Who’s Your Daddy?

Volume 10 Letter 11

Who is your primary customer? A simple question that should have a simple response but many businesses struggle with the answer. Trying to have more than one primary customer can often lead to headaches. Home Depot is a case in point.1

In 2000 Bob Nardelli of GE fame took over as CEO of Home Depot. He concluded that the home improvement business was a mature market with limited growth potential. To find more growth and crank up the stock price he realigned the business to focus on building contractors shifting away from Home Depot’s original primary customer – “Do it Yourselfers”. All those knowledgeable guys walking the aisles with orange aprons at 1900 stores across North America were laid off leaving Do it Yourselfers confused and frustrated. Bob took the savings and his plastic shopping cart and bought 8 billion dollars worth of wholesale housing supply companies.

Home Depot’s company sales almost doubled but so did Nardelli’s troubles as increased sales didn’t reach the bottom line. There weren’t enough resources to satisfy both customers – the Do It Yourselfers nor the Contractors. Customer satisfaction scores at Home Depot torpedoed, suffering the highest plunge of any retailer…ever! Meanwhile the resource strapped wholesale business couldn’t get the efficiencies needed to compete in the low margin Contractor business. Floundering, Home Depot finally dumped their CEO.

Developing and successfully executing a business strategy requires making tough and sometimes unpleasant choices. You can’t have it all! Nardelli learned too late that primary customers are kinda like spouses – one is enough!

Lessons from Home Depot:

  1. Define your primary customer: businesses that are floundering usually struggle with this!
  2. Invest in your primary customer: invest in areas that focus on your primary customer including external stakeholders and internal business units.
  3. Minimize resources devoted to everything else: cut back resources devoted to anything that does not strengthen your relationship with your primary customer.
  4. Measure your relationship: Measure your primary customer’s satisfaction level with your product and service and aggressively look for ways to improve it!

In 2007 Home Depot announced they were getting out of the Contractors business and has since refocused on their original primary customer – Do it Yourself home renovators. Still recovering but doing much better, Home Depot has returned their orange aproned staff to the store aisles where they’re actually starting to keep their promise “You can do it We can help”.

When developing your strategy always remember “Who’s Your Daddy”!

1. For the full story “Stress test Your Strategy” by Robert Simons HBR Nov 2010 P93 – P100

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