The mission of a company is to create value for customers, rather than pursuing profits. However, accounting systems cannot quantify the value created for customers, and each company's key performance indicators (KPIs) for managers are sales, profits, and market share.
Under performance pressure, short-term benefits are bound to become the pursuit goal of managers. Daily meetings, budgets, and actions revolve around how to achieve performance indicators. Promotions, salary increases, and bonuses are all linked to performance. Gradually, profits and sales become the holy grail that managers strive for. They even believe that maximizing profits is the mission of the enterprise, which will lure them to constantly pursue "bad profits". A 2017 Forbes study found that 35% of Americans unknowingly pay for subscriptions.
Bad profits are extracted from customers rather than creating value. When companies sell products that are overpriced or unsuitable to customers who trust them, when they deceive customers with complex pricing schemes and make them pay more than necessary, when companies mislead, ignore or neglect customers, delay payment of claims, and provide a poor customer experience, they earn "bad profits" from customers.
Bad profits will offend customers and strengthen the team of detractors. The recently heated Chongqing gas meter incident is a typical representative of bad profits, using the trust of the people in the government to change the speed of the gas meter and earn profits that do not belong to the enterprise. There are many similar cases, and an alumnus from the Department of Mechanical and Electrical Engineering at Tsinghua University said that China consumes 300 billion kilowatt hours more electricity each year than it generates electricity. Where does that electricity come from? Of course, it comes from bad profits.
At the end of 2022, many companies used low prices as bait to sell a large number of National III equipment to users during non road switching. Soon, the equipment could not undertake major projects due to emission issues, resulting in a sharp decrease in profits and facing the risk of early mandatory scrapping. Obviously, companies are pursuing bad profits.
The accounting system cannot distinguish the difference between good profits and bad profits, and all profits earned by a company are the same in financial statements. However, non-performing profits come at the cost of damaging customer relationships, damaging the reputation of the company, leading to customer dissatisfaction and low employee morale, and hindering the company from achieving sustainable profit growth.
In order to pursue profits, construction machinery manufacturers use various means to oversold equipment in the market, resulting in insufficient equipment operating rates and a sharp decrease in customer profits. They have to use auxiliary parts for maintenance and repair, otherwise they will not be able to make money. However, the host factory forced dealers to only sell expensive original parts, resulting in a large number of customer losses.
The rise of Chinese manufacturing has led many OEMs to use domestic components to reduce costs and increase efficiency, but they have forced distributors to only sell original parts, even if the quality of secondary parts is completely consistent with the original parts. Some dealers are concerned about customer churn and provide more competitive accessories to customers, but they are fined heavily by the host factory because this practice has affected their bad profits.
The host factory does not produce tires and allows suppliers to sell them at high prices through OEM. Dealers have almost no profit margin and have to pay to wholesale tires to other retailers to complete the task. Despite knowing that dealers do not make money from tires, the OEM still maintains a high procurement target and has hardly created any value for customers and partners.
Enterprises must be aware that bad profits only appear temporarily in their financial statements. Due to customer dissatisfaction, the bad profits earned by the company ultimately have to be doubled in repayment and bring negative word-of-mouth.
Unlike this, a certain host factory has identified the pain points of customers and developed second brand accessories at different prices, providing customers with more competitive accessories after the warranty period ends, which has been welcomed by customers. In a customer stickiness survey conducted by a certain industry media, this company ranked first in customer ratings, indicating that they are at the forefront in pursuing healthy profits and customer stickiness.
Treat employees and partners like customers, and treat customers like partners and employees. This is the method proposed by the author in the book "Value Profit Chain" to solve the contradiction between high-performance culture and balance of income and expenditure. Any decision made by a company must consider creating value for customers, employees, partners, and investors.
Only considering one's own profits will harm the interests of customers, employees, and partners, forcing them to accept unequal terms. They will leave you and cannot achieve sustainable profit growth. Customer loss will bring fatal harm to the enterprise, which is the challenge that many construction machinery enterprises are currently facing.
If a company violates this golden rule and gains bad profits through unequal terms, it will eventually pay a price. Do not do what you do not want to do to others. Pursuing bad profits damages the reputation of the enterprise and inevitably leads to the loss of customers, employees, and partners.
Some companies do not follow the golden rule, and the terms they provide to suppliers and distributors are very unequal. Payment to suppliers is always delayed, resulting in a high rate of partner turnover and high rates of customer and employee turnover. This negative impact is undoubtedly evident in the stock market. Enterprises that cannot retain old customers are not qualified to talk about the future.
Rushing for quick success and instant benefits to reap bad profits, but leading to a large number of customer losses; Sow kindness and value, gain customer loyalty, and earn healthy profits through repeat purchases, increase wallet share, purchase more products and services, recommend more friends, and provide valuable feedback, achieving sustainable profit growth.
As the ancients said, planting teeth brings melons, planting beans brings beans, and planting people brings people.
