December 13, 2017


















GOOGLEíS SERVICE VALUE AND OURS

As I write this article (7-09-04), Google, the web search engine company, is getting ready to do an initial placement offering (IPO) to become publicly traded. Estimates for its subsequent, market capitalization value exceed $20 billion. The three next most popular engines owned by Yahoo, Microsoft and AOL couldnít, however, hope to achieve a tiny fraction of that value through a spin-off offering. Yet, when most experienced search users test the four engines on a blind basis, they canít determine which engine is which. All four are similar in their service value, but Google still has a total performance edge.

A total service "edge" worth $20B? Doesnít that statistic make you wonder:

  • Why is the power of being the #1 brand so valuable? Would it work for a distributorís service brand?
  • Google was a late starter to the search game, but they reinvented search service to become a distinctive #1 and then a perceived #1 as copycats closed the performance gap. Could we reinvent our good service to become outstanding compared to the competitive pack?
  • Could we learn any how-to specifics from Googleís path to riches that we could reapply to our service value proposition?
  • How did Google get so profitable? How could we get better economics out of best service value in our customersí minds (not just ours)?

THE POWER OF BEING "#1":

Googleís brand name and market cap valuation illustrate the power of being first or becoming first from amongst an undifferentiated pack of competitors. Favorite examples of being first are:

  • Who was the second person to cross the Atlantic after Charles Lindbergh?
  • Who was the second person to break the 4-minute mile barrier after Roger Bannister? Who, for that matter, is the current world record holder in the mile and what is the record time?
  • How did the Mona Lisa become the number one tourist favorite at the Louvre when there are many other works at the museum that experts think are equal or better in artistic merit?

If our minds make the power and value of "first", "best" and "distinctive milestone" work so disproportionately, could we achieve extra beneficial credit in the minds of our customers if we took service value to a next level?

HOW DID GOOGLE DO IT?

Google reinvented web search capability through focused customer-niche application. The original search engines were offered by "portals" that were vying to be every net usersí starting page. To get as many eyeballs or hits as possible to attract higher paying net ads, the portals larded their home pages with too many mediocre information utilities for news, stock quotes, horoscopes, jokes, shopping, search, etc. But, the cluttered home pages were then slow to download, tedious to use and offered too many irrelevant search results.

Google decided to go after those people who wanted faster, more relevant search results. By refocusing on this niche of users and all aspects of faster, better search capability, they were able to bring forth a stream of innovative firsts such as:

  • An uncluttered, home page that downloaded much faster than the portals.
  • Documents prioritized by the number of times other sites had linked to the document with the assumption that the web community had decided that those documents were most worthwhile.
  • They tracked the most common requests and preloaded canned search responses on lots of PCís to give even more response speed to more requests. Etc.

As Google attracted exponentially growing users, they could charge ever more - on an auction basis - for "sponsor ads" that appear on the perimeters of the search-result pages. By matching super-focused sellers with super-focused seekers/potential buyers, all parties win. This dynamic, advertising-match capability then scaled exponentially with all aspects of web use, software and hardware to make Google enormously profitable. The great profits have been, in turn, plowed backed into ever better search innovations creating a virtuous cycle of user growth, targeted ad placements, profits, innovation and around again.

The search engine competition has, of course, knocked off many of Googleís best innovations at great expense and far less profits, if not losses, because they donít have the traffic to attract as many higher paying ad placements. Google has always maintained a performance edge through their continuous innovation including marketing tactics. "Google on the desktop" options have, for example, further increased users convenience as well as promote their "brand". If we can get to #1, we can stay there if we donít give customers any reason to be upset and leave, and if we donít let the competition leap frog our total service value proposition.

Following Googleís example, could we:

  • Decide to stop acting like the original portals by having "good service" which is formulaically the same for too many different types and sizes of customers?
  • Measurably determine our #1 most historically profitable niche of customers and then work with enough of them to co-define and co-create a compelling, next-level service value proposition?
  • Then, sell the value proposition and figure out how to get paid for it some way while maintaining the service edge through continuous improvements?
  • Admit that if we donít pursue service reinvention, we are doomed to selling commodities on a price basis with too many other competitors playing the same game?

WHAT COULD DISTINCTIVE, NEXT LEVEL SERVICE DO FOR DISTRIBUTORS?

If within our distribution businesses we could establish a distinctive service value reputation in the minds of one target niche of customers at a time, then within that niche could we:

  • Retain best customers at a greater rate than our competitors? (1 - For more on retention economics see article # 3.3 at www.merrifield.com. All subsequent footnote references are in the "support notes" for "article 3.14" at www.merrifield.com.)
  • More easily crack target accounts within that target niche? (2)
  • Get last-look plus a premium price increment for our service value which still delivers the lowest "total procurement cost"? (3) and/or
  • Be selected as the "sole integrated supplier" for a category of items due to our most reliable service?
  • Reward all stakeholders Ė employees, customers, shareholders, and suppliers with premium economic returns? (4)
  • Have fun creating, delivering and maintaining something that all employees could get sustainably excited about "service excellence"? (5).

Achieving the positive economic objectives above will not, unfortunately, create Google IPO valuations for a distributor, because the economies of scale for internet search are unmatched while distribution is primarily a variable cost business. Most distribution service models just donít "scale well"; the more sales and margin dollar growth we get, the more inventory, receivables and service processing costs we have. But, the economic benefits cited above can provide growth rates of 2 to 5 times whatever a channelís average growth rate is. And, the margin flow-through to the bottom line would be great enough to earn a return on investment of 4 to 6 times the average for all channel peers. Is that intriguing?

CONCLUSIONS: A LONG JOURNEY BEGINS WITH A SINGLE STEP:

Google didnít become a hot company valuation story overnight and neither can a distributorís niche-targeted, service quality and economics. But, if we rank our customers by estimated profitability and zero in on one customer niche using all of the ideas and steps in this articleís support notes, we can make it eventually happen. A big reason why we can succeed is that our competitors probably wonít do the following steps:

  • Read this article and think about it.
  • Skim through the support notes and then go check out all of the how-to support documents.
  • Do a simple customer profitability ranking report, etc.

Why? Inertia! Most people donít want to give up doing what they have always been doing to try something new even when they intellectually understand and believe there is a better way. Iíll close with one of my favorite quotes from the French-born, American surgeon and biologist, Alexis Carrel who won a Nobel Prize for his work on vascular ligature and grafting of blood vessels and organs. His research experience led him to conclude:

"Life leaps like a geyser for those who drill through the rock of inertia."

 

Link to Support Notes for this article: 3_14SupportNotes.asp.

 

©Merrifield Consulting Group, Inc. Article 3.14