An Open Letter to Wall Street
Businesses succeed by getting, keeping, and growing customers. Customers are the only reason you build factories, hire employees, schedule meetings, lay fiber-optic lines, dispatch service trucks, stock inventory, file for patents, operate call centers, negotiate contracts, write software, or engage in any other kind of business activity whatsoever.
Without customers, you don't have a business. You have a hobby.
The problem is that business success is extremely difficult today -- probably more difficult than it ever has been. All the easy growth has now occurred. Every household in the industrialized world already has one or two or more cars, a washing machine, television sets in different rooms, and a cell phone (or several). Once an economy matures, customers are no longer so hungry to buy, but businesses are even hungrier to make sales.
Yes, we've all benefited from the unprecedented improvements in productivity over the last couple of decades, but higher productivity has also put renewed pressure on margins. No matter how much streamlining you do today, you're just keeping up. Everyone in your firm is already doing a job and a half. The cost cutting you thought was a temporary inconvenience has now become a permanent hardship.
And then there's the impact of globalization. Off-shoring and business process outsourcing may help you control your costs but globalization, too, comes with a price tag. Your products are being reduced to commodities, as more competitors find their own opportunities in your section of the globe, and at least part of the reason you can't get any pricing traction is because someone in the Far East is already undercutting you.
Even though price increases may be nearly impossible to sustain, the cost of selling and marketing is still going up. The more you spend on marketing, the less you have to show for it. Response rates decline, sales
effectiveness erodes, and customers continue to become more demanding. New and improved products may temporarily solve your problem, but knock-offs and competitive innovations now appear in days. And we've seen a lot of new and improved products introduced, as companies all try to innovate their own way out of the same problem.
In category after category, in market after market, companies are wrestling with the fact that their products and services are simply in oversupply. Too many personal computers chasing too little demand. Too many airline seats chasing too little traffic. Too many varieties of fresh fruit in the produce section, too many kinds of bottled water, flavored popcorn, and coffee beans. Too many accounting services, consultants, systems integrators, and executive-recruiting firms. Too much advertising space chasing too few advertisers. Too many frozen foods, breakfast cereals, skin creams, razor blades, cold remedies, and hair rinses. Too many trucking services, wireless minutes, and drums of chemicals.
The only thing in short supply these days? Customers. Customers are difficult to find and hard to keep.
The scarcest resource
In today's business world, customers are even scarcer than capital. If you have a customer for your business, you can almost certainly get the capital you need to serve him. But the market -- any market -- contains only a finite number of customers, who will each do only so much business in a lifetime, with anybody. Even if there are lots of customers, it's still a finite number.
To remain competitive, you must figure out how to keep your customers longer, grow them into bigger customers, make them more profitable, and serve them more efficiently. And you want more of them.
Unfortunately, none of the financial metrics you learned in business school can properly account for the value companies generate from this scarce resource, with the right balance between current-period sales and customer lifetime value. Traditional financial metrics just won't tell you whether you're better off investing in customer acquisition or in customer retention, or in product development, or opening new stores, or plant efficiency, or better qualified personnel, or more service, or cost reduction. While you may believe in your heart that a particular decision creates shareholder value, there's no financial metric currently available to tell you how much shareholder value you actually created, or even whether you created any at all.
But Return on Customer can help you. Return on Customer is a breakthrough financial metric that can quantify the actual shareholder value you are creating (or, possibly, destroying) with your various business actions and initiatives.
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