Chapter 6

Differentiating Customers by Their Needs

I don’t know the key to success, but the key to failure is trying to please everybody.

—Bill Cosby

Having a good knowledge of customers’ value is certainly important, but to use customer relationship management (CRM) tools and customer strategies to increase a customer’s value, the business must be able to see things from the customer’s perspective, with the realization that there are many different types of customers whose perspective must be individually understood. Value differentiation by itself will not give a company this perspective. Think about it: Customers don’t usually know or care what their value is to a business. Customers simply want to have their problem solved, and every customer has his own slightly different twist on how the process should be handled, even if more than one customer wants a problem solved a particular way. The key to building a customer’s value is understanding how this customer wants it solved. So one key to building profitable relationships is developing an understanding of how customers are different in terms of their needs and how such needs-based differences relate to different customer values, both actual and potential. What behavior changes on the customer’s part can be accomplished by meeting those needs? What are the triggers that will allow the firm to actualize some of that unrealized potential value?

In this chapter, we consider the different needs of different customers and the role that customer needs to play in an enterprise’s relationship-building effort. In most situations, it makes sense to differentiate customers first by their value and then by their needs.1 In this way, the relationship-building process, which can be expensive, will begin with the company’s higher-value customers, for whom the investment is more likely to be worthwhile. (An important exception to this general rule, however, applies to treating different customers differently on the World Wide Web. On the Web, the incremental costs of automated interaction are near zero, so it makes little difference whether an enterprise differentiates just its top customers by their needs or all its customers.)

Definitions

Before going too much further, let’s pause to define the important terms relevant to this discussion.

Needs

When we refer to customer needs, we are using the term in its most generic sense. That is, what a customer needs from an enterprise is, by our definition, what she wants, what she prefers, or what she would like. In this sense, we do not distinguish a customer’s needs from her wants. For that matter, we do not distinguish needs from preferences, wishes, desires, or whims. Each of these terms might imply some nuance of need—perhaps the intensity of the need or the permanence of it—but to simplify our discussion, we will refer to them all as “needs.”

It is what a customer needs from an enterprise that is the driving force behind the customer’s behavior. Needs represent the “why” (and often, the “how”) behind a customer’s actions. How customers want to buy may be as important as why they want to buy. The presumption has been that frequent purchasers use the product differently from irregular purchasers, but it may be that they alternatively or additionally like the available channel better. For that matter, it may be that they like the communications channel better. The point is that needs are not just about product usage but about an expanded need set (which we discuss fully in Chapter 10) or the combination of product, cross-buy product and services opportunities, delivery channels, communication style and channels, invoicing methods, and so on.

In a relationship, what the enterprise most wants is to influence customer behavior in a way that is financially beneficial to the enterprise; therefore, understanding the customer’s basic need is critical. It could be said that while the amount the customer pays the enterprise is a component of the customer’s value to the enterprise, the need that the enterprise satisfies represents the enterprise’s value to the customer. Needs and value are, essentially, both sides of the value proposition between enterprise and customer—what the customer can do for the enterprise and what the enterprise can do for the customer.

Customers

Now that we have defined both customer value and customer needs, we should pause for a reminder of the definition of customer before continuing with our discussion. In Chapter 1, we defined what we mean by customer. On the surface, the definition should be obvious. A customer is one who “gives his custom” to a store or business; someone who patronizes a business is the business’s customer. However, the overwhelming majority of enterprises serve multiple types of customers, and these different types of customers have different characteristics in terms of their value and their individual needs.

A brand-name clothing manufacturer, for instance, has two sets of customers: the end-user consumers who wear the clothes and the retailers that buy the clothes from the manufacturer and sell them to consumers. As a customer base, clothing consumers do not have as steep a value skew as, say, a hotel’s customer base, even though some consumers might buy new clothes every week. (In other words, the discrepancy in value between the very most valuable consumers and the average will generally be smaller for a particular clothing merchant.) But all consumers of the clothing manufacturer do want different combinations of sizes, colors, and styles. So even though clothing consumers may not be highly differentiated in terms of their value, they are highly differentiated in terms of their needs. Retailer customers also have very different needs: Some need more help with marketing, or with advertising co-op dollars, or with displays. Different retailers will have very different requirements for invoice format and timing or for shipping and delivery. They may need different palletization or precoded price tags. Interestingly, retailers will also vary widely in their values to the clothing manufacturer—with much more value skew than consumers will show. Some large department store chains will sell far more stock than can a local mom-and-pop clothing shop. Thus retailer customers display high levels of differentiation in terms of both their needs and their value.

For the clothing manufacturer, if the enterprise expresses an interest in improving its relationships with its customers, the question to answer is: Which customers? And this is, in fact, the type of structure in which most enterprises operate. They won’t all sell products to retailers, but the vast majority of businesses do have distribution partners of some kind—retailers, dealers, brokers, representatives, value-added resellers, and so forth. Moreover, a business that sells to other businesses, whether these business customers are a part of a distribution chain or not, really is selling to the people within those businesses, people of varying levels of influence and authority. Putting in place a relationship program involving business customers will necessarily entail dealing with purchasing agents, approvers, influencers, decision makers, and possibly end users within the business customer’s organization, and each of these people will have quite different motivations in choosing to buy.

The logical first step for any enterprise embarking on a relationship-building program, therefore, is to decide which sets of customers to focus on. A relationship-building strategy aimed at end-user consumers can (and in most cases, should) involve some or all of the intermediaries in the value chain in some way. However, it is a perfectly legitimate goal to seek stronger and deeper relationships with a particular set of intermediaries. The basic objective of relationship building with any set of customers is to increase the value of the customer base; thus, it’s important to understand from the beginning exactly which customer base is going to be measured and evaluated. Then, when focusing on that customer base, the enterprise must be able to map out its customers in terms of their different values and needs.

It is easy to confuse a customer’s needs with a product’s benefits. Companies create products and services with benefits that are specifically designed to satisfy customer needs, but the benefits themselves are not equivalent to needs. In traditional marketing discipline, a product’s benefits are the advantages that customers get from using the product, based on its features and attributes. But features, attributes, and benefits are all based on the product rather than on the customer. Needs, in contrast, are based on the customer, not the product. Two different customers might use the same product, based on the same features and attributes, to satisfy very different needs.

When it focuses on the customer’s need, the enterprise will find it easier to increase its share of customer, because ultimately it will seek to solve a greater and greater portion of the customer’s problem—that is, to meet a larger and larger share of the customer’s need. And because the customer’s need is not directly related to the product, meeting the need might, in fact, lead an enterprise to develop or procure other products and services for the customer that are totally unrelated to the original product but closely related to the customer’s need. That’s why focusing on customer needs rather than on product features often will reveal that different customers purchase the same product in order to satisfy very different individual needs.2

Differentiating Customers by Need: An Illustration

Consider a company that manufactures interlocking toy blocks for children, such as LEGO Lego® or MEGA Bloks®, and suppose this firm goes to market with a set of blocks suitable for constructing a spaceship. Three seven-year-old children playing with this set of blocks might all have different needs for it. One child might use the blocks to play a make-believe role, perhaps assembling a spaceship and then pretending to be an astronaut on a mission to Mars. Another child might enjoy simply following the directions, meticulously assembling the same spaceship in exact detail, according to the instructions. Once the ship is built, however, the child would be less interested in it. A third child might use the block set meant to construct a spaceship to build something entirely different, drawn from his own vivid imagination. This child simply wouldn’t enjoy putting together a toy according to someone else’s diagram.

Each of these three children may enjoy playing with the same set of blocks, but each is doing so to satisfy a different set of needs. Moreover, it is the child’s need that, if known to the marketer, provides the key to increasing the child’s value as a customer. If the toy manufacturer actually knew each child’s individual needs, and if it had the capability to deal with each child individually, by treating each one differently, it could easily increase its share of each child’s toy-and-entertainment consumption. For example, for the “actors,” it might offer costumes and other props, along with storybooks and videos or DVDs, to assist the children in their imaginative role-playing activities. For the “engineers,” it might offer blueprints for additional toys to be assembled using the spaceship set; or it might offer more complex diagrams for multiset connections. And for the more creative types, the “artists,” the company might provide pieces in unusual colors or shapes, or perhaps supplemental sets of parts that have not been planned into any diagrams at all.

We can use this example to compare and contrast the different roles of product attributes and benefits versus customer needs. Exhibit 6.1 shows that each product attribute yields a particular benefit that consumers of the product can enjoy.

EXHIBIT 6.1 Product Attributes versus Benefits

Product Attribute	Product Benefit
Toys in fantasy configurations	Recognizable make-believe situations
Colorful, unusual shapes that easily interlock	Large variety of interesting combinations
Meticulously preplanned, logically detailed instructions	Complex directions that are nevertheless easy to follow

It should be easy to see that each product attribute can be easily linked to a particular type of benefit. And the benefits will appeal differently to different customers, but each benefit springs directly from each attribute. If, instead, we were to map out the types of customers who buy this product, based on the needs of these end users as just outlined, we could then list the additional products and services that each type of customer might want, based on what that customer needs from this and other products. If we just looked at our actor, artist, or engineer end-user customers to see which needs they wanted to address, then our table would look like Exhibit 6.2.

EXHIBIT 6.2 Beyond Benefits: Customer Needs

Customer Need	Additional Products and Services
Actor: Role-playing, pretending, fantasizing	Costumes, videos, storybook, toys
Artist: Creating, making stuff up, doing things differently	Colors and paints, unique add-ons, nonsequitur parts
Engineer: Solving problems, completing puzzles	More diagrams, problems, logical extensions

This is only a hypothetical example, of course, and we could easily come up with several additional types of customers, based on the needs they are satisfying with these construction blocks. For instance, there might be some girls who want the spaceship set of blocks because they are really interested in rockets, outer space, and other things astronautical. Or there might be some boys who want the set because they are collectors of these kinds of building-block toys, and they want to add this to a large set of other, similar toys. Or there might be others who like to use this kind of toy to invite friends over to work together on the assembly. Any single child might, in fact, have any combination of these needs that she wishes to satisfy, either at different times or in combination.

The point is, by taking the customer’s own perspective, the customer’s point of view—by concentrating on understanding each different customer’s needs—the enterprise will more easily be able to influence customer behavior, and changing the future behavior of a customer by becoming more valuable to him is the key to realizing additional value from that customer.

Why Doesn’t Every Company Already Differentiate Its Customers by Needs?

It is reasonable to ask, if the logic outlined is so compelling, why toy manufacturers and other firms aren’t already attempting to differentiate customers by needs. But keep in mind that the hurdles to doing so are sizable. For one thing, most toy manufacturers sell their products through retailers and have little or no direct contact with the end users of their products. In order to make contact with consumers, a manufacturer will have to either launch a program in cooperation with its retailing partners or figure out how to go around those retailers altogether—a course of action likely to arouse considerable resentment among the retailers themselves. So the majority of a manufacturer’s end-user consumers are destined to remain unknown to the enterprise. Moreover, even if it had its customers’ identities, the manufacturer still would have to find some means of interacting with the customers individually and of processing their feedback, in order to learn their genuine needs. Then it would have to be able to translate those needs into different actions, requiring a mechanism for actually offering and delivering different products and services to different consumers.

These obstacles make it very difficult for toy manufacturers simply to leap into a relationship-building program with toy consumers at the very end of the value chain. That said, the manufacturer does not have to launch such a program for all consumers at once. Rather, it could start by identifying its most avid fans, its highest-volume, most valuable consumer customers. Perhaps it could devise a strategy for treating each of those highly valuable customers to individually different products and services, in a way that wouldn’t undermine retailer relationships. A Web site designed to attract and entertain such consumers could play this kind of role, and the toymaker could take advantage of social networking connectivity as well. Although the toy manufacturer still would encourage other shoppers to buy its products in stores, perhaps it could begin to offer more specialized sets and pieces directly to catalog and Web purchasers. If it had a system for doing this, launching a program designed to make different types of offers to different types of end-user consumers—based on their individual needs— would be much simpler and would, for practical reasons, start that process with customers of high value.

Indeed, the primary reason so many firms are now attempting to engage their customers in relationships is that the new tools of information technology—not just the World Wide Web in general and social networking sites in particular, but customer databases, sales force automation, marketing and customer analytics applications, and the like—are making this type of activity ever more cost-efficient and practical. But for an enterprise engaged in relationship building, the “hot button,” in terms of generating increased patronage from the customer, is the customer’s need.

Categorizing Customers by Their Needs

In the end, behavior change on the part of the customer is what customer-based strategies are all about. To capture any part of a customer’s unrealized potential value requires us to induce a change in the customer’s behavior; we want the customer to buy from an additional product line, or take the financing package as well as the product, or interact on the less expensive Web site rather than through the call center, and so forth. This is why understanding customer needs is so critical to success. The customer is master of his own behavior, and that behavior will change only if our strategy can appeal persuasively to his needs. Being able to see the situation from the customer’s point of view is key to any successful customer-based strategy.

But in order to take action, at some point, different customers must be categorized into different groups, based on their needs. Clearly, it would be too costly for most firms to treat every single customer with a custom-designed set of product features or services. Instead, using information technology, the customer-focused enterprise categorizes customers into finer and finer groups, based on what is known about each customer, and then matches each group with an appropriately mass-customized product-and-service offering. (More about mass customization and the actual mechanics of the process in Chapter 10.)

One big problem is the complexity of describing and categorizing customers by their needs. There are as many dimensions and nuances to customer needs as there are analysts to imagine them. For consumers, there are deeply held beliefs, psychological predispositions, life stages, moods, ambitions, and the like. For business customers, there are business strategy differences, financial reporting horizons, collegial or hierarchical decision-making styles, and other corporate differences—not to mention the individual motivations of the players within the customer organizations, including decision makers, approvers, specifiers, reviewers, and others involved in shaping the company’s behavior.

Marketing has always relied on appealing to different customers in different ways. Market segmentation is a highly developed, sophisticated discipline, but it is based primarily on products and the appeal of product benefits rather than on customers and their broader set of needs considered in a holistic fashion for each individual customer. To address customers as different types of customers, rather than as recipients of a product’s different benefits, the customer-based enterprise must think beyond market segmentation per se. Rather than grouping customers into segments based on the product’s appeal, the customer-based enterprise places customers into portfolios based primarily on type of need.

A market segment is made up of customers with a similar attribute. A customer portfolio is made up of similar customers. The market segmentation approach is based on appealing to the segment’s attribute while the customer portfolio approach is based on meeting each customer’s broader need, based on the customer’s own worldview. If segments and portfolios were made up of toys, then red fire trucks might be in a segment of toys that included red checkers sets, red dolly makeup lipsticks, and red blocks. But red fire trucks would be in a portfolio of toys that included ambulances, fireboats, police cars, and maybe medical helicopters, along with fire hats and axes, stuffed Dalmatians, and ladders. A market segment might be composed of women, over age 45, with household incomes in excess of $50,000. A portfolio of customers might be made up of women who value friendships and like to entertain.

In Chapter 13, we discuss customer management, including the grouping of customers into portfolios. There is a continuing role for traditional market segmentation, even in a highly evolved customer-strategy enterprise, because understanding how a product’s benefits match up with the attributes of different customers continues to be an important marketing activity. But as the enterprise gains greater and greater insight into the actual motivations of particular categories of customers, it will find that managing relationships cannot be accomplished in segment categories, because any single customer can easily be found in more than one segment. Instead, when they take the customer’s perspective, the managers at a customer-strategy enterprise will learn that they must meet the complex, multiple needs of each customer, as an individual. And doing this will require categorizing customers according to their own, broader needs rather than according to how they react to the product’s individually considered attributes and benefits. Each customer can appear in only one portfolio.

Understanding Needs

Understanding different customers’ different needs is critical to any serious relationship-building program. Some of the characteristics of customer needs should be given careful consideration:

• Customer needs can be situational in nature. Not only will two different consumers often buy the same product to satisfy different needs, but a customer’s needs might change from event to event, and it’s important to recognize when this occurs. An airline might think it has two customer types—business travelers and leisure travelers—but in reality this typology refers to events, not customers. Even the most frequent business traveler will occasionally be traveling for leisure, perhaps with a spouse or family instead of the usual solo travel, and in that event she will need different services from the airline than she needs when she travels on business.
• Customer needs are dynamic and can change over time as well. People are changeable creatures; our lives evolve from one stage to another, we move from place to place, we change our minds. Moreover, certain types of people change their minds more often than others, tending to be less predictable. That said, the fact that a certain type of customer is not predictable is a customer characteristic itself, which can be used to help guide an enterprise’s treatment of that customer. Marriage, new babies, and retirement typically lead to profound changes in needs for most people.
• Customers have different intensities of needs and different need profiles. Even when two customers have a similar need, one customer will have that need intensely while the other may feel the need but less intensely and perhaps in a different profile, combined with other needs. One homemaker is committed to running a very “green” kitchen while another wants to take care of the environment where it makes sense, but also has the need to save time as much as possible and may use paper plates so she doesn’t have to spend so much time washing dishes.
• Customer needs often correlate with customer value. Although it is not always true, more often than not a high-value customer is likely to have certain types of needs in common with other high-value customers. Similarly, a below-zero customer’s needs are more likely than not to be similar to other below-zero customers’ needs. A business that can correlate customer value with customer needs is generally in a good situation, because by satisfying certain types of needs, it can do a more efficient job of winning the long-term loyalty of higher-value customers.
• The most fundamental human needs are psychological. When dealing with human beings as customers (as opposed to companies or organizations), understanding the psychological differences among people can provide useful guidance for treating different customers differently.
• Some needs are shared by other customers while some needs are uniquely individual. When an online bookstore makes an automated book recommendation to an individual customer, this recommendation is based on the fact that other customers who have bought similar books as this customer has bought in the past have also bought the book being recommended now. There are hundreds of thousands of books a person could buy at an online bookstore, but people who buy similar books do so because they share similar needs. A retailer with a good database of past customer purchases can use “community knowledge,” purchases, and traits found in common among disparate customers, to infer which products the members of a particular community of customers might find more appealing. Software for sorting through groups of customers to find commonalities is called collaborative filtering (more about these concepts later in this chapter). However, if a florist remembers a customer’s wedding anniversary or a relative’s birthday and sends the customer a reminder, the florist is very likely to get a great deal more business, simply by remembering these unique dates for each customer. But any single customer’s wedding anniversary has very little to do with any other customer’s anniversary date. In both the bookstore’s and the florist’s case, individual customer needs are being met, but some needs are unique and personal while some are tastes or preferences that are shared by other customers, as well (see Exhibit 6.3).

  EXHIBIT 6.3 Common and Shared Needs of Customers

  
• There is no single best way to differentiate customers by their needs. As difficult as it is to predict and quantify a customer’s value to the enterprise, at least the final result will be measured in economic terms. Value ranking, in other words, is done in one dimension: the financial dimension.3 But when an enterprise sets out to differentiate its customers by their needs, it is embarking on a creative expedition, with no fixed dimension of reference. There are as many ways to differentiate customers by their needs as there are creative ways to understand the deepest human motivations. The value of any particular type of needs-based differentiation is to be found solely in its usefulness for affecting the different behaviors of different customers.
• Even in business-to-business (B2B) settings, a firm’s customers are not really another “company,” with a clearly defined, homogeneous set of needs. Instead, customers are a combination of purchasing agents, who need low prices; end users, who need benefits and attributes; the managers of the end users, who need those end users to be productive; and so on.

Community Knowledge

In the competition for a customer, the successful enterprise is the one with the most knowledge about an individual customer’s needs. In a successful Learning Relationship, the enterprise acts in the customer’s own individual interest as a result of taking the customer’s point of view. What if the customer were to maintain her own list of specifications and purchases? If the record of a customer’s consumption of groceries were maintained on her own computer rather than on a supermarket’s computer, this would undercut the competitive advantage that customization gives to an enterprise. Each week a whole cadre of supermarkets could simply “bid” on the customer’s list of grocery needs, reducing the level of competition once again to the lowest price. The customer-strategy enterprise can avoid this vulnerability, as it has devised a way to treat an individual customer based on the knowledge of that customer’s transactions as well as on the transactions of many other customers who have similarities to her. This is known as community knowledge.

Community knowledge comes from the accumulation of information about a whole community of customer tastes and preferences. It is the body of knowledge that an enterprise acquires with respect to customers who have similar tastes and needs, enabling the firm actually to anticipate what an individual customer needs, even before the customer knows he needs it. The collaborative filtering software that sorts through customers for similarities is essentially a matching engine, allowing a company to serve up products or services to a particular customer based on what other customers with similar tastes or preferences have preferred in this particular product or service.

Technology has accelerated the rate at which enterprises can apply community knowledge to better understand individual customers. This tool can help not just the individual consumers of a company like an online bookstore, but also B2B customers. The idea of community knowledge has a direct lineage from one of the most important values any B2B business can bring its own business customers: education about what other customers with similar needs are doing—in the aggregate, of course, never individually. Firms know that they must teach their customers as well as be taught by them. An enterprise brings insight to a customer based on its dealings with a large number of that customer’s own competitors. Community knowledge can yield immense benefits to many businesses, but especially to those businesses that have:

• Cost-efficient, interactive connections with customers as a matter of routine, such as online businesses, banks and financial institutions, retail stores, and B2B marketers, all of which communicate and interact with their customers directly and on a regular basis.
• Customers who are highly differentiated by their needs, including businesses that sell news and information, movies and other entertainment, books, fashion, automobiles, computers, groceries, hotel stays, and healthcare, among other things.

Marketing expert Fred Wiersema4 has said that there are three characteristics of market leadership: bringing out the product’s full benefits, improving the customer’s usage process, and breaking completely new ground with the customer. Any one of these types of customer education can come from the knowledge an enterprise acquires by serving other customers. An enterprise with a large number of customers can use community knowledge to lead a customer to a product or service that the enterprise knows the customer is likely to need, even though the customer may be totally unaware of this need. It might be as simple as choosing a hotel in a city the customer has never visited, but it could also apply to pursuing an appropriate investment and savings strategy, even though the customer may not have thought of it yet.

Pharmaceutical Industry Example

Consider, for example, a pharmaceutical company. Traditionally, this firm has not engaged in much relationship building with its end-user consumers (i.e., the patients for whom its drugs are prescribed). Rather, the firm has always considered its primary customers to be the prescribing physicians and other related healthcare professionals, along with pharmacies, employers, some government entities, and healthcare organizations. But now, faced with the cost-efficient, powerfully interactive technology of the World Wide Web, this pharmaceutical company wants to begin to establish genuine, one-to-one relationships with at least some of the more valuable consumers of its products. The company sells medicine for diabetes, which can be kept in check through constant vigilance, but, as is the case with many such diseases, compliance is a problem. Patients often simply fail to keep up the medical treatment or fail to monitor their own condition properly. The company knows that patients want help in understanding and dealing with the disease, so it sets up a Web site to serve as a resource for information and support. The benefits for the pharmaceutical company and for the patient are straightforward: A better-informed and supported patient is likely to exhibit better compliance, which will both keep the patient healthier and sell more of the pharmaceutical company’s drugs.

Knowing that different consumers will need different types of support and assistance, the pharmaceutical enterprise undertakes to design a patient-centric Web site. To do so, it conducts a research survey of patients, and discovers that a patient’s attitude toward keeping the disease in check will drive her individual needs for using the Web site. Newly diagnosed patients for the most part simply want any and all information related to their disease. They need to be able to select content relevant to their own problems. However, as patients come to grips with their sickness, their attitudes toward the disease tend to fall into one of three primary categories. For this pharmaceutical company, working with a set of diabetic patients, the needs groupings tend to look like this:

• Individualists. This type of patient relies on herself to make educated decisions on how to manage her disease. Individualists could be directed to online clinical support, and they could opt for customized electronic newsletters or for online health-tracking tools.
• Abdicators. This patient’s attitude toward the disease is one of resignation and detachment. She basically decides that she will “just have to live with the conditions of her disease,” so she ends up depending on the help given by a significant other. The site directs abdicators to various caregiver resources and provides planning information related to nutrition and meals.
• Connectors. This type of patient welcomes as much information and support as she can get from others to help her make educated decisions about how to manage her disease. The site directs connectors to online chat rooms and electronic bulletin boards where they can meet and converse with other patients. It has an “e-buddy” feature that pairs her up with a patient similar to herself.

For the pharmaceutical company to design a Web site that is truly customer-focused, it should try to figure out, for each returning visitor, what the particular mind-set of that visitor is, and then serve up the best features and benefits for that particular type of patient. The easier the enterprise can make it for different patients to find the support and assistance they need, individually, the more valuable those patients will become for the enterprise.

At this juncture, however, it is important once again to separate our thinking about the features and benefits of the Web site (i.e., the product, in this case) from the actual psychological needs and predispositions of the Web site visitors themselves. Any one of the visitors might in fact use any of the Web site’s many features on any particular visit. That means each of the Web site’s benefits will probably overlap several different types of customers, with different types of needs. But the customers themselves do not overlap—they are unique individuals, each with her own unique psychology and motivation. It is only our categorization of these unique and different customers into needs-based groups that might give us the illusion that they are the same. They may be similar in their needs, but at a deeper level, they are still uniquely individual, and this will be true no matter how many additional categories, or portfolios, we create. We simply categorize customers in order to better comprehend their differences by making generalizations about them.5

Using Needs Differentiation to Build Customer Value

The scenarios of the toy manufacturer and the pharmaceutical company show how each had to be aware of its respective individual customer’s needs so it could act on them. Once a particular customer’s needs are known, the company is better able to put itself in the place of the customer and can offer the treatment that is best for that customer. Each company gets the information about customer needs primarily by interacting. Therefore, an open dialogue between the customer and the enterprise is critical for needs differentiation. Moreover, customer needs are complex and intricate enough that the more a customer interacts with an enterprise, the more learning an enterprise will gain about the particular preferences, desires, wants, and whims of that customer. Provided that the enterprise has the capability required to act on this more and more detailed customer insight, by treating the customer differently, it will be able to create a rich and enduring Learning Relationship.

A successful Learning Relationship with a customer is founded on changes in the enterprise’s behavior toward the customer based on the use of more in-depth knowledge about that particular customer. Knowing the individual customer’s needs is essential to nurturing the Learning Relationship. As the firm learns more about a customer, it compiles a gold mine of data that should, within the bounds of privacy protection, be made available to all those at the enterprise who interact with the customer. Kraft, for example, empowers its salespeople with the data they need to make intelligent recommendations to a retailer. (The retailer is Kraft’s most direct customer, and the retailer sells Kraft products to end-user consumers, who can also be considered Kraft’s customers.) Kraft has assembled a centralized information system that integrates data from three internal database sources. One database contains information about the individual stores that track purchases of consumers by category and price. Another database contains consumer demographics and buying-habit information at food stores nationwide. A third database, purchased from an outside vendor, has geodemographic data aligned by zip code.

But truly to get to know a consumer through interactions directly with her, enterprises must do more than gather and analyze aggregated quantitative information. Accumulating information is only a first step in creating the knowledge needed to pursue a customer-centered strategy successfully. Information is the raw material that is transformed into knowledge through its organization, analysis, and understanding. This knowledge then must be applied and managed in ways that best support investment decisions and resource deployment.

Customer knowledge management is the effective leverage of information and experience in the acquisition, development, and retention of a profitable customer. Gathering superior customer knowledge without codifying and leveraging it across the enterprise results in missed opportunities.6

Summary

We have now discussed the necessity of knowing who the customer is (identifying) and knowing how the customer is different individually (valuation and needs). Getting this information implies that the enterprise will need to interact with each customer to understand each one better. Once the enterprise has ranked customers by their value to the enterprise and differentiated them based on their needs, it conducts an ongoing, collaborative dialogue with each customer. This interaction helps the enterprise to learn more about the customer, as the customer provides feedback about her needs. The enterprise can then use the customer’s feedback to modify its service and products to meet her needs (i.e., to “customize” some aspect of the customer’s treatment to the needs of that particular customer).

The “identify” and “differentiate” steps in the Identify-Differentiate-Interact-Customize (IDIC) taxonomy for developing and managing customer relationships can be accomplished by an enterprise largely with no actual participation by the customer. That is, a customer won’t necessarily have to know or involve herself in the process that the enterprise uses to identify her, as a customer, or to rank her by value, or even to evaluate her needs, as a customer. These first two steps—“identify” and “differentiate”—can be thought of as the “customer insight” phase of relationship management. However, the third step—“interact”—requires the customer’s participation. Interaction and customization can only really take place with the customer’s direct involvement. These latter two steps could be thought of as managing the “customer experience,” based on the insight developed.

Interacting with customers, the third step in the IDIC taxonomy, is our next point of discussion.

Food for Thought

Glossary

Attributes Physical features of the product.
Benefits Advantages that customers get from using the product. Not to be confused with needs, as different customers will get different advantages from the same product.
Customer portfolio A group of similar customers. The customer-focused enterprise will design different treatments for different portfolios of customers.
Market segment A group of customers who share a common attribute. Product benefits are targeted to the market segments thought most likely to desire the benefit.
Needs What a customer needs from an enterprise is, by our definition, synonymous with what she wants, prefers, or would like. In this sense, we do not distinguish a customer’s needs from her wants. For that matter, we do not distinguish needs from preferences, wishes, desires, or whims. Each of these terms might imply some nuance of need—perhaps the intensity of the need or the permanence of it—but in each case we are still talking, generically, about the customer’s needs.

1. In the view of some, differentiating by value first, then needs, may appear to focus first on the company’s needs, then those of the customers; but another way to look at this order of strategic imperatives is to think about how a company that used to treat every customer’s needs as equally important will now focus more on the needs of those customers who contribute the most to the success of the firm and therefore will put the needs of some customers ahead of the needs of other customers, thus allocating resources best for the most valuable customers.

2. A large body of academic research, as well as trade articles and professional work, has been published on the topics of benefits, attributes, and needs as well as the findings about the different reasons two customers with the same transaction history are motivated to buy the same products.

3. And the financial dimension is not limited to for-profits: For nonprofit organizations, the financial dimension might include maximizing funds from outside sources or maintaining fiscal stability. See Michael Martello, John G. Watson, and Michael J. Fischer, “Implementing a Balanced Scorecard in a Not-for-Profit Organization,” Journal of Business and Economics Research 6, no. 9 (September 2008): 68. For nonprofits, “customer” or member, or donor, or volunteer value may include proxies for financial value such as willingness to participate, compliance rates, voting record, donations of time and volunteerism, and so forth.

4. Fred Wiersema, Customer Intimacy: Pick Your Partners, Shape Your Culture, Win Together (Middleboro, MA: Country Press, 1996). Also see Wiersema’s The New Market Leaders: Who’s Winning and How in the Battle for Customers (New York: Touchstone, 2001), pp. 63–64.

5. The fact is, the pharmaceutical industry faces a challenge shared with other companies in other industries: the need to stay ahead of the proliferation of readily available information Web sites that already offer some level of personalization. For example, WebMD offers a Symptom Checker that helps patients understand what their medical symptoms could mean (http://symptoms.webmd.com/) as well as a Diet and Weight Loss Tool that provides a personalized diet assessment and access to a calorie calculator, a “Food-o-Meter,” and a “Fit-o-Meter” (www.webmd.com/diet/healthy-eating-fitness-services).

6. Paul M. Cole, Customer Connections (Cambridge, MA: Harvard Business School Press, 1997). See also Andrew L. S. Goh, “Adoption of Customer Relationship Management (CRM) Solutions as an Effective Knowledge Management (KM) Tool: A Systems Value Diagnostic,” Journal of Knowledge Management Practice [online] (February 2005), available at: http://www.tlainc.com/articl80.htm, accessed September 1, 2010; and Yichen Lin, Jr Jung Lyu, Hwan-Yann Su, and Yulan Hsing, “A Feasibility Study of the Customer Relationship Management Application on Small and Medium Enterprises,” Journal of Scientific and Technological Studies 41, no. 1 (2007): 53–63.