I often hear business owners proclaim how important it is to build a great relationship with their customers. I must confess I find this assertion a bit perplexing. I am not at all suggesting that business owners ought to find ways in which to alienate their customers, but I believe the assertion to be double-edged. I have found that the more important the customer relationship is in the sales process, the less differentiated is the product or service.
The Value of Thirst
Let me explain by citing an extreme example. Let’s suppose you live in Phoenix, and on your property you have the only water hole in all of Phoenix. In short you are the sole owner of the Phoenix water supply. Let’s also suppose that your water hole has a capacity of a thousand gallons a day. In other words each night the underground streams replenish the hole with a thousand gallons of water. You’re a pretty good guy, so you’ve decided to sell your water at $20 per gallon.
Now, just how important do you think your relationship with your customer is? Do you think you might need to hire a large sales force to scour Phoenix looking for customers for your water? Do you think you might have to offer a home delivery service to make it easier for your customers to obtain your water? Do you think you might want to construct a beautifully appointed sales office in which to display your water…..maybe even have Simon Pearce design containers in which to house your water?
We all know you wouldn’t have to do any of these things. You may have to construct an electrified fence surrounding your property to protect your water hole. You might even have to hire armed guards to protect your employees and yourself as you dispense your water. You won’t, however, have to build a strong relationship with your customer. Why? Because you have a very highly differentiated, in-demand product to sell.
Customers on Quotas
You might be saying to yourself, “OK, Jerry, you really did pick an extreme example that has no basis in reality.” Maybe not. Unfortunately, I am old enough to remember the introduction of Aspartame. I was working at PepsiCo at the time. Before Aspartame, Pepsi and every other soft drink beverage supplier, used saccharin as their artificial sweetener. Saccharin left a bitter aftertaste, and the consumer experience was horrid. Consequently, the market for diet soft drinks was less than robust.
In 1965 G.D. Searle first synthesized Aspartame, which is a considerably better artificial sweetener…..no aftertaste. In 1983 The Food and Drug Administration approved its use in diet soft drinks. Take a look at the chart below, which shows that growth in diet soft drinks started to skyrocket after the introduction of Aspartame.
Searle’s patent didn’t expire until 1992, which means it virtually owned the market for artificial sweeteners for nine years. Anyone who had the experience of sitting on the other side of the desk from the Aspartame sales people can tell you they didn’t try to nurture a strong relationship with their customers. In fact they put their customers on quotas, and the only limit to their pricing power was how much they could charge without inhibiting the growth of the diet soft drink market.
Insulated
Again, I am not suggesting that, as an emerging growth company trying to get across No Man’s Land, you treat your customers poorly. What I am suggesting is that you do your absolute best to differentiate your product or service, targeted at a felt customer need, without alienating your customers. The more differentiated your product or service, the more insulated you will be from the vagaries of the marketplace.
