Know Thy Customer

A Conversation With Martha Rogers, Ph.D., Co-author Of The One To One Future

By John David Mann

Relationship marketing... the strategic im-portance of knowing your customers... the future of one-to-one customer strategies...." Martha Rogers is talking about how business works in the twenty-first century, and there's no one on the planet more qualified to do so. There also isn't a network marketer alive who couldn't profit from listening closely to the good professor. "An innovator most likely to create visionary ripple effects," said The World Technology Network; Business 2.0 hailed her as "one of the nineteen most important business gurus of the past century." However you measure it, Martha Rogers, Ph.D., has emerged over the past decade as one of the world's leading experts on customer-based business strategies.

Indeed, she wrote the book on it. Co-authored with her colleague and writing partner Don Peppers, The One to One Future (see review on page 66) is widely regarded as "the bible of the customer strategy revolution." Now entering its second decade in print and still selling strong, the book was named by Inc. magazine's George Gendron as "one of the two or three most important business books ever written." The duo's second book, Enterprise One to One, received a top five-star rating from the Wall Street Journal. In fact, all five of the Peppers and Rogers books have been international best sellers, have sold over a million copies and appear in a total of 14 languages.

The Norwalk, Conn.-based Peppers & Rogers Group, the world's leading customer-focused management consulting firm, boasts an impressive list of Fortune 500 clients. Adjunct Professor at the Fuqua School of Business at Duke University and co-director of the Teradata Center for Customer Relationship Management at Duke, Dr. Rogers has also published widely in such prestigious journals as Journal of Public Policy and Marketing, Journal of Applied Psychology and Harvard Business Review.

In person, our distinguished interview subject is as delightful as she is erudite. We caught up with her in her Ohio home shortly before Christmas for an entertaining hour of conversation that ranged from the vagaries of catalog shopping and the "Do Not Call" list to our one to one future and life after mass marketing. -- JDM

How did you become interested in the "one to one" concept?

In January of 1990, I happened to be in the audience for a speech Don Peppers gave on "the miniaturization of communication." At the time, I was trying to teach my students (and my colleagues, too, for that matter!) that because of the fragmentation of media and miniaturization of communications, something very strange and new was on the horizon. Don's talk rang a bell.

Within five minutes of meeting, we'd decided to write a book together. Three years later we published The One to One Future.

As we worked on the book, we realized that something new was happening because of three families of technology that were coming together: interactivity, database management capability and mass customization. Roll these three together and here's what it means: If I can get you, my customer, to talk to me, then I can know things about you my competitors don't know--and that means I can do things for you that they can't do.

Now I can compete in a way that really matters. I can tell my customers apart; I can treat them differently. I can spend more of my time and energy on those who are keeping me in business, and do much more intelligent things than simply fighting the commoditized, price-driven competition.

Was this what you saw coming, back in 1990, that you were trying to tell your students and colleagues about?

Obviously, without the Internet there, we didn't completely see how it would unfold; this was 1990, remember; back then we thought fax was the next big thing! But yes, we knew it was coming.

The One to One Future came out in '93; by the time we came out with our second book, Enterprise One to One, in 1997, we had been asked to speak and consult about this topic all over the world. Our company's first holiday picture, taken ten years ago, included ten people; this year's picture would have had 150!

What's even more gratifying is watching companies such as Accenture, BearingPoint and IBM develop giant CRM practices; it's quite validating. When we first came up in a proposal against Accenture, we were so flattered. Now it's fairly common.

"CRM" is Customer Relationship Manage-ment, yes?

Yes--but we don't use the term much. The moment it was coined (in 1995), it was taken over by the people who make the tools to help companies do it better; now, in a lot of people's minds, CRM is all about the technology. I hear people say, "Oh, yes, we do CRM at our company--we're personalizing our emails." Or, "we're scrubbing our mailing lists better and developing our call center." They're working on these tiny little pieces and new-fangled marketing activities--but that's not what this is really all about.

What terms do you use?

Each of my customers has a different future value to me. If I'm smart, I'm going to spend more time and energy on those customers with higher future value.
We talk about "customer strategy" and "return on customer," or ROC. What we're really talking about is building the value of the customer base.

For example: If I were a network marketer, rather than focusing on selling my products to more and more people, I'd focus on thinking about the people to whom I'm already selling. Some respond more quickly when I call them; some buy something every time we talk while others don't. Each of my customers has a different future value to me. If I'm smart, I'm going to spend more time and energy on those customers with higher future value.

Instead of thinking, How can I unload my inventory, I'll think, "Mrs. Smith's been buying this product from me; what else does she need and want?" What's the next right thing for her? How can I make sure I'm everywhere in Mrs. Smith's kitchen and bathroom, that I'm supplying her gift list? How can I get as much of her business as possible?

Instead of thinking about "market share," I'm thinking about customer share: how to get a greater share of the business from each customer I already have. Instead of going out to find more customers who'll buy my products, I'm going to find more ways to serve each of my customers. And when I do think about getting new customers, I'm first going to look at my most valuable customers, and then try to find other people who look like them.

Does this shift level the playing field, in terms of sales force size?

If we're going after market share, we have to get bigger and bigger, because each additional point of market share has to come from someone who hasn't already responded to what we've spent on advertising, rebates and sales promotions. That's why Wal-Mart is such a huge success: they sell to everybody and take a tiny bit of profit on each sale.

But what we're describing is not economies of scale but economies of scope.

If I've already gotten Joan to tell me she has a cat and not a dog, that she has two Saabs, and I know a lot about what her needs are, then instead of offering her a huge number of choices at a discount, I'm going to be able to say, "Joan, I know exactly what you need." Joan trusts me; we have this relationship going. If she prefers email, I stay in touch with her by email; if she'd rather have me call, or hang something on her doorknob, then that's what I do. I'm not going to bombard her with things she doesn't need or want.

Now I have an economy of scope: I know more about Joan than anybody else does, so I'm going to get a greater share of her business--maybe even greater than Wal-Mart. Joan's not even going to think about clipping somebody else's coupon. She's not even checking other people's prices.

This seems to go beyond the quantitative and become more qualitative--a different kind of thinking.

Yes. Of course, the larger the customer base, the more important it becomes to rely on quantitative analysis. What's lovely about smaller businesses is that they can run with this kind of approach even before the tools to do it are in place. And once you do have tools in place, you can do some really interesting things. For example, even very small businesses can personalize their mailings--and by "personalization" I don't mean simply superficial personalizing, where I insert your name into a "customer name" field....

And spell it wrong!

Right! I'm talking about my ability to remember what you bought before and tell you that.

Every year I buy all my holiday gifts online or through catalogs. A steady parade of companies loads me up with lots of dead trees in October and November, most of which I just throw out because none of them take it further...except one.

When I get my Jackson and Perkins catalog, it says, "Martha Rogers, start your holiday shopping on page 48," or whatever. I turn to that page--and find a list of everyone I sent presents to last year, with their names and addresses so I don't have to look them up again! And here's a list of exactly what I sent them each last year, so I don't send the same thing again. And here's exactly what I said on each of their message cards last year--and a blank space where I can put what I want to order and say this year.

I'd like to challenge your readers to ask themselves, "What business am I really in?" If you think of yourself as being in the nutrition business or skin care business, you're in trouble. If you think of yourself as being in the customer business, then you're in very good shape.

It's like having a shopping valet!

And I'm at the point where I want to do all my business with them, because everybody else is too stupid! No matter who they are--big, good, reputable companies--I still have to go look up those names and addresses of my sister and mother-in-law and try to remember what I gave them last thanks!

If you were the barber or shopkeeper in Mayberry, you'd have done this naturally.

Correct, but that was a long time ago, and there were only so many people in town.

Here's something I've seen salon stylists do; it's very low tech, but it's a step beyond what Andy Griffith's barber did. You're sitting in your chair, talking about the party you're giving next week. Six weeks later you come back, sit down in the chair and first thing your stylist says is, "So how was that party you gave five weeks ago?" You think it's because you're so important to your stylist and she has such amazing memory--but it's because she keeps a stack of three-by-five cards, one for each customer. After your last appointment, she spent 30 seconds jotting down notes from your conversation, and another ten seconds today reading them.

It's a natural progression to go from keeping it in your head, to an index card, to a contact list on Outlook Express, Goldmine or ACT!. It's not heavily high-tech, yet it's extremely effective: Now you can really compete. Somebody else may come along with a product line like yours, even with better prices--but if you already understand that Mrs. Smith is marginally thyroidal and she likes certain smells in her bathroom and her youngest child has some reading difficulties, and what to do about it, your competition can't touch you.

Unless you're talking about customers who care about absolutely nothing but getting the lowest possible price.

There will always be such customers, and frankly, I say good riddance...and I mean that in a loving way! If you're going to lose customers to a competitor, shouldn't it be those customers who care about nothing but price?

I'd like to challenge your readers to ask themselves, "What business am I really in?" If you think of yourself as being in the nutrition business or skin care business, you're in trouble. If you think of yourself as being in the customer business, then you're in very good shape. Products come and go; the only reason any of us have a business is because we have customers. Otherwise, we have a hobby, not a business.

What is the value of your business? It boils down to this: the future willingness of your customers to buy from you.

This sounds like a change not simply in technology but in values.

Absolutely: It means building the customer's ability to trust your company into the DNA of every employee. A lot of larger companies today, albeit without meaning to, are destroying the future value of their customer base.

How are they doing that?

On October 1, 2003, this country put into effect a Do Not Call list; in its first month it included 53 million phone numbers! Never before in this country's entire 225-year history have we seen so immediate, huge and unanimous a referendum. "Stop calling me!"

Here's the fascinating thing: Did you notice how much all the telemarketing calls increased in September?! What kind of thinking does that represent?

Let's imagine it's still September, 2003. You and I know how much it's going to cost to do an outbound telemarketing campaign; given the cost of the list, the telemarketers, the call center and the rest of fulfillment, we figure if we get a one percent response rate, we'll come out in the black.

But what if we count as cost the customers' reduced likelihood of buying from us in the future? What if we include the impact our campaign has on the other 99 percent? The reduced trust, the reduced willingness to even consider giving us business?

Annoyance tax.

I love that term! (I might use it and give you credit!) Now, here's an example of a big annoyance tax. Through a mix-up, the Peppers household got onto the wrong Internet service plan. One day Don opened his bill and realized that for the last few months he'd been spending a few hundred dollars a month on AOL! He called them and said, "We've been moved onto the wrong plan--in fact, I'm surprised you didn't call us and alert us. I need you to go back and rerate the past few months."

You know what they told him? "What do you think we are, your accountants?" And they refused to rerate the bills. Don asked to speak to a supervisor--who had exactly the same attitude.

This company may have kept a few hundred of Don's dollars, but can you imagine how many tens of thousands of dollars of future business they've lost, not only from Don and me but from everyone to whom we tell the story?! And we talk to a lot of people.

That's like the "three-foot rule" in network marketing: shoot all your bullets, then see who's left standing when the smoke clears. We might sign up one out of 20--but how many of the other 19 are bleeding?!

And even if you haven't angered all 19, how many is okay? How about zero?! We do these dumb things without seeing that they are destroying customer value.

When we talk about a shift in values in the world of business over the past five or ten years, where has this shift come from?

I'd love to say that it comes from the fact that we're getting to be better human beings--that the crime rate is dropping and we're all becoming more spiritual and good at heart...but the headlines just don't confirm that.

I don't think we can rely on the idea that every human being is a really good person. Most are, I believe, but I'd feel better if businesses knew that treating their customers well is not simply the right thing to do--it's also the smart thing to do.

In customer strategy and ROC, we don't use terms like "exploit" or "segmentation schemes" or many of the other terms you'd have heard 15 years ago....

The terms of a military campaign.

Exactly, where people die! We used to say, "We're going to expose them to our message," as if "our message" were some kind of deadly nerve gas. "We're going to segment the market"--that's got blood all over it! We don't use those terms because they're irrelevant to this discussion. This environment is much more customer-friendly--and employee-friendly, too, by the way.

Put two call centers next to each other. In the first, measure performance on the old-school scale: "How many calls can you answer in an hour?" In the second, measure performance this way: "How many queries can you settle on the first call? How can you increase the amount of customer-share data we have on each customer?" Which one do you think is a happier group of employees?

This discussion won't stop the unscrupulous and fly-by-night operations. There's only one way to get rid of those guys, the same way we get rid of drug dealers: stop using. Make a commitment to never ever click on or buy from a SPAM ad; only then will it stop.

But this discussion will have an impact on business at large. If you have the option of doing business with a company who has your best interests at heart or a similar company in the same industry at about the same price who has a "What are we, your accountants?" attitude, vote with your dollars! Eventually, the latter will no longer be competitive, because products and market share and branding aren't enough to build the value of this one customer--and this one, and this one....

What will? "Customer service"? CRM? No: only knowing your customers and acting on that knowledge. That's where the value of your business is.