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Customer Loyalty: When Prior Strengths Become Your Weaknesses

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We have met the enemy, and he is us. Learn how arrogance and intertia can harm previously successful companies in this excerpt from Who Stole My Customer?
This chapter is from the book

I once stood in a boardroom and spoke with the top-tier executives of a major automobile manufacturer famous for its brand and renowned for engineering and product excellence. The brand had enjoyed a loyal following for decades, but it was now losing market share: in the United States, customer defection was nearly 70 percent. In other words, for every ten U.S. customers who bought the company’s cars, approximately seven would defect—only three would return to buy again.

To understand this trend, my consulting team had conducted extensive interviews at company headquarters, held workshops with dealers (the distribution channel), and set up focus groups with current and former customers. We had identified the customers’ issues and put together a customer-defined vision of the firm as an ideal future provider of automotive products and services. It was time for our mid-engagement client review.

We knew what the problem was. The customers had told us. Now I had a problem of my own: how to tell the auto executives that they were the problem.

The company had become its own worst enemy. Its strength and prior success as a product-focused firm had become its greatest weakness and exposure. The world had changed, but the company had not. Great success often comes with at least two negative results: arrogance and inertia. When a marketplace changes, as it ultimately will, arrogance and inertia can prevent a successful organization of good managers from being able to sense those changes and respond by also changing. The very attributes that once contributed to the company’s rise to greatness, such as pride in its own product and service knowledge, can subsequently doom that company to wither and fail from not listening to their (less knowledgeable, nonexpert) customers.

I began my executive presentation with a story about another major corporation, IBM, because my career had spanned that successful company’s prior fall and rise. Thinking that the executives would benefit and learn from the missteps of others, I described our similar experiences with great accomplishments followed by a period of customer defection and failure. During the early years of information technology, the computer pioneer had enjoyed remarkable growth based upon product excellence and, arguably, the world’s greatest marketing and sales team of the era. The firm leveraged its enormous research and development capabilities to invent new products and technological advances; it then educated its customers on why they needed the company’s products and how to use them. Then IBM serviced and maintained those leading-edge products for their less skilled customers.

Few companies during that era had the infrastructure, knowledge, or capabilities to analyze their own data processing needs or to install, operate, and service those complex offerings. Customers became increasingly dependent upon “Big Blue” with each round of product innovation. IBM’s core competencies were to develop and then push new products to a dependent, if not passive, and trusting marketplace.

However, during the decade before 2000, competition increased. New vendors introduced appealing competencies that included an ability to listen to customers and give them what they wanted. While these new entrants focused on the customer, listened, and rapidly responded with offerings, IBM continued its internal, expert-driven focus on product and service development. Arrogance and inertia, bred from years of prior success, prevented IBM from deviating from the established processes that had yielded positive results for decades. The company continued to rely on the historic functional and competitive strengths of research and development, manufacturing, and marketing that were intended to invent new things and then sell them—not to listen and then flexibly respond. As a result, when the market changed in the early 1990s, IBM missed that transition. Customers had developed their own internal support staffs, and many were no longer dependent on a vendor to tell them what they needed or how to use it. Furthermore, this new generation of customers had developed strong opinions and demanded more user-friendly and customer-defined products and services. For example, customers had come to expect that hardware and applications would work the way they themselves worked—not the other way around. By the mid-1990s, IBM market share had plunged and stock prices had fallen from $110 to $37 per share. The firm’s historic strengths and internal self-reliance as the expert had become its Achilles’ heel—and it almost ruined the company.

I completed the analogy for the auto executives with how IBM—as a matter of survival—had learned from its mistakes and developed a core business competency to systematically monitor a changing marketplace and provide what customers want (not what company “experts” think they need). The benefits had been enormous for both our customers and stockholders, who had enjoyed multiple subsequent stock splits. I concluded that for the rest of the agenda we would share what their automobile customers had told my team—as well as how to make listening and responding to customers a firm’s core business competency. This was intended to be a way of saying to my client, “Don’t be arrogant (like IBM had been)—listen to your customer.”

The room was deathly quiet, and the executives looked at me as if I were speaking a language from another planet. Apparently, the only point with which they agreed was regarding IBM’s arrogance—particularly mine. During a quick break called by the CEO, a member of his staff confided to me that the culture in this firm was that it had little to learn from outsiders—and the executives especially did not trust or listen to consultants. Furthermore, they knew their own business better than anyone; that’s why the company had been so successful all those years.

Hmmm, the first deadly sin of a successful firm: arrogance. The second sin: resistance to change.

Our meeting resumed, and over the next hour, I learned that the comment about the firm not listening also applied to its customers’ views. The executives had little regard for direct customer feedback when it conflicted with their own views or prior experiences. When we cited desires, issues, or concerns customers raised, the executives often countered with their own personal beliefs and discredited or belittled what their customers had said. As an example, when told that in their deteriorating U.S. marketplace American consumers visiting an automobile showroom tended to immediately examine a car’s coffee-cup holders, a top European auto exec retorted, “We build cars for driving, not for drinking coffee.” Vigorous head nods around the board table supported the correctness of his (internal) view. Even so, the chart on the wall behind me, from one of the auto industry’s most respected consumer research firms, continued to scream that seven out of ten of this firm’s U.S. customers would not return.

Silly customers. We know best.

So what was the problem? Who had stolen the company’s customers? (And why did they leave?)

Pogo knew: We have met the enemy, and he is us.

Exercise: Take the Customer’s Viewpoint — Outside-In

What about your view—when you are a customer?

What attracts you? What later can move you to change vendors?

Do those things stay constant, or do they change over time as your needs, preferences, and experiences change? Might a vendor also need to change in order to retain you?

For example, think of times when a company’s strengths—and what made it attractive to you—were that it had expertise that you did not. Can you remember feeling insecure or anxious because you lacked a critical set of knowledge, skills, or capabilities? Do you remember the value you placed on a relationship with someone who did have those skills and stepped in to fill the void?

Think about the relief and value propositions that such expert providers of products and services brought to you when you were an inexperienced customer. Their successes enabled your success, and the better they became as the experts, the more you benefited.

However, when you later developed your own expertise and self-reliance, did your needs change regarding how you subsequently acquired and used those products or services?

At that point, did you still so highly value someone whose value proposition persisted to be that they would tell you what you need or do it for you?

Do you have opinions, likes, and dislikes today regarding different vendors that you did not always have?

Can you see how a marketplace of people like yourself might have requirements or preferences that also change over time?

Can you also see how experienced, knowledgeable customers might want to give input to their providers and add their own dynamic needs, wants, and requirements to products, services, and channel design specs?

As your needs and preferences change over time, do you think you could be attracted away by a new vendor who would team with you and utilize your user expertise as input into the design of their products, services, and touchpoints? Could you be stolen away by such a value proposition?

What about your own customers—if you are a business manager, executive, or owner?

  • What strengths originally made your firm a success in their eyes?
  • How are you evolving your core competencies to stay aligned with a changing marketplace? How does your company listen to customers and make them the relentless focal point for the design of products, services, and customer-facing processes? How does your company sense the changes in the marketplace and what your customers value, and then respond to those considerations?
  • How does your firm anticipate and prepare for those in advance?
  • When you are a customer, you know what moves you today to change vendors. If you were a customer of your firm, could you be easily stolen away?
  • What if you were your competitor? What might you do to attract customers?
  • If you aren’t doing those things today, who is the enemy responsible for your lost customers tomorrow?

What about your studies—if you are a future business leader, or a student at the MBA or Executive MBA level?

  • What business models or concepts that are traditionally admired or taught in classes and considered historical strengths might be rapidly on their way to becoming weaknesses tomorrow?
  • How do your own experiences as a customer influence the choice of individual firms or business models that you find appealing as role models during your studies?
  • Do those experiences also influence your choices or preferences for a future employer? How likely are you to face the “we are the experts” mindset of an established employer?
  • How might you overcome that and provide differentiating value to a successful business?
  • As a new hire or newly promoted manager, how might you bring unexpected value to a struggling business that has critical customer attrition and market share issues?
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