Individualistic Business Strategy limits
Recently, the local paper reported on a sub-prime auto lending company. About 1 in six of the loans had gone bad and the company was writing off over twice its profit in uncollectable loans. This shows that such an individualistic business strategy has limits. A better way is a business that builds society through educating their customers. The old maxim of "an educated consumer is our best customer" still holds true today.
As human beings, we are half way between operating as a society and operating as individuals. In many cases, we want to start as individuals. We strike off on our own. We try to make it without help. And we start families. Then, we start to see that we need other people. We join together to handle disasters. We join together to raise children. In this joining together, we build far better structures and societies than we could alone.
An individualistic business strategy is one that treats people as individuals. It can be based on transactions with no thought of the ramifications to either side afterwards. Once we start moving past individual transactions and think about having a long-term relationship with the customer, we move past the individualistic strategy and start operating more like part of society.
For a long time now, the poorest of our society have been treated as prey for individualistic business practices. There are a number of ways that they have been taken advantage of. Part of the reason is that nobody else has considered them as valid customers. But the problem is that such a business strategy is incredibly wasteful, destructive to society, and misses out on a lot of profit. For example, the sub-prime auto lender had to repossess quite a number of vehicles. Each bad loan they have is destructive both to them and to their customer - in a major way. The customer loses out not only in the loss of transportation, but also in all the money they spent on the vehicle thus far. The company loses profit and incurs expenses.
Grameen Bank has shown a different way. Their business strategy was building society from the start. The point was not just to lend money, but to build up the poorest into a viable society. By working out how to help the poorest move from ignorance and poverty into middle class manufacturers and traders, they showed how such a business strategy could work. For example, compared to the 18% bad loans reported by the sub-prime auto lender, Grameen Bank had a 4% bad loan rate.
The difference is education. People with good credit already have learned how to manage money and borrowing. Those on the bottom of society do not have that learning. The Grameen Bank requires all their borrowers to be part of a support group which offers peer to peer education. People learn the skills they didn't know they needed to have and with that learning, become better citizens, better borrowers, and far more profitable customers.
A well-educated customer is a far better customer. Businesses that educate their customers do better in the long run.