1 to 1 marketing

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IS Y O U R C O M P A N YR E A D YF O R O N E - T O - O N E

M A R K E T I N G ?by Don Peppers, M arth a R ogers, and Bob Dorf

pends on the scope of the program.For some companies, heing readysimply means heing prepared to

launch a limited initiative. Suhstan-

PRACTI CED CORRECTLY, One - t O-

one marketing can increase thevalue of your customer base.

The idea is simple: one-to-one mar-keting (also called relationshipmarketing or customer-rela-tionship management) means , . i . , .

heing wUhng and ahle to change r e l a t i o n s h i p - m a r k e t m g p r o g r a m

Implementing a

your hehavior toward an indi-vidual customer hased on whatthe customer tells you andwhat else you know ahout thatcustomer. Unfortunately, too manycompanies have jumped on the one-to-one handwagon without properpreparation. The mechanics of im-plementation are complex. It's onething to train a sales staff to he warmand attentive; it's quite another toidentify, track, and interact with anindividual customer and then recon-figure your product or service to meetthat customer's needs.

So is your company ready to im-plement a one-to-one marketingprogram? In large part, the answer de-

tomers and channel partners. Review-ing the list and working through theexercises will help you determine

what type of one-to-one marketingprogram your company canimplement immediately, whatyou need to do to position itfor a large-scale initiative, andhow to prioritize your plansand activities.s a complex endeavor.

This will get you sta rted.Why O ne-to-O ne?

tial henefits can be gained from tak- Before determ ining the correct scopeing steps -eve n small one s-tow ard of your company's one-to-one mar-one -to-on e m ark etin g in specific keting efforts, you need to under-functional areas. For others, heing

ready means heing positioned to im-plement an enterprise-wide program.To help you assess the type of pro-gram you should hegin with - anddetermine what you need to do toprepare-we've developed a list ofactivities and a series of exercisesdesigned for executives, managers,and employees at all levels in yourcompany, as well as for your cus-

stand the rationale for undertaking

a one-to-one initiative and the hasiccomponents of such a strategy. Rela-tionship marketing is grounded inthe idea of establishing a learningrelationship with each customer,starting with your most valuableones. (See B. Joseph Pine II, DonPeppers, and Martha Rogers, "DoYou Want to Keep Your CustomersForever?" HBR March-April 1995.)

D on Peppers a n d Martha Rogers a re p a r t n e r s , a n d B ob Do r f is president, of Peppers a n d Rogers Group, the one-tostrategy consulting firm in Stamford, Connecticut; see http://www. ltol. com. This ar t icle is a d a p t e d from their book T

One to One Fieldhook: The Complete Toolkit for Implementing a 1 to 1 Marketing Program ( Cur r e n c y i D oub l e d a y , 1999)

HARVA RD BUSIN ESS REVIEW January-February 1999 151



ONE-TO-ONE MARKETING

Think of a learning relationship asone that gets smarter with eachinteraction. The customer tells youof some need, and you customizeyour product or service to meet it.Every interaction and modificationimproves your ability to fit yourproduct to this particular customer.Eventually, even if a competitor of-fers the same type of customizationand interaction, your customer v rontbe able to enjoy th e same level of con-venience w^ithout taking the time to

teach the com petitor the lessons yourcompany has already learned.

There are four key steps for puttinga one-to-one marketing program towork: identifying your customers,differentiating among them, inter-acting with them, and customizingyour product or service to fiteachindividual customer's needs.

Identifying your customers. Tolaunch a one-to-one initiative, yourcompany must be able to locate andcontact a fair num ber of its customers

directly, or at least a subs tantial por-tion of its most valuable customers.It's critical to know customers in asmuch detail as possible: not justtheir nam es and addressable charac-teristics (such as addresses, phonenumbers, or account codes), but theirhabits, preferences, and so forth.And not just a snapshot - a onetimequestionnaire. You need to recognizethe customer at every contact point,in every medium used, at every loca-tion, and within every division of

Getting StartedThe following activities are keyed to the four

steps of a one-to-one marketing program:

identifying customers, differentiating among

them, interacting with them, and customizing

your product orservice to meet each customer's

needs. Most companies should be able to

accomplish these activities fairly readily. If you

have not yet identified your end-user customers,

you can apply these suggestions to your

channel partners. At some point, however, you

will need to identify and interact with your end-

user customers to get the most out of your

relationship-marketing program.

IDENTIFY

ACTIVITY

Collect and enter m orecustomer names intothe e xisting database

Collect additionalinformat ion aboutyour customers

Verify and updatecustomer data an ddelete o utdatedinformat ion

STEPS TO CONSID ER

• Use an outside service forscanning or data entry.

• Swap names with a

noncompet i t ive companyin your field.

• Use drip-irr igation dialogue:ask your customers one o rtwo quest ions every t imeyou are in touch w i th them.

• Put your customer fi lesthrough a "spring cleaning."

• Run your database th roug hthe National Change of

Address (NCOA) file.

DIFFERENTIATEACTIVITY

Identify your organization'stop customers

STEPS TO CONSIDER

• Using last year's sales or othersimple, readily available data,

take your best guess atident i fy ing t h e t o p 5% of

your customers.

Determine which customerscost your organization money

• Look fo r simple rules to isolatethe bo t tom 20% o f yourcustomers (such as customerswho haven't ordered in morethan a year o r those w h o alwaysb id you ou t ) and reduce th eamount ofmail you send them .

Select several companiesyou really wan t to dobusiness with next year

• Add them t o your database,and record at least three contactnames pe r company.

Find higher-value customerswho have compla ined aboutyour product or service m orethan once in the last year

' Baby-sit their orders: pu t aproduc t o r quality-assuranceperson in touch w ith them ASAPto check o n your progress.

Look fo r last year's largecustomers w h o have orderedhalf as much or less this year

' Go visit them now, before yourcompet i t ion does.

Find customers w h o b u y onlyon e o r two products f rom yourcompany but a lo t f rom otherbusinesses

• Make them an offer they can'trefuse to t ry several more itemsfrom y o u .

Rank customers into A, B, andC categories, roughly based on

their value t o your company.(Don't t ry to isolate t he t op5% or bo t tom 20%-any "b lun tinstrument" criterion such asannual spending or years do ingbusiness wit h th e companywill work.)

• Decrease m arketing activit iesand spending for the C's and

use th e savings to fundincreased activities fo r the A's.

152 HARVARD BUSINE SS REVIEW January-February 1999




your company, no matter whichproduct line is involved. Rememher,however, that the "cu stomers" whohenefit from your one-to-one pro-gram may not he limited to the endusers of your product or service. If,for example, you are a manufacturer

selling to retailers, then you willalso want toapply the principles ofone-to-one marketing to create het-ter relationships with your channelmemhers and other intermediariesin your demand chain.

Differentiating your customers.Broadly speaking, customers are dif-ferent in two principal ways: theyrepresent different levels of valueand they have different needs. Onceyou identify your customers, differ-entiating them will help you to fo-

cus your efforts so as to gain themost advantage with the most valu-able customers. You will then be ableto tailor your company's behavior toeach customer in order to reflectthat customer's value andneeds.

The degree and type of differentia-tion in a company's customer hasewill also help you decide on the ap-propriate strategy for a given husi-ness situation.

Interacting with your customers.Improving hoth the cost-efficiency

and the effectiveness of your inter-actions with customers is a criticalcomponent of a one-to-one market-ing program. Cost-efficiency im-proves hy directing customer inter-actions toward more automated and

INTERACT

ACTIV ITY

I f you are focusing on

channel m embers, ca l l

th e top th ree peop le atyour top 5% of customers

STEPS TO CONSIDER

• Don ' t try to se l l - just ta lk and make sure

they are happy.

Cal l your ow n com pany

and ask que stions; see

how ha rd it is to get

th rough and get answers

Test eight to ten different scenarios as a

"mystery shopper." Record the calls and

c r i t ique them .

Cal l your co mpet i to rs to

compare the i r customer

serv ice wi th yours

Repeat the above act iv i ty .

Use incoming cal ls as

se l l ing opportun i t ies

Offer specials, closeouts, and tr ia l offers.

Evaluate the voice

response un i t at you rcus tomer i n fo rma t i on

center

Make the record ings sound fr iend l ie r , be

more he lp fu l , and move customers thro ughthe system faster.

Fo l low the in teract ion

paper t ra i l th rough

your organ izat ion

Seek to el imin ate steps: reduce cycle

t imes to speed up your response t imes

to customers.

In i t ia te more d ia logue

wi th va luab le customers

Use techno logy to

make do ing business

wi th you r company

easier

Print personal ized messages on invoices,

sta tements, and enve lopes.

Have sales reps sign personal letters rather than

mass-mail ing letters signed by a senior manager.

Have the r igh t peop le in your organ izat ion

cal l the r igh t customer execut ives. (That is,

have your CIO cal l another CIO, or have the

VP of market ing ca l l the business owner.)

Ca l l every va luab le customer you r c ompa nyhas lost in the last two years and g ive th em

a reason to re tu rn .

Gather the e-mail addresses of your customers

in order to fo l l ow up wi t h t h e m .

Offer al ternative means of c o m m u n i c a t i o n .

Consider using faxback and faxbroadcast systems.

Scan customer in format ion in to the database.

Imp rove comp la in t • Plot how many compla in ts you rece ive each

handl ing day and wo rk to improve the ra t io of compla in ts

hand led on the f i rs t cal l .

CUSTOMIZE

ACTIVITY

Customize

pape rwo rk to save

your customers t imeand you r company

m o n e y

STEPS TO C ONSIDER

• Use regional and

subject-specific

versions of cata logs.

Personal ize your

d i rect mai l

Use customer

in fo rma t i on to

individual ize offers.

Keep the mai l ings

s imple .

Fill out forms for

your customers

Ask customers how,

and how often,

they want to hear

from you

• Use laser equipment

to save time and

make you look

smarter.

' Use fax, e-mail, postal

mail, or personal

visits as the

customer specifies.

Find out what your

customers want

Ask your top ten

customers what you

can do differently

to improve your

product or service

' Invite customers to

focus groups or

discussion meetings

to solicit their

reactions to your

products, policies,

and procedures.

Respond to their

suggestions.

Follow up and repeat

the process.

Involve top

management in

customer relations

Give them lists of

questions to ask

based on the history

of individual

customers.

HARVARD BUSINESS REVIEW January-February 1999 153




therefore less costly channels. Forexample, acompany that provideshelpful, up-to-date information atits Web site won't need to spend asmuch as it once did supporting amore expensive call center. Effec-tiveness improves by generating

timely, relevant information, pro-viding either better insight into acustomer's needs or a more accuratepicture of a custom er's value. Everyinteraction with acustomer shouldtake place in the context of all previ-ous interactions with that customer.A conversation should pick upwhere

the last one left off, whether the pre-vious interaction occurred last nightor last month, at the call center or onthe company Web site.

Customizing your enterprise'sbehavior. Ultimately, to lock a cus-tomer into a learning relationship, a

company must adapt some aspect ofits behavior to meet that customer'sindividually expressed needs. Thismight mean mass-customizing amanufactured product, or it couldinvolve tailoring some aspect of theservices surrounding a product-per-haps the way the invoice is rendered

or how the product is packaged. Inany case, the production or service-delivery end of your business hasto be able to treat a particular custo-mer differently based on what waslearned about that customer by thesales, marketing, or any other de-

partment. In rushing to reap the re-wards of relationship m arketing, it'seasy for abusiness to overlook thiscritical fourth step, leading manyto m isunderstand the entire disci-pline as simply an excuse for directmail and telemarketing. (See SusanFournier, Susan Dobscha, and David

The BroadViewIs Your Company Ready for

One-to-One Marketing?

Administer this exercise to a

number ofpeople at different

levels and in different areas of

your company. Also ask a

representative group of

customers to participate,

although you'll need to tailor

the language appropriately.There is enormous value in

hearing what your customers

have to say about your

company's readiness toengage

in one-to-one relationships

with them as well as in

comparing the answers from

the various constituencies.

Note: If it seems impossible to

identify even your most valuable

end-user customers, then your best

option may be to concentrate on

developing relationships with theintermediaries inyour demand

chain vi/hose identities you can

readily acquire. If so, then complete

this exercise (and "The One-to-One

Gap Tool") as if it applied to channel

members. But keep inmind that

sooner or later you will almost

certainly want to deal with end users

themselves, even if your relationships

with them will always include

channel members.

1 . How well can your companyidentify its end-user customers?

a. We don't really know w ho our

end-user customers are or how much

business they give us.

b. We have some information a bout o ur

end-user customers invarious files

and databases around the company,

but we're not sure what proportion

of customers this really represents.

c. Some ofour business units know many

of their customers' individual iden tities,

but not all the units do. Our business

units don't have a central database

of customer identities, and we do n't

share much data on customers w ith

one another.

d. We sell tobusinesses or organ izations,

and although we know the identities

of all or most of these organizations,

we don't really know the individual

players ateach business.

e. We know who most ofour customers

are individually, but we don't know

much about the ir relations with one

another. Ifa customer refers another

customer to us, we do n't track this inour database. And ifa customer

moves from one location toanother,

our database might show this as

a customer defection followed by a

customer acquisition.

f. We know most ofour customers

individually, and we can track them

from place toplace, division to

division, or store to store.

2 . Can your company differentiateits customers based on their

value to you and their needs

from you?

a. Because we don't have much, if

any, information on our customers'

identities, naturally we are unable

to differentiate our customers either

by their value or by their needs.

b. We have no real knowledge of ho w

to rank our customers ind ividually

by their long-term value to us.

c.We have an idea about how to

calculate our customers' individual

long-term value tous, but we don't

have enough data togenerate a reliable

ranking of individual customers based

on this calculation.

d. We have identified a n umber of

different needs-based segments

of our "most valuable customers"

(MVCs), but we don't have a

reliable way of mapping particular

customers into the right segment.

e. We know how to rank most of

our customers individually by

value, and we can also identify,at least for most ofour MVCs,

their ap propriate needs-based

segment.

154 HARVARD BUSIN ESS REVIEW January-February 1999




Glen Mick, "Preventing the Prema-ture Death of Relationship Market-ing," HBR January-February 1998.)

These four implementation stepsoverlap considerahly. Nevertheless,they are roughly in order of increas-ing complexity and increasing ben-

efit for a company. Identifying anddifferentiating customers, the firsttwo steps, are largely internal "anal-ysis" steps, whereas interacting withyour customers and customizingproducts and services are external"action" steps, visihle to the con-sumer. From that perspective, the

four steps can he used as a kind ofgeneral checklist to guide your ef-

forts in implementing a one-to-onemarket ing program. If you can'tidentify your individual customers,you have no hope of differentiatingthem, much less adapting your he-

havior to address each one's needs.

Starting SmallMany managers dismiss the possi-bility of one-to-one marketing be-cause they feel it is an unattainahlegoal. And yes, it's true that there arenumerous reasons to think twice

hefore launching a full-scale pro-gram. For one, your company's in-formation technology departmentmay be too swamped-or not suffi-ciently developed- to handle all thetasks that one-to-one marketingdemands. M aintaining a customer

datahase, having one system com-municate seamlessly with another,tracking each customer's contactswith the company - all of thoseactivities require IT development,direction, and support. In addition,one-to-one marketing requires a cer-tain amount of capital investment

3. How well do you interact with

your customers?

a. We have no practical mechanism

for interacting with our customers

on an individual basis.

b. We interact with some of our

MVCs through personal sales calls

and other forms of contact, but we

don't systematically record these

interactions thr oug h sales force

automation or contact m anagement

systems. We rely instead on the

initiative and memories of our

account directors , salespeople, andothers to manage these customer

interactions.

c. We interact w ith most of our MVCs

throu gh sales calls and other forms

of contact, and we maintain fairly

good records of those interactions

and contacts in an automated

system or customer database.

d. We have direct interaction thro ugh

mail, phone, or on-line media w ith

a small proportion of our customers,

but we don't coordinate these

interactions across media.e. We interact through mail, phone,

or on-line communication with all or

a substantial number of our customers,

and we coordinate the dialogue we

have with any single customer across

these different media.

4. How well does your company customize its products and services

based on wh at it knows a bou t its customers?

a. We provide standard produ cts and services and tailor few, if any, aspects

of our behavior to the needs of individual customers.

b. We offer a range of options for our customers so they can choose specific

product features for themselves, but w e don't track or remember w hich

features each customer chooses.

c. In the case of our MVCs, we sometimes customize our pe ripheral service s-

contract terms, billing formats, delivery modes, pallets and packaging, service

options, and so fort h- an d we track each MVCs preferences.

d. We have modularized at least a few aspects of our core produ ct or o ur

peripheral services or both, and by configuring these modules in different

ways, we can produce a variety of product-service combinations fairly cost-efficiently. For a substantial number of our customers, we track and

remember which customers choose which options, sowhen a customer

repeats a purchase with us we can automatically configure our product

to th at customer's previously s tated preferences.

e. We have modularized many aspects of our core product or our peripheral

services or both, and we can render a wide variety of product-service

configurations cost-efficiently. Rather than asking customers to sort through

all the options themselves, we interact with most or all of them t o help them

specify their needs.Then we map each customer into a particular needs-based

category, propose a particular product configuration for that customer, and

remember it the next time we deal with that customer.



GaaC3fi\®@(3°8 Tf"®®!!, KOtf ONE-TO-ONE MARKETING

across the board, and many compa-

nies are unwilling or unable to pro-

vide enough funding to all relevant

areas to make the initiative worth

the effort. And, of course, there are

organizational puzzles to be solved.

It's easy to assign responsibility for

a product, but who takes responsi-bility for developing a customer re-

lationsbip across different business

units? Which business unit "owns"

the customer, anyway?

Those are serious considerations -

and they don't even scratch the sur-

face of the scope of cultural change

a one-to-one marketing strategy may

demand. But even a very modest one-

to-one initiative-one that affects just

one area, such as your sales force or

your call center or your Web site-

can produce substantial benefits.Besides hinting at the value of a full-

scale program, often these short-term

results are themselves enough to

justify the funding required for an

incremental effort. Among them:

• Increased cross-selling. A retail

bank, for instance, that is able to

increase the average number of ac-

counts per customer from 1.8 to 2.5

will enjoy a very significant, and

measurable, financial benefit. If you

can track just a few of your business's

transactions, you can compare theamount of added benefit you're get-

ting from cross-selling and up-selling.

You ought to see higher unit margins

as well, provided you're tracking this

metric on a per-customer basis.

• Reduced customer attrition. One

of the primary, and early, benefits of

a one-to-one marketing program is

that it generates increased loyalty

among customers. Try tracking de-

fections among customers exposed

to a relationship-marketing initia-

tive compared with a statisticallyidentical control group not exposed

to the initiative. What would it be

worth to your business, just in terms

of reduced acquisition costs, for in-

stance, to increase average customer

tenure by 10% ? Or what about in-

creasing the average likelihood of re-

purchase by 10% ?

• Higher levels of customer satisfac-

tion. Granted, tbis is a "soft" rating.

But it's easily measured and can pro-

vide quick support of one of the ben-

efits of a relationship-marketing

program. To get at real customer sat-

isfaction, you might want to mea-

sure your customers' "likelihood to

recommend" your product, or some-

thing more tangible tban most tradi-

tional customer-satisfaction indices.

• Reduced transaction costs and

faster cycle times. One-to-one mar-keting is basically oriented around

making it increasingly convenient

for a customer to buy, which trans-

lates directly into a more efficient

organization. The fewer things a

customer has to specify each time

business is done, the more efficient

the transaction will be.

In the exhibit "Getting Started,"

we've listed activities tbat most

companies can accomplish fairly

readily in each of the four key imple-

mentation areas of relationship mar-keting. Some of these activities may

work for your business today; others

may stimulate your thoughts for fu-

ture initiatives. If at least some of the

ideas make sense to you, then you

should generate your own list and

begin to identify tbe most important

activities to put into practice. In any

case, the activities we've listed here

make some of the more basic con-

cepts of customer-relationship man-

agement practical, and they can help

your company take the first step.

Assessing Your SituationIf you are considering launching a

full-scale one-to-one initiative, the

first critical task is to assess your

current situation. How big is the gap

between wbere you are and wbere

you want to be? What

should you work on

first? Where are you in

• line employees who interact

directly with customers (sales

and service people, call service rep-

resentatives, and retail clerks);

• a representative group of your

customers.

Responses will probably vary

widely among tbose groups, and thatis exactly the way the exercises

should be evaluated-by comparing

how different groups rate your com-

pany. It is important to value the an-

swers in inverse proportion to the

respondents' position in the corpo-

rate pecking order. The best lessons,

in fact, will likely come from bearing

what your customers have to say

about your company's readiness to

engage in one-to-one relationships

with them. Beyond that, however,

there is enormous value in comparingthe answers given by different constit-

uencies, in different locations and

functions, facing different agendas

and issues. Being relatively concise,

"The Broad View" can be widely cir-

culated to ensure breadtb of coverage.

"Tbe One-to-One Gap Tool" will

capture a more robust analysis of

how your company sees itself-both

culturally and organizationally.

Setting Priorities

Once you evaluate your business'sability to begin implementing a cus-

tomer-relationship-management

program, the next step is to think

through the one-to-one marketing

issues that are most (or least) rele-

vant to your own particular business

situation in order to prioritize your

The more customers needs vary,

the more attractive they wiU find

^ •^""™g relationship.One Gap Tool" will give

you a clearer picture of just how

much work lies before you.

The principal groups whose evalu-

ations would be helpful are:

• anyone involved in conceiving or

developing one-to-one marketing

strategies at your company;

• all senior managers;

• a selection of relevant middle man-

agers and field managers;

• channel members, if applicable;

efforts. For instance, what role

should a Web site play in your com-

pany's plan to create better relation-

ships with customers? Instead of

designing a Web site, sbould you try

to customize your product offering,

perbaps by lining up strategic alli-

ances with businesses that provide

complementary services?

To set priorities, you need to con-

sider how differentiated your cus-



tomer base is in terms of customerneeds and value. You also need to de-termine how capable your companyis at interacting and c u s t o m i z i n g -th e two "action steps" in the four-s t ep implemen ta t ion p rocess . For

instance, if the needs of your cus-

tome rs vary widely, then you proba-bly should focus first on cus tom-ization: the more your customers 'needs vary, the more attractive theywill find a learning rela tionship.

Consider the contrast between a

bookstore and a gas station. If a cus-tomer who enters a bookstore is re-

minded that his favorite author has

a new book out t ha t has been re-

served in case he wan ts it, he is likelyto become very loyal to the store.People's tastes in books vary widely,so it's a real service for a proprietorto remember a particular customer'spreferences.

But if the same person pulls intoa gas station and the at tendant an-

nounces he has a new shipment of

9 3-octane in, just the way he know sthe customer l ikes it, the "service"of remember ing customer prefer -ences is not nearly so attractive.

When customers' value to the en-

terprise vary widely, the top custom -ers account for the vast majority of

the business . We call this a steepskew. R e l a t i o n s h i p m a r k e t i n g is

more cost-eff icient for businesseswi th a steep skew than with a shal-low one. Thegreater the skew, the

more feasible it is to cultivate rela-t i onsh ips wi th the most valuahlecustomers. If the top 2% of your cus-tomers generate 50% of your profit,you can protect 50% of your bottomline hy fostering learning relation-ships with just the top few custom-ers. But if the top 20 % of your cus-

tomers make up 50% of your profit,then it will be ten t imes as costly to

achieve the same bottom-line benefit.

There are specif ic strategies-wecall them migration strategies -

appropriate for dealing with a cus-

tomer base that is not well differen-tiated in t e rms of needs or value.These strategies involve either ex-

panding the definition of customerneeds orvalue, or improving the in-

teraction or customization capahili-ties of the enterprise.' Forexample,

when dealing with a customer hase

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M a r k e t a n d C r e d i t R i s kf o r F i n a n c i a l I n s t i t u t i o n s

F e b r u a r y 21 - 2 5 , 1 9 9 9

M a n a g i n g T e a m s fo r I n n o v a t i o na n d S u c c e s s

M a rc h 2 2 - 2 7 , 1 9 9 9

N e g o t i a t i o n an d I n f lu e n c e S t r a te g i e s

A p r i l 18 - 23, S e p t . 12 - 16 (in A u s t r a l i a ) ,O c t . 3 1 - N o v . 5, 1999

S t r a t e g i c t J s e s o f I n f o r m a t i o n

T e c h n o l o g y

May 2- 7 , 1999

l e a d i n g a n d M a n a g i n g C h a n g eJune20-July2,1999

F in a n c ia l M a n a g e m e n t P r o g ra m

J u l y 4 - 1 6 , 1 9 9 9

P r o d u c t D e v e l o p m e n t a n dM a n u f a c t u r i n g S t ra t e g y

J u l y 4 - 1 6 , 1 9 9 9

E x e c u t i v e P r o g r a m in S t r a t e g y

a n d O r g a n i z a t io n

A u g u s t 1 - 1 3 , 1 9 9 9

M a r k e t in g M a n a g e m e n t :A S t r a te g i c P e r s p e c t i v e

A u g u s t 1 - 13, 1999

S u p p ly C h a i n M a n a g e m e n t

A u g u s t 29 - S e p t e m b e r 3 , 1 9 9 9

H u m a n R e s o u r c e E x e c u t i v e P r o g r a mSeptember 12-17,1999

F u n d a m e n t a l s of A c c o u n t i n g a n dF i n a n c e fo r N o n - F i n a n c i a l M a n a g e r s

O c to b e r 1 7 - 2 2 , 1 9 9 9

C r e d i t R i s k M o d e l i n gO c t o b e r 24 - 29, 1999 (at S t a n f o r d )



M A N A G E R' ONE-TO-ONE MARKETING

fhe One-to-One

H o w Far t) o Ybu JHa.ye to Go to Prepare?

Tftts exeT Ue, tob& admlrti ered to employees atvarious levels

and mvarious ftiEictions,iti designed to capture a robustanalysis

©ftiowyourcojTipany sees itself both culturally and

©riganizatiofiaifly.1t. should also Ijegiven to a representative group

of .(fustoimeft.'Wi ththe tangyage taitoFed appropriately in-order to

-ajcpose thegap'between internal and external percfeptfons.'

'I For eiach question hsted below, select thestatement that most

•elOsdy-reflectsyour opinion Qf the Gompanyas you view ititoday-.^cit *s youvthink i t sho(Sfjd! $ oir" it might be in" the futiure. ' • •

PROCESSES

1. Does the company have

established quality-assurance

processes?

a. We do not consider quality-

management practices.

b. We would like tohave formal

quality-management initiatives.

c. We have some methods in placeto ensure quality-managementinitiatives.

d. We have a formal quality-management organization.

2 . Are the company's business

processes customer-centric?

a. We do not pay any attentionto how our customers and our

business processes interact.

b. We have some und erstandingof the link between customersand our business processes.

c. We understahd most of theinteractions between customersand o ur business processes.

d. We have a full understandingof all the possible interactionsbetween customers and ourbusiness processes.

TECHNOLOGY

3. Does the company take

customers' needs into

consideration when selecting

and implementing technology?

a. Our IT department is ratherautonomous and incharge of

technology acquisition.b. We ensure that ou r customers' needs,

not just our own internal needs, areconsidered when selectingtechnology.

c. We use some degree of customervalidation when selecting technology.

d. We ensure that all technolog yselections are customer-centric.For instance, we research how

to improve customer convenience.

4. Does the company provide its

employees with technology th at

enables the m to help customers?a. We are not particularly advanced

when it comes to technology.

b. We encourage the use of technologythat helps our daily interactions withcustomers.

c. We provide technology in many areasto improve our daily interactions withcustomers.

d. We provide the most effectivetechnology available toall employeeswho interact with customers.

KNOWLEDGE STRATEGY

5. Does the company maintain a strategy

for collecting and using information

about customers?

a. We handle information about customerspoorly.

b. We encourage the collec tion and useof information togain knowledge aboutcustomers.

c. We have programs tocollect informa tion and

use our knowledge about select customers.

d. We continually enhance our strategy to colleand use our knowledge about our customers

6. How effectively does the company

combine information on customers

with its experiences to generate

knowledge about its customers?

a. We have poorly developed and inadequateprocesses for com bining our data on cus-tomers with our o wn experience and views.

b. We encourage using processes and systemsthat support th e collection of both customerinformation and experiences about somecustomers.

c. We have implemented systems and processesthat collect and combine information andexperiences abo ut selected customers.

d. We have rigorous processes to combineinformation and experiences about eachcustomer.

PARTNIERSHIPS

7. How does the company select its

partners?

a. We pay little or no attention towhetherthe partners we select are customer-centric.

b. We try to select partners that arecustomer-centric.

c. We evaluate strategic partners based on

their customer centricity.

d. We evaluate all poten tial partners basedon their customer centricity.

8. Does the company understand therelationships among its customers

and partners?

a. We have little or no understanding ofthe relationships among our customersand our partners.

b. We try to understand the relationshipsamong our customers and our partners.

c. We understand the relationships amongour customers and our partners.

d. We understand and use the relationshipsamong our customers and our partners.



O N E - T O - O N E M A R K E T I N (

C U S TO M E R R E LA TI O N S H I P S


differentiate its customers?

a. We do n ot differentiate among customers.

b. We try to differentiate amon g customers.

c. We collect and use information gleaned

from interactions with customers to

differentiate each customer and to evaluate

the importance of each relationship.

d. We have a continuously updated customer-

knowledge database that provides all the

critical business information about our

relationships with individual customers.

10 . What steps has the company taken

to improve the total experience of

its customers?

a. We pay little or no attentio n to the to talexperience of customers.

b. We know a ll the points where customers

are in contact with the business, and we

manage these areas effectively

c. We conduct frequent surveys wit h selectedcustomers and m ake improvements basedon their feedback.

d. We have a continual dialogue wit h eachcustomer and use well-developed methodsto im prove our relationships.

1 1 . How effectively does the company

measure and react to customers'

expectations?

a. We make no effort to understand ourcustomers' expectations.

b. We have some idea of our customers'expectations and use them in buildingrelationships.

c. We periodically solicit customers' input

about expectations and take actions to

improve the relationships where possible.

d. We work as a team w ith our customers

to ensure that their expectations are

met o r exceeded.


understand and anticipate customers'behavior?

a. We pay little or no attention to the behaviorof our customers.

b. We understand the trends and buyingpatterns of our customers and considerthem when making critical decisions.

c. We collect data on o ur customers'

preferences and other behaviors and use

that inform ation in our business planning.

d. We maintain a profile of each customer and

refer to it when d ealing with customers.

E M P L O Y E E M A N A G E M E N T

13. Towhat d egree are employees

empowered to make decisions

in favor of the customer?

a. We encourage employees to strictlyfollow procedures and policiesdeveloped by top managers.

b. We encourage employees to make

independent decisions within the

guidelines set by m anagement.

c. We strongly encourage em ployees

to make decisions that positively

affect our customers' satisfaction.

d. We require every em ployee to takewhatever action is appropriate t oensure the ultimate satisfaction ofthe customer.

14. Has the company formallylinked employees' rewards with

customer-centric behavior?

a. We make no link betwe en employees'

rewards and their treatmen t of

customers.

b. We use ad hoc methods to reward

customer-centric behavior.

c. We make customer-centric behaviora part of performance appraisalcriteria.

d. We make customer-centric behaviora significant p art of performanceappraisal criteria.

C O M P E TI T I V E S TR A TE G Y

15 . Towhat exten t does the company

understand how customers

affect the organization?

a. We attach little significance to theviews and opinions o f customers.

b. We place some importance on

understanding the impact of our

customers on the business.

c. We place importance on under-standing how a select group ofcustomers affects our business.

d. We place vital importance onunderstanding how each customeraffects our business.

16. How much influence do

customers' needs have on the

company's produ cts a nd services?

a. We pay little or no attention to theneeds of our customers when wedesign our products and services.

b. We attempt to develop products andservices that meet our customers'needs.

c. We use input fro m selected groupsto assist with the development ofproducts and services.

d. We design products a nd services tomeet the needs of individualcustomers.

17. How effectively does the

company build individualized

marketing programs?

a. We build all marketing programs t oreach a mass market.

b. We build ail marketing programs

to fit a perceived niche market.

c. We build some marketing programsthat are specific to each customer'sneeds.

d. We build all marketing programs to

be specific to each customer's needs.

18. How aware is the company of

other organizations' approachesto building customer

relationships?

a. We pay no attention to the customer-centric strategies of other companies.

b. We know w hich companies arecustomer-centric regardless of theindustry.

c. We know how our competition

approaches customer centricity.

d. We know the best-in-classapproaches to customer centricity.




that is characterized by a shallowvalue skew, one strategy would beto improve the cost-efficiency of thecompany's capability to interact-adding a call center, for instance, or aWeb site. Basically, the less costly itis to interact, the less important it is

to reserve interactions for top cus-tomers only.

Consider the example of the book-store again. Although it might havea customer base with widely differentneeds, italso has a fairly flat valueskew. Very few bookstore proprietorsactually remember the preferencesof their individual custom ers becauseit is simply not cost-efficient to do so.Even if the proprietor could remem-ber the tastes of her top ioo custom-ers - and teach her salespeople to do

so as wel l - these top cus tomerswould probably account for less than10% of the proprietor's business.

But if the bookstore were to in-crease its capability to interact cost-efficiently - say, by adding a Website-then the amount of effort re-quired to remember customers' pref-erences would decrease dramatically.Amazon.com really does rememberits customers' individual ta stes-a ndnot just for a top few, but for thou-sands. As a result, Amazon.com is

able to create the kind of learningrelationship with its customers thatwill keep them loyal. It will alwaysbe at least a little easier for th e cus-tomer to return to Amazon.com tofind abook than to go someplaceelse and explain his preferencesanew. This isone reason 59% ofAmazon.com's sales come from re-peat custom ers - roughly twice therate of typical bricks-and-mortarbookstores.

Of course, Amazon.com and other

companies that do such a good job ofremembering their customers' tastesneed to allow them to adjust theirpreferences freely. For instance, acustomer might buy a book as a giftfor someone with different interests,or he might simply change his mindabout topics he's interested in.

A Foundation forthe Long Term

It's been our experience that imple-menting even a relatively limited

one-to-one program tends to moti-

vate a company to take a more inte-grated, enterprise-wide view of itscustomers. String a few of these proj-ects together and pretty soon you'llhave to deal with a series of enter-prise issues. People in different func-tions and from different business

un its will be working together morefrequently on an ad hoc basis. Man-agers on one project will be trying torelate their metrics to the outcomesof other projects.

As you begin to take a more inte-grated view of the enterprise, certainorganizational issues will arise. Con-sidering the following ques tions maygive you some advance warning:• If you measure a customer's valueacross more than one division, willone person be in charge of that cus-

tomer's relationship? If so, how willthis be structured?• Should the enterprise set up or mod-ify its key-account selling system?• Should the enterprise underwritea more comprehensive informationsystem, standardizing customer dataacross every division?• Should the company be thinkingabout investing in a data mart or adata warehouse?• Should the sales force be better au-tomated? If so, who should set the

strategy for how sales representativesinteract with individual customers?• Does it still make strategic sense tohave different sales forces for differ-ent divisions?• Is it possible for the com pany's var-ious Web sites and call centers towork together better? That is, do Webpages coming from different divi-sions and locations make sense toa customer looking at them in total?Can callers be "hot connected" be-tween call centers? Should you com-bine your call centers?

« Should the company package moreservices with the products itsells?If so, how should those services bedelivered?• Should the business seriously ex-plore investing in mass-customiza-tion manufacturing technologies?

To be ready to tackle issues likethese, you might want to create afew programs now. Set up a multi-department committee to agree ona standard way to report customerinformation, for instance. Agree on

a cross-divisional standard formatfor customer service calls. Come upwith aweighted measure to rankcustomers by their overall value-not just their worth to one division.

Obviously, it's impossible to sim-ply "strap on " a one-to-one marketing

campaign and continue to do businessin a traditional manner. Many com-panies-Dell, USAA, American Ex-press, and Amazon.com, for in-stance-will be more successful atcreating learning relationships withtheir customers because their busi-nesses were built on the basis ofdirect customer interaction.

But it 's also possible tomakesteady, increm ental progress by con-centrating on the four implementa-tion steps and applying them to

different aspects ofyour currentbusiness. Large, well-establishedenterprises like Pitney Bowes, WellsFargo, 3M, Owens Corning, BritishAirways, and Hewlett-Packard havebegun creating stronger, more inter-active relationships with their cus-tomers. They implement these strat-egies piece by piece, in one businessunit at a time, wrestling with oneobstacle at a time. But they are mak-ing progress and gaining a significantcompetitive advantage as a result.

So instead of asking, "Is your com-pany ready to implement a one-to-one marketing strategy?" perhapsthe better question is, "How muchof a one-to-one marketing programis your company ready to deal withtoday?" Clearly, pu tting relationshipmarke ting to work properly involvesmuch more than simply sending outpersonalized m ail, training your callcenter persormel in phone etiquette,or designing a user-friendly Web site.But when correctly executed, theprocess of making even incrementalprogress toward becoming a one-to-one marketer can pay immediatedividends as you strengthen anddeepen your company's relation-ships with its customers.

1. For amore comprehensive explanation ofthese concepts, see Don Peppers and MarthaRogers, Enterprise One to One: Tools for Com-peting in the Interactive Ag e (New York: Cur-rency/Doubleday, 1997), especially chapter 3and chapter 13.

Reprint 99107

Toorder

reprints, see thelast page

ofthis

issue.

160 HARVARD BUSINESS REVIEW January-February 1999

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