Throughout this book, we have described the customer-strategy enterprise by defining the principles of creating a customer-strategy business. In this and the next chapter, we will focus on how a firm establishes itself as an enterprise focused on building the value of the customer base and how it can make the transition from product management to managing for customer equity. What does a customer-value-building enterprise look like? How does a company develop the organization, skills, and capabilities needed to execute customer-oriented programs? How does the enterprise create the culture that supports these principles? How will it integrate the pieces of the organization that have traditionally been managed as separate silos (or “chimneys” or “smokestacks”)? To begin our discussion, this chapter examines how the customer-strategy enterprise is different from the traditional organization.

Now that technology drives a dimension of competition based on keeping and growing customers, the questions to ask are:

• Who will be responsible for the enterprise’s relationship with each customer? For keeping and growing each customer? For building the short-term revenues and long-term equity and value of each customer?
• What authority will that customer manager have to change how the enterprise treats “her” customers, individually?
• By what criteria and metrics will success be measured, reported, and used for compensation?

Capabilities That Yield a Relationship Advantage

George S. Day

Geoffrey T. Boisi Professor and Co-Director of the Mack Center for Technological Innovation

The Wharton School, University of Pennsylvania

A relational advantage can be gained in a variety of ways, depending on the market. Sometimes it is through customer intimacy and personalization; in other cases, customer collaboration or a best total solution is important. Two examples demonstrate the possibilities:

Characteristics of Relationship Leaders

Relationship leaders have several things in common.

These common features conceal huge differences in how relational value is delivered in different markets. Customer relationship management (CRM) approaches are used by firms like Fidelity Investments that serve mass markets with millions of customers. Comprehensive solution management approaches are applied by firms like Rolls-Royce when complex systems are sold to a small number of very valuable customers. Of course, there are many markets that use some of each approach.

The essence of CRM is customizing products and services for each particular customer. More precisely, it is a cross-functional process involving a continuing dialogue with customers, managing across all customer touchpoints, and offering personalized treatment of the most valuable customers.

Only since the 1990s have information technologies harnessed to the Internet made it possible to have dialogues with customers and gain a coherent and comprehensive view of each customer, including their profitability. But CRM is more than database management, data mining, call centers, and sales-force automation. This strategy will not deliver superior value unless it is woven into every function, including supply-chain management and channel coordination.

Comprehensive Solution Management

Solutions are bundles of products and related services that create value greater than the sum of their parts. To offer a real solution, and not just a repackaging of existing products and services, four criteria must be met:

The aim of CRM best practices is to form a one-to-one learning relationship. Co-creating a real solution requires relationships that are much deeper and wider, with social and information connections across many levels and functions of each partner organization. This is feasible only with high-value, long-term customers who warrant sizable investments of time and energy and also are willing to make a reciprocal commitment.

Customers who are partners can gain from such intimate relationships in several ways:

• Their costs are lowered when the supplier takes over activities that are shared with other customers or can otherwise be combined to achieve greater scale.
• They may see benefits from superior performance through preferred access to the latest technology.
• Their risks may be reduced by sharing them with the supplier.

As an example, Asea Brown Boveri (ABB) has been able to prevail in the volatile market for drilling pipe for ocean-based drilling rigs by absorbing its customers’ risk that pipe deliveries stalled in transit or customs will shut down their rig. For certain key customers, ABB offers guaranteed delivery to the rig and charges only the actual cost of delivery. ABB can do this because it has had long experience in operating in more than 100 countries and a deep understanding of importation requirements.

A comprehensive solution is also much more than a bundle that enables one-stop shopping or even an option such as tailoring a personal computer to suit a customer’s desired configuration. Thinking in terms of bundles of products and service we offer is an unfortunate inside-out approach that focuses on the question: How can we sell more? True solutions come from the outside in to solve a customer’s problem by applying superior resources and expertise. It takes deep insights into customer needs that come from “living together” and the ability to use these insights to provide a better overall result. Not every customer will commit to such a deep relationship or even pay for a solution. Some may even ask for a discount because they are getting all their requirements from one source. (One strategy for managing these customers is to divert them to a lower-cost intermediary.)

Gaining a Relationship Advantage

Understanding the role and functioning of the customer-relating capability requires an enterprise to distinguish between the resources that are the source of its competitive advantage and the consequent positional advantages and performance outcomes, as shown in Exhibit 13A. This is a cyclical process that relies on consistency and alignment of the elements to achieve advantage and continuous reinvestment and learning to sustain the advantage.

Sources of advantage are the resources the firm deploys, comprising the assets such as databases and systems that are firm specific, factors of production that are readily available, and the capabilities that enable these resources to be deployed advantageously.

The diagnosis of an individual capability—such as the customer-relating capability—requires that the scope be disaggregated down to a level where the skills and execution of the capability are competitively superior. Broad generalizations, such as consumer marketing skills, will not suffice, when the distinctive capability may lie only in demand stimulation through image-based advertising, and the other ingredients such as pricing or channel linking may be merely average.

EXHIBIT 13A Achieving a Relationship Advantage

Although disaggregation is necessary, it may also be misleading if it doesn’t consider two factors:

Sometimes the valuable resource is an adroit combination of capabilities, none of which are superior alone but, when combined, makes a better package. Then competitive superiority is due to (1) the weighted-average effect—the business does not rank first on any asset or capability but is better on average than any of the rivals; (2) the firm’s system-integration capability, so the capabilities are mutually reinforcing; or (3) the superior clarity and focus of the strategic thrust that mobilizes the resources.

Positions of Advantage

What we see in the market—from the vantage point of the customer or competitor—is positional superiority achieved with superior capability. This requires the reliable provision of superior value to customers on the attributes they judge important when they make a choice. Whether there is a relational advantage per se depends on the customer’s judgments that having a close relationship with a supplier confers benefits that exceed the costs. Typical benefits include time savings, technical assistance, assurance of performance, access to latest developments (e.g., in software and technology), superior responsiveness to service requests or problems, and a superior fit to the customer’s needs because of personalized solutions. Of course, the customer must feel these benefits outweigh any costs due to loss of flexibility and the restricted ability to play one supplier against another.

The strongest positional advantages are gained when customers are willing to make mutual commitments. These can range from information exchanges, to cross-firm coordination of interdependent activities such as new product development, to multiple social linkages that engender trust and facilitate sharing of information, and possibly to relation-specific investments such as online Electronic Data Interchange (EDI) connections or the adoption of common interface standards. A firm that is better able to forge such close relations with high-value customers in a market has secured a strong positional advantage.

Performance Outcomes

We would expect a relationship advantage to be rewarded with lower rates of defection (churn), greater loyalty and retention, and higher profit margins than the competitors. However, the linkage from positional advantage to performance outcome has proven troublesome to understand because of confounding effects, and a relationship advantage is no exception. Customers buy a complete package of benefits, so it may be difficult to untangle the contribution made by the relationship itself. In addition, the construct of loyalty is itself difficult to study. Much attention has focused on proxy measures, such as satisfaction, which have a complex, asymmetric relationship to loyalty. Whereas loyal customers are likely to be satisfied, all satisfied customers will not be loyal. Loyalty is gained with a combination of performance superiority that ensures high satisfaction, plus trust and mutual commitments.

Orientation toward Relationships

A relationship orientation is embedded within the overall culture and establishes what is appropriate and inappropriate behavior for the enterprise. It signals the importance of customer relationships and the willingness of the organization to treat different customers differently. As part of the culture, it includes relevant values that are often deeply embedded as tacit assumptions. The more accessible outcroppings of the culture are behavioral norms, the shared mental models used to make sense out of complex realities, and the behaviors that people exhibit as they make choices about how to spend their time.

To better understand how a relationship orientation is likely to be manifested, we undertook extensive interviews with knowledgeable managers and consultants, perused the voluminous professional literature, and abstracted from detailed case studies. From the information gathered, we derived these indicators of a superior orientation:

• Customer retention is a priority shared throughout the organization.
• There is a willingness to treat different customers differently and a commitment to act quickly on information from these customers (complaints, queries, and changes in requirements).
• All employees exhibit an appreciation of customer lifetime value (LTV).
• Employees have considerable freedom to take action to satisfy customers without having to take time to get approval. Their judgment on what action to take is shaped not just by business rules (an important function) but also by simple observation of what other employees have done, stories about initiatives that have been recognized, and basic training programs that provide role-playing opportunities.

Provided that an organization has a suitable relationship orientation, tracking and using customer information will become a critical success factor. (Without the relationship orientation, customer information is not as useful.) Success depends on how well the firm can elicit and manage the sharing of customer information and then convert that information into knowledge to be used to change how the organization collectively behaves toward the customer. Competitive advantage in the use of customer information means outperforming rivals on each of five steps:

Managing customer data effectively is extremely difficult, for three reasons.

The deeply held knowledge of customer contact and service people, acquired through problem solving and trial-and-error learning, is especially difficult for the rest of the organization to access. Thus it is all the more critical for the organization to begin with a strong relationship orientation.

For an enterprise with a relationship-oriented culture and a reasonably robust system of information sharing and utilization, success will depend on the degree to which the organization can be configured in these ways:

• There is a general consensus about goals and means for achieving a relationship advantage.
• The organization is designed around customers rather than around products or functions. This design could include structural variants, such as customer teams and customer managers to oversee the customer portfolio.
• The performance measures, incentives, and coordinating mechanisms emphasize customer retention.
• The aspects of the configuration are aligned with a compelling customer value proposition that recognizes customer differences and puts customer retention at the center of strategy.
• Enabling processes exist within the resource base so that the organization is able to personalize or mass-customize communications, products, and services.
• Resources are allocated to initiatives that give a high priority to database development and other activities that support the overall strategic thrust.

Becoming a Customer-Strategy Organization

Marijo Puleo, Ph.D.

Managing Partner, Make Change Positive

Adjunct Faculty, Peppers & Rogers Group

You walk into the headquarters of a corporation a few minutes early for a job interview. In doing research, you kept coming across articles that talked about the values of this company and its strong performance. As you walk into the lobby, you expect to see artwork and pictures of company products as you saw in the other offices of the companies you interviewed with. Instead, you see a beautiful and elegant sign that says “We make a difference in the lives of our customers and our employees.” You look around and see 15 pictures of customers and employees, and you immediately connect with them—who they are, what they want in life, and how they live. A few are using the company’s products in the photos, but most are not. It is as if a moment of each of their everyday lives was captured for this tribute.

You start to approach the receptionist, who has made eye contact and is smiling broadly. Instead, a well-dressed woman standing next to the desk calls your name. You look surprised and say, “Yes, that’s me.” She says, “Great! We have been expecting you. I’m Linda from human resources, and the team is waiting upstairs.” As you walk through the halls, the customer tribute continues. You see framed photos and letters from customers. You quickly glance at the photos of families and see words like “delight,” “surprised,” “broken,” “taken care of,” “recommend you,” “know me,” and “made a difference.” You also see charts titled “Customer Scorecards” and “Employee Scorecards” filled with bars and lines, generally all pointing in an upward direction. You notice that the marketing, sales, and customer service teams are located together, and many people are talking in the hallways, with a few groups reviewing the charts.

As you walk by a meeting room, it looks like some information technology people are discussing a project. You overhear one person say, “Let’s review the customer requirements.” What did he say? Not the department requirements, the customer requirements. You finally arrive at the conference room, where four (you hope future) team members and the hiring manager are waiting. They all smile, introduce themselves, and shake your hand, letting you know whom you will be meeting with throughout the day. The manager asks you how your trip into the office was and if you need anything to make you feel more comfortable. You get the sense already that they are genuinely interested in you being at your best. You are almost embarrassed at how warm and inviting this whole experience is, and it makes you even more motivated to work here. Already you can feel that customers and employees are important to everything they do here.

Sound far-fetched? Some companies do operate in this way and perform well across all levels of measurement.a Increasingly, organizations are becoming more and more complex, and it is easy to lose the voice of the customer and the employee in the daily mix of e-mails, meetings, and tasks. There are more requirements, more communication channels, more technologies, and customers are becoming more complex to understand and serve. How do these companies do this? Every human being wants to be understood and to connect meaningfully with others. This can happen in an ad hoc way, but it is a purposeful activity to consistently deepen relationships with customers and connect with employees.

To increase customer equity, an organization needs to pay careful attention to aligning its vision, values, culture, resources, organizational priorities, and measurements. This alignment begins with three critical elements: (1) a compelling vision, (2) defined by leadership that (3) defines and shapes a customer-centric culture. If all three are firmly in place, the rest of the alignment (resources, projects, organization alignment, etc.) can cascade from there. Richard Barrett states:

The leader and the leadership team choose the values of the organization and actively live them. They reinforce the values by constantly referring to them and make them part of every organizational system and process. They sustain a high performing culture by regularly mapping the culture and the individual performance of every executive and manager.b

Once the alignment around vision, leadership, and culture is under way, the enterprise needs to adopt an infrastructure that can support all of the business-related processes and functions that characterize a customer-focused model. Large financial investments can be made in information technology, employee training and hiring, communication systems, and other areas related to the transformation, but purchasing and installing tools and technologies will be pointless without adapting the enterprise and its employees to using them properly and enthusiastically. The majority of customer-strategy “failures” didn’t crash and burn because of software integration problems or employee software training. Most customer efforts fail because the company never learns to manage the enterprise in light of new company capabilities or to align those resources, priorities, and capabilities with CRM.

To complete the transition, international organization design expert Jay Galbraith outlines changes that need to be made to become truly customer-centric. The degree to which an organization can incorporate these elements determines the degree of customer centricity, according to Galbraith.

• Strategy. The overall commitment to develop solutions that will solve the customer’s need and focus on the most profitable, loyal customers or portfolios.
• Structure. The organizational concept that incorporates customer segments, customer teams, and customer profit-and-loss (P&L).
• People. Includes several elements:
  • Personnel approach. The power base resides with the people who know the most about the customer and are rewarded accordingly.
  • Mental model. Rather than thinking “How many uses for this product?” (divergent thinking), convergent thinking asks: “What combination of products is best for this customer?”
  • Sales bias. The bias should be on the side of the buyer in the transaction; the company should advocate for the customer.
  • Culture. Company culture should be a relationship culture, which searches for more customer needs to satisfy.
• Process. The information flow incorporates customer relationship management and solution development.
• Rewards. The measures that influence motivation, including customer satisfaction, share of customer, lifetime value, and customer equity.c

Once an enterprise commits to adopting a customer-centric model, it needs to rethink the product-centric customs and processes it has relied on for years. Traditionally, enterprises develop their technologies, support, and infrastructure to manufacture products or services and deliver those products or services to the customer in the most cost-efficient way. In turn, the technology and information captured in the systems drive business processes that influence employee behavior and how these employees interact with customers.

This may not appear too much of a change—just put the customer in the middle instead of products. Most enterprises, in fact, will say that this shift is not a big departure from the way they’ve always done business, because they have already designed their products or services for particular customer segments. However, in those companies, the internal processes and metrics are designed to increase share of market around defined customer segments. For example, metrics around cost of delivery, cost to manufacture, commissions, and so forth abound in a typical enterprise. Many enterprises understand the cost to process and pay an invoice, but they do not understand the value of a customer beyond a total revenue measure. Some enterprises have a “sense” of which customers are valuable, but they lack the facts and figures of customer value differentiation to justify a particular level of service and continue to engage in product-centric business and culture.

It is difficult for employees in an enterprise to make this transition because truly adopting a customer-focused strategy can challenge many of their deeply held values and beliefs about how business is done and how success is defined. One of the most challenging aspects of this new strategy is the amount of coordination and trust that needs to be developed between departments and functions. Managing customer relationships can be an unorthodox way of doing business for them, and it requires many unique skills, such as negotiation and understanding a broader view of the enterprise. Furthermore, the treatment of employees sets the tone for how customers are treated. Employees who cannot develop consensus internally are challenged to deliver to customers.

Frequently, the enterprise also must encourage its customers to change how they operate, a critical step often ignored in the overall process. Everything begins and ends with the customer. The customer-centric enterprise depends on customer participation, even when customers are unaware of their involvement. Ranjay Gulati describes a situation at Best Buy, where the customer teams were watching video surveillance footage of customers leaving the store without making a purchase. An operations team would ask, “How many customers left without buying anything?” But the customer-centric question to ask is, “Why didn’t these customers buy anything? What did they come in looking for and did not find?”

The answer was found by thinking in the customers’ shoes. The data had already shown that women purchase 55 percent of consumer electronics and influence about 75 percent of purchases. Many current and potential customers were busy mothers who were looking for solutions. The salespeople loved to talk about the technical aspects of products (e.g., the number of pixels and memory capacity of a camera). The conversation works well for someone who is interested in the technical details and latest features. However, the busy mom wasn’t interested in technical specifications; she wanted a camera that made it easy to take pretty good digital pictures of her kids and e-mail them to family members.

Best Buy realized that its stores were geared to appeal to male consumers and were turning off female customers. It worked with merchandising, store layout, and salespeople to reengineer a new store format and train employees to be more consultative and aware of customer needs. It empowered employees to make proposals to test changes in policies, procedures, layouts, and merchandising.

If Best Buy had not cascaded the change and alignment throughout the entire system, it could have created a system of competing commitments and generated a degree of dysfunction and entropy. Despite a few pockets of internal resistance, Best Buy was able to implement the solution through most of the organization, and the company is committed to completing the rollout of the new store format. It is, in essence, continuing to refine and continuously improve the elements mentioned earlier. The early results showed that stores with the new customer-centric operations with customer segment treatments used were performing 9 percentage points better than the traditional product-centric operations, according to Gulati.d

In a truly customer-centric organization, customer input defines how employees will interact with customers, in turn creating processes, developing new roles, and effecting change in the basic “how” of new product and service creation. Change in the entire organization and the voice of the customer are present in every department, division, and tangibly present all throughout the business.

Leadership in a Customer-Strategy Organization

Transforming to a customer-centric organization requires solid leadership in addition to a vision and culture to support the transition. It has been demonstrated many times that the culture of an organization is determined by its leaders, and an organization can “evolve” only to the level of maturity that the leaders possess.e This principle has large implications for organizations that are transforming to customer centricity, because this transformation specifically and absolutely requires that leaders and employees lift their focus from their own role, department, and results to the broader view of the customer and the organization. Simply put, this customer-focused transformation requires a level of maturity that some leaders and organizations are not able to achieve without concerted focus on the leadership development and the culture.

The good news is that these can be measured and assessed to determine the organization’s readiness to take on this culture and leadership shift. Several researchers have been documenting seven stages of development that are remarkably similar, even though their roots are from different sources. The four stages relevant to our discussion are shown in Exhibit 13B.

EXHIBIT 13B Stages of Development for Leaders (progression is from Expert to Strategist) and Organizations (progression is from Self-Esteem to External Cohesion)

Roger Martin discovered a most interesting attribute in 50 leaders with exemplary records of success. Writes Martin:

I have found that most of them share a somewhat unusual trait: They have the predisposition and the capacity to hold in their heads two opposing ideas at once. And then, without panicking or simply settling for one alternative or the other, they’re able to creatively resolve the tension between those two ideas by generating a new one that contains elements of the others but is superior to both. This process of consideration and synthesis can be termed integrative thinking.f

This skill first appears at the Individualist/Pluralist stageg and is very prevalent in the thinking of Strategists.

These findings have profound implications for an organization migrating to customer centricity because this transformation requires that leaders are able to think creatively, apply integrative thinking, and bring together many differing points of view in pursuit of a customer mind-set. At the Transformation level, the required culture and disciplines are in place to build a foundation for customer centricity; most notably, these are empowerment, teamwork, and innovation. It appears that this is the lowest level of maturity required to truly make the migration to customer centricity.

If we move to the next level of organizational maturity, Internal Cohesion, the organization is able to perform at a higher level because shared values are embedded across the organization. All leaders and departments share a passion for learning about and serving customers at a level that their competitors cannot. It is also at this level of leadership that we start to see the emergence of Level 5 Leaders described by business author Jim Collins.h They are fully able to embrace the vision, complexity, and values required to lead an organization to excellence. Strategists are very rare (they are estimated to be about 5 percent of the population). These leaders are memorable and inspiring.

My experience suggests that most leaders are at the Achiever stage, and research estimates that about 30 percent of leaders are found in this stage. Achievers primarily focus on delivering results, maximizing effectiveness (versus efficiency), the achievement of goals, and successfully working within systems.i They are effective at leading teams and fostering teamwork and are important to the overall success of an organization. Most can create effective relationships within the organization to build consensus and understanding with a customer mind-set.

Some leaders center at the Individualist/Pluralist stage and are able to look beyond the project to what is fully required to sustain the organization focus on the customer for the longer term. They are not likely to paint a compelling vision, but they easily comprehend the complexity of bringing the vision to life and managing multiple stakeholder points of view, including that of the customer. These leaders also are able to participate in “silo busting,” or breaking down the walls between departments in service of the customer.

Research and the latest thinking on leadership development help us understand levels of maturity and development for successful leaders and organizations. When undertaking a customer-centric transformation, the transformation leaders must be able to embrace a level of complexity while working across multiple areas and disciplines within an organization to embed a customer mind-set in the leadership, managerial, and employee groups of an organization. This mind-set will then align the decision making, allocation of resources, and internal motivation of all within the organization around the customer. Research has shown that aligned values, leadership, and culture are much more likely to drive high levels of organization performance.

aSonja Lyubomirsky, Laura King, and Ed Diener, “The Benefits of Frequent Positive Affect: Does Happiness Lead to Success?” Psychological Bulletin 131, no. 6 (2005): 804. Also see Scott Lochridge and Jennifer Rozenzweig, Enlightenment Incorporated: Creating Companies Our Kids Would Be Proud to Work For (Dragonfly Organization Research Group, 2009), and Robert Kegan and Lisa Laskow Lahey, “The Real Reason People Won’t Change,” Harvard Business Review 79, no. 10 (January-February 2001): 87.

bRichard Barrett, Building a Values-Driven Organization: A Whole System Approach to Cultural Transformation (Burlington, MA: Elsevier, 2006), p. 85.

cJay R. Galbraith, Designing the Customer Centric Organization: A Guide to Strategy, Structure, and Process (San Francisco: Jossey-Bass, 2005), pp. 15–21.

dRanjay Gulati, Reorganize for Resilience: Putting Customers at the Center of Your Business (Boston: Harvard Business Press, 2009), pp. 19–31.

eBarrett, Building a Values-Driven Organization.

fRoger Martin, “How Successful Leaders Think,” Harvard Business Review 85, no. 6 (June 2007): 60–67.

gNote: The term Individualist has also been termed Pluralist, acknowledging the skill of a leader at this stage of development to hold two opposing views simultaneously. This type of thinking often is called “and/and” thinking versus the “either/or” thinking prevalent in earlier stages of development.

hJim Collins, Level 5 Leadership: The Triumph of Humility and Fierce Resolve, HBR OnPoint Enhanced Edition (Boston: Harvard Business Press, 2009).

iSusanne R. Cook-Greuter, “Making the Case for a Developmental Perspective,” Industrial and Commercial Training 36, no. 7 (2004): 275–281.

The customer manager should own the offer, and the communication of the offer, with respect to the customers in the manager’s portfolio.

Customer Experience Maturity Monitor: The State of Customer Experience Capabilities and Competencies

Jeff Gilleland

Global Strategist for Customer Intelligence Solutions, SAS Institute

Most marketers acknowledge that today’s big challenge is managing the customer’s experience across products, touchpoints, and channels . . . and over each customer’s life cycle. This goes beyond the kind of customer relationship management (CRM) that focuses too much on a single product or channel transaction—the short term. Alternatively, customer experience management (CEM) requires designing an experience for each customer based on knowledge of that customer, delivering it across products and channels, and measuring individual outcomes that enable improvement of future interactions. Simply stated, CEM is about creating learning relationships—and setting up those relationships to build customer equity and shareholder value—over the long term.

But where are companies on their journey toward CEM and creating learning relationships? What capabilities do companies have in place to manage the customer’s experience across products and channels? What benefits accrue for companies with the most mature capabilities?

The research done as part of the Customer Experience Maturity Monitor (CEMM),a an ongoing research project jointly conducted by SAS and Peppers & Rogers Group, has shown that a company must have more than the desire to manage the customer experience; it must have enterprise capabilities that leverage customer insight to better manage individual customer interactions and continuously improve results. Importantly, for these capabilities to work, the company must have a customer orientation—a culture that focuses on the customer and builds trust.

Research Dimensions

The research measured organizational capabilities and competencies in four categories: customer orientation; customer insight; customer interaction; and improvement (see Exhibit 13C). In total, respondents rated their companies on 58 individual variables; key learning highlights are discussed in the following section.

INSIGHT: TRANSFORMING DATA INTO ACTION

Differentiating the customer experience for competitive advantage begins with customer insight. This is not about uniformly enhancing customer satisfaction. It is about designing an experience for each customer that is based on knowledge of that customer, delivering it across products and channels, and measuring individual outcomes that enable improvement of future interactions.

Manage Data

CEMM research revealed that companies are good at managing customer data at the aggregate level but not at the individual customer level. For example, 52 percent of respondents rated the performance of their company as good or excellent in using customer satisfaction as key performance indicator (an aggregate measure). However, only 30 percent rated their performance as good or excellent at creating a complete view of each customer across multiple products and channels or at making a current view of customer information available to all customer touchpoints.

Predict Behavior

Of course, managing customer data is necessary but not sufficient. To manage the customer’s experience successfully, you must be able to predict individual customer behavior, including next purchase, channel preference, loyalty, and profitability. Increasingly, as the price for their loyalty, customers are expecting companies to understand their needs and to be treated as individuals.

EXHIBIT 13C CEMM Measured Customer Orientation and 3-I Capabilities

Using customer insight to demonstrate that your company better understands a customer’s needs is fundamental to differentiating the customer’s experience for competitive advantage. This one-to-one understanding creates customer intimacy and loyalty. CEMM research revealed that only 38 percent of companies rated their performance as good or excellent in anticipating customers’ likelihood to purchase, cancel, or leave.

Segment

Understanding differences between customers is made easier through segmentation. This is an important practical step toward enabling the enterprise to manage customer interactions based on insights about individuals—which is the ultimate goal of one-to-one marketing.

CEMM research confirmed that sophisticated segmentation remains elusive for most companies. Fewer than half are good or excellent at even segmenting customers based on demographics, one of the most basic dimensions to consider. And a mere 42 percent rate their performance as good or excellent in calculating customer profitability.

INTERACTION: OFFERING CUSTOMIZED TREATMENT

Marketers like to talk about personalized marketing: “treating customers as individuals based on their unique needs” and delivering “customized treatment.” In the CEMM study, 62 percent of respondents agreed with this statement: “My company treats customers differently, based on an understanding of the needs of each one individually.” On the surface, 62 percent seems pretty impressive—and perhaps a bit high. To get the real story, you have to look a little deeper.

Differentiating the customer experience for competitive advantage is about designing an experience for each customer that is based on knowledge of that customer, delivering it across products and channels, and measuring individual outcomes to improve future interactions. Done well, CEM will guide investment to higher-potential customers, provide a richer experience that engenders loyalty, and turns customers into advocates. Here’s the deeper CEMM learning.

Manage/Optimize Strategies

Many companies use loyalty programs to differentiate and manage the customer experience. In the CEMM research study, 35 per- cent of respondents rated their capabilities as good or excellent in response to the statement: “Rewards and loyalty programs are used to encourage loyalty among high-value customers.” However, only 17 percent rated their capabilities as good or excellent in response to the statement: “Individual ‘treatment tracks’ are created to manage the customer experience across products and channels.”

Engage High-Potential Customers

In the CEMM study, only 26 percent rated their company’s performance as good or excellent at orchestrating outbound customer contact across products and channels. Although this problem is easily solved with today’s campaign management and marketing automation technologies, enterprise contact management capabilities remain elusive for most companies.

For inbound interactions, 32 percent of respondents rated good or excellent their ability to use customer insight to guide pricing, service and product suggestions. Fewer still, at 16 percent, rated good or excellent their ability to calculate real-time best outcomes during customer sessions.

Perhaps the biggest opportunity for improvement, for both outbound and inbound engagement, is behavior triggers. Only 20 percent of respondents rated good or excellent their ability to create triggers for systematic response to significant changes in customer behavior. Engaging customers when they have changed not only produces significantly higher response rates, but it also demonstrates to customers that their relationship matters to the company.

IMPROVEMENT: CREATING A “LEARNING RELATIONSHIP”

One of the golden rules of marketing has always been “Know your customer.” Historically, doing this required deep knowledge about a market segment. It included understanding the unmet needs and wants of a particular target market, including demographics, attitudes, consumption patterns, media habits, lifestyle, and other dimensions that enabled you to define a homogenous group. And then you tailored the 4 Ps of marketing based on your knowledge about this market segment. This approach to “target marketing” worked pretty well for decades. It enabled marketers to develop products, value propositions, advertising creative, and media buys that were well targeted to a particular market. But, in today’s world of CEM, how does this approach stack up?

A Critical Gap: 62 Percent versus 29 Percent

For success, CEM requires a company to learn continuously from individual customers and to demonstrate, to each customer, that it is listening to them. One of the big CEMM findings around customer improvement (à la learning from customers) was this gap: A total of 62 percent of respondents agreed with this statement: “My company treats customers differently, based on an understanding of the needs of each one individually.” However, only 29 percent rated their capabilities as good or excellent in response to this statement: “Customer profiles are continuously updated to reflect all customer activity (purchases, returns, etc.) as well as outbound (campaigns) and inbound contact (channel visits, call center, web, stores/branches, etc.).”

Do companies really understand the changing needs of each individual customer if they are not updating customer profiles and learning?

Improvement: Measure and Report

The CEMM research revealed that customer metrics are on the marketing dashboard. For example, 38 percent of respondents rated the performance of their company as good or excellent in using customer metrics (e.g., customer profitability, campaign response, channel behavior) to measure organizational performance. Importantly, 29 percent rated their performance as good or excellent in aligning incentive programs to customer metrics. In addition, 28 percent rated highly their use of customer metrics to measure individual employee performance.

But many companies are still struggling with marketing measurement basics. Only 38 percent rated their performance as good or excellent at measuring campaign return on investment (ROI)—a surprisingly low statistic, given all the great marketing automation technology that can easily solve this problem. Equally surprising is that only 29 percent rated their performance as good or excellent at measuring marketing mix ROI—which is where marketing resource management (MRM) easily optimizes marketing dollars between the plethora of advertising and promotional options.

Improvement: Learn and Improve

Learning about individual customers is difficult! CEMM research revealed that only 28 percent of companies rated their performance as good or excellent in capturing a customer’s expressed needs during live customer interactions. Imagine this: A customer is on the phone with a call center rep (or on the Web site or some other touchpoint) and is giving the company the information required for success but, unfortunately, the company is failing to capture it.

But some companies are not missing the opportunity. In fact, 19 percent of CEMM respondents rated good or excellent their ability to change customer interactions based on changes in a customer’s profile. So one out of every five companies is, in fact, learning from customers and improving customer interactions based on this knowledge. This one-to-one understanding creates customer intimacy, loyalty, and advocacy—the goal of CEM.

EXHIBIT 13D Customer Experience Maturity Continuum

CUSTOMER ORIENTATION

Although capabilities to manage the customer experience lag, a customer orientation is emerging. In the CEMM survey, 75 percent agree that their company motivates employees to treat customers fairly. And 66 percent agree that their company takes the customer’s point of view when making business decisions. Also encouraging, 69 percent agree that their company considers the impact that business decisions have on the future value of its customers.

Customer Experience Maturity Equals Competitive Advantage

So where are companies in their customer experience maturity? Composite scores were created for each company based on how it rated its capabilities across 58 variables—which placed each company on a maturity continuum from 1 to 5. As you can see from Exhibit 13D, 74 percent of companies scored at Levels 2 and 3.

Companies were also asked to rate their overall competitiveness: worse; same; or better than their key competitors. By comparing the maturity of capabilities with relative competitiveness, the research could determine the value of improving CEM capabilities.

COMPANIES WITH MATURE CAPABILITIES ENJOY TWO TO THREE TIMES THE COMPETITIVE ADVANTAGE

The research findings revealed a direct link between the maturity of a company’s customer experience management capabilities and its relative competitiveness. For companies that have progressed to the highest levels of maturity (Levels 4 to 5), the advantage is twofold to threefold (see Exhibit 13E).

EXHIBIT 13E Competitive Advantage Accrues with CEM Maturity

CEMM Summary

Many companies have made great progress in their journey toward managing the customer’s experience for competitive advantage. They are building enterprise technologies that not only manage customer relationships across products and channels but also learn from individual customers. These companies are evolving their business models from using insight just for better target marketing to using insight to provide perceptible value to customers through a richer experience.

Customers are rewarding these companies not only with their loyalty but also with their advocacy. And in our new world of social media, customer advocacy can be a powerful force.

aCustomer Experience Maturity Monitor (CEMM): a global research study initiated in 2008–09 by SAS Institute and Peppers & Rogers Group. The initial research included responses from 434 companies. The first phase of the research involved in-depth interviews with over 50 companies focusing on the activities and programs they engage in to ensure a positive experience for their customers. This information was combined with surveys among 384 companies worldwide, which audited their customer experience practices and customer orientation philosophies. The results of this project serve as the benchmark data for the CEMM and provide the foundation for the analysis of ongoing research among companies in different countries and industries as well as in individual companies wishing to understand their customer experience maturity levels. For updated results, see  www.peppersandrogersgroup.com/CEMM. “SAS’’ and all other SAS Institute, Inc. products or service names are registered trademarks of SAS Institute, Inc.