Superior Experience Leads to Outsized Profits!
Danny is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
We live in an all too fast-paced world: multi-tasking, fast food, burnout, 24-hour news cycle, higher per-capita GDP, instant gratification, commuting, cliff notes, and stress. We want it fast, cheap, served up piping hot, and 10-minutes ago, I have a schedule, an appointment and a meeting!
The irony is that companies that buck the norm - some of the more successful companies of our time - are capitalizing on slowing down and improving the customer experience – are providing outsized profits to investors!
A recent research report titled "Why Customer Satisfaction is No Longer Good Enough" revealed that customer experience is not only a key driver for revenue growth and reducing churn, but is an effective channel for brand differentiation. Another key point in the report is that 81% of consumers surveyed are willing to pay more for a superior customer experience. We live in a global economy where many products are becoming commodities. If a company can show that their product provides an experience that is worth the additional cost, that company, and its investors will likely benefit.
The Fresh Brewed Aroma
A success story built on providing an experience rather than a commodity was Starbucks (NASDAQ: SBUX). Many have hypothesized about the elements that have contributed to Starbucks success: the grinding of the beans, the fresh-brewed aroma, the comfy chairs, the free Wi-Fi, the staff that frequently knows both their customers names as well as their orders. Some have identified the lack of usual rules: Stay as long as you like. Spend as little as possible. Use the bathroom for free. Bring outside food, outside drinks.
Each of these items taken together provide an experience that keeps Starbucks customers coming back and Starbucks investors profiting.
Let’s Go to the Movies
Alexander Hulls of the New York Times has this to say about the movies: “Moviegoing is, at its core, a social experience. The moment those lights dim and the film reel rolls, you’re no longer an individual sitting in an auditorium; you’re part of a mass of people who are connected through a shared event and the desire to be entertained and transported.” How better to maximize the experience than with a trip to an Imax (NYSE: IMAX) theater. A standard movie screen size is 30’ x 70’, while the Imax screen is 52’ x 72’ – the equivalent of an eight story building. Some say size matters, but the differences do not end there. The images shot in Imax have 10 times the resolution, as well as allowing twice the brightness as those that were not. In addition, these theaters sport digital surround sound. This immersive experience is one that movie-goers have been willing to pay top dollar for. Even through the recession, global box office receipts at Imax theaters more than doubled, even with higher ticket prices. The average Imax ticket price is $13, $5 more than the average ticket price. According to The New York Times, “Imax benefits from the fact that it offers an experience that is difficult to replicate outside a specially equipped theater.”
Pop the Cap on a Cold One
Another area where consumers have been willing to pay up for a superior experience is in their frosty cold beers. While beer sales in general were up a mere 1.9% during the first half of 2012, craft beer sales were up 12% and now represent 6% of the beer market by volume and 9% in dollar terms.
A recent study reveals that “taste preferences evolved, especially among younger consumers, and we saw beer drinkers increasingly seeking different styles and more complex or varied flavor profiles.” While light domestic beers saw a 2.6% decrease and regular domestic beers saw a 3.2% decrease in sales for 2011, craft beer consumption grew by 11.2% and super-premium domestic beer grew by 11.8%. This all points to a consumer willing to pay up for quality while downing an icy cold one.
Blazing the trail in the craft beer revolution is Boston Beer Company (NYSE: SAM), which has focused on quality since debuting their flagship Samuel Adams beer in 1985. Since then, Boston Beer has slowly grown to control less than 1% of the domestic beer market, which leaves plenty of room for market share growth.
The Apple of My Eye
Finally, any discussion regarding a quality experience for a higher price would be remiss if it did not include Apple (NASDAQ: AAPL). Apple has turned three product categories on their head by focusing on the customer experience - the iPod, the iPhone and the iPad.
The iPod was not the first portable music player nor iPhone the first cell phone, but Apple was the first to think outside the existing technology and focus on the customer experience with never before seen simple form, sleek design and greater functionality. According to Forbes, “The difference was Apple’s focus on the user experience and interface.”
Apple continued this trend with the iPad. They re-imagined the notebook as a device for content consumption and again focused on providing a superior experience. iPad became the most quickly adopted consumer electronics product in history. Some believe that the iPad will follow the trajectory of the iPod in terms of market dominance. Forbes stated in July 2012, “The iPad dominates the category, and its domination could grow stronger with a smaller iPad Mini.” The iPad mini was introduced in November, 2012. Recent estimates put market share for the iPad at 56% of the total tablet market share.
So Why Should Investors Care?
Each of these companies’ has focused on providing a superior experience to consumers and this has led to superior gains for investors. The chart below tells the tale.
While some companies seem determined to win a race to the bottom in terms of price and quality, each of these companies has instead focused on providing a superior experience – and sage investors in these companies have enjoyed superior returns! Please use the comments below to share your favorite company that focuses on quality to generate superior returns!
Danny owns shares of Apple, Boston Beer, Imax, and Starbucks and recommends their products as well. The Motley Fool recommends Apple, Boston Beer, Imax, and Starbucks. The Motley Fool owns shares of Apple, Boston Beer, Imax, and Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!