Defined as concisely as possible, one-to-one marketing is nothing more complicated than treating different customers differently. To practice it, a business must track a customer's identity, interact with the customer individually and customize some aspect of its behavior toward the customer. When marketing competition like this takes place, at the atomistic level of the individual customer, a business has an opportunity to create immense customer loyalty--one customer at a time.

There are four critical steps that can be used to implement a one-to-one marketing program. Although these principles are generally listed in order of increasing difficulty and complexity, there is often a good deal of overlap.

1. Identify your customers. If you don't know your customer's identity, you can't have a relationship. It's that simple. You have to know the identities of your customers in some addressable, individual form--name and address, e-mail contact, phone number, etc. And you have to remember each customer individually, linking information about that customer across the entire enterprise throughout the duration of a customer relationship.

2. Differentiate your customers. Customers are different in two principal ways: they have different values to the enterprise and they need different things from the enterprise. What a customer is worth to you and what he wants from you encompass both sides of your value proposition with any customer. First, you rank customers by their value in order to prioritize your efforts and gain the most advantage with the most valuable customers. Then you differentiate at least your most valuable customers by their needs, in order to be able to treat them differently, on an individual basis.

3. Interact with your customers. Every interaction with a customer should take place in the context of all previous interactions with that customer. A conversation should pick up where the last one ended, regardless of when the interaction took place and what medium was used. In interacting, you should be concerned with both the cost-efficiency of the interaction as well as its effectiveness. Cost- efficiency increases as you push more and more interactions into more interactive channels--phone calls to the Web site, sales calls to the call center. To ensure the effectiveness of an interaction, gather only relevant information, at the time it is needed, either to better grasp a customer's individual needs or to more accurately quantify a customer's potential value. An effective interaction is one that provides information enabling you to improve your relationship with the customer.

4. Customize some aspect of your enterprise's behavior toward your customer, based on that customer's individual characteristics. To practice true one-to-one marketing--that is, to treat different customers differently--an enterprise must adapt some aspect of its behavior to meet each particular customer's individually expressed needs. This might mean mass customizing a manufactured product or it could involve tailoring some aspect of the services surrounding a product. It could be customizing the invoice or product packaging. This is a lot easier to say than do. It implies a level of integration at the enterprise that is beyond the capability of most companies. The production or service delivery end of your business has to be able to treat a particular customer differently based on what that customer said during an interaction with the sales or marketing part of the firm.

What One-to-One Marketing Means to Retailing

In the retailing business, often the most difficult problem is simply identifying customers. With most retailers, a customer comes into the store, walks up and down the aisles, collects products to purchase and goes to the cashier's station. At the cash register, the customer checks out his products and gives the retailer his money, but not his name. Most retailers have no mechanism to acquire the identities of their customers during the normal course of business. The business model just doesn't require it.

A long time ago, the store owner would know the customer on sight. He would remember the customer's needs from previous shopping trips, and he would be attentive to the individual preferences of each customer. When Mrs. Smith showed up, the grocer would remember that she uses extra corn flour in her cooking, and he would automatically get her a little extra for her shopping bag. Today, with mass- produced products and multiple checkout lines accommodating thousands of customers in a week, the grocer really doesn't have the capability to remember his customers individually. Chances are, he doesn't even know more than a tiny fraction of them by name.

For today's retailer, gathering customer identities usually means coming up with some kind of marketing program which will give customers an incentive to identify themselves whenever they do business. A store-branded credit card is one such program.

Another method, which is especially popular in Europe lately, is the card-driven frequency marketing plan. With this program, the retailer rewards its customers with points or discounts based on the quantity of the customer's own individual purchases, so customers always have an incentive to identify themselves at the cashier's station.

Groupe Casino is a $15 billion French chain of hypermarkets, supermarkets, convenience stores and cafeterias. In 1994 it launched a card-driven frequency marketing program called Club Casino for its supermarkets and accumulated more individual customer identities in six months than had been accumulated in the previous six years by its store-branded credit card, called Geant. The Club Card is used to collect data that could ultimately be used to deliver individualized treatment for customers and was made possible by the installation of a scalable data warehouse that allows the company to collect and process transactional information on millions of separate customers.

Albert Heijn, the Dutch retailer, launched a card-based program that was so popular it signed up more than two million customers within the first few weeks. Sainsbury and Tesco, two U.K. grocery retailers, each have their own frequency marketing programs as well. In both cases, a customer applies for the program, completes a brief questionnaire with identifying information and receives a membership card. By producing this card when checking out after each visit to the store, customers earn points entitling them to discounts, extra services and special offers.

In the United States, even some McDonald's operators are banding together to collect individual data using frequency marketing programs. The Dallas/Fort Worth area franchisee organization recently introduced a McBreak Card as a loyalty program that operates in 212 area McDonald's restaurants. Whenever customers use the card, they earn redeemable points for menu items. The McBreak Card is a thermal card, with a lower unit cost than magnetic stripe technology. And the thermal technology is capable of storing transaction information on the card itself, in essence becoming a portable database. There is a "window" on the front of the card where an updated summary appears after each use (e.g., cumulative points, points earned during this visit, marketing messages, etc.). Each day the franchises send McBreak Card data via modem to a centralized database at McDonald's marketing department.

Frequency Marketing Is Not Enough

In the long run, simply having a frequency marketing program will not guarantee customer loyalty. Rather than thinking of a frequency program as a vehicle for buying a customer's loyalty, visualize it as a vehicle for encouraging a customer to identify himself every time he does business. Then, armed with the transactional information on an individual customer, you can figure out how to earn the customer's loyalty by making it easier and easier for that customer to do business with you. This is the essence of one-to-one marketing.

If you hang your hopes on the frequency marketing program itself, you remain vulnerable to competitive action. When your competitors match your loyalty-buying frequency program, which will almost certainly happen (especially if it is successful), you will find yourself engaged in what amounts to a sophisticated form of price competition. Each firm will be bidding with points and rebates for the business of the most valuable customers in the market.

This is where many programs fall far short of the high ambitions marketers have for them. The failure, however, is in the strategy. A frequency marketing program is a tactical program, not a strategic solution. It allows the firm to collect information, but the real proof of the strategy lies with what the firm actually does with the information it collects. To make an individual customer loyal, the retailer needs to figure out how to use the information it has on that customer to make it more and more convenient for the customer to do business with the retailer.

The Real Challenge

With a frequency marketing program and good data warehouse capability, you can use the natural, point-of-sale interactions you have with customers to capture millions of customer identities and link them to individual transactions. This allows you to rank customers by their value and differentiate them by their transactional patterns. In the short term, your frequency marketing program may also yield benefits in terms of customer loyalty, since your heaviest customers will benefit disproportionately, at least until your competitors effectively match your program.

The next challenge, however, in terms of ensuring your customers' loyalty, is to use the information you now have about individual customers to tailor your behavior toward them. To create a genuine, one-to-one relationship with a customer, the enterprise must adapt its behavior to the needs of the individual customer--and this means some form of customization is critical.

The real power of one- to-one marketing lies in the individual treatment of individual customers. Suppose that every time a customer interacts with you something more is learned about that customer's needs. Then suppose this additional learning is incorporated somehow in the way you treat that customer the next time, making it easier for the customer to find what he wants, for instance. Then, the more the customer deals with you, the more convenient it will be for him to continue doing business with you, rather than going to the trouble of teaching your competitor what you already know.

This is the essence of a one-to- one relationship with a customer--a relationship we call a "Learning Relationship." The Learning Relationship gets "smarter" with every interaction. It develops a context that is more and more difficult for the customer to duplicate with your competitor, predisposing the customer to remain loyal to you, to work out problems and to preserve the level of convenience he has achieved.

But customization is the key. You must use the information you accumulate about an individual customer to somehow change your behavior with respect to that customer in order to create this kind of relationship.

For retailers this can create a particularly vexing problem. After all, how could a retailer possibly customize the layout of its store for individual customers? Everyone who goes into the store encounters the same layout--that's the nature of the business.

On-Line Services

In recent years, there has been a proliferation of on-line services and home-delivery operations that do build customer loyalty by customizing the shopping experience, making it easier and easier for an individual customer to continue doing business. Companies like Peapod, Streamline and NetGrocer have had considerable success in learning and remembering what their customers want.

Streamline, based in Boston, offers customized home delivery of a variety of products and services, including groceries, pharmaceuticals, office supplies, laundry and dry cleaning, photo processing, even rental videotapes. When a customer signs up for Streamline's service, a cabinet is installed in an accessible area of the customer's home, such as the garage. The cabinet comes with a refrigerator/freezer, a dry storage compartment, a dry cleaning hanger rack, videotape storage box and other compartments.

For a $49 set-up fee and $30 per month subscriber fee, Streamline delivers these products weekly. When a customer signs up for the service, a representative comes to the home with a handheld bar-code scanner and a laptop for installation. The representative scans all the relevant products in the home in order to create the customer's ready-made initial shopping list, usually totaling 150 products or more.

Streamline then provides the customized list either electronically or as a printed, faxable page. If the customer does not have a fax machine, Streamline can provide one at wholesale cost. Most customers phone their orders in, although anyone who wants to can use a PC and modem to update their shopping list. Regardless of the medium used, the process takes only a few minutes and replaces the two or three hours each week the customer previously spent shopping.

The company's memory of each individual customer is the driving force behind its business. In addition to maintaining a record of each customer's shopping list, the firm regularly solicits customer feedback to improve the accuracy of its service for that particular customer. Each week Streamline compares the customer's current shopping list and most recent feedback with the information it already knows about customers from previous transactions and feedback. As a result, the company gets smarter and smarter about each individual customer, making it easier for the customer with every transaction.

Over time, as Streamline continues to compile a more complete record of an individual household's consumption rate for various products, it puts some of them on an automatic replenishment basis. In other words, it schedules the delivery of a product at some regular interval at approximately the rate at which the household consumes it. To gain this kind of insight into any customer's habits requires a long period of increasingly accurate interactions with the customer, which only adds to the competitive advantage for companies like Streamline.

Of course, as a small start-up firm, Streamline has no data warehouse and won't really need anything that sophisticated for some time, until its business grows substantially. But if a large retailer wants to compete in this space, a data warehouse will be indispensable.

Moreover, treating different customers differently requires a high level of integration at the enterprise. The production or service delivery organization has to be able and willing to deliver on what the sales, marketing or customer service people learn that this particular customer wants. If a retailer wants to be able to compete as a one-to-one marketer, then information about the individual customer has to permeate the entire organization. Individual customer information needs to be accessible to a variety of departments within the organization.

Today's retail category is rife with disloyal customers--customers who shop from store to store for the best deal. And, as on-line information makes it easier to get comparative information, consumers are becoming even more fickle in their loyalties.

The only real defense for the retailer is to create Learning Relationships, which ensure the loyalty of individual customers, one customer at a time. To do this, the enterprise must have access to unified data and be able to turn that data in such a way that it can see its entire relationship with each individual customer.

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