IS YOUR COMPANY READY FOR ONE-TO-ONE MARKETING? - Columbia Universityrk566/Larry/Is Your Company ready For One To … · IS YOUR COMPANY READY FOR ONE-TO-ONE MARKETING? by Don Peppers,

IS YOUR COMPANYREADY

FOR ONE-TO-ONEMARKETING?

by Don Peppers, Martha Rogers, and Bob Dorf

pends on the scope of the program.For some companies, heing readysimply means heing prepared tolaunch a limited initiative. Suhstan-

PRACTICED CORRECTLY, One-tO-one marketing can increase thevalue of your customer base.

The idea is simple: one-to-one mar-keting (also called relationshipmarketing or customer-rela-tionship management) means , . i . , .heing wUhng and ahle to change relationship-marketmg program

Implementing a

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

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

tomers and channel partners. Review-ing the list and working through theexercises will help you determinewhat type of one-to-one marketing

program your company canimplement immediately, whatyou need to do to position itfor a large-scale initiative, andhow to prioritize your plansand activities.is a complex endeavor.

This will get you started.Why One-to-One?

tial henefits can be gained from tak- Before determining the correct scopeing steps-even small ones-toward of your company's one-to-one mar-one-to-one marketing in specific keting efforts, you need to under-functional areas. For others, heingready means heing positioned to im-plement an enterprise-wide program.To help you assess the type of pro-gram you should hegin with - anddetermine what you need to do toprepare-we've developed a list ofactivities and a series of exercisesdesigned for executives, managers,and employees at all levels in yourcompany, as well as for your cus-

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

Don Peppers and Martha Rogers are partners, and Bob Dorf is president, of Peppers and Rogers Group, the one-to-onestrategy consulting firm in Stamford, Connecticut; see http://www. ltol. com. This article is adapted from their book TheOne to One Fieldhook: The Complete Toolkit for Implementing a 1 to 1 Marketing Program (CurrencyiDoubleday, 1999).

HARVARD BUSINESS REVIEW January-February 1999 151

ONE-TO-ONE MARKETING

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

teach the competitor the lessons yourcompany has already learned.

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

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

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

Getting StartedThe following activities are keyed to the foursteps of a one-to-one marketing program:identifying customers, differentiating amongthem, interacting with them, and customizingyour product or service to meet each customer'sneeds. Most companies should be able toaccomplish these activities fairly readily. If youhave not yet identified your end-user customers,you can apply these suggestions to yourchannel partners. At some point, however, youwill need to identify and interact with your end-user customers to get the most out of yourrelationship-marketing program.

IDENTIFYACTIVITY

Collect and enter morecustomer names intothe existing database

Collect additionalinformation aboutyour customers

Verify and updatecustomer data anddelete outdatedinformation

STEPS TO CONSIDER

• Use an outside service forscanning or data entry.

• Swap names with anoncompetitive companyin your field.

• Use drip-irrigation dialogue:ask your customers one ortwo questions every timeyou are in touch with them.

• Put your customer filesthrough a "spring cleaning."

• Run your database throughthe National Change ofAddress (NCOA) file.

DIFFERENTIATEACTIVITY

Identify your organization'stop customers

STEPS TO CONSIDER

• Using last year's sales or othersimple, readily available data,take your best guess atidentifying the top 5% ofyour customers.

Determine which customerscost your organization money

• Look for simple rules to isolatethe bottom 20% of yourcustomers (such as customerswho haven't ordered in morethan a year or those who alwaysbid you out) and reduce theamount of mail you send them.

Select several companiesyou really want to dobusiness with next year

• Add them to your database,and record at least three contactnames per company.

Find higher-value customerswho have complained aboutyour product or service morethan once in the last year

' Baby-sit their orders: put aproduct or quality-assuranceperson in touch with them ASAPto check on your progress.

Look for last year's largecustomers who have orderedhalf as much or less this year

' Go visit them now, before yourcompetition does.

Find customers who buy onlyone or two products from yourcompany but a lot from otherbusinesses

• Make them an offer they can'trefuse to try several more itemsfrom you.

Rank customers into A, B, andC categories, roughly based ontheir value to your company.(Don't try to isolate the top5% or bottom 20%-any "bluntinstrument" criterion such asannual spending or years doingbusiness with the companywill work.)

• Decrease marketing activitiesand spending for the C's anduse the savings to fundincreased activities for the A's.

152 HARVARD BUSINESS REVIEW January-February 1999


your company, no matter whichproduct line is involved. Rememher,however, that the "customers" whohenefit from your one-to-one pro-gram may not he limited to the endusers of your product or service. If,for example, you are a manufacturerselling to retailers, then you willalso want to apply the principles ofone-to-one marketing to create het-ter relationships with your channelmemhers and other intermediariesin your demand chain.

Differentiating your customers.Broadly speaking, customers are dif-ferent in two principal ways: theyrepresent different levels of valueand they have different needs. Onceyou identify your customers, differ-entiating them will help you to fo-cus your efforts so as to gain themost advantage with the most valu-able customers. You will then be ableto tailor your company's behavior toeach customer in order to reflectthat customer's value and needs.

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

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

INTERACTACTIVITY

If you are focusing onchannel members, callthe top three people atyour top 5% of customers

STEPS TO CONSIDER

• Don't try to sell-just talk and make surethey are happy.

Call your own companyand ask questions; seehow hard it is to getthrough and get answers

Test eight to ten different scenarios as a"mystery shopper." Record the calls andcritique them.

Call your competitors tocompare their customerservice with yours

Repeat the above activity.

Use incoming calls asselling opportunities

Offer specials, closeouts, and trial offers.

Evaluate the voiceresponse unit at yourcustomer informationcenter

Make the recordings sound friendlier, bemore helpful, and move customers throughthe system faster.

Follow the interactionpaper trail throughyour organization

Seek to eliminate steps: reduce cycletimes to speed up your response timesto customers.

Initiate more dialoguewith valuable customers

Use technology tomake doing businesswith your companyeasier

Print personalized messages on invoices,statements, and envelopes.Have sales reps sign personal letters rather thanmass-mailing letters signed by a senior manager.Have the right people in your organizationcall the right customer executives. (That is,have your CIO call another CIO, or have theVP of marketing call the business owner.)Call every valuable customer your companyhas lost in the last two years and give thema reason to return.

Gather the e-mail addresses of your customersin order to follow up with them.Offer alternative means of communication.Consider using fax back and fax broadcast systems.Scan customer information into the database.

Improve complaint • Plot how many complaints you receive eachhandling day and work to improve the ratio of complaints

handled on the first call.

CUSTOMIZEACTIVITY

Customizepaperwork to saveyour customers timeand your companymoney

STEPS TO CONSIDER

• Use regional andsubject-specificversions of catalogs.

Personalize yourdirect mail

Use customerinformation toindividualize offers.Keep the mailingssimple.

Fill out forms foryour customers

Ask customers how,and how often,they want to hearfrom you

• Use laser equipmentto save time andmake you looksmarter.

' Use fax, e-mail, postalmail, or personalvisits as thecustomer specifies.

Find out what yourcustomers want

Ask your top tencustomers what youcan do differentlyto improve yourproduct or service

' Invite customers tofocus groups ordiscussion meetingsto solicit theirreactions to yourproducts, policies,and procedures.

Respond to theirsuggestions.Follow up and repeatthe process.

Involve topmanagement incustomer relations

Give them lists ofquestions to askbased on the historyof individualcustomers.



therefore less costly channels. Forexample, a company that provideshelpful, up-to-date information atits Web site won't need to spend asmuch as it once did supporting amore expensive call center. Effec-tiveness improves by generatingtimely, relevant information, pro-viding either better insight into acustomer's needs or a more accuratepicture of a customer's value. Everyinteraction with a customer shouldtake place in the context of all previ-ous interactions with that customer.A conversation should pick up where

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

Customizing your enterprise'sbehavior. Ultimately, to lock a cus-tomer into a learning relationship, acompany must adapt some aspect ofits behavior to meet that customer'sindividually expressed needs. Thismight mean mass-customizing amanufactured product, or it couldinvolve tailoring some aspect of theservices surrounding a product-per-haps the way the invoice is rendered

or how the product is packaged. Inany case, the production or service-delivery end of your business hasto be able to treat a particular custo-mer differently based on what waslearned about that customer by thesales, marketing, or any other de-partment. In rushing to reap the re-wards of relationship marketing, it'seasy for a business to overlook thiscritical fourth step, leading manyto misunderstand the entire disci-pline as simply an excuse for directmail and telemarketing. (See SusanFournier, Susan Dobscha, and David

The BroadViewIs Your Company Ready forOne-to-One Marketing?

Administer this exercise to anumber of people at differentlevels and in different areas ofyour company. Also ask arepresentative group ofcustomers to participate,although you'll need to tailorthe language appropriately.There is enormous value inhearing what your customershave to say about yourcompany's readiness to engagein one-to-one relationshipswith them as well as incomparing the answers fromthe various constituencies.

Note: If it seems impossible toidentify even your most valuableend-user customers, then your bestoption may be to concentrate ondeveloping relationships with theintermediaries in your demandchain vi/hose identities you canreadily acquire. If so, then completethis exercise (and "The One-to-OneGap Tool") as if it applied to channelmembers. But keep in mind thatsooner or later you will almostcertainly want to deal with end usersthemselves, even if your relationshipswith them will always includechannel members.

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

a. We don't really know who ourend-user customers are or how muchbusiness they give us.

b. We have some information about ourend-user customers in various filesand databases around the company,but we're not sure what proportionof customers this really represents.

c. Some of our business units know manyof their customers' individual identities,but not all the units do. Our businessunits don't have a central databaseof customer identities, and we don'tshare much data on customers withone another.

d. We sell to businesses or organizations,and although we know the identitiesof all or most of these organizations,we don't really know the individualplayers at each business.

e. We know who most of our customersare individually, but we don't knowmuch about their relations with oneanother. If a customer refers anothercustomer to us, we don't track this inour database. And if a customermoves from one location to another,our database might show this asa customer defection followed by acustomer acquisition.

f. We know most of our customersindividually, and we can track themfrom place to place, division todivision, or store to store.

2. Can your company differentiateits customers based on theirvalue to you and their needsfrom you?

a. Because we don't have much, ifany, information on our customers'identities, naturally we are unableto differentiate our customers eitherby their value or by their needs.

b. We have no real knowledge of howto rank our customers individuallyby their long-term value to us.

c. We have an idea about how tocalculate our customers' individuallong-term value to us, but we don'thave enough data to generate a reliableranking of individual customers basedon this calculation.

d. We have identified a number ofdifferent needs-based segmentsof our "most valuable customers"(MVCs), but we don't have areliable way of mapping particularcustomers into the right segment.

e. We know how to rank most ofour customers individually byvalue, and we can also identify,at least for most of our MVCs,their appropriate needs-basedsegment.



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

These four implementation stepsoverlap considerahly. Nevertheless,they are roughly in order of increas-ing complexity and increasing ben-efit for a company. Identifying anddifferentiating customers, the firsttwo steps, are largely internal "anal-ysis" steps, whereas interacting withyour customers and customizingproducts and services are external"action" steps, visihle to the con-sumer. From that perspective, the

four steps can he used as a kind ofgeneral checklist to guide your ef-forts in implementing a one-to-onemarketing program. If you can'tidentify your individual customers,you have no hope of differentiatingthem, much less adapting your he-havior to address each one's needs.

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

hefore launching a full-scale pro-gram. For one, your company's in-formation technology departmentmay be too swamped-or not suffi-ciently developed- to handle all thetasks that one-to-one marketingdemands. Maintaining a customerdatahase, having one system com-municate seamlessly with another,tracking each customer's contactswith the company - all of thoseactivities require IT development,direction, and support. In addition,one-to-one marketing requires a cer-tain amount of capital investment

3. How well do you interact withyour customers?

a. We have no practical mechanismfor interacting with our customerson an individual basis.

b. We interact with some of ourMVCs through personal sales callsand other forms of contact, but wedon't systematically record theseinteractions through sales forceautomation or contact managementsystems. We rely instead on theinitiative and memories of ouraccount directors, salespeople, andothers to manage these customerinteractions.

c. We interact with most of our MVCsthrough sales calls and other formsof contact, and we maintain fairlygood records of those interactionsand contacts in an automatedsystem or customer database.

d. We have direct interaction throughmail, phone, or on-line media witha small proportion of our customers,but we don't coordinate theseinteractions across media.

e. We interact through mail, phone,or on-line communication with all ora substantial number of our customers,and we coordinate the dialogue wehave with any single customer acrossthese different media.

4. How well does your company customize its products and servicesbased on what it knows about its customers?

a. We provide standard products and services and tailor few, if any, aspectsof our behavior to the needs of individual customers.

b. We offer a range of options for our customers so they can choose specificproduct features for themselves, but we don't track or remember whichfeatures each customer chooses.

c. In the case of our MVCs, we sometimes customize our peripheral services-contract terms, billing formats, delivery modes, pallets and packaging, serviceoptions, and so forth-and we track each MVCs preferences.

d. We have modularized at least a few aspects of our core product or ourperipheral services or both, and by configuring these modules in differentways, we can produce a variety of product-service combinations fairly cost-efficiently. For a substantial number of our customers, we track andremember which customers choose which options, so when a customerrepeats a purchase with us we can automatically configure our productto that customer's previously stated preferences.

e. We have modularized many aspects of our core product or our peripheralservices or both, and we can render a wide variety of product-serviceconfigurations cost-efficiently. Rather than asking customers to sort throughall the options themselves, we interact with most or all of them to help themspecify their needs.Then we map each customer into a particular needs-basedcategory, propose a particular product configuration for that customer, andremember it the next time we deal with that customer.


GaaC3fi\®@(3°8 Tf"®®!!, KOtf ONE-TO-ONE M A R K E T I N G

across the board, and many compa-nies are unwilling or unable to pro-vide enough funding to all relevantareas to make the initiative worththe effort. And, of course, there areorganizational puzzles to be solved.It's easy to assign responsibility fora product, but who takes responsi-bility for developing a customer re-lationsbip across different businessunits? Which business unit "owns"the customer, anyway?

Those are serious considerations -and they don't even scratch the sur-face of the scope of cultural changea one-to-one marketing strategy maydemand. But even a very modest one-to-one initiative-one that affects justone area, such as your sales force oryour call center or your Web site-can produce substantial benefits.Besides hinting at the value of a full-scale program, often these short-termresults are themselves enough tojustify the funding required for anincremental effort. Among them:• Increased cross-selling. A retailbank, for instance, that is able toincrease the average number of ac-counts per customer from 1.8 to 2.5will enjoy a very significant, andmeasurable, financial benefit. If youcan track just a few of your business'stransactions, you can compare theamount of added benefit you're get-ting from cross-selling and up-selling.You ought to see higher unit marginsas well, provided you're tracking thismetric on a per-customer basis.• Reduced customer attrition. Oneof the primary, and early, benefits ofa one-to-one marketing program isthat it generates increased loyaltyamong customers. Try tracking de-fections among customers exposedto a relationship-marketing initia-tive compared with a statisticallyidentical control group not exposedto the initiative. What would it beworth to your business, just in termsof reduced acquisition costs, for in-stance, to increase average customertenure by 10% ? Or what about in-creasing the average likelihood of re-purchase by 10% ?• Higher levels of customer satisfac-tion. Granted, tbis is a "soft" rating.But it's easily measured and can pro-vide quick support of one of the ben-efits of a relationship-marketing

program. To get at real customer sat-isfaction, you might want to mea-sure your customers' "likelihood torecommend" your product, or some-thing more tangible tban most tradi-tional customer-satisfaction indices.• Reduced transaction costs andfaster cycle times. One-to-one mar-keting is basically oriented aroundmaking it increasingly convenientfor a customer to buy, which trans-lates directly into a more efficientorganization. The fewer things acustomer has to specify each timebusiness is done, the more efficientthe transaction will be.

In the exhibit "Getting Started,"we've listed activities tbat mostcompanies can accomplish fairlyreadily in each of the four key imple-mentation areas of relationship mar-keting. Some of these activities maywork for your business today; othersmay stimulate your thoughts for fu-ture initiatives. If at least some of theideas make sense to you, then youshould generate your own list andbegin to identify tbe most importantactivities to put into practice. In anycase, the activities we've listed heremake some of the more basic con-cepts of customer-relationship man-agement practical, and they can helpyour company take the first step.

Assessing Your SituationIf you are considering launching afull-scale one-to-one initiative, thefirst critical task is to assess yourcurrent situation. How big is the gapbetween wbere you are and wbereyou want to be? Whatshould you work onfirst? Where are you in

• line employees who interactdirectly with customers (salesand service people, call service rep-resentatives, and retail clerks);

• a representative group of yourcustomers.Responses will probably vary

widely among tbose groups, and thatis exactly the way the exercisesshould be evaluated-by comparinghow different groups rate your com-pany. It is important to value the an-swers in inverse proportion to therespondents' position in the corpo-rate pecking order. The best lessons,in fact, will likely come from bearingwhat your customers have to sayabout your company's readiness toengage in one-to-one relationshipswith them. Beyond that, however,there is enormous value in comparingthe answers given by different constit-uencies, in different locations andfunctions, facing different agendasand issues. Being relatively concise,"The Broad View" can be widely cir-culated to ensure breadtb of coverage."Tbe One-to-One Gap Tool" willcapture a more robust analysis ofhow your company sees itself-bothculturally and organizationally.

Setting PrioritiesOnce you evaluate your business'sability to begin implementing a cus-tomer-relationship-managementprogram, the next step is to thinkthrough the one-to-one marketingissues that are most (or least) rele-vant to your own particular businesssituation in order to prioritize your

The more customers needs vary,the more attractive they wiU find^ •^""™g relationship.

One Gap Tool" will giveyou a clearer picture of just howmuch work lies before you.

The principal groups whose evalu-ations would be helpful are:• anyone involved in conceiving or

developing one-to-one marketingstrategies at your company;

• all senior managers;• a selection of relevant middle man-

agers and field managers;• channel members, if applicable;

efforts. For instance, what roleshould a Web site play in your com-pany's plan to create better relation-ships with customers? Instead ofdesigning a Web site, sbould you tryto customize your product offering,perbaps by lining up strategic alli-ances with businesses that providecomplementary services?

To set priorities, you need to con-sider how differentiated your cus-


tomer base is in terms of customerneeds and value. You also need to de-termine how capable your companyis at interacting and customizing-the two "action steps" in the four-step implementation process. Forinstance, if the needs of your cus-tomers vary widely, then you proba-bly should focus first on custom-ization: the more your customers'needs vary, the more attractive theywill find a learning relationship.

Consider the contrast between abookstore and a gas station. If a cus-tomer who enters a bookstore is re-minded that his favorite author hasa new book out that has been re-served in case he wants it, he is likelyto become very loyal to the store.People's tastes in books vary widely,so it's a real service for a proprietorto remember a particular customer'spreferences.

But if the same person pulls intoa gas station and the attendant an-nounces he has a new shipment of9 3-octane in, just the way he knowsthe customer likes it, the "service"of remembering customer prefer-ences is not nearly so attractive.

When customers' value to the en-terprise vary widely, the top custom-ers account for the vast majority ofthe business. We call this a steepskew. Relationship marketing ismore cost-efficient for businesseswith a steep skew than with a shal-low one. The greater the skew, themore feasible it is to cultivate rela-tionships with the most valuahlecustomers. If the top 2% of your cus-tomers generate 50% of your profit,you can protect 50% of your bottomline hy fostering learning relation-ships with just the top few custom-ers. But if the top 20% of your cus-tomers make up 50% of your profit,then it will be ten times as costly toachieve the same bottom-line benefit.

There are specific strategies-wecall them migration strategies -appropriate for dealing with a cus-tomer base that is not well differen-tiated in terms of needs or value.These strategies involve either ex-panding the definition of customerneeds or value, or improving the in-teraction or customization capahili-ties of the enterprise.' For example,when dealing with a customer hase

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

fhe One-to-One

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

Tftts exeT^Ue, to b& admlrti^ered to employees at various levelsand m various ftiEictions,iti designed to capture a robustanalysis©ftiowyourcojTipany sees itself both culturally and©riganizatiofiaifly.1t. should also Ije given to a representative groupof .(fustoimeft.'Wi ththe tangyage taitoFed appropriately^ in-order to-ajcpose the gap'between internal and external percfeptfons.''I For eiach question hsted below, select the statement that most•elOsdy-reflectsyour opinion Qf the Gompanyas you view ititoday-.^cit *s youvthink i t sho(Sfjd! $ oir" it might be in" the futiure. ' • •

PROCESSES

1. Does the company haveestablished quality-assuranceprocesses?

a. We do not consider quality-management practices.

b. We would like to have formalquality-management initiatives.

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

d. We have a formal quality-management organization.

2. Are the company's businessprocesses customer-centric?

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

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

c. We understahd most of theinteractions between customersand our business processes.

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

TECHNOLOGY

3. Does the company takecustomers' needs intoconsideration when selectingand implementing technology?

a. Our IT department is ratherautonomous and in charge oftechnology acquisition.

b. We ensure that our customers' needs,not just our own internal needs, areconsidered when selectingtechnology.

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

d. We ensure that all technologyselections are customer-centric.For instance, we research howto improve customer convenience.

4. Does the company provide itsemployees with technology thatenables them to help customers?

a. We are not particularly advancedwhen it comes to technology.

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

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

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

KNOWLEDGE STRATEGY

5. Does the company maintain a strategyfor collecting and using informationabout customers?

a. We handle information about customerspoorly.

b. We encourage the collection and useof information to gain knowledge aboutcustomers.

c. We have programs to collect information anduse our knowledge about select customers.

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

6. How effectively does the companycombine information on customerswith its experiences to generateknowledge about its customers?

a. We have poorly developed and inadequateprocesses for combining our data on cus-tomers with our own experience and views.

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

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

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

PARTNIERSHIPS ^

7. How does the company select itspartners?

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

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

c. We evaluate strategic partners based ontheir customer centricity.

d. We evaluate all potential partners basedon their customer centricity.

8. Does the company understand therelationships among its customersand partners?

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

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

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

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


ONE-TO-ONE MARKETIN(

CUSTOMER RELATIONSHIPS

9. How effectively does the companydifferentiate its customers?

a. We do not differentiate among customers.

b. We try to differentiate among customers.

c. We collect and use information gleanedfrom interactions with customers todifferentiate each customer and to evaluatethe importance of each relationship.

d. We have a continuously updated customer-knowledge database that provides all thecritical business information about ourrelationships with individual customers.

10. What steps has the company takento improve the total experience ofits customers?

a. We pay little or no attention to the totalexperience of customers.

b. We know all the points where customersare in contact with the business, and wemanage these areas effectively

c. We conduct frequent surveys with selectedcustomers and make improvements basedon their feedback.

d. We have a continual dialogue with eachcustomer and use well-developed methodsto improve our relationships.

11. How effectively does the companymeasure and react to customers'expectations?

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

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

c. We periodically solicit customers' inputabout expectations and take actions toimprove the relationships where possible.

d. We work as a team with our customersto ensure that their expectations aremet or exceeded.

12. How effectively does the companyunderstand and anticipate customers'behavior?

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

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

c. We collect data on our customers'preferences and other behaviors and usethat information in our business planning.

d. We maintain a profile of each customer andrefer to it when dealing with customers.

EMPLOYEE MANAGEMENT

13. To what degree are employeesempowered to make decisionsin favor of the customer?

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

b. We encourage employees to makeindependent decisions within theguidelines set by management.

c. We strongly encourage employeesto make decisions that positivelyaffect our customers' satisfaction.

d. We require every employee to takewhatever action is appropriate toensure the ultimate satisfaction ofthe customer.

14. Has the company formallylinked employees' rewards withcustomer-centric behavior?

a. We make no link between employees'rewards and their treatment ofcustomers.

b. We use ad hoc methods to rewardcustomer-centric behavior.

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

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

COMPETITIVE STRATEGY

15. To what extent does the companyunderstand how customersaffect the organization?

a. We attach little significance to theviews and opinions of customers.

b. We place some importance onunderstanding the impact of ourcustomers on the business.

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

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

16. How much influence docustomers' needs have on thecompany's products and services?

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

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

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

d. We design products and services tomeet the needs of individualcustomers.

17. How effectively does thecompany build individualizedmarketing programs?

a. We build all marketing programs toreach a mass market.

b. We build ail marketing programsto fit a perceived niche market.

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

d. We build all marketing programs tobe specific to each customer's needs.

18. How aware is the company ofother organizations' approachesto building customerrelationships?

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

b. We know which companies arecustomer-centric regardless of theindustry.

c. We know how our competitionapproaches customer centricity.

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



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

Consider the example of the book-store again. Although it might havea customer base with widely differentneeds, it also has a fairly flat valueskew. Very few bookstore proprietorsactually remember the preferencesof their individual customers becauseit is simply not cost-efficient to do so.Even if the proprietor could remem-ber the tastes of her top ioo custom-ers - and teach her salespeople to doso as well-these top customerswould probably account for less than10% of the proprietor's business.

But if the bookstore were to in-crease its capability to interact cost-efficiently - say, by adding a Website-then the amount of effort re-quired to remember customers' pref-erences would decrease dramatically.Amazon.com really does rememberits customers' individual tastes-andnot just for a top few, but for thou-sands. As a result, Amazon.com isable to create the kind of learningrelationship with its customers thatwill keep them loyal. It will alwaysbe at least a little easier for the cus-tomer to return to Amazon.com tofind a book than to go someplaceelse and explain his preferencesanew. This is one reason 59% ofAmazon.com's sales come from re-peat customers - roughly twice therate of typical bricks-and-mortarbookstores.

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

A Foundation forthe Long TermIt's been our experience that imple-menting even a relatively limitedone-to-one program tends to moti-

vate a company to take a more inte-grated, enterprise-wide view of itscustomers. String a few of these proj-ects together and pretty soon you'llhave to deal with a series of enter-prise issues. People in different func-tions and from different businessunits will be working together morefrequently on an ad hoc basis. Man-agers on one project will be trying torelate their metrics to the outcomesof other projects.

As you begin to take a more inte-grated view of the enterprise, certainorganizational issues will arise. Con-sidering the following questions maygive you some advance warning:• If you measure a customer's valueacross more than one division, willone person be in charge of that cus-tomer's relationship? If so, how willthis be structured?• Should the enterprise set up or mod-ify its key-account selling system?• Should the enterprise underwritea more comprehensive informationsystem, standardizing customer dataacross every division?• Should the company be thinkingabout investing in a data mart or adata warehouse?• Should the sales force be better au-tomated? If so, who should set thestrategy for how sales representativesinteract with individual customers?• Does it still make strategic sense tohave different sales forces for differ-ent divisions?• Is it possible for the company's var-ious Web sites and call centers towork together better? That is, do Webpages coming from different divi-sions and locations make sense toa customer looking at them in total?Can callers be "hot connected" be-tween call centers? Should you com-bine your call centers?« Should the company package moreservices with the products it sells?If so, how should those services bedelivered?• Should the business seriously ex-plore investing in mass-customiza-tion manufacturing technologies?

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

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

Obviously, it's impossible to sim-ply "strap on" a one-to-one marketingcampaign and continue to do businessin a traditional manner. Many com-panies-Dell, USAA, American Ex-press, and Amazon.com, for in-stance-will be more successful atcreating learning relationships withtheir customers because their busi-nesses were built on the basis ofdirect customer interaction.

But it's also possible to makesteady, incremental progress by con-centrating on the four implementa-tion steps and applying them todifferent aspects of your currentbusiness. Large, well-establishedenterprises like Pitney Bowes, WellsFargo, 3M, Owens Corning, BritishAirways, and Hewlett-Packard havebegun creating stronger, more inter-active relationships with their cus-tomers. They implement these strat-egies piece by piece, in one businessunit at a time, wrestling with oneobstacle at a time. But they are mak-ing progress and gaining a significantcompetitive advantage as a result.

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

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

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