Do Business Well

From the delegator’s point of view, AOL operates in its industry—as an Internet service provider—in the same way that Carnival operates in its, as a vacation provider. Each preselects the destinations and puts together a package of offerings that can be bought all at once. For both, after the decision and initial arrangements are made, no further thought or maintenance is required. According to Forrester, a leading market-research firm, four out of every ten people active on the Internet in 1999 were using AOL. Furthermore, AOL retains 97 percent of its customers, the highest rate of any Internet service provider. For all of AOL’s blackouts and delays, its slow pop-up ads, and even a short-lived scheme to sell customers‘ phone numbers, only 3 percent walk away.

Part of the reason for such loyalty comes from the stickiness inherent in delegators: Once a delegator makes a decision, he or she tends to revisit it rarely. But AOL offers other incentives as well. For one, its services simplify chores that are complex and a little scary, which enables its customers to interact with the Web much more than they would without assistance. While it is true that you can surf the Internet without using AOL’s browser, and some of its clients do, most are content to stay with the familiar logo. AOL bills your credit card automatically. One has to wonder why magazines still send their subscribers renewal notices, in effect giving customers a chance to discontinue; in contrast to AOL’s approach, which leaves the responsibility of terminating the service with the customer, the magazines make it easier to cancel than to renew.

A customer who wants to leave has a hard time figuring out how to disconnect and switch to another provider; she may also worry that the change could mean losing files and changing e-mail identity. All in all, the consensus seems to be that AOL’s service is acceptable and the hassle of looking for a new provider isn’t

worth it. That’s why it has more than 21 million customers, each of whom spends an average of thirty-five minutes a day using its services.

Delegators can find help shopping for and selecting merchandise from discount clubs, such as Costco and Wal-Mart’s Sam’s Club. With sales in the vicinity of $30 billion, each offers its members quality merchandise on better terms than individuals could get for themselves.

These stores have several attractions for delegators, including low prices. But for the middle- and upper-class demographic groups, the perception of value stems from more than their low prices. That the choice of merchandise is limited is viewed as an advantage by delegators, who spend less time and make fewer decisions in these stores, which stock only about four thousand products compared with approximately sixty thousand in traditional stores. Still, the goods are very carefully selected. Beyond a supply of staples, the buying clubs offer special items, including salmon from Norway, perhaps, or ribs from Denmark. And the quality, for the most part, is excellent.

From the consumer’s point of view, being a member of one of the clubs is close to having a personal shopper. The stores record customer purchases, analyze the buying patterns, and adjust their procurement decisions and inventory to match demand. Even within a local area, the stores vary their merchandise to cater to the particular preferences of their clients.

The membership clubs lock in customers with an annual fee and issue a membership card with a photo identification of the buyer. Once you have the card, you tend to continue to use it, evidenced in the stores‘ very high renewal rate of about 80 percent. People complain that loyalty is dead, but it isn’t—it has just morphed into habit.

If the buying clubs offer delegators convenience and value, mutual funds provide reassurance and solutions to complex problems in another industry. Investment decisions are intimidating to many consumers; even if we take the time to read annual reports and get advice on investments, we still may not be sure that we’ve understood it all correctly. Working with Vanguard, Fidelity, Schwab, or the local bank means you are delegating investment decisions to someone with expertise. Obviously, that requires a great deal of trust in the capacity of the funds’ managers to perform well and have our interest at heart.

The first strategy of delegation—enlisting help in selecting and purchasing—is mainly for consumers. The three other strategies apply to corporate buyers and are designed in accordance with their varying reasons for wanting to off-load responsibilities.

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