Study finds executives consistently misidentify customer value drivers
A seven-year study by Rice University professor Vikas Mithal found that executives are frequently wrong about what creates customer value. The research suggests strategy should rely on statistical models rather than subjective judgment or anecdotal feedback.
Vikas Mithal, a marketing professor at Rice University's Jones Graduate School of Business, led a seven-year study of 72 businesses comparing executive perceptions of customer value against actual data. The study found that executives are 'always wrong' in predicting what creates value for customers, often confusing stated preferences with actual drivers. Mithal noted that the correlation between executive rankings of value drivers and actual customer value is often zero or negative across the studied companies. He cited an example where apartment residents requested gyms, but fewer than 20% used them, while routine maintenance created more value.
In the case of ITI, a weekly three-bullet-point email update was a major value driver. For Swagelog, a distribution company, rapid quoting was the key driver; their quoting time was 18-19 hours, while customers wanted same-day quotes. Swagelog paused a warehouse automation initiative to focus on rapid quoting, creating a customized app that reduced coding time from five hours to less than five seconds for a top-10 market cap customer. Mithal argues that strategy should be a science-driven process based on statistical models rather than subjective executive judgment. He compared this approach to Netflix’s algorithms, noting that Netflix does not convene a committee of experts to override its algorithm every quarter, unlike many traditional businesses.