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Is Marketing the Next Finance?

28.02.2010

Rory Sutherland at Ted Talks helps me understand the value and cost of customer loyalty

I recently discovered Rory Sutherland from one of my favorite podcasts: Ted Talks.  After rapidly devouring all the YouRoryAtTEDtaksTube videos and blogs on this Olgilvy “Ad Man”, I found myself stuck on one of his minor theses: “Is marketing the new finance?” (quoted from Guy Phillipson).  He argues that every new corporate initiative in the last ten years has created the all-important spreadsheet analysis that carefully laid out shareholder value, including an analysis of the perception of the company by the financial community.  How about using the same care in analyzing how the customers feel about the company and its products?   From Rory’s perspective, business is simple: Find something that customers want to buy and then remove the barriers that keep them from buying it.   I think he is on to something.   He proposed that this current financial emphasis should be replaced by a real solid marketing emphasis.

Days later, I found myself with a mobile telecom executive.  At some point, I shared with him my frustration about why so many operators in the most developed markets (UK, US, Ireland, Italy, etc.) have such poor network quality.  He explained that the network infrastructure is still the largest cost of the operator — both the radio base station and all the connections between.   His company is one of best in terms of network quality compared to its competitors, but he confided that they often asked themselves if this was the best business strategy.  According to shareholder value metrics — perhaps not.  Shareholder metrics would probably respond better to a new target market pricing package, a long term contract commitment business model, a lower cost/quality outsourced support call center, or a new breakdown in the billing that could include some dubious charges.  However, if I go back to Rory, the call connection is what the customer wants to buy and all these other shareholder enhancing things are not removing the barriers that keep the potential customer from buying.  These simply are not creating an increased value in the customer’s mind.

In the long term, I think it is always dangerous to be offering a product that makes customers feel trapped because of low price or a unique lock-in.  Customers that hate their supplier are constantly looking for a reason to leave that supplier.  I don’t care how much profit a telecom is making, if the customers hate them, they will ultimately loose to the one they do not hate.  Billing games, poor call quality, and poor customer support might increase margins and shareholder value in the short term, but I would not want my money invested in them.

A cheap ticket and a convenient connection, for most of us, will usually be a good substitute for comfort and other details that are often given up when selecting discount airlines.   However, I am noticing a growing number people who are especially vocal about their hatred for Ryan Air.  I am one of them.   DHL has more respect for its packages than Ryan Air does for me!  I have the impression that other discount airlines believe that they are saving me money by removing things they think that I may not be willing to pay for. (removing barriers as Rory would define them)  Instead, I surmise that the Ryan Air model must be based on the belief that if they have the lowest fares we will irrationally be compelled to use their service no matter what discomfort they inflict.  And to date they are successful.  With this approach, Ryan Air is almost the only airline in Europe that has continued to build shareholder value in the current business environment.  But I can’t help but think that all this growing ill will and bad feelings will have a cost in the very near future.

I actually hate investing in stocks and other financial instruments.  I simply find the activity boring and loose interest.  However, if I did have an interest in stocks, I would be looking for a way to sell Ryan Air stock short.

I inherently knew that customers mattered long before I moved into sales and marketing.  I mentioned that I don’t like to buy stocks.  This is in spite of the fact that the only three stocks I ever traded were very positive experiences:  KVH, Garmin, and a company called Xircom.  In all three cases, I bought one of their products, enjoyed the overall experience despite the fact that each product failed, and in all three cases I had an excellent customer service experience.  On the phone with the KVH call center — I casually asked about how their electronic compass worked and within days, I received a white paper describing the technology in layman terms.  Garmin had a simple and fair return policy that had a price for “no fault” returns — “Do something stupid with our $200 unit and for $100 we will send you a refurbished one.”  Xircom had severe problems with its second generation credit card sized PDA product at its launch.  When the units started failing and were sent back, the factory soon realized that a fix would take some time.  At that point, they sent me a first generation unit as a temporary solution (as a gift) and said my second generation unit would soon be fixed.  True to their word, I used that micro PDA for years in both its first and second generation forms and remember it fondly. In each case I bought the stock and in each case I more than doubled my money in less than 18 months.  All of these companies fostered loyal customers who thought they were great even when the product failed — I knew instinctively that real shareholder value would happen.

Now let’s see if my instinct works in reverse and if Ryan Air will finally be punished by its customer base and ultimately by its shareholders.

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