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Event Review

Shaun Smith always has a sense of urgency about him. He speaks articulately, but breathlessly, as if the world might end at any moment. "Is the economy still collapsing?" he asked the London Business Forum at the beginning of this event. "I haven't had a chance to read a newspaper this morning." We were convened at the Lewis Media Centre on Millbank on Tuesday 9 September 2008. In the US, the government had just placed mortgage financing companies Fannie Mae and Freddie Mac under its conservatorship, and the investment bank Lehman Brothers was hurtling towards bankruptcy. When we told Smith the macroeconomic outlook was still dire, he seemed gratified, as if this meant his theories were being proved right, and that he really did have advice to impart that would stop us from being dragged over the precipice.

The essential problem for most companies is that they copy - or attempt to copy - their rivals, Smith argued. "But there is only one Disney, there is only one Southwest Airlines, there is only one Ritz-Carlton, and what makes them special... is their difference and not their similarity." So, trying to emulate iconic brands is "a recipe for mediocrity", he said. "And that's the last thing you want in a shrinking economy... What we need to do is break out of the pack and give customers a reason to buy from us, to give customers a reason to seek us out... Best practice can be bad practice if it leads you to simply copying."

With traditional marketing techniques losing their effectiveness, we need to shift our ambitions "away from share of market and towards 'share of mind'," he asserted. That is to say, we should ensure that when a potential customer makes a purchasing decision in our market, they should automatically consider our brand. Smith said he would offer case studies from his latest book, Uncommon Practice, to support his theory, and duly began to outline its key recommendations:

First, customer-centric leadership. Paying close attention to what the customer wants is common sense, he acknowledged, but for too many companies it isn't common practice.

This was certainly the case at Tesco before 1987. "Remember those days?" Smith asked. "Tesco would pile it high, sell it cheap. It was number four in the market, a bit tacky. Nobody wanted to admit going to Tesco." Yet within 10 years it had risen to number one in the market, with profits of £12bn, and accounted for £12 of every £100 spent on the British high street.

Smith interviewed Tesco's chief executive, Sir Terry Leahy, and asked him what specifically had changed the company's fortunes. "It was the day we stopped following Sainsbury and started following our customer," Leahy replied. He explained that Tesco used to look at what Sainsbury was doing and then copy it as quickly as possible. "But the fact was we didn't have the same resources, we didn't have the same clout and so we always ended up looking a bit second-best."

Upon reaching this conclusion, Tesco's management team decided they couldn't go on playing catch-up. They asked themselves: "Who are our most profitable customers? What's the heartland of what we do? Who are those customers who prefer us for whatever reason? Let's understand why." They did some research, identified what their key customers valued, then single-mindedly pursued those values in everything they did.

Tesco's "core purpose" today is very clear, Smith said. It is "to create value for customers to earn their lifetime loyalty." The store's Clubcard was set up to provide the data for this effort, and its slogan "Every little helps" also dates from the same period.

"But that's an old story," Smith admitted. A more recent one, and one that's much less familiar to us in the UK, is that of Progressive, the US motor insurance company. Progressive has grown by about 75% a year since 2000, and is now the third-largest company in its market. And it's all thanks to the customer-centric thinking of the chief executive, Smith suggested. Peter Lewis lost his brother in a traffic accident and became disillusioned with his own industry after a survey showing car insurers were almost universally hated by their customers. Typical responses to this survey included: "We don't trust them. We don't trust that they're going to pay us if there's an accident of some kind. They take forever to settle the invoice. We never trust that we're going to get the best rates." And so on.

Progressive responded by becoming the first insurer to introduce transparent pricing - telling prospective customers about its competitors' charges even if those charges were lower than its own. "They believe their service and differentiation is strong enough that, even with that level of transparency, the customers will pay more," Smith explained. Yet its really big innovation was the "Instant Response Vehicle (IRV)," a unit that would race to the scene of a traffic accident in order to settle claims on the spot. "It seemed a crazy idea at first," Smith said. "But insurance companies often get inflated quotes for repairs, [which means] you get paid late and they end up losing money." The IRV enabled loss adjusters to make an instant assessment of accident damage, then propose a settlement figure right away. "If you agree, they'll cut you a cheque right there and then, and if your car is undriveable they'll provide you with a loan car."

Often, Progressive will arrive on the scene of an accident before the emergency services, so its drivers are given medical training. "Think what this kind of service does for 'share of mind'," Smith urged. Imagine how you'd feel if you had a car accident, called your insurer and got put in a call-centre queue while the Progressive IRV tended to the other driver and wrote them a cheque. Initially, Progressive thought the IRV initiative would be prohibitively expensive but, in fact, it saved them money, by speeding up the claims process and slashing fraud. Ultimately, it has enabled them to charge lower premiums.

Smith's second "uncommon practice" was formulating a distinctive strategy and proposition. Again, this is common sense, he acknowledged. But many companies fall into the trap of competing in spaces where their rivals are strongest. Airlines, for example, tend to focus on their in-flight experience because they perceive that to be the totality of their customer's journey. Virgin Atlantic, by contrast, created its Upper Class service to overcome the most stressful parts of the typical plane journey: getting to and from the airport. The formula has proven highly successful. So, Smith advised, "if you've found a real differentiator then dial it up."

You need to make sure your internal culture supports this strategy and that your HR systems are aligned accordingly. "There's about an 85% correlation between how your customers feel about your brand and how your employees feel about your brand," Smith said. So you need to create a branded experience for your employees in the same way that you create a branded experience for your customers. One company that demonstrates the connection between these two activities vividly is Geek Squad, a US-based IT repair company that dresses its staff in short-sleeved white shirts, black trousers whose legs are too short and thick-rimmed glasses held together with sticking plaster. This kind of thing may sound gimmicky, but Geek Squad was recently acquired by BestBuy, the huge US electronics retailer, and entered a major joint venture with Carphone Warehouse.

The days of compartmentalised marketing are over, Smith said. "When we talk about marketing we think about a function, we think about a series of processes, but if you go back to the beginnings of Marks & Spencer or Joseph Cadbury, marketing was not a function [or] a process, it was a state of mind... We need to get back to the days when marketing was actually everything an organisation does, an explanation of how you go to market."

He suggested that the term "triad power", which used to refer to a distribution presence in the US, Europe and Asia, should today refer to the alignment of marketing, HR and customer services. "It's when you've got marketing that's absolutely in tune with the marketplace, that's made choices about which customers to serve and what value to provide them, and is informing HR about what kinds of people will need to deliver that value," he explained. "It's about HR taking responsibility for creating the internal branded employee experience, then about operations and/or customer services managing the things that deliver that every single day."

It's a core activity for which the CEO must take personal responsibility, Smith concluded. "You cannot delegate it to the marketing director, you cannot delegate it to the HR director and you cannot delegate it to the customer services director. They are all very necessary but insufficient." The three functions must work around a common agenda: the customer experience.