In today’s business world, there is a serious disconnect between intentions and executions, says Lior Arussy, author of Passionate & Profitable: Why Customers Strategies Fail and 10 Steps To Do Them Right! (John Wiley & Sons, 2005). The problem is that the CEO thinks that the intentions are being executed, but in reality, they’re not. Arussy, who calls himself a “corporate marriage counselor” who helps companies fall in love with their customers, thinks that too many businesses merely pay lip service to the idea of customer-centricity, in the process losing a big opportunity for an edge over the competition. In this edition of Inside Scoop, Arussy talks with Bob Thompson, CRMGuru.com founder, about his book, his work and his philosophies.
The following interview, which took place April 21, 2005, was edited for length and clarity.
Bob Thompson
Lior Arussy, thank you very much for joining me in our Inside Scoop interview program. I’m really pleased to have the chance to ask you a few questions about your new book, Passionate & Profitable. I’d like to start off by asking you to give a brief overview of your business and what you focus on in your consulting work—and why you wrote this book.
Lior Arussy
When people ask me what I do for a living, I have a very simple answer: I’m a corporate marriage counselor. I help companies fall in love with their customers, and stay in love for the longest period of time. If you want to break it down more specifically, we help companies, through our education programs and consulting engagements, to literally operationalize their customer strategy intentions. What we found—and this is related to the book—is that companies are not lacking great intentions when it comes to the customers. They have all of these posters, and T-shirts and programs and CEO memos and all these kinds of things. But somehow in the process, it does not materialize into an amazing experience that will make the customers stay loyal for the longest period of time.
We were researching that. We have an annual study that we do with VPs of marketing and customer care, and we found that there is a serious gap. There is a serious discrepancy between intentions and executions. The problem is that the CEO thinks that the intentions are being executed, but in reality, they’re not. We help businesses make the transition from a product-centric company or service-centric company to a customer-centric company and explain to them the whole path: the operational element, the compensation, the experience redesign, the relationship restructuring. These are all part of what we do.
Bob Thompson
How long have you been involved with this?
Lior Arussy
I’ve been doing it indirectly through my employment as an executive at a company called Nice Systems, which worked a lot with customer organizations. About three years ago, I decided to go on my own and develop the methodology all of the way and deal with multiple touch-points in the organization and not just the customer service.
Bob Thompson
So what caused you to write this book? Books are an enormous undertaking, so my hat’s off to you for getting it out and published. Why did you go down that route?
Lior Arussy
I went down that route, because I found an interesting issue that is one of the biggest misconceptions in customer strategies today. As part of the issue—that companies think that their intentions are being implemented—we also found in our study that 60 percent of the executives did not believe that they deserved customer loyalty. It was an eye opener when we realized…
Bob Thompson
That they didn’t deserve the loyalty of their customers.
Lior Arussy
They did not deserve customer loyalty. In fact, 70 percent of them said that they do not have the tools and authority to do what’s right for the customers, and these were VPs.
Bob Thompson
Wow.
Lior Arussy
We realized how big the gap is between intentions and execution and how companies do not know how to operationalize it. But probably the even more important thing is, when we were trying to figure out why it’s not happening, we realized a core issue here, which is they’ve never strategically decided to focus on the customer.
By the way, the definition of the word “strategy,” as opposed to a program or campaign? Strategy implies trade-off. When you’re going to focus on the customer, you cannot do some other things. You cannot behave in one way and then be something else. As my father once told me, “You cannot be in love 75 percent of your time and then the rest is available for some other activities.” You’re either married or you’re not married. That ultimate commitment was never made by corporations. In addition—which is the source of the name of the book—companies, lacking the understanding of the economics of the relationship—the real value of customers— actually believe that passion and quality of service and great experiences are a cost, not a way to become more profitable. There’s a misconception there.
Bob Thompson
You used the terms “passionate” and “profitable.” I find that fascinating. My view is that I think a lot of executives think it’s a trade-off, and I want to explore this a little bit more. But I think if you talked to a lot of executives, they’d say, “Look, we can either be passionate, and we can really take care of the customers or we can be profitable.” Do you agree with that?
Lior Arussy
This is exactly the core of the issue. I could not articulate it better. They believe that profitability comes from an efficiency model, where you squeeze the customer for the most money and you deliver the least amount of value. Or you can be passionate, but that’s a cost. That is exactly the misconception, because when we repeated the same study this year, we added the section called the economics of relationship.
And to our utter amazement, 89 percent of the VPs of marketing and customer care we surveyed said they do not know the cost of a new customer. Eighty-six percent did not know the value of a customer over a period of year. So if you don’t know what the economics of your relationships are, how can you say that passion is not profitable?
Bob Thompson
This kind of reminds me of when, years ago, the Japanese automakers came into the U.S. market, and initially the cars weren’t very good. We’ve kind of all forgotten that because we learned later that they learned to build high quality and cost-effective cars. There was a period where the notion was, if you want cheap, it’s going to be lousy. Then, gradually, they realized that you could actually and them together. You could have good quality and affordability. It seems as though that’s another sort of myth that is kind of engrained in the thinking at many companies: that you have to make these trade-offs. Your proposal is: Hey, you can do both.
I love that title, and I want to start into this whole discussion of strategy, because it seems like you’ve thought about that subject quite a lot. I want to ask you, first of all: Please give me a short, succinct definition. What is a customer strategy?
Lior Arussy
A customer strategy is an enterprise-wide direction and actions that focus on selling more and delighting more specific customers, as opposed to selling the same product to as many customers as possible. But it is an enterprise-wide commitment in the sense that everyone in the organization knows exactly what is their part, portion, responsibility, of the customer experience.
Bob Thompson
But you’re suggesting that it involves making choices about customers that you want to do business with, correct?
Lior Arussy
That is absolutely correct. You see, in the whole area of customer relationship, there are a lot of myths. One of the myths is: The customer is king. Well not every customer is a king. Some customers are bastards. Sorry for my language. They need to be ushered to the competition as soon as possible because they’re costing you way too much money.
There’s this notion about selling ice to Eskimos and glorified salespeople as rainmakers, and our argument is: Why are you even selling to Eskimos when you should be selling in the Sahara? I mean the cost of selling to Eskimos is way too high.
There’s a myth about market share. Companies constantly pursue market share as a sign of success. Well, market share means that you’re going to contaminate your customer database with unprofitable customers. Show me a single investor that will accept an unprofitable customer in the companies that they invest in.
Bob Thompson
Right. But just to play the devil’s advocate for a moment, there are some industries, where it seems that having scale and being super efficient and all of that is extremely important, because you need to leverage development costs and manufacturing costs. The bigger you are, the better you are. I think that’s the case in telecom, or even PCs or consumer electronics. Is it true that every company, no matter whether they’re big and hyper efficient like Dell or small and “niche-y” needs a well-defined, well-executed customer strategy?
Lior Arussy
My argument in the book is that every company that doesn’t know where the lines are being drawn will condition their customers to abuse them and to make it an unprofitable relationship. So if your state of mind from Day 1 is, every customer who can spell our name will be allowed in and we will take them on board, you are setting yourself up for failure. You are setting yourself up for unprofitability, and on most of that, you are going to upset your loyal customers who deserve better service because you’re too busy with the other ones.
But let me give you a great example along the same lines that you just brought up. Five years ago, the CEO of Samsung made a very courageous decision that I do not know too many CEOs in America would make: He pulled out of Wal-Mart and Target. He said, “If I want to be a high-end product, I cannot have these guys continue to devalue my product through price strategy. I can’t afford that. I want to move up. I want to have a higher price and a higher margin per camera, per cell phone and on so on and so forth. And therefore, I have to make a trade-off. I have to make a choice. That choice paid off. Samsung today has the highest price per cell phone in the world. Very innovative. Very cutting edge. They, by far, covered the laws of not doing business with Target and Wal-Mart by focusing on the higher end. So here’s a consumer electronics mass merchandising company that made that choice and profited from it quite heavily.
Bob Thompson
OK. So you’re kind of getting into another area I wanted to explore with you, which is some kind of a test. If a test for “do you have a customer strategy at all?” is, are you, in fact, agreeing that you’re not going to sell or target certain types of customers, if you don’t have some of these lines drawn—then that’s certainly one way you could test whether you even have a customer strategy. Is that correct?
Lior Arussy
Absolutely. I think I you can add to that one more element, which is: Go to the compensation of your salespeople. Look at the package. What you’ll find is, if you’re not preferring maintaining existing customers and growing their business over acquiring new customers, you’re already selling a message to your salespeople where they should focus their efforts. Their efforts should be focused on bringing new ones and not paying attention to the old ones, because we take the old ones for granted.
Bob Thompson
I want to talk about your 10 fatal mistakes, but not each one individually. You wrote that your 10 fatal mistakes or 10 crucial mistakes in customer strategy are:
- Culture of the new
- Lipstick on the pig
- Passion lost
- Real cost of cost reduction
- Failure to operationalize
- You get what you pay for
- Management of change
- Lack of leadership
- Unstructured relationship
- Technology shortcut
You’ve written a very nice book talking about each one of these. Time doesn’t permit us to go through all of them, but I wonder if you really were pressed to pick one that, in your experience and research, is the most common one that tends to cause companies to have poor customer strategy, is there any one of those 10 that you’d like to highlight and discuss for a moment?
Lior Arussy
Yes, let me give you an example, and I’ll highlight one of them for you. It is always argued that the worst situation a person can be in is denial, because they cannot even get started with taking care of their issues or their problems.
If we agree on that, then “lipstick on the pig” is probably going to be my choice, because “lipstick on the pig” is the biggest self deception that corporations impose upon themselves—by having all of these posters that say, “the customer is No. 1”; by having all of these T-shirts; and in demanding employees go and do all of this great stuff when their own processes; their own compensation plan; their own training mechanisms are contradicting that exact demand. I’ll give you a quick example.
We had a company we did a project with. The slogan was, “The customer is No. 1, and do whatever it takes.” Yet, at the same time, customer service people were instructed not to honor the money-back guarantee that was promised during the sales process unless the customer was absolutely furious and demanded it. Their job was to dodge what was promised in writing to customers. So there’s an example of a conflict. Yet, the CEO was fully aware of his big slogans and assumed that they were being fulfilled on their own.
“Lipstick on the pig” is probably the No. 1 issue, because companies fail to understand that they are in an inherent conflict with their customers. They live on Mars with a product focus, and their customers are on Venus with a lifestyle focus.
Bob Thompson
You’ve used the term, “passionate,” more than once already, and it’s part of the title of your book: being passionate, really having a spirit of caring about your customers, doing the right thing for them, et cetera. That word says a lot, but, especially as companies get bigger, they get more complicated. They have to answer to Wall Street. You can see where I’m going with this, right?
Lior Arussy
Sure.
Bob Thompson
The focus is on financial performance. The organizations are more complicated. They have to execute better. They can’t make it up every day like an entrepreneur while he or she is being passionate, right? So how is it that a more established company can keep this passion going while they’re running a predictable, well-executed, great operation, which is also required by companies of today?
Lior Arussy
At the core of your question is the assumption that there is a contradiction between the two.
Bob Thompson
I’m not making that assumption; I’m just saying: How do you do that? I mean, it’s easy to talk about. How do you actually do it?
Lior Arussy
The No. 1 issue: You hire different people. You hire them for passion, not for skills. You hire people who relate to your business personally. That’s the No. 1 issue. Right after that is education. Don’t train them. Training is for dogs. What we do is we train people to repeat the way we behave, as opposed to teaching them what we want.
For example, when we do exercises with our clients, we ask them what “excellence” really means to them. We ask them to come up with an image. In a room of 50 people, I’ll have 50 different answers of what excellence looks like. For one, it’s a Jamaica vacation. For the other one, it’s a baby that was just born and so on. I said to them, “You see what’s happened? You ask people to do excellence, and they don’t understand what you mean. You’ve got to shift your training to an education program that explains what this culture of excellence is that you really want to conduct. With companies who have succeeded in maintaining passion, despite their size and despite the magnitude of their operation, you can see that they’ve hired different people. They have educated them differently, and they have managed them differently.
And one last thing, when they said the word, “empowerment,” there was a substance behind it. It was not just one of those hollow words. I’m always amazed how, for example, every manager swears that he empowers his employees, yet no employees claim to ever get empowerment. It’s one of those things that disappeared in the translation, somehow.
So companies who successfully did it, like Southwest, which is a quite large operation, or Virgin Atlantic Airways, which is a quite large operation, started by not hiring on skills but hiring on passion, to begin with, identifying the characteristics that are suitable to the type of experience that they wanted to deliver. By the way, a Ritz Carlton experience is completely different from a Southwest experience. These are different people. Or a Build-A-Bear experience is completely different from an Anthropologie experience or a Tom’s of Maine experience. There are differences, and people relate to different causes and different experiences differently. So the starting point is the hiring, and then comes the education program, which is done differently. Then comes the management and the reward system.
Bob Thompson
Let’s talk about measurements and rewards. You’ve already said or implied at least a couple of times that you’ve got to be paying people for the right things and motivating them to do the right things. So you have this passion. You hire the right people. Can you give me an example of a company that does a good job of rewarding and paying and measuring things that encourage their employees to be customer-centric, assuming they’ve already hired them with the right skill set?
Lior Arussy
I’ll give you two of them from two different industries. One is the Commerce Bank, which actually has some wacky interesting compensation. I don’t know if you’re aware of that. But if you are an employee of Commerce Bank and you identify a process that stops you from serving the customer correctly, you’ll get $50. You’ll get it for each process like that that you identify.
Bob Thompson
That’s a good example. Very concrete. Even I would understand $50.
Lior Arussy
Yes, here’s another interesting one for you. If a competing bank branch was actually shut down across the street from you, that’s $5,000 to the whole branch. That’s another interesting one that sets people clearly. But let’s take Enterprise Rent-A-Car. They have one single measure in which they do the customer satisfaction, they do the promotion and they do the compensation: Would you rent again? Would you recommend? That’s it. They’re focusing on customer actions, not on customer perceptions. They tie everything—your promotion, your compensation—to a single question: Would you come again? Would you recommend?
Bob Thompson
A couple of other questions. I want to ask you about CRM technology. It’s the technology that’s the most closely associated, unfortunately, in our experience, with the term customer relationship management. I wonder if you could just comment briefly on whether business executives, when they think of CRM, think of it as a technology silver bullet? Or is that changing? Is it being viewed more as a business strategy?
Lior Arussy
It is starting to change. But the temptation to have a silver bullet that will not require you to go through the strategic trade-offs that are much more difficult and much more painful to do is still there to deceive people to go and believe that they can go and buy a piece of technology and make customers love them.
As one of my clients taught me once, “Even a fool with a tool is still a fool.” You’re not going to get better with a tool that you have no clue what you want to do with. That is really at the core of the challenge. They put the wagon in front of the horse, instead of first deciding, “What is our strategy?” “What are our business drivers?” “How are we going to implement them?” And then, we can ask, “What kind of tools do we want to use?”
In many ways, my decision to leave the corporate world, where I sold customer technologies for contact centers, and come here and do this thing and take the risk is because I realize that companies are skipping the operational element; are skipping the strategic element; are skipping all of these HR-related issues; and are rushing to buy this technology, because they think it’s going to save them from the difficult choices they need to make.
Bob Thompson
But can we put a positive spin on that? That if you’re one of the brave few who is willing, to use a diet analogy, to actually eat less and exercise more instead of buying a diet book, then you have a chance of actually being out ahead of your competitors, those who are a little bit lazier or think that there really is a quick fix.
Lior Arussy
Absolutely. If you’re willing to go through the right steps, you are miles ahead of the competition. Because remember the lipstick on the pig. The competition is talking about it, and they think they’re doing it right. So their diet is not really a full diet. I love the story I was told by somebody, who told me, “I don’t know. I did this Slim-Fast thing, but I had Slim-Fast with every meal, and still I didn’t lose weight.
Bob Thompson
[laughing] That’s very good.
The last question for you, Lior: You use the term, “customer experience management,” in your book. That would probably be another long discussion all by itself, but since we are going to be touching on customer experience management in May, I’d like to ask you if you could define what you mean by that. What is it about customer experience management that is important in building these loyal and profitable relationships?
Lior Arussy
Let’s understand first what an experience is. Experience is an emotionally engaging, total value proposition, so your products for service are pretty commoditized today. You need to wrap them with a total experience across every touch-point in the organization in order to give something that’s emotionally engaging, something that’s going to delight them, something that’s going to actually relate to their hopes and dreams—and not to your product or service functionality.
We strongly believe that at the core of every organization is an experience. That experience is what connects customers to providers or to vendors or gets them away from them. So customer experience management, by definition, is an execution across all touch-points of the company that delivers delightful, amazing, passionate total value proposition to the customer.
I also strongly believe that, if your experience is amazing, if you delight your customers, you’ll never have to sell a day in your life, because the experience will carry the message out. Starbucks for years did not advertise. The message went through. Krispy Kreme never advertised; they got the message through. I can name more and more examples like that, like Build-A-Bear, like Anthropologie, like H&M, where they did not need to advertise, because the experience was so amazing that people carried through the message.
Bob Thompson
Well, it’s an interesting thing. I was just thinking last night that maybe one challenge that would be fair to give to business executives is to say, “Imagine that you have no marketing and no sales. How would you grow your business?” And then you’d quickly discover the only way you can grow it is through loyal customers who spread the word of mouth. And without that, you’re toast.
Lior Arussy
That’s a great example.
Bob Thompson
I think that there still is the presumption you can sell your way and market your way out of anything. While marketing and sales is important, we found in the study we did late last year that, much as you found in your book and your comments here, there’s a mismatch between what business people say is important and where they actually spend their money. They spend their money on acquisition, not on retention, by and large on roughly a 2- or 3-to-1 ratio. Those that are more leaders in loyalty tend to reward performance, and basically everything backed up what you’ve been talking about today. I really appreciate your time. Again, this book, Passionate & Profitable, it’s really good stuff. I appreciate your taking the time to share your thoughts for us in this Inside Scoop interview.
Lior Arussy
Thank you very much.
Download the first chapter of Arussy’s book, Passionate & Profitable.
