Almost everyone in business will be familiar with the powerful reasons for being concerned about reducing the customer churn rate – because it is far more expensive to gain a new customer than it is to keep an existing one. People in marketing will also be familiar with the importance of “revenue per customer” (maximising the worth of each customer to the firm) and “customer lifetime value” (making sure you keep on realising that value for a long as possible).
To achieve their goals firms frequently talk of being “customer focused”. They might care about and measure “customer satisfaction” in some way, but many don’t. They may pay attention to the “customer journey” or “customer experience”. All these approaches might sound like they are intended to benefit the customer. In truth, they are more often lightly disguised strategies for identifying ways to increase customer spend, do enough to avoid losing the customer and work out ways to lock them into long-term relationships to benefit the firm.
Truly “customer focused” firms would be obsessed with the delivery of customer value. But most are obsessed with identifying ways to extract it by fair means or foul. Many even use deceitful tactics to incorporate hidden costs. Others will offer a product with unnecessary “designed in obsolescence”. Others will use manipulative pricing strategies, or try to bundle unwanted “extras” or “add-ons”. All are classic marketing strategies, not to increase customer value, but to extract value from them to boost profits for the firm.
If we take a step back we might realise that the real goal should be about building long-lasting relationships with the customer, and like any relationship the quality depends on honesty, trust, integrity, reciprocity, feeling valued etc. We might also realise that relationships do not last long if they are built on lies and deceit. Nor do they last if power and respect are abused or any party learns they have been deceived.
To summarise, ‘clever’ value extracting marketing ploys may be “customer focused”, but not for the benefit of the customer. And, whilst they may increase short-term revenues, they do so at the expense of long-term customer loyalty.
What firms need to be is not “customer focused”, but “customer value focused”. And the marketing and management fad of late, customer experience, represents one important part of the value a firm offers to customers. But it is no more than just one part. And a good customer experience should not be used as a cover for other deception and manipulation tactics. Customer value should be viewed holistically, from a customer perspective.
It is obvious that most firms pay lip service being “customer focused”. Most still operate according to an industrial era product or service push model based on selling what they have to offer; pushing it out to the market. They might have realised that the customer has more power these days, but they have not embraced what that means, and they have not moved to a customer pull (demand) model. Being customer value focused is a way to move from an outdated push model to the demand-driven pull model.
A good way to understand if the business is stuck in the past is to observe the nature of the customer relationship. For many firms, their relationship with customers is still very transactional. And it is impossible to square the idea of being “customer focused” with a transactional relationship. Further evidence a firm is stuck in the past is an inability to articulate how they create value. And, the third piece of evidence is that they are not even clear who their customers are. A surprisingly large number of firms fail these tests, large corporations included.
The interesting point about all this is that by pushing what they have to offer at the customer they don’t really know or understand, they are not maximising revenue per customer. Nor are they maximising the lifetime value of a customer. They are doing precisely the opposite in both cases.
My own experience tells me firms in their relationships with their clients or customers are leaving around 80% of the value on the table. This may sound like an absurd claim, but I have evidence to support what I am saying.
I will explain the point I just made, but first let me deal with the issue of trust, which is key to a good relationship and very important to the customer. We know that trust in business is very low and has been for a long time. Largely because of the tactics I described above. And this issue was the subject of a breakfast meeting I attended at the Financial Times last week and reported on by the FT’s Michael Skapinker yesterday. His article “why business should stop trying to win back trust” relays the point made by one speaker – that the focus should be on being trustworthy instead. And he concluded the column saying, “The next time I receive an invitation to chair an event on “how business can win back trust”, I will suggest we change the title to “how to run a trustworthy business””.
I commented on his article saying, A good way to run a trustworthy business would be to put the creation of customers value ahead of shareholder value – realising that the only way to achieve the latter is by doing the former in order to earn, keep and grow the customer base. And, when you say you are customer focused, mean it”.
A second step would be to stop saying “our people our greatest asset”, whilst treating them as disposable assets. It is your people that you depend on to come up with and implement the ideas that create and deliver customer value. Invest in them, develop them, and reward them well. The return on investment will be a handsome one.
A third step would be to realise that the other people you depend on to help create customer value are your suppliers, distributors and other partners. Stop screwing them for every bit of margin you can get out of them and treat them as partners.
And, linking to my claim above, that firms in their relationships with their clients or customers are leaving around 80% of the value on the table, my comment on Skapinker’s column also included my statement that the three steps are “Not utopian ideals. I practised them in a manufacturing firm and quadrupled its turnover within three years. That followed 25years in which it hadn’t grown at all, but merely flat-lined”. In short, 80% of the value we could earn with each customer had been left on the table for 25years.
To achieve the transformation, we moved from a classic adversarial buyer supplier relationship with all our stakeholders to a partnership model and we collaborated to innovate and co-create new value. And the rising tide lifted all ships. We were also more profitable than any of our competitors, and the value of the firm increased greatly. The owners realised far greater returns because we focused on what matters most – customer value not profits.
You must be trustworthy to do this, and moving from the transactional model based on little trust to the partnership model could only be achieved by demonstrating trustworthiness. That meant making the first move to demonstrate we were serious. We designed quick wins to achieve this with each, and every, stakeholder group. And we implemented them simultaneously – which was imperative.
So convinced am I, that being customer value focused is the way to sustained growth, I have given a name to the approach I advocate. Valueism is business focused on value creation, instead of value extraction. And together with a team of experts, I founded the firm BE Advisory (www.beadvisory.com). Its focus is helping firms become customer value focused. It is a fundamentally different approach to the usual industrial era business mindset and model that most firms still operate to. It views a firm as a customer value creation platform, where serving the real needs of customers determines the structure of the firm, the way resources are allocated, the style of leadership, the appropriate culture etc.
In short, everything the business is about, every detail of the way it is organised is centred around the customer and the way in which it delivers customer value. Each firm’s unique operating model is articulated in a design that I call a Value Scheme, and the focus on customer value creation ensures that everything operates in sync, in balance and in harmony i.e. all elements are fully congruent with each other and the system as a whole.
Written by: Paul Barnett
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