Failures in Reliability Lead to Share Loss

We have written several times before about the Customer Buying Hierarchy (i.e. customers buy Function, Reliability, Convenience and Price, in that order).  We have also written, on several occasions, about companies winning and failing customers in a marketplace.  In a stable market, failure of a supplier causes more market share to move than does another competitor’s “win” of market share against its peers.  Most failures occur in Reliability. Recently, two of America’s paragon companies have failed their customers on Reliability and are now struggling to catch up.  Other leaders have had a similar problem and have recovered nicely. 

Macy’s is a clear leader in the department store market.  Over the last several years, Macy’s has purchased and integrated other large department store competitors.  For example, in 2005 Macy’s purchased May Department Stores.  As the company worked to integrate these acquisitions and obtain synergistic savings, their attention swerved from customer service.  The company’s failings were greatest in customer interactions with the company’s sales associates.  Nearly half of customer complaints focused on actions of sales associates. These are failures in Reliability.  A customer expects to be well treated by a department store that charges relatively high prices for its goods.  Macy’s failed to do that. The company’s market share began to drift lower as a result of these failures. 

Now Macys is investing a great deal more money and time into the proper training of its sales associates.  This investment is beginning to pay off.  A recent survey of customer satisfaction indicated that the company was making strides in improving its reputation.  Still, it lags the performance of some of its important rivals.  This is still a Macy’s work-in-progress.

Wal-Mart is another industry paragon who drifted from its Reliability promises.  Wal-Mart committed two notable sins.  First, it removed some products that were important to its core customers.  The company did so in an effort to improve the product mix and the margins a better product mix would bring.  Some of its core customer volume began to drift away.  The company also moved away from its aggressive pricing.  Instead of every day low prices, the company began to promote deals on some products while raising prices on others.  Customers didn’t like that either.  Recently, a survey by a retail consulting firm has found that Target Stores offered prices below those of Wal-Mart.  So, Wal-Mart has created Reliability failures in both product availability in its stores and its promise to have “always low prices, always.”  The company’s market share has also drifted lower. 

Wal-Mart now promises to return to its core values and core customers.  It is bringing back the products it once eliminated in favor of higher margin products.  It is getting more aggressive in pricing once more.  This, too, is a work-in-progress. 

Certainly, these leaders can recover from these miscues. We have seen other leading companies struggle with Reliability and yet recover nicely.  For example, several years ago McDonald’s went through a period of time where it was losing market share.  As the company examined the reasons for this market share loss, it noted that customers began to see its prices as high in the quick service restaurant industry.  In addition, its products in stores had developed a reputation as being about the same as or, in some cases, lower in quality than some of its big competition.  Under the leadership of a CEO well versed in operations, the company returned to its roots by emphasizing its core quality values and aggressive pricing.  Today, McDonald’s is the unquestioned leader in the quick service restaurant industry.  Many of its competitors struggle to keep up with McDonald’s. Most fail to do so.  McDonald’s again has gained share in the industry over the last several years.  McDonald’s success in reversing its Reliability failures suggests that the pathway is open for both Macy’s and Wal-Mart.  They both should be able to enjoy similar success.  The odds are they will.

Two Companies Who Perform Well in Good or Bad Markets

The hotel industry is struggling today. Demand is off everywhere in the world. Everyone is suffering, including Marriott. But Marriott will survive, and even thrive, in this market. It has been through bad times before and always has emerged the leader in the industry. (See Audio Tip #31: Volatility in Hostile and Non-Hostile Industries on StrategyStreet.com.) It leads its industry because the top management of the company focuses all its energies on delivering a consistent, predictable product in each of its dozen or more brand names. It is known throughout the business travelers’ world as the most consistent and reliable of brands. A traveler knows exactly what to expect when staying at a Marriott branded hotel and virtually always gets what he expects.

Another company, who happens to be doing well today, with the same ability to thrive no matter what the market is McDonald’s. In its quick service restaurant industry, McDonald’s has the same kind of reputation that Marriott enjoys in the hotel industry. It is the most consistent and reliable of brands. Here again, the top management of McDonald’s pays close attention to the experience a customer has in any of its stores world-wide.

I have had the distinct pleasure of working closely with both of these companies during earlier difficult times. I have come to understand the reasons for their success and will outline just a couple of the more important reasons here. In Marriott’s case, the first reason is CEO Bill Marriott and the approach he brings to the management of the many hotels the company has. Marriott visits rooms, samples food, checks for cleanliness, visits competitors and then issues specific instructions on how to improve. The other senior managers, and their direct reports, emulate the boss with the same attention to detail. This attention produces consistency. The second reason for Marriott’s success is its core value. It is expressed roughly as follows: “If Marriott employees are well taken care of, they will take care of the customer, then the customer will come back.” The company treats employees well, trains them carefully and pays them competitively. These employees proudly deliver superb service to customers, who will return to Marriott in good and bad times.

Though in a different industry, McDonald’s is much the same. Everyone knows the story of Ray Kroc’s establishment of McDonald’s. He is certainly a seminal figure. He was followed as CEO by an equally legendary manager in the McDonald’s world named Fred Turner. Together, these fine leaders created the motto for McDonald’s, calling it QSV&C. These initials stand for Quality, Service, Value and Cleanliness. McDonald’s delivers on all four of these promises more consistently than any of its competitors. A customer knows exactly what he will get at every visit to a McDonald’s in any location in the world. And the customer is far more likely to get that same consistent quality, service, value and cleanliness with McDonald’s than with any other quick service restaurant company. While working at McDonald’s I interviewed every senior McDonald’s executive. In each of those conversations, a reference to QSV&C was an important part of our discussion. Those letters, and what they mean, are seared into the brains of every McDonald’s manager, all to the good of the customer. This focus produces consistency.

Both of these companies rely on franchisees for the overwhelming number of customer experiences. Each control their franchisees and the quality of service they deliver by being the most attractive company in the industry. Marriott and McDonalds’ franchisees make more money than their compatriots in competitive brands. Sometimes these franchisees may complain about the prices they pay to be a franchisee of Marriott or McDonald’s, but they know where their bread is buttered. These companies deliver more reliability for their customers. Their franchisees, who are a major source of their quality delivery, get paid well for that better service.

Both of these companies lead their industries on Reliability in the Customer Buying Hierarchy (see Audio Tip #95: The Customer Buying Hierarchy on StrategyStreet.com). You can say the same thing about most strong industry leaders. (See Audio Tip #24: The Customer Buying Hierarchy as Markets Evolve on StrategyStreet.com.)