Managing Customer Experience and Relationships. Don Peppers

tailoring for them. A company would be rated high on the interactivity dimension if it knows the names of its individual customers and if it can send different messages to different customers and can remember the feedback from each one. A low rating would go to a company that doesn't know its customers' identities, or does but continues to send the same message the same way to everybody. On the tailoring dimension, a firm would rate highly if it mass-customizes in lot sizes of one; it would rate low if it sells the same thing pretty much the same way to everybody. Based on its rating in these two dimensions, a company can be pinpointed on the Enterprise Strategy Map (see Exhibit 1.2), which includes four quadrants:

       Quadrant I: Traditional Mass Marketing. Companies that compete primarily on cost efficiencies based on economies of scale and low price. Companies in this quadrant are doomed to commoditization and price competition.EXHIBIT 1.2 Enterprise Strategy MapSource: Don Peppers and Martha Rogers, Ph.D., Enterprise One to One (New York: Doubleday/Currency, 1997).

       Quadrant II: Niche Marketing. Companies that focus on target markets, or niches, and produce goods and services designed for those defined customer groups. This more strategic and targeted method of mass marketing still offers the same thing the same way to everyone, but for a small, relatively homogeneous group.

       Quadrant III: Database Marketing. Companies utilize database management to get better, more efficient use of their mailing lists and other customer information. Generally focused primarily on continuation of traditional strategies but at lower costs to serve.

       Quadrant IV: Learning Relationships. These are based on individual analytics. Companies use data about customers to predict what each one needs next and then are able to treat different customers differently and increase mutual value with customers.

      In Quadrants I through III, the focus is still primarily on the product to be sold, with an eye to finding customers for that product. In Quadrant IV, the direction of the strategy changes; the Quadrant IV company focuses on a customer and finds products for that customer.

      To realize the highest possible return on the customer base, the goal of an enterprise will be to move up and to the right on the Enterprise Strategy Map.

      To move up on the Enterprise Strategy Map, an enterprise has to be able to recognize individual customers' names and addresses, or at least coded identities, to send different messages to different customers, and to remember the responses of each.

To move to the right on the Enterprise Strategy Map, an enterprise has to be able to increase its production and logistics flexibility. The most flexible production would entail customizing and delivering individual products for individual customers. The least flexible would be mass-producing a standardized product or service for a large market. (We talk more about customization in Chapter 10.)

COMPARING MARKET-SHARE AND SHARE-OF-CUSTOMER STRATEGIES

      The story goes that in 1996, the executives at Barnes & Noble bookstores invited Jeff Bezos, the founder of a startup named Amazon.com, to lunch, with a proposition. Amazon.com had not yet made any profit (and would not, for its first 28 quarters in a row), so the nice guys at the well-established bookstore offered, as a favor to Jeff, to buy him out—before they launched barnesandnoble.com, the online version of the bookstore chain. They argued that Jeff's relatively unknown brand would not stand up to their highly popular name and that he should make some money on his software and systems. He declined.

How did that turn out? Twenty-five years after that lunch meeting, Barnes & Noble was acquired by Elliott Management Corporation for US$683 million and Amazon.com had a market cap of US$1.7 trillion.⁵ When he stepped down as Amazon's CEO in 2021, Bezos was the richest man on earth. So whether the lunch ever really took place or not, the story still serves to illustrate the fundamental difference between a very well run product-oriented company (Barnes & Noble, which has stores to populate with products and tries to find customers for those products) and a fairly well run customer-oriented company (Amazon.com, which got us all as customers to buy books and DVDs, and now wants to sell each of us everything). Note: One of this book's authors, who lives in New York City, found the best selection and service from Amazon.com when she was looking for a refrigerator to buy and have installed in her Upper West Side apartment.

A lot can be understood about how traditional, market-driven competition is different from today's customer-driven competition by examining Exhibit 1.3. The direction of success for a traditional aggregate-market enterprise (i.e., a traditional company that sees its customers in markets of aggregate groups) is to acquire more customers (widen the horizontal bar), whereas the direction of success for the customer-driven enterprise is to keep customers longer and grow them bigger (lengthen the vertical bar). The width of the horizontal bar can be thought of as an enterprise's market share—the proportion of total customers who have their needs satisfied by a particular enterprise, or the percentage of total products in an industry sold by this particular firm. But the customer-value enterprise focuses on share of customer— the percentage of this customer's business that a particular firm gets—represented by the height of the vertical bar. Think of it this way: Kellogg's can either sell as many boxes of Corn Flakes as possible to whoever will buy them, even though sometimes Corn Flakes will cannibalize Raisin Bran sales, or Kellogg's can concentrate on making sure its products are on Mrs. Smith's breakfast table every day for the rest of her life, thus representing a steady or growing percentage of that breakfast table's offerings. Toyota can try to sell as many RAV4s as possible, for any price, to anyone who will buy; or it can, by knowing Mrs. Smith better, make sure all the cars in Mrs. Smith's garage are Toyota brands, including the used car she buys for her teenage son, and that Mrs. Smith uses Toyota financing, and gets her service, maintenance, and repairs at Toyota dealerships throughout her driving lifetime.

EXHIBIT 1.3 Objective of Customer Centricity

Although the tasks for growing market share are different from those for building share of customer, the two strategies are not antithetical. A company can simultaneously focus on getting new customers and growing the value of and keeping the customers it already has.⁶ Customer-strategy enterprises are required to interact with a customer and use that customer's feedback from this interaction to deliver a customized product or service. Market-driven efforts can be strategically effective and even more efficient at meeting individual customer needs when a customer-specific philosophy is conducted on top of them. The customer-driven process is time-dependent and evolutionary, as the product or service is continuously fine-tuned and the customer is increasingly differentiated from other customers.

      The principles of a customer-focused business model differ in many ways from mass marketing. Specifically: The aggregate-market enterprise competes by differentiating products, whereas the customer-driven enterprise competes by differentiating customers.

The traditional, aggregate-market enterprise attempts to establish an actual product differentiation (by launching new products or modifying or extending established product lines) or a perceived one (with advertising and public relations). The customer-driven enterprise caters to one customer at