Content Guy's Note: The goal of "The Innovation Conversation" is to explore some facet of the fast-changing, technology-driven retail landscape and how it affects businesses and consumers. It is, we think, fertile territory ... and one that Tom Furphy - a former Amazon executive, the originator of Amazon Fresh, and currently CEO and Managing Director of Consumer Equity Partners (CEP), a venture capital and venture development firm in Seattle, WA, that works with many top retailers and manufacturers - is uniquely positioned to address.

This week's topic: More about "The Four: The Hidden DNA of Amazon, Apple, Facebook, and Google," a new book by Scott Galloway.

And now, the Conversation continues…


KC: I think it is fair to say that Galloway doesn't like Apple - he appreciates it, but has a real problem with Steve Jobs-as-icon, as well as with what he seems to see as a misplaced societal obsession with all things Apple.  Now, I'm an Apple guy, and you're not ... and there's nothing to be served by going down that rabbit hole and debating the merits.  But there are three things that I would like to discuss…

First, there is his argument that Apple made the conscious decision to go from being a technology brand to being a luxury/lifestyle brand...which created a kind of ecosystem that has keeps the flame of obsession both alive and profitable.   To me, that's a really smart move ... akin to a supermarket deciding to focus on feeding people rather than selling boxes and bags.  But it occurs to me that there is a potential problem here … that if the "luxury" part of the equation begins to outweigh the "lifestyle" part, it makes Apple seem more out of reach to so-called "average" consumers.  There is a connection to food retailing, I think, in that many companies see the notion of being food-oriented as being necessarily upscale, and that value-oriented stores cannot have that approach.  What do you think?

Tom Furphy:
It seems that one of the key draws of most luxury brands is that they are aspirational. People long for them. Owning them shows to others that one has achieved a level of accomplishment and status in society. And although I had not thought of Apple that way in the past, I agree with Galloway's characterization that it is a luxury brand.

I think food can be aspirational without being too upscale and out of reach. Most everyone aspires to eat at nicer restaurants, would love to cook better and put better meals on the table at home. Busy lifestyles, the degradation of cooking skills over generations and easy access to processed food and fast food has lowered the culinary bar and reduced people's engagement good food. There's a real opportunity for food retailers to both rekindle the romance of food and to help people take better functional control over food in their lives.

A retailer can be food-focused without prices that are out of reach of mainstream consumers. Better quality prepared foods along a spectrum of price points can be both aspirational and attainable. Think about the prepared foods presentation at Wegmans. The food looks beautiful and is offered at a wide range of price points. It gets you excited about food!

Also, through education and demonstration stores can appeal to shoppers' aspiration to cook better. For higher-end shoppers that are looking to be adventurous, that might involve more intricate dishes with expensive ingredients. But for more financially stressed shoppers with the aspiration for better meals at home, that could mean helping to stretch their food dollar with great-tasting recipes that can be prepared for a certain cost per serving. Everyone can benefit from the "luxury" of discovering more, good food.

KC: Galloway also argues that the creation of the Apple Store was more important to the company's brand identity than the iPhone … which strikes me as both an audacious statement and one that may have the ring of truth, since the Apple Store essentially made innovation accessible.  What's interesting about this is that it suggests that Apple's greatest innovation had less to do with hardware and software, and more to do with a fundamental consumer insight.  Would you agree?  And do you think this logic can be applied to food retailing?

TF:
I'm not sure I totally agree that the stores are more important than hardware and software. The original iMacs, iPods, iPhones and iPads were all amazing works of art both in form and function. They shifted the paradigm away from IBM, Dell, Blackberry and Nokia. That a piece of technology could be so beautiful and work so effortlessly was a major innovation that set the company on its current path.

That said, I think the stores did create a substantial competitive advantage for Apple. While they were rolling out their products and gaining market share, they were opening hundreds of locations within reach of millions of people. The stores created showcases for their products, provided easy access to experts for service and education, and served as a fantastic platform through which to launch new products. It was all wrapped in an awesome retail experience with a human connection. It would take a competitor years, likely decades, to build enough stores to catch up.

A good example that food retailers could look to is Best Buy. Although not quite as impactful as the Apple stores, they figured out that their physical stores were valuable for service, education and product discovery. They began leasing floor space to brands to showcase their products. This strategy has been important to the company's resurgence in recent years. They've stood up relatively well to Amazon and have become a valuable partner to brands.

I would argue that similar creative store strategies are imperative to the survival of incumbent retailers in the face of e-commerce competition, especially now that Amazon has over 400 stores. Stores provide an educational and sensory environment that cannot be replicated online and is critical to success in many retail categories, including food. But the sensory advantages must be backed up with sound digital capabilities. It's simply imperative today.

KC: One of Galloway's central points is that since there is no such thing as an unassailable business model, and inevitably other companies will (and maybe already do) make better smart phones than Apple does, what Apple has chosen to do is worry less about technological innovation and focus more on "romance, connection and general awesomeness," which I think is just a sexier way of saying ecosystem.  For some reason, this reminded me of when I was a kid, and I wanted a new baseball bat, and my dad said the old one was just fine:  "It isn't the bat, but what you do with it," he said. If this is true, does this point the way for what retailers need to do when thinking about innovation - they have to think first about strategy, and then look for technology that meets their tactical needs.  The problem, of course, is that for some companies it is easier to look for the newest shiny object than it is to conceive of a strategic imperatives.

TF:
It's really pretty simple in theory, but harder in execution. Amazon says things like "Start with the customer and work backward" and "We innovate on behalf of our customers." From my experience I know Wegmans thinks this way, too. This approach is very powerful. When you zero in on the shopper and what can be done to improve their lives, then allow yourself to think and act beyond your traditional cultures and processes, you can open up lots of possibilities. The focus also keep you from getting hypnotized by shiny new objects.

To develop their strategy, I would encourage retailers to truly focus on their customer and think about what they can do to better serve them. From there determine the specific capabilities that are required to execute on that strategy. They should consider how they could use their stores better. They should seek out physical and digital capabilities to help customers discover products, save time and make shopping easier. Done right, the weaving together of home grown and partner capabilities can create an ecosystem that is agile, serves customers well and is differentiating from competition. It sounds simple, but few retailers actually do this.

"The Four: The Hidden DNA of Amazon, Apple, Facebook, and Google," can be purchased in bookstores everywhere, and, of course, on Amazon.

The Conversation will continue…