I wonder if Norm from Cheers (George Wendt, pictured above) would move to a bar stool at Houston's if the restaurant chain offered his favorite suds at a price lower than what he's accustomed to paying at his usual watering hole. I doubt it, and not just because Norm doesn't appear to possess the alacrity to adjust quickly to much of anything. Norm knows, at least on some unconscious level, that a Budweiser (I can't see Norm gulping down a Founders IPA) at Houston's is just not the same as a Budweiser at Cheers. Norm's beer consumption is all wrapped up in, and inseparable from, all other aspects of his imbibing experience--where he does his drinking (Cheers), his normal perch of a bar stool, the company he enjoys (Cliff, the mailman), and the fact that Sam or Woody will always slide his "usual" down the bar to him before he has to ask for it. After all, Cheers is the place where "everybody knows your name."
I like to think of such consumer experience as being a "gestalt," a concept in psychology that says, essentially, not that the whole is greater than the sum of the parts, but rather that the whole is something other than the sum of the parts. Merriam-Webster.com offers a more detailed definition: a structure, arrangement, or pattern of physical, biological, or psychological phenomena so integrated as to constitute a functional unit with properties not derivable by summation of its parts. You can't take the beer out of Cheers and you can't take Cheers out of the beer. This helps explain why a consumer might not buy a particular product at the place that offers the absolute lowest price. I don't shop at Walmart because, honestly, I don't like their gestalt.
The implications for customer service should be obvious here, especially for the bricks-and-mortar retailers who face an onslaught of online competition. And yet, some of them just don't seem to get it. I make a point of supporting locally-owned businesses, and when I go to a store and they happen to be out of the item I came in to buy, I certainly understand that. But when the store clerk tells me that they can have it for me in two weeks, I feel insulted. Two weeks! Seriously? Have these people ever heard of Fedex (FDX, $171) and Amazon (AMZN, $367)? Well, I have, and I'll be stepping outside to place an order on my iPhone. Where it exists, this epidemic of nonchalance, a passive arrogance rooted in denial, is causing retailers who suffer from it to miss the best opportunity they have to stay in the game--exceptional customer service. All retailers need to cultivate a considered and tasteful--but not overbearing--familiarity with their customers. We all want to have our needs met and our expectations exceeded. And even if you don't want your usual, it's nice to have it offered, even as just a reminder that someone is paying attention.
Some businesses are not only staying in the game, they are ahead of it. My wife's sister and her husband live in Boca Raton, Florida, and they often tell us about a movie theater there that they love to frequent. They can reserve their seats in advance, and these seats happen to be leather with foot rests and a table between them. A server will bring them a glass of wine from the bar and what they choose to order from the food menu. This is all very civilized, and it makes for an experience that feels more like an evening out at a nightclub than time spent in a stadium. If this is such a great idea, we might reasonably ask why the commercial airlines have not done something similar. There are many answers, one being that they cannot afford to, and another being that they don't have to. In addition to the specific economics of air travel explanation, people seem willing to put up with all sorts of inconveniences and discomforts on their journey that they would never tolerate at their destination. Getting there is just a means to an end, the end being a Disney World experience, for example, or seeing that first-run movie while enjoying a glass of oaky, buttery Chardonnay. There was a time when people actually would get dressed up to travel on a plane, but what once had a sense of panache and style to it has now been reduced to its bare-bones utility: getting from Point A to Point B. Last week was spring break for many school kids here in Memphis, and I enjoyed seeing my friends' Facebook posts with pictures of their beach vacations and ski adventures. I don't recall seeing any post with a caption that read, "Here we are on the airplane, enjoying our flight to Turks and Caicos."
When the purchase of a good or service is perceived as more utilitarian, consumers are going to be more price conscious, but at the same time they are willing to pay up for those experiences at the other end of the spectrum that provide a positive gestalt. Spirit Airlines (SAVE, $79) has made a success of itself with ultra-low ticket prices and all other services "unbundled" and available for an additional charge. Want to check a bag or choose your seat in advance? That's ala carte, for a fee. Meanwhile, Disney (DIS, $106) has recently raised prices for admission to the Magic Kingdom and has introduced the "magic band," a preprogrammed wristband that visitors wear to help them navigate through the various rides and attractions at the park. Disney is world-class when it comes to providing the gestalt experience, and it is able to extend that to the toys and games that feature its beloved characters. Apple (AAPL, $127) has been able to escape the commoditization of electronics with its "ecosystem" of devices, and that may soon be enhanced with a new streaming video service. Under Armour (UA, $78) has moved into fitness apps, creating a sort of "fitness gestalt" that goes beyond its traditional athletic wear. But for a perfect example of the utilitarian shopping "experience," look no further than Costco (COST, $150), which has its members (including me) embracing the idea of no-frills shopping and buying toilet paper and paper towels in bulk. It makes perfect sense, as long as the price is right.
The analysts and experts who make their livings following trends in the economy tell us that members of the so-called Millennial generation are increasingly unconcerned with owning the traditional signifiers of the American Dream-- houses and cars, for example. They would rather rent than own their homes and prefer car-sharing or ride-sharing services over buying their own automobiles (read more here in this analysis from Goldman Sachs: http://www.goldmansachs.com/our-thinking/outlook/millennials/index.html?cid=PS_01_18_07_00_01_15_01). Does this mean that the Millennials are less materialistic than their parents? Not necessarily, because they are really just spending their money in different ways, typically on intangible experiences such as mountain climbing or deep sea diving. To look at it another way, they are spending money on things that will never show up on their personal balance sheets--a mission trip to Ghana is not a tangible asset. That distinction way be lost on the Millennials, since many of them seemed to have earned a college degree yet still don't know the difference between a balance sheet and a fitted sheet. But they likely do understand how to find the best prices on their utilitarian needs, and their shopping habits will probably continue to chip away at brand loyalty--why buy the costlier brand label when the store-label or generic version has the same ingredients? The spoils of utilitarianism go to the low cost provider.
If all of this economic talk on the news about there being no inflation has you scratching your head and wondering how the bean counters seemingly missed your experience when tallying the statistics, we may have an explanation.Companies that have successfully developed the gestalt experience have pricing power. They have positioned themselves so that their version of a particular good or service, enshrouded in an experience, is not the same thing as the knock-off version elsewhere. The stuff we have to buy may come at a bargain, but the stuff we want to buy will not come cheap. There is no substitute for a week at Disney World, and you get what you pay for, both on the journey and at The Magic Kingdom.
Life is short. Get busy.
Jim
Disclosure/Disclaimer: My family members and/or I own shares of FDX, AMZN, DIS, AAPL, UA, and COST. Individual stocks are mentioned here for the sole purpose of illustrating investment concepts, and nothing stated here should be construed as the advice to buy or sell any security.
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