Why I Prefer Not To Do Business With Customer-Centric Businesses

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Why is it that I prefer not to business with a customer-centric business? Allow me to share my answer by referring to the UK grocery market.  Which supermarket chain was applauded, by many, for its customer-centred way of doing business? Tesco.  What was held responsible for fuelling this customer-centred way of doing business? The Tesco Club Card. Through this loyalty card, Tesco captured and made effective use of customer shopping data to grow revenues and optimise profits.  In the process Tesco came from nowhere to became the world’s second largest retailer.

Where is Tesco today? Here is what The Economist said back in July 2014:

… on July 21st Tesco abruptly announced that Mr Clarke would be leaving his job, apparently prompted by a warning that profits in the first half of 2014 would come in “below expectations”. In June Tesco revealed a drop in same-store sales that Mr Clarke admitted was the retailer’s worst performance in 40 years….

Recession taught middle-class shoppers that discounters like Aldi and Lidl were cheap but not nasty; they spent some of the money they saved at higher-end grocers, such as Waitrose and Marks & Spencer……

Tesco is faring badly. Its sales dropped by nearly 2% in the year to June while those of its closest rivals, Asda (which is owned by Walmart) and Sainsbury’s, rose by 3% or better. Despite his exertions, Mr Clarke failed to persuade consumers that Tesco offers better value than the discounters or quality to match the upmarket merchants.

Is this as bad as it gets? No. Here is what the Guardian newspaper stated in on the 22nd of September this year:

Tesco has suspended the head of its UK business and called in independent accountants and lawyers to investigate after discovering that its guidance to the City overstated expected first-half profits by about £250m….

Tesco shares fell almost 8% on Monday morning to an 11-year low of 212p, making them the biggest faller in the FTSE 100 index and wiping £1.5bn off the retailer’s market value. More than £6bn has been wiped off share value since 21 July, when the previous chief executive, Phil Clark, was ousted.

Why is it that Tesco is in such deep trouble? I say that Tesco has arrived at where it is at due to its customer-centric way of doing business.  What do I mean by this?  I mean that the Tops got fixated into harnessing the data yielded by the Club Card to get customers to part with more of their money in Tesco stores.

Was this done by offering customers superior products as in higher quality products? No.  The products were middle of the road yet ways were found of selling these at higher prices through clever marketing and merchandising.

Was this done by providing superior customer service in the stores? No. Tesco cut back on the number of people working in the stores so it was not unusual for the customer to find that there was nobody around to help when help was needed or find long queues at the checkout tills.

Was this done through a superior shopping experience? No. Management chose not to invest in the stores or the shopping experience in the stores. As a result the stores become less and less attractive over time.

I prefer not to do business with a customer-centric business because the management of such a business is more likely to be focussed on extracting value from their customer base through a variety of clever manoeuvres than earning its keep through superior products (Apple, Waitrose), superior service (John Lewis, Zappos), low prices (Lidl, Aldi), or a combination of service and low price (Amazon).

If you are a customer and your supplier is touting customer-obsession then  you might want to think about whether that is a good thing. Is the obsession with providing you with a superior product, superior value,  and/or experience? Or is it an obsession with with finding clever ways of getting you to buy more, pay more for what you buy, and get less in return? You might want to keep in mind that which many remind me of: business is not altruistic.

Republished with author's permission from original post.

Maz Iqbal
Independent
Experienced management consultant and customer strategist who has been grappling with 'customer-centric business' since early 1999.

10 COMMENTS

  1. Without discipline, and a co-focus on being humanistic as well as being customer-centric, even the one-time best of companies can go wrong and lose the trust of their customer base. As you note, Tesco has joined those ranks.

    Here across the pond, we have customer-centric and humanistic exemplars such as Whole Foods Market, Trader Joe’s, and Wegmans. Speaking personally from my own experience as a current customer of all three (obviously, I do all the food shopping for our family), these are customer-centric retailers worth of the label. All three are quite profitable. http://www.targetmarketingmag.com/blog/customer-centric-trust-based-relationships-humanity-emotion-profits

    if Tesco is still claiming to be customer-centric in the face of all you’ve cited, they are the exception that proves the rule. When perceived value evaporates, and trust fades, profits will similarly decline.

  2. In my research, I’ve found the term “customer-centric” to be used in many different ways. It’s too bad that Tesco didn’t progress beyond the value extraction thinking, otherwise known as CRM.

    Don Peppers, a founding partner of Peppers & Rogers Group, best known for One to One Marketing, says that customer-centricity should be contrasted with product-centricity. While a product-centric company tries to sell an individual product to as many customers as possible, a “customer-centric competitor focuses on one customer at a time and tries to sell that customer as many products as possible.” In a recent survey of CustomerThink members, nearly 30% agreed with this definition.

    Professor Peter Fader of The Wharton School of the University of Pennsylvania writes (in his book Customer Centricity: Focus on the Right Customers for Strategic Advantage) that CRM (which he considers a manifestation of customer-centricity) “represents a firm’s front-line efforts to gather data and better understand the unique characteristics and expected value of its focal customers and to use that information to appropriately allocate resources.”

    I describe this “flavor” of customer-centricity as customer targeting. Focused on customers to extract value (more sales).

    There’s nothing wrong with segmenting and targeting customers. Amazon does it too. But real customer-centric leaders don’t fall in love with customer data and marketing programs. They also focus on innovating to deliver more value to their customers — in products, experiences and even pricing.

  3. Hello Michael,
    First and foremost, I offer you my thanks for taking the time to share your perspective. I find myself in agreement with you in making the distinction between customer-centric and humanistic. An organisation can be customer-centric without being humanistic. Which is to say that there are no ethical or moral implications intrinsic to customer-centric. This is a point that few get. Whereas, humanistic is pervaded through and through with ethical considerations.

    Where we differ is in your assertion that Tesco cannot claim to be customer-centric any longer. If customer-centric is only intelligible as being in contrast to product centric, then Tesco continues to be customer-centric. It continues to collect and harness customer data to make business decisions: product selection in stores, pricing, product bundles, marketing offers etc. All with the intent of growing the share of wallet of the customer base through selling additional products, increasing or maintaining price premiums ….

    I wish to assert categorically that the a customer-centric way of doing business (in the sense of customer-centric versus product centric) does not guarantee business success. I know that many fall into the trap of equating successful businesses with customer-centric orientation. This is an ad-hoc rationalisation.

    At your service / with my love
    maz

  4. Hello Bob,

    Many thanks for making the time to share your take on this matter. First, let me say that I worked as a Senior Consultant in The Peppers & Rogers Group. As such I find myself intimately familiar with the point of view articulated by Don and Martha through their bookings and their speaking. Second, I am also familiar with Professor Fader’s take on the matter as I have read his book and even listened to him on Coursera.

    I find myself in agreement with most of which you share:

    1. There is no common agreement on what customer-centric actually means. Or how one identifies an organisation as being customer-centric as opposed to being any other flavour and thus not customer-centric. Which is why I refer to customer-centric as a empty term rather like strategy; you can fill these terms up with whatever you want.

    2. Professor Faders definition of customer-centric is perfectly in alignment with the Peppers & Rogers take on the matter. Customer-centric is only meaningful when contrasted with product centric. In a product centric way of doing business the challenge is to find markets-customers for the products. And the measure of success is market share: economies of scale pay off in terms of profits. Customer-centric is finding additional products-services-solutions for the existing customer base. And the measure of success is share of wallet. What both Peppers & Rogers, and Professor Fader promise with customer-centricity is higher revenues, lower costs, and higher profits. How by harnessing insights gleaned through data to upwell, cross-sell and where possible lower the cost of serving customers. There are no ethical considerations here – as in how customers are treated.

    Where I find myself in disagreement with you is your final assertion on what constitutes real customer-centric leaders. It occurs to me that the you are reasoning back from success and then finding some dimensions that may explain that success. Then using these factors to determine what real customer-centric leaders are. What is the issue with is approach? This is exactly how Tesco, when it was successful, was explained. Pretty much everything Tesco did was lauded as visionary and customer-centric. For example:

    – Tesco created the Club Card loyalty scheme allowing it to collect and mine the data;

    – Tesco used that data to match the products in the stores to the shopping behaviour of the customers of the store;

    – Tesco determined their marketing offers based on the insights gleaned from customer’s shopping data;

    – Tesco expanded the product range in the stores to include clothes, pharmacy, electronics etc;

    – Tesco opened up adjacent businesses e.g. Tesco bank, Tesco Mobile….

    – Tesco was the first supermarket to offer home delivery and make it work.

    It occurs to me that Tesco was a perfect exemplar of the kind of customer-centricity defined-articulated by Peppers & Rogers and Prof. Fader. I know for a fact that Peppers & Rogers publications lauded Tesco as an exemplar of customer-centric retailing and innovation during the first decade of the 21st Century.

    Let me say this categorically, Tesco is not facing the issues that it is facing because it is not customer-centric. It is facing this issues precisely because it is customer-centric: the long term impact of customer-centric way of doing business has shown up. What Tesco has never been is humanistic or altruistic. Latest reports show that a bullying culture was commonplace within Tesco – starting with the CEO Terry Leahy. This bullying was of people working in the business. And of the suppliers.

    At your service / with my love
    maz

  5. A company can, assuredly, be at least partially customer-centric if they are a) focused on systems and data flow and b) designing experiences for, and extracting profit from their best customers.. Principally, this requires the gathering, management, and leveraging of customer data and wrapping it in a loyalty program, such as the Clubcard, and slick merchandising and marketing. However, Tesco will never reach the higher plain of customer-centricity (really stakeholder-centricity) achieved by some of the retailers cited in my response without the trust and value created through humanistic shared beliefs and superordinate goals, ..

  6. Maz, you’ve chosen to put the “customer-centric” label on Tesco’s data-driven marketing approach. That’s fine, it’s one of the ways the term is used, but it doesn’t reflect the majority view of the market.

    In fact, I’m not even sure it reflected Tesco’s view at the time they were winning with the Clubcard program. In 2004 interview with Clive Humby of dunnhumby, the term “customer-centricity” is never used. Instead, he speaks of loyalty marketing — an accurate term in my view.

    Others firms like Amazon, Intuit and Southwest each have their own unique way of describing being customer-centric, -driven, -obsessed, etc. None of these terms taken literally makes a lot of sense. At Intuit, for example, they use the term customer-centric but also say that they strive for 3 wins – for customers, employees and stakeholders.

    I haven’t found the definition debates on terms like customer-centricity, CRM, Social CRM or the latest CEM to be very fruitful. In recent years I’ve taken to studying how leading companies behave, not what terms they use. In the end, it’s the behavior that customers will notice, not rhetoric by executives.

    In your blog post you closed with this sage advice:
    “If you are a customer and your supplier is touting customer-obsession then you might want to think about whether that is a good thing. Is the obsession with providing you with a superior product, superior value, and/or experience? Or is it an obsession with with finding clever ways of getting you to buy more, pay more for what you buy, and get less in return?”

    What term do you use for companies that do not make Tesco’s mistake of treating customers like marketing targets, and instead focus on value delivery, improved experiences, etc.?

  7. Hello Bob,

    I respect you and respect that which you articulate and share. At one level you and I are in perfect agreement. And at another level we are in significant disagreement. And that is OK for the purposes of generating dialogue and thought.

    Let’s do a thought experiment. Imagine that you and I are on a team, we have to work together to accomplish the mission. However, you and I find ourselves in different locations. So we need to meet up at a specific location. What happens if you and I cannot come up with a shared agreement on that location. Say house name/no, street address, post code, city, country. And time including timezone. How likely is it that we will meet up and thus work together to accomplish the mission?

    Or consider another scenario, you and I are to go out hunting for a lion. And we have to work together to successfully hunt lions. What happens if you and I do not have a common understanding of what constitutes a lion as opposed to tiger, cheetah, leopard, or antelope for that matter?

    Now consider that even as ‘experts’ in the Customer domain, you and I cannot come to an agreement on ‘what it is that constitutes customer-centricity’ as opposed to any other flavour of doing business. It occurs to me that the field of customer-centricity and Customer Experience being so vague is ripe for charlatans and charlatanry. And indeed this is what I find to be so. If you and I cannot agree on what constitutes excellence and what set of behaviours generate excellence then what chance is there that excellent will show up? About the same as going to Vegas and playing the tables, right?

    So a tight definition and agreement on what constitutes customer-centrity is essential. And we are nowhere near it. For my part, I choose to use the Peppers & Rogers / Peter Fader definition for the simply reason that they have come up with a tight enough definition. And it lends itself to measurement in terms of behaviour.

    So friend, we will just have to disagree. For my part, I am content to respect you as a human being and a fellow professional and welcome our disagreement on this matter. I can also live with this disagreement because you and I are not on one team working on helping an organisation become customer-centric. So speaking different languages is not an issue/obstacle. Those working in organisations on customer-centricity or Customer Experience do not have that luxury and yet find themselves in that situation.

    At your service / with my love
    maz

  8. OK, Maz. Received and understood. Unless everyone can agree on a tight definition, there is no point in pursuing customer-centricity or customer experience.

    Let’s convene a committee of experts, hash it out, and someday after we have definitions hammered out, we can get to work! In the meantime, let’s just focus on simple things that are easy to agree with, like house addresses.

  9. Wow guys,
    I was fascinated reading your discussions!
    Maz, I have to give you credit for the title of the post – it certainly got my attention and I have to admit that a less provocative title would probably slept by me (with all the amounts of articles and posts that I come across every day).

    For me, and I think for most people, I take things quite literally. So if a company claims to be customer centric, I expect it to demonstrate real care for me, and make its business a place for improving my life. If this won’t happen, and the company will do things just for the profits and not for me (and this of course includes not only providing me with tailored offerings but also making sure my needs and expectations are truly met) – I won’t do business with it.
    But if you think I’m talking just from my point of view, and not representing the majority of customers, I have 3 stories about companies that demonstrate my point.

    The first story is about a telecom company that focuses on cable TV and internet. The market has only 2 companies competing head to head. This company offers the most attractive prices in our market. To meet shareholder expectations for larger profits, the company took some aggressive steps to cut costs such as outsourcing and minimizing the service array (both service reps and technical service). The damage to company is compelling: two months ago this company was ranked as the 2nd most hated company in the country (the first one was the largest monopole – the electricity company). This was followed by summoning the company’s CEO to the parliament, demanding him to improve the poor service and threatening to revoke the companies broadcasting license if they will not do so.

    The second story is from a discussion I had very recently with one of my clients. This company was considered to be one of the best service companies, with a very good brand perception. In the last 3 years, the market in which the company operates faced very aggressive competition. Prices fell down and the company found itself struggling for profits. They reacted in costs cutting, mainly by minimizing the service array and also by “fooling” the customers in the sales process. Things like not mentioning the “fine print” and then the customer finds a “surprise” in the bill he gets, not reviling the proper deal conditions, creating “default” charges for services that the customer didn’t ask for, etc. One of the managers around the table told me they call it “bad profits” because they result many angry customers which also create heavy loads on the call center – mainly around billing issues. They have managed to keep reasonable revenues, but suffer from the largest churn in their market and sank dramatically in CSAT and NPS surveys compared to competition. They feel that they have to stop this destructing behavior (and this is why I’m there :-)) but find it challenging to “give up” the short term revenues. I asked him whether this approach is working for them. He mumbled that apparently not. I believe that now that they feel they hit rock bottom with this behavior, their leadership will decide on adopting a more respective policy toward the customers, and by looking at benchmarks of business results of companies that have embraced CEM, I expect they will eventually improve bottom line.

    The third story, which I find truly inspiring, is of “Alibaba”, one of the world’s largest online retailers. Their founder, Jack Ma, has a central tenet that is unusual: “Customers first, employees second and shareholders third”. In a letter that he submitted before the IPO on the NYSE this year (the largest US IPO on record!) he discussed his Ecosystem-based Business Model and wrote: “We believe that only by creating an open, collaborative and prosperous ecosystem that enables its constituents to fully participate can we truly help our small business and consumer customers. As stewards of this ecosystem, we spend our focus, effort, time and energy on initiatives that will benefit the greater good of the ecosystem and its various participants. We can only be successful if our customers and business partners are successful.”

    I believe markets are changing because we, as people, want to be treated in a respectful manner, not as cashing cows. This is especially true for new comers to the markets, younger generations, like Generation Y, who are more socially concise, do not believe companies and expect companies to treat them honestly and transparently.

    So being customer centric is not being altruistic, in the sense that you do expect it to deliver business results for you, but at the same time, don’t be cynic about this – do aim to treat your customer as you want to be treated. Results show that it does pay back.

    Keren

  10. A great example of the gigantic semantics quandary in our field. And the myopia that creates skepticism and disillusion. My hope is that CX thought leaders and practitioners can collectively discipline ourselves to sensibility in our semantics that rises above the common myopia.

    This is why I titled a recent article “Customer-Centricity is Controversial” (http://customerthink.com/customer-centricity-is-controversial/): to illustrate the many self-serving definitions many people attribute to the term. In its pure definition (relying on dictionaries for “customer” and for “centric”), it simply means to make customers’ well-being the center of decision-making.

    Today I read an article that suggested “data-centric” focus is the key to “customer-centricity”. I say enough already with the “centric” and “driven” phrasing of every pet topic. Let’s just be real about what drives a business: buyers who feel their needs are being served better by that business than by other alternatives. And from there, it is pure logic in what myopic (idiotic) trends we need to rise above.

    To help managers make more sense of what’s wise and unwise in this topic I’ve recently contributed the article “Customer-Centered Culture: Do This, Not That” (http://customerthink.com/customer-centered-culture-do-this-not-that/).

    I hope these resources will help us return to purity in this important topic rather than get warped by PR/marketing efforts to use a label in appropriately in hopes that saying something is X makes it X. We all suffer when we buy into those warped claims and then allow our field to become muddied and ridiculed.

    Here’s a glossary that’s been well-received: http://customerthink.com/customer_care_crm_customer_experience_whats_the_difference/. Many people admit that they’ve used a term differently than shown here, but they tend to agree that these definitions make a lot of sense to adopt, to minimize dilution of value in our field.

    Lynn

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