Customer Value: Are You Taking Competition for Granted?

Gwynne Young
Managing Editor, CustomerThink
Member

Posted 29-Sep-2006 01:57 PM
It seems like such a logical thing to say that you have to have customers, or you won't have a business. And therefore, you have to value those same customers. But in the real world, there's a big drive to please the shareholders, cut down on expenses and increase revenue and profit.

As David Rance notes in his article, Have a Plan: Customer-Centricity Doesn't Happen by Osmosis, for the Oct. 2 Advisor newsletter, too many companies are thinking in the short term and not doing the long-range planning to keep their customers.

I would say flat out that they really don't value their customers and are biting off the hand that feeds them. And I would venture a guess that it's because these same companies are too complacent about competition. Only competition would shake them up enough to stop their obsession on short-term gains for longer-term market ownership.

Do you agree? Do you find that companies that are forced to compete do more for the customers?

Graham Hill
Guru
Member

Posted 30-Sep-2006 03:29 AM
Gwyyne

As a general thesis, competition in free markets has been unequivocally shown to increase the value of what is offered to customers, whether by reducing prices, increasing benefits, or a combination of both. Just think of what competition did for customers in the US automobile industry once the Japanese arrived, or in the airline industry once low-cost carriers arrived.

But competition left to its own devices is not enough. Rules and regulations that underly competition in free markets need continuous adjustment to maintain a competitive level-playing field.

Without appropriate rule-setting and regulation, competition often stagnates as industries collude to raise prices, or simply set prices And/or benefits similar to each other without actually colluding. Just think of the me-too offerings of most mobile telcos, banks and other service industries in the recent past. It was only the recent arrival of VMNOs, on-line banking and other service industry business model innovations that has sparked change after decades of little change.

And as if customers don't get a bad-enough deal from companies not having adequate competition, there is also a double whammy if their suppliers are equally limited by only having a small range of buyers through which to get their own innovations into the hands of customers. A so called oligopsony.

See the wikipedia entries for monopoly, monopsony, oligopoly and oligopsony for more on these difficult technical economics areas.

Graham Hill
Independent CRM Consultant

rick anderson
Member

Posted 02-Oct-2006 08:23 AM

hi gwynne

im doing some things in my business (eg..customer retention program) that i wouldn't otherwise do..*but for* the competition..

regards
rick

Gwynne Young
Managing Editor, CustomerThink
Member

Posted 03-Oct-2006 10:43 AM
Graham,

I quite agree that competition alone doesn't necessarily create good things for customers. But in my personal life, I find the companies that treat me the best are those that know that they've got competition. When there's no competition, I get the distinct impression that the attitude is: We don't have to be nice to you. We know you won't find our product/service anywhere else.

I would love to find businesses that do the right thing for customers regardless of whether they're the only game in town.

Kregg
Member

Posted 03-Oct-2006 11:04 AM
When I was young and dumb I used to think bragging about not having competition was an effective sales tactic.

Having managed sales and marketing operations for several high tech start ups over the past 15 years, I have found that not having competition can be a very bad thing for several reasons.

1. The economic buyer in a complex sale will almost always have to persuade other internal buyers that the product or service is the right one for the organization. The customer needs to have some context for their decision making process. If they have nothing to compare you to, how do they know they are making the right decision?

2. From an investor's perspective, no competition usually means one of two things:

a) The product/service is ahead of its time and will therefore need to be an earth shaking break through, or require a lengthy ramp up to revenue and profitability.

b) No one else is interested in the business model, either due to lack of demand, prior failed attempts to make it work, or other market and economic rationale.

3. The vendor providing the product has nothing to measure themselves by, making introspection nearly impossible.

I have found it to be far more effective to give the customer something to compare you to rather than attempt to put blinders on them, even if you have to fabricate a little. There is always some alternative, whether it is another commercial solution that is close but not quite directly competitive (which keeps you safe from a sales perspective), an internallly developed solution, or doing nothing at all.

I believe it is wiser to arm the customer with the alternatives in advance rather than to wait for them to discover them or hope they don't. This helps to establish the trust and respect required for success in a complex sale.

Kregg Ray
Co-Founder AppShore Inc.
415-350-3472
kray@appshore.com
www.appshore.com

Graham Hill
Guru
Member

Posted 04-Oct-2006 11:52 PM
Gwynne, Kregg

Building upon Kregg's excellent comments, (both in this and other posts), I remember when British Telecom didn't have any competition in business international telephony. Customer satisfaction rates were pretty high. With the introduction of defacto competition from other telcos, not only did British telecom lose a significant portion of the market, but also those customers that stayed with British telecom had significantly lower satisfaction (something like 20% points lower!). This shows clearly the effects that competition has on both customer perceptions of quality of service of a former monopolist and customer retention.

I agree entirely with Kregg that companies who operate from a strong leadership position need to be particularly careful that new competitors, or substitute products, do not destroy their business. It is more often gradual, disruptive innovation that destroys a company's leadership position than sudden, radical innovation.

Responding to potential competition (and if the business model is lucrative competition will quickly arrive) may mean pro-actively offering more "value" than was previously offered. Value can mean additional services and experiences in addition to the obvious improved products and/or reduced prices.

Graham Hill
Independent CRM Consultant