In a recent AT&T ad campaign, a deadpan interviewer poses questions to a handful of kids: “What’s better, bigger, or smaller?” or “Would you rather play basketball in a big fancy stadium or in a small driveway?” The kids, in their imaginative ways, always give him the answer he wants.
It’s a charming campaign that has worked well for AT&T (T). When it comes to cell phone networks, bigger is better. But that doesn’t hold true for every company. Sometimes size creates more problems than it solves.
Take Volkswagen (VOW:GR). For several years now the company has trumpeted its ambitious goal of selling a million cars in the U.S. by 2018, up from a few hundred thousand in the early 2000s. Beginning in 2009, VW went on a three-year sales tear, more than doubling unit sales, to nearly 600,000, and putting it well on its way to achieving its goal. But the automaker has lagged in quality rankings behind such rivals as Honda (HMC), Toyota (TM), and Hyundai (005380:KS). U.S. sales have stumbled, too, barely topping 400,000 last year. Its million-vehicle goal appears to be slipping out of reach.
Not surprisingly, the setback is taking a toll. The company’s top union leader, who sits on Volkswagen’s supervisory board, last month called the U.S. strategy “a disaster,” according to the Wall Street Journal. Officially, VW says it still has the million-vehicle goal in its sights, but with U.S. sales down 7 percent in 2013, the goal appears to be more of a dream than a coming reality.
It takes vision to announce a big, bold growth objective like VW’s, and the company deserves credit for setting its sights high. But stretching for a goal that’s too ambitious often leads managers to lose focus, as my own firm’s research on corporate growth has shown. By contrast, a company that maintains a razor-sharp focus on its core customers can continue to go to market with conviction, generating growth of a different kind—in customer satisfaction and consumer preference. That leads to ever-healthier margins that enable the company to maintain and even enhance its product and service quality.
Ferrari (FERI:IM) is a recent case in point. The company just posted its second consecutive record sales year. Both revenue and profit are up since Ferrari decided actually to reduce the number of vehicles it produces. Ferrari sold fewer than 7,000 cars in 2013, a move designed to maintain and enhance the brand’s lofty aura. Company Chairman Luca Cordero di Montezemolo said of the decision, “Those who buy a Ferrari buy a dream, and they must be reassured that their dream of exclusivity will be fulfilled.”
The strategy was effective not just for Ferrari and its handful of customers, but for all those who aspire to join the club. Ferrari was recently recognized as the strongest brand in the world by Brand Finance, a company that specializes in brand valuation. The award is based not only on customer loyalty, but on general desirability and consumer sentiment, among other things. Ferrari topped such household names as Coca-Cola (KO), Disney (DIS), Rolex, and Google (GOOG) in the study because the brand inspires, as Brand Finance Chief Executive David Haigh put it, “a cultish, even quasi-religious devotion.”
Every company must grow, but growth isn’t solely about getting bigger. If, like Volkswagen, you increase volume too quickly, you can easily run into product or service quality issues and internal culture conflicts. By focusing instead on cultivating fierce customer loyalty, you can create not only a virtuous cycle of profit and reinvestment, but a growing sense of pride and satisfaction as well. As Ferrari’s di Montezemolo put it, “The quality of the sales is more important than the quantity.”