The Coming ‘Service-Added’ Revolution

The Coming “Service-Added” Revolution

Tom Peters

The competitive battleground in autos, semiconductors, steel and
metals, computers and even energy and utilities is shifting fast
to service-added transformations of products and services. Those
who miss out will be left at a crippling disadvantage.

Highly successful $2 billion retailer Nordstrom has achieved
awesome success with a pure service-driven strategy; it is
forcing a fundamental change of face on Western states’ retailing
with such companies as Macy’s scrambling.

In automobiles, as American producers increase their emphasis on
quality, the Japanese are trying once again to get a step ahead
by shifting focus to the long-neglected dealer-distributor. Smart
semiconductor makers are designing application-specific
integrated circuits (ASICs) in tandem with customers, catering to
individual needs. In computers, most experts agree that within a
half dozen years more than half of the revenue of even giant
firms such as IBM and Digital will come from software and related

In oil, the service station is emerging as the prime source of
differentiation, given that tight oil supplies appear to be
behind us for some time to come. Top-service stations routinely
outsell nearby competitors by a four-to-one or greater margin.

It adds up to a chance — a need — to redefine every product or
service offering. Harvard Business School marketing professor Ted
Levitt provides a handy idea, which he labels the “total product
concept.” Picture four concentric circles: the inner one is
labeled “generic product,” next comes “expected product,” then
“augmented product.” The last, which knows no boundary, is
labeled “potential product.”

Take Nordstrom, whose fairly high-price specialty retail goods
comprise the firm’s “generic” trait. The “expected” trait
includes stores that stay open normal hours, and carry styles
that are contemporary. Nordstrom invests heavily to its
remarkable service — its “augmented” attribute — such as very
high availability of odd sizes and colors and high pay, by
industry standards, for an exceptionally large number of
salespersons on the floor. The unlimited “potential” trait is
vast number of touches — from regular personal notes to
customers from salespersons, to the especially clean and colorful
dressing rooms, to a “no-questions-asked” return policy, all of
which help Nordstrom live up to its “No Problem at Nordstrom”

By its unconventional emphasis on the outer circles, the
augmented and potential, Nordstrom has virtually redefined
retailing. To quote a friend at a computer company, it’s not a
specialty retail store, but “a user friendly, entertaining, total
experience” which has something to do with the purchase of

Not only is no product or service not too mundane for such
treatment, but research demonstrates that such value-added
transformation is most valuable in so-called mundane, “commodity”
areas. This flies in the face of conventional wisdom, that the
commodity producer must compete on the basis of price alone in
its markets.

A little over 51 years ago (August 18, 1936), W. R. Hotchkiss
issued an edict — all orders coming into his company would go
out the next day, regardless of time, energy and cost involved.
The firm is Deluxe Check Printers, whose product is ordinary bank
check. The firm publishes its service results in its annual
report. Last year, 97.1 percent of orders went out the next day, and
99.6 percent were shipped error free. The report also announced
$121 million of after-tax profits on $867 million of sales in
1986 — one of the highest profit margins among the entire
Fortune 500. Once again, Deluxe Check’s service-added, not the
“generic” check is the key.

For years, American Standard competed on price in its core
bathroom fixture business. Profits in this saturated market were
meager. Now the business is following, with great success, a bold
value-adding strategy. It is attempting to do no less than
transform the role of the bathroom in the house! One product is a
$25,000, top-of-the-line, combined bathtub and home entertainment
center. It includes microprocessor-driven bath temperature
controls and a hook-up for a video monitor near the tub that lets
you see whoever is knocking at the front door.

The strategies for redefining an old product can be as
sophisticated and high-tech as American Standard’s, but
most approaches are built on more mundane bases. One Chevron
station in San Leandro, California has more than doubled its
sales in less than a year. The reason: When you pull up to the
pumps at the full-serve island, at least two people leap out to
offer along with the normal gas and oil check, free coffee, a free
newspaper and a quick vacuuming of the inside of the car. One
colleague described stopping there as “experiencing what it’s
like to be part of a pitstop at the Indy 500,” so energetic was
the service. Another star Chevron dealer, in El Paso, Texas, has
nearly doubled sales in two years, despite the presence of a new
competitor and the closing of a nearby freeway off-ramp. Once
more, two people service every car, empty ash trays, quickly
vacuum the interior and clean the inside as well as the outside
of the windows.

The new service-added offering surprises and delights retail
shoppers, bankers who order checks and motorists who drive up
only expecting 15 gallons of super unleaded. The other surprised,
but not-so-delighted, party is the competition. One of the
Chevron dealers tells me that the station next door really seems
to believe that such service-added isn’t “allowed.” These are the
kinds of surprise — and profit — that a business can quickly
learn to live with.

(c) 1987 TPG Communications.

All rights reserved.