Having spent the last few days talking to companies about the status of their business, I seem to be hearing one common refrain on why we need to lower margins to get a sale or to invest more to upgrade products to meet client requests, etc…which is “The Customer is Always Right”.
Now being as pragmatic a businessman as any other, I do know it is important to listen to your clients, but I can think of several instances where the “customer” is not always right…and by “customer”, I mean someone or some company that has already done business with you before and not a new prospect.
1. When the request is for a product or service you do not provide
This is almost intuitive. If I go to a McDonalds and order a Big Mac and insist they also provide me with a haircut, I am pretty sure McDonalds isn’t going to create a haircut service just to accomodate a few such bizarre requests. However, if this request turns into a trend, then management has to evaluate the viability of expanding its services into this non-core area, just as they would evaluate any business proposal. The outcome may still be no because….
2. It dilutes focus from core products or services
Resources in any organization are finite and have to be best allocated to focus on developing core products and services. Even if the request is a possible feature to be added to the product or service, the broader industry direction and trends have to be studied before making a commitment because any additional features or functions made to a product has to be maintained and supported beyond the immediate time frame.
3. The paradox of the dominant client
We should always do what our biggest client wants right? Well not always. I can give you the example of many factories to whom Walmart was the dominant if not only client. Due to their order volume, the survival of the factory was wholly dependent on Walmart orders. Margins were razor thin so when Walmart insisted on RFID tagging of cartons to help squeeze even more savings out of their supply chain, it actually put factories out of business as they could not support this additional cost. So when your biggest client tells you to lower your prices or they will take their business elsewhere; listen, do the math, then make a business decision. When margins become too thin and the client accounts for more than 70% of your business, be careful as you are turning into your client’s subsidiary without any of the benefits that come with it and the entire burden of risk upon your company’s shoulders.
Whilst we may not always accede to a client’s request, it is important to listen before making a decision, and that decision has to be made within a broader context than the very narrow so called “Client is Always Right” hypothesis. You can sometimes gain a lot of brownie points with clients by recommending a partner that provides the product or service they are looking for or to be upfront that the prices being requested cannot be met and so as not to compromise on quality, delivery or service, that you will be pulling out of the deal.
Some Meowsings...... 