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The Customer May Be Right, But Is She in Charge?

The customer is always right. The customer is therefore also a royal pain. One of the trickier problems executives face is that this indispensible kvetch has poked her nose into places where she once did not belong. The customer is no longer sitting patiently in the dining room waiting to consume what you've prepared; she's in your kitchen, kibitzing. As Frances Frei of Harvard Business School puts it in an article called Breaking the Trade-Off Between Efficiency and Service:

What if a manufacturer had to deal with customers waltzing around its shop floor? What if they showed up, intermittently and unannounced, and proceeded to muck up the manufacturer's carefully designed processes left and right? For most service businesses, that's business as usual. ... The fact that they introduce tremendous variability -- but complain about any lack of consistency -- is an everyday reality.
Frei picks this up as an operations challenge. "Operations management theory, rooted in the manufacturing context, typically has only one thing to say about variability: It must be eliminated. Any educated manager learns to recognize it as the enemy of quality."

But it is a strategic challenge as well. In most strategy discussions, the customer is an abstraction and an outsider, aggregated in data or excerpted in clips from focus groups. The customer responds to your strategy with a straight up-or-down vote, using his or her wallet. Today's customer-on-the-inside, by contrast, may want to negotiate -- asking to substitute salad for fries, to have a late check-out. The danger is that the infinite variety of customer wants and needs can quickly turn your business into an incoherent mess that provides hundreds of subscale offerings, each with lousy economics -- and only because you tried to serve and keep your customers.

There are three basic response to customers who want to play the variety game:

  • Resist them. There's nothing wrong with not pleasing all your customers all the time. McDonalds does fine with a limited menu -- a contemporary analogue to Henry Ford's Model T, available in any color so long as it's black. You just have to have the guts to say no to customers who want it their way.
  • Appease them. You can be variable up to a point. There are at least two ways to do this. In one, you routinize and rationalize as many horizontal processes as you can, then offer variety on top of a common substrate. Many back-office processes can be treated this way. In another, you can segment on the basis of price, as hotels do with "club floors." For a standard price, you get standardized service. Appeasement strategies require incredible operational discipline: Those back-office or standard practices have to be ruthlessly efficient to compensate for the cost of managing more than one set of capabilities.
  • Indulge them. Go whole hog and make variety a virtue. Be the Connaught, not Motel 6. Almost always, this is a boutique strategy; almost always, it means getting the maximum revenue from a few customers rather than some revenue from many; almost always it means emphasizing profitability over growth.
Each of these strategies can work. The important thing is to pick one. Just one. No matter how sweetly your customers ask.

Image courtesy Flickr user Mataparda, CC 2.0

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