Be Careful When Listening to Customers

For years we've heard how important it is to listen to your customers. Many books have been written on the importance of listening to customers and giving them what they want. Unfortunately, and this may sound like heresy, listening to customers can be more problematic than helpful. It's better to use scenario planning, compiling info from a range of resources, than let customers lead your planning.

Look no further than the current problems at GM, Ford and Chrysler. While they may have done many things poorly, one thing they did slavishly was listen to customers.

Throughout this decade American customers have told them, "We want bigger cars, with bigger engines, with more power." The No. 1 selling vehicle in the USA for several years was the Ford F Series pick-up, a gas guzzler. For all three manufacturers, their large SUVs were not only big sellers, but huge profit producers. Customers were willing to pay big dollars for the steel, V-8 engines and luxuries that went with 12 miles per gallon in the city.

When asked what they wanted, buyers cried, "More!" So Chrysler relaunched the hemi engine ─ a high horsepower and gas-sucking beast. When launched, Chrysler sold out hemis ─ even in station wagons! But this close listening to customers meant the auto companies were NOT thinking about potential market shifts that could cause customers to quickly move away from what the Big 3 were making. $150/barrel oil caught them flat-footed, unprepared, with loads of inventory and weak balance sheets. A sitting duck for the recession and debt crisis.

We see this phenomenon in many markets. IBM invented the personal computer, then exited the business four years later because its customers ─ data center managers ─ had no use for PCs and didn't buy any. Apple launched the Newton ─ the first PDA ─ but dropped it like a hot potato when customers told them they were more interested in enhanced Macintosh computers. Harley Davidson's 50-year-old customer base keeps saying it only wants big V-Twin roaring motorcycles ─ so Harley has ignored the faster-growing and more profitable crotch rocket and scooter cycle markets (not to mention quadrunners, waverunners and snowmobiles).

And we can see emerging trends that point to problems at companies from listening too long to customers. Sony, EMI and other traditional music companies missed the digital/MP3 music wave because their retailer customers wanted to keep making CDs. They kept listening to Blockbuster Music until it disappeared. Major movie studios have missed the move to digital/MP4 film distribution as they keep listening to customers (like Wal-Mart, Target and Best Buy) that want DVDs to sell. Sam Zell spent hundreds of millions of dollars buying the newspaper-dominated Tribune Company, famously saying he read four newspapers a day and was a great customer, only to find out that people younger than 30 never read newspapers ─ and never will. When projecting future subscriber numbers and ad sales, Mr. Zell talked to older folks who read newspapers and didn't recognize a major, permanent shift in the market.

Circuit City catered to their in-store customer, which was older and more affluent, so highly desirable. But now Circuit City is in bankruptcy because customers switched to online retailers with lower overhead, less inventory, faster turns and lower cost. Where once online shopping was only for the young, everybody is now going to the lower prices.

And we now have evidence that for people under 35, they see no value in a traditional stock brokerage ─ meaning bad things portend for companies like Merrill Lynch that keep thinking their over-40 customer base with $2 million in liquid assets is the group to listen to. In all these instances, their "core" customers were not telling them where the market was heading, thus letting them drive right off a profit cliff. Heads up to travel agents (yes, a few still exist) and insurance agents out there!

Your customers lock in to your lock-ins. They like what you offer. When you ask them what they want, you'll hear "more, better, faster, cheaper" ─ nothing insightful. The customers you need to listen to are those who left you, those who never signed on to you and those using competitors you've conveniently organized out of your "core segment."

Those potential customers can help you see where markets are headed and where your lock-in to old products, services and practices leaves you vulnerable. Otherwise, like GM, Ford, Lehman Brothers, Bear Stearns, Sears, Circuit City and Best Buy, you'll be planning from the past ─ and when market shifts happen ─ KA-POW!

To be successful you have to use scenario planning that keeps you prepared for future markets. You have to understand not only current competitors, but future competitors.

And you have to anticipate what customers will want in the future, not just what they can tell you about their needs today. So be careful about listening to your customers, they are very likely to lead you right into the abyss. Just ask Mr. Waggoner at GM and Mr. Ford, Jr.

Adam Hartung is managing partner at Spark Partners, and author of the recently published book from Financial Times Press, "Create Marketplace Disruption: How to Stay Ahead of the Competition." He previously has worked as a corporate executive, leading business development for both PepsiCo and DuPont. And he has been an international consultant with the Boston Consulting Group, Coopers & Lybrand and Computer Sciences Corp.

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