If you really listen to your customers, maybe they won’t turn on you.
By John Buchanan
It hardly matters how many discussions and computer simulations and risk reviews you undertake: Mistakes are inevitable. Forecasts turn out wrong, new product lines fail, customer initiatives meet resistance, price increases backfire. Nothing new about any of this.
Except that a massive power shift has changed the equation. In a harsh, unforgiving era that has consolidated and unleashed the awesome powers of social media and a twenty-four-hour news cycle, the public penalty for a blunder that incites a customer revolt has multiplied exponentially. The kind of business move that used to generate mild grumbling and then grudging acceptance now brings immediate denunciations, viral social-media protests, front-page headlines, and the worst fate of all: being made an example of, as a cautionary tale.
Just ask Netflix, Verizon, and Bank of America, which last year faced unexpected customer wrath after policy changes that turned out to be stupendously unpopular. All three companies quickly surrendered and reversed course in ways that observers say have empowered and emboldened consumers for future battles—and similarly bloody victories.
It’s critically important to understand what happened to the Three Stooges of 2011 and how your company can avoid similar humiliations. After all, according to a January report from 24/7 Wall St., Bank of America and Netflix—the latter long revered by customers—are now among the “10 most hated companies in America.”
Worse, last year’s PR debacles represented more than simple bad decisions—they stemmed from a lack of empathy, a failing shared by most companies. In fact, experts from a range of disciplines agree, hardly any companies truly work to empathize with customers. “I’d say it’s less than 10 percent,” says Anne Morriss, managing director of the Cambridge, Mass.-based Concire Leadership Institute and co-author of Uncommon Service: How to Win by Putting Customers at the Core of Your Business. “And that’s why truly good service is so rare.”
Ken Favaro, a senior partner at Booz & Co. in New York, shares the view that a disregard for customers lay at the foundation of all three of the 2011 disasters. “Executives at the three companies weren’t thinking about their customers,” he says. “That doesn’t mean they’re stupid. It just means there were other things on their minds when they made these decisions, and those things were treated as a higher priority.”
The best example: Bank of America, which sparked a customer revolt when it announced a new $5 monthly fee to use debit cards. “B of A is in a struggle for its life,” Favaro says. “It needs to build up its capital position, pronto. It cannot raise capital, so it needs to generate it; if it doesn’t, it’s toast. So you can imagine how, on a day-to-day basis, they’re trying to get more fees through the door. And that means in this instance, they weren’t thinking about their customers. They were thinking about survival.”
As a result, Morriss says, “they have been listening to analysts, not listening to customers.”
And for that, the company faced waves of anger and, a month after its announcement, rescinded the $5 plan. Americans at large—including millions with no dealings with B of A—saw the bank’s move as an add-insult-to-injury example of unmitigated greed by a company that taxpayers had bailed out only a few years earlier. By contrast, Verizon got off easy: Its proposed $2 bill-paying fee drew anger from only that company’s customers.
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Netflix faced the same distressing results as B of A: plunging share price, fleeing customers, and wince-worthy headlines along the lines of “Has Reed Hastings Killed Netflix?” But few questioned the company’s strategic move, based on the inevitable future of its business away from DVD rentals and toward streaming video-on-demand. The failure was in the execution—remember Qwikster?—and communication with customers.
There were three reasons for the blowback, Favaro says. “The first is that sometimes the hardest part of strategy is your timing. The second lesson is that customer reaction is hard to know a priori, so you have to be very agile and be prepared to take a U-turn if you make a mistake. And the third lesson is that what customers actually do can be quite different from what they say they will do. And that’s one of the reasons why it’s hard to know what they will do.”
Robert Mittelstaedt, dean of the W.P. Carey School of Business at Arizona State University and author of Will Your Next Mistake Be Fatal? Avoiding the Chain of Mistakes That Can Destroy Your Organization, is blunter in his assessment of Netflix and its two high-profile co-defendants in the court of public opinion. “It’s a matter of arrogance,” he says, “in thinking they really understood their customer base—and assuming that they understood them without actually talking to them.”
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