Closing the delivery gap - Bain & Company

1 How to achieve true customer-led growthClosing the delivery gapBy James Allen, Frederick F. Reichheld, Barney Hamilton and Rob MarkeyCopyright 2005 Bain & Company , Inc. All rights team: Katie Smith Milway, Cindy Varga, Susan Donovan, Erik Serrano Berntsen, Louisa Thomason and Emily GrayLayout: Global designJames Allen is a partner at Bain & Company in London and co-directsthe firm s Global Strategy Practice. He is the co-author of Profit from the F. Reichheld is a Boston-based director emeritus at Bain and the author of The Loyalty Effect, Loyalty Rules!

2 AndThe Ultimate Hamilton is a Bain partner in London. Rob Markey is a partner basedin New York and leader of Bain s Customer Strategy the delivery gapHow to achieve truecustomer led growthMost companies assume they re consistentlygiving customers what they want. Usually,they re kidding themselves. When we recentlysurveyed 362 firms, we found that 80% believedthey delivered a superior experience to theircustomers. But when we then asked customersabout their own perceptions, we heard a verydifferent story. They said that only 8% ofcompanies were really delivering.

3 (See figure 1.)Why does this delivery gap exist at so manycompanies? It s not because businessleadersfail to recognize the importance of their customers. In fact, more than 95% ofmanagement teams we ve surveyed claim to be customer focused. We ve found that thedelivery gap exists for two fundamental first is a basic paradox in business: Most growth initiatives damage the mostimportant source of sustainable growth a loyal, profitable customer franchise. When a business tries to increase its revenue percustomer, it tends to do things, like raisingtransaction fees, that end up alienating its core group of buyers.

4 It compounds the problem when it tries to expand its customer base, as pursuing new customersdistracts management from serving the all-important core. The financial software powerhouse Intuitbriefly succumbed to this paradox, despite its long record of excellence in customer service. In 2001, its TurboTax program heldan enviable 70% of the retail market for tax-preparation software and 83% of the onlinemarket. But then Intuit began doing littlethings, such as boosting the price on tech-support calls and limiting software licenses to one computer, which annoyed its cus-tomers.

5 Retail growth flattened. As more web-based tax-preparation sites sprang up, online buyers started jumping ship. Their loyalty had grown paper-thin. In 2003, TurboTax s online market sharedeclined precipitously. The second reason the delivery gap exists is that good relationships are hard to s extremely difficult to understand whatcustomers really want, keep the promises you make to them and maintain the right dialogue to ensure that you adjust yourpropositions according to customers chang-ing or increasing needs. And it s only goingto get harder.

6 (For further reading, see TheConsumer of 2020, by James Allen andDarrell Rigby, Global Agenda, January 2005.)Figure 1: Identifying the delivery gapCompanies thatbelieve they providea superior propositionCompanies whose customers agree0%20%40%60%80%100%Percentage of companies delivery gap 8%80%Source: Bain Customer Led Growth diagnostic questionnaire, n = 362; Satmetrix Net Promoter database, n = 375 I am a brokenrecord whenit comes to say ing, We have to focus on theconsumer..I don t think theanswers are justin the have to getout and look.

7 Lafley, CEO, Procter & GambleClosing the delivery gap2In our research, we ve found that only 50% of management teams tailor their products and services to the needs of customers; only 30% organize the functions of theircompany to deliver superior customer experiences; only 30% maintain effective customer feedback initiatives to better understand cus-tomers typically backfire. A Company can getso engrossed in collecting and sifting throughdata on patterns of use, retention, purchasesand other transactions that buyers becomenumbers rather than people, segments ratherthan individuals.

8 Companies become deaf tothe real voices of real customers. Procter &Gamble s CEO, Lafley, best captured theimportance of getting beyond spreadsheetswhen he said: I am a broken record when it comes to saying, We have to focus on theconsumer..I don t think the answers are justin the numbers. You have to get out and look. 1 Closing the gapSo how can you close the delivery gap? Thebest way to start is by taking a hard look atthose 8% of companies that customers sayreally achievea superior experience. What setsthe Achievers apart from the mere Believers?

9 We found, in analyzing the Achievers prac-tices, that they share a simple but powerfulgoal: They focus, above all else, on treatingtheir most profitable customers in ways thatensure that they come back for more andrecommend the Company s products andservices to their friends. These companiesknow exactly what their customer issues areat all times. (See sidebar, How to PinpointYour Problem, opposite page.) It s by turningprofitable buyers into loyal advocates andthen working unceasingly to keep those advocateshappy that the Achievers not only avoid thedeliverygap but also achieve superior rev-enue and profit growth over the long pursuing their distinctive goal, the Achieverstake an unusually broad view of the deliveryof value to customers.

10 Unlike most compa-nies, which instinctively turn to product orservice design to improve customer satisfac-tion, the Achievers pursue three imperativessimultaneously. We call them the ThreeD s : They designthe right propositions for the right customers. They deliverthose propositions at the lowest possible systemcost. And they developthe institutional capa-bilities required to do it again and again. Eachof these three D s draws on and reinforcesthe others. Together, they transform the Company into one that is continually led and informed by the voices of its customers.