A marketing dilemma faced by many organizations is how to get to know potential customers so that you can turn them into actual customers for the your organization’s products and services.
Business with Customers
Business is built on the principles of providing products and services that people will buy. Yet for many this idea appears to be a marketing mantra often repeated but with little substance behind it but hope. Can anybody today really believe that you don’t have to take notice of the customer and what they are willing to pay for?
Do you sell your existing services and products to anyone who will buy, or do you enable the customers (customer in this article will relate to both your retail and business customer B2C, C2B, B2B and partner to partner – P2P) to buy what they value by creating what they want? Your answer will probably be somewhere between the two extremes. You will, however, find yourself closer to one than the other, depending on your organization’s marketing orientation, competitive environment and how you use the data and information available to you. Another important aspect of the way you will act is the view you have of your digital assets (more about this later).
One of the two extremes promotes the idea that customers will buy what you have to sell. The other propounds the marketing philosophy of creating and selling what the customer wants to buy. Yet, customers will only buy what they value, so, although you must sell what you already have today, there must be a future orientation to your actions or in the medium term, your organization may face some tough times.
It was not “now or never” as Mary Modahl 1 said during the dot-com craze as many e-business’s were founded and went to the wall in the space of a few months. Yet some of the ideas were sound and have been quietly adopted by a number of household names that have seen the virtue in more effectively stitching their supply chain together while enabling the customer to purchase via the Web. This still does not mean that all you have to do is build a sexy Web site and expect them to come. If the customer or business customer does not value your services and products, then a well-branded, harmoniously colored Web site will not do the trick. And what about the back end: order fulfilment and the links to your call center, contact center, production, operations, shop or branch office? Maybe the customer/partner values the total relationship not just a sexy (but potentially useless) Web site. Our household names have taken this to heart at least the second time around that is.
Demand: It’s all about Marketing
A number of studies have shown that organizations that embrace a marketing orientation (customer focused/customer centric) are more profitable, then one of the major ways to move toward that orientation is to start to understand your customers. This article is designed as a primer on what the customer values, not the customer’s value to the organization. I do not intend to look at “customer satisfaction,” which measures where you have been, but I will look at how the customer finds value in the products or services they use. I will also show you that an understanding of what the customer values can enable you to begin the process of creating offerings, digital assets and personalisation opportunities that can match and potentially exceed those values, and thereby create competitive advantage.
Customer Knowledge Assets
Organizations have collected data about their customers for many years in paper and digital form. Only recently have many realized the value of that data as a means of both understanding their current customers values and needs as well as the potential customers of their products and services. This has led to the rush to data mining and other tools – (more silver bullets) to extract the gold hidden inside that data mountain. The data, once turned into useful information, can become an asset maybe more valuable than many of the other assets you have on your books. Hence the term “customer knowledge assets” refers to both information about actual and potential customers and the knowledge accumulated (as intellectual capital) that is recognized as such within your organization. These assets need to be managed and utilized to improve an organizations competitive abilities. One of the first steps along this path to understand what your customers value so you can craft offerings for them and move where appropriate toward one to one or segment of one marketing. 2
Value is a Consequence of Use
Value really can only exist when you use or own a product. You perceive an item has a particular value to you before you buy, but you can only experience it when it is put to some use. For example, an insurance policy may be sold as a means to solve a problem you face or as investment. The only time you will experience its value is when you use it or cash it in. Prior to this point, you are going on the promise/brand of that supplier and maybe the word- of-mouth (viral marketing) recommendation from a friend or associate. The old sales idea that you don’t buy a drill because it is a drill but because you need to make a hole is true. But we can go further than this and say that the reason you need to make the hole is for some higher purpose (you might be building a house). Therefore, we can look at value as part of a hierarchy or network that makes features and consequences of use markers on the journey that customers make to achieve some higher state. Most writers do agree that there is a trade off between the value received/perceived and the cost/sacrifice made to acquire the service and or product.3
The World of the Internet and “E”
Is “e” all about the Web or is there a more fundamental change in the way business and relationships are now being formed and broken? Some believe (I am one) that it’s about the ubiquity of communication technologies and channels. The Web is one of these manifestations and mobile phones another. There is change in the speed of change – it’s faster! Yet the basic business rules apply. If you cannot create the right value proposition to appeal to your chosen market segment you will fail. The “e” part of the equation means you will do it more quickly as you try to work across multiple buy/sell channels.
If we look at the Web in the context of customer value then there actions are predicated on levels of trust. They must believe in the value of the site or brand it represents. Amazon.com (everybody else seems to quote them) has become a trusted site due to its persistence in offering first class customer service and its first move actions. Barnes and Noble is more trusted for its history in bricks and mortar rather than its presence on the Web. Moving to multichannel offerings is about turning customers into customers via whatever channel they used. The costs that Amazon and other first movers have incurred in customer acquisition are now being translated into retention, repeat purchase and what could be called loyalty.
Over ten years ago Frederick F. Reichheld4 established the concept that retention of the right customers was as powerful a weapon as customer acquisition and in some cases more powerful. Simply put he and Earl W. Sasser stated in their original article “Zero Defections: Quality comes to Services”5 said, “As a customer’s relationship with a company lengthens, profits rise. And not just a little. Companies can boost profits by almost 100 percent by retaining just 5 percent more of their customers.”
In a more recent article, Paul Schefter6 discusses lifecycle economic models in conjunction with retention as part of a consulting methodology used in some recent studies of e-commerce. Their findings show the now classic trend of early losses followed by rising profits. They also found that on the net the pattern was exaggerated. There were even greater losses! “At the beginning of a relationship, the outlays needed to acquire a customer are often considerably higher in e-commerce than in traditional retail channels. … That means that the losses in the early stages of the relationship are larger. …. In future years, though the profit growth accelerates at an even faster rate.” (Paul Schefter). He quotes a study of W.W Grainger an industrial supply company: although sales to established customers using existing channels stabilized, when they got to Grainger’s Web they increased their purchases immensely.
In the B2B space, customers create value as they produce and deliver goods and services for their customers. Value only exists when customers make effective use of these resources to realize more revenue (especially B2B) or decrease their costs through reduced time, money, inconvenience and aggravation.7
Use the Product Get the Value
Products and services have attributes that can encourage purchase, but value to the customer only occurs in their use, which can be both positive and negative. Some believe the equation for value is benefits divided by price. This, however, misses the point of the varied uses a customer might make of the offering. It also assumes that a buyer is truly rational and value is perfect, when in reality this is not the case. Value is something you experience, so organizations, their people, their brand and the channels through which business transactions occur have a direct impact on their customers in what they learn to value in a relationship with an organization. Therefore, the producer of the service and or product provides a means for the customer to create their own value.
You cannot really measure value through surveys of customer satisfaction. Nor does customer satisfaction mean you will have loyal customers. Although complimentary to value, satisfaction measures the near past while value is a moving target and is future oriented. A customer may be satisfied with a service but still not buy it again as, through the law of diminishing returns, they may perceive that there is some decrease in value or another service appears to offer them greater perceived value. Many organizations that have implemented TQM, hold satisfaction surveys up as a means of measuring many organizational variables both internal and external. Customers are not willing to play the game according to the TQM rules and Figure 1 demonstrates why satisfaction measures cannot be used as a substitute for future-oriented research into value. However if you want to get more customer focused – satisfaction scores could be used as a basis for reward – but with care.
To satisfy the customer, build a relationship and create that repeat purchase requires an appreciation of what drives the customer to purchase in the first place. Customers place value in a brand that delivers on the promise they have come to expect. However, the brand is only part of the total experience that the customer has with the company and its products. Investing in the total ongoing experience is an investment in the long-term value that the company gets and the long-term value and trust the customers perceive. This way of thinking about relationships is an important it “It encourages managers to focus on the long term ….”8
Figure 1: the Difference Between Customer Value and Satisfaction
Maslow and Herzberg Revisited
In marketing books (Kotler, 9 Cohen,10 O’Shaughnessy11 et al.) that look at marketing and customer behavior, the famous studies of Maslow12 on the theory of self actualisation and Herzberg’s13 two factor theory are often sited alongside Vroom’s14 expectancy and Adam’s15 equity theory. They attempt to give structure to customer/management behavior in their pursuit of their life goals. The act of purchasing is an action taken to achieve personal satisfaction and is often seen as consistent with one or more of these theories. Together they lend themselves to the concept that perceived value is part of a changing continuum that depends on life stages and the customer environment. Simply put as we go through life (our lifecycle) we change to meet new opportunities and challenges as our values also change.
Who is Self-Actualizing?
I will not go as far as suggesting that customers will really be self-actualizing or taking on board the motivation factors of a service or product when they next open an investment account. I don’t see the Web experience or the customer contact center experience as thrilling, different and so uplifting that your potential customer gets to self-actualization. For many, good service, responsive agents and personalized channel experiences are becoming the norm, and no longer routes to organizational competitive advantage. I do however see the decision to buy, use and recommend as part of a rational, and part emotional, decision that is colored by perceptions of value. An organization must look further than improving an offering’s features to get an advantage. An organization must consider the wider issues of future consequences (offerings in use) and how their value offerings are actually delivered to the customer. If you accept that customers buy because they value the organization’s offerings, then how does the organization gain some sort of advantage?
Value Changes over Time
When value changes over time, through use and the changing environment, what can you do? One thing is certain: tinkering with the features of an offering is not enough. Radical product/service improvement, by rethinking delivery or getting closer to the reasoning behind the purchase can lead to sustainable advantage, especially if this process of radical innovation becomes embedded in the organization.
A fairly standard approach is to look at whole process of buyer purchases from the perspective of that buyer. We can then map the customer journey so we can answer marketing’s basic questions of:what, where, how, how much, when, why do they buy. By uncovering their route to purchase uncovers opportunities to add value along the path. These value adds can take many forms from color, shape and ease of purchase to means of delivery or method of purchase and after sales services
Some service organizations (especially financial) are in a unique position, as they can bring products to market in days. Many manufacturers can take years to do this. To move to understanding the values your customers are searching for is the first step. However, you must decide which customers are the ones you want provide value to. This brings us back to the concepts of customer segmentation, retention, profitability and acquisition. To remain in business today you must continue to sell what you have today. This is achievable through careful use of retention activities and targeted acquisition motions that will improve current profits, enabling you to invest in understanding your customers’, and potential customers’ values. “For almost the first time, leading financial-services firms are trying to understand their customers’ desires and to shape the business to meet them – at a suitable profit.” 16
Value is Defined by the Customer
To understand what your customers value you must get closer to them. Although customers are better informed today they still seek at a minimum reassurance from brands and their peer group. “In an information driven economy, power moves downstream toward the customer, so those who are closest to the customer are best positioned to win” (Sheehy et al.).17 Certainly anecdotal evidence or gut-feel is not enough to manage any complex business today. You have to understand what events trigger purchase decisions, the consequences of use and the higher purpose the customer is trying to achieve. Terms such as financial security or a cushion against the future are the beginnings of a potential dialog with potential financial customers and prospective customers. The new science of contextual event- driven marketing can extend your marketing abilities to support your existing customers’ need for dialog while understanding in what context actual triggers are relevant to other customers. This is an opportunity for customer pull rather than organization push (and so customer to business is born). Because you must decide which customers to serve and what level of value you will offer, you could find yourself acquiring a new customer base.
Personalizing for Value
On the premise that getting closer to the actual and potential customer through better understanding and knowledge will enable you to convert them to more valuable actual customers, with a little additional effort then we should consider personalizing all experiences through whatever channel the customer uses to interact with an organization. This ranges from personalising Web sites to integrating contact centers (call centers, which are not as some think, all there is to customer relationship management), using the one true picture (one version of the truth) of an individual built from numerous data sources, internal and external. Personalization is here to stay and it is becoming an expected feature of all relationships.
Permission Marketing Can Add Value
When a customer enters a retail outlet or browses a Web site, footprints are very light. You may not even be aware that they visited or who they are! However, on the Web the concept of permission marketing is very relevant. If the user allows you to store their details and maybe even agrees to receive communications from you, there is the chance of accumulating a wealth of data to analyze.
The tools to help manage the terabytes of data now flowing from contact centers and Web sites now exist and new tools are hitting the market daily.
Knowing about customer preferences, intentions, actions, lifestyles and values are important. “There’s a growing recognition that personalization and one-to-one marketing won’t work unless you already know something about your customer,” says Eric Schmitt of Forrester Research. It follows that if the customer knows little about you and your value to them, then little interaction will occur let alone interactive marketing.
Value Segmentation
The new groupings/segments you feel will benefit from your new emphasis on value could easily consist of existing customers and customers your competitors now believe they own. Note, however, that you are not dealing with segments but individual and unique customers.
Your first step toward identifying the kinds of customers you need to know more about should spring from your existing knowledge repository that may be your data warehouse, fully integrated ERP (or even ERP II) system or a clever middleware solution. You will have tracked customer product/service use over time, levels of satisfaction, repurchase rates (e.g., annual insurance), defections, analyzable clickstream data, channels by frequency and type of usage, plus a range of factors you have found useful in your search for competitive edge. By further identifying the customers who offer you the kind of sustainable profitability (lifetime value or lifecycle relationship) and the core values you think you offer them, you can begin the iterative research process of understanding what they really value.
If we look at banks for example, we can see that they have invested huge amounts of money in their digital assets (this of course can be said about many organizations, not just financial) but few believe they have value for money. Yet many bankers and pundits believe they just have not tried hard enough. “The bank that can identify, create, and maintain a differential value advantage will be less vulnerable to competitive pressures” (R.E. Reidenbach et al.)18 By understanding the value your products command you gain an insight into the strengths you have. You can then remind your customers of these strengths through a relationship-based dialog. In all of this information is king. Information drives your decisions and “knowing” more than your competition enables you to retain and gain the “right” customers.
Understand Value and Begin to See Opportunities
If we assume you have data about your customers at a very detailed and granular level, then you are able to use quantitative techniques to slice and dice to gain insight into your customer and potential customer base. You may also use quantitative techniques on large- scale survey data. However, to understand value you must move to both quantitative and qualitative techniques. Value is not waiting to be found by asking simple questions: you must go deeper. This process can be viewed as horizontally slicing a layered cake or peeling an onion. The techniques used are soft: observation, in-depth interviews and focus groups. Each will have a different weighting and use in your quest for customer value depending on what you are looking for. Observing the customers using your value delivery channels will enable you to evaluate the when, how, by whom, the activities in use, the post-transaction activities and flow. Couple this with in-depth interviews of selected users, plus a well-facilitated focus group and you’re on your way to discovering those hidden values that you can turn information into actions that will help you enhance your bottom line.
Who Should be in the Sample?
As mentioned above, you must identify those individuals and segments you want to know more about. These could be purchasers and users of your offerings and specific targeted segments that don’t. The “segment of one” profiles that you find valuable can be applied to the existing and potential customers you want to understand. Another group would be defectors that had the right profile. You would want to understand what made them defect (what created their dissatisfaction or did they perceive the competitors’ offering as having more value) and whether changes in your value delivery and service realisation processes could win them back. This soft data, after thorough analysis, must be fed back into your analytical data repository (data warehouse etc.) for subsequent analysis and potential performance measurement as you implement your findings through existing and radically new offerings. After carrying out this analysis you should then choose some key opportunities where you can apply sustainable differential value advantages. The cost of carrying out qualitative research has a high price in terms of time taken, specialist analysis needed and the emotional commitment required. The benefits, however, in terms of depth of customer understanding far outweigh the cost.
A simple way of identifying opportunities:
- Note any distinct differences in values among segments and profiles.
- Observe consumption goals and values that play to the organization’s strengths.
- Identify any common values within these markets.
- Seek out those that value your brand’s distinctive capabilities.
- Consider their approachability across various relationship enhancing channels.
- Make sure the opportunity is worth considering – profitability
The CIA
In addition to the analytical work already carried out, you should consider what your competitors are doing. Many organizations today are looking to specific groups, internal and external, that will carry out competitive intelligence analysis (CIA). This input is akin to market research but focuses directly on your competitors’ activities and plans where there are possible impacts on your actions or plans. The CIA could cover competitors’ price policies and strategies, promotional activities and plans, offerings and planned offerings, Web presence and strategies, delivery strategies, alliances and so on.
Does Size Dictate Your Approach to Providing Value?
Given the sheer size of many organizations today (such as telcos, retailers and financial institutions), their breadth of offerings, geographical dispersion and the continuously changing customer values, they must rely on the sensible application of technology to support their relationships. The alternative approaches to providing the value based services that customers want, and the types of relationships they want with their suppliers are predicated on the organization’s own value system. If they see themselves as marketing oriented and have sufficient size, different strategic approaches to serving their markets are possible. (See Figure 2.)
Figure 2: Strategic Alternatives
Individual Value
Although value is understood to be unique to an individual, many people tend to share the same aspirations and to some extent are perceived to have shared values. By understanding the customers that make up your desired marketplace, the kinds of profit you want to earn and the time you have to implement, you could create some innovative offerings. Capital One Financial Corp. in the U.S. created a customized card with some 3,000 combinations of rates and features to meet that moving target of perceived customer value. They also understood the value of the information they gathered in itself. “…the real value of a credit card issuer lay in the information it has about customers, which could be analysed and used to test interest in new financial products.)19 With an information revolution going on, customer values shifting, new knowledge and technology available to assist you in creating offerings to match their values – what is your company doing?
Value Remains a Moving Target
It may appear that all organizations today are looking for ways of adding value (brand extensions and some targeted offerings) whilst incumbent organizations are seeking ways of reducing costs or introducing new web based services to compete. The reality is somewhere between the two! Value is a moving target and only continuous organizational learning and alignment will create a stream of offerings that will create sustainable competitive edge. What is also becoming apparent however is that the value of an offering is often embedded in the way it is delivered to the customer. Some are offered over the ‘phone, others through the Internet and others through whatever delivery channel gets through to the customer. How do you manage those channels to create perceived value to the right customers? Which channels are the most appropriate to deliver new offerings? How can you manage channel usage cost, whilst maximising their use? When is it appropriate to motivate customers to use different channels and still retain their business?
One of the only ways of tackling these issues is through an intimate understanding of the data you hold in your organization. Part of your must- have toolsets today is a set of intelligence technologies that includes business intelligence, data mining, graphical information and knowledge management. And to unlock this knowledge and turn it into valuable insightful information you must build a customer knowledge infrastructure that is based on technologies and ideas that are scalable. Your business strategies need to take account of the potential of customers actual, potential and latent product service desires.
Figure 2 is adapted from Gibbert, M., Leibold, M. and Probst G.20 identifies a view that knowledge coupled with a CRM view of the world can build a much stronger knowledge of customers’ latent and potential wants. The customer value chain is strengthened if the overall organizational view is enriched with real world customer/buyer knowledge. I believe that the original authors have however confused database marketing with the actual holistic approach of CRM that encompasses intimate customer knowledge as a basis of any interaction. It maybe their view of successful CRM is customer knowledge based and they believe that this is not shared by practitioners of CRM? Yet this has been the basic tenet of real world CRM practitioners for many years! Their table title KM versus the rest seems to infer that there is some competition rather than a synthesis – untrue. CRM is eclectic just like its parent discipline marketing.
Figure 3: CKM versus Knowledge Management and Customer Relationship Management
The Buyer-Centricity View
The concept that the buyer is central to all value creation must be a given. The buyer decides whether an item has value or not in their own eyes through the purchase/consumption decision and in use. The future will see a move to joint approaches to value creation and the discipline of buyer centricity will have an impact on the way organizations conduct their value creation.
Chris Lawer has summed up this view in a succinct paragraph quoting some the current and past thought leaders: “For example, Brown21 and Hamel and Prahalad22 argue that a fundamental entrepreneurial/SME activity is to create products ahead of the recognition of an explicit need by customers. This, they suggest, is achieved by focusing on the customers’ latent needs. They argue that any business which solely focuses on understanding the expressed needs of customers will be limited to adaptive (Senge23) or single-loop learning (Argyris24) and will possess a narrowly focused market intelligence and less-than-optimal market orientation. In terms of whether this merits talking to customers, research has shown that many successful innovations are founded on having a subjective hunch regarding sources of future value – i.e., certain entrepreneurs such as Stelios and Branson are just very good at identifying value-gaps, creating the solution and sticking to their gut-feel…”25
Value is a consequence of use and that normally occurs through channels to and from the customer and value is earned through the customer’s perceptions (perception may be the only reality). To create both the perception and reality of value requires a richer dialogue with the customer. This dialog must enable buyer involvement in value creation and the acceptance that innovation is always going to be risky. The final arbiter of value is the customer and marketing in its rawest form is all about creating products and services that customers want to buy. Knowledge-based CRM as a new discipline edges us closer to the customer. Knowledge coupled with business acumen could actually get organizations to treat customers in ways that enable all parties involved in the relationships and transactions to see and get real value.
References:
1 “Now or never” Mary Modahl Forrester Research, How companies must change today to win the battle for the Internet customer.
2 The One to One Future – Don Peppers and Martha Rogers
3 Exploring the Phenomenon of Customers' Desired Value Change in a Business-to-Business Context by Daniel J. Flint; Robert B. Woodruff and Sarah Fisher Gardial. Journal of Marketing, October 2002
4 The Loyalty Effect, Frederick F. Reichheld
5 Zero defections: quality comes to services, Reichheld and Sasser, HBR Sept-Oct 1990
6 E-Loyalty: Your Secret Weapon on the Web, Phil Schefter, HBR July-August 2000
7 Who Moved my Value by Sheree L. Johnson
8 The Real Value of Customer Loyalty, By: Johnson, Lauren Keller, MIT Sloan Management Review, Winter 2002, Vol. 43, Issue 2
9 Marketing Management , Ninth Edition, Philip Kotler
10 The Practice of Marketing Management, Second Edition, William A. Cohen
11 Competitive Marketing, Second Edition, John O’Shaughnessy
12 A Theory of Human Motivation, Abraham Maslow
13 The Motivation to Work, Frederick Herzberg, B. Mausner and B. B. Snyderman
14 Work and Motivation, Victor H. Vroom
15 Inequity in Social Exchange, J. Adams, Paper in Advances in Experimental Social Psychology L. Berkowitz Ed.,
16 Economist “Turning digits into dollars” October 26th 1996
17 Winning the Race for Value, Barry Sheehy, Hyler Bracey and Rick Frazier
18 The Value Driven Bank, R. Eric Reidenbach, Et Al
19 Business Week “On the cutting edge”
20 “Five styles of customer knowledge management and how smart companies use them to create value”. European Management Journal20 (5):459 2002
21 Brown, J.S. (1991), "Research That Reinvents the Corporation," Harvard Business Review, 69 (January/February), 102- 11
22 Hamel, G., and C.K. Prahald (1991): "Corporate Imagination and Expeditionary Marketing." Harvard Business Review. Vol. 69, No. 4: 81-92.
23 Peter M. Senge (1990). The Fifth Discipline: The Art and Practice of the Learning Organization. New York: Doubleday Currency
24 Argyris, Chris "Double Loop Learning in Organizations," Harvard Business Review, Volume 55, Number 5, September/October 1977, pp. 115- 125
25 Chris Lawer, OMC group – specially commissioned comment.
Michael Meltzer is the cofounder and a managing partner of Active Management Techniques that specializes in advising organizations on the human aspects and benefits of relationship management in all its forms. He is a hands-on partner who has experience spanning general and IT management, financial services, public sector, telecommunications, education and retailing. He has specialized in applying the human aspect approach to support internal and external customer relationship management, change management, customer knowledge and organizational design where innovation and learning can flourish. He is a respected author, speaker, educator, consultant and experienced business manager. You can reach him at michael.meltzer@amt.eu.com.
