Friday, November 29, 2024

Poor customer experience vs poorly-working business model – which is easier to fix?

Given two companies – A – with poor customer experience, and good business model, and B – with good customer experience and non-working business model - where would you bet? Of course, most people would not like to bet on either. But, let’s say you have to choose between the two. Which one would you choose? I asked this question in my class sometime last year. In a class of forty, all except one or two students chose B. That is, they felt it was easier to fix a business model than customer experience. Since then, I have repeated the question multiple times. While the response has never been as lopsided as the first time, there are enough takers for A and B in most cases. Let’s explore the question in this article.

People choosing option B feel that fixing customer experience involves external variables while fixing a business model is internal and hence easier. Option-A guys feel that the business model is deeply entrenched in the company’s guts and hence more difficult to fix. I began this exploration with a bias for option A. I was influenced by the Dunzo case I discussed in class.

We discussed Dunzo’s customer journey and used it to illustrate journey mapping and how Dunzo enhanced its customer experience. While customer experience improved for Dunzo, it struggled on the business model front. For the first few years, its business model relied on partnerships with local stores from whom goods would be sourced as per customer demand. Post 2021 it tried to emulate the quick commerce players like Zepto and Blinkit by moving to a dark store model. This business model is capital intensive, and the unit economics went from bad to worse and Dunzo ended up losing eight rupees for every rupee earned in FY23. Eventually, Dunzo had to shut down.

It was not difficult to find more cases like Dunzo's where a company couldn’t save itself while fixing its business model. WeWork (global), Kingfisher Airlines, and Micromax all had good customer experience and a decent market position. However, they couldn’t save themselves from going bankrupt by making changes to their business model.

What about a similar situation for companies with poor customer experience (option A) and not able to make it? It is easier to start with extreme cases. One area to look at is to see product recalls due to health hazards. This happened to Philips in 2021 when it had to recall more than 5.5 million sleep apnea devices due to the potential dispersion of carcinogenic substances during its operation. It had to spend $1.1 billion to settle the claims. Its valuation dropped to one-fourth of what it was before this incident. It is gaining the lost ground slowly.

Closer home, Ola Electric is facing a barrage of customer complaints and service issues related to its e-scooter. Unlike Philips, Ola Electric isn’t a case of product recall, at least not yet. However, the number of complaints is so high (more than 10,000) that various regulatory bodies like the Central Consumer Protection Authority (CCPA) are stepping in and investigating the situation. At this point, it doesn’t appear that Ola Electric is going the Dunzo way. It is holding on to around 30% market share so far. It is likely to bounce back.

Does it mean that fixing a poor customer experience can be challenging but usually not fatal? In contrast, a non-working business model can be fatal? Yes, these are possibilities. However, my bias may still be operational and more study is required.

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