January 31, 2011

Use Your Delusion: Customer Centricity as the Trend Du Jour

by Freddy J. Nager, Founder of Atomic Tango LLC + A Guy Who Loves His Customers

"Oh, look, it's shiny and new – let's worship it!"

Q: What consumer and market research guided the iPad development? Steve Jobs: “None. It isn’t the consumers’ job to know what they want.” – from the New York Times

Customer centricity argues that companies should restructure their strategies and operations to put customers in the center. What’s wrong with that?

1. Many marketers think “customer centricity” simply means “great service” – a misunderstanding that could be devastating.

EVERY company claims that its customers come first – good luck finding one that doesn’t – but here’s the problem for marketers: Customers don’t agree on what’s “great service” or how much of it they want.

One customer might consider “great service” as simply getting what he wants quickly with no hassles; another customer expects to be waited on hand-and-foot. And while all customers say they want great service, many customer-centric small businesses went bankrupt as those same customers flocked to Walmart’s low prices.

In her post “Customer Service Alone Is Not Enough,” Harvard Business Review editor Karen Dillon wrote “Virgin Atlantic Airways provided me with the best customer service I’ve ever had… My thanks to them? I’ve never once flown Virgin again.” Her reason? “At the time, Virgin didn’t have a great frequent flier program.”

There’s also the issue of “over-quality,” where companies provide more than the customer needs. For example, McDonald’s could serve its food on fine china with silverware, but that would constitute “over-quality” for customers who simply want convenience and low prices. Indeed, some people find that too much service makes them uncomfortable, as I once felt in an over-solicitous Tokyo department store.

2. No two customers are exactly alike – even in the same industry.

When someone says, “Put your customers in the center of your strategy and operations,” you should respond, “Which customers?”

Customer service is expensive, so treat it as a resource to be allocated carefully. If you have hundreds or even millions of customers, serving all these disparate needs can sacrifice economies of scale and incur massive costs. That’s why smart businesses focus on their best customers. The “Pareto Principle” hypothesizes that 80% of results come from 20% of the causes. For Neiman-Marcus, 90% of their sales come from 20% of their customers, so Neiman Marcus does offer great customer service – but mostly to great customers.

In addition, customers regularly change their minds. Their indecisiveness can impede your operations and ability to build a strong brand. During a recession, customers might focus on price; during boom times, they might prefer quality and prestige. And as Steve Jobs would argue, many customers don’t even know what they want until they see it.

3. There’s a difference between the “customers you have” and the “customers you want” – and some are bad for business.

Let’s say you open a gourmet sushi joint, but most of your customers want hot dogs. Should you go “customer centric” and fire your chef and spend a lot of money to convert your restaurant into a fast-food stand? Or should you try to change your customer base?

Then there’s the customer who mistreats your staff and is extremely demanding. You could fire that customer, but if you had structured your entire business to serve them, it’s not so easy. Consider the costs:

  • You have to train your employees regarding that customer.
  • You have to customize your products to that customer’s needs.
  • You have to subsume your own brand to the interests of the customer.

After all that investment, could you fire that customer? Could you then go to the trouble and expense of seeking out a completely different one?

I know an ad agency with a giant multinational client who treats the agency’s employees as servants and disdains creativity. Consequently, the agency regularly loses its top talent, forcing it to pay higher-than-average salaries to retain even mediocre employees. Over time, this has hurt the agency’s ability to attract new clients, which gives the abusive client even more power.

4. And what if that customer fires you?

If you are customer-centric and your customer leaves you, you suddenly have employees and structures in place dedicated to serving a customer who no longer exists. Many famous ad agencies have gone out of business from the loss of just one client.

Along the same lines, what if one of your key customer-service employees leaves? You’ve spent a lot of money training her, and she has acquired years of knowledge about your customers and their preferences. Now she’s taking all this experience and expertise – and perhaps even your customers – to one of your competitors.

5. You must balance the needs of your customers, employees and other stakeholders.

Where you set your balance depends on a number of factors, from the intensity of competition in your industry, to the nature of your investors (short-term or long-term).

If your industry is price-intensive, or if you have heavy profit-target and budget demands, spending a lot on your customers might be frowned upon by short-term shareholders, who want to see profits and growth NOW.

If you’re in a tech-driven industry, great service can attract customers, but the product is still paramount. GM launched the Saturn brand, whose key differentiation was its customer centricity. And Saturn succeeded… at first. Saturn’s product line, however, fell behind the competition, so its sales declined. Today, Saturn no longer exists.

A tech-driven company that becomes customer-focused also risks losing its best engineers, who, by nature, are product-centric. Mercedes, for example, could offer cheap basic cars to attract younger customers, but how would Mercedes’ top engineers feel about their “luxury” company becoming mainstream? What will Mercedes do when BMW comes and hires them away? And how will the previous Mercedes customers feel, since they paid a high price for the “prestige”?

Then there’s the community. You might be satisfying your customers perfectly, but if you offend certain interest groups or incite the media, you could get into hot water. I don’t think any of BP’s customers were complaining about the quality of its oil or its service before the spill. And the people complaining about the MTV series “Skins” are probably not its fans.

Finally, if your competitors (another key stakeholder) are focused on serving the same customers or customer base, you might wind up with nearly identical products, which could lead to a damaging price war. In such industries, it might be more valuable to be competitor-centric.

6. Customer-centricity does have its uses – for some companies in some situations.

It’s what I say about all “best practices”: what works for one company at one time might not work for another company – or even the same company at a different time.

Dell, for example, was once extolled for its customer-centric policy of customizing all computers and cutting out middlemen. This worked for a while – until Dell found itself on the floor, flattened by Apple’s more appealing line and HP’s cheaper computers. Now Dell sells pre-configured computers through a number of major retailers. Customer-centricity has been replaced by business as usual.

Apple, in the meantime, disdains even basic customer research, and Apple customers are given only a few options. But last I checked, Apple  isn’t doing too poorly.

Customer-centricity works best for companies that offer large scale, complex, customized products that take a long time to implement. If you’re developing an IT system, designing a skyscraper, building an aircraft carrier, or crafting an ad campaign, it makes sense to put that client in the center of your universe – but for that one project only. The high margins on such products cover the costs of service, and in the case of aircraft carriers, that customer may be the only one that exists. And yet, it’s still important for these companies to keep their other stakeholders in mind.

7. An argument for brand centricity.

Some marketers push customer-centricity because marketing consulting involves catering to a handful of clients. It works for the marketers, so they think it will work for everyone.

The reality: you have many options to put in the center of your company, so select what’s appropriate, not what’s trendy. Restructuring a company is disruptive and expensive, and most companies can’t afford to say, “Oops, that didn’t work. Let’s go back to what we were doing.”

One way to play it safe is to put your brand in the center of all your efforts. If everything you do is for the sake of keeping your brand well-liked and well-respected, everyone is happy – except your competition.

But that’s a topic for another post – this one has already gone on for too long, and from what I hear, my customers don’t like that.

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Freddy is the Founder & Creative Strategist of Atomic Tango. He also teaches at the University of Southern California (go Trojans!), shoots pool somewhat adequately, and herds cats. Freddy received his BA from Harvard and his MBA from USC.

One Response

  1. Freddy,

    Very well written and spot on. There are some customers you want. Here are the traits:

    – they understand the state of technology and what is reasonably possible in your business model. So they expect good service, good products, etc. but not things that are pipe dreams.
    – they appreciate your honest efforts. If you have done right by them, they will ask about new options and not kick to the side of the road when someone else promises them the moon.
    – they recognize the person (s) behind the brand. They treat your service, install, counter and sales people with dignity.
    – they consider your suggestions and provide feedback about them. They tell you why it won’t fit when it doesn’t. (this is the only feedback that makes sense from an existing customer.)

    Customer-centric is always the place to start. Many great new ideas come from people who have been in a trade and know what is needed.

    For consumer products…well we are all consumers and we know what we like. So the great ideas in consumer products come from imagination.

    The real limitation “consumer- centric” as it is discussed in many contexts is that it looks like you don’t know who you are. I understand “fishing for new niches” but this is the wrong image to send to any potential market. It takes a relationship before you can discover new business. Consumer centric is the wrong slogan for a PR or advertising campaign.

    Best,
    Steve

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