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Pity, please, marketers trying to sell a commodity.

They can't scream that their product is new and improved -- because it isn't. They can't say it'll be better than the other guy's -- it won't be. They can't even talk about its distinguishing features. Because there aren't any.

Want a vivid example of the problem? Just open the catalog from Schmidt-Cannon Inc.

Inside, you'll find hundreds of the generic items companies use as premiums to lure new customers or reward employees. There is page after page of lucite-wrapped digital clocks, posh-looking pen-and-pencil sets by makers you've never heard of, and umbrellas in assorted "fashion" colors. The items are photographed to look expensive, but they're not. More than 95% of Schmidt-Cannon's products sell for less than $3, and there is absolutely nothing proprietary about any of them.

But if Schmidt-Cannon's offerings are commonplace, its financial results are not. Over the past five years, sales have grown more than 900%, to roughly $10 million. Pretax earnings probably average 6%, and the company's list of satisfied customers reads like a random sampling of the Fortune 500. Letters from J. C. Penney and Sears Roebuck line the halls in the company's City of Industry, Calif., office, not far from downtown Los Angeles.

How can this be? After all, chairmanand chief executive officer Neil P. Cannon, 31, cheerily concedes that customers can get almost all of his merchandise from any of a thousand other suppliers who make up the $20-billion premium industry, many of which have lower prices. So how is it that Schmidt-Cannon placed 96th last year on the INC. 500 ranking of the fastest-growing private companies in America?

The answer is simple. Cannon takes his generic, undifferentiated products and packages them with services -- strategic selection help, ordering convenience, overnight delivery, and the like -- and he makes those services an integral part of what he sells. This bundled product -- the commodity, plus service -- sets the company apart and enables Cannon to compete on something other than price.

The nice thing about this approach is that it can be copied by anyone in a commodity business, and implementation isn't hard. In fact, it has been from day one a part of Schmidt-Cannon's marketing strategy -- if Cannon and his friend Joseph Schmidt can be said to have had a strategy in the first place.

In 1980, they were perfectly happy running the jewelry concession at the Sears store in City of Industry. Then Sears announced plans to phase out concessionaires, including Schmidt and Cannon. Unemployment seemed like a real possibility, until the store manager, having problems of his own, came over the commiserate. His trouble was credit cards.

Sears, like other retailers, often runs promotions designed to get customers to carry its card. The hope is that consumers with the retailerhs private plastic will be a little more loyal to Sears. But in City of Industry, the promotions -- through which people who signed up would receive such premiums as flowerpots and cases of soda -- just weren't drawing.

"Talk about an opportunity!" Cannon says. "Even though we knew absolutely nothing about promotions, we said we'd come up with a program for him. After all, we had nothing to lose."

Putting their jewelry experience to use, Schmidt and Cannon decided to offer a gold-plated chain to anyone who took the card. "They were very popular back then, and stores were selling similar chains for $10 or $20. They cost us a dollar."

Premium in hand, and relying totally on instinct, Schmidt and Cannon designed a program that set records for attracting customers. As it turns out, that very first program also embodied the core of what would become the company's basic marketing strategy:

First, test to make sure the premium will draw. "At Sears, we'd go down to the store and ask people if the chain was enough of an incentive to get them to sign up."

Second, deliver more than you've promised. Convinced the lure was a good one, Schmidt and Cannon gave Sears special posters announcing the program and provided people to process applications -- help that Sears hand't expected.

Finally, tightly supervise the job to make sure the customer never has to give your work a second thought. "The clients we deal with are too busy with the details of their own jobs to do other things," Cannon says. "If you make buying as easy as possible, why would they want to go anywhere else?"

They haven't. Word quickly spread about their success at the City of Industry Sears. Soon Schmidt-Cannon was doing promotions for Sears throughout southern California, then the whole state, and then almost the entire country. Montgomery Ward and J. C. Penney shortly followed, impressed by what George Stasick calls the company's professionalism.

Stasick, manager of services and customer relations for J. C. Penney, says that Schmidt and Cannon understand they are "creating an impression of Penney. They deliver. You'd be surprised at the number of people who don't. Premiums are not a real priority here, given all the things we have to do, and I don't need a lot of problems with our programs."

Revenues from such clients as J. C. Penney -- which can easily spend $500,000 on a promotion -- gave Schmidt-Cannon the money needed to add more services, services that make clients' lives even easier -- and further differentiate what Schmidt-Cannon ofers. The company still provides signs announcing its promotions, but now it supplies everything from camera-ready ads to next-day delivery as well.

And the days of Cannon and Schmidt standing in the mall asking people what they like are long gone. Instead, there are extensive surveys by an independent research company, and a proprietary computer program, which enables Cannon to offer general information to all potential clients -- for free. "Let's say you have a department store that wants to attract women aged 18 to 34," Cannon hypothesizes. "Based on our past work, we can tell you which premiums will pull well."

If you want more specific intelligence -- for example, you need to know what appeals to women aged 18 to 34 who earn more than $30,000 -- Schmidt-Cannon will provide it for a fee of $295.

And for $18,000, you can find out almost anything that might help you pick the right lure. Care to know the preferred umbrella colors of unmarried 33-year-old women who make $40,000 a year, shop frequently at department stores, and live in Hartford? Schmidt-Cannon call tell you.

While $18,000 for this kind of research might seem daunting, no one has ever had to pay. "We rebate the fee on the first order," says Cannon. "And everyone who has asked for this kind of information has ended up ordering from us."

It's easy to understand why. Marketers ask "Will it work?" every time someone suggests using premiums. With the DART (direct action response tested) computer program, Cannon can face that question with some pretty convincing answers.

By telling customers what's worked well in the past, Schmidt-Cannon makes it easier for them to make a buying decision, and easier still to do that buying from Schmidt-Cannon. The computer program is just part of the company's fanatical stress on service (see box, "Bundles of Joy," page 143), which is what helps the company stand apart in a commodity business.

The unexpected benefit of this marketing approach? Now Schmidt-Cannon can even compete on price.

But why not just compete on price from the start? The question strikes Cannon as incredibly dumb.

"It's common sense," he says. "You'll always be competing for business. Anything you can do to make your customer's life easier is going to help you stick out."

His message to others in commodity businesses?

"Just one thing," he says. "There is no such thing as a commodity. Every single thing can be differentiated."

Last updated: Apr 1, 1988

PAUL B. BROWN | Columnist

Best-selling author (and Inc. magazine columnist) Paul B. Brown's latest book, Own Your Future, has just been published. Brown's blog appears every Tuesday, Thursday, and Sunday.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.



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