To me, the sacking of Jeremy Clarkson from Top Gear speaks volumes about the BBCs relationship with its customers. It became apparent that senior management had been spoiling for the opportunity to rid themselves of a hugely popular but politically incorrect personality. Its a pity BBC Trust Chairman Rona Fairhead didnt procure some friendly advice from her fellow HSBC board members. Owners of investment banks are experienced at managing over-paid, highly valuable employees with egos the size of Uranus.
Trash
To nonchalantly trash a programme format sold in over 170 countries that earns the BBC an estimated 67m a year, in the face of a petition bearing over one million signatures, is a luxury reserved for those whose income is funded by licence-payers who have no choice but to stump up.
BBC Creative Director Alan Yentob defended the sacking amidst claims that the BBC is run by a metropolitan elite by saying there are quite a lot of programmes that reach out to audiences who are C2,D,Es. His contempt for the BBCs working class audience was comparable with Gerald Ratners infamous rubbishing of his jewellery chain products, still remembered nearly 25 years on.
Consumer-facing commercial businesses cant treat their customers with contempt, but rather need to be highly attuned to customer opinion. Its especially important for companies that are high profile, and even more so when customer and shareholder groups overlap analogous to the BBCs situation. The varying fortunes of companies such as Tesco (LSE: TSCO), Marks and Spencer (LSE: MKS) and Whitbread (LSE: WTB) provide useful insights for investors.
Empire-building
Many observers would ascribe Tescos demise over the past three years to an arrogant and out-of-touch management regime that put empire-building above the customer. Tescos chairman admitted that the company lost touch with the outside world, and Morgan Stanley analysts pointed out that management was obsessed about numbers. True, the market changed with the rise of the discounters, but the market-leader could and should have responded quicker if it was in tune with customers. Only a change of management is now, perhaps, restoring the companys potential.
Marks and Spencer has a mixed record. Long-known for superb customer service, its food division has thrived despite the supermarket sector travails that so battered Tesco by clever market positioning. The original Dine in for Two, which packaged a two-course meal plus wine for 10 in 2011, perfectly targeted the newly austere as they weaned themselves off dining out.
But around the same time in general merchandise mainly fashion M&S lost touch with its core 55-plus female customer base. Iconic M&S encapsulates the nexus of corporate and product branding: its 2012 AGM was beset by private shareholders demanding that the company stock more dresses with sleeves. This Thursdays quarterly trading update will reveal whether the chain has finally reversed 14 consecutive quarters of sales decline in general merchandise.
Premium and value
Whilst M&S shareholders have had a bumpy ride over the past three years and Tescos have grown poorer, investors in Whitbread have seen their stock rise by 80%. The shares premium rating 25 times earnings reflects earnings growth, which in turn mirrors its brands popularity with consumers. In contrast to M&S and Tesco, Whitbreads corporate name is not linked with its high street brands, including Premier Inn, Costa coffee shops and Beefeater Grill. Indeed, the man in the street would more likely associate the company name with the brewing business that it shed in 2001.
Whitbreads businesses are geared towards the value end of the price curve, though I doubt youd catch a Whitbread executive doing a Ratner. The shares took off when Andy Harrison became CEO in 2010. Hes a man in tune with those who appreciate a bargain, having previously run budget airline easyJet.
Many sophisticated investors favour consumer businesses thathave repeat sales of small value: there is greater earnings visibility than in businesses which have few, large contracts. But that approach only works if the management stay close to fickle consumer tastes. Ratners, and Tesco, demonstrate how quickly they can lose touch.
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Tony Reading owns shares in HSBC and Tesco. The Motley Fool UK has recommended shares in HSBC and owns shares of Tesco. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.