It's a crisp November morning in Sedona, and Danny is picking me up in the middle of a starry night. He and I are ready to embark on one of the most enjoyable flights: watching the sunrise from a hot air balloon On the way to the field, we had a casual conversation about how costly everything has recently become in the United States, from petrol to beef to diapers. In addition to the increased costs, we both felt that the level of service and value had decreased. It's as if the prior standard of perfection has become a premium feature, available only to those who pay for it. Talking to Danny that morning in Sedona was not the first time I'd spoken with someone who felt this way about the current status of service. It's something I've personally witnessed wherever I travel and with everyone I meet. It is apparent that customers believe business management does not prioritize efficiency, quality, or responsibility to their detriment.
Having ran firms in numerous nations, I couldn't help but reflect on how the tendency to simply tolerate these changes is distinctively American.
After all, getting the bare minimum for higher fees is hardly what the 80 million overseas travelers who visit America each year sign up for. In 2019, international tourists spent $233.5 billion, contributing to an industry worth $1.9 trillion and 9.5 million jobs. Insufficient value generation jeopardizes that revenue and various sectors. This is especially important since both international and domestic travelers know they have many alternative options for vacation, as well as a loudspeaker on social media to share their stories and reviews Three Things Companies Are Forgettin In the face of rising inflation, businesses must recognize the relationship between client behavior and their shortcomings. Consumers' Collective Influence on Brand Perception: We often forget how individual behavior and encounters accumulate over time. A single public complaint about a terrible service or product may appear to be a drop in the pond, but millions of droplets can form the pond. People Can Simply Stop Engaging: According to Warren Buffett, "Price is what you pay, value is what you get." When costs appear to be excessive in relation to the value that consumers receive, they can and do just move on to something better. Businesses who do not acknowledge this reality and actively seek to combat it will lose customers.
Customer capitalism.
In "The Age of Customer Capitalism" (HBR, 2010), Professor Martin argues for a transition away from shareholder value and towards customer-driven capitalism. Determining what your clients value and focusing on their satisfaction is a more effective optimization strategy." Since then, companies like Amazon have achieved tremendous success by expressly prioritizing customer value over shareholder value (Amazon's market capitalization is currently $1.6 trillion), in stark contrast to the downfall of companies like GE and IBM that prioritized shareholder value. However, the new book places less emphasis on customer capitalism. So I caught up with Professor Martin this week and inquired if he had changed his mind on customer capitalism. Professor Martin: I have not shifted my position on customer capitalism. Long before Amazon, companies were effectively pursuing customer capitalism, which was my initial premise. This is not a trade-off. This is Aristotelian: pursuing something does not guarantee you will acquire it. He argued that if a guy sets out to be happy, he is unlikely to succeed. However, if someone chooses to live a virtuous life, one in which he serves society and his fellow man, he is much more likely to be happy. We need to manufacture and deliver it. If excellence becomes the guiding principle of our production models, we will deliver. If we aim for it, we simply don't have it.
Costco produces great shareholder value by setting standards for being a spectacular place to work. The same is true for Four Seasons and Trader Joes.
So the success of customer-capitalist firms is not a counter-factual; rather, it exemplifies my primary argument: aiming for shareholder value maximization is the worst idea in the world, as you so eloquently stated in your piece. I feel that customer-capitalist businesses are still in the minority. The techniques its managers are taught in business schools and put to use when they start working in organizations are favorable to managing with efficiency and shareholder value in mind. I know this better than nearly anyone I know because I manage a business school and have spent more time in firms. I'd be pleased to argue with anyone who believes this struggle has been won and that customer capitalism reigns supreme. However, customer-capitalist organizations pursue their aims in very diverse ways, and Amazon stands out from Costco. Amazon, like Costco, seeks to maximize consumer value. It's probably difficult to place a sheet of paper between them and determine how much and how efficiently they pursue it. However, Amazon maximizes shareholder value by offering a large number of very awful positions (based on Professor Zeynep Ton's classifications of excellent and bad jobs), but The Importance of Providing Excellent Service In the realm of management, it appears that excellence has become a "nice-to-have" goal when it should be the operational norm. It's not enough to strive for excellence.
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