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Monthly Archives
June 29, 2004
Posted by Britton
You may never have heard of "operations research." But it matters a whole lot in the world of customer intelligence. It is a discipline -- based on applied mathematics -- that is enabling companies to precisely match customer demand, optimally configure their supply chains and perpetually produce more from less.
"Since its origins in World War II to its recent resurgence fueled by the explosion in raw computing power, O.R. has developed analytical models of the tradeoffs and uncertainties involved in problems ranging from inventory management to police deployment, from scheduling sports leagues to determining how many people to call for jury duty," explains Virginia Postrel in an insightful piece in the Boston Globe.
She even explains how this sophisticated discipline is enhancing your summer trip to Disney World: "Operations research will be your invisible companion, scheduling the crews and aircraft, pricing the plane tickets and hotel rooms, even helping to design capacities on the theme park rides. If you use Orbitz to book your flights, an O.R. engine sifts among millions of options to find the cheapest fares. If you get directions to the hotel from MapQuest, another O.R. engine spits out the most direct route. If you ship souvenirs home, O.R. tells UPS which truck to put the packages on, exactly where on the truck the packages should go to make them fastest to load and unload, and what route the driver should follow to make his deliveries most efficiently."
Ops research draws on the variables supplied by the customer to devise an intricate and valued solution. It is contributing to extraordinary innovations in logistics, supply chain and pricing. And marketers draw on its power to build predictive models and ensure the movement of product at retail outlets. Indeed, it is contributing to a continuing explosion of productivity -- and will almost certainly become even more embedded in our lives over time.
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June 25, 2004
Posted by Britton
Wireless communication companies are now using text messages to "give young customers a feeling of privilege," according to a new piece in Business Week.
Cingular Wireless, for instance, sends messages to invite fans to have exclusive local encounters with media stars and hip-hop performers -- something they value immensely. "If you've got a Cingular phone, you use it as an entry to meet and greet," says David B. Garver, Cingular's director of marketing.
As the article explains: "Promotions generate a flurry of text mail, as customers resend the message to their friends. The more phone traffic, the more revenue Cingular can rake in. More important, those messages spread word about the benefits of Cingular membership, and they amount to a viral marketing campaign for the carrier."
I was skeptical about cell-phones and text messaging as a widely useful marketing vehicle. Too demographically confined, I thought. Too faddish. Too intrusive. But now I am starting to see this more from the perspective of all who would join customer clubs, communities and loyalty programs.
Teens have special parties and hip-hop events they can attend. But business people have American Express, which gives them all sorts of rewards for their loyalty. Harrah's now has Diamond Lounges at its casinos -- meant not for high rollers, but rather, loyal ones.
Once permission has been granted, there is no reason that a cell phone might not deliver you a valued message -- one that recognizes your preferences and priorities, even your location on the road or in the mall. As the offers become personalized and more personally valuable, the urge to join (and selectively surrender one's anonymity) will become increasingly irresistible. Membership has its privileges -- and who would dare forgo them?
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June 23, 2004
Posted by Britton
We are living in "database nation" and we are certainly enjoying its conveniences. Not only do we realize tremendous financial savings at the grocery checkout counter every time we swipe our loyalty cards, our loans and mortgages are easier to get and several points lower than they otherwise would be. 
"Just a few decades ago, applying for credit meant an in-person visit to a loan officer," writes Declan McCullagh in the most recent issue of Reason Magazine. "If the loan officer didn’t know you personally, he or she would contact your references and other creditors and eventually make a decision a few weeks later. If you had just moved to the community, you might be turned down or be approved for only a small loan. It was a slow, painful process that was hardly consumer-friendly."
Of course, privacy activists continue to fight the growing "social accountability mechanisms" that such convenience as instant credit and commerce demand. They want onerous new regulations placed on consumer information. McCullagh refers to the proposed "opt-in rule," which would force every company to demand unambiguous consent every time they use the information a customer has already given them.
McCullagh then shows how it might affect the MBNA Corporation, a major financial services company with more than 51 million customers. Its success is largely related to its "affinity" program, whereby it offered custom credit cards and other services through groups such as NASCAR, universities, baseball teams, etc. This has enabled the company to build a database of 800 million names.
Writing in the Duke Law Journal in February 2003, Indiana law professor Fred Cate and Georgetown business professor Michael Staten explain: "Mandatory opt-in requirements on MBNA’s operations would impair MBNA’s affinity group business model, raise account acquisition costs and lower profits, reduce the supply of credit and raise credit card prices, generate more offers to uninterested or unqualified consumers and raise the number of missed opportunities for qualified consumers, and impair efforts to prevent fraud and identity theft." Under an opt-in rule, recipients of new marketing offers offers would "be more risky and less profitable than MBNA’s target group reached under the current rules. As a result, MBNA’s delinquency and charge-off rates will rise, relative to its current experience, thereby imposing additional costs that will be passed along to all of MBNA’s customers."
As McCullagh sees it, new regulations like an "opt-in rule" would stifle the free exchange of information that drives dynamic economies. "An opt-in regime suffocates the economic activity that takes place when businesses use personal information to offer new products and tell customers about them without obtaining explicit permission in advance," he contends. "Because it assumes customers who have expressed no preference would object to a solicitation, it is more expensive than an opt-out approach."
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June 21, 2004
Posted by Britton
"The traditional marketing model is broken," Jim Stengel, Procter & Gamble's CMO, told a room full of ad agency executives at an industry conference in February. Indeed, the statistics are not promising according to a new piece in Fortune called "Nightmare on Madison Avenue."
So what's happening? The number of men between the ages of 18 and 34 watching prime-time television has dropped by 5% this season, according to Nielsen. What's more, 20% of the nation's households are expected to have personal video recorders such as TiVo by 2007 -- enabling viewers to skip TV ads altogether. Meanwhile, 69% of American magazines experienced newsstand sales declines last year, according to Capell's Circulation Report. 
In 2001, global ad spending plunged 7% to $440 billion. Ad agencies laid off 40,000 employees—19% of their workforce. Over the next two years, no growth in ad spending is expected. In fact, Bernstein Research predicts that 2004 will be the fourth year in a row that advertising company stocks underperform the S&P 500 -- something that has never previously occurred.
It's time to begin exploring new approaches to marketing. No, it's not time for twisted web campaigns like Burger King's "subservient chicken." Nor am I pleased about the tired ghetto act that Mattel has been trying to foist on my kids. The advertising world, as Randall Rothenberg notes, has run out of ideas.
Not that this completely addresses the customer acquisition problem (which drives most ad spending), but it's my sense that our marketing resources increasingly will shift from discrete "campaigns" to continuous "interactions" -- from the unaddressable mass to the interested individual. Investments in loyalty programs and engaging customer clubs may even rise. Whatever the case, new models must be explored. The Ad Industry has nothing new to offer.
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June 18, 2004
Posted by Britton
It may be time to rethink the way we pursue customers. Instead of segmenting them by market, demos or job title, it may be time to focus on the "job" they are trying to do. "We always have an overwhelming tendency to frame the market we are targeting by the boundaries defined by product categories, or product points, or the demographics of the customers," says Clayton Christensen in Agile Brain.
"We think about industry verticals," he says. "When we target products at markets that are defined by demographics of customers or by the product characteristics, we are playing the crapshoot game of determining whether or not there is a valid customer need."
Instead, Christensen thinks we should focus on clarifying the objectives that individuals are trying to meet -- and then, help them meet them. "We [should] define our business as helping a customer get a job done -- one that he is already struggling to get done and has no satisfactory means of doing it -- the probability that product will contact with the customer is very high. You need to look at what the customer is trying to get done and does it help him or her get it done better. Or, does it make it easier for them to do what they aren't trying to get done. The latter is a failure. "
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June 16, 2004
Posted by Britton
HelmsBriscoe, a leading provider of hotel and conference site selection services, recently deployed a new “sales acceleration” system to support associates in more than 100 offices around the world. The system, which was developed by Involve Technology, captures and shares the insights of sales associates with regard to particular sites and hotels as well as past experiences. This enables the company to compete on value – its distinct knowledge – as opposed to merely price.
Indeed, real-time access to “unbiased intelligence” is enabling sales associates to win more deals and strengthen existing relationships. “With this knowledge base continually building, we will always be in a position to offer more value to our customers than anyone else,” says Roger Helms, founder and CEO of HelmsBriscoe. “We will have put a performance barrier up that a new competitor will be hard pressed to jump over.”
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June 14, 2004
Posted by Britton
Despite their large departments of analysts, statisticians and data modelers (decorated with MBAs and PhDs from prestigious schools), many companies are failing to perform in today’s hyper-competitive markets.
So what differentiates companies that successfully capitalize on customer intelligence from those who don't? In a word: Execution.
As a closer look at companies that successfully leverage customer insight (such as Harrah's, Tesco, Capital One, GE and P&G) suggests, the key success factor is the ability to truly execute their strategies – and operationalize their insight. “Strategies most often fail because they aren’t executed well,” state Larry Bossidy and Ram Charam in their best-selling book Execution: The Discipline of Getting Things Done. “Things that are supposed to happen don’t happen. Either the organizations aren’t capable of making them happen, or the leaders of the businesses misjudge the challenges their companies face in the business environment or both.”
The authors describe three “core processes” that underlie execution-oriented leadership: people; strategy; and operations. Successful companies, quite simply, tend to have great rigor and discipline in all of these interconnected areas. Execution, as the authors state, includes "making assumptions about the business environment, assessing the organization’s capabilities, linking strategy to operations and the people who are going to implement the strategy, synchronizing those people and their various disciplines, and linking rewards to outcomes…In its most fundamental sense, execution is a systematic way of exposing reality and acting on it.”
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June 09, 2004
Posted by Britton
Earlier this year, some of the leading scholars in the world of marketing decided to talk paradigm. It was a pretty interesting discussion, particularly by the standards of the academic Journal of Marketing. The topic was a "new dominant logic for marketing."
As Stephen Vargo and Robert Lusch put it in the lead article: "Over the past several decades, marketing has been evolving toward a new dominant logic... The evolving logic represents a shift away from the exchange of tangible output (goods) toward the exchange of services, which are defined as the application of specialized competences (knowledge and skills), through deeds, processes, and performances for the benefit of another entity or the entity itself."
This piece was a big deal in the world of academic marketing research. It essentially argued that marketing is about services, not products. Tangible products are merely the vehicles by which services (or solutions) are delivered -- and customer knowledge is recognized as the "fundamental source of competitive advantage."
Unfortunately, the proposition is about three or four decades late. Alvin Toffler was talking "service economy" in the early 1970s when he published Future Shock -- and Jack Welch turned General Electric into a services company (servicing aircraft engines, providing financing) two decades ago.
All of the scholars who were invited to respond naturally praised the article; few were critical at all. Which is part of the problem. Academia has become such a cozy, log-rolling little world. Rarely does anyone get flamed anymore on their track to tenure. But let's be honest: It's probably time to start looking beyond the product-service paradigm altogether.
Actually, C.K. Prahalad politely points in a new direction -- albeit in the typically inaccessible language of academe. He suggests that we start looking at an "experience-centric cocreation" view of value -- one that recognizes the "criticality of consumer communities" and "the need for a network of firms." The experience -- not the product or the service -- should be at the center of theory and practice, as he sees it.
Let me suggest one more entry to put at the center of our dominant logic: transformations. Beyond product, service and experience marketing comes "transformational marketing." As Joe Pine and Jim Gilmore have written, the "experience economy" will eventually be supplanted by the "transformation economy." As they see it, "Eventually the world will become so saturated with experiences, just as it has with goods and services, that...businesses will charge not just for experiences but the demonstrated outcomes based on those experiences."
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June 07, 2004
Posted by Britton
One of the least appreciated dimensions of successful sales performance is the ability to analyze, differentiate and segment prospective customers effectively, I argue in the most recent issue of 1to1 Magazine. As I noted, "It is through rigorous segmentation that companies determine how best to deploy their limited sales resources, and how to maximize the return on these investments." 
Hill-Rom, the $1.1 billion Batesville, Indiana-based medical equipment manufacturer, shows how companies can dramatically enhance their sales performance by concentrating on this factor. Three years ago, the company, which has long held a strong position in the market for patient beds, specialty mattresses and other patient products, secured its market standing and drove new growth. Ernest Waaser, the company's new CEO, set demanding sales goals while simultaneously insisting that sales costs be reduced by 2 percent (as a percentage of revenue) within two years.
While there were multiple elements to the company's overall business strategy (including higher investments in product innovation), one of the most notable aspects of the sales strategy was the decision to rethink the customer segmentation model. "The first thing you have to do [when redesigning a sales strategy] is to smartly segment your customers," says Michael Pekkarinen, director at Boston-based Mercer Consulting, which advised Hill-Rom on its sales transformation efforts. "You have to understand them- how and why they buy. Otherwise, you'll just build a half-baked model."
The existing model was based on the size of the health care facility, particularly the number of beds and medical specialties. When the company reexamined its assumptions, however, it learned that facility size stood in the way of developing a more thorough understanding of the customer. While facility size was an important variable, it turned out that purchasing behavior also was influenced by an array of financial measures (such as the client's capital spending and profit margins), and operating factors (such as occupancy rate and insurance arrangements).
Through a multistep process of analysis and validation, the company eventually decided to recategorize its customers according to their purchasing ability and preferences, and redeployed its sales force with respect to these trends. Instead of treating all customers the same, customized sales approaches are now directed at customers that value this level of service. "Dividing the customers according to their own preferences [and purchasing ability] allows Hill-Rom to better understand why different customers do business differently with the company," according to a recent profile in Harvard Business Review.
The efforts are proving to be effective. While sales costs indeed fell 2 percent (of overall sales), revenue per employee rose 11 percent between 2001 and 2003. Gross margins climbed 6.7 percent. Customer satisfaction rates rose 6 percent. And the company has positioned itself for even greater growth in the future by investing in custom-oriented, consultative support activities to help customers generate new and valuable solutions.
"The strategic foundation of this initiative -- our customer analysis and segmentation work -- has provided a common language for speaking about customer needs and preferences," says Marshall Dahneke, vice president of corporate strategy at Hill-Rom. "It provides a valuable framework to drive not only sales and fulfillment, but also marketing and product development. It gives us the ability to be even more customer focused as we go forward."
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June 03, 2004
Posted by Britton
What are the relevant elements of customer intelligence? Good question. Larry Goldman, a vice president at Inforte, sheds some light on the subject in a new column at DM Review. He describes it as a framework for "organizations trying to assess customer value, predict customer behavior or enhance the customer experience." As Goldman explains, this is the critical information one needs to drive "customer research, customer analysis, sales and marketing performance analysis, customer service analytics and predictive modeling."
Among the CI "dimensions" he cites: Purchase Patterns (What and how often do customers buy?); Decision Process (How does the customer decide to buy?); Attitudinal Purchase Intent (Why does the customer buy?); Purchasing Process (How does the customer buy? How did the transaction occur?); Customer Life Cycle (What are the customer's personal circumstances?); External Factors (What is happening outside of the organization that impacts buying behavior?); and Usage and Service Process (What are the customer's expectations post-sale?).
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June 01, 2004
Posted by Britton
Marketing is held in pretty low esteem these days. According to an Accenture study of 200 executives, it rates much lower than other functions within the organization in terms of its contribution to the business.
Asked to rate each of 11 key corporate functions in terms of their value contribution to the overall company (where 1=no contribution and 5=very significant contribution), executives gave marketing an average score of 3.7. However, they gave an average rating of 4.4 for sales and 4.1 for customer service, making these the top-ranked functions. What's more: Just 23 percent of executives said that marketing makes a very significant value contribution, compared with 61 percent for sales and 43 percent for customer service.
Ouch. Could it be that marketing must now turn its attention more aggressively to the objective of building customer value? If so, marketers must spend a great deal more time listening to the voice of today's (and tomorrow's) customer -- and relatively less on advertising and promotions. If it is operationalized, customer insight enables strategic action and builds value in a way most of today's marketing activities and programs do not.
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