouldn’t foul the showroom floor. Only retro geeks and dedicated gearheads who knew how to take apart the bikes and repair them were impressed with the Harley name. By the 1970s, the market was be- ing flooded with Hondas, Kawasakis, Yamahas, and Suzukis, which, in typ- ical Japanese fashion, offered more product features, higher quality, and an

4 Winning Behavior

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informed and more professional army of dealers. In the 1980s, a group of Harley officers bought the company from AMF and, facing bankruptcy for the second time in twenty years, embarked on a quality crusade. Some went to Japan and studied Japanese methods of manufacturing, quality control, and inventory management, and they later instituted much of what they learned in their own factories back home. Today, Harley-Davidson motorcycles meet the highest quality standards. There is virtually no difference in terms of product quality between a Harley, a Honda, and a BMW—no matter what a dealer might tell you.

The traditional and still-rich source of competitive differentiation for Harley-Davidson is the look and sound of their motorcycles. Harleys are known for their retro designs, pioneered by Willie G. Davidson, grandson of one of the company’s founders, and for the deep, guttural roar of their pipes. The Harley look evokes a carefree, American nostalgia (see Figure 1-1). The bold curves, black leather, teardrop gas tanks, and miles of chrome lead some of the older owners to reminisce about bobby socks, bellhops, and drive-ins, while others yearn to recapture the rebellious spirit of Marlon Brando in The Wild Ones. Whether their idol is Elvis singing “Jailhouse Rock” or Steppen- wolf booming “Born to be Wild,” Harley owners thrive on an image that pro- jects the irreverent part of themselves that they don’t want to let go of.

The Final Frontier 5

Figure 1-1. A 1994 Harley Davidson FXSTS Softail Springer. Harley’s rivals are working hard to copy this classic retro look. Photo courtesy of Brooke Lawson. Used with permission.Co

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In contrast, Japanese motorcycles have always had a more modern, utili- tarian look—cold and soulless—and they sound like dentists’ drills. Until re- cently, when you saw a Harley on the road you could instantly distinguish it from its Japanese rivals. But Japanese and German manufacturers have caught on. The Yamaha V Star 1100 Classic, for example, has the classic Harley retro look. So does the Honda Shadow Sabre. Except for the brand names and logos on the gas tanks, the V Star Classic and Shadow Sabre could easily pass for a Harley Dyna FXD or a Road King Classic—at least to the casual observer. Twenty years ago, Harley executives copied Japanese meth- ods to close the quality gap between their products and Japanese motorcycles. In time, Japanese and German manufacturers will try to copy everything that makes a Harley-Davidson motorcycle distinctive—and Harley’s product dif- ferentiation will erode.

This endless cycle of innovation and imitation causes competitors to erase each others’ competitive advantages virtually as fast as they can be created, and we see this cycle in every industry: automobiles, personal computers, broadband services, retail, fashion, cosmetics, banking and financial services, engineering and construction, and entertainment. Whatever you produce and however you strive to differentiate yourself from your competitors, you are subject to market forces that will inevitably propel you into a market stew where your ingredients are no different from your competitors’ and where fickle buyers can pick and choose, seemingly at random.

Business has two central challenges: to create differentiated goods and ser- vices customers want, and to do that in such a way that revenue exceeds costs. We are going to focus on the former of these challenges. In the markets of to- day, filled with entropic forces that continually erode your differentiation, how do you find new ways to differentiate yourself? How do you answer the single most important question in marketing, “Why should customers choose us instead of our rivals?” Companies spend billions of dollars every year try- ing to answer this question. It is the fundamental question behind all business, and it’s becoming increasingly difficult to answer because you and your com- petitors offer roughly the same things. When one company innovates, its ri- vals rapidly assimilate those innovations or create functional equivalents and level the playing field again.

Differentiating Yourself Through Behavior One area of differentiation, however, is difficult to copy, even when com-

petitors have benchmarked your company and learned your best practices. That area is behavior. Behavioral differentiation is difficult to copy because it requires more skill and will than many companies possess—even when

6 Winning Behavior

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they know what you’re doing! As we will show in this book, there is a huge gap between knowing how to behave and behaving that way consistently. Most other areas of differentiation can be identified and then copied or matched, but BD is a tough act to follow. When all else is equal, it can make the difference between winning and losing customers and critical contracts. When there is little difference between what you can offer customers and what your competitors can offer them, you can still behave differently toward your customers and gain (or lose) crucial advantage. In the landscape of dif- ferentiation, behavior is the final frontier.

Behaviors stem from attitudes, which are, in turn, formed by many things, including friends, family, society, experience and learning. Attitudes can also be affected by what the com- pany communicates to position itself favorably in the minds of its audiences. Attitudes drive the behaviors that lead to a pur- chase and the opportunity to work together to develop yet more value for one another. This is a relationship, and rela- tionships are the most valuable of all intangibles.

—Ian Gordon, Relationship Marketing

BD has the same characteristics that other forms of competitive differenti- ation have:

� The behaviors must be unique to you. Your competitors either do not be- have the same way or are not as skilled as you are at these behaviors, and customers perceive the difference.

� The customer must value these behaviors. Your differentiated behaviors must somehow enhance the customer’s experience with you.

� The behaviors must reflect your value proposition. They should be related to what you are selling or otherwise be emblematic of the customer’s ex- perience of you and your products or services.

Differentiating behaviors can be simple gestures reflecting good customer service (such as Wal-Mart’s practice of having an employee greet all cus- tomers as they enter a store) or they can be bolder and more dramatic (as when the CEO of a bidding company demonstrates the company’s commit- ment to a customer and desire to win the contract by appearing at their bid presentation to the customer). Sometimes you win by making a small im- pression at the right time. Other times you win through an accumulation of differentiating behaviors that occur over a longer period. Remarkably, even

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when your behavioral practices are well known, a number of your competi- tors will fail to learn the lesson. Kmart and Montgomery Ward have been ex- amples. In general, neither retailer’s frontline employees have been as cus- tomer-oriented, friendly, and helpful as those at Wal-Mart. Although they are surely aware of Wal-Mart’s customer greeters and the training Wal-Mart em- ployees receive on how to treat customers, neither Kmart nor Ward (which has recently closed its doors forever) learned from Wal-Mart’s customer ser- vice practices. In August 2000, Kmart’s CEO announced three strategic ini- tiatives designed to improve Kmart’s financial performance and competitive position, including creating “a customer-centric culture to ensure that the day-to-day activities in every Kmart department are inherently linked to bet- ter satisfying and serving Kmart customers.”7 This is certainly the right di- rection because the fundamental malaise at Kmart is behavioral, but it re- mains to be seen whether Kmart’s executives can truly change the frontline behaviors of every Kmart employee who comes in contact with customers. They’ve known for years what Wal-Mart does but so far have failed to emu- late Wal-Mart–like behaviors.

The opportunity for BD occurs during every interaction with customers— through every stage in the selling and buying process. In this, it is like parent- ing. You are a parent during every moment with your children. There are no time-outs. Your behavior, good or bad, defines you as a person and a parent. Whether you like it or not, you are a role model for your children 24 hours a day, 7 days a week. Likewise with your customers, your behavior is always on display and is always an indicator of what it will be like to work with you. Be- havior is a powerful differentiator because it is—simultaneously—immediate, personal, real, and emblematic. It is real because customers experience it real time, unlike your guarantees and claims, which are promises of future benefit and are therefore “unreal” at the time they are made. Your behavior is em- blematic because it represents what they will sooner or later receive (or fail to receive) from your products and services. You are on stage all the time with your customers. Like it or not, you are always either showing them that there is no difference between you and your rivals or you are behaving in ways that positively (or negatively) differentiate you from the other companies that want their business. Here are some cases where companies failed at BD:

� The bidder was one of the world’s largest engineering and construction firms. The brand and worldwide scope were well established. The customer had no doubt that they could do the work. After they were placed on the shortlist, the bidder was asked to have their proposed project team present their offer. However, they failed to bring their team together until the very last moment, and their presentation appeared disjointed and uncoordinated.

8 Winning Behavior

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Although this bidder had gone into the presentations ranked number one, they lost the contract because, as the customer said during the debriefing, “We weren’t confident that your team could work together effectively.” Lesson: If you are proposing a team to a customer, ensure that your team looks and behaves like a team.

� The bidder was an advertising agency that claimed to be expert in project management, but their presentation to the potential client ran 20 minutes over the schedule and, as a result, the client’s CEO missed an important telephone call. Lesson: Walk your talk. If you claim to be expert in something, then demonstrate it in every interaction with your clients.

� The supplier was one of the world’s most well-known consumer camera manufacturers with a strong, universally recognizable brand. However, it shipped its cameras without double boxing, and when a consumer received his shipment, the camera was broken right out of the box. Initially, the con- sumer was not aware of the malfunction because the instructions sent with the camera were confusing and poorly written. When the consumer later sent the camera in for repair, he was required to submit the original war- ranty card, which was not supposed to be copied. When the camera was re- turned, the original warranty card was not returned. As a result of this se- quence of problems, the consumer submitted a lengthy complaint to an Internet site devoted to dissing this manufacturer, and warned other po- tential buyers of this product to avoid it. Lesson: The packaging, delivery, and servicing of your products is a form of behavior. If your packaging and after-sales service show a lack of care, consumers will assume that all you really care about is moving inventory, and you will lose their trust and confidence.

� The bidder was a large government agency that is perceived to be arrogant and self-focused. They claimed that they had changed and were now very customer-focused. However, they began all their customer presentations with 30 minutes of slides and a videotape on their heritage going back to George Washington. Lesson: If you claim to be customer-focused, then behave like it and start your presentations with the customer’s goals, key issues, and needs—not with your history, the location of your offices, or your extensive capabilities.

In today’s highly competitive marketplaces, business development is largely a chemistry test. By the time customers are seriously considering you, they know you can do the work. That’s rarely the issue anymore. The ques- tion for them isn’t, “Who can do the work?” The question is, “Whom do we want to work with?” You make the difference (or fail to) in the myriad of in-

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teractions, choices, and behaviors you exhibit when you are pursuing busi- ness development opportunities or interacting with customers. When there is a glut of capability in the marketplace, capability becomes commodity, and competition becomes communication—and there is no more real, immediate, or believable form of communication than your behavior. It can make all the difference.

Relationships are important and will become more important, for, in the end, when all means of production is fully auto- mated, and when the knowledge of man is in databases, this is all there will be. Value will be created by relationships. People will exist in a world of networks.

—Ian Gordon, Relationship Marketing

Challenges for Readers

1. TQM, statistical process control, process mapping, continuous process im- provement, benchmarking, best practices, six sigma, balanced scorecard, supply chain management—has your company used any of these methods to achieve greater efficiency and productivity? If so, have these improve- ments given you a competitive advantage? Or have you found that your competitors have done the same and that you are just managing to stay even with them? How much more operational improvement is possible for your company?

2. How competitive are the players in your industry? Are you seeing the “endless cycle of innovation and imitation” that we described in this chap- ter? How long can you or any other competitor in your industry sustain an advantage based on product innovation?

3. Despite the dot.com collapse in 2000, e-commerce remains a formidable “new kid on the block” for many industries. What impact has the Internet had on your business? What kinds of new choices do your customers have now? And what newer choices are they likely to have in the future as e- commerce continues to evolve?

4. Why should customers choose you instead of your rivals? Do an honest appraisal of the advantages and benefits that you offer but that your com- petitors don’t or can’t. How lasting are any advantages you have?

5. As we noted in this chapter, there are no time-outs with behavior. Your be- havior toward customers, especially when you are trying to sell them something, communicates what it will be like to work with you. Think

10 Winning Behavior

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about everyone in your company who interacts with your customers. What message does their behavior send?

Endnotes 1. Robert Slater, The GE Way Fieldbook (New York: McGraw-Hill, 2000),

p. 93. 2. American Productivity & Quality Center, “Benchmarking: Leveraging

Best-Practice Strategies,” apqc.org. 3. Jack Trout, with Steve Rivkin, Differentiate or Die: Survival in Our Era of

Killer Competition (New York: John Wiley & Sons, 2000), p. 20. 4. Guy Kawasaki, “The Top Ten Lies of Entrepreneurs,” Harvard Business

Review, January 2001, p. 23. 5. Jack Trout, with Steve Rivkin, Differentiate or Die: Survival in Our Era of

Killer Competition (New York: John Wiley & Sons, 2000), p. 1. 6. Theodore Levitt, The Marketing Imagination, New, Expanded Edition

(New York: The Free Press, 1986), p. 72. 7. Kmart Press Release, August 10, 2000. Since we initially wrote this

chapter, Kmart has declared bankruptcy and is reorganizing under new leadership.

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While similarities abound, the differences are crucial. —Theodore Levitt, The Marketing Imagination

Quality is a given these days, not a difference. Knowing and loving your customer is a given, not a difference.

—Jack Trout, Differentiate or Die: Survival in Our Era of Killer Competition

To successfully penetrate into the mysteries of the chess board you have to be aware of the magic word of chess: IMBAL- ANCE. An imbalance in chess denotes any difference in the two respective positions.

—Jeremy Silman, How to Reassess Your Chess

In Star Trek: The Next Generation, humankind is threatened by the Borg, a soulless and invincible enemy whose threat conveys a chilling finality: “We will assimilate you.” The Borg is a race of indistinguishable and inter- changeable bionic beings. Partly flesh and partly machine, they are the grim consequence of their absorption into the collective. The Borg is the ultimate architect of destruction in the Next Generation cosmos. As the Federation prepares to fight them, the Borg warns that “resistance is futile.” In the psy- chological landscape of Star Trek: The Next Generation, the Borg represents our subconscious fear that there may be nothing unique about us after all, that our presence is immaterial because we are like everyone else. Furthermore, the forces pushing us toward this numbing similarity are relentless.

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We Will Assimilate You 13

The Entropic Action of Markets The Borg assimilates whole civilizations and planets in their insatiable

drive to conquer all intelligent life in the universe—in essence, to commodi- tize all intelligent beings by making them uniform. In this, the Borg is the sci- ence fiction equivalent of entropy, which is the degree of disorder or uncer- tainty in a system. Entropy is derived from the Second Law of Thermodynamics, which states that although the amount or quantity of en- ergy in the universe is conserved, it may lose quality. As James Gleick ex- plains in his landmark book on chaos, entropy is “the inexorable tendency of the universe, and any isolated system in it, to slide toward a state of increas- ing disorder.”1 The natural state of matter and energy in the universe is uni- formity or maximum entropy. If you bring a hot cup of coffee into a cold room, for instance, over time the heat of the coffee will dissipate into the room. The coffee becomes colder and the room slightly warmer as heat of the coffee dissipates into the colder air of the room. Eventually, the coffee and the room reach a uniform temperature. Where previously there was order (in the difference of temperature between the hot coffee and the cold room), there is now disorder or uniformity, because there are no differences in tempera- ture. According to Jeremy Campbell, “Chaos is the easiest, most predictable, most probable state, and it lasts indefinitely. Order is improbable and hard to create. Time is its enemy, because entropy tends to increase with time.”2

It should be clear that markets are inherently entropic. Over time, market forces tend to make companies and their products more uniform. There is a dissipation of difference as competing companies learn of and assimilate their competitors’ advantages—incorporating and absorbing not only each others’ product features, service strategies, distribution methods, and advertising practices, but also each other’s ideas, best practices, learnings, and people. In a perfectly orderly market—with zero entropy—the differences between competing firms would be perfectly evident to everyone. Customers would have the maximum amount of information about their choices and could see clearly the differences between firms. Because differentiation would be max- imized, customers would always make well-informed decisions. There would be no subtlety in the system, and selling would be reduced to ensuring that customers have the information they need to discern the differences between competing firms and their products. What makes this perfectly orderly mar- ket impossible are rampant assimilation and noise—another form of entropy (see Figure 2-1).

Noise enters the market in several ways. First, for obvious reasons, com- panies are not content to allow their competitors’ product advantages to re- main. When one company gains a technical advantage, others try to copy it.

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14 Winning Behavior

The feature race in automobiles, home appliances, airplanes, banking ser- vices, and electronic components such as televisions and VCRs is an exam- ple. Virtually as fast as one company can introduce a new feature, its rivals copy it, and vice versa. This innovation/imitation cycle blurs the distinction between competing products and makes it more difficult for customers to dif- ferentiate one product from the next. The result is noise. Second, companies seek to eliminate their rivals’ advantages in the language they use to commu- nicate with the market. The phrases “doctor recommended,” “scientifically proven,” “absolutely guaranteed,” “the finest available,” “unmatched qual- ity,” and the like proliferate through advertising, brochures, labels, and slo- gans to the point where the distinctions between products are lost in the ca- cophony of me-tooism that marketers are reduced to because no unused words remain. When their language is depleted from overuse, marketers are confined to slogans, gimmicks, and promises that have been made a thousand times before in the same or similar ways. The result is noise.

Ironically, customers have less discernible choice—not more—even though there are more products on the market, because in today’s highly en- tropic markets it is increasingly difficult to tell the competitors apart. For a while, the PalmPilot was the only game in town if you wanted a handheld electronic organizer and computer. Today, it’s difficult to tell the Palm™ handhelds from their many rivals. Are Palm’s products any better than the Compaq iPAQ Pocket PCs, the Toshiba Pocket PCs, or the VTech Helio Handheld PDAs? Not by outward appearances, and they’re offered through the same channels and at about the same price. On the surface, it appears that buyers of handheld computers have more choices today, but where there are no discernible differences between products, there is no choice. It’s like choosing between identical oranges on display in a supermarket. As the dis- tinctions between companies and their products blur, market entropy in-

Figure 2-1. Market Entropy. Markets are inherently entropic. Over time, market forces assimilate the differences between companies and their prod- ucts, reducing differentiation and increasing noise, which makes it more diffi- cult for customers to distinguish between the choices available to them.

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creases—and the challenge marketers confront in creating meaningful differ- entiation for their companies and products leaves them breathless.

A differentiated product remains a differentiated product only until the emergence of the first follower. After that it begins to behave as a commodity. Over time, all products tend to be- come commodities. With the evolution of the market, pioneer- ing companies face the choice of becoming limited-volume, high-priced, high-cost specialty producers or high-volume, low-cost producers of standard products.

—Seymour Tilles, “Segmentation and Strategy,” in Perspectives on Strategy from the Boston Consulting Group

The Dynamics of Differentiation Harvard’s Theodore Levitt argues that there are no true commodities, that

everything—including raw materials and other products that would seem to have no distinctions—can be differentiated, and is: “In the marketplace, dif- ferentiation is everywhere. Everybody—producer, fabricator, seller, broker, agent, merchant—tries constantly to distinguish his or her offering from all others. This is true even of those who produce, deal in, or buy primary met- als, grains, chemicals, plastics, and money.”3 His argument is based on the fact that to some extent all products are intangible. The “product” that cus- tomers purchase includes more than just the thing itself; the “product” in- cludes a cluster of expectations that may include safety, reliability, conve- nience, ease of delivery and installation, and ease of use. Moreover, customers have expectations about dealing with the seller—how knowledge- able the seller is, how informative, outgoing, easy to work with, dependable, responsive, and so on. This cluster of expectations usually extends beyond the person doing the selling and includes the company he or she represents.

In his book, The Marketing Imagination, Levitt uses Figure 2-2 to illustrate how buyers and sellers view the product being bought and sold—and how the market dynamically impacts differentiation over time. At the center of the cir- cle is the generic product—the thing itself—the laptop computer, cup of cof- fee, front loader, financial advice, iron ore, or hotel room. No matter whether it is a tangible product or an intangible service, the generic product is the core of what the customer expects you to deliver. Unless you can provide this, you won’t be in the market at all. As Levitt notes, this is the “table stake” that al-

We Will Assimilate You 15

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lows you to play in the game. In and of itself, the generic product is never what a customer buys; it merely allows you to participate in the market.

What customers buy is the expected product, which includes all those ex- pectations surrounding the product itself and its delivery and use. When cus- tomers buy a laptop computer, for instance, they expect the product to be durable and reliable; to run for a reasonable length of time on its batteries; to be portable and functional—reasonably fast, with sufficient memory capac- ity and a bright enough color screen to be visible in poor ambient light con- ditions; and to come with preloaded software (usually Microsoft Office). Moreover, customers expect the laptop buying process to be smooth, helpful, and efficient. They expect a convenient and informative Web site, knowl- edgeable salespeople (if they buy it at a retail outlet), speedy delivery, easy setup and use, some amount of free telephone support, and a reasonable war- ranty on the computer. Unless laptop manufacturers and retailers can meet these expectations, they will not be competitive.* In fact, if you ask cus-

16 Winning Behavior

Figure 2-2. Levitt’s Total Product Concept. In Theodore Levitt’s total prod- uct concept, the generic product is the thing actually being sold. Differentia- tion occurs with the augmented product, which shrinks over time as cus- tomers’ expectations grow. Illustration used with permission.

*As we write this, we could be more specific about laptop buyers’ expectations, but those expectations are changing so quickly that we would be out of date well before this book is published. Such is the speed of change and rapid obsolescence of product features in today’s markets.Co

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tomers what they are buying, they will mention not only the core or generic product but at least some of the expectations listed above.

It should be apparent that expectations differ by market segment. Even within the laptop market, there are high-end business travel users, high-end graphics users, high-end IT users and programmers, low-end business users, home users, gamers, and educational users, to name just a few ways this mar- ket can be segmented. Each of these segments will have different expecta- tions about the expected product, and laptop manufacturers typically target the different segments by offering a range of products with different features and service and support options. What may not be so apparent is that for each segment the expected product is essentially a commodity—and this com- modity is a moving target. As Levitt notes, the expected product “represents the customer’s minimal expectations. Though these vary by customers, con- ditions, industries, and the like, every customer has minimal purchase condi- tions that exceed the generic product itself.”4 Over time, as products evolve and more bells and whistles are added, customers learn to raise their expec- tations. This year’s breakthrough product will be next year’s has-been—like the inexorable march of time, the bar keeps being raised year after year (and sometimes month after month). To remain minimally competitive, sellers must continually advance the state of their products and services to keep pace with advances in their customers’ expectations—but this does not guarantee a competitive advantage. It merely keeps them in the game.

The frontiers of differentiation become visible in what Levitt calls the aug- mented product, which is the expected product plus the innovations compa- nies offer to try to differentiate themselves from their competitors. The aug- mented product is a cauldron of creation—the new features and functions, the extended services, the longer guarantees, the better selection, the greater availability, and so on. Together, product augmentations form the added value companies try to project as they appeal to customers. This is the battle- ground for the customers’ share of mind (and pocketbook). The evolution in business hotels illustrates the point. For the upscale (but not luxury) business hotel chains, the generic product is the room itself and the services available in the hotel, such as the gift shop, restaurant, lounge, and parking lot. Ar- guably, these are the price of admission. The expected product could include valet parking service, quick check-in for elite guests, bell and concierge ser- vices, health club, room service, dry cleaning, personal amenities such as soap and shampoo, a television, in-room movies, and so on. In recent years, this range of hotel has been offering various augmentations: mini-bars; busi- ness centers; in-room fax machines; desks wired for computers; multiline telephones; separate sitting areas; rest areas for travelers who arrive before check-in time; additional personal amenities (bubble bath, coffee makers,

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hair dryers); adapters for foreign plugs, etc. One could argue which of these value-added augmentations have come to be expected and which are still unique enough to be augmentations. The point is that every augmentation one chain adds puts competitive pressure on the others, who sooner or later adopt it themselves; so the bar keeps being raised and it becomes increasingly dif- ficult for hotel chains to generate new value-added augmentations, particu- larly within the price range of their target market segments.

In Levitt’s scheme, the potential product includes all the value-added augmentations that are possible but haven’t been thought of yet. It’s difficult to cite examples because these value-added features and benefits either have not yet been created or have been created but aren’t being offered because they’re too expensive (they would move the product beyond the currently ac- ceptable price point) or because the market is not yet demanding them and companies don’t currently have an incentive to provide them. Potential prod- ucts are sometimes born of necessity but often arise through normal innova- tion. Companies may become desperate to innovate because they are losing position in the marketplace, or customers may begin demanding more prod- uct features or services, or technological advances may suddenly make these potential products feasible. Increases in computer network bandwidth, for in- stance, will drive the introduction of new products to take advance of in- creased bandwidth.

Levitt’s scheme is one of many that describe the dynamic nature of mar- kets and the entropic forces that drive the endless cycle of innovation and im- itation that we spoke of earlier. In the long run, companies find it difficult to sustain the differentiation they work so hard to create, yet some manage to do so year after year. Moreover, as we’ll discuss next, they do it in different ways.

The Nine Domains of Differentiation Notwithstanding the fact that differentiation is difficult to achieve and

tends to be ephemeral, companies have found a number of ways to distinguish themselves in the marketplace. They do it in one or more of the nine domains of differentiation:

1. Product Uniqueness

The most common form of differentiation is based on unique product fea- tures and innovations or on the suite of product features being offered. Gen- erally, this is the most fleeting form of differentiation because it is easiest to copy unless the product has some form of copyright, trademark, or patent

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protection or unless the product is truly uncopyable. Products that exemplify this form of differentiation include Microsoft Windows, the Wall Street Journal, Intel Pentium chips, CIPRO®, and Julia Roberts (see Figure 2-3). Each “product” is unique in some way. Though Windows has competitors, this product has a tremendous “first-mover advantage” and an installed base so dominant that it imposes significant switching costs for consumers. Mi- crosoft’s real or virtual monopoly in operating system software gives it com- manding differentiation.

The Wall Street Journal is differentiated not only by its unique position as the preferred “product” offering financial news and analysis but also by its strong brand. While Investor’s Business Daily and Financial Times are potent rivals, the Wall Street Journal has a commanding lead because of the strength, recognition, and vitality of the product. Intel’s Pentium chips give them con- siderable product differentiation, but the product must be reinvented and im- proved constantly because competitors quickly match the performance of each new Intel chip. CIPRO’s unique position is protected by patents—no com- petitor can copy the formula for CIPRO, but they can develop similar drugs and are racing to do so. Still, until a competitor can create an even better drug for treating anthrax infections, CIPRO will give Bayer a strong, well-differ- entiated product—and CIPRO has a first-mover advantage that will continue

We Will Assimilate You 19

Figure 2-3. Julia Roberts. Like all actors, models, musicians, artists, and other public figures, she is the product. No one can copy the unique qualities that differentiate her from other actors, but her star may fade, as it has for other actors who were once on Hollywood’s “A” list.© Jeffrey Markowitz/Cor- bis Sygma. Photo used with permission.C

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to give it a commanding lead, at least for a while. We included Julia Roberts in our list to illustrate that some products are truly unique. Because she is the product, no one can copy her. Nonetheless, the strength of her product will erode over time. New actors will emerge who will capture Hollywood’s and filmgoers’ imaginations, and Julia Roberts will start losing some film roles to them. As she grows older, there may be less demand for her (alas, it happens to everyone), and if she appears in a series of unsuccessful films, her star will tarnish more quickly—as it has for Sylvester Stallone, Arnold Schwarzeneg- ger, and other previous Hollywood “A” list actors whose luminescence has dimmed in recent years. Product differentiation is tenuous.*

2. Distribution

For a number of companies, the primary form of differentiation is farther down the value chain—in the means or channels of distribution. Exemplars in this domain are Amazon.com, Dell Computer, Mary Kay, and Snap-On. These companies have chosen to reach their target markets in ways that con- fer an advantage not shared by their rivals who have chosen more traditional channels. The books Amazon.com sells are the same books sold by other bookstores. However, Amazon has several differentiating features. Its Inter- net-based virtual showroom enables it to display hundreds of thousands of books to the customer. Amazon also maintains a sophisticated product database and customer relationship management systems and uses unique distribution channels and alliances that e-commerce makes possible—and these in turn allow Amazon to provide a host of other services, including used book sales from a network of used book sellers connected to Amazon’s net- work, lists of book recommendations for repeat buyers, and lists of books re- lated to the one a buyer is considering. No bricks-and-mortar bookseller can offer these services as conveniently, readily, and easily as Amazon.com—un- less they imitate Amazon on the Web, as Barnes & Noble, Borders, and oth- ers have recently done. One advantage the bricks-and-mortar booksellers did have was the consumer’s ability to page through books, see the contents, and

20 Winning Behavior

*On August 26, 2001, Hollywood.com observed that, “Evergreens like Arnold Schwarzenegger and Sylvester Stallone used to be on the A-list, but not anymore. Our longtime action heroes have gotten old, and it seems that newcomers are ready to take their place.” (http://www.hollywood.com/news/detail/article/770607). Age may be one factor in the decline in value, but actors, models, and others who are the product can also suffer from overexposure. Premiere magazine’s Sean M. Smith noted that, “No matter how big a movie star you’ve been, the sad truth is, sometimes the Amer- ican public just gets sick of seeing your face.” (www.premiere.com/PREMIERE/ Features/202/wrap/animated.html)Co

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read sample pages. However, in 2001, Amazon introduced sample pages onto its Web site, so the browsers no longer have to go to a bookstore to sample a book’s content. Dell’s approach is similar in that they ignored the traditional retail store model and sold directly to consumers. Though rivaled now by Compaq, Gateway, and others, Dell’s Internet-direct channel remains the champion of built-to-order products sold directly to consumers, because of their award-winning after-sales service; high-quality, state of the art prod- ucts; and the industry’s most successful advertising campaign.

Although Mary Kay has an online presence, its strength comes not from Internet sales but from a distribution channel that rivals traditional depart- ment stores, which have a “pull” distribution system for cosmetics. Depart- ment stores such as Saks Fifth Avenue and Marshall Field’s create a place where people can buy cosmetics and then attract people to these locations through advertising, special services (such as beauty consultants), and the convenience of one-stop shopping. Mary Kay, like Avon and Tupperware, has a “push” form of distribution in which the product is distributed right in consumers’ homes. These companies rely on vast networks of independent sales representatives who go to individual consumers (or parties of con- sumers) and sell the product door-to-door. At last count, Mary Kay had more than 750,000 independent sales associates in 35 countries. Avon, which has been in business for more than 100 years, claims to have 3 million sales reps in 139 countries.

Like Mary Kay and Avon, Snap-On, which sells a variety of hand and power tools, has an army of franchisees who tour their territories in Snap-On vans carrying much of the inventory with them. They call upon auto me- chanics and garages and, in many cases, sell the product right from the truck. All of these “push” distribution system companies rely on their franchisees or independent sales reps developing relationships with individual consumers, and it differentiates them from the “pull” distribution systems where individ- ual consumers have to travel to the seller and are less likely to develop per- sonal relationships with the people behind the counter.

Although each of these companies has been able to differentiate itself through its primary distribution channel, nothing in their business model pro- tects them from rivals who choose to copy them. Indeed, Mary Kay’s door- to-door sales associates are a knock-off of Avon’s and Tupperware’s sys- tems. Amazon.com’s successful Internet model was quickly copied by Barnes & Noble, Borders, and other bricks-and-mortar booksellers. As we publish this, Amazon.com is just reaching profitability and has been trying to broaden its appeal and utility to consumers by opening other types of spe- cialty “stores,” including toys, consumer electronics, apparel, and music. Amazon’s future is still uncertain, though Jeff Bezos and company are still

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predicting profitable times ahead. Had its rivals not been able to emulate Amazon’s online distribution channel, however, Amazon might have cap- tured more of the online market for books, and we might be telling a differ- ent story.

3. Product Market Segmentation

Some companies differentiate themselves through product market seg- mentation—focusing on a narrow niche of a broader market. Also known as “category killers,” these companies create a store around one retailing seg- ment normally carried by traditional department stores or supermarkets. By specializing in a particular segment, the category killers can offer a greater selection of products, more knowledgeable salespeople, focused service, and cheaper prices than their multidepartment cousins. Examples of successful category killers are PETsMART (pet supplies), Staples and Office Depot (of- fice supplies), REI (camping gear and clothing), Williams-Sonoma (kitchen supplies), Starbucks (coffee), and Toys-R-Us (toys). Category killers like these have been among the fastest growing retailers in the past two decades. Their success breeds imitators, however, so the advantages gained by the first movers in a category tend to be short-lived, and they are often attacked by mass merchandising discounters like Wal-Mart, which can offer super sizes and lower costs. Wal-Mart’s own brand of pet food, for example, has seen even higher market share growth than PETsMART—and the success of both of these giants has been at the expense of traditional supermarkets.

Enterprise Rent-A-Car exemplifies another type of product market seg- mentation—focusing on segments ignored by rivals. The major rental car companies—Hertz, Avis, National, Budget, Alamo, Thrifty, and Dollar— have targeted the frequent business traveler, so they located the majority of their rental facilities at airports. Some, like Hertz, have allied themselves with frequent flyer programs, thus rewarding the frequent business traveler. Their target segment is the 10 percent of the population that accounts for over half of the air travel in the U.S. These frequent flyers typically make five or more business trips per year. Enterprise chose to target the remaining segment— the 90 percent of the population that does the other half of the annual air travel in the U.S. This segment travels by air less frequently (often only one or two trips per year). However, they do rent vehicles for purposes other than busi- ness travel to and from an airport:

� As a replacement vehicle while their car or truck is being repaired � As a luxury car for special occasions � As a new model car to test drive

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� As an extra car when they have out-of-town guests � As a vacation vehicle where they drive from home rather than fly to their

destination

To serve these customers, Enterprise chose to locate its major facilities in towns and cities where people work and live, rather than at airports, which are typically a greater distance from people’s homes. By 2001, Enterprise had more than 4,400 offices and claimed that their rental facilities were no more than 15 miles from 90 percent of the U.S. population. This segmentation strategy has paid off for Enterprise. In 1985, they were still a small, regional car rental company. By 1997, they had surpassed Hertz in annual rentals and are now the largest car rental company in the U.S.

Uniqueness does not lead to differentiation unless it is valuable to the buyer. A successful differentiator finds ways of creating value for buyers that yield a price premium in excess of the ex- tra cost. The starting point for understanding what is valuable to the buyer is the buyer’s value chain.

—Michael Porter, Competitive Advantage: Creating and Sustaining Superior Performance

4. Customer Service/After-Sales Service

Farther down the value chain are the companies that differentiate them- selves through superior customer service or after-sales service, and this is an- other way Enterprise Rent-A-Car differentiates itself from its rivals. The greatest single distinction is that Enterprise picks up its customers at no extra cost. This added convenience, especially for infrequent travelers, is another huge differentiator for Enterprise—and it has paid off. In 2002, the company was ranked highest in J.D. Powers and Associates’ Domestic Airport Rental Car Customer Satisfaction Study—the third year in a row Enterprise has been number one. The company scored highest in four of the five factors that J.D. Powers used to measure customer satisfaction: customer pick-up, rates/value, vehicle return, and reservations.

Other companies that differentiate themselves through customer or after- sales service are Nordstrom, Wal-Mart, Men’s Wearhouse, Ritz-Carlton, Ser- viceMaster, SAS, Southwest Airlines, and Lands’ End. These firms excel at making customers feel valued. Through prompt attention, timely response to questions and complaints, the courtesy and friendliness of the staff, and the de-

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gree to which they provide expert assistance, these firms differentiate them- selves from their rivals. Moreover, they do it at every point of contact with cus- tomers—all the points that Jan Carlzon, former CEO of SAS Airlines, referred to as “moments of truth”. We call it high touch/high care, which means that customers feel a high degree of “touch” in the attention they receive from ev- eryone associated with the company, and a high degree of caring about whether customers’ experiences are commensurate with their expectations.

Last year, each of our 10 million customers came in contact with approximately five SAS employees, and this contact lasted an average of 15 seconds each time. Thus, SAS is “created” 50 million times a year, 15 seconds at a time. These 50 million “moments of truth” are the moments that ultimately determine whether SAS will succeed or fail as a company. They are the moments we must prove to our customers that SAS is the best alternative.

—Jan Carlzon, Moments of Truth

In her book Fabled Service, Betsy Sanders, a former vice president with Nordstrom, describes what differentiates that premier retailer from many of its rivals: “Nordstrom is a company that has become fabled in the eyes of its customers. What that means, very simply, is that Nordstrom employees pro- vide a level of service that their customers talk about. Because so many cus- tomers talk about Nordstrom’s service, it has become a benchmark of service in the retail industry. The level of service customers experience at Nordstrom becomes what they expect to find in other stores.”5 The success of firms like Nordstrom in creating differentiation through superior customer service— through high touch/high care—has sparked a virtual flood of copycats, many of whom are embracing customer relationship management system software as their path toward achieving “customer intimacy.” Ironically, the attempt to institutionalize customer intimacy through high-tech systems may make cus- tomers feel even more distant. It’s like those letters we’ve all received that are obviously written by a computer but open by addressing us by our first name and then list our street address somewhere below. The “fake intimacy” these tools create is no better than telemarketers who call people at home and use personal information to establish a quick “bond.” The dead giveaway is that the telemarketer mispronounces our name, sounds like she’s reading from a script, and the personal information is obviously inserted at the appropriate points. Fake intimacy is not intimacy; it’s dehumanizing and offensive. As

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we’ll discuss later, the way to achieve real customer intimacy is to be gen- uine about it and to get to know your customers well.

5. Breadth of Offerings

One-stop shopping, single point of contact, soup to nuts, full service— these are the appeals of yet another group of companies who seek to distin- guish themselves through the breadth of their offerings. Instead of going to a hardware store, a lumberyard, a plumbing supply outlet, and a paint store, homeowners can get everything they need at The Home Depot. One-stop companies offer convenience and confidence to customers. They are more convenient because customers can find most of what they need in one loca- tion or from one supplier. They inspire more confidence when knowledge- able employees can answer a variety of consumers’ questions or offer advice in a range of product areas.

In the engineering and construction industry, one-stop assumes the form of full-service contractors like Fluor and Bechtel. Known as EPC firms, these companies provide a full range of services: engineering, procurement, and construction. Bechtel, for instance, says that it “provides premier technical, management, and directly-related services to develop, manage, engineer, build, and operate installations for our customers worldwide.”6 Firms like Bechtel often do “green field, turnkey” plant projects, meaning that they start with a green field and end by giving the owner the keys to the fully completed plant. Most of these firms now also offer operations and maintenance ser- vices. They do everything their customers need—from soup to nuts. Full-ser- vice EPC firms argue that their one-stop approach benefits owners in a num- ber of ways:

� It can reduce cost because they eliminate redundancy. � It improves communication among designers, draftsmen, engineers, and

builders. � It can reduce the schedule, improve coordination, and simplify the inter-

faces between the owner’s representatives and the contractor.

According to GE Capital Consumer Finance, Citicorp, and other large fi- nancial institutions, there are similar benefits to having a full-service finan- cial services provider. Once you have an account or customer service repre- sentative you trust, that person can help you take care of all of your insurance, banking, lending, leasing, and credit needs. The one-stop shopping appeal has

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been great enough in recent years to fuel a number of mergers and acquisi- tions, including the megamerger of Citicorp with Travelers Group, parent of Travelers Insurance Company, Salomon Brothers, and Smith Barney.

Even small, specialty retailers find one-stop shopping to be a point of dif- ferentiation. The Gluten-Free Pantry, an Internet-based gourmet-cooking re- tailer, opens its Web site by announcing: “We offer convenient one-stop shopping for all your special dietary needs.”7 Of course, one-stop shopping is a differentiator only to the extent that it is unique. When your rivals also of- fer one-stop shopping, the distinction fades, as has happened to Office Depot. Once unique in the category of large office supply retailers, it is now virtu- ally indistinguishable from Office Max and Staples.

6. Brand

Perhaps the most powerful form of product differentiation occurs when the product becomes a recognizable and valued brand. Brands are powerful be- cause their recognition is a substitute for trust by many buyers in the market- place. They confer a bias in buying because people tend to trust brand names and symbols. For many people, the brand is a sign of stability, quality, and confidence. Today, the world’s hottest brand-name companies include Coca- Cola, Starbucks, Microsoft, Chanel, Mercedes-Benz, Gillette, Harley David- son, Heineken, Versace, Sony, NIKE, Black & Decker, Talbots, Porsche, Goldman Sachs, McKinsey & Company and Disney, to name a few. In many cases, individual products are more strongly branded than the companies pro- ducing them, such as Uncle Ben’s Rice, Tampax, Vaseline, Aquafresh, Tabasco sauce, Oil of Olay, and Schweppes. Do you know who produces these products? (The answers are MARS Incorporated, Procter & Gamble, Lever Fabergé, GlaxoSmithKline, McIlhenny Company, Procter & Gamble, and Cadbury Schweppes, respectively.)

Brands can take decades to build, and they offer strong differentiation once they are established in the minds of customers. The billions of dollars spent every year on brand advertising is compelling evidence that strong brands of- fer significant advantages in the marketplace. Yet they can be eclipsed if ag- gressive rivals outperform a brand in the hearts and minds of consumers. Sony’s Betamax is an example. It was the original videotape format. Early adopters of videotape machines were routinely using the word “betamax” to refer to videotaping equipment. When consumers use the product name or format to refer to the thing itself (as “xeroxing” is routinely used to signify photocopying), the brand is often invulnerable. But Sony’s aggressive rivals were not content to allow the Betamax format to dominate videotapes, and they outpromoted and outsold Sony with the VHS format, which was in fact

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of lower quality than Sony’s product. The result? Although Sony claims that Betamax still lives, it has in fact died a marketplace death.

Branding is a powerful differentiator, but it takes considerable effort and investment in advertising to establish and maintain a brand—and even very strong brands can be diluted by aggressive rivals.

7. Size/Market Dominance

Some companies achieve marketplace distinction through their size and dominance of the market. Their advantage accrues through a combination of brand-name recognition, accessibility, capacity, broad expertise, and the abil- ity to create advantage through sheer marketplace muscle. Two of the most muscle-bound firms today are Microsoft and Wal-Mart. Anyone who was conscious during the 1990s will, of course, know of Microsoft’s battles with the Justice Department over the massive power it exercised with suppliers, partners, and consumers. Microsoft’s size enables it to do more research, de- velop more products, do more advertising, reach more consumers, attract more partners, and exert more influence over distributors and suppliers than its rivals. Consequently, it has a broader share of the consumers’ minds and is able to differentiate itself and its products in ways its rivals cannot match.

Wal-Mart grew on the strength of a superior business model based on hav- ing a broad mix of in-stock merchandise, providing excellent customer ser- vice, and rewarding employees to minimize pilferage. As it grew, Wal-Mart created outstanding business processes that enabled it to remain the “every- day low price” retailer by controlling costs and by building efficiencies into its operations. It was also able to form special partnerships with suppliers like Procter & Gamble and to obtain brand-name products in larger package sizes, which gave Wal-Mart a lower price-per-ounce for these products than its ri- vals could offer. Today, Wal-Mart is the largest retailer in the U.S., with a market cap more than five times greater than its nearest rival. Manufacturers who want to place their products with Wal-Mart will go to great lengths to meet Wal-Mart’s demands, like offering packages in special sizes, such as bulk, and engaging in joint promotions—greater lengths than they will go to for smaller, less powerful, less pervasive retailers.

Companies that dominate markets and can differentiate themselves through sheer muscle often have a first-mover advantage as well. As the pio- neers in a product or market segment, like Microsoft and McDonald’s, they typically have a large installed base of their products or numerous facilities in key locations. Customers have become comfortable with their products and may depend on their services. They have strong name recognition; the loyalty of a large segment of customers; and the ability to meet a variety of

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customer needs because of the sheer size, diversity, and expertise of their workforce. Dell Computer’s first-mover advantage came through its innova- tive, online, direct-to-consumer marketing system. IBM and Cisco Systems achieved it by dominating key product lines (mainframe computers and net- working hardware) at a time when demand for those products was growing exponentially. McDonald’s did it by inventing and franchising fast food. First movers do not always sustain their advantage, of course, but if they can achieve market dominance by inventing new products, markets, or channels, and if they can sustain their business model through sound business practices, they will continue to differentiate themselves from their also-ran rivals be- cause their size and market dominance enable them to do more, offer more, and invest more than the second-tier players in the market.

8. Low Price

Low price does not differentiate a company’s products, but it does offer a differentiating strategy that, when most successful, will drive less-efficient ri- vals from the market. Low-price leaders like Wal-Mart and Charles Schwab strive to provide goods and services at a lower price than their rivals and to sustain their low-price position by selling to mass markets, maximizing op- erational efficiency, and managing their logistics and supply chains rigor- ously. As Michael Porter notes in his book, Competitive Strategy, “Cost lead- ership requires aggressive construction of efficient-scale facilities, vigorous pursuit of cost reductions from experience, tight cost and overhead control, avoidance of marginal customer accounts, and cost minimization in areas like R&D, service, sales force, advertising, and so on.”8

In the mass retailing markets, low-price leaders can be as devastating as the Mongol hordes sweeping across the steppes of Asia. In the Northeast, for in- stance, retailing giants like Grand Union, Bradlees, and Montgomery Ward were under attack by such low-price invaders as Kohl’s, Target, Best Buy, and the ubiquitous Wal-Mart and Kmart. Unable to match their prices and their op- erational efficiencies, Grand Union, once a proud retailing giant, has joined Lloyd’s, Caldor, Bradlee’s, and Montgomery Ward in the retail graveyard.

Occasionally, low-price leaders fall victim to their own strategies. In 1995, NEC’s Packard Bell was the leading retail personal computer company in the U.S. It had a 15 percent market share and was being sold in such mainstream outlets as Sears. Packard Bell’s principal differentiator was the low price of its PCs. Then those low prices were matched by Compaq, Hewlett-Packard, Gateway, Dell, and other more efficient producers. By late 1996, Packard Bell’s market share had dropped 40 percent—a decline the company was un- able to arrest. In late 1999, Packard Bell’s parent company, NEC, announced

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massive layoffs and the termination of its U.S.-based consumer business. Packard Bell’s demise as a U.S. PC manufacturer is an object lesson for low- price leaders. Its slim margins prevented the company from investing suffi- ciently in quality control and customer service, and it was done in as much by a poor quality reputation and notoriously bad customer service, which drove buyers into the arms of its competitors, who could differentiate themselves from Packard Bell by higher-quality products, convenient Web-based shop- ping, and excellent after-sales service.

To this point, we have taken an extended and somewhat unconventional view of the means by which companies strive to differentiate themselves and their products or services from their rivals. It is a shifting landscape as com- panies try to emulate their competitors’ successes while developing more dif- ferentiators of their own, and the problem for many companies is that the race is becoming increasingly frantic. Most of the differentiators companies cite as their unique advantages do not actually differentiate them. When those dif- ferentiators are put to the test, they either fail the test of uniqueness (because their rivals’ products are so similar) or the test of significance (because cus- tomers do not care). We wrote this book because there is a ninth alternative: to differentiate yourself based on your behavior. We discovered some com- panies that do use behavior to differentiate themselves, but most do not, so they have a rich opportunity to build their competitive position, as will those who learn to do so.

9. Behavior

Finally, many companies differentiate themselves behaviorally: through the ways they treat their customers, conduct their business, attract and lead their people, and convey themselves to their markets. Customer service that positively distinguishes a company from its competitors is perhaps the most obvious form of behavioral differentiation, but there are many others. South- west Airlines does it through the spirit of fun they bring to their company and their passengers—a spirit embodied in their hiring practices (they hire for at- titude and train for skills); human resource management (they call it their People Department); slogans (“We smile because we want to, not because we have to”); and their CEO-as-wild-and-crazy-guy (Herb Kelleher, who retired in 2001, was known to arrive for work dressed as Elvis). Not everyone at Southwest Airlines is a comedian, but those who have the urge are encour- aged to cut loose. After his plane was delayed on the ground, one captain is said to have announced, “We’re sorry for the delay. It seems the machine that smashes your luggage is broken, so we have to smash it by hand and that’s taking a little longer.”9

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It should be clear that what Southwest Airlines does to differentiate itself behaviorally goes well beyond traditional customer service. Merely meeting passengers’ customer service expectations would not differentiate them from other major airlines—whose pilots, flight attendants, and service reps are all taught the “normal” customer service behaviors. Being polite, smiling, an- swering passengers’ questions, caring for their comfort, helping passengers who need some extra help—these behaviors are rarely positive differentiators because the employees of most airlines do them routinely. But the lightheart- edness common on Southwest Airlines flights is differentiating because it is so distinct from the unremarkable experience passengers usually have with other carriers.

Other companies that excel at behavioral differentiation include Men’s Wearhouse, Harley Davidson, SAS, Nordstrom, Marshall Field’s, Hall Kin- ion, Heidrick & Struggles, and Centex Construction Group. The people in each of these firms tend to behave in ways that differentiate them from their competitors. Throughout the rest of this book we will explore how each of them does it.

To return to our theme at the beginning of this chapter, market leaders ex- cel at reducing chaos in the marketplace. They resist assimilation by building and sustaining positive differentiation, by giving their customers clear choices. The most successful firms, like Wal-Mart, create differentiation in multiple domains. Wal-Mart combines its low-price leadership strategy with superior customer service and a dominant market position that enables it to outperform its smaller rivals. Southwest Airlines and Enterprise Rent-A-Car combine a product market segmentation strategy (serving markets that their major rivals don’t serve) with excellent customer service and behavioral dif- ferentiation. Retailers like Nordstrom, Marshall Field’s, and Neiman Marcus combine high-quality products, brand image, and outstanding customer ser- vice. A smart firm differentiates itself from its rivals in as many ways as it reasonably can because it knows that virtually all of these domains of differ- entiation can be copied. Over time, the marketplace tends to assimilate dif- ference, so smart firms defend themselves against numbing sameness through multiple forms of differentiation.

Behavioral differentiation is unique in several important respects. Al- though it can give any company added advantage, it is not a substitute for the other forms of differentiation. Behavioral differentiation is insufficient by it- self to create a sustainable advantage. If a company doesn’t have core prod- ucts and services its customers value as much as those being offered by its competitors, then behavior alone will not sustain its business. People con- tinue to fly Southwest Airlines because, first and foremost, Southwest gets people where they want to go—safely and on time.

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Behavioral differentiation is also unique in that, of all the forms of differ- entiation, it is the most difficult to copy and the hardest to sustain. It requires the kind of leadership that Herb Kelleher brought to Southwest Airlines and Sam Walton brought to Wal-Mart. It demands an uncommon institutional commitment to exceptional customer service and other behaviors that are truly differentiating. It takes a significant amount of skill and will throughout a company’s workforce to create more-than-occasional behavioral differenti- ation. A lot of companies talk a good game, but in the end only a few have been able to grasp the fundamental insight about behavioral differentiation: You are how you behave.

Challenges for Readers

1. In your industry, how rapidly are the differences among competitors as- similated? One characteristic of entropic markets is noise, particularly in how companies communicate why customers should choose them. How much noise do you see in the market communications from you and your competitors? Does it all sound the same? Are any company’s communi- cations truly distinctive? Any fresh messages?

2. Using Levitt’s market model, analyze your industry. What is the generic product? The expected product (that cluster of value satisfactions that cus- tomers expect from the product, no matter whom they buy it from)? What do various competing players offer as their augmented products? What are the potential products?

3. We identified nine domains of differentiation: product uniqueness, distri- bution, product market segmentation, customer service/after-sales service, breadth of offerings, brand, size/market dominance, low price, and behav- ior. In which of these domains does your company attempt to differentiate itself from competitors and gain competitive advantage? How successful are you? How lasting or fleeting are your differentiators?

Endnotes 1. James Gleick, Chaos: Making a New Science (New York: Viking Penguin

Inc., 1987), p. 257. 2. Jeremy Campbell, Grammatical Man: Information, Entropy, Language,

and Life (New York: Simon and Schuster, 1982), p. 42. 3. Theodore Levitt, “Marketing Success Through Differentiation—of Any-

thing,” Harvard Business Review (January/February 1980), p. 2. 4. Theodore Levitt, The Marketing Imagination, New, Expanded Edition

(New York: The Free Press, 1986), pp. 79–80.

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5. Betsy Sanders, Fabled Service (San Francisco: Jossey-Bass Publishers, 1995), pp. xi–xii.

6. Bechtel Corporation Web site, April 30, 2001. 7. The Gluten-Free Pantry Web site, April 30, 2001. 8. Michael Porter, Competitive Strategy (New York: The Free Press, 1980),

p. 35. 9. “Southwest’s ‘Crazy’ People First Policy,” Customer Service Manage-

ment (May/June 1999), pp. 15–17.

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What a product is in its customer-getting and customer-satisfy- ing entirety can be managed. But it seldom is. Things just hap- pen, often entirely too serendipitously.

—Theodore Levitt, The Marketing Imagination

A perfect game will end in a draw and is apt to be dull. Yet few games are perfect. Chess is fraught with mistakes. No- body can win unless somebody makes a mistake. It’s been said many times that the victor is he who makes the next-to- the-last mistake.

—Larry Evans, The 10 Most Common Chess Mistakes

Behavior is a mirror in which everyone shows his image.

—Johann Wolfgang von Goethe

I don’t believe what you tell me. I believe what you do. Behavior is genuine. It is the purest form of the expression of your intent, your priorities, and your feelings. No matter what language you use to describe yourself, no matter what promises you make, no matter how sincerely you tell me you want my business, the truth about you will always emerge in how you act. You are how you behave—and you behave how you are.

If you are a sales clerk in a department store that prides itself on customer service but you really don’t like serving customers, your lack of interest will show in the perfunctory way you answer my questions. If your company claims to put customers first, but your motivation as an account rep is to earn

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your commissions rather than help me solve my problems, then you will push me toward closure even when your solution or product is not right for me. If you consider yourself customer-focused but you are a senior executive who doesn’t like spending time with key customers, then your lack of commitment will be evident on your calendar—and by your absence in my office. Con- versely, if you are excited about and engaged by serving customers, your en- thusiasm will show in how you behave toward me. It will be evident not only in your words but in the fact that you do more probing to understand my needs, bring me more ideas, take more time to help me, and go out of your way to take the extra steps that someone less committed to serving customers won’t take.

Most people know what to do. The problem isn’t lack of knowledge. In the past decade alone, thousands of books have been written about marketing, selling skills, managing customer relationships, and providing exceptional service. Billions of dollars have been spent training and educating everyone from senior executives to sales clerks on how to treat customers well. Does anyone today not know what to do? Yet there are countless examples of busi- nesspeople behaving in ways that send—at best—the message that they are no different from other suppliers and—at worst—that they don’t care about the customer or having the customer’s business. Whether or not you care about your customers, it shows. You are how you behave.

We observed in Chapter 1 that you are on stage with your customers all the time. Like it or not, you are always either showing them that there is no difference between you and your rivals or you are behaving in ways that pos- itively (or negatively) differentiate you from the other companies that want their business. You differentiate yourself from your competitors through acts of commission and omission—through the things you do and the things you don’t do. Moreover, your customers are always comparing you to your competitors. When you enter into a relationship with a customer, you are constantly compared, behaviorally, with other suppliers the customer knows and is interacting with. There are no time-outs, grace periods, or honey- moons, and there is no opportunity to rest on your laurels. If you do, sooner or later your smarter competitors will outbehave you in ways that matter to the customer.

With customers, your behavior is always sending one message or another. Like words, signs, symbols, images, Morse code, and semaphores, behavior is a form of communication. In everything you do or don’t do, you commu- nicate whether you care, whether you are listening, whether you are respon- sive to the customer’s needs and concerns, and whether you are placing your customer’s interests ahead of (or behind) your own. Your behavior commu-

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nicates what you think of customers, what you consider important, and whether you really want their business.

The environment in which you conduct your business also communicates. The way you package your products, decorate your office, design your brochures—these symbols say a lot about what your customer can expect. This is not news; but consider the impact on the customer when the message your business environment sends is incompatible with your behavior. Family doctors, for instance, try to create environments that appear clean, homey, and professional—physically, but not psychologically, sterile. The waiting room is usually pleasant and comfortable. On the walls are medical posters, diplomas or certificates, and Norman Rockwell prints or family photos. The message is that this is a place where you will be safe and comfortable, a place to ease your worry. The examination room is clean and well-lit. You gener- ally don’t see leftover gloves, used cotton swabs, or other alarming medical disposables lying on the counter. Instead, the tidiness and orderliness of the room says, “We know what we’re doing. You’re in good hands with the doc- tors and nurses who made this room so neat and professional.”

So far, so good. Your initial impressions based on the environment are re- assuring. Then the doctor walks in the room. If the doctor greets you respect- fully, listens to you, cares about you and your health, is clean and well groomed, and offers effective treatment for your ailment, then the behavior will reinforce the message you received from the environment. But if the doc- tor is slovenly, has dirty fingernails, seems rushed, and gives you only a su- perficial examination before prescribing medicine you don’t need, you will experience what psychologists call cognitive dissonance, which is a fancy way of saying you’ll feel confused. Which message will have the greatest im- pact on you? The behavior, of course. It’s what you’ll remember most and will share with friends and family when they need to visit a doctor and are looking for a recommendation.

The good physician knows his patients through and through, and his knowledge is bought dearly. Time, sympathy and un- derstanding must be lavishly dispensed, but the reward is to be found in that personal bond which forms the greatest satisfac- tion of the practice of medicine. One of the essential qualities of the clinician is interest in humanity, for the secret of the care of the patient is in caring for the patient.

—Francis W. Peabody, “The Care of the Patient,” in Journal of the American Medical Association

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We expect physicians to be knowledgeable, capable, and smart. We expect them to know what ails us and to provide competent help if they can. How- ever, as Francis Peabody suggested in his landmark 1927 article for the Jour- nal of the American Medical Association, we also expect them to be respect- ful, attentive, and caring.1 We expect them to treat us with humanity. Indeed, these are the behavioral expectations we have of most of the people we inter- act with in business and professional settings: We want to be treated well.

What Customers Expect It’s obviously important for professionals and businesspeople to have a

deep understanding of their customer’s expectations. This idea is not new or profound, as Dawn Iacobucci, Kent Grayson, and Amy Ostrom noted in a 1994 article in Sloan Management Review: “‘Customer satisfaction’ may be a new buzzword, but the concept is not new. Striving for customer satisfac- tion is no different than good marketing. . . . Attempting to find out what cus- tomers want and then trying to deliver may be seen as striving for customer satisfaction or simply doing good marketing.”2 However, behavioral differ- entiation puts a new spin on this old concept. Understanding your cus- tomers’ expectations of your products and services is one thing; understand- ing their expectations of your behavior is something else again. In part, customers may not know what they expect. They may never have been asked. Nonetheless, they can compare your behavior to your competitors’ behavior because, in all likelihood, they will have experienced both. To help us understand behavioral expectations and customers’ actual experiences, we surveyed a number of consumers of different kinds of professional ser- vices and will present our findings throughout this book. We will start here with what consumers expect from lawyers. Later in this chapter we’ll de- scribe how the lawyers’ behaviors differentiate them positively or nega- tively from other lawyers. Table 3-1 shows a sample of the responses we re- ceived to the question, “What do you expect from a lawyer?” Note that only “competence” deals with technical expertise. All the other expectations are behavioral.

Do all lawyers exhibit the behaviors listed in Table 3-1? Oh, that this were true, but, alas, lawyers are human, and some are not the strong advocates their clients want. Some lawyers are not candid or compassionate, don’t offer prac- tical advice, are not clear and frequent communicators, and do not follow through on their promises. This means, of course, that the lawyers who do meet these behavioral expectations will differentiate themselves from those who don’t. At the most basic level, then, you can differentiate yourself be- haviorally from at least some of your competitors by understanding your cus-

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You Are How You Behave 37

Table 3-1. Customers’ Expectations of Lawyers.

Technical Expectations

To have the core legal competencies To be competent and reliable To be an expert on the matter at hand

Competence, To be smart in areas in which I am ignorant Knowledge, and To continually update his/her knowledge Experience To do appropriate research to support my case

To understand and comply with basic court procedures so I don’t get in trouble

To provide expert legal advice To know the laws and explain them in terms I

understand Behavioral Expectations

To be devoted to me as a client and to my cause To sincerely and genuinely care about me To look after and fight for my interests To care more about me and my situation than his/her

fees Client Advocacy To have my best interests in mind

To be on my side—and zealously so—if he/she agrees to take the case

To be an ardent advocate for my rights, when just To be focused on me as a client, not on billable time To be assertive with the bad guys

To tell me everything I should know and to answer my questions

To tell other people the truth and avoid taking advantage of them

Honesty, Integrity, To give fair, honest, and truthful advice and Candor To be honest and trustworthy

To use common sense To give me a realistic picture of my likelihood

to get what I requested

To be concerned about my situation Compassion To be patient and show understanding

To be compassionate—to care about people To show empathy

To be practical; to give actionable advice and guidance

Efficiency, To be a diligent worker

Effectiveness, To give practical advice on how to respond to my issue

and Practicality To respond to my questions and needs efficiently and effectively; to avoid wasting my time or his/hers

(continues)

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tomers’ behavioral expectations and meeting them. It sounds easy, but it’s not. If it were easy, then all but the most obtuse lawyers would meet the cri- teria in Table 3-1. The problem is that knowing what to do is not the same as doing it. The map is not the territory.

Another important point emerges from our discussion of consumers’ ex- pectations of lawyers: Behaviors can differentiate you both positively and negatively. In the various ways you behave toward your customers, you will show them either that you are better to work with than your competitors—or worse. Positive and negative BD can have a profound effect on a customer’s willingness to work with you again. You can create a bias toward yourself that results in more business or a bias against yourself that can cost you not only the current customer but also many others whom the customer persuades to avoid working with you. Behavioral differentiation can be extraordinarily powerful.

Gaining Ground—Positive Behavioral Differentiation

Behavioral differentiators are positive when they enhance the customer’s experience of you or your products and services and when they create, in the

38 Winning Behavior

Table 3-1. (continued)

To have strong communication skills To give me detailed explanations of all the

ramifications of following or not following his/her advice

To be available whenever I need him/her; to return my calls and make time available to meet with me

Communication To follow through on the things he/she commits to and To answer all my questions in a timely manner so I can

make the right decisionsResponsiveness To comply with my reasonable requests for filings,

motions, actions, and so on, or explain why he/she doesn’t

To respond to my communications with reasonable promptness

To keep my matters confidential and protect my privacyProfessionalism

To give me his/her undivided attentionand Confidentiality To demonstrate absolute professionalism

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customer’s mind, a favorable bias toward you. If all else is equal, in the fu- ture this customer will prefer doing business with you because you treated the customer distinctively different and better (however the customer defines it) than your competitors did. The following consumer’s story illustrates how Marshall Field’s created positive BD that will result in future bias toward their store:

I had an exceptional shopping experience at the old Marshall Field’s store in Chicago. I hadn’t been there before but was able to do some shopping while I was in Chicago on business. First, I was looking for a pair of shoes. I showed the salesman what I wanted to try on, and he brought those shoes out along with three similar styles he thought I might also like to consider. I stuck with my original choice, but those shoes didn’t fit quite right. So he pulled out the lining, put in an inner sole, and put the original lining back in place. I haven’t seen a shoe salesman do that since I was a kid—40 years ago!

I also shopped for some lingerie. I casually told the saleswoman that I lived far away and not close to a major department store. She gave me her business card and invited me to call her any time I needed some- thing, and she would send it. Next, I browsed in the clothing department and found a top I liked. They had the right size but not the color I wanted. By the time I tried on that top in another color and confirmed the size, the saleswoman had already located the right color at another store. I didn’t have to ask her to do this; she took the initiative and did it while I was still in the dressing room. Moreover, she arranged to send it to me at no charge. She explained that that was Marshall Field’s pol- icy when they didn’t have what the customer wanted in the store.

Finally, I went to the furniture department because I knew Marshall Field’s carried a particular line of fine wood furniture that is hard to find. After I found the coffee table I wanted, the saleswoman told me that they were holding a private sale in a few days that would give me 40 percent off. I left, thinking about the table, and then called her on the day of the sale after I returned home. I told her I’d decided to buy it. Since I didn’t have a Marshall Field’s account, she opened one for me on the phone, gave me an additional 10 percent off for establishing the account, and took care of everything. Weeks later, I even received a thank-you card from her.

The outcome of my experience is that I would always return to Mar- shall Field’s any time I’m in Chicago. And I’d buy something—partly because it would be impossible not to find something wonderful there and partly because these experiences turned me into a loyal customer.

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What’s interesting about this consumer’s story is the consistency of the be- havioral impression created. In each of her four interactions with Marshall Field’s salespeople, she experienced a similar degree of exemplary service— salespeople going out of their way to be helpful and to ensure that she got what she wanted. Each of the things these salespeople did individually would be considered excellent examples of customer service. Together, they form a pattern that creates, in her mind, the impression that Marshall Field’s is a bet- ter place to shop—and it’s an experience she wants to have again. Further- more, it’s not the kind of behavior she typically experiences in department stores, as she explains:

Usually, you find what you need on the rack. If it’s not on the rack, they don’t have it. Then you search for a clerk and hand them your credit card. They process the payment, and you’re gone. It’s not that the clerks in many other stores are unfriendly, surly, or unhelpful; they just don’t define their job any more broadly than completing the transaction.

The people at Marshall Field’s gave me the impression that meeting my needs was their highest priority. The shoe salesman went out of his way to make sure my shoes fit properly, and he did it so the shoes looked nice. The woman who called to find the right color top volun- teered to do that—she didn’t wait for me to ask. They all took the ini- tiative to help me get what I wanted, and nobody seemed put upon. It’s like, “This is how things are done at Marshall Field’s.”

As this example illustrates, one of the primary ways you create positive BD is to demonstrate that you want the customers’ business and are earnest about solving their problems and helping them meet their goals. If you can convey this impression consistently, across a broad range of customer inter- actions involving a number of your people, you demonstrate the added value of working with you rather than your competitors. Here are some other ways positive BD is created:

When the customer knows that you have gone to extraordinary lengths to learn about them and understand their industry, company, and needs.

� If you’re an online book retailer, you create a customer relationship man- agement (CRM) system that remembers what your buyers have purchased in the past. Then you notify them about similar books they might be inter- ested in. You also ask them to identify the current authors whose books they like. When those authors publish new books, you e-mail the buyers and offer prepublication discounts.

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� If you’re a manufacturer, your representatives live in your customers’ stores or plants, conduct joint research on their markets, and co-design pro- grams for improving how they reach their customers. You take an entire supply-chain view and partner with your customers to help them succeed.

� If you are a services company, you research your customer’s industry thor- oughly enough to know what challenges and opportunities they are facing, what they are trying to accomplish, and how their business model differs from competing models. On your own initiative, you publish a report for them that summarizes the insights you’ve gained during your research and then conduct a joint brainstorming session where you help them identify new opportunities.

� If you’re an ad agency, before you make your first presentation to the client you survey their customers and learn how they view your client’s products. Based on your survey, you already have preliminary thoughts on what the client can do to improve its advertising.

� Whoever you are, you do more homework than your competitors, have more insights, know more people (because you’ve talked to them), and show more interest in the customer’s business.

When the customer perceives that you care about them and their business.

� You are a partner in a management consulting firm, and you track your client’s financial performance metrics—showing concern when they de- cline and elation when they improve.

� You are a professional services firm. You purchase some of your cus- tomer’s stock and hold it as an incentive for your team that is serving the customer. If the customer’s stock rises within the specified period of the team’s service to them, then the team receives the stock as a bonus.

� You lead a small engineering firm. You send representatives to your customer’s industry conferences to learn more about their industry and competitors.

� You are a consumer goods manufacturer. You give your customers feed- back on their Web site designs and offer consultation on how to improve their Web presence.

� No matter who are you, you are there when your customers need you, even if it’s not convenient. You occasionally cancel a personal commitment in order to solve a customer problem or meet when it’s most convenient for the customer.

� You are an attorney, an accountant, a doctor, a nurse, a consultant. You don’t have a “charge-for-every-minute” mentality; you do some things gratis just because it’s the right thing to do for your client.

You Are How You Behave 41

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When you are unusually thoughtful and considerate.

� You remember when the customer has had some personal trauma in his life and inquire about it in a way that is genuinely caring and not self-serving.

� You lend an ear when the customer wants to talk—about anything. � You take the time to show her how to operate the equipment and give her

tips on getting the most out of it. � You remember the customer’s birthday or other special occasion and send

a personalized card or e-mail greeting. � You remember the customer’s name and the small facts about his life, and

you inquire about them from time to time. To you, he feels like family, and that’s how he sees it, too.

If you want to bring along some printed material, I will be a lot less impressed by your preprinted brochure than something that has clearly been put together for me. At least that shows a little thought, consideration.

—David Maister, “How Clients Choose,” in Managing the Professional Service Firm

When you customize your product or service for them or otherwise show them that you are serving their needs specially.

� At no charge, you create a special piece of equipment the customer needs to solve a one-time problem.

� Without being asked to do so, you translate your operating manual into Spanish because you know there are some native Spanish speakers among your customer’s operators.

� You modify your maintenance schedule to suit some customers’ unusual hours.

� You create special package sizes to suit their consumers’ needs. � As a special favor, you mix and match pieces of your products that don’t

normally go together. � You paint your products a special color, stamp the product with the cus-

tomer’s logo, or otherwise modify your product without additional charge to suit the customer.

When you have clearly gone out of your way to help them or to address their needs in ways that are above and beyond what your competitors would have done and beyond what the customer could reasonably expect.

42 Winning Behavior

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� A customer leaves behind an important document. You send an employee to the airport to track him down and return the document before he boards his plane.

� You are a waiter. A customer orders a glass of wine with dinner; you refill the glass at no charge and then bring a complimentary glass of port at the end of the meal.

� To ensure that your customer has what he needs for his big meeting, you create the PowerPoint slides for him and hand-deliver them.

� You make a long-distance call to a customer to let her know that you’ve located a special item she was looking for—in one of your competitors’ stores.

� With their permission, you take Polaroid pictures of your customers and add them to a bulletin board beside the door. They leave feeling like hon- ored guests.

� Your customers are eating at your small café. They ask you where in your city they can buy some prints. You close your café and lead them half a mile on foot to the best print gallery in town. You know the shop is open because you phoned the owner and asked him if he would open his shop for your customers. When they are finished shopping, you return and lead them back to their hotel.

All these examples are real. The last one is especially poignant because it took place on a Sunday morning in four inches of snow. The proprietor of the café, an elderly Japanese woman, pulled on her boots and slogged through the snow to help her guests find what they wanted. Nearly thirty years later, her customers haven’t forgotten her kindness.

Delivering quality service means that you do well the things that are important to the customer. Doing things well that are not important has no impact. Actually, the only time customers are impressed by service is when it goes well beyond their expec- tations. Not meeting their expectations is their definition of poor service. Providing fabled service requires careful attention to the changing needs and desires of the customers, making them the drivers of your business.

—Betsy Sanders, Fabled Service: Ordinary Acts, Extraordinary Outcomes

Positive behavioral differentiation has several important effects. First, it’s memorable. When people go out of their way to do something helpful to us,

You Are How You Behave 43

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we tend to remember them and what they did for us—largely because the ex- perience was pleasurable. Second, positive BD causes liking. We tend to like the people who have been kinder, friendlier, more helpful, and more caring toward us. For the same reasons that we seek pleasure and avoid pain, we pre- fer to deal with people we like more than with those we don’t. In his book In- fluence: The Psychology of Persuasion, psychologist Robert B. Cialdini ob- serves that, “We most prefer to say yes to the requests of someone we know and like.”3 He maintains that liking is caused by a number of factors, includ- ing how physically attractive the seller is (why so many ads feature models), how similar we feel to the seller, how much contact we have with the seller (the reason face time is so important), and how cooperative the seller is. Whatever its causes, common sense tells us that people would prefer to buy from people they know and like (as opposed to people they don’t know or don’t like). Liking won’t overcome a bad product or a bad deal, but if the competing products and prices are similar, then most buyers tend to buy from the salespeople and companies they like.

Earlier in this chapter, we gave the results of our research into people’s be- havioral expectations of lawyers (see Table 3-1). Table 3-2 identifies the pos- itive experiences the same survey respondents had with lawyers. As you can see, many of their experiences involved liking—to the point that some re- spondents developed friendships with the lawyers working on their behalf. Clearly, competence and professionalism are also highly important to con- sumers of legal services.

In the minds of the people using legal services, lawyers’ interpersonal be- haviors (listening, caring, showing interest) are probably indistinguishable from their professional behaviors (being a strong advocate for the client’s cause, having a “client-first” attitude, being responsive, following through, and meeting client expectations). These behaviors combine to form the whole of their experiences. Whether positive or negative, their experiences deter- mine how people differentiate between the attorneys they will use again and the ones they won’t. One of the respondents to our survey of BD among lawyers offered a convincing comparison:

I’d like to offer my best and worst lawyer experiences. My best in- volved working with a nice, young lawyer who was eager to fulfill my needs. He was obviously new to the business and did not have a large client list. I simply needed some trademark assistance, and he bent over backwards to fulfill this request as well as satisfy the necessary govern- ment demands required to trademark a logo. He also assisted me with some business corporation issues—at no extra charge—because he

44 Winning Behavior

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You Are How You Behave 45

Table 3-2. Positive Differentiating Behaviors of Lawyers

Excellent Performance

They knew their job and the law. He was a powerful advocate and problem solver.

Competence She was very influential. He won the case and exceeded the award expectation. She was competent, confident, assertive, intelligent,

intimidating, and humorous.

Positive Behaviors

A local attorney completed a legal transaction for us recently; she was direct, pleasant, and responsive to our questions.

He returned my phone calls promptly and did what he said he would do.

He followed up with a call 90 days after the project to see how things were going.

After I divorced my husband, his credit card companies came back to me to pay his bills because they couldn’t find him, even though it said in the divorce decree that I was not liable for them. The lawyer fought for me not to pay the bill and didn’t charge me for the hours of work that he did. Instead, he charged the credit card company. He made me feel that even though I’d made a bad choice in husbands, there are still some people that will go to bat for me.

They declined work when it would not be in the best interest of the company. Rather than accepting an assignment, they referred us to someone more knowledgeable to make better use of our money.

I had an experience with an attorney once in which he actually told me how to accomplish my objective without using an attorney. It had to do with a real estate easement dispute. I was prepared to pay through the nose for the service. He told me that he could do it and frequently handled these types of issues, but he also told me I could request assistance from the county and not spend the money. I really liked that he helped me and did not behave as if he were doing it only because he didn’t have time to handle my pesky little issue.

He was interested in me as a person instead of a legal fee. He spent a lot of time on the phone on my

Client Advocacy; manifesting a “Client-First” Attitude

Responsiveness and Follow-Through

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46 Winning Behavior

Table 3-2. (continued)

behalf, and sometimes didn’t charge me for it because he genuinely cared.

He treated me with respect, made me feel important by focusing on my issues, and made me feel like he wanted to help.

He showed some kindness and consideration. She treated me like a human being. He took the time to be a friend and understand how my

personal life was being affected by the situation. She took an interest in me and in my problems. I had a woman lawyer who made it a point to come to

my folks’ home to handle their affairs and would call just to ask about their health.

This fellow actually became a personal friend. We struggled through a maze of problems, but he kept his cool and he managed to have some fun along the way.

She was very personable and listened to my concerns. The lawyer-CPA who handled my father’s estate was

very kind to me and shared with me some of his understanding of my dad and how he saw the family. This was healing.

He quoted me a fee and stuck to it. He told me what he could and could not do, so I

would know what to expect. Then he actually did what he said he was going to do and charged what he said he would charge.

Showing Caring and Taking a Personal Interest

Setting and Meeting Expectations

knew we had limited financial capacity. He was willing to grow with us and essentially take some risks, for which I will be forever grateful.

Now for my worst experience. I met with an older lawyer before the previous story because I was entering into a business relationship with a group of wealthy people, and they were more astute than I was at the time. On someone’s recommendation, I sought the advice of this par- ticular lawyer and felt like the meter was running as soon as I sat down in his office. Whereas the trademark lawyer was warm and human and seemed sincere about solving my problems, this particular bottom feeder was arrogant and could not have cared less—at least that’s how I felt.Co

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Losing Ground—Negative Behavioral Differentiation

What makes BD so potent—and so dangerous to ignore—is that it can work against you, too. Figure 3-1 illustrates how behavioral differentiators can either attract or repel customers. Whether customers are buying medical services, appliances, management consulting, cardboard containers, or cold- rolled steel, they have a range of behavioral expectations regarding the peo- ple supplying those products or services. This range reflects how the providers they have preferred to work with or buy from in the past have treated them. Consequently, the norm defines their range of acceptable be- haviors. The majority of providers in any field or industry fall within this nor- mative range—the vast middle hump of the bell curve. Although there may be some variations in how they treat customers, these providers are behav- iorally undifferentiated because everything they do is within the acceptable range.

When a seller’s behaviors are noticeably above this normal range, the seller is positively differentiated from the pack, and the customer is attracted to the seller in much the same way that a magnet attracts iron. An invisible bond draws the buyer and seller together. As long as this bond remains strong, the buyer will be biased toward purchasing from the seller. When the seller’s behaviors fall below the normal range, the effect is repulsive—negative dif- ferentiation keeps the two objects apart. We think this effect is more pro- nounced in BD than it is in other forms of differentiation. If you fail to dif- ferentiate your products on technical or service grounds, in the customer’s eyes you fall into the emptiness of nondiscrimination, the twilight zone of blandness where you simply are no different from many other suppliers who sell the same thing you do. This is certainly one vision of commercial hell, but it’s not as virulent or destructive as active repulsion, which can occur when badly treated customers are motivated to strike back.

In the years before the Internet, consumers’ options for raising hell toward the companies they disliked were limited, but things have changed. The World Wide Web gives anyone with a computer and the will to speak out the ability to complain about the offending company to the entire Web world. Over the years, sites emerged as repositories for complaints against a broad number of companies. For example, www.baddealings.com, www.fuckedcompany.com, and www.thecomplaintstation.com are well-organized, long-standing com- plaint departments for the wired world. Baddealings.com even has a top ten list for the companies receiving the most complaints. Moreover, you can eas- ily find hundreds of consumer complaint sites by using the keywords consumer plus opinion or complaint in any Internet search engine.

You Are How You Behave 47

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A number of other Web sites are dedicated to bashing particular com- panies: www.bestbuysux.org (bashes the discount retailer Best Buy), www.insurancejustice.com (Allstate Insurance), www.untied.com (United Airlines), www.walmartsurvivor.com (Wal-Mart), and www.Franklin Coveysucks.com (time management firm Franklin Covey). Of course, com- plaints against companies are not new, but now they have wings. At the time of this writing, FranklinCoveysucks.com had registered nearly 700,000 hits— that’s a lot of people whose opinions are being influenced. In the year 2000, television’s Dr. Laura Schlessinger angered the gay and lesbian community with prejudicial comments on her nationally syndicated talk show. The Web site created to protest her actions, www.stopdrlaura.com, registered over 60 million hits in just 10 months. That firestorm led Procter & Gamble and other sponsors to withdraw their support, and the show was banned in many places, including all of Canada. Such is the repulsive effect of negative BD. When your behavior toward customers is noticeably below the normal range as shown in Figure 3-1, you risk unleashing a virus that can infect many other po- tential customers.

Whether or not your company name becomes maligned on the Web, nega- tive behavioral differentiators are clearly harmful—they cost you customers. They force you to find new customers because existing ones have gone else- where, which increases your cost of sales. Although this is patently obvious, the surprising news about negative behaviors is that they are so common—and

48 Winning Behavior

Figure 3-1. Behavioral Differentiation Bell Curve. The behaviors cus- tomers normally experience from sellers fall into the middle hump of the curve and do not differentiate. Behaviors at each extreme, however, are one or more standard deviations from the norm and will have a differentiated im- pact on customers, either positively or negatively.

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commonplace. The complaints most often found on the Web are not about catastrophic service failures. Usually, they are about providers who have been unresponsive; who haven’t listened; who haven’t returned calls; or who have been rude, indifferent, or insensitive. Here are some typical examples of neg- ative behavioral differentiators and the messages they send to customers:

� You are unable to repair an appliance and are indifferent toward the cus- tomer and so you say, “Hey, I’ve done all I can. Here’s a number to call.” Message to the customer: “It’s your problem.”*

� You don’t visit a customer for months and never ask how the expensive product they bought from you is working for them. Message: “I don’t care. I made my commission.”

� You can’t remember the customer’s name. Message: “You weren’t important to me.”

� You send your standard brochure with no handwritten note or other form of personalization. Message: “This isn’t a big enough deal for me to take the time.”

� You insist on a receipt from your store and the manager’s approval before you will allow a customer to return an item. Message: “We don’t trust you.”

� You refuse to customize your product or otherwise agree to a customer’s special request when the customer needs something slightly different than you offer. Message: “Take it or leave it.”

� You close promptly at 5 p.m. despite the fact that there are people waiting to be served. Message: “We’re more important than you are.”

� You hope the customer doesn’t notice that the package you’re delivering has been dented on one side and whatever’s inside sounds broken. Message: “Hey, it’s not my problem.”

� You don’t bother to tell customers that they could save money by buying the whole set as a package instead of purchasing individual pieces. Message: “I hate this job and don’t care about you.”

You Are How You Behave 49

*This true story is actually even worse than we’ve portrayed it. The consumer’s elec- tric dryer would operate for no more than five minutes before shutting off. The Sears repairman who serviced the appliance didn’t test it after he worked on it to see if it would run longer than five minutes. When the consumer asked him to, he said, “I don’t have time to stick around and test this. I have other calls to make.” Although this is surely not representative of all Sears repair people, it left an indelible mark on this consumer, who told her story to many other people—and promptly purchased another dryer from a competing manufacturer.

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� You don’t return a customer’s calls for weeks and then manufacture an ex- cuse when the customer finally does get a hold of you. Message: “You don’t rate high enough for me to feel an urgent need to call you back right away. Take a number.”

� You don’t relay a customer’s urgent message to others in your company who can help them, so the customer’s needs are not met. Message: “Who cares?”

These behaviors and the messages they send destroy customer relation- ships and can convert customers into vocal and active antagonists. Through- out this chapter, we’ve been tracking people’s responses to lawyers’ behav- ior. Table 3-3 shows the kinds of behaviors people cited when asked to describe their worst experiences with lawyers.

It will come as no surprise that the respondents to our survey said they would never use these lawyers’ services again. People tend to remember neg- ative experiences for a very long time. Being treated badly stings. We re- member it the way we remember injuries to our body, and we tend to be un- forgiving toward the people who have behaved in ways that fell below the range of acceptable behaviors, as shown in this consumer’s account of a shop- ping experience in London:

In Jermyn Street recently, I saw a tie in the window. We went into the shop to look for the tie. Not able to find it, we asked an assistant. He pointed to the rack and, in a very offhand manner, said: “They are all there.” The shop had nobody in it, but the assistants were busy sorting out shirts. We asked another assistant and took him to the window. He looked at the tie and said: “I can tell you I haven’t got one of those.” He promptly went back into the shop and did not offer to get the one out of the window. The shop lost more than a tie sale. We would never go back and never recommend it to anybody.4

Most of us have had similar negative experiences, and our typical reaction is passive—we won’t go to that establishment again, and we won’t recom- mend it to anyone else. However, this consumer’s reaction was active. He told the London Evening Standard about it. Negative BD often does more damage than positive BD does good because customers’ reactions to bad ex- periences are emotional, not rational. When a product or services fail to meet our specifications it is noncompliant, and we have an intellectual justification for rejecting the product: “It wasn’t what I wanted, so I didn’t buy it.” This is a fairly dispassionate and rational response, which providers can overcome

50 Winning Behavior

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You Are How You Behave 51

Table 3-3. Negative Differentiating Behaviors of Lawyers.

Poor Performance

He was ignorant of the law and the case. She told me the wrong information and I had to pay

bills my ex-husband should have paid. Incompetence She didn’t seem to know the relevant law or the

judicial environment. He made erroneous filings and took erroneous actions

that failed to comply with the court proceedings.

Negative Behaviors

He was a bellicose, arrogant blowhard who believed bluster is an adequate substitute for knowledge.

She made me feel like I shouldn’t have married my husband in the first place if I was going to,divorce him.

He was self-aggrandizing. She had inflated self-esteem; she was very narcissistic. He was sarcastic and condescending. He made me feel stupid for not understanding. She acted like she knew everything.

He put off the court dates as long as he could and still charged me for extra hours to work on my case.

This lawyer did research and charged me for it without telling me first. Just popped an expensive bill on me for a service I didn’t want.

Mercenary and He cared only about himself. Self-Serving He did nothing for me—and then overcharged me for

it. She kept looking at her watch, and then billed me to

the second. He considered me a billable hour rather than a client. He was interested in my case only if he would get a big

fee.

He did not follow through, did not respond to my phone calls, and did not complete the work he was hired to do.

Unresponsiveness

He had to be pushed every step of the way to comply with reasonable requests to move the case along.

He procrastinated—took three times longer than it should have.

She failed to return even simple phone calls. She was unwilling to hear me, take me seriously, or be

open to my ideas.

(continues)

Arrogance, Condescending Attitude

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Table 3-3. (continued)

He refused to answer my questions so I could understand what was going on.

Poor Basically, this lawyer didn’t listen. Communication He gave me the run-around and wouldn’t be straight

with me. He did a poor job of explaining the law in a way I

could understand.

She was rude. He was unsympathetic to the possible negative

outcomes of the trial for me. He had a total lack of compassion or a sense of what

was right. She was in it only for herself. She had no concept of

how others were feeling or what they needed. He seemed to have little time for my “petty” issues. He interrupted me a number of times to answer the

phone. Plus, he never smiled or acted the least bit friendly.

He made me feel that my case was insignificant compared to his other cases.

He was too passive, didn’t cite established research, and lost interest in my case.

She was dismissive and completely uninterested in helping me or even referring me to someone else.

She was not committed to me and did not give me full attention.

He was cavalier and showed no concern for me or my welfare.

He didn’t take my problems seriously. He wouldn’t even make an appointment to meet with me.

She gossiped about my case with a biased court clerk and told me to give up, though I eventually prevailed.

Unprofessional He became angry at me and my case and withdrew from the case without warning me or arranging for another attorney.

He was never on time for our appointments.

52 Winning Behavior

Uncompassionate; Lack of Respect

Lackadaisical Attitude

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by showing that they’ve improved their product or service, that they’ve made changes that overcame the noncompliance issues. However, when we expe- rience behavior so bad that it negatively differentiates the seller, we react emotionally, and the disappointment, frustration, and anger we feel are deeper and much longer-lasting. The emotional component of a negative ex- perience cries out for relief—we are angry and need to tell people about it. As the lunatic newsman says in the film Network: “I’m mad as hell and I’m not going to take it anymore!”

Jack Browder, a former vice president for business development for Brown & Root, studied how long angry customers remained angry. The an- swer may depend on the nature of the business, but Browder’s research showed him that angry customers stayed angry for 8 to 12 years. That’s a long time to lose business, especially in tough markets when there aren’t that many other prospects. The emotional impact of negative customer experiences can also be seen in some of the research on marriages. Professor John Gottman of the University of Washington has spent a career studying long-term mar- riages. In his 1994 book, Why Marriages Succeed or Fail, he reveals one of his more interesting findings: “As part of our research we carefully charted the amount of time couples spent fighting versus interacting positively— touching, smiling, paying compliments, laughing, etc. Across the board we found there was a very specific ratio that exists between the amount of posi- tivity and negativity in a stable marriage. . . . That magic ratio is 5 to 1. In other words, as long as there is five times as much positive feeling and inter- action between husband and wife as there is negative, we found the marriage was likely to be stable.”5 Such is the emotional power of negative emotional experiences—it takes five positive experiences to overcome a single negative one. Of course, in business it’s worse. Marriage partners have generally made a strong emotional, social, and financial investment in making the marriage work, but customers don’t have such bonds, and faced with a world of choice they will not tolerate negative behaviors for any longer than it takes them to find another supplier.

Why Positive Differentiating Behaviors Are Difficult to Imitate

If, as we have argued, positive behavioral differentiators create an invisi- ble, attractive bond between buyers and sellers, and negative behavioral dif- ferentiators create an opposite, repulsive force, then it should be obvious to everyone that behaving well is good for business. Why doesn’t everyone do

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it? Why isn’t every company, professional firm, and corner drugstore a model of behavioral differentiation? The answer is that it takes more skill, will, and leadership than most organizations have. That’s why the companies that are able to consistently create BD are truly exceptional. The enigma, as we said earlier, isn’t that leaders don’t know what to do; the enigma is that they know what to do but don’t do it. In their book, The Knowing-Doing Gap, Stanford University professors Jeffrey Pfeffer and Robert I. Sutton studied this enigma at length. Here’s how they described it:

Did you ever wonder why so much education and training, management consultation, organizational research, and so many books and articles produce so few changes in actual management practice? Did you ever wonder why the little change that does occur often happens with such great difficulty? Why it is that, at the end of so many books and semi- nars, leaders report being enlightened and wiser, but not much happens in their organizations? . . . We wondered, too, and so we embarked on a quest to explore one of the great mysteries in organizational manage- ment: why knowledge of what needs to be done frequently fails to re- sult in action or behavior consistent with that knowledge. We came to call this the knowing-doing problem—the challenge of turning knowl- edge about how to enhance organizational performance into actions consistent with that knowledge.6

Pfeffer and Sutton offer a number of cogent reasons why companies do or don’t act on what they know they should do. Ultimately, it comes down to the fact that some people will always be more skilled at doing what they know should be done. Some people will have greater will. Call it drive, determina- tion, persistence, vision. However you label it, will is usually the difference between a company that wallows in the twilight zone of undifferentiated blandness and one that emerges from the pack—and wins more than its fair share of business—by positively differentiating itself through its behavior.

A scene toward the end of the film Jerry Maguire illustrates why positive behavioral differentiators are so difficult to imitate. Sports agent Jerry Maguire (played by Tom Cruise) has just watched his only client, Arizona Cardinals wide receiver Rod Tidwell (Cuba Gooding, Jr.) play the game of his career against the Dallas Cowboys. After the game, Jerry is waiting for Rod to come out of the players’ dressing room. Also waiting for Tidwell are dozens of reporters and photographers—and Maguire’s nemesis, the oily and deceitful Bob Sugar, a rival agent. Sugar is standing in the hallway with one of his clients, a star athlete who had opted to hire Sugar instead of Maguire.

When Tidwell comes through the dressing room door, he is thronged by the press, but he doesn’t want to be bothered by the media. He searches for

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Jerry, and the two men celebrate their mutual success and their bond by hug- ging each other with obvious caring. Watching this, Bob Sugar’s client says to him, “Why don’t we have that kind of relationship?” Sugar pauses, look- ing like a deer caught in the headlights, and then awkwardly puts his arms out to hug his client. The athlete pushes him away in disgust. Bob Sugar is- n’t able to replicate Jerry Maguire’s behavior toward his client because he doesn’t care about his client in the way Jerry Maguire cares about Rod Tid- well and because nothing in his previous behavioral experience would pre- pare him to do what Jerry Maguire did. In other words, Sugar lacks both the will and skill to show that kind of authentic caring. Even when he’s stand- ing right there watching what Jerry’s doing, he is unable to match Jerry’s be- havior because it’s not authentic, and his client knows it.

The kinds of behaviors that truly differentiate you from your competitors are difficult to fake. It’s hard to muster the will if it’s not part of your nature. Herb Kelleher’s antics, philosophy, and leadership at Southwest Airlines have been well documented over the past two decades, yet no other CEO in the U.S. airline industry has been able to replicate Kelleher’s style or South- west Airlines’ success. Why? The answer isn’t that they didn’t know what to do. The answer is that they lacked the skill, will, and leadership to match Southwest Airlines’ behavioral differentiators. Consequently, Southwest Airlines has been consistently on top of the U.S. airlines industry in numer- ous categories, has been a Fortune magazine Most Admired Company year after year, and has been profitable when the other U.S. airlines have not.

Your company’s marketing image can be deceiving for a while. You can claim to be the best, fastest, most comprehensive, easiest to work with, most exciting, most luxurious, most personalized, most state-of-the-art, most ad- vanced, and so on, but what customers will ultimately believe about you is what you deliver and how you behave toward them. You are how you be- have—and you behave how you are.

Challenges for Readers

1. You are how you behave. How do your people behave toward cus- tomers—and how do customers perceive that behavior? Do you know for sure? Have you done customer focus groups? Blind surveys? Customer panels? Behavioral audits? Particularly important are how your behaviors toward customers differ from your competitors’ behaviors. What is the difference?

2. What are you not doing now that could improve your behavioral differen- tiation? What opportunities do you have?

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3. What does your business environment communicate to customers? Your facilities? Materials? Equipment? Landscaping? Art or decoration? Em- ployee dress? What messages do customers receive from these visual sym- bols of your business? Is your behavior consistent with these symbols?

4. This chapter includes tables showing what typical consumers expect of lawyers, as well as some positive and negative experiences they’ve had with lawyers. If these tables reflected what customers in your industry ex- pected and had experienced—both positively and negatively—what would the tables include? Rather than imagine how customers would an- swer these questions, go and ask them.

5. In what ways have the people in your company created positive behavioral differentiation? In what ways have they created negative behavioral dif- ferentiation? Do a candid appraisal of both and list as many positive and negative examples as you can find.

6. Sustaining behavioral differentiation requires skill, will, and leadership. If you don’t have the degree of positive behavioral differentiation you would like in your company, which of these three requirements is prob- lematic for you? Do some of your people lack the skill? The will? Or does your company lack the leadership to make it happen?

Endnotes 1. Francis W. Peabody, “The Care of the Patient,” Journal of the American

Medical Association 88 (March 19, 1927), pp. 877–882. 2. Dawn Iacobucci, Kent Grayson, and Amy Ostrom, “Customer Satisfac-

tion Fables,” Sloan Management Review 35, no. 4 (Summer 1994), p. 94. 3. Robert B. Cialdini, Influence: The Psychology of Persuasion (New York:

William Morrow, 1984), p. 167. 4. “Customers are greeted with an alarming lack of courtesy,” Evening Stan-

dard, London, April 12, 2001. 5. John Gottman, Ph.D., with Nan Silver, Why Marriages Succeed or Fail

(New York: Simon & Schuster, 1994), p. 57. 6. Jeffrey Pfeffer and Robert I. Sutton, The Knowing-Doing Gap: How

Smart Companies Turn Knowledge into Action (Boston: Harvard Business School Press, 2000), p. 4.

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The correct way to play chess is to create an imbalance and try to build a situation in which it is favorable for you. An actual checkmate will follow once your opponent is helpless, or if the imbalances insist that an early kingside attack is the correct course. A deeper understanding of this statement shows that an imbalance is not necessarily an advantage. It is simply a dif- ference. It is the player’s responsibility to turn that difference into an advantage.

—Jeremy Silman, The Reassess Your Chess Workbook

Once I have decided which firms I will consider in the final set, my focus of enquiry shifts significantly. I am no longer asking ‘can you do it?’ but rather ‘Do I want to work with you?’ I am no longer interested in the institutional characteristics of your firm, but am now trying to form a judgment about you. By the fact that you are sitting here talking to me, you can assume that you have successfully marketed your firm: now the time has come to sell yourself.

—David H. Maister, Managing the Professional Service Firm

There is more than one way to skin a cat. —Proverb

THE FOUR WAYS TO CREATE BEHAVIORAL

DIFFERENTIATION

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Jan Carlzon, the former CEO of Scandinavian Airlines, referred to customer interactions as “moments of truth.” We call them “touch points”—those oc- casions when someone in a company interacts with or “touches” a customer. Carlzon estimated that his business, which serves the flying public, had mil- lions of such touch points every year, but every form of business enterprise, no matter whom it serves, has hundreds or thousands of touch points each day. A salesperson calls on or talks to a customer. An accountant calls a cus- tomer’s accounts payable department regarding a late check. A shipping manager calls to schedule a delivery. A customer service rep handles a com- plaint. An executive has lunch with one of the customer’s executives. An en- gineer confers with the customer’s plant manager. A company trainer teaches a group of customers how to use a software program. A proposal team submits a proposal. A business development team makes a formal pre- sentation as their final and best effort to win a contract. Every one of these touch points is an opportunity for behavioral differentiation, but the way these individuals accomplish it may be quite different. There are, in fact, four types of behavioral differentiation—operational, interpersonal, excep- tional, and symbolic—and we will explore these four types in this chapter.

The Four Types of Behavioral Differentiation When retailers and business-to-consumer (B2C) service firms differentiate

themselves behaviorally, they most often do it through superior customer ser- vice, though this is by no means the only way to create BD. The best of these firms—Wal-Mart, Disney, Nordstrom, Marshall Field’s, Men’s Wear- house—institutionalize their behavioral differences through their operational practices, customer service policies and procedures, and employee education and training. We refer to this as operational behavioral differentiation be- cause the differentiating behaviors become an integral part of how the com- pany operates. This type of BD would include a company’s policies for han- dling merchandise returns, responding to out-of-the-ordinary customer requests, communicating with customers (sending cards or thank-you notes, for instance), and other standard operating procedures for interacting with customers. Although these may be standard company policies—and therefore nothing special to the employees—customers often experience them as ex- traordinarily good treatment, so the behaviors resulting from these policies differentiate the company in customers’ minds.

The second form of BD arises from employees’ individual skills and atti- tudes. We call this interpersonal behavioral differentiation. As customers, we all have encountered people in a company we’re buying from who listened

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well; showed genuine interest in us (as people, not just as buyers); were pa- tient and responsive; and cared whether our needs were satisfied. These kinds of interpersonal behaviors cannot be operationalized genuinely. To be sure, sellers can ask their employees to behave this way. They can train them in good interpersonal skills and set the right expectations about how they should behave toward customers. But genuine interpersonal skill arises from the heart, not from policy. The employees who can differentiate themselves and their companies interpersonally are able to do it because it is genuinely part of who they are as people. You can’t fake authentic caring. You can try, but most customers are savvy enough to see through the guise.

The third type of BD is exceptional. It occurs whenever employees go out of their way to help a customer. Exceptional treatment of customers is usu- ally memorable to them because it exceeds their expectations in such positive ways that they recall, long afterward, the extraordinary way they were treated. One might argue that it’s possible to operationalize exceptional treat- ment of customers, which begs the question, Is this really different from the operational form of BD we described earlier? We think it is because when employees do something exceptional for customers they often violate or ig- nore the company’s policies and standard practices, which, by definition, makes their behavior exceptional. Or the company has no policy or practice to cover a situation that invites exceptional behavior, and employees act on their own initiative to do something exceptional. Of course, all differentiat- ing behaviors are outside the norm of customers’ experiences; otherwise, they wouldn’t differentiate. But exceptional BD is beyond the high standard already established.

The final type of BD is symbolic, and it is in some ways the most subtle and interesting of the four—and sometimes the hardest to effect. These kinds of behaviors reflect your key product, service, or company messages and val- ues—or your customer’s messages and values. They symbolize what you are offering to provide to your customers or how your customers view them- selves. When you create symbolic BD, you are aligning your messages with your behaviors—or your messages with your customers’ values and mes- sages. For instance, if you claim in your advertising to be the world’s fastest shipping company (“Every shipment on time or before!”), then your ship- ments must always arrive on schedule as promised—or sooner. Furthermore, if speed is one of your core messages as a company, a fundamental part of the identity you have created in the marketplace, then your behaviors should ex- emplify speed. You can’t send an overnight package that arrives two days late. You can’t promise to return a call on Tuesday and then not call until Wednesday. You can’t schedule a sales meeting for 3:00 and then get stuck

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in traffic and fail to arrive on time. Your promise of speed becomes emblem- atic of how you operate. It is both an expressed and implied promise to your customers. Speed and promptness must therefore be reflected in all your touch points with customers, in every behavior they observe, not just with your shipments. If your competitors also promise prompt delivery, but they are not prompt in all their behaviors—and you are—you will be “walking the talk” and differentiating yourself symbolically.

The distinctions between these four types of behavioral differentiation are important because each represents an opportunity for companies to use be- havior as a competitive asset. However, they must be deployed and managed differently. As we continue to explore these types of behavioral differentia- tors, we will offer examples of positive and negative behaviors for each type. Later, we will discuss how these four types are related and what the implica- tions are for business leaders.

Why “great service?” What is wrong with “good service?” Good service isn’t enough to insure differentiation from com- petitors, to build solid customer relationships, to compete on value without competing on price, to inspire employees to want to become even better at their work and at their lives, to deliver an unmistakable financial dividend.

—Leonard L. Berry, On Great Service: A Framework for Action

Operational Behavioral Differentiation: Setting a New Standard

Operational BDs are those that have been codified and integrated into the standard operating procedures and policies affecting how employees nor- mally interact with and serve customers. The word normal is important in this definition. If the company’s standard procedures result in behaviors that clearly and positively distinguish the company from the behaviors customers experience with the company’s competitors, then those standard procedures are differentiating and will help bias customers toward the company. Behav- ioral differentiators alone are insufficient, but if the company can offer com- petitive products or services at a price acceptable to its target customer seg- ment, then positive BDs will create customer preference.

Operational BDs are the most tactical of the four types because they are de- liberate choices you make about how to interact with customers and they can occur at most of your customer touch points. They reflect the moment-by-

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moment ways in which customers experience your company and its people. If they are consistent and sustained—if customers experience these behaviors with the majority of your employees the majority of the time—then they form the baseline of the customer’s experience of you. As Figure 4-1 illustrates, they are the foundation of behavioral differentiation in any company. If your company is unable to integrate differentiating behaviors into your standard practices, it is unlikely that you will sustain BD in any other form.

It would be useful at this point to illustrate what positive operational be- havioral differentiators look like. Clearly, they differ depending on the nature of the company and its customers, so what constitutes a behavioral differen- tiator for one company in its market may not seem like a differentiator to an- other company in another market. Remember, too, that behavioral differenti- ation is situational. Behavior doesn’t differentiate unless the company’s competitors don’t normally behave that way.

Positive Operational Behaviors � A “sales associate” greets customers at the front entrance and helps them

find what they’re looking for (if they need help).

The Four Ways to Create Behavioral Differentiation 61

Figure 4-1. Operational Behavioral Differentiation. Operational BD is the foundation of all behavioral differentiation because it reflects standard be- haviors that differentiate the company at most customer touch points. It should be a well-oiled machine, like a conveyor belt.C

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� As standard practice, your employees are trained to look for customers who seem to be lost or appear to need help and then to step up and offer as- sistance. If patrons are leaving the store empty-handed, employees ask if they could help them find what they were looking for.

� A store has a “no fault” return policy and salespeople are invariably friendly and eager to please customers—even to the point of accepting as “returns” some items the store doesn’t carry.

� From your CEO on down, your executives are committed to having fre- quent face-to-face contact with key customer executives. Your account managers participate in these regular interactions and act as advocates for the customers’ interests.

� Your salespeople send personal “thank-you” notes after every meeting with customers.

� Instead of bringing standard brochures and product or service descriptions to meetings with customers and prospects, it’s your policy to develop high- quality, customized executive summaries that are focused on your cus- tomer’s needs, key issues, and concerns.

� You know what your customers are interested in—hobbies and personal interests as well as business interests. You look for and send them things you know they’d enjoy seeing: newspaper clippings, journal or magazine articles, Web site addresses, books, videotapes, etc. What you send never has strings attached (“Let’s have lunch and talk about our new. . . .”). In- stead, you do it as a courtesy because you know they have these interests.

� If customers have problems installing or operating your equipment, you send a service rep to help them free of charge, and your rep stays with that customer until the problems are resolved and the equipment is working as it should.

� Your firm’s practice is to open offices near your clients’ largest regional locations so that your professionals are available locally to serve those clients.

� It is company policy for all executives—including the CEO—to visit some stores once a month. Whenever they are in a store, they serve customers along with the regular sales staff. Moreover, every executive is expected to model exemplary customer relationship skills—and they do.

� You regularly meet with your customer’s consumers to learn more about what they want and expect from your customer’s products. Periodically, you videotape some consumer focus groups and send the tapes, along with suggestions, to your customer. On a semiannual basis, you strategize with your customer about how they can better serve the consumers and how you can better serve them.

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� You go out of your way to show the customer how to reduce costs, im- prove productivity, or otherwise improve their business operations or re- sults. Your sales reps are called “senior consultants” and are trained to go beyond selling their products and provide active business consulting to the customer.

� You respond within one hour to every customer complaint and resolve problems quickly and at no additional cost to the customer.

� You collect consumer information and put it into a database so your sys- tems “remember” consumer preferences. When consumers call, your rep- resentatives can quickly access each consumer’s information, so you can “remember” what they’ve ordered, what they prefer, etc. Your representa- tives can call consumers by name, so you can personalize the call. [This used to be a powerful operational behavior; however, with the rapid growth of Customer Relationship Management (CRM) systems, this dif- ferentiator is rapidly becoming commoditized. In Theodore Levitt’s words, this service feature is becoming the expected product. Soon, mail- order businesses that don’t do this will fall below the service norm and be at a disadvantage.]

Operational BDs like these can and should be managed. They must be nor- malized so that every customer at every touch point receives and perceives special treatment. Unless you manage your people and processes so these be- haviors are systematic and consistent, you won’t create a sustainable behav- ioral advantage.

In Chapter 3, we introduced our research on behavioral differentiation in which we asked consumers three questions regarding various types of pro- fessionals they had interacted with:

� What do you expect of these professionals? � In your best experiences with them, what happened? � In your worst experiences with them, what happened?

In this chapter, we will report the findings of our research for waiters and waitresses. Table 4-1 shows what customers expect of these serving people.

Imagine for a moment that you are opening a new restaurant and are hir- ing and training your serving staff. Based on customers’ expectations of wait- ers and waitresses, what would your restaurant’s philosophy toward cus- tomers be? What standard practices would you establish for your serving staff? What qualities would you look for in the people you hire? At each touch point with your patrons, how would you ensure that your servers out-

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behave the servers in the rival restaurants around you? For each of the cus- tomer expectations in Table 4-1, there is a range of behavioral possibilities, as shown here for “knowledge of the product”:

Normal or Expected Server Behaviors � They know what’s on the menu and can describe how each item is

prepared. � They know the daily specials. � They can offer guidance about wine choices. � Upon request, they can make menu recommendations. � They know something about the restaurant and the area and can answer

questions about them.

Negatively Differentiating Server Behaviors � They don’t know the menu well, and they aren’t sure how items are pre-

pared or incorrectly describe how items are prepared. � They can’t remember the daily specials and have to go ask; worse yet,

they are annoyed when asked and tell you that the specials are written on the blackboard by the entrance.

� They drop the wine list on your table without comment and, when asked, have no clue about the wine choices and can’t make recommendations.

� They don’t know anything about the restaurant and don’t seem to know the area.

Positively Differentiating Server Behaviors � They know the menu inside out and can describe not only how each item

is prepared but how their preparation differs from the normal way such a dish is prepared and why theirs is better. They are especially adept at de- scribing the use of spices and garnishes and how the chef’s selections en- hance25 the meal.

� They know the daily specials by heart and can recommend a special based on a diner’s likes and dislikes. Moreover, they know what specials are coming up and can recommend when the diner might want to return.

� Although they might not be wine connoisseurs, they know their restau- rant’s wine cellar well enough to recommend the best wine within the diner’s price range. They can speak knowledgeably about the vineyards featured in their cellar.

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The Four Ways to Create Behavioral Differentiation 65

Table 4-1. Customers’ Expectations of Waiters and Waitresses.

Technical Expectations

Being knowledgeable about the menu Being able to make good suggestions

Knowledge of Knowing about the restaurant and what they have to offer gueststhe Product

Knowing the cuisine and wine choices Offering guidance about the menu and wine choices Knowing their product

Behavioral Expectations

Providing good service Being efficient; being there to serve diners Being attentive to me and my table Not allowing diners to be left waiting Being responsive to special requests Being attentive and having good memory Being there at our table when we need them Bringing the check in a timely fashion Being prompt Listening to what we would like and delivering it in a

timely fashion Checking back with me quite a few times and, if I need

something, bringing it right away Providing quick service with attention to detail Attending to me; I want to be acknowledged, not

ignored Being accurate; getting orders right Noticing when patrons need service and presenting the

check at the appropriate time Being attentive to the overall picture as well as the

details Treating me and my party as though we were the only

table they have at the moment

Being friendly; having a friendly manner Being engaging Having a good sense of humor Smiling Being personable and outgoing

Friendliness Being upbeat and approachable Being cordial Having a cheerful disposition Having a pleasant attitude and demeanor Being kind Being friendly without crossing the line

(continues)

Prompt Service and Attention

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� They know the history of the restaurant and any interesting features about it, as well as the history and attractions of the area. When asked, they can provide fascinating bits of information.

Given the option, no sensible restaurateur would want anything other than these positive differentiating behaviors, which are more satisfying to patrons

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Table 4-1. (continued)

Being polite and cheerful Being courteous Being polite and maintaining good boundaries

Politeness and Refraining from interrupting conversations Courtesy Being considerate, polite, and courteous

Being patient Having common courtesy Asking what else I might want before bringing the

check

Appreciating my business Being happy (or appearing to be so) Being willing to make my dining experience positive Acting like they like their job—that they chose it Being there to serve Being willing to do whatever it takes to make my

experience positive; the best ones look at your dining out as an event and try to dazzle you with their service

Making the experience enjoyable for me; a friendly waiter or waitress can add so much to the enjoyment of a social evening dining out; when they take everything in stride and crack jokes, they add to the fun of being out

Taking pride in their work and their restaurant

Being honest about the taste of the food

Honesty Telling me if the fish is three days old and that’s why

it’s on special Being honest enough to warn me what not to select on

the menu

Being resourceful and problem solving so my dining experience is the way I want it

Miscellaneous Being in tune enough to realize when I want constant

attention or want to be left alone Asking if I want coffee before they pour it in my cup Being neat and clean

Good Attitude

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and will cause them to return. Are these kinds of behaviors difficult to achieve? We don’t think so, but you have to decide that you want exemplary service—that this is important to you in how you will serve your customers— and you must set appropriately high standards as part of your operating phi- losophy. In short, you have to make your behavior toward customers an im- portant element in your value proposition. Then you have to hire the right people and educate them—in your menu choices, in how the food is prepared, in the contents of your wine cellar, in the history and interesting features of your restaurant, and so on. That’s how you operationalize exceptional behav- iors from your serving staff.

Companies whose operational behaviors are no different from their com- petitors’ represent the vast middle ground of standard operating procedures and practices. From a behavioral standpoint, they are undifferentiated, so they need to compete based on other factors, such as product differences (if they can sustain them), service guarantees, location and access, or price. Companies that fall below the norm in their operational behaviors are in an even more precarious position because customers eventually will recognize that buying from these companies entails a price beyond the cost of the goods or services—they have to contend with behavior that makes the buying ex- perience unpleasant or worse. Here are some examples of operational behav- iors that negatively differentiate the seller.

Negative Operational Behaviors � Customers wander around your store looking for help but can’t find any-

one to help them. � Your wait staff is required to clear tables as quickly as possible, particu-

larly during the busy lunch and dinner periods. As soon as patrons look like they have stopped eating, your waiters and waitresses clear their plates, even if food remains on them.

� Your employees have little authority to handle customer complaints or prob- lems and must seek a manager’s approval to resolve many customer issues.

� Your company has a strong engineering focus. The sales reps are treated like second-class citizens and have trouble gaining the respect or coopera- tion of others in your company, including senior management. Customers sense this and know that your sales reps don’t have the power or authority to solve their problems, although they mostly see the sales reps.

� You have a long, automated menu on your customer telephone lines, and customers are forced to go through multiple options to find what they need.

� To discourage returns, your “unofficial” policy is to frustrate customers who are returning an item or who call to file a complaint. You have delib- erate procedures for making the process difficult. For instance, customers

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returning items are required to have receipts and must fill out a lengthy form indicating the reasons for the return. All returns require a supervi- sor’s approval.

� You understaff your customer service department and install an automated system to handle customer calls. However, the “help” line is nothing more than an automated answering system that provides answers to frequently asked questions. Customers don’t have another number to call, and this one does not enable them to reach a human being.

� Your company has a strict thirty-day policy on receiving payments. If a customer’s check is not entered into your system by the end of that period, the computer automatically generates a threatening “late payment” notice. If payment is not received within fifteen days of that notice, customers are sent a “collections” notice and the account is turned over to a collection agency.

� Customers have difficulty locating the “right” person in your company who can help them. They are referred endlessly to others or are given other numbers to call—which are frequently busy.

� Your field sales and service representatives have limited decision-making authority. They must go through four levels of management to seek ex- ceptions to policy or get approval for major cost expenditures to solve problems with customers’ equipment.

These examples, which are not unusual, result from standard policies or practices that companies have put in place—often with the best of inten- tions—to run their operations more efficiently or to solve problems. Whether through misapplication, benign neglect, or a management team more con- cerned with running a tight ship than delighting customers, these kinds of policies lose their purpose over time and devolve into thoughtless, often bu- reaucratic behaviors that annoy and frustrate customers. The result is a buy- ing experience that is below the norm most customers experience, so the un- intended consequence of what may once have been sensible policies is negative behavioral differentiation. On the other hand, we’re giving some businesses more of the benefit of the doubt than they deserve. As consumers, we all have experienced some airlines, restaurants, movie theatres, and retail stores that are not focused on customers and that implement operational poli- cies and practices that are almost deliberately antagonistic toward the people who patronize them. They may survive in the market for other reasons (cost, location, convenience), but they will not engender customer loyalty and are unlikely to survive when their customers find alternatives.

Operational BDs are closely tied to a company’s business model and re- flect the company’s values and attitudes toward serving customers. Hence,

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they reveal the philosophy and vision of the company’s leaders. Wal-Mart would never have gained its prominence among retailers had it not been for Sam Walton’s attitude toward customers. He said, “There is only one boss. The customer. And he can fire everybody in the company from the chairman on down, simply by spending his money somewhere else.” Walton under- stood something so fundamental about people that it seems embarrassingly commonplace to cite it: He understood that when you connect with people, when you engage them on a human level, it makes them feel good—about themselves and about you—and they will be more inclined to shop at your store because they like you. Of course, Walton also knew that he had to offer the right products at attractive prices in convenient locations. His business model was sound, but so were the business models of many of his rivals when he founded Wal-Mart. So he added a differentiator that has made the differ- ence at Wal-Mart: the 10-foot attitude.

When Sam ran for class president in college, he found a simple way to con- nect with people: “I learned that one of the secrets to leadership was the sim- plest thing of all: Speak to people coming down the sidewalk before they speak to you.”1 He won that class election and later operationalized this sim- ple human relations principle as he taught the “10-foot attitude” in his stores. Whenever he visited his associates, he asked for a pledge: “I want you to promise that whenever you come within 10 feet of a customer, you will look him in the eye, greet him and ask if you can help him.”2 Wal-Mart’s 10-foot attitude begins with the associate who greets every customer at the door and extends to all associates whom customers encounter as they shop. This BD seems simple, and it is. Many of them are. What makes them powerful is that they help make a customer’s shopping experience more satisfying and less stressful—and different enough from their experiences at other retailers for them to return to Wal-Mart. Harry Cunningham, the CEO of S.S. Kresge, who opened the first Kmart discount department store in 1962, said admir- ingly of Walton, “Sam’s establishment of the Walton culture throughout the company was the key to the whole thing. It’s just incomparable. He is the greatest businessman of this century.”3

Operational BDs have to be consistent and sustainable. By consistent, we mean that customers must experience them no matter which employee they encounter. If some Wal-Mart associates manifest the 10-foot attitude but oth- ers don’t, then the customers’ experiences will not be consistent enough for them to form the impression that “Wal-Mart is different.” Instead, they’ll as- sume that some associates are friendlier and more helpful than others. For op- erational behaviors to differentiate, customers must experience them all of the time (or close to it). Furthermore, they have to experience those differen- tiating behaviors over time, so operational BDs must be sustainable, which

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requires leadership, education, and processes for perpetuating the desired be- haviors and attitudes.

Their consistency and sustainability make operational BDs visible—not only to customers but also to competitors—so they can have a short half-life. Operational behaviors that truly differentiate can be studied and emulated to some degree. In benchmarking studies, these kinds of behaviors are often cited as best practices, so operational BDs run the risk of losing their differ- entiation and becoming commoditized as more of a company’s competitors learn to adopt the behaviors customers are responding to. However, this does- n’t detract from the power of operational BDs or from a company’s need to discover how it can differentiate itself behaviorally and operationalize those differentiating behaviors. Failing to find and implement operational BDs is akin to throwing in the towel. You must do it even if your competitors do copy your best practices. However, as we noted earlier, even when they know what you’re doing, they often fail to emulate those practices successfully enough to blunt your competitive advantage.

Interpersonal Behavioral Differentiation: Showing That You Care

A completely different kind of behavioral differentiation arises not from policies, procedures, and standard operating practices but from something deep within individual employees. At first glance, what we describe as inter- personal BDs may seem commonplace and undistinguishing: listening care- fully, being respectful, showing care, being sensitive to what customers want, attending to them patiently, and being good-humored and pleasant. What’s so remarkable about that?

Well, the remarkable thing is that many, many people in business don’t be- have this way with customers, including those whose jobs place them on the front lines of customer sales and service. As customers, we all have encoun- tered people in the companies we’re buying from who are warm and engag- ing, take a personal interest in us, and make us feel good about interacting with them. But we’ve also experienced the opposite—those salespeople, ex- ecutives, customer service reps, and engineers who are cold, distracted, un- caring, impatient, and oblivious to our needs except on a superficial level. Sometimes, their behaviors are not offensive; they are just so focused on the task that they make no human connection at all. We might as well be inter- acting with a machine. As we said in Chapter 3, our experience of other peo- ple’s behavior resembles a bell curve. The vast, undifferentiated hump in the middle represents how we experience most people: they are civil, moderately friendly if engaged, moderately helpful if asked, and they observe the normal

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social customs of the region where they live. Our interactions with them, whether we meet them socially or in business, are normally unremarkable.

On the lower end of the bell curve are those people whose interpersonal skills are obviously below the norm—who are cold, don’t listen, don’t care, and can’t be bothered. Their behavior is so far outside our normal behavior that we notice it and are typically put off by it. When we encounter these peo- ple in a buyer’s organization, they differentiate themselves—and their com- pany—negatively. The reverse is also true. Those people on the upper end of the bell curve, who exhibit exceptional interpersonal skills, create positive behavioral differentiation. We generally like them more, feel good dealing with them, and would welcome meeting them again. Assuming that the bell curve for interpersonal behavior among the general population is normal— and this is a safe assumption—then about one person in six has the skill and the will to consistently relate to other people in ways that differentiate them interpersonally. Of course, we all have our good and bad days, and it’s likely that interpersonal behavior fluctuates, even among those who excel at it. On some days they may be exceptional and on other days just noticeably above or below average.

Emotions are contagious. —Daniel Goleman, Emotional Intelligence

There is a growing body of evidence that interpersonal skill is a form of in- telligence and that those who possess more of it have an advantage. In his book Emotional Intelligence, Daniel Goleman argues convincingly that emo- tional intelligence is a distinguishing factor in success: “Much evidence tes- tifies that people who are emotionally adept—who know and manage their own feelings well, and who read and deal effectively with other people’s feel- ings—are at an advantage in any domain of life, whether romance and inti- mate relationships or picking up the unspoken rules that govern success in or- ganizational politics.”4 Goleman’s work derives in part from research by Howard Gardner and others at the Harvard Graduate School of Education who developed the theory of multiple intelligences, including interpersonal intelligence. According to Gardner, “Interpersonal intelligence builds on a core capacity to notice distinctions among others; in particular, contrasts in their moods, temperaments, motivations, and intentions. In more advanced forms, this intelligence permits a skilled adult to read the intentions and de- sires of others, even when these have been hidden.”5

As we were researching this book, we interviewed the owner of a large, in- dependent bookstore that is renowned among book buyers and readers for its comfortable atmosphere; huge inventory of books; and friendliness toward

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customers, even those who spend the day in the store, reading on a comfort- able sofa without buying anything. The owner said that when she goes into a store she hates it when a salesperson rushes up and says, “Can I help you?” Like many shoppers, she often wants to browse in peace and prefers to ask for help if she needs it. So her philosophy in her bookstore is to offer to help customers only if they appear to want help. We asked how she knows that. “You have to read the customer,” she said. “You have to listen with your eyes and ears and watch their body language. If they look lost, then go see if they need help. If they’re deep in thought, don’t disturb them.”

People who are highly skilled interpersonally are able to read others. Fur- thermore, because they are sensitive to others, they are also sensitive to the impact they have on others, and they know how to manage that impact. They use the tools we all learned in childhood—smiling, maintaining eye contact, leaning forward, gesturing in friendly ways, and so on—to moderate their in- teractions and respond to the signals others are sending. As Daniel Goleman says, “People who make an excellent social impression . . . are adept at mon- itoring their own expression of emotion, are keenly attuned to the ways oth- ers are reacting, and so are able to continually fine-tune their social perfor- mance, adjusting it to make sure they are having the desired effect.”6 Of course, there are people in business, especially salespeople, who believe they can be consistently successful by “turning on the charm” when they have to. We’ve all encountered these people. They really don’t care about people, but they flip on the “charm” switch as they approach customers and keep it on just long enough to fulfill their personal agenda. The stereotype of this manipulative charmer is the car salesperson, but whether they are sell- ing cars, IPOs, beef, or cold-rolled steel, their insincerity masks a deep cyn- icism that only the most naïve of buyers fails to sense. When we speak of positive interpersonal behavioral differentiation we are excluding these con artists because even moderately sophisticated buyers read their insincerity and know them for what they are, which, ironically, creates negative inter- personal differentiation.

Positive interpersonal behaviors are obviously crucial during the sales process. However, being sensitive to others, reading their intentions and de- sires, and making a good social impression are important at all customer touch points, not just during sales calls and executive lunches. Yet in nu- merous instances employees are at best indifferent toward customers and at worst antagonistic. We saw the contrast in our research on behavioral dif- ferentiation when we asked respondents to cite their best and worst experi- ences with waiters and waitresses (Tables 4-2 and 4-3).

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The Four Ways to Create Behavioral Differentiation 73

Table 4-2. Positive Differentiating Behaviors of Waiters and Waitresses.

Excellent Performance

She is always friendly and competent. She checked back several times during our meal—not

too many times but also not too few. She got it just right.

He gave his personal opinions of the food selections and spoke highly of less expensive items.

One waiter offered suggestions for wine with specific entrees and gave us a thorough rundown of the menu and the specials. He made sure our drinks were refreshed at all times, was sociable with the group, and let us hang around as long as we liked.

Positive Behaviors

For one great waitress I remember, nothing was too much to ask. She checked back frequently and was truly sorry if we ordered an item they were out of.

She went out of her way to make sure I was happy and taken care of. She did this with genuine sincerity— not because she had to. She paid attention to our conversation and was sure not to interrupt or ask a question while we were eating. She was extremely efficient and speedy, yet she appeared to slow down when approaching the table and interacting with me.

She was very personable and outgoing; kept us up to date on the preparation of the meal, checked on our reactions to it when the food arrived, and gave us an after-dinner drink free.

Several of us go to a Mexican restaurant at least once a week, so we are familiar with the wait staff. One waiter in particular always brightens our day by teasing us about what we order (it’s usually the same each time) and if we want margaritas to get us through the rest of our day. It is a positive experience for us since his mood is infectious and gets us in happier mood.

Some wait staff seem to intuitively understand that they are an important part of the experience of eating out. Friendliness and a great sense of humor are the qualities that have added the most to my experiences of eating out.

Competence, Knowledge, and Experience

Prompt Service and Attention

Friendliness, Pleasant Attitude

2 00 3. A MA CO M.

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74 Winning Behavior

Table 4-2. (continued)

When they are cheerful, it makes me glad I’m there. A friendly greeting, smile and attitude can make a meal

that is just average seem extraordinary. Asking if everything is all right and giving the impression that you are their most important customer makes you feel good.

The waitress always remembered my name, habits, and likes. She also was perpetually friendly, even when I knew she was having a hard time. In a way she became a role model for me on how to meet adversity with grace.

In addition to great service, which is a must, a great waiter/waitress should have a cheerful disposition, establish eye contact and smile, use my name, look and act in a professional manner. One waiter in Albuquerque made up a little poem for my daughter and sang it at the table while we were waiting. That was a nice touch.

She always picks up on those “unspoken cues”—for example, if I seem frustrated with my food or unhappy with my seat, she asks how they can make it better. If I am unable to read the menu because I forgot my glasses, she is willing to help read the offerings. And she offers a free dessert if my meal is unpleasant.

On a business trip, dining alone at a fine restaurant in the Regent Hotel in Hong Kong, the waiter, who had already graciously engaged me in conversation to make me feel less alone, offered to take me on a tour of the Regent’s wine cellar between the courses of my meal. He spent 20 minutes showing me everything in that incredible cellar. When I came in, I was feeling a little down from missing my wife at that meal. But he turned my lonely evening into a very memorable one.

The best experience I ever had was with a waitress who truly showed every customer that she absolutely enjoyed her job. She took the time to greet us, sincerely ask how our morning had been, and then made sure that we felt like we were dining in her

Attentive, Sensitive, and Caring

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The Four Ways to Create Behavioral Differentiation 75

own home. The key element to her success is that she treated all of her customers well and catered to their needs like no one else was around or mattered.

The waitress noticed that we had left a good portion of our meal and asked if our meal was good. We said it was fair. She immediately said that the meal was on the house and gave us a voucher for a free dinner for two. Later, the manager called and apologized and invited us to give them another try. That was 11 years ago. Now we eat there at least three times a month and have not had a bad meal since.

A few things can make a big difference. When dining with young children, we had some waiters/ waitresses that would automatically bring crackers for the kids when we arrived at the table, and they would make sure the kids’ food got there right away—before the adult meals. That way we could get the kids started, and then eat our food when it arrived a few minutes later—while it was still hot!

I have restaurants that I like to go to mostly because of the waiters or waitresses. There’s a waitress that works at the Doubletree who always spends a little time shooting the breeze before taking orders. She miraculously remembers what I’ve ordered in the past and comments when I don’t order it. “Oh, you like the pasta, don’t you? It’s especially good tonight if you want to change your mind.” And if I order dessert, she brings out this huge piece of pie or dish of ice cream. She gets great tips from us.

There is nothing more irritating to me than to receive rude, uncaring, or just generally inadequate service. Once, I sat through the worst meal in my life and really didn’t complain or walk away angry. I was willing to give the restaurant a second chance because I felt appreciated. They wanted my business and went out of their way to let me know that. I guess it’s like being invited to someone’s home and feeling real hospitality.

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76 Winning Behavior

Table 4-3. Negative Differentiating Behaviors of Waiters and Waitresses.

Poor Performance

She didn’t realize that the food was improperly prepared.

He didn’t know the menu. Incompetence She was totally unhelpful.

He was very unprofessional. He didn’t know what the specials of the day were, and he couldn’t tell us how some dishes were prepared.

Negative Behaviors

Our waiter was rude and hostile. He was obsequious and condescending. I will never go

back there. He was very rude. We were in a small town having lunch. My husband

was drinking iced tea, and when he got to the bottom of his glass, he found a dead spider in it. When we brought this to the waitress’ attention, she said, “It wasn’t there when I filled it.” My husband said he didn’t put it in there and asked her for a new glass. She said that she would rinse out his glass but not give him a new one. Unbelievable.

He was sloppy in appearance and behavior. He almost slammed our plates down on the table when he brought them.

I was dining alone on a business trip at a very expensive restaurant in New York City. During the entire meal, the waiter seemed resentful that I was there (like I was taking up valuable space) and acted like I was unfit to dine in their restaurant. He was rude, unhelpful, and condescending.

She had a no-care attitude (“I don’t want to be here today.”).

She just didn’t care. She was unbelievably awful. We asked her about an

item on the menu, and she said, “I don’t know” and then didn’t bother to go find out.

Apathy She was defensive about the food and didn’t care that we didn’t like it.

His service was poor, and he had excuses for everything.

He was unappreciative. He seemed concerned only about the size of the bill so he would earn a bigger tip.

Rudeness

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The Four Ways to Create Behavioral Differentiation 77

She didn’t treat me as a guest. She was slow with no apparent reason, and she didn’t

communicate about the service. She sent the signal that she would rather have been

elsewhere. She neglected simple tasks like filling water glasses and replacing linen. Later, she asked how our food was but then failed to respond when I said, “Just okay.” She seemed to think that apathy is good service, and then she expected a 15% tip.

The service was just terrible. None of the help staff seemed to care.

She refused a special request (salad dressing on the side).

He had a bad attitude and gave sarcastic answers to our questions.

She acted perturbed when asked to correct wrong orders.

The waitress had a very nasty attitude. She had a surly attitude. He seemed to feel that being a waiter was far below his

true lot in life. Our request for service seemed to insult his capabilities because his affect conveyed a deep-seated resentment that we would expect him to do things like take our order and carry food. Watching him, one had to wonder how he ever survived even one evening as a waiter. Needless to say, we haven’t been back to that restaurant. They should have paid us by the hour for having to deal with him.

She seemed offended when I asked for a piece of missing silverware.

He was a space cadet—just totally out of it. We were ignored for about half an hour. The service was very slow; she just ignored us. He was inattentive to the point of being absent-—until

it was time to give us the bill. We waited 30 minutes at the table just to get our drink

orders taken. Their service was very poor; they had no concern for

my happiness. She kept forgetting things. We waited forever for the check. She spent more time talking with her coworkers than

waiting on patrons. (continues)

Bad Attitude

Inattention, Unresponsiveness, Forgetfulness

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78 Winning Behavior

Table 4-3. (continued)

He took our order but then didn’t show up again until I called him over to the table.

The waitress didn’t turn in our food order. At least 45 minutes later we asked her about it and she didn’t apologize or appear to care.

I felt totally neglected. We had to call him over to our table in order to get

service.

The waitress had long, greasy hair, which she managed to dangle in my food, leaving souvenirs.

Miscellaneous He had dirty hands and touched the food. The waitress wasn’t sociable at all, which put me off. The waiter kept interrupting what was obviously a very

private conversation.

Note in Table 4-2 the observed behaviors that reflect a high degree of in- terpersonal intelligence: picking up on the “unspoken cues,” noticing when a large portion of the meal remains, giving the impression that the diner is im- portant, handling adversity with grace. Also notable is how much importance respondents placed on the serving person’s disposition. They give high marks for servers who are personable, outgoing, and friendly. As Daniel Goleman observed, emotions are contagious. When employees are friendly and outgo- ing, they tend to elicit similar feelings and behaviors among customers—and vice versa, as Table 4-3 shows.

Remarkably, more than ninety percent of the negative experiences diners cited in our study resulted from servers’ poor behaviors—or attitudes, which are the precursors of behavior. This suggests that mastering the technical con- tent of a job is relatively easy compared to the behavioral content. Further, when customers become annoyed with a company or an establishment, it’s generally because of how they’re treated. Behavioral differentiation, whether positive or negative, can have an enormous impact on your business, but you have to be aware of the impact, either way, and manage it.

Interpersonal behavior is part of virtually every customer communication and interaction, even in written communications. At every customer touch point, you have the opportunity to differentiate yourself interpersonally. In this respect, interpersonal BDs are like operational BDs, as Figure 4-2 shows. However, the two forms of BD are different. Operational BDs are systemic and reflect a company’s policies, procedures, and standard practices. Inter-

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The Four Ways to Create Behavioral Differentiation 79

personal BDs emerge from employees’ personalities and temperaments and are reflected in their interactions with customers. To illustrate the difference, consider the Tale of Two Bellhops.

Tom and John are two bellhops working for the same hotel. The hotel man- ager understands operational BD and establishes some behavioral standards for her employees, including escorting guests to their cars in the underground lot, bringing a complimentary coffee and tea service to guests’ rooms in the morning, and running errands for business guests who are busy during the day. Guests don’t experience this kind of behavior in other hotels they’ve stayed in, so these behaviors positively differentiate the hotel. Both Tom and John learn these behaviors during their orientation training and exhibit them as they interact with guests. However, Tom is naturally friendly and outgo- ing. He has exceptional interpersonal skills. John is more distant and lacks Tom’s warmth. Guests who encounter the two are pleased with the service each provides but feel even better when interacting with Tom. His warm and engaging personality gives them an extra lift.

Figure 4-2. Interpersonal Behavioral Differentiation. Interpersonal BDs operate in parallel with operational BDs. They may or may not occur at cus- tomer touch points because they rely on the individual attitudes and skills of each employee. They have an amplifying effect on operational behaviors.

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What if Tom and John worked in a hotel that did not differentiate itself op- erationally? If there were no operational BDs, Tom would still—due to his extraordinary interpersonal skill—be differentiating himself interpersonally. Interpersonal and operational BDs are independent of each other but can be mutually reinforcing. Employees with high interpersonal skills will enhance the behavioral differentiation caused by a company’s operational policies. Similarly, when a company’s operational policies allow for the exceptional treatment of customers, employees are likely to feel better during their inter- actions with customers, which will support and encourage employees with outstanding interpersonal skills.

Both staff and customers tend to stay with organizations that enable them to experience positive, meaningful, and person- ally important feelings, even if the organizations cannot always provide everything they want or solve all their problems.

—Janelle Barlow and Dianna Maul, Emotional Value

80 Winning Behavior

Figure 4-3. Exceptional Behavioral Differentiation. Exceptional BDs are an outgrowth of operational BDs. They can occur when companies and com- pany leaders enable employees to “break the rules” and provide exceptional service to customers. Their amplifying effect is typically even greater than in- terpersonal BDs.C

op yr ig ht ©

2 00 3. A MA CO M.

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Only one person in six has the degree of innate interpersonal skill that is truly differentiating; however, as Daniel Goleman argues in Emotional Intel- ligence, “temperament is not destiny.”7 About two-thirds of people have av- erage interpersonal skills, but those skills can be improved through expecta- tion setting, education and training, and on-the-job reinforcement. Beyond hiring, training, and setting high standards, companies have to create an en- vironment where interpersonal BDs can be sustained, and it’s hard to sustain this level of interpersonal performance if the company is understaffed and employees are too busy to take the time to care. We will have more to say later about sustaining interpersonal behavioral differentiation as we discuss Michael Abrashoff and other leaders who routinely excel in this area, but one final point before we move on: Interpersonal BDs are as portable as employ- ees’ feet. If the atmosphere and working conditions in a company are unsat- isfying to people with high interpersonal intelligence, they will vote with their feet and find better places to work. Although interpersonal behavioral differentiation resides in the individual skill and will of employees, it can be managed by creating an environment that retains employees who delight cus- tomers with their warmth, caring, and engaging personalities. They are, in spirit and deed, caring professionals, and that makes a huge difference with customers.

Exceptional Behavioral Differentiation: Breaking the Rules

Exceptional BDs are just that—the rare exceptions—even by behaviorally differentiated standards. They generally involve a real or apparent deviation from standard procedures, so they can be an outgrowth of operational BDs, as shown in Figure 4-3. Because they go beyond normal operational proce- dures, they may incur costs that can’t be sustained for a lengthy period. So these behaviors are usually exceptions to normal policy—breaking the rules in ways that do something extraordinary for customers. Or they may be even more exceptional, behaving positively in extraordinary ways the rules don’t even cover.

Positive Exceptional Behaviors � Four of your hotel guests are talking in the lobby about where to go for din-

ner. They don’t know the restaurants in the area but are sure they don’t want to go to the chain restaurant near the hotel. One of your employees, who is about to go off shift, overhears them and offers to drive them to a better restaurant and pick them up when they are through.

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� You are a nurse whose shift has ended, but one patient who is undergoing a difficult procedure the next morning is frightened. You spend most of your evening with the patient—talking, reading to her, reassuring her about the procedure, and leaving only when she’s asleep.

� You are a teacher. Although you are not highly paid and need the money for your own family, you buy supplies and textbooks for eight students whose families can’t afford them.

� You pull some strings for a customer—getting tickets that are hard to come by, helping his child get an interview or get accepted at a university, or go- ing out of the way to introduce him to someone important.

� You don’t have what the customer wants, so you obtain it from one of your competitors in order to satisfy the customer’s needs.

� You are a dentist. At the end of every day, you telephone the patients you saw that day at their homes and ask how they are doing.

� The customer left something important in your office. You drive to her home that evening and return it.

� You work in a large department store. A client of one of your customers has flown into town for an important job interview, and the airline has lost his luggage. It’s Sunday, the store is closed, and the interview is at 8:00 Monday morning. You open the store by yourself on Sunday evening, es- cort the client to all appropriate departments and get him what he needs, hem his trousers at no extra charge, and ensure that he will be well dressed and ready for his interview the next morning.

� The customer buys a self-installation item but has trouble installing it. You go to the customer’s business location or home and help install it at no charge.

Exceptional BD occurs when customers experience treatment that is truly more than would normally be required or expected. Whether treatment is ex- ceptional or not is in the eye of the beholder, of course. The preceding exam- ples reflect behaviors that different customers felt were exceptional at the time. It requires an extra effort on the part of employees. They must go out of their way to provide greater service, or take more time to do something (typ- ically at no benefit to themselves beyond the intrinsic satisfaction of helping others), or give more than is required, often at personal expense or sacrifice. Customers generally recognize that the employee’s behavior is exceptional, which can create a bond reminiscent of the bond between close friends. This occurs because there is no surer sign of caring than an employee’s willing- ness to behave in an exceptional way toward a customer. It’s not unusual, in fact, for such exceptional behavior to lead to enduring friendships. Excep- tional BD has the kind of impact that can cause intense and vocal customer loyalty and turn customers into advocates.

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The flip side of exceptional BD is apathy, as reflected in these negative ex- amples of exceptional BD:

Negative Exceptional Behaviors � Employees notice a customer in need but choose to do nothing about it,

and the customer senses this. � Employees know that something should be done but decide, “It’s not my

job.” � Employees could do more for customers, but it would interfere with their

breaks. � Employees feel that customers should be more self-sufficient. They man-

ifest the attitude that if customers can’t figure it out, that’s their problem. � Employees are angry with the company and take it out on customers,

which they regard as the company’s problem, not theirs. � Customers have an extraordinary need and employees don’t do anything

about it, although they could if they really wanted to. Their excuse is that “it’s against our policy.”

When you fail to do something exceptional for customers, they sense that you have passed on the opportunity and are unwilling to step outside the real or virtual boundaries you have established for serving their needs. Of course, there are customers who will press every advantage and practically demand special treatment. You may have to impose sensible boundaries with them or they’ll consume you, your employees, and your business. Goodwill in the in- terchange between buyers and sellers depends on an unspoken quid pro quo: “If you treat me right, I’ll treat you right.” This sense of reciprocity extends not only to the exchange of value in product for price (as a customer I want to receive fair value for my money) but also to the social interaction (I want to be treated with courtesy and respect). When either party violates this un- spoken quid pro quo, goodwill suffers and each party becomes more defen- sive. Sellers become less willing to do anything exceptional for customers, and buyers take their business elsewhere (or create “revenge” Web sites).

Although there are legitimate reasons for setting boundaries and protect- ing the business from unscrupulous customers, companies should nonethe- less find ways to create an environment where exceptional behavioral differ- entiation is possible when appropriate. Exceptional behaviors generally depend on the initiative of individual employees, but companies can encour- age and support those initiatives by trusting them to make sensible decisions and giving them the latitude and responsibility to exercise their judgment. Ritz-Carlton is one of the finest examples of a company that encourages ex- ceptional treatment of customers. In its employee training programs, Ritz-

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Carlton sets high standards for customer service and is clear about employ- ees’ responsibilities in achieving those standards: “Instant guest pacifica- tion will be ensured by all. React quickly to correct the problem immediately. Follow-up with a telephone call within twenty minutes to verify the problem has been resolved to the customer’s satisfaction. Do everything you possibly can to never lose a guest.”8 Ritz-Carlton does more than preach the gospel; it authorizes each associate to spend up to $2,000 to satisfy a guest. This is lit- erally “putting your money where your mouth is.” At the same time, the ho- tel encourages employees to behave responsibly in solving problems and to protect the hotel while ensuring guest satisfaction: “Protecting the assets of a Ritz-Carlton Hotel is the responsibility of every employee.”9

Like many companies that excel at BD, Ritz-Carlton has operationalized many of its differentiating behaviors. These operational BDs reflect the ho- tel’s vision and philosophy, are taught and reinforced during training sessions and employee meetings, and are embodied in the daily behaviors of the ho- tel’s 22,000 employees. Wisely, Ritz-Carlton has also made it possible for employees to go beyond normal operational excellence and provide excep- tional levels of service when required.

Ask any Harley® rider—they’ll gladly share their experiences. These experiences of motorcycling create the thoughts, images and emotions of which dreams are made. So when we say, “We fulfill dreams through the experiences of motorcycling,” we’re talking about “E” business—Harley style . . . the Experi- ence Business.

—Jeffrey L. Bleustein, Chairman and CEO, Harley-Davidson, Inc.

Symbolic Behavioral Differentiation: Walking the Talk

We learned a powerful lesson about symbolic behavioral differentiation years ago when we were faculty members for an educational firm that offered writing programs to corporations. Our fellow faculty members were skilled at writing, but many of the other employees of this firm were not, including the direct sales force. Annually, they mailed thousands of letters and propos- als to clients and prospects, and at least a half dozen times a year a prospect who received one of their documents returned it with the grammatical, punc- tuation, and spelling errors circled in red. Occasionally, these returned letters

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