Customer Betrayal and the CEO’s Reaction

Posted on June 15, 2009

Adverse customer decisions impact much more than our financial statements. They affect CEO values. This is a consequence that all of us as chief executives must think deeply about.

I had a series of conversations with chief executives who were angry with some outgoing customers, and rightly so. One firm had delivered great service for seven years to a major multi-national (and bent over backwards many times), but a new top executive who only wanted to deal with “big” suppliers solicited bids to replace them. He told the bidders to assume that they would “inherit” the incumbent’s employees. The loss of this customer will really set back the supplier, and most likely performance will slip for the customer too since the new provider is not a specialist. With the pain of this loss quite fresh, (the transition is happening now) the CEO swore he’d never go the extra mile for a customer hoping for loyalty. Is he overreacting?

Another CEO cited several years of great deliverables and customer partnering, only to be thrown out for a one cent pricing differential. He swore to get the maximum pricing when the “getting is good”, because when times are tough, “it’s all about the price”. Is scraping the last nickel off the table becoming a best practice?

In reaction to a discussion of whether chief executives are becoming too jaded about customer loyalty, one CEO told me (in jest) about the ABCDE rule of deals. It is: Always Be Closing, Damn the Ethics. It got a laugh, being so obviously jaded.

This downturn is impacting much more than our financial statements: It is affecting chief executive’s values. This is an impact that each of us as chief executives must think deeply about. If we decide to shift our value set as a result of the pain that this downturn is causing us and our businesses, it will have effects on us and our society that will last a generation or more. But we hate to feel like suckers!

How are you reacting? Has bad behavior on the part of customers changed how you will run your business in the future? Do you feel like you were perhaps a bit naïve in the past, but now you’ll modify how your company operates to minimize the risk of a customer betrayal? Have your values shifted, and will you modify your decision making with regard to your faith in customer loyalty?

I don’t think the world has changed in any fundamental way or that customers are acting much differently than in prior downturns. In times like now, hard times, people’s true colors emerge.

• We chief executives are being forced by circumstances to hurt our people by laying them off, denying them vacations and denying them resources. It makes us angry.
• Our shareholders see their investments shrinking.
• Our boards are frightened and are over-managing us.
• Our own salaries and bonuses are meager.
• Our options for keeping our businesses humming are few and far between.
• Our families miss seeing us at home.

In my circles, chief executives feel safe enough to speak their mind without self-censoring. I understand the jaded comments. Chief executives are human! Blowing off some steam in a safe environment is healthy. But we are human leaders, and nearly every chief executive I know is deliberate about their values, and is deliberate about enforcing those values on everyone that works in their company.

Now is not the time to shift our values to decrease the trust we place in our customers. I think it will adversely affect the benefits we get in all economic cycles from the loyalty that such trust engenders. Yet I think that the criteria for being considered a “trusted customer” worthy of going the extra effort must be reviewed and continuously modified.

Customer loyalty continues to exist, but we don’t measure or remember it well. When customers are loyal and act according to our expectations, we don’t notice much. Our top line ticks up a bit. We send a thank you card. But when they inflict pain on us, betray our trust, and we have to lay off people and give explanations to those who hold us accountable, we notice and we remember. If you went back for the past five years, and listed all your customer’s buying decisions that stemmed from “loyalty” to you (meaning they rewarded you for going the extra mile) versus the times when they were disloyal, what would the ratio be? Would it be an acceptable balance? If you were to replay the past five years and save the trouble of “going the extra mile”, would the balance shift and would your firm be more successful or less successful?

While I like to have answers when it comes to matters that create insomnia for chief executives, I find that I have many questions instead, to which we each must find our own answers.

Are we CEOs investing in, and expecting loyalty from some customers who don’t qualify for our trust? These would be customers where our contact isn’t really the top decision maker, and they can have “bad” decisions imposed on them by their boss. These would be customers who have a history of disloyalty, or customers who can’t afford loyalty and are driven by price. We love our big customers because of the big checks they send us, but that doesn’t make them qualified for an expectation of loyalty. I’ve been accused, over the years, of being too trusting at times, and I’ll plead guilty. The only trust related mistakes I regret are those cases when the signs of a character flaw in a customer were there, but I ignored them. I’ll be more watchful and I’ll pay attention to what I see.

Are we CEOs “chickening out” in our pricing (taking less money than we should for the value we are delivering), then telling ourselves that it’ll buy loyalty? It is difficult to be aggressive in pricing since it means that we’ll grow less in all economic phases. But if price is a real hurdle, it means that the customers we sign on will really care about the extra effort they bought in exchange for that higher price. The customers that are only willing to pay for commodity level products or services won’t ever be loyal customers. Could it be our “disloyal” customers never really valued the “extras” we thought were buying us loyalty?

Are we CEOs overreacting to a few bad apples? If by and large our approach to customer loyalty has worked well and helped us grow, maybe we shouldn’t change a thing because a few customers betrayed us in the downturn. Nothing works perfectly! Sometimes staying the course is the right thing.

Are we reminding them of their “extra” benefits? Sole source suppliers may find that their customer, who was at first amazed at the step up in service and quality, may forget their prior, bad suppliers. They’ll soon take for granted the high service levels, and forget that performance is way above the industry standard. You become the new standard, and at the slightest mistake, you become the “bad guy”. Your sloppy competitors will claim to be able to do what you do, for less money, and they’ll be in again and you’ll be out. The customer may discover their mistake, but it’s too late for you. A quick read on this topic is The Paradox of Excellence, by David Mosby.

I often tell my clients what I would do if I were in their shoes. So here I go. I’m going to keep going the extra mile for clients that seem worthy of my trust. I don’t want to be anybody’s sucker, but I know I’ll gain more from leaving nickels on the table and over-delivering than I’ll lose from the occasional betrayal. And I want no part of leading a company that distrusts its customers. What fun is that? I want to be enthusiastic about my customers.