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March 31, 2006

Unintended Consequences

Wal-Mart's chief marketing officer, John Fleming, recently told the HUB magazine that Wal-Mart’s biggest challenge is its size. The comment was a little surprising because Wal-Mart's owes its success to its size, which, among other things, gives it the clout it needs to guarantee those low, low prices.

Not anymore, apparently. These days, says Mr. Fleming, Wal-Mart is basically a very big company that needs to find a way to look smaller: "The challenge is to keep what made us what we are -- which is very local," he says.

Feel what you might about Wal-Mart, John Fleming is dead right about that. He deserves credit for reasserting what made Wal-Mart so successful in the first place, and for having the good sense to at least recognize that maybe being so big isn't what it used to be.

Certain other marketers don't profess quite the same sensitivity when the factors driving their success start to cut the other way. Certain other marketers like Apple Computer, for instance. In Apple's case, it's not size but rather design qualities that both drive success and threaten to bring it down. Yes, the exquisitely designed iPod lets us listen to whatever we want, whenever we want. It is the coolest-looking electronic device on the planet.

But Apple won't let us do what is ultimately the most important thing. It won't let us easily change the damn battery when it dies.

Why? Because making the battery easily changeable might interrupt the iPod's beautifully seamless contours (more cynically, it might also interfere with Apple's schedule of new product introductions). Sadly, it took a class-action suit by angry iPod owners before Apple finally agreed to offer a battery replacement service for $65.95 plus tax. You still can't change your own battery (you have to ship your iPod back to Apple) but at least now it can be replaced.

Hate to say it, but Apple's sense of customer relations should be half as elegant as its sense of product design. This is not the stuff of which undying customer loyalty is made. They have needlessly left themselves vulnerable to any competitor able to design something of comparable aesthetics and smart enough to let the consumer have life-and-death control over its battery. Lucky for Apple, no one else seems to be able to design stuff in the consumer electronics business. At least, so far.

It's equally painful to talk about the soft underbelly of one of my favorite enterprises, Netflix. Like Apple, Netflix is nearly impossible not to like because it put an end to the many aggravating aspects of renting movies from Blockbuster. Sorry to say, one of the key features that made Netflix so appealing -- its "unlimited rentals" policy -- is beginning to look like its Achilles heel.

The famous Netflix promise is that you can rent as many movies as you want each month for a flat fee. Well, not exactly. Netflix recently acknowledged that it slows down the rate at which it fills the orders of its heaviest users, a practice critics call "throttling." As reported by the Associated Press, Netflix revised its policy and it now "specifically warns that heavy renters are more likely to encounter shipping delays and less likely to immediately be sent their top choices."

As with Apple, it took a class-action lawsuit before Netflix would publicly acknowledge that it is giving preferential treatment to its newest -- and least loyal -- customers. The strategy presumably is designed both to protect profits and stimulate Netflix's already stunning growth. Unfortunately, it is also designed to give rival Blockbuster a second chance at a first impression.

A strategy that punishes one's most loyal consumers is hardly sustainable. Wal-Mart's John Fleming certainly sees it that way: "Our challenge is managing our size while staying close to the customers," he told the HUB. "It's about keeping that relationship with the customer in the local communities and cultivating that." Those are words to live by, whether or not Wal-Mart itself actually lives up to them.

At the very least, both Apple and Netflix are undermining their own "word-of-mouth" marketing strategies. It is downright weird that these companies, both of which are built on the kind of "evangelism" that most marketers would kill to have, seem oblivious to the fact that buzz can cut both ways. It feels like arrogance, which is not exactly a fundamental principle of good marketing.

Okay, so in neither of these cases is the "soft underbelly" likely to be the company's undoing. Yes, we still love Apple and Netflix, even though they've let us down in significant ways. That enduring loyalty speaks to the relative strengths of the value propositions of each of those companies, which clearly outweigh their relative weaknesses.

But their stories also speak to the big risks inherent in big ideas, as well as the importance of sensitivity in dealing with the negatives that can be the unintended consequences of otherwise brilliant marketing strategies. Both Netflix and Apple are reacting by taking for granted -- and alienating -- the very consumers who are at the heart of their successes.

They might ask John Fleming about that one, too.

Posted by Tim Manners at March 31, 2006 1:35 PM | Category: | 6 Comments