When is it appropriate to favour the customer experience over profits?

Harley Manning: You should never put the customer experience ahead of profits

According to Harley Manning of Forrester, the answer to the question “When should you favor customer experience over profits?” is “Never!  In his post Harley recounts the following:

After some preamble about the pressures his company was under to increase revenue and profits, he asked, “Given that, when should we put aside the need for profits and fund customer experience projects instead?”

His question surprised me. And I clearly surprised him when I responded, “Never.” I let that hang in the air for a moment so it could sink in. Then I added, “You should never put aside the need for profits when you fund customer experience projects.”

I could see that people were a little confused so I went on. “You should only fund customer experience projects that will produce profits. That’s why you do those projects in the first place. And if you have other kinds of projects that will produce better business results, do them instead. But if you take the time to create the business models for your CX projects you’ll probably find that they’ll produce better ROI than most of the initiatives they’re competing against.”

Does Jeff Bezos agree with Harley Manning’s take on customer experience and profits?

As soon as I read this post by Harley Manning the following thought came to mind: what about Jeff Bezos and Amazon?  It occurred to me that Jeff Bezos has consistently sacrificed short-term profits in order to attain the long term leadership.  And how has he gone about attaining that leadership? By focussing on creating compelling value for the customer.  And what is a key ingredient of this compelling value?  The customer experience.

If you doubt my words then read the following post: 6 Things Jeff Bezos Knew Back in 1997 That Made Amazon a Gorilla.  Here is one particularly relevant part of this post:

Bezos: It does fit into my view. Our first shareholder letter, in 1997, was entitled, “It’s all about the long term.” If everything you do needs to work on a three-year time horizon, then you’re competing against a lot of people. But if you’re willing to invest on a seven-year time horizon, you’re now competing against a fraction of those people, because very few companies are willing to do that. Just by lengthening the time horizon, you can engage in endeavors that you could never otherwise pursue. At Amazon we like things to work in five to seven years. We’re willing to plant seeds, let them grow—and we’re very stubborn. We say we’re stubborn on vision and flexible on details.

In some cases, things are inevitable. The hard part is that you don’t know how long it might take, but you know it will happen if you’re patient enough. Ebooks had to happen. Infrastructure web services had to happen. So you can do these things with conviction if you are long-term-oriented and patient.

When is it appropriate to favour the customer experience over profits? 

There is no simple answer to this question. Why?  First, one has to be clear that there are all kinds of profits.  There are this years profits. There are the profits that will be made in the next three years. And if you are Jeff Bezos you are thinking about the profits that will be made over the next seven years. If you are Toyota you might just be looking out 20+years.

Second, there is the matter of what falls under the umbrella term of ‘Customer Experience’.  Some, possibly like Harley Manning, see it simply as customer interaction management – how the customer is treated at various touchpoints along the customer journey.  Others, like me, include the brand (as in reputation not marketing messaging) and the core product under the Customer Experience umbrella.

Where do I stand on this?  My answer is “It depends!” What does it depend upon?  It depends on you and your circumstances. Do you have the leeway to play the long-term game?  Then I say make the short-term sacrifice and go for long-term market leadership.  If you do not have that leeway then you have to follow Harley Manning’s advice.  And in doing so you will leave open the door to the likes of Jeff Bezos – the disruptors. Which is great because progress relies on disruptors to shaky up things up and create ‘new value’ for customers.

Posted on March 4, 2013, in Case Studies, Customer Experience, Customer Strategy, Leadership / Change / Transformation and tagged , , , , , , , , . Bookmark the permalink. 7 Comments.

  1. Hi Maz,
    I agree with you wholeheartedly on this point. However, there is a part of Harley’s statement that troubles me when he says “put aside the need for profits and fund customer experience projects instead”.

    Is it me or is he implying that customer experience is something that gets done on a project by project basis and isn’t integral to the business?

    Adrian

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    • Hello Adrian

      Now you bring up an interesting point! It occurs to me that he is saying that customer experience is something that gets done on a project by project basis. That is to say that you deal with customer interaction issues where dealing with them increases revenues or reduces costs. As to the second half of your question, implying that it isn’t integral to the business, you and I would have to read through the lines as he is not definitive on this.

      When I look at this the following shows up for me. An organisation can work from the context: this is the kind of company we are, this is the bargain we are striking (the value proposition) with the customer, and this is the kind of customer experience we need to deliver to honor this bargain. Operating from such a stand the company does what is needed to generate the right kind of experience. That includes addressing any aspects of the customer experience that are failing to live up to the promise. It also includes listening to customers and making appropriate adjustments. This is the kind of context from which Jobs (Apple) and Schultz/Behar (Starbucks) operated from.

      Or you can operate from a totally different context. We do what we do. We are what we are. We deliver the kind of customer experience that we deliver. Now lets take a look at our interactions with our customers and fix that which holds the promise of increasing revenues, reducing costs and improving profits. This stance is radically difference to the first one. And it occurs to me that this is the dominant stance. This is the stance to which Shultz’s successor operated from to meet the needs of the analysts, degraded the customer experience, and eventually led to Schultz coming back and reconnecting the people in the business with what Starbucks stood.

      Where do you stand on this?

      Maz

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  2. Maz,

    I can’t help but think that the customer experience and profits are two sides of the same coin. Without one you won’t have the other.

    As for long term versus short term 8 years ago I engaged a consultant to do a one day freebie / try before you buy for a company I worked at.

    He did a super job but there was no contract add the end of it.

    I found out yesterday that he has just landed a large contract with that very same company, all because he made a good impression 8 years ago.

    As my mum says you have to give to get. You also need patience (and cash flow).

    James

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    • Hello James

      Yes and No. The critical question is one of timing. And that is what you have shared in your story of the consultant.

      I can choose to invest today in the customer experience like Metro Bank is doing and right now I lose money. And I continue to invest as I expect the profits to arise in the longer term: not this year, not next year, possibly not the year after, yet I see market leadership say in five years time and the profits that follow from that.

      As you point out you have to give to get. And you need patience which can only be there if you have the cash-flow to play for the long term.

      Maz

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  3. Maz you could be Swiss, as we tend to use “It depends” in answer to most questions!
    James, I agree with you that you can’t have one without the other, at least more than in the very short term. I believe that it is customer centricity and positive customer experience that is the only thing that can bring profits in the long term.
    Thanks Maz for another great post!

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    • Hello Denyse

      Thank you sharing that with me. And I hope that all is well with you.

      It occurs to me that life is grey, not black and white, and as such it does not lend itself to simple yes or no answers. Just about everything is situational. What works depends on the specific situation including the actors themselves.

      Maz

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