Customers do not care about your costs

Kodak in a recent open letter to their customers announced changes to their terms of service for their Kodak Gallery on-line service. It has been hailed in the Twitterverse as an example of how to communicate change to customers.

While I admire Kodak for their openness, I have sharp criticism for the core message. Essentially, they are saying that the must raise their prices to offset costs. Who cares? Certainly not their customers, nor should they. It is not the responsibility of customers to cover a seller’s cost. Should consumers pay more for General Motors cars just because they have a higher cost structure than Toyota? (In essence, the government has told you that yes you are and oh, by the way, even if you never bought a GM car you need to pay for one anyway, but that is another post.)

Kodak should instead focus on the value they are creating through the service and create a pricing model that attempts to capture this value. Kodak is attempting to regroup after years of denial that the photo industry was going/has gone digital. They have been somewhat successful, but they clearly still do not get it. Being in business is about value creation, not cost recovery or profit without creating value.

I tweeted this last week – “The problem occurs when companies focus on increasing or maintaining profit while not increasing the value they provide to customers.” I believe the moment a company pays more attention to cost structure and maintaining profitability rather than focusing on value creation is the moment that they begin to die.

The billable hour is about cost recovery not about creating value for customers. Please take heed professional firms. You are dying you just don’t know it.

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