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Customer Experience, Innovation and the Slow Death of Famed Brands

By Augie Ray | March 22, 2017 | 0 Comments

MarketingCustomer Experience
Source: JMV on Flickr;
Source: JMV on Flickr;

This week, Sears reported that it has “substantial doubt” about its ability to stay in business unless it can borrow more and tap cash from more of its assets. The retailer has been a bricks-and-mortar cautionary tale for so many years, you can be excused if you thought this was old news. In fact, the brand’s woes have been so substantial for so long, it can be easy to forget what a powerhouse Sears once was–it helped to create the suburban shopping mall boom in the 1950s, and 60 years later, the retailer is at risk of driving a stake into the heart of those same malls.

Now is perhaps a good time to look back and consider how Sears’ struggles are similar to those of other famed brands that failed, such as Borders, Kodak and Circuit City. We can also look at those competitive brands that have, if not flourished, at least survived, such as Barnes & Noble, Fujifilm, and Best Buy.

Simply put, many brands have been and continue to be too confident in their existing brand strength and business models. This confidence causes them to focus on short-term measures rather than leading indicators of success; it encourages them to believe their past history of significant customer loyalty means they do not need to rapidly evolve their customer experience for new customer expectations; and it obscures the necessity to embrace risk and innovate for tomorrow’s customer needs. This is why 50% of the Fortune 500 from 1999 has disappeared from the list and why some forecast that 40% of today’s Fortune 500 companies will no longer exist in 10 years.

The discipline of customer experience (CX), when done properly, solves these problems. It forces leaders to commit to leading indicators of success, such as customer satisfaction, loyalty and brand advocacy, and not just quarterly financial results. CX also demands that brands continually relearn customers’ evolving needs and resolve problems to deliver on those needs across the entire customer journey. And lastly, customer experience is an effective driver of innovation, helping to identify and prioritize those technologies that will satisfy expectations tomorrow. Looking at three companies that failed and three competitors that remain in business illustrates the power of CX.

Barnes & Noble vs. Borders

Barnes & Noble may not be a typical success story–its stock is down, and the company has closed more than half the 1500 stores it operated in 1999–but B&N is the among a short list of surviving book retailers. How did it survive where Borders failed? The answer is complicated, but certain themes emerge when comparing the two companies.

In the face of growing competition from Amazon and other e-commerce companies, Borders tried to compete against the strengths Amazon brought to the marketplace. It beefed up its DVD and CD merchandising and remained committed to its traditional strategy of providing a very broad breadth of book titles, even though this was not valued by customers. By contrast, B&N evaluated what customers needed and appreciated, and it found niches rather than trying to compete head-to-head with Amazon. B&N fell back from music and movie offerings that were shifting online, kept its product line narrow to the most popular books and operated stores on college campuses where bookselling still thrived.

B&N’s Nook strategy, while still losing money, has allowed the company to innovate in ways consumers value. Launched in 2009 against the already established Amazon Kindle, the Nook received early praise, with The Atlantic calling it a “Kindle killer” and Wired predicting Kindle owners would have “buyer’s remorse.” The Nook never quite lived up to that early promise, but today the company has significantly reduced Nook losses, has entered into an agreement with Samsung for the production of tablets, offers apps for Android and iOS, and sees Nook as a cornerstone of its digital strategy. Focusing on customers’ future needs and behaviors and innovating to fulfill those needs is one reason Barnes & Noble is still standing and Borders is not.

Fujifilm vs. Kodak

Fujifilm is another success story, while its one-time competitor Kodak is a shadow of its former self. While some say Kodak is dead, in truth it still exists, having emerged from bankruptcy in 2013 as a much different and smaller company. (In 1993, Eastman Kodak spun out Eastman Chemical, and today Eastman has a market cap that is more than 20 times greater than Kodak.) In January 2012, when Kodak was filing for Chapter 11, Fujifilm stock was near an all-time low; today, the company’s stock is almost 50% higher. So, why did Fuji succeed where Kodak stumbled?

Some claim that Kodak missed the digital photography wave, but that is not really accurate. Kodak created the world’s first digital camera in 1975, and Kodak beat many of its competitors to market with a consumer digital camera, the DC series, which debuted in 1995. Fuji’s timeline was much the same. Both firms halfheartedly got into digital cameras in the mid-90s, and neither company truly jumped into the business with both feet until 2001–Kodak with the EasyShare line and Fuji with the FinePix line. So why did Fuji do better than Kodak?

While Kodak relied on its strong brand and famed marketing prowess to solve its problems, Fuji focused harder on giving customers what they wanted. Fuji’s early products were not faster to market, but they were better–the FinePix cameras were better received than were Kodak’s competitive products. This continued in subsequent years, as Fuji and others kept innovating with features like face detection and in-camera red-eye fixes while Kodak’s products followed trends, never led them. Fuji simply understood customer needs and wants, and it innovated faster.

Fuji also took a longer-term view than did Kodak–it was more willing to make decisions that were “damaging” to the firm’s short-term profitability, according to Fujifilm’s boss. In 2000, Fuji invested $1.6 billion for an additional 25% stake in FujiXerox, and this investment led to more innovative products and revenue streams. As profits in the imaging business shrunk, investments such as this meant Fuji had “more ‘pockets’ and ‘drawers’ in our company,” allowing the firm to shift into markets not available to Kodak.

In contrast, Kodak was unwilling to stick with anything that did not yield immediate profits; for example, Kodak launched a product in 2005 that predated today’s mobile sharing of photos–the ahead-of-its-time Wi-Fi-enabled EasyShare-One–but the company dumped it when it failed to sell well. Kodak had an innovative product that could have, in time, become a winner with sharing-obsessed photography buffs, but instead of foreseeing and committing to customers’ evolving needs, Kodak wanted immediate product hits.

Best Buy vs. Circuit City

In the retail space, Best Buy has defied constant predictions of its demise in the age of e-commerce and showrooming while Circuit City is a distant memory. Since March 2009, when Circuit City closed the last of its stores, Best Buy’s stock is up 20%–far less than the DJIA’s rise, but Best Buy remains consistently profitable. Why has Best Buy’s path been so different than its former competitor’s?

One reason is that Circuit City made decisions based on short-term profits rather than longer-term opportunities to meet customer needs and differentiate itself from online competitors. In 2000, after fighting to become the nation’s second-largest retailer of appliances, Circuit City announced it would stop carrying them. Appliances accounted for 14% of the chain’s sales and represented $1 billion of revenue to Circuit City, but they were less profitable than the company’s average, so it dropped the category. This left Circuit City entirely dependent on computer and consumer electronics product lines where online competition was thriving. Meanwhile, Best Buy not only held on to appliances, which consumers purchase online much less frequently, but expanded appliance floor space.  Today, the appliance category has furnished Best Buy with 21 straight quarters of growth, and it is the retailers’ top growing category the past two years.

Another differentiator is that Best Buy saw its employees as vital partners in providing a better customer experience while Circuit City saw them as expenses. As challenges arose, Circuit City cut its highest-paid, most experienced employees in 2007, resulting in an immediate reduction in customer experience and sales. Best Buy put its employees on the front line to answer customers’ questions in social media when it launched Twelpforce in 2009, and in 2012, Best Buy invested in 50,000 hours of training so that its employees could better promote Windows 8. In recent years, Best Buy has been a leader in combining online and bricks-and-mortar operations, allowing customers to buy online and pick-up in store and offering price-matching for showrooming customers. Today, Best Buy includes its Net Promoter Score (NPS) in its annual report, noting its NPS has increased by over 300 basis points in the past year.

Is Your Brand Preparing For Tomorrow’s Customers’ Needs?

Barnes & Noble, Fujifilm, and Best Buy demonstrate how strong brands survive periods of intense change and difficulty by focusing on customer experience. These three brands are competitive today because they identified and understood customer needs, invested and innovated to satisfy those needs, and took a longer-term view that balanced future success with current results.

Time will tell if it is too late for Sears. It is attempting to execute retail best practices, such as matching prices, but its policy is more restrictive than Best Buy’s, refusing to match internet-only retailers. (Best Buy doesn’t match the prices of every internet-only retailer, but it does offer a significant list it will match, including major consumer electronic retailers such as Amazon, Newegg, and TigerDirect.) Meanwhile, as Sears struggles to turn the tide, it does so against consumer sentiment, as customers take to social media to share photos of Sears stores with adjectives like “sad,” “depressing” and “empty.” (Brands often forget that word of mouth is a two-way street, and for many brands, it is as much a drag as a boost.)

Brand momentum can protect a brand as consumers’ needs and expectations shift to different experiences, but not for very long. Those brands that best succeed in the future will be the ones that invest in understanding customers’ changing needs, recognize the evolving customer journey, and innovate to satisfy those needs. The successful brands of tomorrow won’t have the best ads or content; they will be the ones that create customer experiences that deliver satisfied customers who are brand loyal and tell others.

The Gartner Blog Network provides an opportunity for Gartner analysts to test ideas and move research forward. Because the content posted by Gartner analysts on this site does not undergo our standard editorial review, all comments or opinions expressed hereunder are those of the individual contributors and do not represent the views of Gartner, Inc. or its management.

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