Robert Haas, Managing Director of Levi Strauss & Company mentions in an interview:
“Everyone is looking through the wrong side of the lens, as if profits are what drives the company. Financial reports don't address the reality that drives financial results: employee motivation, employee turnover, customer satisfaction, on-time delivery, brand perception, purchase intentions.
The main message we must extract from this statement is that companies worry about things after they happen; they spend most of the time in their board and senior management meetings discussing the effects, rather than their causes.
With a market perspective, we can conclude that the message of Haas is that companies do not recognize the role of Marketing as a generator of cash flow and do not have a clear idea of the value of brands, of the satisfaction of their customers, or of other indicators of buying behavior that move your financial indicators. Even those companies that do care about measuring their market performance spend a minimum of time during senior management meetings.
In general terms, the problem results from a confusion between what is relevant in tactical terms and what is relevant in strategic terms.
The tactical is solved in the short term, requires fewer financial resources, is resolved at the lower levels of the organization, focuses on the volume of production and sale and its main activity is the operation. It is not a subject for meetings considered important.
The strategic is resolved in the long term, involves greater financial resources, is resolved at the highest levels of the organization, focuses on the relationship with current and potential clients, and its main activity is planning. These are important topics and among them those related to financial resources stand out and they consume the attention, not only of executives and directors, but also of shareholders, the specialized press and the general public.
In terms of market orientation, the problem posed by Haas is one that results from the vagueness that the term Marketing has for different people, as their perception ranges from positive to negative and from efficient to wasteful. Its character ranges from the serious to the banal, from the quantitative to the qualitative, and from the operational to the strategic.
It is not recognized that the link established between the company and its customers through the value chain consists of a mutually beneficial alliance.
A recent example in Mexico is Benavides, cited in the media as 'the most important pharmacy chain in the country'. The issue of its financial problem has been extensively discussed, finally resolved via capitalization and sale to a Chilean pharmacy company. The new board of directors, the media reports, has appointed president and set goals for the new administration.
The Benavides issue has been financial for several years, both in the media and in its management, focused on the problems of liabilities and capital. However, no mention is made of the causes that have originated this effect of financial losses.
Even today, the new management of the company has not communicated its position on how to solve the basic problem of the pharmacy chain, which is expressed in a simple question. What reasons does the consumer have to enter a Benavides Pharmacy?
The stores offer a mix of unrelated products that mainly include medicine, photography and food. And as long as customers are not convinced that they can obtain greater profits there than in other stores, the financial indicators that concern the administration will not be generated.
The solution to problems like these lies in correctly understanding the concept of marketing, or the orientation of the company towards its clients as the strategy that in the long term will allow it to obtain greater profits. That is, profits through customer loyalty, as opposed to profits solely through sales volume or production efficiency.
With a Marketing vision, in the short term the important indicators have to do with customers, more than with sales; with the payment they make, rather than with the cash flow; with your loyalty, rather than with the value of the stock.
Not seeing the business through the wrong side of the lens requires taking a working outline as a reference. For example, the Marketing Operating Model proposed by Thomas Kinnear and James Taylor.
The Performance Measures result from and depend on the Behavioral Response.
Situational Factors are all those variables external to the company that affect the behavioral responses of the market to which the company is targeting, including politics, economics, legislation, the social environment, geophysical aspects, technological development and from then the competition.
The Marketing Mix refers to the set of tools used by the company to achieve its market objectives. That is, the activities carried out or the decisions taken to achieve behavioral responses from your target market.
Looking at the company from the wrong side of the lens is the result of privileging the Performance Indicators: sales, costs and profits of the company, as well as the variants and combinations of them, such as market share, cash flow, profitability or value of the action.
It does not mean that they are not important. They are, and a lot. But they are a consequence and happen after the Behavioral Response.
And this has to do, in addition to the purchase, with other previous responses (knowledge, understanding, differentiation, taste, preference or purchase intention) and other responses after it (satisfaction, recommendation, buyback or loyalty).
The message is very simple to raise, although extremely difficult to implement in practice: resolve first what concerns a favorable response from the public, causing the performance indicators to move later.
At a shareholders' meeting, it should be discussed Satisfaction, Retention Rate, Expected Customer Value, Average Purchase Amount, Brand Remembrance, Brand Positioning, Brand Value, etc. before presenting the operating and financial indicators.
In the long term, the Customer's Loyalty is more relevant than the Share Value, if for no other reason, because it depends on it.
