A prime piece on the chessboard

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Wanted: CEOs from India

: Krish Kumar, the Customer Guru, says, “Let’s examine the question of what a Customer is more carefully: We know he’s indispensable, he needs to be touched. But why do we wish to retain him?”

“Oh,” says Dough, “that’s to get repeat sales.”

“Sure, but what is the Customer, what does he represent to you? If he gets you repeat sales, what is he?”

“Mmm?” mumbles Dough, quizzically.

“Look at it this way. If you have a machine and it makes parts repeatedly, what do you call the machine?”

“An asset.”

Krish starts to smile. “Right, and a Customer is also an asset. Do you treat him as one? You value assets, and here you have an asset that can appreciate if he buys again in the future, and if he gets you sales or orders from others. If the Customer leaves or doesn’t buy from you in the future, the value of the asset is reduced or, in a sense, the asset is depreciated.

“We need to understand this asset and how to treat it. The asset can show on our balance sheet and impact the way an investor looks at us. I suggest you take time to review what we’ve discussed and what you’ve learned when you get back to your office.

“Finally, I said earlier that we need to satisfy and add value to both the shareholder and the Customer. This is a concept we’ll be talking about later when we discuss value and adding value to the Customer.”

Doug returns to his office and pens down what he has learned. A few days later Doug shows Krish what he has written. Krish says that he’s pretty much on target, but thinks it would be helpful to review the key points made earlier.

What is a Customer?

The Customer Guru repeats his definition of a Customer:

“The Customer is indispensable to our business. Without him, we have no business.

“The Customer is an asset that can either appreciate or depreciate, depending on how we touch him. When a Customer leaves, the asset is diminished or is depreciated.

“This asset can be shown on a balance sheet and helps in the valuation of a company.

“This asset is important for the investors and shareholders to view.”

Customers as Assets: Examples

“Sean Meehan,” the Customer Guru continues, “gives an example of how this Customer focus can increase your assets from the point of view of investors. He compares the valuation of Orange and One2One, both telecom companies that had many similarities including numbers of Customers. One2One was sold for £6.9 bn, while Orange was sold for £20 bn in the same time frame. Both these companies had relatively equivalent physical assets. Orange, however, was closer to its Customers and catered to their needs.

“Orange found out what mobile phone Customers wanted from their service providers in terms of factors, such as cost and network reliability. Orange was able to satisfy their needs more than One2One by providing reliable service, but also by offering per-second billing, a simpler rate plan, caller ID, itemised billing (free of charge), and a money back guarantee if the service failed. Orange was able to establish itself as a company that cared about Customers, and treated them as assets.

“Now you can see that the Customer needs to be satisfied and touched, and...”

Doug steps in. “He needs to be known and appreciated as someone who can give us repeat business. Just as a machine asset needs to be maintained, a Customer asset also needs to be maintained! You can see that maintenance of Customers is just as important as maintenance of machines. We all understand maintenance of machines.”

The Customer Guru nods.

“So why do all companies concentrate on sales and marketing? The thrust is mostly to get new Customers, deliver new products, and, hopefully, build a sustainable competitive advantage. Can you imagine a business where adding new machines is more important than maintaining existing ones?

“Let me give you another example here. Take Cemex, a Mexico-based cement company which wished to understand the basics of what it is that Customers seek, want, and need.

“Cemex, according to Meehan, grew by understanding Customers and competitors. Cemex was able to grow from a regional player to a world leader by focusing on basic Customer needs, not on nice-to-have extras. They found Customers wanted same-day delivery of ready mix, and since 1995 have guaranteed their Customers same-day delivery within twenty minutes of the scheduled delivery time in designated geographic markets, regardless of weather and traffic conditions. Cemex used satellite- and web-based vehicle dispatch technology. Not only did this system increase truck productivity by 35%, it wedded Customers firmly to the brand.

“Another example is that of Veeder-Root in the UK that tracks levels of underground petrol tanks, allowing their Customers to service petrol pump clients effectively. These examples illustrate the necessity of understanding Customer needs.”

“Later,” says Krish, “we will talk about the importance of understanding the Customer and his perceptions of you and your competition, which is an important tool to help build the Customer asset.

“So, if you accept Customers are assets requiring nurturing, with needs to be fulfilled, then we have to ask who is responsible for the maintenance and growth of the existing Customer asset and the Customer experience? Traditionally, a company has a CEO and he has reporting to him (in the hierarchy) a VP or General Manager of Quality Control, a VP of Technology, a VP of Finance, etc, but no VP of Customers exists. The closest to this position is a Customer service department. Where is the person or department with executive authority to oversee the needs of the Customer or his experience?”

“Generally isn’t the sales department responsible for Customers?” asks Doug.

“Yes, but the responsibility of the Customer rests with the entire organisation.

“Who in the company should be responsible for maintaining, developing, expanding and appreciating this valuable asset? Certainly a VP of Customers would help. He would have to coordinate a variety of functions with different end goals.

“If we can find a way to expand he Customer asset, we will most certainly gain sustainable competitive advantage.

“Some companies try to do some of this: One division of Nortel, a US telecom company, has developed a Customer Value and loyalty team reporting directly to the President of the Division, thereby ensuring measurement and follow-up of the implementation of Customer Value. The data collected is shared with employees to motivate them.”

“What is the strategy for maintaining and growing the Customer asset? Just looking at Customer loyalty is not enough (it’s the result); the real cause is recognising the Customer as an asset and then maintaining and growing that asset by increasing Customer Value.”

Doug says, somewhat sheepishly, “I agree then that there is no focused Customer strategy in my marketing plan.”

Customer Strategy

Krish adds, “What do we need to do to develop customer strategy? We have to start at the beginning.”

“Of course,” agrees Dough. “We have to begin with the reason for our being a business. I guess we have to start with our vision and mission statements and then build a synergistic, holistic, focused strategy, driven by Customer needs.”

“Right! But before we get to a plan, I want you to look at the way the business is structured. The vision and mission are placed in the center and everything revolves around them. The corporate strategy emanates from the vision and mission, and all the resources are harnessed to achieve the goal.”

—Reprinted with permission from Response