Successful leaders create customer results through firm equity—the allegiance customers have to doing business with a particular firm. But on the road to equity, common myths about customers and customer relationships can lead a firm astray. In this excerpt from their book, Results-Based Leadership: How Leaders Build the Business and Improve the Bottom Line, Dave Ulrich, Jack Zenger and Norm Smallwood tell how to replace old myths with new realities.
by Dave Ulrich, Jack Zenger, and Norm Smallwood
Successful leaders create customer results through firm equity—the allegiance customers have to doing business with your particular firm. To achieve this, leaders must replace three common myths about customers with three new realities:
Myth #1: The Customer is Always Right
Reality: Some Customers Are More Right Than Others
The idea that a customer is anyone who will pay money for a product or service leads to poor business decisions and "seduces leaders into mediocracy." Leaders need to know how not to pay attention to the "not" customers—defined as anyone who does not fit the profile of a company's primary or target customer. While "not" customers may appear to be ready to buy products, they are ultimately not lifetime customers—which a company develops only by providing a clear, consistent (reliable) image year after year. Leaders need to recognize that some customers are more right than others, and that only by paying more attention to targeted customers through: segmentation (identifying what customers to retain (keep at any cost), attain (pursue aggressively), contain (keep, but not at any cost), and abstain (not invest energy in keeping)); and customization (focusing the firm's attention on each individual customer of value) can they build lasting firm equity.
Company Example: Several years ago Harley-Davidson began making and selling dirt bikes, operating under the initial assumption that "a motorcycle is a motorcycle." The business was profitable, but Harley eventually got out of the dirt bike business because they came to realize that they were sending a confusing message to Harley's "real" customers: people who buy into the Harley lifestyle, who buy big highway bikes so they can "dress up in leather and a bandanna and head out on a long, curving highway." While dirt bike customers appeared ready to buy products, they were not "lifetime customers." Harley understood that it could maintain its distinctive image only by pulling back to what it did best.
Myth #2: Delight All Customers
Reality: Delight Targeted Customers
How do leaders define the word "delight"? If they think it means that all customers want to be "pampered," they're on track to waste a lot of money and lose key customers in the process. Leaders must recognize that not even targeted customers have the same buying criteria—for example, one Harley customer may pay more for a customized bike if it comes with a long-term service contract, another may prefer membership in a biker's group. Firm equity comes from maintaining a vision of the firm's distinctive culture in the minds of its best customers, which in turn can come only if leaders understand targeted customers' needs and wants. Doing this successfully requires that firms stand out from their competitors on one of the five "value propositions" for their customers: cost, quality, speed, service, or innovation—which will represent the primary reason a target customer would buy a firm's particular product or service. Leaders must also ensure that performance in all of the other competitive areas be "as good as the industry average."
Industry Example: The pizza business provides a good example of the dynamics of customer value propositions. Domino's Pizza stakes its reputation on speed, promising pizza in 30 minutes or it's free. Their target customers are people who want their pizza "right now." Little Caesar's aims instead to provide the lowest-priced pizza on the market, and their primary customer is anyone with a lot of people to feed, with simple tastes, or who simply doesn't have time to savor pizza or anything else for that matter. Sbarro's, an Italian restaurant chain located in upscale malls, sells higher-priced pizza to customers looking for high-quality pizza. If any of these companies allowed themselves to fall below industry average on any of the other competitive factors, they'd soon find themselves out of business—but it is their primary value proposition that builds their firm equity and allows them to build a lasting brand in the minds of key customers.
Myth #3: Customer Connection Comes from Collecting Customer Data
Reality: Customer Connection Comes from Involving Customers
Typical data-based market research—focus groups, mystery shoppers, customer surveys, etc.—may mislead leaders working to know customers better, primarily because they focus on what has been and is, but not on what might be. While this information is important, it is not enough: leaders need to shift efforts from collecting data on customers to actually influencing how they think about the firm and its products and services. Leaders can accomplish this by leveraging two new approaches to connecting with customers—management practices and values—which can be pursued using a variety of techniques including: customer interaction, recruiting, reward systems, development systems, and governance.
Company Examples:
Customer Interaction: involves regularly meeting with target customers. Texas Instruments' calculator division works directly with mathematics teachers in high schools to study how they teach calculations, and simulates classroom situations in this subject to better understand how students and teachers interact. This helps them hone in on the possible roles calculators can play in facilitating effective teaching and learning.
Development Systems: teaching effective customer skills through experience. Exxon "transfers" people into government jobs where they can learn the intricacies of oil regulation while developing relationships with the people who set those regulations. Dupont and other large corporations use job rotation programs to encourage career growth, company commitment, and the company's customer results.