G.L.Piggy [at] gmail.com
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I’ve laid out how expanding companies or those caught up in a fad wave struggle balancing their loyal customer base with fad-drawn newcomers. The best example is the music business where you have people who take a lot of pride in being the first fans of a given band. And when that band gets big the new fan base drives off the originals. The originals complain that the band has watered down its music to appeal to a less refined palate. The band says that it’s just giving customers what it wants or that there’s room enough for all sorts of fans. It’s a strange interaction between maker, newbie, and veteran.
I’ve kind of struggled trying to fully describe this phenomenon though. I know that Megan McArdle has discussed the pitfalls of Groupon, the online coupon distributor:
The problem is that for consumers, it seems mostly to have been about price discrimination; people used Groupons to buy something that they wouldn’t buy at full price. So while your Groupon deal brought in a huge stampede of new customers, those customers were either too cheap, or too poor to spend a bunch of money at your business. Restaurants, who were supposed to be one of the core businesses for daily deals, complained that Groupon customers were disproportionately poor tippers who took up tables while carefully not spending any more than the face value of the Groupon–no drinks, no dessert. Then they never came back.
No slam on the Groupon users–they have a perfect right to use their Groupons for a meal they couldn’t otherwise afford. But from the business perspective, why would you pay good money to attract those sorts of customers to your business, where they will anger your workers, and alienate your existing customer base with huge crowds?
Chuck Cowdery writes a very interesting blog on the whiskey business (he’s a columnist for whisk(e)y related publications too) and discusses what he calls the Van Winkle phenomenon, named after higher-end whiskey maker:
Vanessa DiMauro, CEO of Leader Networks, writes that “Excessive exuberance is the Achilles Heel of social media.” It’s the Achilles Heel of many things touted on social media too, including the sudden hipness of all things whiskey. Nothing exemplies this better than the Van Winkle phenomenon.
Van Winkle has always been a very small brand. It was pricey and its extra-aged products were not to everyone’s liking. Still, it always had a good reputation among enthusiasts. Then, a few years ago, a few celebrities mentioned they liked it and it started to show up on “best of” lists. Whiskey was suddenly hip and the laziest question a person can ask about whiskey is, “what’s the best?” Van Vinkle became the default answer and began to be very hard to get. Some retailers and scores of eBay sellers asked absurd prices for it and, in at least a few cases, got them.
Van Winkle is a problem for retailers because there’s so much more demand than supply that people who fancy themselves ‘good customers’ get testy when a store can’t fulfill their Van Winkle desires.
He goes on to describe the phenomenon which again occurs very often in the music world:
The phenomenon is driven largely by lazy journalists who simply copy what other people write, so everybody who writes about bourbon and desirable high-end bottles winds up writing about Van Winkles. Most of the pieces are written by people who know little or nothing about whiskey. They are ‘life style’ journalists. Their bread and butter is ‘ten best’ lists, which they simply compile from a couple of already published ‘ten best’ lists, so the thing feeds on itself.
Generally, the people clamoring for a Van Winkle are the same as the people behind the lists. They know almost nothing about bourbon. For them, it’s the lazy shortcut route to connoisseurship. They read somewhere that Van Winkle is the best, and since they only buy the best of everything, and they (apparently) have more money than they know what to do with, Van Winkle it must be.
Businesses change but things stay the same.