Why I Prefer Not To Do Business With Customer-Centric Businesses

Why is it that I prefer not to business with a customer-centric business? Allow me to share my answer by referring to the UK grocery market. Which supermarket chain was applauded, by many, for its customer-centred way of doing business? Tesco. What was held responsible for fuelling this customer-centred way of doing business? The Tesco Club Card. Through this loyalty card, Tesco captured and made effective use of customer shopping data to grow revenues and optimise profits. In the process Tesco came from nowhere to became the world’s second largest retailer.

Where is Tesco today? Here is what The Economist said back in July 2014:

… on July 21st Tesco abruptly announced that Mr Clarke would be leaving his job, apparently prompted by a warning that profits in the first half of 2014 would come in “below expectations”. In June Tesco revealed a drop in same-store sales that Mr Clarke admitted was the retailer’s worst performance in 40 years….

Recession taught middle-class shoppers that discounters like Aldi and Lidl were cheap but not nasty; they spent some of the money they saved at higher-end grocers, such as Waitrose and Marks & Spencer……

Tesco is faring badly. Its sales dropped by nearly 2% in the year to June while those of its closest rivals, Asda (which is owned by Walmart) and Sainsbury’s, rose by 3% or better. Despite his exertions, Mr Clarke failed to persuade consumers that Tesco offers better value than the discounters or quality to match the upmarket merchants.

Is this as bad as it gets? No. Here is what the Guardian newspaper stated in on the 22nd of September this year:

Tesco has suspended the head of its UK business and called in independent accountants and lawyers to investigate after discovering that its guidance to the City overstated expected first-half profits by about £250m….

Tesco shares fell almost 8% on Monday morning to an 11-year low of 212p, making them the biggest faller in the FTSE 100 index and wiping £1.5bn off the retailer’s market value. More than £6bn has been wiped off share value since 21 July, when the previous chief executive, Phil Clark, was ousted.

Why is it that Tesco is in such deep trouble? I say that Tesco has arrived at where it is at due to its customer-centric way of doing business. What do I mean by this? I mean that the Tops got fixated into harnessing the data yielded by the Club Card to get customers to part with more of their money in Tesco stores.

Was this done by offering customers superior products as in higher quality products? No. The products were middle of the road yet ways were found of selling these at higher prices through clever marketing and merchandising.

Was this done by providing superior customer service in the stores? No. Tesco cut back on the number of people working in the stores so it was not unusual for the customer to find that there was nobody around to help when help was needed or find long queues at the checkout tills.

Was this done through a superior shopping experience? No. Management chose not to invest in the stores or the shopping experience in the stores. As a result the stores become less and less attractive over time.

I prefer not to do business with a customer-centric business because the management of such a business is more likely to be focussed on extracting value from their customer base through a variety of clever manoeuvres than earning its keep through superior products (Apple, Waitrose), superior service (John Lewis, Zappos), low prices (Lidl, Aldi), or a combination of service and low price (Amazon).

If you are a customer and your supplier is touting customer-obsession then you might want to think about whether that is a good thing. Is the obsession with providing you with a superior product, superior value, and/or experience? Or is it an obsession with with finding clever ways of getting you to buy more, pay more for what you buy, and get less in return? You might want to keep in mind that which many remind me of: business is not altruistic.