Customer Focus For Increased Profits by Howard E. Hyden
Customer Focus For Increased Profits
Howard E. Hyden
THE WAKE-UP CALL
In the 80’s, America got a wake-up call on three fronts:
- Quality: Today, everybody is doing quality. It used to be a competitive advantage; it is now merely entry into the game.
- Environment: The Valdez oil spill was actually a blessing in disguise. It woke us up to how important the environment is. Companies have three choices – do nothing, have a defensive strategy, or do something that protects the environment and adds to your competitive advantage. Companies that jump on this and do something really positive will clearly be ahead of those who just focus on markets and customers.
- Customers: Customers have also waken up. If you don’t have quality, if it doesn’t work the first time, if you don’t give it to customers when they want it (not when you want to give it to them), you will lose them to someone who will.
Sixty-eight percent of people say they are willing to pay for environmentally safe packaging. Ninety-four percent support stricter penalties for corporate polluters. seventy-eight percent said they would switch brands if it’s packaged in a recycled container (42% were likely to switch and 36% were very likely).
The Malcolm Baldrige Award is one of the finest things the American government has ever done for business. There are seven categories, and there is a strong connection between quality and customer focus. Out of 1,000 points total for all seven categories, customer satisfaction gets 300 points, double any other category. Quality is meeting the customers’ expectations. With that definition, it’s hard to pursue quality without customer focus.
Ninety percent of U.S. companies are still product driven. That means that somewhere inside those companies, some group of employees gets together and decides to build what the customer “ought to want.” They decide what the customer wants without asking them. This is an internal, inside-out orientation.
A good example is the old Ford model T. You could have one in any color you wanted as long as it was black. Henry Ford decided what the product should be. He chose black because the paint dried faster than any other color. But what value is it to the customer if the paint dries faster?
Customer driven means you go out into the marketplace to find out how and when the customer wants it, bring that information back into the company, and do it their way. This is an external, outside-in orientation. You drive the business according to the needs of the marketplace.
The Mazda Miata is a perfect example of outside-in marketing. It was so popular when it first came out that you had to wait 3-4 months for delivery. How did they come up with such a hot product?
In their marketing plan, Mazda actually stated what they would not do. They didn’t want to build a car that everybody likes; they wanted to build a car that some people love. They asked themselves how the customer would know that it is a great sports car. They assembled customers and prospects in a room and asked how they decide a sports car is the greatest. They took all this information into account when designing and building the car.
One customer said the sound a sports car makes is very important. So Mazda audiotaped the sound of ten different sports cars and started making computer-generated hybrids of those sounds. They invited all the customers back to listen to the sounds and tell them which one they like best. They didn’t tell the customers which were they best sounds; they asked the customers to tell them. The results speak for themselves.
Other car manufacturers are giving cash rebates in order to entice customers. The average retail price of a Miata was $4,000 over sticker price. That is what you get with a customer-driven orientation. Once you listen to the customer, you can’t stop. You don’t hit a home run once and then go back to the old way of doing things.
Sometimes it’s not appropriate to be customer driven, especially if you have to educate the marketplace. Apple Computers would never have gotten off the ground if Steve Job went around asking people what their PC needs were. They didn’t have any at the time. In that situation, you have to educate the market as to what your product is. Once the market starts buying, then you shift to a customer-driven focus.
As an operating philosophy, senior management should create a learning organization where employees learn by constantly getting data and information from customers and from one department to another. This information is then used to innovate and constantly get better.
EXAMPLE: In 1965, Toyota received 9,000 ideas for improvement from employees, an average of about one per worker. They implemented 39% of those ideas. In 1980, Toyota received 850,000 ideas, 94% of which they implemented. That is called continuous improvement. What enables this kind of transition? Listen to and understand what your employees are saying. Set up an environment where ideas are encouraged, even if they don’t work. Employees soon learn that if a suggestion doesn’t work it’s not a failure, it’s an opportunity to learn.
COMPETITIVE ADVANTAGE #1: The creativity and innovation of your employees is a key source of competitive advantage.
Your people are a reservoir of knowledge and capability. If asked and encouraged, they will come up with the ideas to make the organization successful. But you have to create the environment to have a learning organization.
Yesterday’s philosophy was ‘if it ain’t broke, don’t fix it.’ Today’s philosophy is ‘if it ain’t broke, fix it anyway.’ You have to be continually looking for ways to innovate and add value to the customer. If not, you will soon be left behind by competition.
EXAMPLE: When Seiko introduced the digital watch, seventeen Swiss watch companies went bankrupt. Yet, it was the Swiss who first developed the technology. They didn’t see any reason to change because their watches were the highest quality. Seiko embraced the new technology and took over the industry.
Humans resist change in varying degrees. At one end of the scale you have laggards, those who resist change; at the other end you have innovators, those who embrace change. When implementing change, most companies fail because they try to get everybody to change at once. Forget about the laggards. Instead, work with the innovators. Once they embrace the change and have success with it, others will follow.
You can’t change the laggards, but their peers can. Don’t single out the laggards for criticism or negative reinforcement. Instead, spend your time praising and supporting the innovators. Do it publicly so others see it is a priority for you.
People can be both innovators and laggards depending on the situation. Don’t make the mistake of thinking once an innovator always an innovator.
Don’t take credit for the change. Give all the credit to the innovators who are out there taking the risks and making things happen.
Benchmarking involves getting ideas from other companies and putting them to use in yours. Sam Walton was one of the best at this because he didn’t allow negative benchmarking, only positive. Negative benchmarking, putting down what your competitors are doing, allows you to get complacent and arrogant.
Research shows that for every customer complaint you receive, there are 26 dissatisfied customers who won’t say anything. Of these, 63% will buy from someone else.
If customers complain and receive a satisfactory response, 70% will become your most loyal customers. They will be more loyal than those who never complained in the first place. When you fix a problem, the bonding process is much stronger than if everything went right in the first place. A customer complaint is an asset to your business; it’s free market research.
When your employees come to you with a customer complaint, the wrong response is to yell at them and “kill the messenger.” Instead, praise them for caring enough to bring the problem to your attention. Then see how you can work together to constructively solve the problem. Your response will control how your employees deal with customer complaints.
Customers go away for five reasons:
- The business moved or closed
- Personal friendships/relationships
- Dissatisfied with the product
- Indifference by an employee
Indifference by employees is by far the biggest reason why customers leave. Indifference can come in many forms. Often employees don’t even know when they are being indifferent. You can’t afford to take that chance. Set up a culture of complete focus on the customer.
Ask your employees what your unique competitive advantage is. Don’t give them the answer see if they can tell you. If they know the answer, odds are much better they know what their jobs are and how they relate to the competitive advantage. If they can’t answer you, how can they relate their jobs to the competitive advantage?
In today’s markets, with products and services so similar, price, delivery and location are no longer competitive advantages. The winning difference in the future will be service, and service comes from people.
COMPETITIVE ADVANTAGE #2: The discretionary effort of your people is a distinct competitive advantage. If your employees are indifferent, you are at a disadvantage. But if they clearly know they are part of the weapon and their effort to go the extra mile can really set you apart from the competition, and if they execute day in and day out, you have a tremendous advantage.
What will stop this process? Lack of respect for your people. In too many companies, the customer and management are king and the employees are grunts. How you treat your people will manifest itself in the way they treat the customer. If you step all over your people they won’t tell you but they sure will tell the customer.
Product development time can also be a competitive advantage. If you can go from product idea to delivery to the customer faster than anyone else, you have a distinct advantage. If you can process orders faster than your competitors, you have an advantage. This doesn’t mean filling an order from inventory faster; it means the ability to turn out a customized product or service that meets the specific needs of your customer.
To do this, you have to get out of the “box’ you are currently in. You must have a major shift in thinking and the way you go about doing things as an organization. Just having the employees work harder will not get the job done.
Your employees should spend as much time as possible adding value to the product or service. In most companies, employees spend their time getting ready to add value. That’s a subtle but important difference. The more time your employees spend adding value, the larger your competitive advantage.
Automatic Number Technology (ANI) is allowing some companies to get ahead by coding customer information and answering incoming phone calls quicker and more efficiently. The computer tells you who is calling and which person it might be before you even pick up the phone. Destination Number Identification System (DNIS) can automatically route the call to the right person in your organization.
Every person and every function in the company must add value to the customer. But be careful how you measure the value added. Don’t compare different departments in your organization to each other. Instead, compare one department to a similar department in your competitor’s firm. For example, don’t compare your accounting department to your sales department. Compare your accounting department against a competitor’s accounting department.
People who don’t work directly with the customer must add value to the next person in the process. The person who receives their output is the customer. Everybody in the organization should have an outside-in orientation.
The ‘promise test’ is a good tool to determine in advance if a customer will like a certain product or feature. Take three or four different versions of the product, get a focus group together, and ask them which version they would buy. Then, let the customers pick and choose which features they would take if they were designing it themselves. Then, determine your costs for adding those features, go back to the customers, and see if they would be willing to pay for the added value. Organizations that are serious about customer focus design it in. They plan it just like a budget, a product, or anything else. You have to be an architect of the change process to make things work better for the customer.
TOOLS AND TECHNIQUES FOR CUSTOMER FOCUS
- Model the behavior: Managers must become leaders rather than managers. Managers control things; leaders create an environment where employees can make decisions at the tactical level, not the strategic.
- Actual values must conform to stated values: You must walk the talk. If you wait until there’s a crisis before focusing on the customer, that isn’t customer service. Your actions must be consistent with your stated philosophy. Employees will mirror your actions, not what you say.
- Know your customer: Allocate time to go out and meet customers and suppliers. Get involved in the marketplace. If you don’t allocate the time, it won’t happen.
- Manage out, not up: Get your employees to look out, not up. If their orientation is to please the boss, they won’t be focusing on the customer.
- Put customer service first at your management meetings: Ask questions about customers. If you always ask questions about cost cutting or meeting the budget, your management team will focus on those.
- Catch them doing something right: Look for employees doing things right and praise and support them. Do it in public and give lots of praise.
Customer oriented companies have the following:
- A qualitative way to measure customer needs and satisfaction
- A quantitative way to measure customer needs and satisfaction
- Systems that are designed and geared to the customer’s convenience
- Frequent communication with both customers and employees