Trust Matters, The Podcast: Building Trust When Industry Spirals Into Cutthroat Pricing (Episode 13)

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Trust Matters, The Podcast: Competing on Competitors’ Lower Rates (Episode 12)

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The Two Times You Should Refer a Customer to a Competitor

You may be thinking, “Wait—why would I ever want to refer a customer, potential or otherwise, to a competitor?” Good—this article’s for you.

In fact, there are two such situations. One won’t surprise you. The other is even more obvious—but even easier to miss.

Why We Don’t Give Referrals to Competitors

It’s not as dumb a question as it sounds. Competitors are those we compete against; what we win, they lose, what they win, we lose.

That certainly means we don’t want to lose direct competition. But as the idea of competition has become like mother’s milk in business, we tend to take it one step further: we want to prevent competitors from winning, even if we’re not directly involved.

So: we hate to lose, and we hate to see them win. Two distinct reasons we don’t give referrals to competitors.

The Competitive Gospel Applied to Selling

The Gospel of Competition says that the whole point of business, including selling, is to win.

The business strategists tell us that key to being successful is being number one or number two in your business.

The football strategists tell us winning is not the main thing, it’s the only thing.

The military theorists tell us the enemy of my enemy is my friend.

The problem with the Gospel of Competition is that, taken to extremes, it competes with the Gospel of the Customer.

The Gospel of the Customer Applied to Selling

The Gospel of the Customer says that the whole point of business, including selling, is to help the customer. If you succeed in doing that, then most likely you will also ‘win’ in the competitive market place.

Though if those two goals come in conflict, you’ve got a serious problem. What if the right thing for the customer involves helping your competitor? That turns out to be a serious question of business identity.

Competitive Referral Number One

The most obvious referral to send to a competitor is a very difficult customer. If you worship the Gospel of Competition, you can justify this on the grounds that it gets rid of a problem for you, and causes a problem for your competitor. Machiavelli would be proud.

But there’s a better reason for doing this—if you believe in the Customer Gospel.

If you believe the Customer Gospel, then you believe in relationships and trust, and the economic benefits for all that come about through collaboration and transparency.

A difficult customer for you, then, is likely to be a customer that doesn’t believe in those things. And a competitor for you is probably a competitor who also doesn’t believe in those virtues, at least not as much.

In that scenario, you do all three parties a bit of a favor, though you perhaps the most. You align transactional sellers and buyers, while focusing on relationship customers yourself. You gain competitive advantage—but everyone’s at least a little better off. That’s good.

Competitive Referral Number Two

The more—or less—obvious situation is when your competitor actually is better suited to serve the customer than you are. Then what do you do?

In this case, not only do you lose a sale (maybe), but you lose one to your competitor. If it’s an existing customer, you risk giving your customer exposure to a competitor—risking them leaving you forever.

Why would you ever do such a thing?

Because if you would never, on principle, give a lead to a competitor—even if they are better suited than you—then you cannot be trusted; you have just said, in principle, that you would always put your own selfish interests ahead of those of your customer.

I once heard a physician make this point directly:

“In my 25 years as a doctor, I have never heard a pharmaceutical rep from any company ever recommend a drug from any other company. Consequently, I don’t trust any of them.”

What’s at stake is your trustworthiness. It depends heavily on your willingness to take the long view, and focus on your customers’ needs ahead of your own—rather than continually trying to gain competitive advantage at every transaction.

And–paradoxically—in the long run, you probably end up getting the competitive advantage as a collateral effect anyway.

Customer Strategy? Or Strategy vs. Customers? Part 1 of 2.

The October 2007 issue of Harvard Business Review is out; in snailmailboxes, anyway (at HBR, no early advantage is given to electronic subscribers, unlike most other publications.)

The issue provides such a juicy entrée to business thinking that I can’t cover it with one blog posting. Look for the Part 2, next posting, which will pit Amazon against credit card companies.

But first—let’s talk business and global warming. The entire Forethought section this issue is devoted to “the climate business and the business climate.”

No fewer than 7 articles address the issue, led by the reigning king of corporate strategy, Michael Porter, co-authoring with Forest Reinhardt. Porter’s life’s work has been to cement the link between strategy and competition. It’s hard to overstate the effect his work has had, even on those who don’t know him by name. The term “sustainable competitive advantage” is, in large part, his handiwork.

After cementing that worldview in business, Porter applied it to countries, then to non-profits; and now to global warming. What, you might ask, does corporate strategy have to do with global warming?

Porter gives a quintessentially Porterian answer. First, you might be able to make money on it (what with higher energy prices, green policies, et al).

But that can be just operational. The bigger reasons for companies to think climate, says Porter, are strategic. You might be able to stake out a position in an emerging market; or prevent a competitor from doing so. Walmart’s emission reduction programs don’t just save money; they “will be strategic if [Walmart can]…reduce emissions in a way that is difficult for its smaller rivals to replicate.”

As Porter and Reinhardt put it:

While many companies may still think of global warming as a corporate social responsibility issue, business leaders need to approach it in the same hardheaded manner as any other strategic threat or opportunity.

I submit there is something profoundly wrong with this logic.

There is something wrong with business thinking when the core guiding strategic concept is the pursuit of continued competitive domination by corporate entities. When the best thinking business can bring to bear on global warming boils down to the dictum to view it like "any other strategic threat or opportunity."

In a world that is networked, globalized, outsourced and inter-dependent, the last thing we need is an old ideology centered on companies “built to last” who are all about “playing hardball” to achieve “sustainable competitive advantage.” That mode of thinking has proven itself incapable of dealing with the economic issues of "the commons" time and time again, on a less-than-global scale. Why should it prove any better when the stakes really are global?

Is that really the best we can do for a guiding set of beliefs? I think not.

I am not suggesting that companies ought to be do-gooders. Nor am I suggesting that companies ought to calculate political pressure and react according tof the relative power of broader constituencies and their enlightened self-interest (an approach responsible for “business ethics” being perceived as an oxymoron). I am not suggesting “co-opetition” as a solution.

I am suggesting we need an entirely different business ethos—a logic as powerfully and concisely stated and as deeply embedded at the heart of business as competition was when Porter wrote in the late 70s—but an ethos based on relationships, networks, synergy, inter-dependency, collaboration, customer-supplier relations, and mutuality.

Do the other 6 articles in HBR’s forethought section offer that ethos? Not really. One talks about the stakeholder pressures that will be brought to bear on companies; another about the value of transparency. All are stuck in the same root assumption: business is about the sustained competitive advantage of companies.

Elsewhere in the same HBR issue, however, there lurks a clue about a viable alternative approach.

Stay tuned to this blog for Part 2.