Investors Versus Customers

An article published this week in the Harvard Business Review by Bain & Company partner Shigeki Ichii describes some of Nikon's recent corporate behavior. That article simply reinforces what I've been writing about for some time: Nikon is currently in a phase where cost-cutting is a primary management task. 

Indeed, cutting costs faster than the company is contracting—which presents a short-term financial benefit—makes the company look more profitable and strategic. At least to investors. 

Before moving on, be careful about the "facts" in the HBR article. For instance, Ichii claims a 35% Nikon stock price increase due to the changes he outlines over one year. So far this year, Nikon's stock price is down 21% from its high, and currently close to where it was when the changes Ichii notes first came into effect. That's one problem with such articles: they can provide a snapshot in time, but the stock market and world economy being what it is, short-term changes eventually succumb to long-term reality.

Which brings me back to my commentary on the HBR article.

The issue for me has never been about whether Nikon is profitable or what its current stock price is. I'm sure that within the company—particularly the board of directors—that profitability and stock price are indeed important things that are considered every day. As it should be.

What I've been writing about for 15 years (!) regarding Nikon is very simple: that peak cameras would be reached was inevitable. The question has always been what will Nikon do about that. 

Back in 2009 the Economist published an article about how Canon and Nikon lost the market for steppers to ASML (they published other things about this, but this is the one article I find that I can still link to). The line that stood out to me there was this: "'When a machine at Samsung broke down, 20 Japanese would come over and place a tent over it, so no one could see exactly what they did,' [ASML's strategist] says. ASML took the opposite approach, and showed customers the problem and how it would be fixed."

Customers. They're critically important. Maintaining the relationship with customers is key when products and markets mature and competitive forces start to intrude on your offerings.

So here's my concern, which I've expressed for some time now in these pages: much of Nikon's cost cutting has come at expense to customers. In all ways. First, Nikon has tremendously scaled back their advertising, which means that we don't see the Nikon messaging any more.

Moreover, what is that messaging? Nikon has been opaque and silent on virtually anything that would inspire confidence in their current customers. Nikon needs those current customers to continue upgrading their cameras and lenses from time to time, after all. 

Put the two together: advertising isn't attracting new customers because it is mostly non-existent, while relations with current customers has soured to the point where you quite often hear "well I guess I'll go to Sony, then." (Or Fujifilm, or one of the other camera companies.)

I've almost never faulted Nikon on their engineering prowess or their accounting acumen. They have core competencies in both areas that support them well. Notice I used the word "support", though. 

More and more in my life I've become aware that "story" is everything. What's the story your product tells? What the story your product enables? What the story of you connecting with your customers? 

Nikon has playing pretty much only one game in recent years: creating a story for investors. The HBR article basically documents that story. I've got no problems with that.

The problem is that this effort isn't accompanied by a story targeting customers. Nikon has effectively made their story "see the D850." Coolpix has no story. KeyMission has no story. DL started to tell a story that they decided not to complete. The DX DSLRs are not telling customers a compelling story. The D610 and D750 are old stories, fading rapidly in relevance. 

Consumers see Nikon's story as one of continuous fade, and the most extreme of those customers now simply say something like "see what happened to Kodak." 

Long, long ago in Silicon Valley I had to write business plans for tech products. One thing that became clear to me almost from the beginning was this: you have three constituencies that you absolutely must have an appropriate and compelling story for. Those constituencies are the investor, the employees, and the customer. And not necessarily in that order.

I'd argue from my experience that the order is customer, employee, investor, even though in Silicon Valley the emphasis has always had a strong tilt towards investor, as it takes a lot of capital to make something that didn't exist before. 

Without a doubt, the Nikon D850 customer is quite happy (if they can get one). Only problem for Nikon? There are probably only about 100-150k of those customers this year. The D500 and D5 customer is also probably pretty happy, though there are even fewer of those customers this year. 

From there, things get progressively worse as we go down the lineup. 

To me, what the HBR article says is simple: one key employee at Nikon focused on one problem and made significant headway. Ironically, Oka-san did for the investment community what I've been writing for years that Nikon needs to do for the customers. For example: "identify those...that would be most important for providing valuable feedback." 

The bottom line is this: the investors will continue to evaluate Nikon's prospects with customers. As those prospects fade, my guess is that so will the positive changes Oka-san managed to make in the investment community.


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