Is eliminating the bargaining power of customers more important than working on the Customer Experience?

Listening to the Steve Jobs biography by Walter Isaacson I am left with the impression that nothing was more important to Steve Jobs then using technology to produce great products that delivered a great user experience.  Good enough was good enough, even great, for many in the computer industry.  Only insanely great was good enough for Steve Jobs.  Anything less was simply not good enough, it was not ‘art’ and not ‘worthy of artists”; great artists don’t want to put their names on good enough art.

Given that Apple, Amazon, Zappos, USAA, SouthWest Airlines, Zanes Cycles, Richer Sounds, Salesforce.com, O2, American Express.. have shown what can be done by focussing on the customer, why aren’t companies focussing on the Customer Experience?  According to Mindshare the biggest issue with companies and executives is turning VoC into changes in the business such that a powerful impact is made on the Customer Experience.  Why is it an issue?  Because of ‘Other Priorities’.  What can these other priorities be?

Clearly THE priority is the share price and the way to hit that is to focus in revenue generation and profitability.  How do you increase that?  The standard framework is that put forth by Michael Porter in the Five Forces model.  According to this model, the companies that do well are the ones that:

  • Reduce/eliminate the bargaining power of customers”;
  • Reduce/eliminate the bargaining power of suppliers;
  • Reduce/eliminate the threat of new entrants;
  • Reduce/eliminate threat of substitute ‘products'; and
  • Reduce/eliminate competition by ‘taking out’ competitors

Do you notice what is implied in this framework?  Do you notice that the assumption is that the company and the customer are in competition?  The aim is to reduce the bargaining power of the customers.   It occurs to me that the Tops are not sitting there fretting over customer and the Customer Experience.  It occurs to me that they are sitting there figuring out how to outmanoeuvre customers, suppliers, competitors and regulators.

The financial crisis, the BP Gulf of Mexico oil spill and the phone hacking scandal (in the UK) have shown that regulators are easy to ‘buy’/outmanoeuvre.  That leaves customers, suppliers and competitors.  Isn’t the best way outmaneuvering customers to set up barriers to entry (patents, ‘buying off’ regulators, buying/holding key assets…), buy up/share the market with the competition and creating a difference where no difference exists through advertising and PR?

As I was mulling this over  the folks at The Simple Dollar emailed me this graphic about how AT&T and Verizon are doing extremely well due to the duopoly that they have created and maintain.  I can’t help but think that to arrive at this place is business nirvana for just about every CEO and his band of merry men (the Board of Directors)!

Posted on May 14, 2012, in Case Studies, Customer Experience, Customer Philosophy, Customer Service, Customer Strategy, Leadership / Change / Transformation, Marketing, Sales and tagged , , , , , , , , , . Bookmark the permalink. 4 Comments.

  1. Maz, I agree with you, but I do like Porters 5 forces

    I suppose it depends on how you choose to interpret it

    John Lewis have effectively “Reduced/eliminated the bargaining power of customers” because their service is so strong and their gaurentee so good I really don’t feel that I have an option to go anywhere else.

    It is little like Aesop’s fable about the sun and the north wind

    James

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    • Hello James

      You make a great point. One can eliminate the competiton through being of genuine service: great products (Apple); great value and service (Amazon); service ethic and care (John Lewis); value and service (Richer Sounds)……..

      Or one can eliminate competition like the telecoms industry does or the energy industry does or the financial services industry does – same self serving practices that all players use to expoit customers.

      maz

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  2. adrianswinscoe

    Hi Maz,
    I’m not sure I agree with your playing of Porter’s Five Forces.

    For me, it was always a tool for analysing your competitive position and from there it helps with defining strategy going forward. What is unfortunate is how some people interpret it’s use and portrayal of customers. That, I believe, is their interpretation and not Porter’s.

    In Porter’s original article he finishes by saying: “The key to growth—even survival—is to stake out a position that is less vulnerable to attack from head-to-head opponents, whether established or new, and less vulnerable to erosion from the direction of buyers, suppliers, and substitute goods. Establishing such a position can take many forms—solidifying relationships with favorable customers, differentiating the product either substantively or psychologically through marketing, integrating forward or backward, establishing technological leadership.”

    Adrian

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    • Hello Adrian

      Thank you for taking the time to put me into the picture. It is possible that I have misunderstood Porter and up for reading him again. And yet there is a part of me that sees Porter (early Porter) as one who focussed on competition, positioning and competitive advantage. I notice little in his work to do with building genuine mutually rewarding bonds.

      One company that took Porter’s work seriously abused customers (acting arrogantly, high prices…) as they were the only supplier. And this company got away with it for many years. Then two things happend: first a credible competitor (alternative supplier) showed up and then this was followed by a fall in demand for this product. This arrogant company soon found itself in a difficult position – it was payback time.

      The person that did bring customers back into Strategy in the sense of a mutual rewarding relationship. His name is Kenichi Ohmae – he stressed the importance of getting close to customers, cultivating relationships, solving genuine customer problems, creating genuine value for customers. As opposed to focusing on customers and staking out a competitive position.

      All the best
      maz

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