264-Failures in Reliability Lead to Share Loss

We have written several times before about the Customer Buying Hierarchy (i.e. customers buy Function, Reliability, Convenience and Price, in that order). We have also written, on several occasions, about companies winning and failing customers in a marketplace. In a stable market, failure of a supplier causes more market share to move than does another competitor’s “win” of market share against its peers. Most failures occur in Reliability. Recently, two of America’s paragon companies have failed their customers on Reliability and are now struggling to catch up. Other leaders have had a similar problem and have recovered nicely.

Macy’s is a clear leader in the department store market. Over the last several years, Macy’s has purchased and integrated other large department store competitors. For example, in 2005 Macy’s purchased May Department Stores. As the company worked to integrate these acquisitions and obtain synergistic savings, their attention swerved from customer service. The company’s failings were greatest in customer interactions with the company’s sales associates. Nearly half of customer complaints focused on actions of sales associates. These are failures in Reliability. A customer expects to be well treated by a department store that charges relatively high prices for its goods. Macy’s failed to do that. The company’s market share began to drift lower as a result of these failures.

Now Macys is investing a great deal more money and time into the proper training of its sales associates. This investment is beginning to pay off. A recent survey of customer satisfaction indicated that the company was making strides in improving its reputation. Still, it lags the performance of some of its important rivals. This is still a Macy’s work-in-progress.

Wal-Mart is another industry paragon who drifted from its Reliability promises. Wal-Mart committed two notable sins. First, it removed some products that were important to its core customers. The company did so in an effort to improve the product mix and the margins a better product mix would bring. Some of its core customer volume began to drift away. The company also moved away from its aggressive pricing. Instead of every day low prices, the company began to promote deals on some products while raising prices on others. Customers didn’t like that either. Recently, a survey by a retail consulting firm has found that Target Stores offered prices below those of Wal-Mart. So, Wal-Mart has created Reliability failures in both product availability in its stores and its promise to have “always low prices, always.” The company’s market share has also drifted lower.

Wal-Mart now promises to return to its core values and core customers. It is bringing back the products it once eliminated in favor of higher margin products. It is getting more aggressive in pricing once more. This, too, is a work-in-progress.

Certainly, these leaders can recover from these miscues. We have seen other leading companies struggle with Reliability and yet recover nicely. For example, several years ago McDonald’s went through a period of time where it was losing market share. As the company examined the reasons for this market share loss, it noted that customers began to see its prices as high in the quick service restaurant industry. In addition, its products in stores had developed a reputation as being about the same as or, in some cases, lower in quality than some of its big competition. Under the leadership of a CEO well versed in operations, the company returned to its roots by emphasizing its core quality values and aggressive pricing. Today, McDonald’s is the unquestioned leader in the quick service restaurant industry. Many of its competitors struggle to keep up with McDonald’s. Most fail to do so. McDonald’s again has gained share in the industry over the last several years. McDonald’s success in reversing its Reliability failures suggests that the pathway is open for both Macy’s and Wal-Mart. They both should be able to enjoy similar success. The odds are they will.

6 July 2011


THE SOURCES FOR STRATEGYSTREET.COM: For over 30 years we observed the evolution of more than 100 industries, many hostile.  We put their facts into frameworks applicable to all industries and found patterns.  Strategystreet.com describes the inductive results of these thousands of observations and their patterns.