Satmetrix CEO Richard Owen discussed how companies respond in tough economic times. As we face a potential recession, how much money should companies spend on improving the customer experience?
Public company accounting standards make it difficult to optimize for growth as they reward profits. Short term profits may not be good for long term success. To illustrate this point he describes two examples from the financial services area, the subprime mortgage crisis and credit card introductory rate offers. In both cases, the customer is happy during the initial period when the "special offer" is in effect. However, when the introductory rate expires, customers become disappointed and promoters become detractors impacting the long term sustainable value of acquiring that customer.
Next he discusses what we can learn about how companies react in a recessionary economy. Due to the rules of the public financial markets, large companies tend to turn to cost cutting measures to manage through recession. This is a natural tendency as the market rewards profits. However, small companies that are not tied to the public market tend to increase their focus on the customer instead of cost cutting, often investing in customer acquisition and retention.
Years of research revealed that in a recession economy companies that react by investing in areas such as R&D, Marketing and customer strategies grow and capture market share better than their cost cutting competitors. These winners use profits as a cushion vs. cost as a cushion.
Now let's take a look at three companies that have achieved significant success, but recently experienced declining market value; Dell, Starbucks and Charles Schwab. All have recently seen significant decrease in their stock value and constrained growth. In times of growth, these organizations brought in professional business leaders. As part of their turn around strategy they have brought back the original founders and put the customer back in the driver's seat, returning to the small company mentality. Charles Schwab has a strong focus on Net Promoter. Dell and Starbucks are engaging large groups of customers to provide input on new products and experiences by listening to customers through idea sharing.
Richard goes on to suggest that companies would be wise to take advantage of the wisdom of crowds. While most companies create panels and focus groups to collect feedback and extrapolate the learnings to the larger customer population, he suggested this is like putting customers in the zoo. Zoos were created to allow us to observe animals in their natural setting since we can't all make it to the safari. Similarly, it's difficult to build relationships with focus groups and panels in ways that drives growth. In today's connected world, companies would be wise to engage the wisdom of the crowd and build relationships with a large portion of your market, not just a small sample size. Why visit the zoo when you have the option to go on safari.
The key takeaway points:
- Richard laid out a compelling case that investing in the customer during a recession presents significant opportunity, moving focus from short term profits to long term value.
- He discussed how short term programs to lure customers have significant negative long term impact as illustrated by the recent subprime crisis and credit card "introductory rate" offers.
- He illustrated the differences between big company tendency to cut costs, driven by the public markets, vs. small company focus on long term customer value through the discussion of the founder return to companies such as Dell, Starbucks and Charles Schwab.
- Take advantage of the wisdom of crowds and build relationships with your customers that allow them to guide your strategies in ways that improve loyalty and drive growth.
One final note, Richard stated that economists have predicted 9 out of the last 5 recessions. So much for their crystal ball! In any case, it's clear listening to many of the speakers this morning that focus on customers pays off, regardless of the larger economic picture. Read on to learn more about results at LEGO, Orange, Logitech and others.
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