The customer as lead indicator | FT Alphaville

The customer as lead indicator

It’s been a really bad week for a pair of household names, and next week promises to be pretty awkward for a third. The eclipse of Nokia is set to become a classic business school study. From the world’s fifth most valuable brand in 2006, and a market value of E100 billion in 2007, no fashionable mobile-toter would be seen with one today, and the business is now valued at E12 billion. The fall of Sony has been no less dramatic. The producer of the best telly in nthe world, in the shape of the Trinitron, has reached the point where it is contemplating stopping production altogether. The shares have also lost nine-tenths of their value since 2007, and have fallen by two-fifths since the start of last year.

The two companies have little else in common, but in both cases the managements ignored the signals from the customers. In 2006, Nokia’s position seemed as unassailable as, say, Apple’s does today. It not only had a dominant share of a growing market, it had margins twice those of its nearest competitor (remember Motorola?). It could outspend and thus out-develop any company which threatend its hegemony.

Yet it quite failed to see what was happening in its marketplace. Apple’s reputation as the slightly edgy hardware supplier of choice was not something Nokia could do much about, but the failure to see the rise of the app was a disastrous blunder. It was not until the number of these applications passed 100,000 that Nokia acknowledged that they had changed the way mobile phones were used. By then, it was too late.

There’s a deal of ruin in a large corporation, as Adam Smith might have said, and it’s possible that Nokia’s Lumia 900 will stop the rot, although not if it sells for $99 and includes $100 of free phone calls. At least the FT likes it. The acid test will be the speed with which it attracts the app-builders. The prognosis for Sony is much worse. It looks like a corporation without a purpose. Despite a deck-clearing $6 billion loss, a core business of video games, mobile phones and cameras, coupled with a vague vision of some broad, sunlit upland, does not look convincing.

The point here is not to mourn the decline of great businesses, but to look at the cuastomer experience. Share prices of both companies halved during 2008, but the marketplace was signalling much worse to come. Nokia’s phones looked out-of-date, while the Bravia TV was (and is) a real disappointment to Trinitron fans. The customer experience proved to be a leading indicator of desperate times ahead.

Customer experience has also disappointed at Tesco, after two decades when Britain’s biggest grocer could seem to do nothing wrong. Shoppers today are going there not because they love the brand, the prices or the shops, but because they often feel (rightly or wrongly) that they have no choice. The superstores seem to be everywhere, and the company is blamed for creating “Tesco towns” and sucking the life out of the high street. However unfair, this is dangerous territory for any company to occupy. No business the size of Tesco’s can avoid the occasional operational blunder, but the usual reserve of goodwill looks as low as a reservoir in south-east Enbgland.

It’s much more important for new chief executive Philip Clarke to put this right than to make a profit in America. Clarke, who received the hospital pass from Terry Leahy, has signalled that he grasps this, by taking personal control of the UK business. Next week he will reveal his strategic blueprint for the business. Have a relaxing weekend, Phil.

Browned off with Osborne

There was nothing Gordon Brown liked better than to stick some irritating policy change onto one of the spending departments. It demonstrated that the Treasury was in charge, just in case any of the other ministers forgot it. His Budgets were frequently awful, and it often took several weeks of picking through the gory details before it became obvious just how bad they were. Watching them unravel from across the floor of the House, you might have expected George Osborne to have learnt how not to do it.

The Budget should set the financial and tax framework for the coming financial year. It helps to remember that the state currently spends about £2 billion a day every day, including Sundays and Bank Holidays, so that a £1 billion measure changes the annual total by less than 0.2%. Any measure worth less than £500 million is effectively a rounding error.

So: the pasty tax (including VAT on rented hairdressers’ chairs) is expected to raise £115 million, closing the stamp duty loophole £65 million, while the cut in income tax to 45% will cost £100 million. Pointless, or what? The only contentious measure that (almost) registers on the spending scales is the 25% of income cap on tax reliefs, raising £490 million in its first year, falling to £240 million thereafter, presumably because the Treasury expects people to find ways round it.

This is even more pointless than the pasty fight. Nobody really knows how much charities depend on a few big donors, but this rule is the charge of the financial light brigade into the massed guns of the charity sector, the universities and the Conservative heartland. It’s hardly the natural constituency of Dame “Suzi” Leather, the social crusader who chairs the Charity Commission, but this is such a self-evidently stupid measure that even she can make common cause with her political enemies.

If the wealthy prefer to give their income to charity rather than have half of it extracted by the taxman, then that is surely their affair. We all feel slightly smug about charitable giving; the wealthy will feel smugger, but even the most pampered charity (and there are a few) will spend the money more efficiently than the state can. If some of the 162,136 registered UK charities are a sham (and there are a few) then Suzi should get on the case and root them out, rather than declaring war on the public schools. The chancellor, meanwhile, might stick to the big picture. We barely survived a decade of Brown’s compulsive fiddling syndrome. It would be disastrous if Osborne is catching the same disease.


A full list of Collins’ financial interests can be found on this spreadsheet.

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