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Verne Harnish: Listen To Scale

Engaging customers has always been a critical CEO skill, but to win in the age of Amazon, Verne Harnish, bestselling author of Scaling Up and Mastering the Rockefeller Habits, says it’s become downright existential. Here’s what he means, and how to do it right.

Sanjeev had the job of CEO of Benetton India, a brand that’s not been doing particularly well and was getting crushed as a fashion brand in India by Levi Strauss. So the first thing we had Sanjeev do is on a daily basis get back in touch with both his employees and his customers.

He very simply put a card into each store that said, “Hey, if you have any problems, complaints, concerns, issues, ideas, e-mail me directly.” That was open to both the employees and the customers. These began flowing in on a daily basis.

Sanjeev would read—like Warren Buffett reads the headlines of newspapers from all over the world to get an idea of what’s happening in marketplaces—the subject lines of all of these emails coming in from the customers. He had a whole team that was responding to all of them.

So, he was first getting a good gut feel for just what was happening on the frontlines with the customers and employees. One of my favorite stories was when one of the leading politicians in India emailed him. He’s having some troubles with some acid-wash jeans that he had gotten at Benetton. Sanjeev jumped at the opportunity to talk with him, and he was able to head off at the post a production problem they were having with these acid-wash jeans.

Within two years, Benetton rose to be the number-one fashion brand in India. You can imagine who was disrupted by that: Levi Strauss. So, the end of that story is today, Sanjeev is running half the globe for Levi Strauss. They poached him away.

He’ll tell you it was this daily routine, not unlike Sam Walton five decades ago. Walton would get in his pickup truck or his plane and spend most of the week talking to customers, talking to employees, and shopping competitors, getting his head out of the business—and into the marketplace. Get out of the supply chain side and get in the demand side of the business.

Everybody talks about these unicorn companies that go to $1 billion in about half the time it’s traditionally taken. They really have two things in common. One of those is they’re all focused on the demand side. They don’t supply anything. Uber didn’t own any car, Airbnb doesn’t own any properties, and Amazon doesn’t really make much of what it sells—nor do Google and Facebook. What they are brilliant at is better understanding the customer: what they are doing just before, doing right now, doing next, their likes, their dislikes, their uniqueness and using their understanding of the customer to then drive demand for us poor suppliers, in oversupplied markets. Who’s making all the money? The demand engines, not the supply engines. That’s what we’re pointing out.

They understand what’s getting in the way of the customer and removing it?

No. That’s a piece—but a small piece. That’s thinking supply chain. Yes, one of the things that we’re teaching leaders is that if you’re doing anything that’s hard for the customer, it’s just dead on arrival. Nobody wants hard today. But anyone can focus on making stuff easier.

The big difference with the unicorns is they understand the demand side like we used to understand the supply side, and what do they use that for? To throttle price. In the olden days, everyone just had a price. Today, price changes by the minute. That’s why traditional retailers are getting killed. They put a sticker on something and maybe change it when it’s time to put it on sale. My book on Amazon, the price will vary from $15 to $21 in a week. It’s this ability to understand demand and use it to drive price—sophisticated pricing versus sophisticated cost—this is the message we’re trying to get across to all CEOs.

The airline industry lost money for decades. Now, they’ve had four of their best years—including 2018. One of their CEOs was quoted saying that he had 1,500 people on a particular route in a day, and there are only 1,200 different prices. So they’ve screwed up 300 times. Same with Uber. Taxis have the same price for an eighth of a mile. Uber’s price is based on demand and their understanding of the movement of the customer, not the supply. So, that’s the first thing they have in common.

All the unicorns have a second thing in common—they have figured out how to get the most people on their bus to get the most brands engaged in the business model.

For instance, the other reason why Jeff Bezos is the wealthiest person on the planet is that first, he made it very easy to do business with Amazon. But more importantly, he understands moment-by-moment the demand curves on any particular product that they’re offering and is able to throttle price to take advantage of that.


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