Keynote speech at the Customer Management Congress, October 2008 (Version with explanatory notes - for off-line reading)

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3. The Industrial Revolution and early 20th century technology progress meant rapid expansion of the scales of
production and distribution, the economies of scale dictated developing m a s s m a r k e t s , addressing their needs
with m a s s p r o d u c t i o n and communicating with the end users via m a s s m e d i a .
Mass production depended on standardisation and standard products had to be designed around a ‘common
denominator’, statistical averages of the parameters, usage patterns and preferences of multitudes of users. There
were always a minority of customers for whom standard products were not appropriate, and a mass‐market business
was unable to satisfy their niche needs. Smaller players could offer tailored products, but without the economies of
scale, they were only affordable to the wealthiest among the population.
In the race to grow market share, and the resultant fierce competition, companies discovered that product attributes
are no longer a differentiator (standard products), and neither could be price (already reaching the viable bottom).
Customer relationships were (re) discovered as a powerful differentiator towards the end of the 20th century (The
Customer relationships were (re) discovered as a powerful differentiator towards the end of the 20 century (The
term ‘relationship marketing’ was first used in the 80‐s). In the 90‐s visionaries like D. Peppers and M. Rogers (with
their historic book ‘The 1to1 Future’, 1993) set the foundations of what later became the ‘CRM movement’.
It took more than a decade, however, to convince a meaningful proportion of business leaders worldwide in the
advantages and benefits of the customer‐centric business model. Surprisingly, long after it became a mainstream
discipline, some companies still remain product‐centric or focused on price competition.
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4. The core of the concept is the competitive differentiation model developed by Tracey and Wiersema in their book
‘The Discipline of Market Leaders’ (1997) stating that there are only 3 main dimensions of competitiveness:
‐Operational efficiency, where the business is strongly focused on cost reduction, which in turn enables successful
price competition
‐Product excellence, whereby the quality and performance of the product differentiate the producer and make price
less important, and
‐Customer intimacy, the building of long‐term relationships ensuring repeat business and sustainable growth
According to the authors each of the 3 dimensions is a viable model to achieve market leadership, but it is important
to make a clear choice and have a determined focus (‘you need to be good in all three, but can be No.1 in only one
discipline’). The early critics of this theory pointed to the sustainability of each dimension, highlighting the limited
duration of competitive advantage in
(a) Operational efficiency the advantage only lasts until competitors also become efficient and lower their cost base.
There is a minimum cost below which it is impossible to provide the product or service, and that becomes the dead‐
end of price competition (2‐5 years depending on sector).
(b) Product excellence offers even shorter advantage, because competitors are in a constant race to come up with
better products and technology has shortened the R&D cycles so in some sectors leadership only lasts weeks (until an
even‐better product is brought to market by a rival).
In contrast, Customer Intimacy was shown as a sustainable dimension, due to the long‐term nature of relationships
and the increasing returns of intimate knowledge of customer needs and preferences.
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An additional advantage, highlighted later, is that the Customer dimension delivers benefits in the other areas:
‐The differentiated (segmented) view of customers (typical for a customer‐centric company) enables differentiated
resource allocation according to customer value, and such resource optimization leads naturally to efficiency and cost
reductions.
‐ Intimate knowledge of customer needs enables the development of best products (any product only exists to satisfy
needs), resulting in natural product leadership.
‐ This is a compelling business case, which led to a wide adoption of the customer‐centric model by thousands of
businesses between 1995‐2005, a trend which still continues despite sufficient numbers of competitors sticking to
their traditional price or product differentiation.
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5. The key principles of CRM (customer centricity) involve
‐ Clear differentiation (customer segmentation) as a recognition that human individuals are all different and their
differences have to be respected. Even corporate (B2B) customers are different: as organizations, and as decision‐
making individuals, and can be segmented along clear criteria.
‐ It is important to understand the difference between m a r k e t segmentation (macro‐segmentation of large
anonymous masses), and c u s t o m e r segmentation (differentiation among a company’s own real customers,
whereby each one can be assigned to a specific segment). Customer segmentation is done by the main dimensions of
value and needs, mutually dependent economic categories, whereby a number of other attributes (demographics,
behaviours, lifestyles etc) are only proxies (interim indicators) for the assessment of one or the other of the
value/needs pair.
‐ Knowing the differences between customers is ntoenough; a company must have the right processes and
capabilities inplace to differentiate the treatment of customers according to such knowledge.
‐ A key objective of a customer‐centric company is the building and strengthening of long‐term, profitable (mutually
A key objective of a customer centric company is the building and strengthening of long term, profitable (mutually
beneficial) relationships with customers.
‐ As customers become recognised as individuals and intimately known, it becomes possible to differentiate to the
level of individual customer and offer personalised treatment, personalised products and services, build a one‐to‐one
relationship.
‐ It should never be forgotten that all efforts to differentiate customers, satisfy their needs and build long
relationships, must translate into s h a r e h o l d e r v a l u e i.e. there should be explicit positive financial outcomes from
the strategy and customer‐centric operations.
‐ Practiced in the traditional small business for centuries, the customer‐centric business model only recently became
possible at large corporations dealing with millions of customers, thanks to the technology revolution. Powerful
computing systems, data storage, manipulation and analysis, and intelligent communications technologies enable the
full implementation of the model on a large scale. An entire class of IT (ITC) solutions emerged under the label ’CRM’,
encompassing a number of platforms and applications that automate different aspects of customer management. It is
important, while recognising technology as an e n a b l e r , not to overestimate its importance and not to limit ‘CRM’
efforts to software deployment.
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6. Social networks have existed since prehistoric times and are inseparable from society. Only in the last decade,
however, the proliferation of computing and communication technologies led to the creation of new social networks
in (or migration of existing ones to) the digital domain. The hypothesis of the ‘6 degrees’ of separation is getting some
practical proof precisely on the digital networks. The notion that we are all interconnected has never been more
realistic.
In the meantime, learning to manage customers led to the realisation that other groups have similar characteristics
and can be managed along similar principles of differentiation and relationship‐building. Commonly called
stakeholders, these are large entities of people who depend on a business for some of their needs, and the business
depends on them for its operations and very existence. The reversing of the buy/sell relationship discovered Suppliers
as such a stakeholder entity. The numerous route‐to‐market intermediaries were classified as Partners, another
stakeholder entity ‐ and PRM was promptly born as a discipline and even technology. Inside the company a major
important entity are the Employees, who can also be segmented and long‐term relationships developed with them.
Not least, the entity of Investors (shareholders), particularly in the case of publicly listed companies, can (and
N t l t th tit f I t ( h h ld ) ti l l i th f bli l li t d i (d
should)be differentiated. The relationship with investors can be vital for the success and existence of the business.
Collaborative methods and co‐creation were vastly accelerated by technology developments. Terms like ‘co‐creation’,
‘wiki’ and ‘crowdsourcing’ are increasingly becoming everyday language, and the early examples of such collective
efforts are just a sign of the enormous potential of collective intelligence and effort.
After decades of developing skills and excellence in mass media, marketers are starting to discover and recognise the
power fo the digital domain for direct, personalised and highly dynamic, interactive forms of marketing. It is now
normal to run targeted e‐mail and SMS campaigns, to use advanced Internet techniques like personalisation, search
marketing etc.
In recent years the term ‘Web 2.0’ became established and popular, yet very few people can coherently explain the
essence and fundamentals of the phenomenon. Sometimes wrongly associated with technologies (like AJAX or Ruby‐
on‐Rails), or with tools and techniques like v i r a l communication, b l o g g i n g etc.
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7. Trying to map the CRM stage as a release number (2.0, in analogy with Web 2.0) is not correct, as the discipline is in
constant evolution and there are incremental changes all the time:
‐ At an early stage (mid‐to late 90‐s, could be labelled CRM 1.1 or 1.15, not later than 1.275) there was a widespread
belief that CRM is a technology which, once deployed, automatically delivers benefits to the business. This led to
disappointments from heavy and expensive CRM implementations, in some cases even considered failures. What
failed was the understanding of the dependencies between technology, process, organisation and people ‐ and their
f il d th d t di f th d d i bt thl i ti d l d th i
subordination to strategy. With all other ingredients missing or lagging behind, technology was unable to deliver the
expected benefits.
‐ Towards the middle of this decade one aspect of customer centricity: the strategically guided design and
management of customer e x p e r i e n c e s (inseparable from CRM) gained popularity, however, wrongly positioned as
a substitute (or ‘better approach’) to CRM, in a culture of business fads and hype cycles.
‐ At various periods, the (otherwise meaningful) concepts of managing stakeholder relationships (employee‐, partner‐
or investor‐ relationship management) were also promoted as alternatives or ‘more important’, in an ever‐confusing
mass of 3‐letter acronyms.
‐ A historically important phase is the realisation of the many‐to‐many relationship in an interconnected
environment, exemplified by the digital social networks.
‐ Further to this, the boom of customer engagement in certain processes, like content production (the UGC
phenomenon) makes a reality what was once seen as utopian: placing customers at the centre of the business.
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8. Key evolution steps in the C, the R and the M of CRM.
Customers are now seen in a more complex way, as any and all stakeholder entities have relationships with the
business.
The Relationships, from one to one (in CRM 1.0) are becoming many to many. This makes exclusivity impossible and
The Relationships, from one‐to‐one (in CRM 1.0) are becoming many‐to‐many. This makes exclusivity impossible and
instead of the cherished l o y a l t y one can now observe a growing promiscuity ( satisfying a need form a variety of
providers). This changes the focus of companies from seeking m a r k e t s h a r e towards s h a r e o f c u s t o m e r , i.e.
the depth of the relationship and degree to which we are able to meet their needs. The financial aspect of the
relationship is no longer measured (only) as ROI, but increasingly as Return on Customer (ROC, as described in the
eponymous book by Peppers and Rogers, 2004).
The Management part is characterised with dynamic micro‐segmentation (as opposed to just segmentation at 1.0),
reflecting the granular nature of the interconnected economy and the Long Tail phenomenon. The below‐the‐line
reflecting the granular nature of the interconnected economy and the Long Tail phenomenon The below the line
(direct) marketing is now utilising network effects by seeking viral distribution of messages. The customer‐oriented
product management is becoming co‐creation, and the value chains include customers and other stakeholders in a
channel partner role, in addition to other overlapping stakeholder roles.
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9. How these trends manifest themselves in today’s business reality?
‐ After ‘boomers’, X and Y generations, for the first time a ‘generation’ is not determined by age (or any
demographic), but by their interest in c o n t e n t . They constantly seek and consume large amounts of content, but
they also act as distributors by sharing content and increasingly as content p r o v i d e r s by active contribution to the
user‐generated content platforms (YouTube, Flickr etc)
‐The example of a viral SMS campaign by a mobile operator, which distributed free jokes until they were forwarded to
sufficient number of people to be addressed directly with an attractive offer ‐ invisible below the noisy mass media,
and below the competitors’ radar.
‐ Generation C, it turns out is no longer happy to just share content: they increasingly seek material reward and profit
form content creation and/or distribution. Some platforms and companies offer them a chance to sell their content;
others sell it on their behalf and share the revenue.
‐ In his book ‘The Long Tail’ Chris Anderson describes the phenomenon where the mass demand for a small number of
In his book The Long Tail Chris Anderson describes the phenomenon where the mass demand for a small number of
products (peak of a ‘bell’ curve) is outstripped by a vast number of tiny market segments with niche needs (the long
‘tail’ of the curve). Companies that are prepared to deliver such niche solutions are tapping on enormous
opportunities.
‐ The decade is marked with rapid convergence of telecommunications technologies and channels (fixed with mobile,
voice with data, telephony with Internet). Telecoms as a whole is rapidly converging with broadcast media. User‐end
devices are now hard to define: is it a phone, or a TV, or a computer?...
‐ The less visible convergence, however, with much more significant historic importance is that of stakeholder
entities. The possibility that a customer is also an employee (by working in the virtual ‘production department’, co‐
creating content or even a physical product) and even the possibility (still difficult for many to assimilate) that a
customer can also be an owner of the business (‘investomer’) ‐ such possibilities are the beginning of a new economic
era. Having its roots in ancient communes, in more recent cooperative movements and (failed) communist societies,
the model is made a lot more viable through the empowering technologies which also bring the ability to measure
relationships and maintain accountability. The most recent events (governments responding to the financial crisis)
may be another indicator of this trend.
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10. If you are planning to start, or already on the path to CRM 2.0 ‐ you have a 3‐yeat advantage over your competitors,
since any customer‐centric change implies significant organisational transformation and culture change. When
competitors finally notice the trend and/or finally decide to join it and start developing their own capabilities, they
have a long period to catch up.
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11. If, on the other hand, you are still considering whether to adopt CRM (1.0), or have implemented something and think
that it is enough ‐ bad news. Others are already working on CRM 2.0, some are even already there. You risk being left
behind ‐ in such case, you have 3 years of hard work, just to come to an even playing field. That’s if competitors stop
running and stand still, waiting for you…but they won’t.
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12. Customer centricity evolution has no discrete phases or ‘quantum leaps’ (the 2.0 term was used throughout this
presentation as a slightly humorous reference to the ‘Web 2.0’ hype). Qualities and capabilities build up in a
cumulative way: which means old(er) capabilities are never abandoned. For this reason every company on the path to
new levels should continue developing its fundamental capabilities: improve its segmentation, its end‐to‐end
customer processes, organisation design, performance metrics and technology platforms. New elements are just
added to the blueprint, but building continues uninterrupted.
added to the blueprint but building continues uninterrupted
One easy step is to carefully review the company’s m u l t i ‐ c h a n n e l c o m m u n i c a t i o n s t r a t e g y (have you got
one?) and add to the matrix any number of s o c i a l m e d i a as channels. These can be community sites and forums,
blogs, viral mechanisms ‐ over any of the converging physical channels.
For effective use of social media it is very important to enhance the customer intelligence (analytics) capabilities with
social network analysis (SNA). This hybrid of mathematics and sociology, apart form an academic discipline, is already
social network analysis (SNA). This hybrid of mathematics and sociology, apart form an academic discipline, is already
a recognised and increasingly popular business subject and skill (as well as emerging software class). This will enable
the practitioners to differentiate on the attribute of ‘connectedness’ and target a minority of highly influential
community members who can spread the messages with reach and authority.
You can start engaging customers in the co‐creation processes around product improvement and new product design,
in some sectors even in direct product creation (production). Or, you may consider engaging them in marketing by
asking them to refer friends and relatives, or to spread messages. Building customer communities provides a great
opportunity to enhance your customer service operations with user‐provided help in forums, wiki FAQ pages etc. The
opportunity to enhance your customer service operations with user provided help in forums wiki FAQ pages etc The
more daring among you may even consider experimenting with new business models whereby the customer is also
an investor.
If you succeed in making customers ‘work for the company’, never underestimate the importance of closing the value
loop: always reward them for their contribution, in transparent and proportionate ways.
In a fast‐moving environment innovation is a key differentiator. Best practice should be studied and adopted, but you
In a fast moving environment innovation is a key differentiator Best practice should be studied and adopted but you
are strongly encouraged to b e t h e b e s t p r a c t i c e , lead in innovation by doing things first in your market or (why
not?) in the world. Brave experiments, however, should always be aligned with a clear strategy and contribute to
progress along a pre‐designed roadmap.
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