A New Phase of Customer Experience and Intimacy

A blog is not like a plant of the desert variety; it needs watering more often, so here’s an excerpt from my imminent Market Advisory on the marketing tectonic shift:

The Mirror: Customer Experience and Intimacy

We will see more changes in marketing practices from 2006-2015 than in the rest of the profession’s history because marketing will be the vanguard for the shift from an industrial economy to a knowledge economy, which will demand competence in all encompassing customer experience in order to achieve differentiation. Similarly, the globalization of markets is accelerating: emerging markets will represent extraordinary potential, but addressing them will demand unprecedented innovation. In a bright spot, ongoing CRM and BI initiatives, combined with continuing standardization of architecture (SOA) and messaging (Web services, XML), will begin to deliver the proverbial 360° view of the customer.

The Customer Experience Imperative

The customer experience will be mandated from producer and consumer quarters. Consumers have product fatigue. In many categories, there are too many choices with little differentiation save price. Producers will have unprecedented information, which they will explicitly use to create experiences. In fact, no consumer wants a product or service anyway; rather, consumers buy products and services in order to have emotional experiences through products or services. By making “customer experience” a strategy, leading edge marketers will try to differentiate themselves by explicitly helping customers have experiences. The quintessential example is Starbucks, which does not sell coffee; it offers a European coffeehouse experience with fast food economics and predictability. The explicit customer experience focus is a megatrend that will transform business itself and usher in the knowledge economy because the differentiating value will be the information and presentation of the product/service, not the product/service itself as in the industrial economy.

In many western countries, the height of the industrial economy was in the 1950s and 1960s. In the U.S., wartime industries were retooled for making consumer products (although far less so than after prior wars due to the Cold War). Boomers, whose parents had gone without during the war, unleashed their pent up demand. Television offered a then-cutting edge means to reach customers, and marketing as a profession developed quickly. The focus of marketing was on selling (manufactured) products to customers and, later, to “demographics.” Marketing has generally remained product-focused rather than customer-focused. Marketers have focused on gathering and synthesizing better consumer information in order to produce more targeted profiles to which companies can market.

Marketing is due for discontinuous change. In being the closest discipline to the customer, marketing will be the conduit through which business itself will morph from product-focused to customer-focused. This will unfold within the decade as the result of two key forces: customers are empowering themselves by getting product information and connecting with other customers via the Internet. IT is delivering increasingly sophisticated systems that will enable companies to optimize efficiency with being customer-focused.

Critical IT Enablers: CRM and BI

Marketers’ focus on customer experience is emerging now because CRM (customer relationship management) and BI (business intelligence) investments are starting to make it possible. Helping customers to have experiences is a fairly intimate proposition. It requires knowing the customer, but that has not been a scalable goal from a corporate perspective. Enter information technology. CRM attempts to gather information about customers that companies can use to determine what their experiences are, what affects those experiences and how companies can organize processes to increase pleasurable experiences (avoiding undesirable experiences isn’t bad, either ;-).

The concept is that a customer’s interactions with the company are inputs to the CRM system: calls, purchases, returns, responses to promotions and advertising: any measurable unique data. These are gathered and synthesized so that the company can track patterns that can be combined with other customers’ experiences from which the company draws conclusions about consumer experience in general or for a certain demographic. BI focuses on interfacing with any kind of data repository, synthesizing data and presenting information in an actionable way so that decision makers are more effective. Together, these systems attempt to create a mechanized facsimile of intimacy. It’s the only kind that’s remotely scalable.

The 360° view of the customer is still years away from most enterprises despite significant CRM and BI investments, but it is drawing steadily closer as capabilities increase and bridges are built among islands of automation (isolated systems). SOA and Web services make it easier to exchange data among various disparate systems, consolidating myriad instances of customer information that still exist (billing, service, sales systems all have separate records on you, and they don’t match).

However, having the 360° view is not even half of the battle. The truth is, knowing customer likes doesn’t do any good by itself; the company must be able to act on the knowledge. Keeping in mind the company’s trade-off between efficiency and customer delight, it must then engineer business processes to empower employees (or agents) to respond to the customer information. Information without action effects no change. This is a much more difficult proposition.

The Inherent Conflict between Efficiency and Customer-focus

One reason that companies will have a problem with the transition to customer-focus is the intrinsic dilemma between efficiency and innovation. According to Ronald Coase , the godfather of transaction costs, the economic rationale for the enterprise is its ability to deliver products and services in a superior way by controlling business processes within the enterprise, which is the legal owner of the process. For most of the history of the enterprise, “superior way” meant good quality at a lower cost. Efficiency was the hallmark of the enterprise during the industrial economy.

Being customer focused conflicts with efficiency. “I want to be treated like a person, not a number,” thinks the consumer, but a machine can’t treat the customer as a person. Only a person can do that because only a person can care and have an emotional relationship with another person. Shopping at your favorite boutique or bookstore used to give the customer that feeling. Overall, however, customers continue to vote for efficiency with their pocketbooks: independent stores continue to fail in increasing numbers.