CHAPTER 18 I Creating Competitive Advantage 589
18-14 How much revenue does one market share point
represent in this industry? Assuming total market sales
remain the same, what sales must Resource attain to be
Video Case Umpqua Bank
The retail banking industry has become very competitive. A@
with a few powerhouses that dominate the market, how is a small
bank to thrive? By differentiating itself through a competitive ad-
vantage that the big guys can't touch.
That's exactly what Umpqua has done. One step inside a
branch of this Oregon-based community bank and it is immedi-
ately apparent that this is not your typical Christmas club savings
account/freetoaster bank. Umpqua has created a business model
that has transformed banking from retail drudgety to a holistic ex-
perience. Umpqua has created an environmenhwhere peoplejust
love to hang out. It not only has its own music dowfioad service
featuring local artists, it even has its own blend of coffee.
/'
Company.' Base L.L.Bean: A Customer-Centric Icon Focuses Inward
I
What happens when a company achieves perfection in executing
its competitive advantage? If@ L.L.Bean, it moves on to some-
thing else. For deca*, in addition to producing high-quality
merchandise and innovative designs, the direct marketing ap-
p a d retailer has won the hearts of customers evetywhere'with
service that exceeds Industry standards. Putting customers first
has resulted in consistent growth that today has L.L.Bean selling
more than $1.5 billion worth of clothing worldwide.
But after more than 100 years of focusing externally to provide
outstanding customer experiences, the catalog retailerfrom Maine is
now changing its ways. Under a new strategic initiatwe, L.LBean is
also focusing internalb looking to achievegreater eflciency through
operational improvements. After years of strong performance, the
new moves beg the question-can a company focus internally on
itself without losing its external focus on the customer?
The Customer Is in the DNA
Like many successful businesses, L.L.Bean was born of humble
circumstances. In 1911, Maine resident Leon Leonwoad (L.L.)
Bean returned from a hunting trip with cold, damp feet and a rev-
olutionary idea. He went to a local cobbler and commissioned a
pair of boots the likes of which the world had never seen. Bean's
design called for leather uppers to be stitched to rubber work
boots. He called it the Maine Hunting Shoe, a boot that was both
comfortable and functional, allowing for extensive treks in the
Maine woods in all kinds of weather. That boot not only launched
a company, it forever changed outdoor .footwear.
Working out of the basement of his brother's apparel shop,
Bsan went into business. He obtained a list of non-resident Maine
hunting license holders and mailed out a three-page promotional
flyer making a persuasive claim: "You cannot expect success
hunting deer or moose if your feet are not propedy dressed. The
Maine Hunting Shoe is 'designed by a hunter who has tramped
the Maine woods for the last 18years. We guarantee them to give
wrfect satisfaction in every way."
The direct marketing effort worked. The first 100 orders flowed
in quickly and were promptly filled. However, shoe design was
flawed, and 90 of those first 100 pairs were returned after the
leather tops separated from the rubber bottoms. Remaining true
to his promise, Bean refunded the money for all 90 pairs, almost
going out of business in the process. But it was that commitment
among the top 10 selling brands? (AACSB: Communi-
cation; Reflective Thinking)
But under all these bells and whistles lies the core of what
!
mak s Umpqua so different: a rigorous service culture where ev-
e y ranch and each employee gets measured on how well they
s d e customers. That's why every customer feels like he or she
gets the help and attention needed from employees.
After viewing the video featuring Umpqua Bank, answer the
following questions about creating competitive advantage:
18-15 With what companies does Umpqua compete?
1&,16 What is Urnpqm's competitive advantage?
18-17 Do you think that Umpqua will be able to maintain this
advantage in the long run? Why or why not? .
to keeping customers satisfied at any cost that launched a very
successful company. That core value laid a foundation for quality
merchandise and exceptional customer service.
Bean believed that if he did right by his customers, not only
would they remain loyal, they would promote the company to
others. Thus, L.L.Bean has progressively set customer service
standards that seem all but impossible to maintain. At the core
is the famous L.L.Bean 100 percent satisfaction guarantee. "Our
products are guaranteed to give 100 percent satisfaction in every
way. Return anything purchased from us at any time if it proves
otherwise. We do not want you to have anything from L.L.Bean
that is not completely satisfactory." As one customer points out,
the 100 percent satisfaction guarantee isn't just an empty prom-
ise. "Several years ago we purchased a lamp from L.L.Bean. We,
had the lamp for two or three years when the paint started to chip
off. We asked them if we could get it repaired. They sent us a new
lamp." This is not an isolated experience-customer testimonials
are replete with such accounts.
As Bean's business transitioned to the digital space over the
print catalog, the company remained focused on proyiding the
best customer experience possible. In addition to its &isfaction
guarantee, L.L.Bean offers free shipping without +fhinimum pur-
chase. And even though the company's ~ e b . & d mobile inter-
faces are up and running 24 hours a day, se6en days a week, its
well-staffed call center is also open 2417 if a customer wishes to
speak to a representatiie in person. 'last night I had to &rrect
an online order," reports one exuberant customer. "I dialed cus-
tomer service and put the phone down, thinking I'd have to wait
forever until I got to a person, it being Christmas Season and all.
I was wrong. A woman picked up my call immediately, and our
conversation was five minutes long."
Over the past few years, L.L.Bean has won numerous custqner
service awards, including the number one ranking from Foresee's
Brand Satisfaction survey, the number one outdoor ouffrtter by For-
rester, number 14 on Stores.org's Favorite 50 Retailers, and num-
ber two on Prosper's most recent Customer Service Champions.
According to CEO Chris McComick, there's no magic involved in
providing great service. "A lot of people have fancy things to say
about customer service," he says. "But it's just a day-in, day-out,
ongoing, never-ending, persevering, compassionate kind of activ-
ity." In other words, it's a long game with no shortcuts.
 - 590 PART 4 I Extending Marketing
Because L.L.Bean sells directly to customers, it has always
oeen. in a position to gather customer data. Maintaining a cus-
tomer database has enabled L.L.Bean to do more than just give
good service or respond to customer cowerns with a "customer
is always right" mentality. It has allowed L.L.Bean to become in-
timately acquainted with its customers, providing service that is
tailored to each individual. And as the company has grown in its
ability to analyze an ever-growing quantity of customer data, it
has continued to find new ways to provide such tailored service.
Sustaining Competitive Advantage-
For a long time, exceptional customer service was enough to give
L.L.Bean a competitive advantage. But more retailers-both tra-
ditional and online-are becoming known for the same types of
service policies that L.L.Bean has-practicedfor years. Zappos reps
will talk to you for as long as you wish, providing free shipping for
both purchases and returns. Amazon has forged r&v grgund by
selling almost every type of good imaginable at competitive prices
with superior personalized service that is unsurpassed on such.
a mass level. And whaf is number two Customer Service Cham-
pion L.L.Bean to d hen number three is Lands' End? Although
9"
Lands' End tkge s a somewhat dierent type of customer, there is
certainly overlap with L.L.Beanls clientele., A competency is only a
comeitive advantage if other companies can't match it.
This increasinglycompetitiveretailmarket hascaused L.L.Bean
to reevaluate its strategic initiatives. Although the company built
itself by primarily focusing outward oricustomer service, it is now
enhancing that with an inward focus on improving company pro-
cesses. In an effort to become more efficient, L.L.Bean is making
a major investment in its systems infrastructure. 'The systems
we're implementingare about operational excellence," says Teny
Sutton, L.L.Bean's vice president of businesstransformation. "As
a direct marketer, we know a lot about customers. In the past
we've fixed problems reactively to keep customers happy. We
have known for a long time that we needed to be operationally
excellent."
At first glance, it might seem that L.L.Bean's redirected focus
is unwarranted. After all, the direct retailer is coming off a record
year for profits and four straight years of revenue growth. By the
end of the last fiscal year, the company was struggling just to
fill orders, having sold a record 400,000 pairs of its iconic hunt-
ing boots-now a popular item on college campuses. L.L.Beanls
board was so happy with recent financial results, it authorized
an 8 percent bonus for all full-time employees, the biggest since
/ 2005. "L.L.Bean has performed very well in a marketplace that
continued to struggle with economic uncertainty, political distrac-
tions, and shaky consumer confidence," said CEO McCormick.
But L.L.Bean management is not content to remain c ~ t e n t .
~ & n gmoved conservativelyfor the past five years, the conipany
MyMarketinglab
Go to mymktlab.co'm for the following Assisted-graded writing questions:
a 18-23 Explain the difference between a good and a bad competitor. (AACSB:
Communication; ReflectiveThinking)
18-24 Discuss the similarities and differences between Michael Porter's competitive
strategies and theTracy and Wiersema "value disciplines." Which classification
of competitive strategies has more appeal for marketers and why?(AACSB:
Communication; ReflectiveThinking)
is now poised to become more agg essive. It plans to acceler-
i
ate growth and grab market share. It Iso plans to improve op-
erational efficiency. So far, the company has made substantial
investments toward improving its Web site as well as making
various internal processes more efficient. Such investments will
only increase in the coming year as McCormick has pledged an
additional $1 00 million capital investment-the company's larg-
, est ever for a single year-in the Web operation, retail expansion,
and busi ~ S systems.
S
?
Loolji g forward, it is clear that L.L.Bean intends to keep serv-
ing cuSfomers the same way the company has for over 100 years.
That component is in the company's DNA. But the direct outfitter
is also clearly dedicated to forging new strengths by making inter-
nal process improvements to the company's operations. Some
analysts might question whether a corporate customer intimacy
culture focused on serving customers can add an operational ex-
cellence8fa?uson more effi8iMt internal processes. BYincreasing
operational excellence, what will be the cost to L.L.Bean's found-
ing core strength of providing exceptional customer service?
Qyestlons for Discussion
18-18 : How would you classify L.L.Bean in terns of competi-
tive position? Why?
18-19 Is L.L.Bean a market-centered company? Support your
answer.
18-20 Evaluate L.L.Bean according to Treacy and Wiersema's
value disciplines.
18-21 Can L.L.Bean continue to maintain its customer focus
, while simultaneously focusing inward on operational ef-
ficiencp What is the relationship between the two?
18-22 In the face of L.L.Beanls changing wmpetiiive environ-
ment, what other recommendations would you make to
the company?
Sources: Pam Goodfellow, "Amazon.com, L.L.Bean, Lands' End
Named Customer Service Champions," Forbes, May 6, 2014, www
.forbes.com/sites/prospernow/2014/05/06/amazon-com-I-I-bean-
lands-end-named-customer-service-champions-by-conmer, Brad
Power, "Customer Intimacy, Meet Operational Excellence," Harvarcl
Business Review, September 6, 2013, http://blogs.hbr.org/2013~Q9/
customer-intimacy-meet-operatv; David Sharp, "L.L.Bean Has Record
year, Plans $100M In Spending," Associated Press, March7,20?,4',www
.bigstory.ap.org/article/ll-bean-has-record-year-plans-l OOm-mending;
Gregory Ciotti, 'Lessons in Customer Service from the Mortd's Most
Beloved Companies," www.helpscout.net, accessed mlober 9, 2013;
and additional information and quotes from www&elp.wm/biz/ll-bean-
inc-freeport-2 and w w w . I l b e a n . c o m / c u s t o m & e ~ a b o u t ~
companyinfonnation.html?nav=sl -In, September 2014.
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