Category Archives: Culture Change and Social Media

7 ways a lack of customer centric culture destroys business growth

Don't let a lack of customer focus cost your organization

Being a business that is focused on real value for customers is often talked about by CEOs but in our experience only sincerely acted upon by a few.

Its not enough to just believe in an idea, one must act to make it happen. A key reason for this failure to act is the lack of understanding of the economics behind customer centricity.

Fundamentally customer centricity is about building a sustainable profit generating capability for the organization but there is also a downside of not acting to create this type of culture.

Here are 7 ways of calculating the cost of a lack of customer focus:

1. The CEO loses touch with the marketplace.

As businesses grow on the back of an original powerful value proposition, success can disconnect a company with the marketplace.

A recent example is Netflix’s decision to raise the price without a perceived increase in value for their customers. The result was the loss of 800,000 customers in one quarter. Let’s assume it cost them $150 per customer, (based on this great case study by Neil Patel of KISSMetrics), that was a $12 million dollar investment wiped out in one quarter. Ok so many of those customers would have contributed revenue during their time with the company but what about the impact on Netflix’s reputation? How much will it cost to attract new customers going forward $175-200?

2. Customers start leaving the minute they have a better alternative

Are your customers “hostages” to your business? Do they have alternatives and if they did would they stay?

AT&T faced this challenge recently when the iPhone was opened up to Verizon. Prior to this transition, market research firm ChangeWave, conducted a survey of AT&T customers that found 26% of them planned to switch.

It is unlikely this many customers would switch but let’s do the math. I will assume each customer is worth $2400 (based on $100 per month – 2 year contract). Assuming they have approximately 15 million iPhone subscribers, 26% represents 3.9 million. So the customers at risk are worth approximately $9.4 million over two years

3. Customers refuse to pay higher prices

Loyal, happy customers will pay more for your products and services. They feel good about doing business with you and get value from what your offer. But there is a risk of loss if you try to increase prices or even hold prices in the face of competition without increasing customer benefits.

Two companies that have experienced this recently are Best Buy and Bank of America.

Best buy are under enormous pressure from the online retailers, specifically Amazon who are turning Best Buy into a showroom for products they sell at a lower cost online. Best buy’s only way forward is to offer more value, provide service customers will pay for, create an experience that is better and keeps customers coming back. To date this strategy has been working but with some recent feedback from a blog post from CEO Brian Dunn it shows they still have a long way to go.

Bank of America recently found out the hard way that customers don’t like price increases without a perceived increase in value. Charging a customer for something they used to get for free is an emotionally charged issue. It is a violation of expectations and Bank of America ultimately had to reverse its decision to start charging a monthly fee on debit cards.

4. Negative word of mouth makes it expensive to attract new customers

Negative word of mouth used to be limited to the spoken word but with social media and the web an integral part of our lives there are multiple places to express our dissatisfaction with companies.

Given we believe what other people say about a company more than what the company says about itself, the influence of negative comments is a powerful headwind for companies trying to acquire new customers. Just ask Vonage.

Vonage had an opportunity to be the “Apple” to “Microsoft” the “Virgin Airlines” to “American Airlines” in the telecommunications world. A high value, low cost alternative to the traditional telephone companies. But since its launch it has come under fire not only for poor quality phone service but has been attacked for its aggressive marketing and poor customer service.

The bottom line is Vonage’s cost per acquired customer went up by 7% in a single quarter during 2008 –  a time when it was plagued with many of the negative word of mouth issues highlighted above. Vonage’s CEO at the time Marc Lefar said the company’s expenses to secure new customers were “not acceptable”.

5. Your best staff leave

When companies lose a focus on their customers, employees lose hope and often the best leaders look for other rising stars.

Companies like Research in Motion, HP and Kodak come to mind. When the best people leave usually their teams are quick to follow and this further exacerbates the problems.

6. Your business stops growing

Businesses that have lost customer focus and become mired with an internal or product focus stop growing. They may have a core service or product that is still in demand but they tread water not able to create new value to either attract new customers or have existing customers buy more.

An example that comes to mind is Microsoft, which has appeared to stand still for the last 10 years after a period of unprecedented growth. Microsoft is clearly still an incredibly successful and profitable business but our expectations have changed, we expect it to grow like Google or Apple or Facebook.

Here is a good article outlining the reason for Microsoft’s stagnation, essentially it is more about expectations and competition than anything else. The market does not believe Microsoft knows how to create ongoing value for its customers better than the competition.

The bottom line for Microsoft is that is has essentially stopped growing relative to its competition.

7. You go out of business

The last outcome of a lack of customer focus is business closure. When companies do not change with shifts in customer demands they fail.

Two examples that come to mind are Circuit City and Kodak.

Circuit City was caught in the middle between the online leader Amazon’s rise and the big box leader Best Buy’s aggressive expansion.

Kodak’s demise has come from a tectonic shift it was not willing to make. The writing was on the wall as soon as their original digital camera project was killed by internal fears of the impact it would have on the film business. So instead of Kodak cannibalizing its own business its competitors did.

The costs of not having a customer-focused business are immense.

As competition increases and continues to filter into every last industry across the globe; the need to have a culture that is willing to shift with the external trends is going to be crucial for survival.

 Ultimately it is the customer centric culture that will win.

The role of inspiration and emotion in customer focused culture change

The logical rationale for being customer focused is very hard to argue with.

We know that if we can make great products and create an awesome customer experience we will be more successful.

And yet we often find we get stuck in a short sighted web of fear and self interest that results in us not acting in a manner that will get us and our businesses the best results. In short culture stops us from making things happen.

At MarketCulture we have found that rationale arguments are not enough, people must emotionally buy-in to the idea of improving their own and therefore their organization’s customer focus.

When we can trigger both the rationale and emotion drivers we see change happen.

I have embedded a short video that describes the type of change we are looking to help our clients undertake, would love you feedback on if you think it is an effective way to communicate the message.

Yesterday’s customers

Adam Hartung recently wrote about the costs involved in essentially defending the status quo. In the below chart it clearly shows Microsoft investing significant R&D funds and getting little return.

Chart from Business Insider:

RD cost MSFT and others 2009

In our world view this is clearly a case of a inwardly focused culture that has lost touch with the market and its customer base. The only way to grow is to attract more customers, sell existing customers more or provide more value you can capture with higher prices. It appears that Microsoft is continuing to serve yesterday’s customers, when there was really only once choice for office productivity software. As markets have opened up, Microsoft has been left behind relying on its old formula for success.

Now there is no question  the investments Microsoft has made has ensured the survival of its core business to date. But the question remains where is it heading? With the shift to the cloud and free applications and services online and the rise of streamlined coding and simplified products (think 37signals) how much value can be added to word processing, number crunching and presentation software?

Clearly its time to do something different but can it unlock the shackles of its corporate culture and connect with the next generation of customers?

Domino’s reinvents and transforms itself almost overnight

Patrick Doyle took on the CEO role in January of this year right in the middle of a major transition…

Customer’s feedback on Domino’s was increasingly negative and Doyle has used this to great effect as a catalyst for change and reinvention of their core product offerings, making them fresher more real and less “cardboard”

This is a great example of using customer insight/feedback to reinvent an organization, shake it out of complacency and really take it to the competition in a short period of time. Time will tell if they are really delivering on the new strategy but from an outsiders point of view Mr Doyle is providing a great example of what it takes to quickly energize a company and transform its offering almost overnight….

Will Apple maintain its culture when Steve leaves?

I had an interesting discussion last night in relation to what our company does, help senior leaders build ever alert enterprizes by raising their level of cultural sense-ability. What does that mean? essentially creating a company culture that is completely focused on creating value for customers, with every person understanding their role in how to achieve the company’s vision and mission by serving their customers better than anyone else.

Durign the discussion the topic of Apple was raised, with someone suggesting they would decline when Steve Jobs retired.

On the face of the evidence in the past when he left the company the first time you could argue that it may well lose the fire and leadership it has with him at the helm…. However things are different this time. What is different is that Steve has built a leadership team around him that share his vision, mission and values for what the company is all about and why it has become great.
Tim Cook the current COO was quoted earlier in the year on seekingalpha.com

“We believe that we are on the face of the earth to make great products and that’s not changing. We are constantly focusing on innovating. We believe in the simple not the complex. We believe that we need to own and control the primary technologies behind the products that we make, and participate only in markets where we can make a significant contribution. We believe in saying no to thousands of projects, so that we can really focus on the few that are truly important and meaningful to us. We believe in deep collaboration and cross-pollination of our groups, which allow us to innovate in a way that others cannot. And frankly, we don’t settle for anything less than excellence in every group in the company, and we have the self-honesty to admit when we’re wrong and the courage to change. And I think regardless of who is in what job those values are so embedded in this company that Apple will do extremely well.”

This demonstrates a deep understanding of what drives success for Apple, these are the same elements we measure in our Market Responsiveness Index (MRI). So long as Apple can remain strong in its depth of understanding of customers, competitors, critical market trends and at the same time continue to foster this cross-pollination they will remain leaders, growing faster and at higher rates of profitability than every competitor they face.

Why United must change its culture

There has been a interesting phenomenon occurring over the past few months relating to a poor United customer experience. This was not any customer however, it was David Carroll, lead singer of the Canadian band “Sons of Maxwell”. I will let David take up the story in his words from here:

“In the spring of 2008, Sons of Maxwell were traveling to Nebraska for a one-week tour and my Taylor guitar was witnessed being thrown by United Airlines baggage handlers in Chicago. I discovered later that the $3,500 guitar was severely damaged. They didn’t deny the experience occurred but for nine months the various people I communicated with put the responsibility for dealing with the damage on everyone other than themselves and finally said they would do nothing to compensate me for my loss. So I promised the last person to finally say “no” to compensation (Ms. Irlweg) that I would write and produce three songs about my experience with United Airlines and make videos for each to be viewed online by anyone in the world.”

Here is the 1st song, now with almost 5 million views…

Another strong message to the leadership about United’s need to fundamentally change its organizational culture, if it is to ever grow and profit in perhaps the toughest industry in the world it must develop a culture that focuses on delivering the greatest value at all times to its customers. This is an unfortunate example of again where they fall short……..

Best Buy, GE & EMC: Using Social Media to change their internal cultures

I just read a great post by Jeremiah Owyang that included this video on how best buy are using social media in a variety of ways to positively impact on their culture:

I think a key point here is that to be successful in social media, the underlying values of the users need to be about adding value, being transparent, being authentic. When these values filter into the broader organization great things can happen, new ideas evolve, changes happen faster, customer service gets better. In fact increasing Iam seeing examples of how social media can be a key enabler of what we at MCS call marketculture.

Another example is GE which uses SupportCentral as a internal tool that has been ahead of the curve since 2000 according to comments by a reader on a recent McKinsey article. Anna All also references GE in this great article about its impact and Chuck Hollis from EMC illuminates us further with his first encounter with the system.

Which tools do you think are having the greatest impact on your corporate culture?