Breaking Compromises, Breakaway Growth

When is a mature, slow-growth business not a mature business? How do rapidly growing companies emerge from stagnant, dead-in-the-water industries? The station-wagon segment of the North American auto market was dying when, in 1984, Chrysler Corporation introduced the minivan. Over the next ten years, minivan sales grew eight times faster than did the industry overall. For the last 15 years, the do-it-yourself home-improvement business as a whole has grown barely 5% per year while Home Depot has racked up 20% growth. Overcapacity and flat demand plague the airline industry, but that hasn’t kept Southwest Airlines Company from growing seven times faster than the industry average over the past decade.

What senior managers at Chrysler, Home Depot, and Southwest have in common is the wisdom, curiosity, and perseverance to explore the compromises their industries were forcing customers to endure. And each acted on the insight that breaking those compromises would release enormous trapped value—enough to stimulate major sales and profit growth. In fact, the concept of breaking compromises is one of the most powerful organizing principles we have seen for companies that wish to achieve breakaway growth.

Compromises are not trade-offs. Trade-offs are the legitimate choices customers make among different product or service offerings. Trade-offs typically come from fundamental differences in cost structures that are usually reflected in prices. With products, the trade-offs often arise from differences in design or in the cost of materials. With textiles, for example, there is a trade-off between price and quality because better fabrics tend to have higher thread counts. In service, trade-offs are common because delivering greater convenience or customization often entails higher cost. Thus taxi service costs more than bus service, and a meal delivered by room service costs more than the same meal ordered in the hotel restaurant.

A compromise, in contrast, is a concession demanded of consumers by all or most service or product providers. Whereas trade-offs let customers choose their preference among alternatives, compromises offer no choice. Trade-offs allow different offerings to appeal to different segments; compromises benefit no particular segment. Trade-offs are very visible; most compromises are hidden.

In picking a hotel room, for instance, a customer can trade off luxury for economy by choosing between a Ritz-Carlton and a Best Western. But the hotel industry forces customers to compromise by not permitting check-in before 4 p.m. Similarly, until recently, most auto dealers forced a compromise on customers by not offering weekend repair and maintenance services. There is no law of nature that says that cars can’t get fixed on weekends or that hotel rooms can’t be ready before late afternoon. Compromises occur when an industry imposes its own operating practices or constraints on customers, leaving them no choice. It’s the industry’s way or no way. And often customers accept compromises as the way the business works.

Compromises occur when an industry imposes its own operating practices or constraints on customers.

Henry Ford’s famous car in any color—as long as it’s black—is one type of compromise. Such a compromise denies customers the selection they want. Or customers are forced to wait. Today’s car buyer can custom-order virtually any car if the selection on the dealer’s lot is inadequate, but the industry will make customers wait six to eight weeks for delivery. In other situations, customers may be forced to use a high-cost service or to pay a premium to get the quality they want. Because the family washing machine can’t safely handle all fabrics, customers have to spend extra time and money on dry cleaning. The compromise often becomes visible when customers have to modify their behavior to use a company’s product or service. Until recently, dishwashers did a satisfactory job of washing the dishes, but they made enough noise to wake the dead. Their owners had to arrange a time when they were out of hearing range to wash the dishes.

Compromises creep into businesses in various ways. Some, like hotel check-in times, are imposed by standard operating practices that no one questions. Others stem from conscious decisions that may make marginal economic sense—as long as customers adjust their behavior. For example, it may make sense for a supplier to deliver only once a week, but doing so forces customers to hold inventory between deliveries. The most important compromises, however, are forced on customers simply because companies have lost touch with those customers’ needs. Finding and breaking those compromises can unleash new demand and create breakaway growth.

The Great Pasta Compromise

Contadina, an operating unit of Nestlé, has created a high-growth business by breaking the compromises imposed on consumers of pasta. Contadina’s fresh pasta product is sold in supermarkets, cooks in minutes in boiling water, and comes in many varieties, including ravioli and tortellini.

Before Contadina’s innovation, consumers faced one trade-off and a multitude of compromises in their quest to eat pasta. The trade-off was between eating pasta at home—where someone has to make it—and eating out at a restaurant. Pasta at home is less expensive. The restaurant has more variety and means less work, but it costs more.

The great pasta compromise begins after the decision to stay home and make it yourself. Homemade pasta is inexpensive and fresh. But making pasta from scratch is time-consuming and difficult. The first product to try to break the compromise was dry pasta. Dry pasta costs more than homemade pasta and it is not as fresh, but it is much easier and faster to make.

The next run at the great pasta compromise was frozen pasta. Frozen pasta, which often comes in a microwavable container, is even quicker and easier to cook than dry pasta and requires little cleanup. But frozen pasta costs more than either homemade or dry pasta, and it is often less tasty.

In the mid-1980s, Contadina made its run at the great pasta compromise with the introduction of a fresh pasta product. Contadina’s fresh pasta is twice the price of dry pasta and comes in a smaller package that doesn’t serve as many people. It is five times more expensive per serving than dry pasta. Why, then, do people buy Contadina? Consumer research provides some interesting insights. Naturally, consumers like its freshness and its ease of cooking. More surprising is the fact that consumers are choosing Contadina over a meal at a restaurant. Before Contadina’s fresh pasta became available, many people said they would never eat tortellini or ravioli at home, because preparing them from scratch was just too much trouble.

Breaking the great pasta compromise not only has made it easier to prepare good-tasting pasta at home, it also has upset the old trade-off between eating at home and going to a restaurant. In this context, Contadina makes a lot of sense. Consumers get the taste, variety, and freshness that can be found at restaurants, but in a product they can cook and eat at home for less money.

Often, when segmentwide compromises imposed on consumers are broken, traditional tradeoffs are sidestepped and fundamental changes in the definition of the business occur. This usually means a dramatic shift in the set of relevant competitors. Because compromise breakers often find themselves competing against companies that are higher cost and higher priced, they are often able to grow rapidly and profitably by gaining share from their new set of rivals. Contadina grew at high double-digit rates to become a leader in fresh pastas and sauces by the 1990s, with hundreds of millions of dollars in sales.

A Breakthrough for Car Buyers

Breaking compromises between an entire industry and its customers can release tremendous value. Circuit City, best known in the United States as a big-box consumer-electronics and appliance retailer, is a successful company, with sales growing at 26% per year and earnings at 30%. Its one major problem is that it is about to run out of real estate. After opening stores in virtually all major markets in the United States, Circuit City needs to go somewhere else for fast-growth opportunities.

Circuit City found a promising opportunity in an unlikely place: the used-car business.

The retailer has found what it believes to be a promising opportunity in an unlikely place—the used-car business. In October 1993, Circuit City launched CarMax, a company whose strategy is to revolutionize the way used cars are sold in the United States.

Breakaway Growth: Compromise Breakers Have Outperformed Their Industries Source: The Boston Consulting Group

Selling used cars is a business with a stigma. In the past, most people who bought used cars couldn’t afford new ones. The automakers, who naturally wanted to sell new cars, reinforced the stigma. When Chrysler introduced its successful K-car in the early 1980s, Roger Smith, then chairman of the board of General Motors Corporation, was asked how GM would respond to the threat. Smith belittled the K-car by saying that “General Motors’ answer to the Chrysler K-car is a two-year-old Oldsmobile.”

This attitude toward used cars has not changed much. In the summer of 1995, a Business Week journalist grilled the program manager for the new Ford Taurus about the car’s price. In frustration, the program manager responded that the 1996 Taurus was priced to sell 400,000 units a year. “If Joe Blow can’t afford to buy a new car…let him buy a used car” (Business Week, July 24, 1995).

The used-car business may get no respect, but it should. Annual used-car sales in North America top $200 billion, making used cars the third-largest consumer category after food and clothing. In fact, there are more sales of used cars and light trucks than of new ones, and demand for used cars is growing faster. Moreover, the quality of used cars has risen with the rise in the quality of new cars.

Despite improvements in product quality, the business of selling used cars is virtually unchanged. A customer who opts for a used car faces many compromises. First, the buyer has to locate a car, usually by reviewing the classified advertisements in the local paper. Product variety is limited. In Toronto, for example, 20 to 30 used Tauruses are advertised for sale in the newspaper at any one time—from individuals, from dealers specializing in used cars, and from new-car dealers who also sell used cars. In the case of private sales, the buyer must call, make an appointment, and hope the seller will actually be there at the appointed time. The buyer must drive to see the car—which is unlikely to turn out to be the one the buyer wants or in good condition or priced reasonably or even still there: it could already have been sold.

When the buyer finds an attractive car, he or she can’t expect to see any maintenance records. Some dealers certify their cars, but in Ontario, for example, certification means only that the glass is not cracked, that the lights and brakes work, that the exhaust does not leak, and that the tires have sufficient tread. In other words, certification guarantees only the bare necessities for roadworthiness.

Buyers of used cars, then, risk ending up owning a car with mechanical problems. Beyond this, they must endure a time-consuming and truly horrific buying process—more accurately, up to four processes: finding and buying the car, financing it, insuring it, and selling the old car. Buyers are at a disadvantage because knowledge about the product is asymmetrical: the seller knows more than the buyer. Often the buyer is subjected to high-pressure sales tactics and forced to haggle over the price with salespeople whom he or she suspects are dishonest. And should problems arise, there is no clear recourse for the buyer.

The managers of Circuit City observed the size and growth of used-car sales and saw that many of the distinguishing capabilities of their own consumer-electronics business could break the compromises imposed on buyers of used cars.

Circuit City is known for its high variety of merchandise. CarMax takes the same approach. A typical large used-car dealer has only about 30 vehicles in stock. A large new-car dealer who sells used cars might have 130 vehicles. The first CarMax, in Richmond, Virginia, had 500 cars. The two stores that opened in Atlanta in August 1995 have 1,500 each.

CarMax further enhances customer choice by harnessing Circuit City’s considerable systems capabilities. At CarMax, customers have access to computerized information through a kiosk that enables them to sort through the inventory of cars available not only at that site but at all the stores in the region. When CarMax advertises in any of the Richmond or Atlanta papers, it advertises inventory from both locations.

Unlike Circuit City, CarMax does not keep its inventory indoors. There is only one vehicle on display in the showroom, and it is fitted with arrows pointing to the 110 spots that have undergone performance and safety checks. The showroom’s computerized kiosks provide information on the vehicles in stock, including their location on the lot. Should a customer be shopping with the family and want to see and drive a particular vehicle, CarMax provides a supervised day-care center for the children.

CarMax uses professional uniformed sales representatives, whose first job is to explain how to use the kiosk and then to help customers find the car they want. CarMax prefers not to hire people with experience in selling new or used cars. Instead, it wants to hire presentable people whom it can train for two weeks (compare that with the minimal or nonexistent training that employees receive at new-and used-car dealers) and pay a set dollar amount per vehicle regardless of its selling price. This is an interesting departure from Circuit City’s practice of paying a percentage-of-sales commission that encourages aggressive “selling up.” Car-Max did not want that pressure on its customers, so it designed an incentive system that eliminates the pressure on its sales representatives.

CarMax sets prices at below the average Blue Book value and offers no-haggle pricing and no-hassle guarantees. Every CarMax vehicle comes with the 110-point safety check and a 30-day warranty. For some cars, warranties of up to four years are available. In addition, CarMax customers have a five-day return guarantee: the car may be brought back with no questions asked as long as it has not been driven more than 250 miles.

Financing is available from NationsBank Corporation or from Circuit City’s financing arm. Circuit City’s financing tends to be for a longer term and usually requires lower deposits. Progressive Insurance will insure both the vehicle and the driver on the spot. People buying cars from CarMax can sell their old cars as well. The sale of the used car is a separate transaction from the purchase of a car. CarMax will buy any used car—although not at a price everyone will accept.

The jury is still out on the success of CarMax. A host of imitators have emerged. Circuit City does not divulge the performance of its CarMax unit, but 4 stores were opened in 1995 and 90 more are planned by the year 2000. The race is on. Both used-and new-car dealers are likely to be bloodied. Historically, new-car dealers have sold about 80% of used cars that are less than four years old—CarMax’s core offering. And those sales have accounted for anywhere from 35% to 65% of the dealers’ profitability overall.

In addition, the sales of new cars are at risk. A popular saying in the automotive industry is that when you buy a new car and drive it off the lot, what you own is a very expensive used car. On average, the value of a new car plummets 28% in the first week after its sale. At CarMax, it is not uncommon to find current model-year vehicles with low mileage at substantially lower prices than those new vehicles. In breaking so many of the compromises imposed on used-car buyers, CarMax may end the old trade-off between buying a used car and buying a new one.

Driving Bottom-Line Growth at CarMax CarMax’s innovative formula makes it possible to turn inventory much faster than is possible for traditional dealerships, thereby driving growth of the bottom line as well as growth of revenue.

CarMax is not the first to try to break the compromises imposed on used-car buyers. In northern New Jersey, there is a used-car dealership that has tackled the variety compromise by putting 600 cars on its lot and giving customers more choice. But this dealership has left everything else the same. Customers still have to haggle, obtain their financing and insurance from somewhere else, and dispose of their old car. Other dealers are touting no-haggle pricing. What sets CarMax apart is that it has put it all together: CarMax sells variety, it sells value, it sells convenience, it promises that you can be in and out in 90 minutes with a car, and it delivers a comfortable experience. Many of the car dealers near CarMax locations are matching CarMax on price, and they think, mistakenly, that the job is done. It’s not. People want a different buying experience and they’re getting it from CarMax.

Finding Opportunities in Any Business

Growth strategies built around the idea of breaking compromises are neither new nor limited to a few particular industries. But to visualize such a strategy requires a company’s managers to clear their heads of the conventional thinking that pervades their industry. The Charles Schwab Corporation has grown steadily over two decades by breaking one industry compromise after another.

Schwab began as a discount stockbrokerage in 1975, when U.S. equity markets were deregulated and price competition on stock-trading commissions was introduced. Discount brokers ended a major compromise for individual investors, who had hitherto been forced to put up with high prices wanted to buy and sell securities.

Schwab, however, saw that the discount brokerage segment was itself imposing new compromises. Customers who opted for a low price worried about service reliability. Schwab tackled the problem head-on, first by investing heavily in computer technology that allowed almost immediate confirmation of orders over the telephone. At the time, even Merrill Lynch & Company could not do that. Schwab also invested in the firm’s brand name and in retail offices, both of which instilled confidence in consumers. In the process, the firm broke the compromise between price and reliable service and grew dramatically through the early 1980s.

Schwab saw that other compromises remained to be broken. In exchange for low prices, customers had been compromised on convenience, flexibility, and ease of transferring funds. In the early 1980s, Schwab pioneered 24-hour-a-day, seven-day-a-week service. It introduced the Schwab One cash-management account with Visa card and checking privileges, copying a Merrill Lynch product but eliminating the need to deal with a full-commission broker. Schwab also pioneered automated phone trading and eventually electronic trading directly from the customer’s personal computer.

Over time, Schwab’s management realized that the company was no longer a simple discount broker but in fact a broad, value-priced provider of cash, stocks, bonds, and mutual funds. The compromises Schwab had broken had generated a 20% to 25% per year growth rate and made Schwab the largest non-full-commission broker in the United States. But Schwab was ready to break yet another compromise to fuel its next stage of growth.

Until 1992, most consumers wanting to buy mutual funds had been forced to choose among different fund companies, each of which serviced its own accounts. Because diversification and high performance were not easily accomplished within a single family of funds, many consumers placed money with a number of different fund-management companies. Most investors were frustrated by the complexity of dealing with different statements, different rules, and different sales representatives.

In 1992, Schwab changed the scenario by introducing OneSource, a single point of purchase for more than 350 no-load mutual funds in 50 different fund families. OneSource gives customers a single account with one monthly statement that tracks the performance of all their funds. There are no transaction fees on OneSource accounts, so customers can shift their money among different fund families without any charge. Schwab can do this because it is paid directly by the funds as their sales representative and subaccount processor.

OneSource has grown to include 500 mutual funds, driving Schwab’s mutual-fund assets from $6 billion in 1991 to more than $60 billion in 1996 and making it the third-largest mutual-fund distributor in the United States. No longer forced to compromise on assortment, price, and convenience, consumers have been flocking to OneSource to manage their investments.

Schwab’s experience illustrates that relentless breaking of compromises can be a source for continuing growth. In fact, there are at least seven ways in which companies can find and exploit compromise-breaking opportunities in any industry.

Shop the way the customer shops.

At Schwab, the most important source of ongoing insight is employees who use the company’s products and services just as Schwab’s customers do. For example, the belief that customers would value the convenience of 24-hour-a-day, seven-day-a-week systems was heavily supported by Schwab’s own employees, who wanted that kind of flexibility in managing their own investments. Unfortunately, in many industries, executives never know how customers shop. In the auto industry, executives of the Big Three do not buy cars. Their secretaries do it for them, over the telephone. The cars are delivered to the executives clean, full of gas, and ready to go. For most Big Three executives, buying a car the way ordinary customers do would be an out-of-body experience.

Pay careful attention to how the customer really uses the product or service.

In all industries, people exhibit compensatory behaviors. They devise their own ways of using the product or service to compensate for the fact that if they did only what the company intended them to do, they wouldn’t really get what they wanted. In every product category, consumers can undertake dozens of compensatory behaviors, and each of those can have significant compromise-breaking potential.

In the brokerage business, it was common knowledge that customers often called back a second or even a third time to confirm that their trade had gone through at the price they had requested. Schwab paid careful attention to customers’ actual behavior and realized that the ability to provide immediate confirmation at the time an order was taken would eliminate those second and third calls—saving customers a lot of trouble and giving Schwab a significant advantage over other brokers.

Explore customers’ latent dissatisfactions.

Most companies ask their customers to describe their dissatisfactions with existing products and services. Such surveys usually lead to helpful improvements, but truly significant breakthroughs are generally the result of tapping into much deeper dissatisfactions. Those can be called latent dissatisfactions because consumers are unable to articulate their unhappiness with the product or service category. Chrysler’s development of the minivan, for example, tapped into latent dissatisfaction with both station wagons and full-size vans. Station wagons couldn’t carry enough and were hard to load and unload. Full-size vans were more useful, but they were not fun to drive. Minivans broke the compromise by “cubing out” the box design of the station wagon. Ford Motor Company and GM had both researched customers’ feelings about station wagons and had found that they could meet obvious needs with features such as two-way doors, electric rear windows, and third seats. But they did not explore the “white space” between station wagons (based on car platforms) and vans (based on truck platforms). The minivan—a van based on a car platform—was hidden in this white space defined by customers’ latent dissatisfactions.

Look for uncommon denominators.

Over time, companies tend to drift toward providing products or services that, on average, meet the needs of large numbers of customers. But compromises often lurk in this common-denominator approach. Schwab, for example, has now separated the service channel for the high-volume equity trader from that for the ordinary investor, whose needs are simpler. Each receives different services and pays different fees.

Some companies are reluctant to abandon the approach of averaging costs across all customers, because they believe abandoning it will reduce the profitability of their high-volume accounts. But recent history suggests that if managers don’t separate out what should be discrete businesses, a new or existing rival will do it for them. Recognition of that fact begets a relentless search for new compromises to break.

Pay careful attention to anomalies.

Anomalies often are a rich source for compromise breaking. The one regional sales office that significantly outperforms all others and for which there is no obvious explanation; the factory that appears to have a scale disadvantage but still has a lower production cost; the supplier who has lower cost and higher quality despite having an older product design: those anomalies are all worth exploring as potential compromise-breaking opportunities.

In Schwab’s case, the idea of creating local offices grew out of an anomaly. Charles Schwab’s uncle was looking for a business to run and Schwab decided to open an office in Sacramento, California, to give his uncle something to do. At the time, offices were seen as unnecessary and costly overhead for discount brokerage firms.

Subsequently, Schwab noticed that Sacramento was significantly outperforming other cities that had no offices. There was no obvious explanation. By exploring this anomaly carefully, Schwab discovered that retail sales offices had a number of important advantages even for a firm that typically dealt with customers by telephone. Local offices provided a rich source of customer leads through walk-in traffic and reassured those new customers who had concerns about trusting a broker they had heard of only from television. The offices provided a sense of solidity and a place customers could go to transact business. Schwab discovered that even in a high-tech age, customers like knowing that there is an office down the street or at least across town. Fully probing this anomaly led Schwab to build a large retail network.

Look for diseconomies in the industry’s value chain.

Today, in industry after industry, companies are innovating the management of their value chain in ways that are more rewarding for consumers. When the Schwab firm entered the mutual fund business, its first thought was to create its own family of funds. Careful analysis of the industry value chain, however, revealed a bigger opportunity. Only a handful of the largest companies had sufficient economies of scale to distribute their funds cost-effectively—and those companies lost the ability to talk directly to their individual customers. Schwab’s solution was to become an intermediary between its own customer base and a large number of subscale mutual-fund companies. Through OneSource, the firm served the needs of the fund companies and at the same time interposed itself between the funds and the customer. Schwab’s ownership of the direct customer relationship can now provide a platform for growth in other financial services, such as insurance.

Look for analogous solutions to the industry’s compromises.

Some of the best compromise-breaking ideas are probably already out there—in someone else’s industry. Circuit City’s CarMax borrows many practices from other retail sectors. For example, its idea of offering extended warranties on used cars is borrowed from appliance and consumer-electronics retailing. To keep inventory moving and selection fresh, CarMax has copied a practice used commonly in soft-goods retailing—automatically discounting inventory as it ages. CarMax’s practice of offering flat sales commissions and its low-pressure selling tactics can be observed in a number of sectors. Best Buy Company, one of Circuit City’s competitors in electronics retailing, uses that approach to create the kind of low-key, self-serve environment CarMax was looking for.

An Organizing Principle for Growth

Many companies today are searching for growth. But how and where should they look? Managers will often turn first to line extensions, geographic expansion, or acquisitions. In the right circumstances, each of those makes sense. But we believe that innovations that break fundamental compromises in a business are far more powerful.

Breaking compromises can, in fact, provide an organizing principle for the pursuit of growth. The CEO of a large financial-services company asked his initially skeptical management team to specify and value all the compromises imposed on its customers. The exercise was eye opening.

To get its employees to focus their energies on compromise breaking, a company should start by asking them to immerse themselves in the customer’s experience. It is critical to develop a strong, almost visceral feel for the compromises consumers experience. Whirlpool Corporation, the $8 billion appliance maker, identified a specific individual who personified the compromises all its customers bore.

Whirlpool’s market research showed consumers to be generally satisfied with the home appliances they owned. But digging deeper, Whirlpool discovered a reservoir of latent dissatisfaction with all the activities for which the appliances were used—doing laundry, preparing food, cleaning up after meals. Although consumers didn’t expect a lot more of their washing machines, ranges, and dishwashers, they were nevertheless very dissatisfied with household chores.

Those latent dissatisfactions became the basis for Whirlpool’s brand strategy. In 1992, after decades of competing mostly on cost with companies such as General Electric, Whirlpool wanted to build a new and more profitable strategy around a more sharply differentiated brand. Management knew it needed to articulate the strategy and mobilize all employees behind a vision. Someone at Whirlpool saw an interview on a national television-news program with an overworked woman named Gail and taped it, recognizing Gail as the embodiment of Whirlpool’s target customer. Gail was a 40-year-old woman taking care of several children at home while holding down a full-time job. Gail did all the cooking, the laundry, and the housework. Her husband’s role was apparently restricted to playing sports with the children and helping them with their homework. The image was consistent with Whirlpool’s research, which showed that women in the United States who work as many hours as their husbands in jobs outside the home continue to do most of the household chores as well. Gail personified the pressed-for-time working woman.

At the end of the video clip, the interviewer turns to her and says, “You’re taking care of everyone in this family. Who takes care of you?” Before she can reply, her husband answers for her, “I take care of Gail.” Gail shoots him a look that could kill.

The video, which became a rallying point for Whirlpool’s new strategy, challenged all employees to think about how Whirlpool could be the company that takes care of Gail. Why, for example, was it taking Gail so long to clean up after meals? The traditional stove top was obviously designed by someone who was spared the daily responsibility of keeping it clean. The top of Whirlpool’s CleanTop stove is completely flat, eliminating all the grease traps of the old design. Dishwashers used to be deafening, but now Gail can work on her kitchen computer while Whirlpool’s Quiet Partner dishwasher is running.

More compromises wait to be broken. Why is doing the laundry such a chore? Gail’s washing machine takes less time than her dryer to complete its cycle. Gail compensates by starting with lighter, faster-drying loads first. But eventually the process bogs down, and Gail is wasting time and energy running to the basement because no one makes a synchronized washer and dryer.

Breaking compromises can be a powerful organizing principle to enlist an entire organization in thinking about growth. The lesson from all the high-growth compromise breakers we’ve observed is this: The opportunity to identify and exploit compromises for faster growth and improved profitability is there for the taking. But managers must go to customers and look for themselves. This isn’t a job that can be delegated to the market research department. Managers must ask themselves why customers behave the way they do. An auto dealer told us how proud he was of his expansive, well-lit lot with no fences. “My customers like to come after hours to look at cars and trucks,” he proclaimed. He apparently never asked himself why they would do such a strange thing. And it never occurred to him that they might be looking at cars after hours precisely because they didn’t want to have to deal with him.

To find the kinds of growth opportunities companies like CarMax, Schwab, and Contadina are pursuing, managers have to get inside the customer’s skin and ask, What compromises am I putting up with? What’s wrong with this picture? Where’s the minivan in this company?

First Published: May