Why Your Vendor Doesn't Care About You

Last week I was at an EMC analyst event and got an update on their unique focus on customer loyalty. One of the things their massive analysis effort has recently showcased was that if you improve customer loyalty by 1% your market share will subsequently increase by 2%. This would seem to be a sure way to dominate a market but, even at EMC – a firm that gets this better than most – there has been lots of resistance along the way.

Since I had very similar experience years ago while working at a large multi-national, I thought it would be interesting to explain that most vendors don’t care about you, and why this may be partially your fault, and why this spans from enterprise- to consumer-focused companies.

Today I’m trying to explain why Sony has had to move their profitability targets out several years. A good deal of what differentiates them from the vastly more profitable Apple is a lack of focus on customer loyalty.

Revenue Growth Drives Focus at Public Companies

Thanks mostly to a misguided financial analysis community that focuses largely on revenue growth, most public companies are focused like lasers on acquiring customers, but not in retaining them.

This is because customer retention isn’t a measurement that CEOs are held to. As long as they can grow their top line and keep or grow their margins they can actually replace their unsatisfied customers every month until they run out of them.

Now you might argue, and you’d be right, that this kind of a strategy would eventually cause them to run out of potential customers. But this would require strategic thinking. And these same analysts have the effect of focusing CEOs on quarterly performance, not strategic performance. So if these CEOs were to shift resources to increase customer retention at the cost of short term growth, even though it would be very important to the firm’s survival, they would get pounded for the decision.

This means with most firms you are more important as an acquisition than you are as a loyal customer, even though we, as an industry, know that one of the highest costs is related to building a loyal customer. One of the reasons Apple has the highest margins in the PC business is because they also enjoy the most loyal customer base. Yet even they tend to take this base for granted from time to time.

This means executives tend to take existing customers for granted except when it comes to mining them for more money, a practice that actually tends to lower customer loyalty if done incorrectly.

Internally Focused

Most executives spend very little time on assuring that products and customer needs match. They most of their time on internal problems like staffing, fighting for budget, defending or pitching a major decision, or dealing with the crises that resulted from this major decision.

This leaves very little time for customers, who are generally assigned to someone vastly lower in the organization to manage. This puts customer satisfaction as a relatively low priority. And the responsibility often doesn’t tie back to the product line executive but to a customer-facing organization like sales or service.

Unfortunately, if the problem, which is often the case, was created by a product problem, the customer-facing organization can only complain. And since they are in another group, their complaints typically fall on deaf ears.

Jim Bampos, EMC’s Customer Satisfaction Hero

It is actually easy to get a passion for focusing on the needs of the customer. The numbers are compelling in terms of top and bottom line company performance. Having customers that rave rather than complain about the company you work for is a heady experience.

However, surviving this passion, because you often find yourself at odds with executives that would rather not have their dirty laundry raised to the top level of management, can be difficult.