Companies Find They Can't Buy Love With Bargains

Great article in the New York Times about customer satisfaction. I wasn't even familiar with the American Customer Satisfaction Index. It's a neat idea, and despite not knowing how the index is calculated, the contrasting scores reinforce my belief that the products retailers choose to carry often differ from what consumers really want.

The problem? Too many companies confuse selling clever gadgets at good prices with delighting customers. When so many products get cheaper every year, offering customers a great bargain will not necessarily win their loyalty. Someone else is bound to offer a better bargain, and besides, most customers have come to expect good deals. "Price has an effect on whether you buy or not," Dr. Fornell says. "It has less of an impact on whether you're satisfied or not."

Mass retailers perpetuate this problem. In fact, they may be the root cause.

It's virtually impossible to be a successful buyer for a major retailer today and be primarily focused on figuring out what customers want to buy and then carrying it. That's only the beginning, a prerequisite perhaps. The buyer's most important jobs are to:

• Consistently increase return on inventory investment year after year
• Grow top line sales every year

Bonuses are earned and lost on these criteria. Getting vendors to provide annual price reductions (typically referred to as "driving the business" or "adding value") is now the norm. Therefore, product improvements have become mere margin enhancements. "New and improved" usually means that the product had to be changed in order to keep its shelf space -- regardless of whether or not customers were happy with it the way it was.

A buyer's worst enemy is the product that customers buy year in and year out -- unchanged. It's very difficult to grow margins regularly on a product that stays the same. The vendor only has so much to give. Heinz ketchup is the perfect example. It's no wonder that they have the highest customer satisfaction score. They haven't messed with the product, and it continues to keep customers happy! Duh!

Vermont Teddy Bear is a small company whose impressive turnaround shows the power of creating a connection with customers rather than competing on price.

This connection is the relationship between the customer and the product. Retailers either enhance this connection or they hinder it. Price is only one of many elements that define the relationship with the consumer.

Yes, the retailer is also its own brand, but I doubt that has anything to do with the Heinz story. Maybe it did at one time, but those days are long gone. The retailer as a brand is a separate issue.

Why does Amazon produce such satisfied customers? Low prices and wide selection play a part. But plenty of retailers, on the Internet and at the mall, offer good deals and scads of merchandise. The real secret, says Bill Price, a former vice president of global customer service at Amazon, is the site's evolving menu of features and services that make it more friendly, more reliable and easier to use - little touches that personalize the site for each buyer.

Amazon gets it. They understand that price is an element. Free shipping is an element. But so are personalized service, excellent communication, product reviews, wish lists, and so on. Customers trust Amazon.com. They trust Amazon because the company is reliable, remarkable and consistent.

There is always someone with a lower price than Amazon, and some customers will always navigate toward the lowest-cost provider. Most will stick with Amazon, though, because trust doesn't cost much more.

Retailers need to focus more on building trust and carrying what customers want to buy. These efforts will grow markets and, frequently, market share. Healthy ROI and top line sales will follow.