Profit strategies that defeat the objective

Modern business is — by the very nature of the high-tech world we live in — more complicated than ever, and we acknowledge and embrace all the opportunities that are provided by our progress.

Sometimes, however, we question if we always think through business strategies enough and if we are, perhaps, sometimes blindsided by short-term gains, a lack of really taking into account customer needs and being driven by value creation that is not sustainable. On occasion we wonder if the latest new technology is being used simply because it exists. All of this may, of course, be effective in the short term. This can give rise to existing management teams being judged as failures when in effect the mistakes were made by previous incumbents who appeared to be successful at the time.

In the food retail world recently we questioned management on a practice of having sell-by dates that were very close to the point of sale. This, we were told, was policy, and the process was only to place products on sale after existing time labels were sold out. Evidently this was to reduce losses from wastage. That’s fine if you are being driven by cost control, but not if you are trying to satisfy the customer who is shopping for the future. The large food chain we give as an example has recently reported figures that are amongst the poorest in its history. Whilst it is difficult to prove exactly from this example that the control strategy was to blame for the poor results, we contend there is a direct correlation for sustainable profitability by focusing directly on consumers’ needs. It stimulated us to consider how the hospitality industry is affected by such strategies.

There are examples all around us of a focus that appears to be sometimes driven by factors other than customer needs. These factors can, of course, be relevant, but not if imposed in isolation.

A good case we found recently was a reservation system that loaded rates in a specific manner and thereby did not allow the client to later change the reservation electronically despite being charged an original premium to be allowed to do so. Frankly, even some yield strategies are so over the top that they can raise doubts from customers looking for a long-term relationship with a brand or property. Electronic systems are generally efficient in confirming supplier detail but can leave the customer without all the necessary information they may need.

To be clear, we are not for one moment suggesting that controls, cost-saving measures and the use of the latest technology to bring about efficiency are not relevant. However, we do believe their relevance needs to be balanced, and in the majority of applications they need implementing with the end user in mind with regard to all aspects. This appears often not to be the case, and customers are sometimes left with a feeling of disbelief, confusion and disappointment.

Strategies that involve limiting services, electronically controlling the process without human options, refusing the option of client response, putting customer needs and expectations secondary and not allowing or acting on feedback will never develop a sustainable profit-growth strategy. What we believe is crucial — especially in larger businesses — is a well-coordinated management talent team with all the necessary skills and that leadership always utilizes and balances those skills to ensure the customer is the focus of the total effort.

Customer feedback needs to be treated with care in relation to these issues as the very nature of some of it seems to encourage and prioritize what went well rather than what could be done better.

How are your repeat-business and growth levels?