The Focal Firm Fallacy: When Customer Centricity Becomes Customer Suffocation

My wife and I went out recently with friends for dinner to one of our favourite restaurants, from which we also occasionally order food. At the end of a pleasant meal, after we had paid, the waiter showed us a QR code and asked us to provide feedback. We said we would fill in the form later. The waiter, looking somewhat anxious, replied: “We are required to show our boss a photograph of the completed feedback form.”

It was a trivial incident, but also a revealing one. Here was a restaurant so determined to measure customer satisfaction that it was obliging employees to obtain it on the spot, without realising that the process of measurement was making the customer experience worse. The manager herself may have been under pressure from superiors. The extrinsic outcome—the metric—had begun to matter more than the experience it was supposed to measure.

Anyone who travels, shops online, uses a bank, orders food or contacts a call center will recognise the phenomenon. Rate your delivery. Rate your driver. Rate your call. Rate our app. Tell us whether you would recommend us to a friend. Explain why you gave us an eight rather than a nine. Your feedback will take “just two minutes”. And if you do not respond, we may remind you. Welcome to “customer suffocation”.

When a good idea goes too far

Customer centricity is one of the most widely accepted principles of modern management, and rightly so. Firms should understand their customers. They should listen to them, solve their problems, remove friction and design products around their needs rather than around internal organisational convenience. But most good management ideas have boundary conditions.

What marketers regarded as greater intimacy could be experienced by customers as an invasion of privacy.

There is a substantial academic literature showing that attempts to get closer to customers can have unintended consequences. As far back as 1997, Lisa O’Malley, Maurice Patterson and Martin Evans described the dilemma as “intimacy or intrusion?” Their research made a remarkably prescient observation: what marketers regarded as greater intimacy could be experienced by customers as an invasion of privacy.

A year later, Susan Fournier, Susan Dobscha and David Glen Mick warned in Harvard Business Review about the “premature death of relationship marketing”. Companies were enthusiastically trying to create relationships with customers without asking a basic question: Do customers actually want relationships with us?

More recently, researchers have examined the “dark side” of customer relationship management (CRM), including surveillance, distrust, opportunism and lack of transparency. Others have documented a “personalisation paradox”: the same data that allows a company to make an offer more relevant can make the customer feel vulnerable when she realises how much the company knows about her. Research on digital advertising shows that perceived intrusion can produce irritation, psychological reactance and avoidance.

The problem, in other words, is not that customer centricity is wrong. It is that firms can become so preoccupied with being close to customers that they stop seeing the relationship from the customer’s perspective.

Behind much of this is what I would call the “focal firm fallacy”.

The focal firm fallacy

Every organisation is naturally the focal firm in its own world. A bank's managers spend their working lives thinking about banking. An airline obsesses over its routes, fares, loyalty programme and load factors. A streaming company examines viewing minutes and churn. A university thinks about courses, student engagement and alumni relationships. Product managers pore over usage data, conversion funnels and customer journeys.

Because our company occupies so much of our lives, it is surprisingly easy to assume that it occupies a correspondingly large part of the customer’s life. For the customer, our bank is one among several financial relationships. Our airline is how she gets from A to B. Our supermarket supplies groceries. Our streaming platform provides occasional entertainment. Our insurance policy is something she would ideally prefer never to think about at all.

The same customer is simultaneously a parent, child, spouse, friend, employee, manager, citizen, traveler, patient and consumer of hundreds of other products and services. She is managing WhatsApp messages, work deadlines, school schedules, medical appointments, ageing parents, investments, bills and dozens of other demands on her attention. Yet each company behaves as if its own customer journey deserves centrestage.

That is the focal firm fallacy: mistaking our importance to ourselves for our importance to the customer, which actually makes managers less customer-centric and more firm-centric. Once we see the problem this way, several practices that pass under the banner of customer centricity deserve reconsideration.

The engagement trap

Digital technology has made the focal firm fallacy particularly seductive because almost everything is now measurable.

We can measure opens, clicks, visits, sessions, time spent, repeat usage, responses, likes, referrals and dozens of other indicators of engagement. What can be measured can be managed and soon what can be managed becomes something managers are expected to increase. More engagement must be better. But why?

For some businesses, engagement is genuinely valuable. I might want to spend hours on Spotify, Netflix or a newspaper site. But for many products, low engagement may be evidence of excellent performance.

I do not want a deep relationship with my payment app. I want it to transfer money securely in ten seconds. I do not want to “engage” with my insurance company. I want the policy to work when something goes wrong. A well-designed airline app should allow me to check in quickly and put the phone back in my pocket. In these settings, additional interaction can actually destroy value. This suggests that managers need to distinguish between customer engagement and customer value. They overlap in some businesses, but they are not synonyms. Sometimes the ultimate customer experience is for the product/service provider to disappear after the transaction.

The customer attention tax

Feedback illustrates another manifestation of the focal firm fallacy. “Listen to the customer” is excellent advice. But organisations increasingly interpret it as permission to ask the customer to evaluate almost every encounter.

Each request appears innocuous inside the company. “It takes only 30 seconds.” But the focal firm sees only its own 30 seconds. The customer encounters similar requests from the cab company, hotel, airline, restaurant, bank, e-commerce platform and delivery service.

What appears costless to each firm becomes costly in aggregate.

We might think of this as a “customer attention tax”.

Perhaps the most customer-centric survey is the survey we do not send.

Indeed, firms increasingly outsource part of their quality-control and market-research functions to customers. After purchasing and paying for a service, customers are asked to invest additional time explaining whether the company performed well and how it might improve. There is nothing inherently wrong with asking. Customer feedback is enormously valuable. But feedback should be treated as a “scarce customer resource”, not an entitlement.

Before asking, companies might ask themselves three questions. Do we genuinely need this information? Can we obtain the answer from behaviour or existing data instead? And, most importantly, are we actually going to do something with the answer? If not, perhaps the most customer-centric survey is the survey we do not send.

When personalisation becomes surveillance

The same boundary applies to personalisation. Used intelligently, personalisation reduces search costs and improves relevance. There is obvious value in a hotel remembering that I prefer a firm mattress or an e-commerce site making useful recommendations based on previous purchases. But personalisation has a psychological boundary.

Researchers Elizabeth Aguirre and her colleagues call this the “personalisation paradox”. Personalised messages can become more effective because they are more relevant; yet the information collection that makes them possible can simultaneously make customers feel vulnerable.

Kelly Martin, Abhishek Borah and Robert Palmatier found something even more striking in their research on data privacy: simply knowing that a company has access to personal information can heighten customers' feelings of violation and reduce trust.

Recent research has also begun using a wonderfully unacademic-sounding but highly accurate word for the result: “creepiness”. Highly personalised marketing can become unsettling when customers feel they are being watched rather than served. The distinction between helpful and creepy often comes down to a simple reaction: “How did they know that?”

Technological capability is therefore a poor guide to appropriate customer interaction. The fact that a company can infer something does not mean it should necessarily act on that inference. Customers value relevance, but they also value autonomy. Sometimes we want to browse without being predicted, buy without being pursued, and leave without being retargeted. Giving customers space can itself be customer centric.

In summary, many aspects of customer centricity are likely to have diminishing and eventually negative returns. The relationship may resemble an inverted U. At first, greater customer centricity produces better service, builds trust, increases relevance, and improves quality. Then a boundary is crossed.

Design for absence

What should managers do differently? Perhaps we should add an unusual question to customer-experience design: How little of the customer’s attention can we consume while still delivering outstanding value? This turns conventional thinking on its head. Instead of maximising touchpoints, eliminate unnecessary ones. Instead of asking how frequently customers engage, ask whether they can accomplish what they came to do quickly. Instead of collecting every available piece of data, ask which information genuinely improves the customer’s outcome. Instead of asking for feedback after every interaction, ask occasionally and make it clear that responding is optional. Instead of treating silence as disengagement, recognise that silence may mean everything is working.

Some companies create outstanding customer value precisely by demanding less of the customer’s time and attention. Trader Joe’s in the United States and Mercadona in Spain offer a useful counterpoint to the belief that customer centricity requires ever more customer engagement. Both invest deeply in understanding customers, yet translate that knowledge into curated assortments, simple pricing and low-friction shopping. Mercadona goes so far as to call the customer “El Jefe” (the boss) while explicitly making “minimum customer time” part of its value proposition. The paradox is important: the most customer-centric company may sometimes be the one that asks the least of the customer. In India, Zerodha built much of its appeal around low-cost, relatively uncluttered investing technology that enables customers to execute transactions without advisers continually calling to sell them something. These companies differ enormously in their business models, but they illustrate the same principle: customer value need not be proportional to customer engagement. Sometimes the most customer-centric thing a company can do is solve the customer’s problem efficiently and then get out of the way.

The paradox of genuine customer centricity

Our brand is not necessarily part of the customer's identity. Our app is not necessarily a destination. Our customers may not want a community. They may not want a relationship. They may not want to “engage”. Sometimes they simply want the product to work.

The paradox is that a genuinely customer-centric organisation must sometimes choose to become less present in the customer's life. The ultimate test of customer centricity is not whether customers spend more time with us, but whether they are better off because of us. Sometimes that requires intimacy and continuous interaction. Sometimes it requires quietly doing the job and getting out of the way.

Perhaps the difference between customer centricity and customer suffocation is therefore surprisingly simple: customer centricity begins with respect for the customer's needs. Customer suffocation begins when we mistake our need for the customer's attention for the customer's need for us.