Another New York–based Zipster recounts this story:
We were taking a trip with my parents and my kids to do the whole colonial Williamsburg thing, so we took the train to D.C., and reserved a Zipcar minivan in D.C. I did it instead of renting a car because it was actually cheaper because of gas and insurance and the amount of miles that we were going. But then I got an e-mail saying that they were taking the minivan out of service for that weekend because they had to fix it. So I called Zipcar, explained the situation, and they said, “Well, we’ll change the maintenance schedule so you can still have it that weekend.”
So they changed the maintenance schedule, and then somebody else went online and reserved it before I could. And so I called Zipcar about it again, and they called the other member and explained, “This other person had it first.” They did all of that so I could have this one van on this one weekend. I got the swagger wagon and they saved the family vacation. I love them for that.
Later in this book, we’ll explore the crucial role in demand creation played by what we call the backstory—factors that most customers never see or think about but which contribute to the ease, convenience, affordability, flexibility, and fun of using a product or service. Zipcar works, in part, because it gets the backstory details right. High density in Zipcar neighborhoods guarantees proximity and convenience, the cars are regularly cleaned and maintained, the RFID chips work, the insurance paperwork is taken care of, and the Global Positioning System (GPS) devices in the vehicles ensure that the cars are where the company says they are.
The resulting product is magnetic—incredibly so. When we asked Zipsters whether they’d recommended the service to friends or acquaintances in the past month, an amazing 88 percent answered yes—a full 28 points higher than the closest competing car rental service. And 80 percent agreed with the statement “I love this product”—a 30-point edge over the nearest rival.
When journalist Mary Morgan finally decided, after years of struggling with her car addiction, to give Zipcar a try, density was one of the reasons why: She enrolled in the service as soon as Zipcars popped up within ten minutes of her home. But there were lots of other reasons:
Zipcar also makes the barrier to joining relatively low. There’s a $25 sign-up fee, plus a $50 annual membership fee. Beyond that, you pay $8 per hour for the use of a car.† You have to reserve your car online—a straightforward process that took me less than five minutes—but if it turns out you need it longer than you thought, you can call and get more time. Cars can be reserved and used 24/7.
My first Zipcar trip was impressive in that it was totally mundane. The car I’d reserved was in the exact spot that Zipcar had told me, via e-mail, it would be located—though initially I went to the wrong parking lot, and had to ask a passer-by where the Zipcars were parked. Luckily, she knew. The Zipcard I’d received in the mail, which looks like a credit card, did exactly what it was supposed to: I held it over a spot clearly indicated on the upper-right corner of the front windshield, and the doors unlocked. The key was in a compartment between the front seats, the car was relatively clean inside and out, it didn’t smell like smoke or wet dogs, and the gas tank was half full.
Did I mention you don’t pay for gas? Or insurance and maintenance?
The seamless convenience of Zipcar is transforming a vague, inchoate need on the part of millions of Americans—the need for mobility without the annoying hassles we usually take for granted—into concrete, actionable demand for something entirely new: the ability to quickly and conveniently access a car without owning it.
Even more remarkably, this transformation has been accompanied by a dramatic psychological change on the part of Zipcar customers. Having experienced Zipcar, Morgan now wonders, “How have I come to equate freedom with being encumbered by a costly, 3,000-pound, environmentally damaging machine that’s used by pretty much just one person?”
Thanks to Zipcar, Mary Morgan’s definition of freedom has actually changed. What’s more, she has a need she never had before—a need that Zipcar creates and satisfies in a single stroke.
It’s the story of demand creation in a nutshell.
TODAY, ZIPCAR and its magnetic product are drawing a growing number of Americans away from their love affair with the car. They are succeeding where generations of well-intentioned social engineers failed, and in the process they’ve created a brand-new form of demand—to say nothing of one of today’s fastest-growing businesses. Since 2002, Zipcar revenues have been growing at 92 percent per year. Today there are more than 7,000 Zipcars serving some 400,000 individual customers and 10,000 corporate clients in more than 50 cities and over 150 universities around the United States and Canada as well as in London. Thousands of Zipsters have given up car ownership altogether. Zipcar has grown into a $131 million business that is projecting growth into the billion-dollar range by 2020.
Now 13 million people live within a ten-minute walk of a Zipcar parking space—4.5 million in New York City alone. In a recent interview, CEO Griffith observed, “Ninety-five percent of people living in the fifteen largest cities don’t need to own cars. If we were to sign up just 5 percent of them, that gets us to a million members and a billion dollars. There are already many neighborhoods—in Brooklyn, in Washington, in Cambridge—where 10 to 13 percent of the over-twenty-one population are Zipcar members. And it’s not slowing down.”
Zipcar still faces challenges. As of the end of 2010, the company as a whole was on the verge of achieving profitability (having gone into the black in each of its most successful city locations). To attract new customer types and continue to enhance their financial results, Griffith and his team are launching several innovative moves.
For example, Zipcar is testing a program to cluster cars at commuter train stations to provide “last mile” transportation for businesspeople traveling to suburban locations for meetings. It’s also providing fleet management services for government agencies. The biggest deal is with the municipal government of Washington, D.C., which reportedly pays Zipcar a one-time $1,500 fee to install its software and technology into city cars as well as a $115 per-vehicle monthly maintenance fee. Washington has already sold off more than one hundred city-owned cars and trimmed expenses by $1.1 million. This new product uses Zipcar’s smarts, powered by information technology (IT), to serve a different set of customers and unlock a new layer of profitable demand. As Scott Griffith has said, “We use information as a competitive advantage. You name it—we track it, analyze it, and base every major decision on the information we glean from our systems.” Or, as Griffith summarizes the Zipcar business, “At core we’re an IT and marketing company—we just happen to have a lot of cars.”
In the years to come, Zipcar’s leadership of the car-sharing industry it created will face competitive challenges. Car rental giant Hertz has already launched a car-sharing business, a near clone of Zipcar called Connect by Hertz that is currently available in New York, London, and Paris. It’ll be fascinating to watch how the rivalry will unfold. Hertz has brand recognition, size, and financial resources on its side. But Zipcar has a decade-long head start, as well as a huge edge in density. As of mid-2010, Zipcar boasted 158 locations in Boston; Hertz had just seven. If you wanted to hop in a car for a quick errand, which would you consider more magnetic?
WHAT EXPLAINS HOW Zipcar succeeded in creating a magnetic product and attracting a powerful stream of demand when past car-sharing operations had failed?
Zipcar became possible right around the time it happened. In the late 1990s, thanks to technological innovations (including Internet-based communication, wireless telephony, and smart cards), economic developments (such as increasing volatility in the cost of fuel), and social trends (such as burgeoning environmental consciousness among young Americans), a simple and convenient system for car-sharing was finally practical.
In this sense, the success of Zipcar might appear predictable—the inevitable result of external, historical circumstances. But appearances can b
e deceiving.
Circumstances must be right. Yet demand creation requires much more. Robin Chase was shrewd enough to design her company not from the inside out, based on strategic objectives or financial goals, but from the outside in, based on the enormous gap between what customers were buying—cars, with all their expenses and hassles—and what they really wanted—the freedom of instant mobility. And even then, Zipcar teetered on the edge of collapse for years and might easily have gone under if Scott Griffith and his team hadn’t finally figured out how to redesign Chase’s creation so as to push it over the invisible dividing line that separates the ho-hum from the gotta-have-it.
Demand creators understand that demand is amazingly fragile. The absence of one critical variable or a flaw in a single crucial detail can negate thousands of hours of hard work, imagination, and perseverance. So great demand creators dedicate themselves to constant experimentation, seeking out and fixing every conceivable weakness in their product and their organizational design.
They know, at a visceral level, that in the world of demand, nothing is really inevitable.
FROM HO-HUM TO GOTTA-HAVE-IT:
WEGMANS MAKES GROCERIES MAGNETIC
It was May 1969. Danny Wegman, a young economics major at Harvard University, was putting the finishing touches on his senior thesis, a research study analyzing the business prospects of America’s fastest-growing retailing sector—the discount store.
At the time, the discounting phenomenon was relatively new. Traditional department stores still channeled a huge share of the demand for merchandise like clothing, housewares, appliances, furniture, and toys. Giant “category killers” like Toys ‘R’ Us were just beginning to appear. But a regional chain of discount stores by the name of Walmart, run by a family-owned company that was still a year away from its initial public stock offering, was about to embark on thirty years of explosive growth, during which it would use its unmatched merchandising skills, logistical systems, and ever-growing pricing clout to achieve dominance in one retail market after another.
By the 1980s, the Bentonville, Arkansas–based giant would set its sights on a whole new industry—groceries. Its weapon: a formidable new retailing format called the Supercenter, which combined general merchandise and groceries in the same store. The Supercenter would enable families to make one shopping trip instead of two or more, stock up on everything they needed, and enjoy Walmart’s legendary low prices for everything they bought.
In 1969, these radical developments were still far in the future. But young Danny Wegman was already worrying about them.
Wegman’s interest in the topic was not academic or theoretical, but personal. Over the last several decades, his family had built a network of unusual and extremely successful grocery stores in northwestern New York state. Landmarks in their communities, the Wegmans stores were beloved by customers and had provided a good living for generations of family merchants. Now the discounters, led by Walmart, were heading their way—not in the next year or two, but surely within the next two decades.
Danny Wegman was acutely aware of what could happen to traditional family retailers in the wake of Walmart’s arrival. With its “everyday low prices” and enormous selection of merchandise, Walmart was already looking like an apparently unbeatable competitor. And with just a bit of imagination, Wegman could see how the grocery business must look to the hungry, talented innovators at Walmart: a huge, sleepy industry dominated by a handful of lackluster companies, ripe for the plucking.
What can you do when an unbeatable competitor is aiming directly at the heart of your business?
Wegman typed the final sentence of his thesis—“The mass merchandiser is the most serious outside competitor to ever face the food industry”—rolled the finished page carefully from his typewriter, and tucked the complete manuscript in a manila envelope, ready for delivery to his adviser. He sighed, ran his hands through his unruly red hair, and leaned back in his desk chair.
“Brilliant analysis, Mister Expert,” Danny said to himself, his facial expression a curious half grimace, half smile. “An A-plus paper, for sure. But soon the real test begins. When the discounters arrive, what the heck are we going to do about it?”
IT MAY BE EASY to see how a product like the iPhone, with its sleek design and its remarkable technology, can be magnetic for millions of people. It may even be easy to see—after the fact—how a hip, innovative company like Zipcar could make its lifestyle-enhancing product magnetically attractive for thousands of young city dwellers. But is it possible for people to have the same level of emotional connection with any product—even one as mundane and familiar as a grocery store?
If you ever have the opportunity to meet our friend Stephen, simply say one word: Wegmans. Then observe as one of the most articulate and analytical people we know struggles to describe his love for a chain of grocery stores he now rarely visits.
Stephen lives in Boston, but he grew up in Rochester in upstate New York, in the heart of the region where the Wegmans stores are located. To this day, twenty years after leaving, he can’t quite get Wegmans out of his head. Ask him to explain, and his eyes narrow, his hands move in circling gestures, his sentences falter. “It’s hard to describe,” he says, “because Wegmans really isn’t like any other store—or anything else, for that matter. When I walk in, the total effect—the high ceilings, the subdued lighting, the vast field of fresh produce stretching out in front of me, the glimpse of brick ovens in the bakery on one side and the gleam of coolers with prepared foods on the other side—is just indescribable.
“It’s not like a typical competing supermarket,” he continues, “because compared to Wegmans even the best leave me wondering ‘Is that all there is?’ It’s not like one of those open-air European markets, because Wegmans is so much cleaner and more welcoming. It’s a little like the queuing area to a great theme park attraction, where somebody has thought about every possible detail to capture a mood and fill you with excitement and anticipation. Or like the atrium of a beautiful and well-designed office building or hotel. But it’s not really like any of these things. It’s like—well, it’s like Wegmans!”
If you wonder whether it’s possible for a supermarket to be magnetic, just think about Stephen. And we know many more like him—otherwise normal people who get a little emotional when the subject of Wegmans comes up.
To anyone who has visited a Wegmans store, the features that produce its unique magnetic appeal may seem obvious. There’s its vast size—for example, the Wegmans we recently visited in Woodbridge, New Jersey, boasts twenty-six aisles of grocery products, not counting the huge sections devoted to produce, meat, fish, baked goods, deli items, frozen foods, prepared foods, cheeses, olives …
Then there’s the shocking range and variety of goods that this vast size makes possible. Many supermarkets nowadays have a small selection of cooked-on-the-premises foods for quick takeout dinners—but at Wegmans we counted nine different kinds of prepackaged vegetables alone, from crispy roasted potatoes with garlic and rosemary to cauliflower and spinach gratin to soft polenta with parmigiano reggiano. Lots of supermarkets have a few trays of packaged sushi on sale—but at Wegmans we watched two uniformed sushi chefs at work behind a fifteen-foot-long counter displaying dozens of varieties of sushi and an array of Japanese accompaniments like seaweed salads and edamame. Lots of supermarkets have a few exotic fruits for sale, like kiwis, mangoes, and star fruits—but at Wegmans we saw those alongside jicama, rambutan, cherimoya, dragon-fruit, fuyu persimmons, tamarinds, kiwano melons, white coconuts, and maradol papayas. We also saw a forty-foot-wide display of various kinds of tea … nine varieties of mushrooms … fourteen varieties of olives … three hundred varieties of cheese …
We could go on, but the point is clear: The surface attractions that make Wegmans magnetic are obvious and overwhelming. They are the reasons that last year the chain received more than seven thousand letters from customers in regions where no Wegmans store exists, most of them be
gging the company to come to town; they’re the reasons that Wegmans customers crowd Internet food sites like Chow.com with the kind of conversation-starting comments that magnetic products always generate among customers, usually ranging from positive to engaged to excited—comments like “I personally believe that the best of all American grocery stores is the Wegmans chain,” and “Simply stated, Wegmans is the category killer to end all category killers,” and “Wegmans bends over backwards in customer service. Once I called the store to complain about an error made in the butcher shop. The meat manager recut my six fillets and delivered them to my door one hour later along with a gift certificate for my inconvenience. That’s when they won me over for life!”
These reactions raise the question: If the magnetic qualities that attract huge demand to Wegmans are so overwhelming and so obvious, why doesn’t every supermarket chain simply do the same?
The answer: The qualities that make Wegmans magnetic may be obvious, but creating them was far from simple. It took some sharply against-the-grain thinking and behavior over a period of decades, starting in the early days when Wegmans was a tiny upstart competing against giant rivals.
The first Wegmans was opened in Rochester, New York, in 1930 by brothers John and Walter Wegman. It quickly won national attention for its retailing experiments, from the first refrigerated display windows and a three-hundred-seat in-store cafeteria to the pioneering use of water vapor sprays to keep counters full of produce fresh. Some of these innovations (like the cafeteria) went by the wayside; others (like the produce sprays) spread industry-wide. But all reflected Wegmans’ reluctance to follow the mainstream in an industry in which the 1930s and 1940s were dominated by store consolidations, chain expansions, no-frills merchandising, cost cutting, and a continual quest for greater sales volume at almost any cost.
Demand_Creating What People Love Before They Know They Want It Page 4
