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Companies and the customers who hate them.
1Harvard Business School, Boston, MA, USA. gmcgovern@hbs.edu
Harvard Business Review
|June 22, 2007
Summary
Companies often profit from customer confusion through complex contracts and hidden fees. However, transparent, customer-centric strategies can lead to rapid growth by attracting defectors from competitors.
Area of Science:
- Business Strategy
- Consumer Behavior
- Marketing
Background:
- Many companies employ adversarial value-extraction strategies, profiting from customer confusion and complex pricing.
- Customer-centric value delivery has shifted to company-centric value extraction in industries like cell phone service and retail banking.
- Complex product options and fees, while potentially profitable, exploit customer difficulty in predicting needs and making optimal choices.
Purpose of the Study:
- To analyze the long-term viability of adversarial value-extraction business strategies.
- To examine how customer confusion and complex pricing impact purchasing decisions and company profitability.
- To identify the potential for growth by shifting from company-centric to customer-centric strategies.
Main Methods:
- Analysis of common industry practices in cell phone service, retail banking, and health clubs.
- Case study examples of companies like Virgin Mobile USA and ING Direct.
- Examination of the relationship between complex pricing, customer behavior, and competitive advantage.
Main Results:
- Adversarial strategies, while profitable in the short term, lead to customer defections and negative publicity.
- Competitors offering transparent, customer-friendly alternatives can attract significant market share.
- Companies that dismantle harmful practices and offer transparent value propositions can achieve rapid growth.
Conclusions:
- Customer confusion and adversarial tactics are unsustainable business models.
- Transparency and genuine value creation are key differentiators for long-term success.
- Shifting to customer-centric strategies can mitigate customer retaliation and drive market leadership.
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