The Press, November 2005

"Shareholder value" is the mantra of some in the business world. Most readers will already be starting to nod off so I'll quickly say this is fundamentally flawed. I don't think anybody leaps out of bed in the morning saying "I want to create shareholder value today." Sustainably successful businesses are driven by making a difference for customers. Enriching shareholders is of course critically important, but this can only be achieved if you are first creating another sort of value - for your customer. Helping a business create that value is the purpose of marketing.

The shareholder value mantra drives a 'selling' approach to getting products out the door. This model is where organisations are focussed internally - on producing goods and then aggressively selling and promoting them to the market, achieving profits through sales volume. A marketing model is the inverse - it focuses on the customer and their needs, and achieves profits by consistently satisfying customers.

Customer satisfaction may sound a lot fluffier than shareholder value, but there is plenty of hard evidence that it is an important goal to shoot for.

"I do not consider a sale complete until goods are worn out and the customer is still satisfied. We will thank anyone for returned goods that are not perfectly satisfactory. Above all things we wish to avoid having a dissatisfied customer." This is from a 1912 catalogue from outdoor gear provider L L Bean. Mr Bean understood the absolute importance of satisfying the customer from purchase right through to when they had finished using the product. Today L L Bean is a global organization with annual sales of $1.4 billion.

The American Customer Satisfaction Index (ACSI), established in 1994, tracks and benchmarks customer satisfaction levels across many US publicly listed companies. "A basic tenet of the ACSI is that satisfied customers represent a real, albeit intangible, economic asset to a firm. The modern economy - characterized by service and information exchange - calls for measurements of intangible assets critical for economic returns," says the organisation's website. Their studies show strong links between a companies ability to satisfy customers and their creation of shareholder value.

In New Zealand there is also plenty of evidence that focussing on the customer pays dividend. A recently New Zealand study carried out by Ant Rainger and Dick Brunton showed that a great experience typically leads to that customer telling nine other people about it. Of these, a quarter would spend more money with that company and 16% would take their custom away from their existing supplier and give it to the new company. The flow-on effects of a negative experience were even more pronounced.

Improving customer satisfaction is not simply about delivering great customer service. Satisfying customers is about the bigger challenge of delivering customer value. For example, Wal-mart in the US is ranked poorly for its customer service, but it creates satisfied customers by offering goods at very low prices. It is the collection of the many experiences a customer has with a company that creates satisfaction, not simply whether your call centre staff are polite and knowledgeable.

Does this mean companies should bend over backwards for customers at all costs? Of course not. Sustained customer satisfaction can only be achieved through mutually beneficial relationships between a company and their customers. They want a solution to their need, you want ongoing profitability. But focusing on shareholder value is focusing on only one part of the equation - yours.

So how do you develop a marketing strategy that creates satisfied customers?

  • Customer understanding - no company can attempt to determine how to satisfy their customers unless they understand them. Your market and its dynamics - its size and structure, what your customers need to do to satisfy their own customers. A good understanding of who they are - male or female, highly educated or not, accountants or sales people etc. It is impossible to gather too much information about the people you want to satisfy.
  • What satisfies them - as one of NZ's premier marketing thinkers, the late Howard Russell said, "Customer's never buy a product or service for what it is, but for what it does." You can't assess whether you are delivering value to your customer unless you have a very good understanding of what you do for them or their business.
  • How you can convey that - what promise do you make to your customers? You need a clear way of explaining and demonstrating, in the customer's language, the unique ways in which you create value for them.

Shareholder value is ultimately important. A business won't survive unless it delivers its owners acceptable returns. But these can't be achieved over the long term without taking a marketing approach to your business and focussing on the creation of long term customer satisfaction.

Subscribe to our blog