Chicken or the egg: Building profitability or focusing on customer experience

Shareholders vs. Customers.  Who comes first?

I just watched the documentary ‘The Corporation’ (2005). Interesting film on the history and evolution of the modern day corporation.

Here is a 6 minute segment from the film on YouTube called ‘Monstrous Obligations’:

I kept thinking as I watched the film about a debate my friend Jarvis Cromwell of Reputation Garage introduced me to. Jarvis is a leading authority of the concept of trust and the role it plays as a strategic business driver.   The central question is, “Why are corporations in business?”  Jarvis outlines the two sides of the argument:

1. Milton Friedman – the sole purpose of a corporation is to drive shareholder value.

“There is one and only one social responsibility of business,” Friedman wrote back in 1970, and that is to “engage in activities designed to increase profits.”

2. Theodore ‘Ted’ Levitt – companies are solely in the business of getting and keeping customers.

“Not so long ago companies assumed the purpose of a business is to make money. But that has proved as vacuous as saying the purpose of life is to eat” Levitt further adds, “The purpose of a business is to create and keep a customer.”

So – what comes first?  The customer or the bottom line?

The view of the documentary is that the last 100 years have seen corporation solely focused on the bottom line.  The approach has been ‘win at all cost’ with little or no regard on external effects, collateral damage or customer experience. The problem is that only pursuing the bottom line can neglect the customer.  This was outlined in an article from HBS by James Allen, Frederick Reicheld and Barney Hamilton:

“Call it the dominance trap: The larger a company’s market share, the greater the risk it will take its customers for granted. As the money flows in, management begins confusing customer profitability with customer loyalty, never realizing that the most lucrative buyers may also be the angriest and most alienated. Worse, traditional market research may lead the firm to view customers as statistics. Managers can become so focused on the data that they stop hearing the real voices of their customers.”

My two cents

My take is that the customer must come first.  Customer experience should be priority #1.  Stop focusing on ‘the two in the bush’ (prospects) and take care of ‘the one in your hand’ (your customer). You need to focus on two things: value and maintenance.  Enter the vm matrix.

Here is my breakdown of both:

Value

• What are tangible and intangible benefits that your service or product provides?  (Note: Price factors into value, but only as it relates to the level of benefits and how effective the product or service is.)
• What is the level of design, craftsmanship and service?
• Is the product or service fulfilling its brand promise?
• Does the product or service go ‘above and beyond’ your expectations?

Maintenance

• What was the buying experience like?
• Do you enjoy working with the brand or service provider?
• Do they make things turnkey or simple?
• Are they responsive to problems / issues?
• Do they demonstrate initiative and the ability to go above and beyond for customer satisfaction?

Bottom line and marketing takeaway:

You need to figure out where you land on the value / maintenance matrix.  When I say figure it out . . . it’s not your opinion as a brand that counts.  It’s customer perception that counts [A study by Bain & Company revealed that 80% of the 300+ companies surveyed believed they delivered a "superior experience", but when customers were asked about their own perceptions they rated only 8% of those companies as truly delivering a superior experience] .  Not only is it important to see where you fall, but to see where you land relative to your competition (see Today’s Lagniappe below).  Strive to get into the ‘target zone’ with your customers and profitability will follow.

Today’s Lagniappe (a little something extra) – I’m a big fan of Forrester’s Bruce Temkin.  Bruce’s blog ‘Customer Experience Matters’ is a must read.  Bruce and his team have a yearly study called the CxPi.  Forrester asks more than 4,600 US consumers about their interactions with a variety of companies, gauging the usefulness, ease of use, and enjoyability of those experiences. Based on these consumer responses, they calculate the Customer Experience Index (CxPi) for 133 firms in 14 different industries. Here is a link Bruce’s post on the 2010 CxPi index.

Bruce mentioned in his latest post that his research reports have been downloaded the most of any Forrester analyst.  This marks the 13th straight quarter this has occurred.  Maybe the title of Bruce’s blog is starting to become a mantra.  I sure hope so.