When Wall Street focuses its attention on rumors and reports of planned company mega-mergers, the real source of any company's ultimate financial worth -- its customers -- often appears to be overlooked. While stock analysts and corporate boardrooms lust after the promise of huge-volume growth and enhanced operational efficiencies, the customer asks, "What's in it for me?"
The assumption underlying the emphasis on growth is that "bigger" is generally "better" -- that bigger companies will prove more successful; the large shall survive and prosper. But is that assumption warranted? To explore the consequences of growth, executives must look beyond the boardroom and beyond the annual reports and spreadsheets that detail the company's financial assets. They must look outside the company, at their customers.
While Wall Street analyzes enhanced efficiencies, consolidation, and marketplace dominance, consumers evaluate instead what they value: those all-too-rare instances of service excellence. Unlike operational efficiency, service excellence is not the result of mergers. It doesn't improve proportionally with increasing company size and volume growth. Instead, encounters that actually enhance the customer-company connection seem far more likely to result when customers have contact with smaller, customer-focused enterprises.
Think big, but act small
A Los Angeles Times article (July 31, 2001) summarizes a survey conducted by Consumers Association in which the highest-rated British airline was not British Airways or even Virgin Atlantic, but rather a single-airplane upstart called Palmair. What made it the best? Certainly not its route diversity or its extensive fleet. Instead, in the words of one customer, it's the fact that "rather than being just a number, they treat you like a person."
Success for Palmair comes not from expansion, but from the airline's owner, Peter Bath, fretting about what over-expansion might do to their standards for personal service. It's just a one-airplane carrier, of course, but Peter Bath has something to teach "big" airlines about thinking or acting "small" -- about focusing on consistently providing a positive experience for the customer.
Is treating your customer "like a person" something that results from airline mergers? Or is it just the price the airlines pay for adding the planes, gates, and destinations they covet? A research and development survey undertaken by The Gallup Organization suggests that trading off of size or scope for service may have distinctly negative consequences on customer relationships. Based on results from a survey of 815 domestic flyers, a mere 6% of the customers of the largest four U.S. airlines are "fully engaged" with the airline they fly most often. Less than one in twenty (3%) customers has any sort of "passionate" connection with the airline they fly -- quite different from Palmair, whose customers proclaim their allegiance to the airline.
Does that mean that airline growth is the logical enemy of service? Not necessarily -- or at least not in the case of Southwest. The Gallup study found that a fifth (20%) of the customers who fly Southwest feel passionate about the airline.
It appears Southwest has been thinking, and acting, a lot more like Palmair, even as it has grown to become one of the largest U.S. carriers, serving over 60 million passengers. Southwest's secret is succinctly stated on its Web site: "We are in the Customer Service business -- we just happen to provide airline transportation."
The growth challenge: When does big become bad?
If we listen to our customers -- which is, after all, a pretty good idea -- "big" may not be all that great. In many cases, it's not a customer benefit. Customers of newly merged companies may not feel reassured that the "bigger-is-better" company has the resources to meet their needs -- instead, they may fear that they'll be just a number to the mega-company. That's a growth-related dilemma others have also noted. Jay Chiat, co-founder of the ad agency that still bears his name, frequently posed the perplexing challenge to his agency. To paraphrase his words, how big could they get before they got bad?
Yet, becoming "big" remains the preferred route to success for many companies. That's the case, even though there are warning signs sent by those who have a major voice in the future health of any company: the customers.
Consider the following. In 1996, the three largest banks in Florida held almost 70% of the state's total deposits. By the fourth quarter of 2000, according to the Florida Bankers Association, the same three big banks combined to hold less than 50%. While part of that share shrinkage may reflect movement to the banks' money market funds, these results also highlight the fact that Florida's smaller banks and savings & loan organizations have seen their share of deposits increasing.
Why? Aren't customers attracted to the promise of a more pervasive branch network, a broader scope of product offerings, expanded technological resources, and an organization with a dominant marketplace position? Don't customers want to flock to the opportunity to do business with a winner?
Maybe not.
In another research and development survey conducted in 2001 among 991 California checking account customers, Gallup found that customers had far stronger customer relationships with smaller banks and thrifts than with the dominant California financial powerhouses. In a state where one third (34%) of all banking customers were found to be "fully engaged," showing strong emotional attachment to the institutions with which they do business, only a little more than one in five (22%) of the customers of the two state's two largest banks felt that same way.
Why is it that customers who have access to the impressive resources of the largest banks in the country might feel less, rather than more, connected to their banks than the customers of smaller banks? Why would they feel less "Passion" (13% vs. 23%) and even less "Confidence" (26% vs. 45%) in their relationships with their financial partners?
It's because banking relationships are not merely created and nurtured by technological resources, range of product offerings, or total asset bases. It's because, as Gallup has noted in earlier research, these relationships are heavily people-driven. That's where the customers' passion for their banking relationship can be strengthened, and it's also where it may erode. And that's where a number of big banks appear to struggle. Just under half (48%) of the California big-bank customers say they're always treated with respect. That stands in clear contrast to almost three-fourths (73%) of those Californians doing business with smaller or community banks, credit unions, and savings and loans.
Obviously, bigger may not always be better. Not when it comes to customer relationships, and not when it comes to building an irreplaceable -- and highly profitable -- customer connection.
Staying healthy
Even though it frequently appears to be the case, "bigger" doesn't have to be "badder." Not as long as the company remembers how it got where it is now: by building relationships with its customers. Success starts with the customer, and ultimately it hinges on the health of the company-customer relationship. That's what really determines the company's marketplace value -- whether we're talking about airlines, banks, or dot-coms.
Monitoring the health of the company's customer relationship assets is thus every bit as critical as auditing the books. These are also assets that matter, and these assets should also be a major focus of Wall Street analysts.
And, in looking at what drives those healthy, passionate, irreplaceable relationships, it's important to remember that the company's scope, resources, reach and size are not necessarily the primary keys to an engaged relationship with its customers. Customer engagement often results more powerfully and enduringly from the people who interact with the customers.
Why is that important? Because a typical post-merger consequence involves layoff announcements. Such announcements may be celebrated among investors -- but do the company's customers celebrate them? That's a critical question, because ultimately the customers will determine the company's long-term viability. Certainly not all redundant employees are relationship-builders who have had regular customer contact. Still, cutting the company's "people" resources runs the clear risk of endangering its critical customer relationship assets.
"Fully engaged" customer relationships are built, and maintained, through ongoing company contact with each customer, one at a time. If companies fail to recognize that fact, and fail to leverage the relationship-building potential of the company's "people" resources, and then big really does become bad.
Small wonder, perhaps, that "companies are stumbling to find new ways to manage their relationships with customers," as a recent article in The Economist (July 14, 2001) noted. Maybe, however, the need isn't so much to find "new" ways, but to revisit some old ones. Is that thinking small? Perhaps. But the result could be growth -- and better customer relationships.