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  To sustain competitive advantage, you must commit to a perpetual cycle of innovation. Fast today is not fast enough for tomorrow. Good today is not good enough for tomorrow. Cheap today is not cheap enough for tomorrow.

  As a business goal, customer satisfaction sucks! If you're ever going to move beyond satisfying customer needs to fulfilling customer wants, which is where the big profits are, you've got to be fast, good, cheap and more!

  When I tell executives, 'Customer satisfaction sucks!', they look at me like I'm crazy. If anything is accepted business wisdom today, it is that customer satisfaction is paramount.

  Yes and no. Bear with me while I split a very important hair.

  My cable television provider recently called to ask if I was satisfied with my new package. Well, the service does what they promised it would do, but I'm not going out of my way to tell people how great it is. Instead of five television channels with nothing on that I want to watch, there are 105 (or something like that). I need digital television service if I'm going to get the most out of my high-definition flat-panel television. But I don't want lots of channels. I want one that shows what I want to watch.

  Lots of channels satisfied my need, but it didn't fulfil my want. The cable television industry as a whole is a classic example of company needs and wants being out of alignment with customer needs and wants. New digital video recorders such as Foxtel's IQ and services like TiVo are going some of the way to addressing this disparity, as are cable television packages offering you the ability to choose your dominant programming such as sport, movies or some other genre that interests you. The programmers, the television networks and the cable television providers want to aggregate dozens and hundreds of channels into tiered services that only seem to fulfil customers' desire to watch what they choose when they choose.

  That's the subscription model the industry wants. And some customers are probably perfectly happy with it. But other customers aren't going to be happy until they get à la carte pricing that enables them to pick and choose only the channels they really want to watch, or until they can freely choose high-definition video from millions of sources streaming over the internet. Over the next few years, as YouTube continues to grow, and more households opt for digital video recorders like TiVo, I suspect more and more customers will choose to program their own television viewing rather than settling for the cable television industry's programming packages. Channel 7 has negotiated with TiVo to bring this DVR to Australia, much to the displeasure of media buyers, who say it will reduce the number of people who watch ads – but the viewers will like it no doubt.

  This will of course happen as technology not only gives customers more and more choices outside the traditional television providers' control, but as peer-to-peer networks also allow users to get recommendations from people they know and trust, so they can sort through the limitless choices efficiently. The internet video distribution network from NBC Universal and News Corporation, in collaboration with AOL, MSN, MySpace and Yahoo!, anticipates that future and represents a savvy response to the popularity of YouTube.

  The NBC Universal–News Corp. network is a brilliant flip on the entertainment business as usual, and I have more to say about it in chapter 6, 'To Get Control, Give It Up,' and in chapter 7, 'Action Precedes Clarity.' The general point I want to make here is that customer satisfaction measures your ability to deliver what you have conditioned the customer to expect, not what he or she really wants. And that leaves you vulnerable to a competitor who will supply that want with a positive, memorable, mind-blowing customer experience, something that exponentially raises the standard on fast, good and cheap, and instantly creates a whole new level of customer expectation.

  FASTER, BETTER, CHEAPER, OR, YESTERDAY'S GREAT IS TODAY'S GOOD AND TOMORROW'S UNACCEPTABLE

  Once you recognise the 'Fast, Good, Cheap – Pick 3' dynamic at work, you begin to notice it everywhere. I want to point you to some of the best current examples of it among Australia's and the world's leading companies. But first let me tell you what happened to my friend's perspex business.

  When I crossed out the '2' in his 'Fast, Good, Cheap – Pick 2' sign and replaced it with a '3,'my friend got it instantly. He had been flipped and he knew it. So without any detailed plan (he is the kind of person who showed me that action precedes clarity), he began to act differently.

  He stopped trying to stem the losses from his broad old customer base, and he began to concentrate on serving only the most profitable customers. This quickly led him to a much more specialised focus serving specialty and high-end retailers and letting the Chinese imports have the mass market. In effect, he evolved his business model via action, without too much planning (he was desperate), to one in which key accounts were all that mattered. This is a strategy that Professor Noel Capon of Columbia Business School has shown to be a crucial component of success for many of the world's top companies, such as IBM, Xerox and Citi (see Professor Capon's Key Account Management and Planning for a great primer on this subject).

  In my friend's perspex business, the result has been to boost margins. He can now continue to charge more for his products than the Chinese imports cost, while delivering faster service and better quality than ever before. This may sound like he has picked fast and good, but still not cheap. No, he has picked cheap – cheap at the price. The customer's sense of a product's cheapness can be expressed by the ratio of value to price. Customers feel a product is cheap at the price – not when they pay the lowest possible price, but when they feel like they have received great value and a good deal on all measures, including price.

  My friend's customers pay a premium for his products, but they get exactly what they want. What they need is just a properly sized and shaped piece of perspex.What they want is getting that from someone with a deep understanding of their needs and the ability to finetune the product offering to their specifications. Together these factors make my friend's premium pricing a bargain in the minds of his most profitable customers. He is indeed fast, good and cheap.

  His next challenge, if he really wants to be a flipstar, is to 'Think AND, Not OR', and to work on selling a high volume of high-margin products. Because who says there needs to be a trade-off? Apple after all sold millions of iPods at a 30 per cent price premium over other Mp3 players.How? Well as you will learn in chapter 3, 'Superficial is Anything But', $400 is a bargain if the item makes you feel cool.

  Before moving on I would like to give you an excellent example of how 'Fast, Good, Cheap – Pick 2' has become 'Fast, Good, Cheap – Pick 3'. The original brand identity of McDonald's was as fast and cheap. For a long time that was all McDonald's needed to be. Of course, the food had to be good enough to satisfy customers' needs for a meal, but that meant it had to taste good enough, not be nutritious enough. During the decades when McDonald's grew into one of the world's biggest brands, nutrition was not a subject most people knew or cared about.

  Rising affluence in the world's developed economies changed that. A satisfied need no longer motivates (remember the fourth force of change), and the more affluent society as a whole became, the more concerned and interested the public became in the nutritional quality of food.

  More and more of the most affluent, highest spending customers became nutrition obsessive, and accordingly even junk food was marketed – dishonestly most social critics would say – as containing healthy ingredients, being 'no fat', and so on.

  Macca's customer offering of a fast meal that only costs a few dollars and tastes good, but is not that good for you, began to exhaust its growth potential as the new millennium began, to the point that one quarter they even made a loss. The company was also under increasing pressure from consumer groups, public health advocates and governments to offer healthier food. And as the decade wore on, McDonald's endured a lot of negative publicity from exposés such as Eric Schlosser's bestselling book Fast Food Nation and Morgan Spurlock's documentary film Super Size Me.

  Facing those two challenge
s, Macca's first responded with its New Taste Menu, which offered customers many more options – and by all accounts flopped. Variety, or in this case more fast food that wasn't good for you, was not what customers wanted. What customers wanted was fast, cheap food that was healthier. The breakthrough came with Salads Plus, which drove hundreds of thousands of new customers each month into McDonald's restaurants in Australia. Of course, these customers did not eat only salads. They also bought lots of soft drinks and fries and burgers, too. The more recent additions of the Deli Menu, which I personally love, and the McCafé have extended these good results in the Australian market. Macca's is now fast, cheap and good. Even more recently they have managed to get the Heart Foundation to give its well-branded 'Tick' to a number of McDonald's menu offerings. Cynical as you may find this, it is a superb strategy from a very proactive company. I've read that some stores' sales are up nearly $1 million per year following the launch of Salads Plus.

  Throughout its lacklustre period, Macca's never lost sight of the need to stay fast. In fact,Macca's has always been the fastest restaurant company in the fast food business. The new McCafé strategy marks a departure from that (McDonald's is positioning itself against Starbucks as the customer's 'third place' of choice, besides home and work or school), but for now the company still prides itself on being seriously fast!

  As I said, to achieve competitive advantage, to have the best market share and the best profitability in your market segment, like McDonald's has done, you have to lead the league on at least one of fast, good and cheap, and be industry standard in the others. What McDonald's has successfully done is come up to standard as consumers' definition of 'goo?' changed, while still remaining fast enough and cheap enough.

  Another example of an industry constantly hammered by the need to be faster, better and cheaper is the automotive fuel industry, especially in the context of dramatic changes in automotive technology. Traditionally the petrol station was also a service station, which sought extra profit margin and brand loyalty by offering car maintenance and repairs as well as petrol. But today's cars are more reliable than older cars, and they're filled with computer chips for diagnostics and vehicle systems control that the average service station can't fix.

  In other words, the service station business is obsolete, or quickly becoming so. That has led to a new business model in which petrol stations are linked with convenience stores or other retail operations that sell drinks, snacks and basic grocery and impulse items. The profit margin on convenience store items is much greater than that on petrol. According to AC Nielsen, 25 per cent of household grocery purchases are 'convenience' purchases and are not price driven.

  In Australia, for example, Shell put franchised Circle K stores behind many of its petrol pumps, and the other major petrol brands made similar moves. The popularity of petrol stations in combination with convenience stores inevitably attracted the interest of Australian retailers that had never sold petrol. The 7-Eleven chain added petrol sales at some of its locations outside central business districts, for example. And Woolworths entered the new market competition in a big way. At sites usually established near existing Woolworths stores, they sold heavily discounted fuel, sourced from Chinese oil refineries rather than domestically, and then discounted this offering a further four cents per litre for those with a docket representing $30 or more purchased from either a Woolworths or BiLo store. In effect fuel sales, although modestly profitable in themselves, served as a 'loss leader' to drive higher margin retail sales. For the same reason, there are now petrol pumps at many Wal-Mart locations in the US and many Carrefours locations in France.

  Well-established retailers such as Woolworths, Wal-Mart and Carrefours can make low-priced fuel sales profitable both because the petrol-buying driver who stops to fill up at a Woolworths,Wal-Mart or Carrefours petrol station is likely to buy other things at their stores, and because they are big and powerful enough to negotiate favourable pricing from petrol wholesalers and refineries. For Woolworths in Australia, as for Wal-Mart in the US and Carrefours in France, discount petrol prices complement their existing reputation for delivering good value to customers.

  Woolworths pumped up its retail sales so impressively with the addition of petrol stations that it made a deal to set up Woolworths convenience stores at Caltex (the Australian subsidiary of Texaco) stations. Before that, Coles did its own deal to take over the lease on more than 580 Shell service stations. And not just the lease on the retail operation, but on the entire operation, fuel and all, leaving Shell as landlord, petrol wholesaler and – not insignificantly – responsible for the petrol brand. At these Coles-run Shell petrol stations, completely redesigned stores branded Coles Express are perfectly positioned to grab a share of a multi-billion dollar market, the 25 per cent of grocery purchases that – remember the AC Nielsen statistic above – are made on the basis of convenience rather than price.

  Another demonstration of the power of combining petrol stations with convenience stores came when Independent Grocers Australia rolled out a four cents per litre discount on petrol sales at 180-plus stores in Queensland. Going Woolworths one better, IGA discounted petrol prices another four cents per litre if the customer spent $30 or more on nonpetrol purchases in the IGA store.

  Let's see what sense 'Fast, Good, Cheap – Pick 3' can make of this. Filling up the tank takes the same amount of time wherever you do it.Maybe you save a little time by stopping at the first station you see, or maybe you lose a little time by looking for a favoured brand or a cheaper price. If you have a favourite brand, it's unlikely to be because of the petrol. For the vast majority of drivers, there is no quality difference between different brands of petrol. Assuming equivalent octane ratings, one brand is as functionally good as any other brand in the customer's eyes.

  So if you're in the business of selling petrol to drivers, how are you going to differentiate your brand from other brands, when one petrol-buying experience is more or less as fast, good and cheap as another? As these examples show, you 'Think AND, Not OR'. You combine two previously distinct retail sales categories into a new value proposition that offers customers who feel intense time and opportunity pressure throughout their lives a faster, better, cheaper way to buy petrol and other daily essentials at one go. It's a value proposition tailored to increasingly affluent customers who rate the low petrol price per litre and time savings plus extra cost per item of quickly buying a few necessities and impulse items as better overall than taking the time to drive to a major grocery store, park in a large parking lot, walk from the car and through the aisles to find what they want, pay for their purchases and walk back to their car.

  The companies selling petrol to drivers in Australia have to meet the challenge of 'Fast, Good, Cheap – Pick 3' on two levels: the petrol itself and the petrol in combination with a higher margin sales channel. Within this mix, they can emphasise fast, good or cheap, but to stay in the game they also have to be industry standard on the other two. Woolworths and IGA may emphasise cheap, but they must also be fast and good enough to keep attracting a profitable share of customers. Likewise Coles Express may emphasise the good grocery store attributes that customers associate with Coles major grocery stores, but if they stop being fast and cheap enough they won't be able to sustain and increase their market share.

  But remember that 'Fast, Good, Cheap – Pick 3' is both a moving target and table stakes, the price of entry into any market. To build significant competitive advantage, you've got to offer something else, an X-factor that will really differentiate you positively in customers' eyes. That's the subject of the next chapter, 'Superficial is Anything But.'

  As both the McDonald's and consumer petrol examples show, fast today is not fast enough for tomorrow, good today is not good enough for tomorrow, and cheap today is not cheap enough for tomorrow. Three areas where we can see that are fashion, cars and telecommunications.

  FAST IS NOT FAST ENOUGH

  We have always noticed when products and se
rvices take an increasing share of our wallet. The increasing time pressure we all feel today makes us increasingly sensitive to the time that products and services take. And we have less and less patience for anything less than instant delivery of those products and services. We repetitively hit the 'close' button on elevators, when no one is racing to join us inside, because the five seconds it takes for the average elevator door to close is unbearably, excruciatingly long. We do this even though we know that the elevator system will not respond any quicker, no matter how many times we press the button.

  We do it because technology is speeding up the world and making just about everything but the closing of elevator doors happen faster and faster all the time. The result is that, especially for the youngest customers (and the youngest staff, too, when it comes to the pace of their careers), no demand on speed of delivery feels unrealistic or exorbitant.

  Few industries operate at as rapid a pace as the retail clothing business.As fashions constantly change, profit goes to those who can quickly and efficiently provide styles, colours and fabrics that appeal to the key demographic of young customers, who in turn set the trends for other demographic groups. Three retail clothing chains – Zara, H&M and Uniqlo – now perform that fast, good, cheap hat-trick better than any others, and Zara is perhaps first among equals in delivering fresh, exciting apparel to young consumers.

  The Zara chain is owned by the Spanish company Inditex, which has 70,000 employees and counting (they added 11,000 employees in 2006), 3131 stores in 64 countries and counting (they added 439 stores in 2006), and net 2006 sales of 8.1 billion euros (A$13 billion; an increase of 22 per cent over the prior year). Practising what it calls a 'fast fashion' system, Zara can design and distribute a fashion forward garment in fifteen days. Some Zara styles resemble the latest couture offerings, albeit in less expensive fabrics. Others beat the luxury fashion houses to market with Zara designers' fresh takes on the clothing trends of urban youth around the world.