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Companies should focus on quality

Opinion

The financial media has been littered with listed companies’ results and trading updates, some reporting positive growth while others’ performance is poor.

Across the board - good or bad - chief executives remain, almost without exception, focused on financial figures: revenue, acquisition and p:e.

They do have shareholders and investors to report to after all and the numbers are what really matter. But are they focused on the right numbers?

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The logo of Amazon is seen at the company logistics center in Lauwin-Planque northern France.

In recent years there has been a major shift in how customers behave - the same customers that keep these listed companies afloat and shareholders’ pockets well-lined.

Today’s customers are internet empowered, can access competitors in an instant and have higher demands of service.

Add an always-on dose of social media to the mix, and they’ve gained full control of the game. Which they are fully aware of and are using to their advantage. Consumers 1: Companies 0.

Against this context, businesses that continue to chase acquisition to drive profits - sometimes at all costs - to keep shareholders happy will, in time, come short.

While reporting on acquisition is the norm, there are green shoots of change. Mteto Nyati, the former chief executive at MTN, when at the firm recently vowed to focus on quality, not quantity, to improve overall customer experience and retain existing clients by understanding their needs better, especially in countries where the market has reached saturation. This after MTN announced its toughest trading period in 22 years as evidenced by a reported $108 million (R1.37 billion)annual loss.

Nyati’s sentiments are shared by Pentravel’s chief executive, Sean Hough. Having recovered from a financial nosedive in 2009, overall the company’s revenue has soared by 124 percent and profits by a whopping 873 percent within seven years. This trend is set to continue as in the first quarter of 2017 alone sales have grown by 25 percent.

Seismic change

Hough did it by making one simple, but seismic, change: create a contagious company culture that puts the customer at the centre of the business and “delivers sunshine” not sales. This approach has paid off, and the leisure travel company, on average, enjoys 54 percent repeat and 13 percent referral business making it the leader in its category.

Hough and Nyati are just two local chief executives who have made the major mind shift from chasing sales to keeping existing customers happy. Internationally Facebook’s chief executive Mark Zuckerberg recently said: “We really listened to what our users wanted, both qualitatively listening to the words they say and quantitatively looking at behaviour that they take.” In 2016, Facebook’s worth was estimated at $328 billion. But it’s not a quick fix. It’s promising to note that 45 percent of senior marketers are confident in their company’s understanding of the customer journey (Millward Brown, 2016).

As the impact of highly informed consumers and digital disruption takes hold in South Africa, more leaders and their teams will come to accept the new status quo, adapt their business strategy from the top down, and like Nyati, announce it to all and sundry as the new normal.

Read also: Nicola's Notes: Making doing business easier

There’s a caveat, of course. This change takes time and effort from everyone in the organisation, and it is essential that top management buy into the process first. Once there is senior support in place, it must trickle down to all departments and teams within the organisation so that everyone, from the call centre agent to the IT manager and all the way up to the chief executive are on the same page with regards to how to keep their customers coming back again and again.

Introducing a new set of performance metrics will help teams chase the goals that lead to profitability in an age of empowered consumers. This includes reporting on customer lifetime value, loyalty and churn, as well as the cost of acquisition v retention. Given many companies’ staff have KPIs in place that align to new sales and incentivise accordingly, it is a major mind-set that will take time to change.

Do as Amazon does

In the US, Amazon - a trailblazer in the world of customer-centric culture - has successfully put this into practice. Once this Nasdaq listed company gets a customer to sign up for a free trial of its Amazon Prime subscription service, it does an impressive job at holding on to them.

According to Customer Intelligence Research, 73 percent of customers sign up for this service through a quick and easy one-click free 30-day trial. After the first year is up, a remarkable 91 percent of customers pay for a second year and 96 percent a third.

These impressive retention results point to the core of Amazon’s customer experience strategy.

The company’s retention results are also very good news for investors, as it costs money to acquire new customers - either through free trials or other marketing initiatives - and retaining its prime subscription members gives Amazon a stable customer base that has steadily grown.

The number 1 online retailer’s net profit for 2016 fourth quarter was $482 million and its prime product, which has grown by 51 percent, is estimated by analysts to have 50 million users worldwide.

As more and more listed businesses realise the potential and strategic opportunity in retention v acquisition, we will see more trading updates focus on quality, not quantity.

That, or chief executives who are reluctant to realign their performance measures will see a gradual erosion of profits and eventually fizzle-out into old-school organisational obscurity.

Julia Ahlfeldt is a certified Customer Experience Professional. She consults to blue-chips and multi-nationals and advises them how to retain relevance and increase profits by transitioning from inwardly focused silos to being dynamic and customer-centric.

BUSINESS REPORT

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