Choosing the right strategic focus is crucial for financial success in a world of ever-increasing competition. Firms can do this through brand focus or customer focus.
A 2021 study in the Journal of Retailing reveals the distinct impacts of customer focus versus brand focus on the financial performance of U.S. firms. The study focused on the retail sector and analyzed 853 earnings calls from 109 firms between 2010 and 2018.
It used textual analysis of earnings calls to measure the emphasis on brand and customer strategies, providing valuable insights for firms looking to optimize their strategic orientations. Specifically, it measured the usage of the word “brand” and/or “customer” and associated activities to measure focus. The study has three main findings.
Companies are increasingly more focused on brands than customers
Both brand and customer focus increased over time. As shown in Table 1, companies’ brand focus increased three times more than their customer focus.
There is very little overlap between a company’s brand focus and customer focus
Many branding consultancies argue that brand focus is indeed customer focus. That is, the “good branding” increases a company’s customer focus. To be sure, the proportion of firms with higher brand focus and customer focused increased in 2018.
Source: Han, Simeng, Werner Reinartz, and Bernd Skiera (2021)
Customer Focus Drives Financial Performance, Brand Focus Doesn’t
Next the study statistically linked customer focus and brand focus to financial performance (measured as gross profit margins). The analysis statistically controlled for potential confounds as the firm’s specialization, size, and age to draw unambiguous conclusions.
The results are shown in Figure 2. Customer focus has a positive association with profitability, but brand focus does not. The authors concluded “There exists a positive correlation between…customer focus and…profitability but not between… brand focus and…profitability.” (page 595)
CONCLUSION. Prioritizing customer-centric strategies such as statistically deriving customer value drivers and delivering excellence on them improves customer satisfaction, customer retention, sales and higher profitability. Brand focus primarily delivers communication effectiveness and is ineffective at delivering financial performance.
Firms should not confuse brand focus with customer focus – they are not the same. Research shows there is no statistically significant correlation between brand focus and customer focus.
In terms of strategy, firms need to first excel on customer focus, and then focus on branding. While a branding focus may provide long-term benefits, they cannot be realized without a customer-focused strategy.
Customer-focus should remain the primary driver of a firm’s strategy.
References:
- Han, Simeng, Werner Reinartz, and Bernd Skiera (2021) “Capturing Retailers’ Brand and Customer Focus,” Journal of Retailing, 97(4) 582-596. Free download: https://doi.org/10.1016/j.jretai.2021.01.001.