Another day, another boneheaded analysis by a supposed expert business journalist. This time it's Eric Chemi, journalist at Bloomberg Businessweek, who recent argues that it's beneficial for companies to be hated by customers. He makes a really good point. Except, of course, for the logical fallacies that permeate the piece and undermine his argument. For starters, Chemi cites monopolistic or oligopolistic companies as evidence that hated companies do well:
For all the usual complaints—such as “I hate dealing with this company” or “These guys are the worst at customer service”—about the usual suspects from the ranks of cable and Internet providers, airlines, and banks, it turns out they just don’t have much incentive to care. The companies you hate are making plenty of money. In fact, the scorned tend to perform better than the companies you like.
His poster child for business success is Time Warner Cable, which has seen its stock price increase 450% over the past five years. That's pretty impressive. . . until you compare it to the overall Dow Jones Industrial Average, which (depending on precisely when you measure it) is up about 825% during the same period. Although I'm not an expert on telecommunications, I do know that TWC has a near-monopoly on the New York City market for cable and internet, which is probably behind the stock increase -- not its legendarily bad customer service. How would these hated firms fare in a more competitive environment? Probably not nearly as well.
Chemi goes on to point out that statistically there's actually no correlation between customer satisfaction scores and stock market returns, and therefore there's no point in trying to improve those scores.
Your contempt really, truly doesn’t matter to these companies, with no influence on the bottom line. If anything, it might hurt company profits to spend money making customers happy. For cable-TV providers, an industry whose customers famously have few options, happy users could be a waste of money and bad for shareholders.
Fair enough. Except that stock price isn't the same as a company's "bottom line" by a long shot. Just take a look at the 35% decline in Apple's stock price in just a few months last year, even though its bottom line remained quite attractive. More importantly, it's ludicrous to assume that stock price is an indicator of long-term business quality or success. You don't have to look very far across the business landscape to find the carcasses of high-stock price firms that found out the hard way that their businesses were not, in fact, sustainable.
If you take a look at industries where competition really is cutthroat, what you find is that customer satisfaction really does matter to long-term success. Maybe not to today's stock price, but definitely to long-term viability. See Toyota, Proctor & Gamble, Wal-Mart, FedEx, or Southwest for evidence of that correlation. If lean teaches us one thing, it's that relentless focus on improving customer value is what separates the great firms from, well, business journalists like Eric Chemi.