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

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.

Author: Maz Iqbal

Experienced management consultant working at the intersection of strategy, customer, and technology. Combine a tendency to think strategically with a penchant for getting my hands dirty at the coalface of implementation.

6 thoughts on “Why I Prefer Not To Do Business With Customer-Centric Businesses”

  1. Hello Maz, It’s an interesting article, but you really not describing a customer-centric business example in it. Tesco example illustrates data-driven business focused on cost optimization model. Customer-centric businesses invest into employees, service and product quality because they focus on delivery of superior customer experience profitably. I cannot offer any examples of such company in UK, since I live in US. However, I enjoy doing business with Amazon since they opened their doors.

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    1. Hello Gregory,
      You and I will have to disagree here. During the first decade of the 21st Century Tesco was hailed an exemplar and innovator in customer-centricity. No less an authority then Peppers & Rogers, who coined the term-definition, customer-centric, hailed Tesco as such.

      What would be great is if you were to share with us what you consider the defining characteristics (behaviour) of a customer-centric way of doing business. Then we may have something to chew over.

      Thanks for taking the time to share your take on the matter.

      maz

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  2. Maz, you say Tesco used “a variety of clever manoeuvres”.

    What I can’t understand is why these stopped working, which clearly they did.

    Could you elaborate? They must have been doing something right.

    James

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    1. Hello James,

      A combination of factors. Think about a television whose picture quality fades a little at a time such that the viewers don’t really notice. Until they just happen to see a new television then suddenly they notice the poor picture quality of their tv. It occurs to me that something like this has happened to Tesco.

      The key factors are the prolonged recession which commenced 2008. This put the squeeze on incomes – disposable income. And the sound ‘low prices’ proposition of the discounters like Aldi and Lidl. Once customers had to become careful with their money some of them started shopping around. And in so doing they noticed that the price difference on the basics. Other customers realised that they could get better product quality at the likes of Waitrose.

      So some Tesco customers choose to buy the basics for a much lower price from Aldi and/or Lidl. And the ‘treats’ from Waitrose. As for the shopping experience it was no worse at the discounters and a lot better at Waitrose.

      What all those who champion customer-centricity forget is that it is not a guarantee of success. Competitors disrupt things. And so do economic circumstances and changes in consumer behaviour.

      For my part, I say that Tesco got greedy. It took its customer base for granted. It thought it could outsmart its customer base forever. And it worked for so long until customers woke up and saw that they could get a better deal at Aldi/Lidl and better products/shopping experience at Waitrose and Sainsbury.

      Hope that sheds some light on the matter.

      maz

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  3. Maz,
    When you say “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”, I wouldn’t say that that is a customer centric way of doing business as it’s more about what they get rather than a balanced approach.

    Adrian

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    1. Hello Adrian,

      Tesco was hailed as customer-centric exemplar by those who invented and evangelised the concept of customer-centricity. When? During the first decade of the 21st Century.

      It occurs to me that you have your own definition of customer-centricity. And it something like being good to customers. This is not the definition agreed upon by the authorities. A customer-centric way of doing business is only meaningful (according to the authorities) as being in contrast to a product centric way of doing business. Neither of these concepts involves being good or fair to customers. In fact they are silent on how one should treat customers. And there is absolutely no consideration or talk about any ethical or moral dimensions.

      For my part, I am clear that Tesco is an exemplar of the customer-centric way of doing business. It has collected and harnessed data to increase share of wallet from its existing customer base. It has expanded its range of products in the stores. It has opened new businesses e.g. Tesco bank and financial services, Tesco Mobile, Tesco Direct. It came up with home delivery….

      maz

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