The NYT recently did an article on the company Lululemon, which has been targeting the niche yoga market. I had a strong reaction to the interview with the CEO, at the point where the reporter tries to understand why the company had branched out in surprising ways from yoga-related items:
O.K., but why does the chain sell, for instance, rain jackets? Customer demand, Petersen says: “They asked for it.”
At first glance, this statement should not be controversial. The logic is straightforward: give customers what they ask for, and your business will thrive since you get to guarantee demand before production. This rationale is particularly attractive in markets where the cost of misjudging demand — exacted through markdowns, stock-outs, and inventory obsolescence — can make the competitive difference.
But this same strategy has also led countless companies into trouble. Why? Because customers typically don’t understand the operational implications of their requests. They don’t have complete information. Customers often know what they want, but they don’t know whether you can organize your operations to deliver it effectively. They don’t know what else you’re doing or planning to do, or how the cost and quality of those things will react to their desires.
It is a company’s obligation to consider both customer demand and operational complexity as it decides what to offer. If adding a product or service is straightforward given your existing operational footprint, then fulfilling requests may make sense. But if it means expanding that footprint in significant ways, then the decision is much more complicated.
I often see operational complexity run amok in companies, particularly in difficult economic moments. There can be an overwhelming temptation to create demand, any demand. I have seen well-intentioned managers in virtually every industry produce what customers ask for and end up with an operating environment that is difficult to control in terms of reliably delivering excellence or profits. The moral? Listen to your customers, but know that they can’t save you from yourself. Only you know the true costs of their demands.