Lose to Gain

[NOTE: This is a draft of Chapter #1 in Lethal Generosity: Contextual Technology & the Competitive Edge. Please send me feedback at shelisrael1@gmail.com, or join my Lethal Generosity Facebook Group.]

Scoble and I were in a bar somewhere: I think it was Seattle. He was talking about his first job, in a San Jose camera store: a place called LZ Premiums, which long ago closed its doors.

He shared with me a clever tactic he had used, to gain a customer by losing a sale.

If a shopper came in looking for a particular camera, Scoble would tell her when San Jose Camera, his store’s most bitter competitor, had it on sale.

The surprised customer would thank him and leave.

Almost invariably, she would come back a short time later, having bought the camera from the rival. She might then buy a case, tripod, film or other accessories from Scoble and LZ Premium.

She would keep coming back, sometimes bringing friends in with her. They would both buy from Scoble.

Scoble had lost a single sale, but it was actually more of an investment than a loss. He had earned trust. He had done something memorable for a customer, who was likely to tell others about the experience, who would become a brand champion.

How could San Jose Camera respond? A competitor had recommended someone buy a product. No merchant could ever expect a nicer gesture from a competitor.

Scoble had been generous, not just to the customer but to the competitor. In so doing, he had actually screwed the competitor who simply had no recourse.

This is what Lethal Generosity is all about. It is a strategy where merchants focus entirely on customer needs and experiences make all decisions on what is best for the customer, even when it may cause a temporary ding to revenue or profit.

In the long run, practitioners will flourish and competitors will be rendered helpless to respond.

But there is a caveat emptor. Shoppers beware of unsavory sales people who feign generosity when they are playing flimflam games.

In the movie Cadillac Man, Robin Williams plays Joey, a shady used car salesman whose favorite ploy was to watch a customer focus in on a car, with apparent interest. Then Joey would sidle up, looking around and talking from the side of his mouth, warning him not to buy that particular car: it may look good but it is rotting from the inside to the outside.

Then Joey, would steer him to any other car on the lot, with the poor customer trusted him completely.

Joey was likely to steer the next customer to buy the other car. It was a ruse that worked well. Sometimes similar plays in the non-fiction world run the same way.

When I saw Cadillac Man, I thought of Scoble in the camera store. I realized that there was a fine line between using generosity, to build trust and acquire customers, versus feigning generosity to temporarily capture trust and make a quick sale.

The topic started to draw my attention. I was seeing how dots between generosity, trust and customer acquisition and retention were connected.

In 2009, technology became a significant dot in whatever picture it was that I was trying to draw.

Molson’s Challenge

I was working on my Twitterville book, when Joseph Thornley, an Ottawa-based communications executive pointed me to a neat story about Molson Brewery, now Molson Coors, the largest Canadian beer maker.

Toronto municipal authorities cut an $80,000 program to keep free transportation running all night on New Year’s Eve for safety purposes.

Molson stepped up to announce it would lead a drive to raise private funds to replace the public budget cutback. It kicked in the first $20,000 “in the interest of responsible drinking” and invited Labatts, their closest competitor, to match the contribution.

Responsible drinking was part of a long-running Molson branding campaign. They used it to differentiate themselves from competing brewers who essentially used marketing to convey ‘drink-our-stuff’ messages. They had a history of making financial contributions to municipal safe drinking campaigns.

The Toronto story was in my crosshairs, because Molson announced its Toronto campaign and competitive challenge, not with a news release, or a press conference but as a blog post amplified by Molson employees using their Twitter accounts, where it generated a good deal of conversation.

In 2009, Twitter was still larger among business users than Facebook or any other social network. Molson was early to the party for the Canadian business community: perhaps even the first such player on the platform.

I was later told Molson had moved onto Twitter because so many young adults were on the platform and Molson competed heavily in that area against Labatts.

Labatts was not so early to the party. As word of the Molson challenge spread among young Canadian beer drinkers and globally on Twitter, Labatts continued doing what it usually did unaware that a public conversation was ensuing.

Finally, the local media picked up the story and played it prominently. Soon after it caught their attention, they understood how well their most bitter rival had played them into a corner.

If Labatts matched Molson’s $20,000, then it was following Molson’s thought leadership. If it declined, then it positioned Labatts as supporters of irresponsible drinking while Molson demonstrated generosity and civic mindedness.

Either way they went, they were pretty much screwed.

I wrote the story up in Twitterville, describing Molson’s strategy as a case of “lethal generosity.” It was the first time I used the term. Later, Thornley suggested I use it as a book title.

I liked the idea, but I couldn’t find enough content. Technology was not yet centrally involved as it is today. But I started collecting stories on the topic and when I interviewed Hap Klopp for a Forbes column in 2014.

Lifetime Guarantee

Klopp is co-founder of The North Face, a leader in high-end outdoor gear. It is a wildly successful global brand whose easily recognized brand is a symbol for quality in its niche the same way that Mercedes and Tiffany are in theirs.

It was not always that way.

The North Face story began in the radical Berkeley of the late 1960s. It began in earnest as a single shop in a funky space where artisans stitched sleeping bags, tents and backpacks in the rear part of the large open space while a sales associates tended to shoppers in the front area where the makers were clearly visible.

Shoppers liked seeing the stuff being made. They liked the authenticity of makers inserting slips of papers with their names into pockets or compartments in the gear. If a shopper had a question, they could stroll into the manufacturing area and ask for the guy who made the item.

This transparency produced trust: lots of it. That trust, in turn, generated word-of-mouth among into the nascent community of hikers and outdoor enthusiasts as well as the return-to-the land movement, comprised mostly of granola-munching hippies who had become so disgusted urban life and the mainstream establishment that they were migrating in significant numbers \ to rural areas, where they would fend for themselves in terms habitats that included tents and gardens and farms where they raised their own food.

When we talked Klopp’s passion for outdoor adventure and sympathy to the return-to-the-land folk were clear. But it was also clear that he was a pragmatic business strategist, educated at the UC Berkeley with a Stanford MBA.

He told me, that transparency was a business strategy for The North Face. It was less expensive than traditional marketing or ad advertising was in those early days.

“Ads? Hell, we could barely make rent we barely had money for rent,” he quipped.

In formulating the business, its culture and competitive position, Klopp essentially ignored competitors: he focused on customers and by so doing those customers often wound up ignoring competitors.

That focus led The North Face to the ultimate brand promise: a lifetime guarantee on any product bearing the company logo. It was not the first in the category to make such an offer. LL Bean earned that distinction more than fifty years earlier. But there’s a difference in the two company constituencies.

While Bean customers use the gear for weekend excursions or even backyard outerwear, The North Face users remain harder core. They are adventurers and extreme sports enthusiasts whose lives sometimes depend on their gear.

The brand differentiation began with the selection of its name. The North Face refers to the legendarily treacherous Eiger peak in the Swiss Alps–a 6,000-foot sheer wall, considered by technical climbers to be among the world’s toughest. The Germans call the Eiger, Mordwand or ‘murder wall.’ Between 1935 and 2014, at least 64 climbers died trying to scale it.

For those who knew, the source, calling yourself The North Face was an audacious statement. Add onto that, a lifetime guarantee and the company was beyond audacious: It was downright ballsy.

In addition, Klopp said, the guarantee crystalized corporate culture.

“Our guarantee became our touchstone. Everyone selling to us, working for us, or shopping in our store would understand our value proposition. It was simple enough for everyone to understand and we were either going to demonstrate that we meant it or we did not,” he said. “We would succeed or fail on the promise of that guarantee.”

Fixing the Competition

The Lethal Generosity came into the Berkeley store one Wednesday afternoon with a guy carrying a competitor’s product — a sleeping bag with a damaged zipper, purchased from Sierra Design, a nearby competitor.

Sierra also guaranteed its products, but it did not manufacture them on-premise. It would have to send the item back to the factory for repair. It would take time the customer did not have: he had big backpacking plans for the coming weekend.

“Could The North Face help? Would it help,” he asked.

“No problem,” Klopp replied. He gave the item over to a stitcher, who made the repair while the customer waited. Then Klopp handed it back at no charge.

At that instant, Sierra Design lost a customer and The North Face gained one. There is no sweeter moment in retailing: ask any merchant.

That the single moment spawned a series of additional sweet moments. The new customer was a happy camper who would feel compelled to share this experience with other campers for a long time to come.

Many would give The North Face a try: Some would become lifetime customers of the brand with the lifetime guarantee. They, in turn, would become brand champions — bringing still more customers into the store and subsequent stores that would open in the coming years.

There were other ways that The North Face acquired customers. It would become a pioneer in sponsoring extreme outdoor competitions, but that too generated customer conversations just like the lifetime guarantee.

Keep in mind; this is an old story, one that predates not just contextual technologies, but social media, email, the mobile phone and even the personal computer.

Just think of what those technologies would have done if they were factors when The North Face emerged. There are other lessons in different categories that demonstrate similar returns-on-generosity from the days before social media and then contextual technologies.

Each involves pleasantly surprised customers, low-gain — or loss of customers, trust and peer conversations.

Here’s a similar example.

Earn it & Keep It

Later in this book, I’ll tell you about VinTank, a social CRM firm in California wine country. It is the only company that I thought needed to be profiled in both Age of Context and Lethal Generosity.

One time, when Paul Mabray, the firm’s co-founder and CEO was a lot younger, he got a flat tire on the side of a road out in the vineyards. Roadside assistance came out and towed him to the nearest service station, which turned out to be a Les Schwab Tires store, part of a well-known Northern California chain.

The Schwab website states the company mission is to “earn customer trust and maintain it.” Apparently they actually mean it.

Schwab customers get flats repaired for the life of the tire, as well as rebalancing and air pressure tests. The service even performs free safety checks before customers go on road trips.

At the time, Mabray was not a customer. He had just been randomly dumped at a Schwab center by the towing service — but for no apparent reason, they patched his tire for free anyway.

That might have cost the company about ten buck or less. The result was Mabray has become a customer for over twenty years. He has of course sent friends there. He even took time away from my interview with him on VinTank to tell me about Schwab, because I had raised the issues of trust and loyalty.

I’m sure Mabray could save a few dollars by shopping around for tires — it is a highly competitive business. But he never will. He trusts Schwab. He’s loyal to them and he has the ability to convince people like me to shop at Les Schwab than any ad could possibly do,

There are always sales going on; there is always a great price at Costco. But Mabray will have none of that. His loyalty to Les Schwab is Lethal to any attempts to woo him away — not even saving money tempts him.

I’ll tell you more about Mabray and VinTank later in this book. What’s important here is that VinTank’s clients are mostly elite brands in the wine, restaurant and hotel industry.

“They could learn a great deal about customer service from brand that sells tires, he told me.

Dealer’s choice

Douglas Karr lives in Greenwood, Indiana a city of about 50,000 just south of Indianapolis. He had been a lifelong Ford customer, but he wasn’t entirely thrilled with the service he was getting at Ray Skillman Ford. For example, there was the issue of the doors freezing up, each year for three years after Skillman’s service manager assured him the problem was fixed.

But when he got a recall notification from Ford Motors, he brought his vehicle in to Skillman to get it fixed. It was no big deal and required less than an hour of his time.

But Skillman gave him a bill for $35. Karr felt strongly that this was wrong. He did not feel it was fair to be charged to solve a a manufacturing error. It was bad enough that he had to give up an hour of his time.

The dealer insisted on the fee. It was probably within their rights. But they could have waved the fee to keep the customer happy. They chose not to do so however, and Karr left angry.

When it was time to buy his next vehicle, Karr went to Lockhart Cadillac of Greenwood where he bought a high-end Caddy. At this point, insisting on a $35 fee, cost Skillman the sale of a new car.

But that is not where the story ends, not by a long shot.

Karr immediately noticed the he was being treated better. There were no service fees at all. When he got after-market add-ons installed, such as roof rack, the work was always at or below estimate.

When he requested a loaner, he always received a high-end, late-model, fully-loaded Cadillac. When he needed to wait for a repair, he was given a little cubicle with free Wifi, coffee and cookies.

On Karr’s birthday, the service manager called him with good wishes.

The result is that Karr has become a Lockhart champion. So far, he has sent five people to buy from Lockhart. He estimates that the $35 fee has cost his former dealer about $100,000, all of which was diverted to a competing local dealer.

To reverse Hap Klopp’s observation, there is nothing more sour in retail than to lose a customer to a competitor. It had been the dealer’s choice and Skillman chose unwisely.

Karmic Customers

In the next chapter I will tell you about Millennials as customers and employees. One of the more puzzling observations I learned was the millennial expectation that business should trust them before they trusted businesses. I heard this from multiple sources and I simply did not understand how this could be achieved. I have, in fact, found several

I have, in fact, found several examples, this being the most creative of them.

Dr. Kelly Flanagan, a Chicago-based psychologist reported a personal experience in the Huffington Post. His wife, two friends and he had delays in travel and arrived in Boulder, Colorado after a long day travels without eating.

After checking into their hotel they went to the nearest restaurant: the Mountain Sun Pub.

‘We were seated quickly, given our menus, and were just about to open them when my friend noticed, in small type at the bottom of the menu, these words: ‘cash only.’

They only had credit cards, so reluctantly they prepared to leave. But when they explained the situation to the waitress, she smiled and told them about Karma envelopes. They were encouraged to stay and enjoy the food. When they got back home, they could send the restaurant a check in the pre-addressed envelope.

When asked how many people actually made good, she said the prior month had been lower than usual: only 85 percent of the karma customers had sent in checks, but there still may be a few stragglers.

Hearing that the visitors had had a rough day, the restaurant put their first four drinks on the house. They asked a waiter how this policy of generosity ever got started but he didn’t know: He had only been there for about a month. What he did know is that the Mountain Sun Pub was the best place he had ever worked.“ People are happy here, and … the happiness spreads.”

Happiness is one of those contagious things. In restaurants, particularly the mood of the staff impacts the experience of the diners.

When you build a work culture focused on making customers happy, it logically follows that it makes the staff happy, and probably the tips better.

I cannot tell you how Mountain Sun Pub makes out verses other dining choices nearby, but I’m will to be it has more loyal local customers than the others do. Their envelopes are good karma.

This chapter gives you some early examples of how lethal generosity works. It most certainly does not imply that as a business decision maker, you should hire a squad of type A employees who think of the marketplace about the same way Navy Seals think of a beachhead.

It is a approach that puts almost all focus on giving customers and prospects memorably wonderful experiences, ones they will talk about and post about. To paraphrase Roberta Flack who is quoted above, Lethal Generosity kills competitors softly with you company’s niceness.

But there are two important additional dots to connect before I can paint the full picture.

One, of course, is contextual technology, which is the focus of much of this book. The other is a subject that is inextricably tied to that technology. I refer of course, to the coming of age of the first generation of digital natives.

No matter what business you are in, they matter to you near and longterm future. They do things a little differently than most of their older counterparts.

Let me explain.

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