The following excerpt about customer intelligence is taken from Customer Intelligence: From Data to Dialogue.
The Concept of a Customer
The single most dramatic aspect of the information revolution has been the extent to which the individual consumer has become an information triggering and transmitting device.
Every individual human transaction is monitored and recorded. During the course of the average day many individuals will use an ATM card, a credit card, a telephone, a toll bridge, a loyalty card, a security card, a call centre, digital television or the Internet. On each occasion the transaction data is captured, their selections are noted and the profile of each consumer is further enriched. What consumers do, when they do it and how they do it, is recorded meticulously. Why they do it requires some dialogue with the consumer, but this curiosity is satisfied at present by the armies of market research agencies that engage in polls, surveys and focus groups that seek to determine motivation. Biological human data is also fed through attached and implanted medical monitoring devices and transmitted via mobile phones for remote diagnostics. The human being is now constantly transmitting a stream of data through a variety of channels on a scale that would have been difficult to anticipate even a decade ago. And the data stream continues to grow exponentially. It is this fact that is calculated to dramatically alter the business landscape.
Jonas Riddlestrale and Kjell Nordstrom, the authors of the bestselling Funky Business wrote the manifesto of the kaleidoscopic, fragmented, global knowledge society and declared that the individual's desire for recognition is the new pervasive force in commerce. The customer is screaming 'recognize me', 'recognize my lifestyle', 'recognize my life-stage', 'recognize my personal values' and 'recognize my financial value'. 'Fragmentation is largely caused by our wish to belong to and associate with a certain group of people – our desire not to be a commodity, standardized and exactly like the others.' The funky universe describes a society that no longer needs to harbour anxieties about food, shelter or security. The consumer in the mass affluent post-industrial world has ascended the lower levels of Maslow's hierarchy and now demands recognition and opportunities for selfactualization. In such an environment the emotions, sensitivities and values of the individual are paramount and the business challenge is to comprehend (and shape) the 'economies of soul' that are the crystallization of these increasingly globalized shared value systems.
It has been observed that, in circumstances where a relatively small percentage of customers contribute a relatively high percentage of profits the success rate of relationship marketing is improved. This conventional view was driven by the assumption that only valuable customers deserved relationships. Because a high-value skew is unlikely to be true of a business selling newspapers or home heating oil there has been a tendency for such firms to disregard the relationship concept. But this misses the point that developing customer intelligence is not solely concerned with acknowledging value but is also concerned with the potential for design and diversification. Even in businesses where there is not a steep skew, there is every reason to seek to understand what other value propositions might be successfully marketed to the different customer segments that are uncovered.
In the 1950s the management thinker and visionary Peter Drucker (1994) wrote 'there is only one valid definition of business purpose: to create a customer'. For any business to thrive it must pursue a strategy that gains more customers, keeps existing customers and increases the frequency and value of transactions. Achieving these four goals is the purpose of any business. The reality is that most large service companies continue to be beguiled by the management theories of the past and worship devoutly the holy trinity of price advantage, distribution control and economies of scale. These are the mantras of the mass marketing era where customers are a renewable resource and where it is assumed that their behaviour is totally predictable and driven exclusively by price, quality and convenience. In this world view, because the customer is assumed to have a conditioned response that is totally predictable, any effort to study customer behaviour is considered to be a fruitless endeavour. Over the course of time mass marketing companies became aware of an irritating tendency by small groups of customers to not conform. These customers were generally dismissed as 'market niches' and were only addressed by large corporations, not out of any particular interest in the niches as such, but because the existence of the unprotected niche communities allowed for the possibility of new entrants to gain a foothold in the core market.
In 1997 the US banking industry recognized the dramatic growth of information-based banking and described this phenomenon as 'relative newcomers relying on superior knowledge of the customer to strip business after business from traditional players.' The study containing this observation went on to list three reasons why customer intelligence was becoming critical to building competitive advantage. The first reason was because traditional profit guideposts (such as customer tenure, income and demographics) were, by now, misleading indicators of profitability. Secondly, there was a tendency towards dispersal of the financial relationship whereby customers who had previously performed all their business through a single bank now tended to have many service providers and relationships. The third reason was the fact that market rationalization had led to dispersion in value among customers (often leaving a small minority of existing customers subsidizing the remainder) with the consequence that the traditional banking institution was vulnerable to raiding by competitors.
Customers are not bound by price-based value propositions or even by contractual obligations but by the systemization of highly flexible service-based relationships in the life of the consumer that anticipate and serve their needs. In this sense the average consumer and typical business are alike in their desire to outsource non-core activities. The core activity of a consumer is living their lives to the full. The time it takes to evaluate their insurance cover, purchase their staple groceries, check their stock prices, select a telephone call plan, determine the cheapest mortgage or keep up-to-date in their profession or leisure interests are all necessary chores that they would prefer someone else to perform for them. The time they waste in repeating information that they have already supplied to service providers is frustrating. Being asked to provide personal information (on the Internet, in questionnaires or by using so-called loyalty cards) where there is no clear value is intolerable. Having one's time wasted receiving unsolicited and irrelevant messages for value propositions that are not intended for them personally has become a source of incandescent rage. The value of time is now recognized, as it never has been before, by the consumer. For businesses to ignore this reality is to court disaster. Yet, astoundingly, the quantity of unsolicited contacts increases apace all the time. Interpreting this paradox requires us to acknowledge just how deeply rooted is the product-centred culture that is being challenged.
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This was first published in February 2006