Often in the jungle of growth, orders and profits, we lose sight of how an ordinary customer perceives a company. We are all familiar with the story of how Peter Lynch found a great investment because her wife had discovered that a new brand of panty hose was better, “Carolyn didn’t need to be a textile analyst to realize that L’eggs was a superior product. All she had to do was buy a pair and try them on,” writes Lynch. What had Hanes done? It talked to women about the essential garment. None of them remembered the brand they bought. Hanes also realised that women went to the neighbourhood store almost every alternate day. Hanes therefore stocked the pantyhose in those stores, as Lynch says, right next where eggs and chewing gum were stocked. And it gave them great quality.
Similarly, when Air travel became so frequent, as Making of An American Capitalist an excellent biography of Buffet states, " Air travel having become affordable, the middle class was embarking on the Grand Tour, and the traveler’s check had become its passport. (“Checks That Never Bounce,” Reader’s
Digest gushed.). Half a billion dollars of the company’s scrip was in circulation, accepted as readily as money itself."
Then American Express was hit by a scam and its scrip nose-dived.
What did Buffet do? "As these events were unfolding, Buffett paid a visit to Ross’s Steak House in Omaha, in the same inquiring spirit as when he had earlier dropped in on the clothier Sol Parsow. On this evening, Buffett was interested not in the customers’ steaks, nor in their suits or hats. He positioned himself behind the cashier, chatted with the owner, and watched. What Buffett observed was that, scandal or no, Ross’s patrons were continuing to use the American Express card to pay for their dinners. From this, he deduced that the same would be true in steakhouses in St. Louis, Chicago, and Birmingham.
Then he went to banks and travel agencies in Omaha and found that they were doing their usual business in traveler’s checks. Similarly, he went to supermarkets and drugstores that sold American Express money
orders. Finally, he talked to American Express’s competitors. His sleuthing led to two conclusions, both at odds with the prevailing wisdom:
- American Express was not going down the tubes.
- Its name was one of the great franchises in the world."
Buffett saw a type of asset that eluded Graham: the franchise value of American Express’s name.
This brings us to a very important issue. Its alright that a company is respected by its customers, but what about the company, does it respect its customers?
In the case of Hanes, it did what a company should normally be doing. Identifying the customer, her needs, and then giving them good quality.
But there is more to it. Suppose there is an issue with the traveller’s cheque issued by American Express. A customer is seriously concerned that the company should take steps to quickly, and without fuss resolve it.
People liked Amazon because of its no questions asked return and refund policy. When I received a lens, which did not open and therefore could not be attached to my camera, I had to approach the CEO himself to get my refund.
Similarly, in 2020-21, when I had booked costly air-tickets through a well-known service provider, they made me fight for refund (I had to cancel my trip because of the pandemic) for more than six months, telling me lies all the while.
Would I again book a ticket through that provider?
Bigbasket is liked by the house-wife because she knows that she only has to contact their customercare service on the chat, upload a photo of vegetable which is not upto the mark, and she would get her refund.
Approaching Jio, either the phone/broadband provider or JioMart is not that easy.
We have seen in the case of restaurants that customers move to another joint if the quality goes down. A neighbourhood restaurant served us lukewarm sambhar, the management when approached, did nothing about it. It is closed now.
A friend has recently closed his demat account with a well-known bank because it made him run around.
So, like Buffet, who disregarded his guru Graham’s dictum that a stock ought to be purchased on the basis of “simple and definite arithmetical reasoning from statistical data,” and went by how a customer perceived the Bank, we cannot ignore the important aspect on which success of a company depends- how friendly the company is towards its customers. That, and only on that depends the success of that company providing service or goods to common man.
And that may not be immediately apparent from data. There is more to a company than merely its Annual Report.