You must be a customer-centric business, your annual report says so.

Very few businesses make a virtue of treating their customers poorly. The one exception to this that comes readily to mind is Ryanair whose long-term CEO, Michael O’Leary, is famed for his incendiary comments about his customers and Ryanair’s service.

Here’s just one interesting example attributed to Mr O’Leary, in this case by Telegraph Travel on Sep 28th 2016:

"If drink sales are falling off we get the pilots to engineer a bit of turbulence. That usually spikes up the drink sales."

Nice. Especially if you’re a nervous flyer.

A quick Google search reveals, however, that there are many cases of CEOs who have openly shown disdain for their customers. Perhaps the most famous in the UK is the case of Gerald Ratner, scion of the high street jewellery chain of the same name, who in a 1991 speech described his own products as ‘total crap’ thereby directly insulting his own customers and ultimately costing him his job.

These exceptions notwithstanding, most businesses claim to be customer-centric. Every corporate annual statement or strategy document worth its salt includes fine words on the matters of delivering customer value, treating customers well and achieving great levels of customer satisfaction.

But does this make these businesses customer-centric? Hardly.

I would argue that many large businesses today are not truly customer-centric beyond a relatively thin veneer of customer platitudes. Whilst most certainly acknowledge the need to deliver value to their customers, many have what is essentially an inside-out Profit orientation: in other words, customers are their route to generating profit and that profit is their main goal. This contrasts sharply with an outside-in Value orientation, which represents the essence of customer centricity. Here, delivering value to customers is the main goal and profit is the inevitable by-product of doing this well.

The economics of why it’s good to be customer-centric are well understood. Customer centricity drives customer loyalty. With a given cost of customer acquisition, loyalty then drives ongoing cost of sales down and revenues up, thus generating superior profits over the customer’s lifetime – the familiar concept of Customer Lifetime Value.

There is strong evidence that customer-centric companies generate superior financial returns than their less customer-centric counterparts. In his seminal work on customer loyalty, The Loyalty Effect, Frederick Reichheld of Bain & Co found that most large companies lose 50% of their customers every 5 years, 50% of their employees every 4 years and 50% of their investors every year. He also asserts that this disloyalty stunts growth by a whopping 25% to 50%. High stakes indeed!

Back to those two company orientations: Profit and Value. The subtle but critical difference in core philosophy between them translates to very different behaviours. Let’s look at an example to illustrate the point.

In The Loyalty Effect, published back in 1996, there’s a super case study about State Farm Insurance which has stuck with me ever since I first read it over 20 years ago. State Farm was lauded as a leader in the art of customer-centricity, one of the fastest growing companies in its sector and was named by Fortune magazine as one of the USA’s great businesses.

When Hurricane Andrew hit Florida in 1992 it caused a huge spike in insurance claims. Many insurers settled the claims and then refused to re-insure. State Farm, on the other hand, actually overpaid on its policy obligations. Why? Because they expected to insure the affected properties for many years into the future and they were hence protecting their future profits. Inspiring!

Their message to customers was loud and clear - we trust and value you.

Contrast this with a recent personal example. I’ve been a loyal customer of the telecom company that provides my home telephony for many years. I’m out of contract right now and they advised me to wait a while before re-contracting as better deals are on the horizon. So far, so good, although they might have offered me the better deals straight away (but let's not nitpick). Then, just a week later, I needed a replacement broadband router. No problem, except the company absolutely refused to ship one unless I signed a new contract immediately. Catch 22!

Their message to me, the customer, was loud and clear – we don’t really trust or value you.

It’s all about trust

And trust is the key point here. Trust is central to any relationship, whether personal or business, and is the magic outcome of the customer-centric Value orientation.

The principle is simple: if you are customer-centric, you will build a relationship of mutual trust with your customers, they will reward you with their ongoing patronage and the economics of customer loyalty will lead you to higher success.

The opposite is equally true.

It's worth noting here that State Farm’s retention rates, at the time The Loyalty Effect was published, were an impressive 95%, the best performance in their sector.

It's also worth noting that I’ve stayed with my telecom provider mainly because I’m too lazy to switch. I would not hesitate to do so if someone made it ultra-easy for me. Same for my current banking and utility providers, whose services are just as poor.

So, if you want a clear indication of your level of customer centricity, measure your customer churn. The lower it is, the more customer-centric you are likely to be. The actual measures you examine will of course be context specific, but the concept is the same across sectors.

And you’ll know you’ve arrived at the very pinnacle of customer centricity when your customers buy more from you, or repeat purchase, even when they know your offer is inferior to, or more expensive than, the equivalent from a credible competitor. Why? Because it almost certainly means they really trust you.

Small versus large

In my experience, smaller companies, including start-ups, are often markedly more customer-centric than their larger counterparts. This underlines the point that customer centricity is a matter of cultural orientation rather than resources. The reasons are not hard to understand.

Small companies tend to focus on their customers because if they don’t they will go out of business very quickly. Big companies often don’t have this degree of immediacy, which fosters unintentional complacency.

There are also other factors at play making it harder for large companies to maintain their customer edge as they scale. Examples include:

#1 Silos of responsibility. Large companies inevitably become organisationally fragmented as they grow. This creates complexity, inertia and internal discord, making it harder for staff to do the right thing for their customers.

#2 Targets & shareholders. Large companies are often beholden to external stakeholders such as corporate investors or public equity markets. These factors can significantly skew behaviours as the company seeks to serve these important stakeholders as well as its customers.

#3 Staff changes on customer accounts. Organisational change is a fact of life in most large companies. This means the person or team accountable for a given customer can change frequently. This serves to continually set the 'trust needle' back to zero, or at very best, set it backwards.    

#4 Dilution of original vision & passion. The original founders of large companies are often long gone. These were the very people who created the original customer-centric vision that enabled the company to thrive. But their customer passion is no longer there as a guide for the current batch of executives and staff.

The bottom line is that big companies have a huge amount to learn or, to be more precise, 're-learn' from smaller companies.

Another personal example underscores the point:

My local fruit & veg shop is a brilliant model of world-class customer-centricity. There is always a cheery welcome. You can try anything in the shop without obligation to buy. They will reserve expensive perishable goods for you on the strength of a phone call and a name. They show absolutely genuine gratitude for your business, however small. If some of the fruit looks less than perfect, they pick it out and ensure it goes in the bin. When I leave, I feel uplifted. It's a fantastic experience and I would gladly pay double what my local supermarket charges for the exact same goods.

If only the respective CXOs of my telecom provider, bank or utilities had half that level of customer focus their businesses would, I am certain, be in much better shape.

How customer-centric companies behave

All of this naturally leads us to the question of how customer-centric companies actually behave. Here’s my personal view based on what I’ve seen and experienced:

• Their energy is directed towards their customers. Every person and activity has a clear and direct link in some way to customers.
• Executives focus on customer status and value delivery. Financial performance and strategy are important but come after executives are aligned on how well they are serving their existing customers.
• Staff are empowered to deliver great customer service. Decisions on doing the right thing for customers are taken by those on the front line, who are properly empowered to do so.
• They do the right thing for their customers, always. Integrity is paramount and the company will always sacrifice its own short-term P&L performance in pursuit of this immutable principle.
• They innovate for their customers. They never stand still or settle for the value being delivered. They constantly challenge both themselves and their customers.
• They demonstrate the value they are delivering. They know exactly how much value they are delivering to their customers and discuss it openly and regularly.
• They don't rely on their customer contracts. They are bound by their customer promise and will do what it takes to deliver value, short of becoming insolvent, whatever the formal contract says.
• They map and constantly improve the customer journey. They work to make each customer’s experience as efficient and rich as it can possibly be.

Bringing it all together

Pretty much every large company claims to be customer-centric, but in my view not that many truly understand what this means and even fewer practice what they preach.

I think pretty much all companies genuinely want to do good things for their customers; to think otherwise would be inconceivable. However, for most, their actions are firmly grounded in the company’s own financial interests and not those of their customers.

Those who do understand customer-centricity, and practice it in their engagements, have a clear and deserved route to trust, loyalty and superior business performance.

The real question is then simply this – which camp is your company truly in?