The Customer Revolution: How to Thrive When Customers Are in Control

Overview

You are no longer in control of your company's destiny . . .

It happened in the music business and it will happen in yours. It's only a matter of time. Customers actually take control of an industry and reshape it from the outside in. Customers decide that the way they want to use an industry's product doesn't fit the current business model.

Patricia Seybold, author of the influential, bestselling Customers.com would say that that's a ...

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Overview

You are no longer in control of your company's destiny . . .

It happened in the music business and it will happen in yours. It's only a matter of time. Customers actually take control of an industry and reshape it from the outside in. Customers decide that the way they want to use an industry's product doesn't fit the current business model.

Patricia Seybold, author of the influential, bestselling Customers.com would say that that's a revolution. Thanks to the Internet and to mobile wireless devices, both business and consumer customers are demanding that you change your pricing structure, distribution channels, and the way you design and deliver products and services. Your business must be transformed so that it is completely customer-centric, or you will be out of business.

Her advice to companies facing the customer revolution? You can fight it if you want, just as Don Quixote fought imaginary windmills and thought he was winning battles. But naturally he lost the war and so will you. Better, says Seybold, to practice "sweet surrender," just as the music industry has started to come to terms with Napster. In the words of one music executive, "Thirty-eight million people can't be criminals."

Many try to characterize the changes taking place as the New Economy, the Internet economy, or the information, knowledge, or bio-economy. There's a grain of truth to all of these descriptions, but they fail to get to the heart of the changes taking place. Simply put, what we now have is a customer economy and it's going to result in changes that you would not have thought possible even a few short years ago.

Patricia Seybold has been on a worldwide quest to find the companiesin North America, Europe, and Asia that are developing the state-of-the-art practices that will help them win in the new era of the customer economy. They're profiled and analyzed in case studies ranging from small businesses to multinational giants and range from manufacturers to retailers, and service firms. They include financial services giant Charles Schwab, the British Vauxhall Division of General Motors, Snap-on Tools, custom backpack manufacturer Timbuk2, Hewlett-Packard, Medscape, and W.W. Grainger.

As she so ably demonstrated in Customers.com, Patricia Seybold is ahead of the curve. For most companies, the issue of customers in control is just coming onto the radar screen. In The Customer Revolution, Seybold makes it plain that this can be either your biggest problem or your greatest opportunity. What she provides is not only a brilliant analysis but also a practical program for how you can make the customer revolution a profitable one. The companies that thrive in the customer revolution will be those that measure and monitor what matters to customers, in near real time.

We're in the midst of an economic transformation as fundamental as that of the Industrial Revolution. Patricia Seybold reports here on the strategies that are working for the smartest companies in the new e-conomy, and that can work for every one of us as well.

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Editorial Reviews

From Barnes & Noble
The Barnes & Noble Review
Just because the Nasdaq has lost half its value in a year and the market capitalizations of the leading e-commerce and technology companies are mere shadows of their former selves, doesn’t mean the dot-com revolution is over. In fact, things are just heating up. For this reason, Patricia Seybold's latest book, The Customer Revolution, is a must-read for everyone in a decision-making or decision-implementing capacity at both bricks-and-mortar and web-based businesses.

Since the first big Internet bubble burst, both venerable and fledgling e-companies have been set adrift on the sea of viability. The potential for success is more remote than before, and companies need to leverage everything in their power to turn a profit and stay afloat. While many things have changed and many rules have been rewritten since the heady days of 1999, one key point has risen to even greater prominence: the importance of the customer experience.

Just look at the furor over peer-to-peer file-sharing technology, such as the software used by Napster. The debate over Napster is largely considered to be about intellectual property and copyright infringement. But another controversial aspect to the Napster issue exists. With the advent of Napster, companies have seen how a new technology can enable customers to force established companies to rethink the way they do business. That a renegade company could command the attention of the world, divide public opinion, and garner investments from a preeminent venture capital firm and a multinational media company speaks to the supreme importance of the customer in all business models.

Not surprisingly, Seybold, a technology consultant and bestselling author, begins The Customer Revolution with a discussion of Napster. She does not mince words in stressing the importance of the lessons of Napster to all businesses, breaking out the key points in a chapter called, “What Happened in the Music Industry Will Happen to You.” One universally applicable theme of the Napster debacle is that customers will want to reappropriate a company’s wares to suit their own needs. If a business can anticipate that desire and design a strategy that accommodates it, that business can succeed.

Customers.com, Seybold’s previous book, canonized a customer-centric philosophy of business. To great acclaim, Seybold guided decision makers and policy implementers towards a new way of doing business, advising them on how to turn their businesses into customer-friendly dot-coms. Using case studies and point-by-point strategies, Seybold’s lessons for successfully bringing businesses online were heard at companies around the world.

The Customer Revolution will not disappoint fans of Seybold’s school of thought. It extends the principles of Customers.com into this next, turbulent phase of the e-commerce revolution, advising readers to learn from the veterans of the customer revolution. Based on her vast experience with Fortune 500 companies, Seybold has broken down the mechanics of customer success into three principles: 1) Customers are in control, and they’re reshaping businesses and transforming industries; 2) Customer relationships count, and therefore the value of your present and future customer relationships -- your customer franchise -- will determine the value of your company; 3) Customer experience matters, so the feelings customers have when they interact with your brand determine their loyalty.

More simply, Seybold says, “Gone are the days when you simply made and sold products. Now you need to attract and retain customers.”

The first half of The Customer Revolution is devoted to explaining each of the three principles of customer success. In addition to the discussion of Napster, Seybold also examines the open-source Linux technology and the self-policing marketplaces of the eBay auction site as examples of revolutionary, customer-driven business models.

Seybold outlines “the digital dozen,” 12 customer demands, all enabled by technology, that businesses must meet in order to be successful. While most of them are logical extensions of the themes outlined in Customers.com, the increased demand for convenient access, including the demand for mobile wireless access, is an important addition to Seybold’s comprehensive understanding of consumer needs and psychometrics.

The second half of The Customer Revolution offers “an operational framework” within which to apply Seybold’s tenets, including eight steps to a “great branded customer experience.” The eight steps are: create a compelling brand personality; deliver a seamless experience across channels and touchpoints; care about customers and their outcomes; measure what matters to customers; hone operational excellence; value customers' time; place customers’ “DNA” at the core; and design to morph. These steps are interspersed with very interesting, relevant case studies from companies such as General Motors, Charles Schwab, Hewlett-Packard, and National Semiconductor.

Seybold is the perfect tour guide through the often overwhelming world of e-business. Her experience, perspective, and advice are invaluable, and no doubt soon will be as au fait to the pioneers of the next wave of the dot-com revolution as Customers.com was to its initial trailblazers. (Emily Burg)

Publishers Weekly - Publisher's Weekly
The quality of a company's customer relations with today's better informed, more demanding consumers will determine its future success, contends Seybold, a consultant and author of the bestselling Customer.com. "Thanks to the Internet and to mobile wireless devices... customers are challenging and disrupting the standard practices in virtually every industry.... They won't be denied. They have power and they know it," she writes, pointing to the music industry as an emblematic crucible of change. Variations on this argument have been proposed for more than a decade, but Seybold asserts that it holds true for all industries and throughout the world. To help managers capitalize on this inevitable shift, she lays out three "principles" ("Customers are in control"; "Customer relationships count" and "Customer experience matters"). Drawing on 14 case studies of companies from Charles Schwab, Hewlett-Packard and Tesco to Finland's largest bank and the apparel manufacturer Timbuk2 Designs, she also offers eight steps for achieving success in this new environment, such as "Create a compelling brand personality" and "Value customers' time." But like any true believer, Seybold tends to get carried away. She directly attributes the recent turmoil on Wall Street to an ongoing customer revolution though value investors might disagree and blithely predicts that in less than five years "investors will be actively assessing the quality of companies' customer relationships." Still, her worthwhile central points come through loud and clear, and her arguments could help frame future market debates. (Apr. 3) Forecast: Seybold's solid track record, a national print ad campaign in the Wall Street Journal and the Industry Standard and an NPR sponsorship should help this book garner strong sales. Copyright 2001 Cahners Business Information.
Library Journal
Seybold (Customers.com) says merely thinking that all a company has to do to assure success is make products that people like is no longer relevant in what she defines as today's "customer economy." Using examples of current peer-to-peer networking (Napster.com), open-source coding (Linux), and self-policing (eBay), she explains the principles of the customer-driven economy and details how any organization can adapt to this transformation that focuses on a customer-centric vs. venture-capital approach to business. Well-known firms like Hewlett-Packard and Charles Schwab are but two of the companies that have overhauled their internal operations driven by customer metrics, e.g., retention rates and the costs of acquiring new customers. The integration of how cutting-edge technology has influenced the new "customer economy" and Seybold's impressive narration will get the listener's attention to this important work. Highly recommended for all university libraries supporting a business curriculum. Dale Farris, Groves, TX Copyright 2001 Cahners Business Information.
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Product Details

  • ISBN-13: 9780609607725
  • Publisher: Crown Publishing Group
  • Publication date: 3/20/2001
  • Edition description: 1 ED
  • Pages: 416
  • Product dimensions: 6.40 (w) x 9.50 (h) x 1.30 (d)

Meet the Author

Patricia B. Seybold is the founder and CEO of the Boston-based Patricia Seybold Group, a worldwide business and technology strategic consulting and research firm. Her clients include many Fortune 500 companies.
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Read an Excerpt

Chapter 1

Embrace the Customer Revolution and Thrive in the Customer Economy
Fasten your seatbelts! The turbulence you've been experiencing in the stock market isn't over yet. In fact, it's probably going to get worse.

Why? Because we're in the midst of a profound revolution. And it's bigger than an Internet revolution or a mobile wireless revolution. It's a customer revolution.

Customers have taken control of our companies' destinies. Customers are transforming our industries. And customers' loyalty — or lack thereof — has become increasingly important to executives and investors alike. If you try to understand the ups and downs of the current economy by focusing on technology trends and investment fads, you're going to miss the true underlying shift that's underway. Customers are in control. They're changing the face of business as we know it. And your company's value is in their hands. Your customer franchise has suddenly become the scarcest and the most crucial resource for your business.

What's more, your company is probably at risk. Unless you act now to focus on the quality and consistency of the customer experience you offer, your firm will be hopelessly lost in the turbulence. Other companies — like the ones described in this book — have quietly reorganized themselves to manage by and for customer value. They measure and monitor what matters most to customers. If you continue to operate your business using the metrics of the old economy, you're going to be left standing on the ground as your competitors take off in the customer economy.

Listen to the Beat of the Customer Revolution

Over thepast year, executives in a variety of industries have begun to feel the impact of the customer revolution. Let's listen to their stories:

Arne Frager is the president of The Plant, a professional music recording studio in Sausalito, California. Arne's been in the music business for twenty-seven years and he's never seen the flow of new music dry up before:

"My recording business is off 50 percent. The whole music recording business is off 50 percent this year (2000). About half the revenues in our industry come from new acts. But the big record labels are so paralyzed by the MP3/Napster/Gnutella/Freenet free distribution of digital music that they're not signing any new acts! Without the labels paying for the production of new albums, our studio isn't recording."

Customers, taking matters into their own hands, have profoundly altered the landscape of the music industry.

Brennan Mulligan is president of Timbuk2 Designs, a U.S.-based manufacturer of backpacks and messenger bags:

"Customers love the ability to custom-design their backpacks. But there's just no way to convince retailers to take custom orders in their stores. They can't handle one-off products. So we'll go direct to the customer and do it on the Internet. Customers can design their own backpacks, we'll ship them out the next day, and if the retailers want to participate we'll set up shop on their Web sites and put kiosks in their stores, too!"

Customers want capabilities that retailers haven't been able to offer. Now manufacturers are responding to customers' desires.

Gideon Sasson, executive vice president of Electronic Brokerage, Charles Schwab & Co.:

"Before the Internet, companies used to talk about how to lock the customer in. They thought about how to 'own' the customer. They incented customers. They brought them in, and then they worried about, 'How do I make a profit with these customers' and 'How do I get them to buy this product.' But companies can't afford to think that way any more. Even before the Internet, at Schwab we realized that if we do the right thing for our customers, they'll reward us. But other companies are facing a rude awakening. Before the Internet, companies could be customer-aware, but they didn't have to be customer-centric. Now they have no other choice. The Internet is forcing everyone to behave differently. What the Internet did was to move control to the customers' hands. People say, 'Your customers are only a mouse-click away from the competition.' Actually, the more important fact is that they're only a mouse-click away from other customers who will give them the real skinny!"

Customers are no longer willing to be locked in. They want great service, fair prices, and innovative offerings. If they don't get these, they'll go elsewhere, and they'll tell the world.

Sweet Surrender

You're no longer in control of your company's destiny. Your customers are. Thanks to the Internet and to mobile wireless devices, customers are now armed with new, more convenient tools with which to access our businesses (as well as those of our competitors) around the clock and around the globe. Business and consumer customers are challenging and disrupting the standard practices in virtually every industry. They're demanding that we change our pricing structures, our distribution channels, and the way we design and deliver our products and services to them. They won't be denied. They have the power and they know it. Companies that don't "get it" will be out of business soon.

Like most revolutions, this can't be stopped. We can't turn our backs on it. We have no choice but to surrender gracefully. Customers have always been the raison d'être for businesses. But now, for the first time in the history of modern business, we have the wherewithal to detect customers' needs in near-real time and to adapt quickly to their changing desires. Using the Internet, we can now reach out to new customer segments to test new offerings, innovate, and experiment more rapidly than ever before. Using the power of the 'Net, customers are inventing and refining new business models, including peer-to-peer file-sharing (Napster), open-source design communities (Linux), and self-policing marketplaces (eBay). Instead of resisting these customer-led business models, we need to embrace and extend them.

Surrendering to the customer revolution is a winning proposition. Our employees want to be customer-focused. Customer-centric companies have a much easier time attracting and retaining employees because companies that have a strong, unwavering customer-focused culture are much more fun to work in than those with warring, product-centric fiefdoms. It's much easier to make budget decisions based on customer priorities than it is to argue over product-centric goals and objectives. What's more, the companies that focus on building and sustaining relationships with customers are the most profitable companies in the world.

Welcome to the Customer Economy

This new customer economy is also spurring a new way of measuring company valuation. We have historically measured businesses on their use of investment capital, primarily through their return on fixed capital assets. High stock prices went to firms that extracted the most profit and growth from tangible assets or that owned the most valuable assets. Most general managers cut their teeth on such primary management indicators as profit and loss (P&L), return on assets (ROA), return on investment (ROI), return on capital employed (ROCE), and price-earnings (P/E) ratios. These performance disciplines are well established and important. Ignore them at your peril! Yet management is the art of the best use of scarce resources. Investment capital is no longer our scarcest resource.

In the customer economy, loyal customers have become the most precious commodity. Today the hardest thing for a company to acquire is not investment capital, products, employees, or even a brand. It's customer loyalty. Customer relationships are the fundamental source of value in the new customer economy. Customer capital is now at least as important as investment capital. And the value of your present and future customer relationships-your customer franchise-will determine the value of your company.

Managing By and For Customer Value

The seismic impact of this customer revolution is being registered by the world's stock markets. If you look below the surface to distinguish those stocks that are doing well from those that are languishing, you'll discover something important: the most highly valued companies are managing themselves by and for customer value.

Investors and financial analysts may not yet have articulated the importance of customer metrics for the companies they follow, but the executives who are running these companies know how important their customer relationships are to their future earnings.

It's customer metrics that matter to companies like Charles Schwab and Cisco Systems, not just P&L. Schwab and Cisco have consistently delivered revenue growth, after-tax profits, and return on equity year after year. They're examples of the many companies you'll be reading about in the following chapters that watch their bottom lines but run on customer metrics. In fact, that may be the most surprising finding in the research behind this book. The measurement systems that leading consumer-oriented and business-to-business companies are using to manage their businesses internally have shifted. If you ask them, you'll discover that the real leaders in today's economy run their businesses based on things like customer retention, customer satisfaction, growth in the number of customers, growth of customers' spending, and the predictors of customer defection. These metrics have become the major focus for weekly and monthly management meetings.

Look at Cisco's CEO, John Chambers. John spends 80 percent of his time in conversations with customers. Through speeches, visits, phone calls, executive briefings, and strategy sessions, he is taking the pulse of his customers constantly. He also personally reviews the interactions Cisco has had with its top customers every day. And he requires every Cisco executive to spend 50 percent of his or her time face-to-face with customers. Whether you're the CIO or the CFO, you aren't doing your job at Cisco if you aren't spending time talking with customers. Every Cisco employee knows what customer satisfaction goal she needs to beat in order to make her bonus — she walks around with that number in her head (and on her badge) every day. This approach really works. Every year Cisco's employees beat their customer satisfaction goal and set a higher goal for the next year.

The leaders in the customer economy understand that a laser-focused, customer-driven culture combined with a few key customer metrics are driving their revenues, their shareholder value, and their long-term profitability. Do you?

How to Survive this Profound Revolution

What should your company be doing to ensure that it will survive and even thrive in the customer revolution? How should you guide your business through the turbulence ahead? The first thing to recognize is that this revolution doesn't pertain only to e-businesses. Every business is now an e-business. Virtually every business on the planet now has ways for customers and suppliers to interact electronically. Second, you need to realize that there are no e-customers, only customers. At some point in time, every business or consumer customer may need to interact in different ways-by talking to knowledgeable people, interacting with your retailers, sending an email, picking up the phone, transacting via a hand-held device, or doing business online. Third, you need to be prepared to adopt new, dynamic partnering relationships as customers' needs present new challenges and priorities. Fourth, be prepared to participate in customer-led, self-organizing communities and to respond flexibly as customers' behaviors reshape the practices in your industry.

Master the Basics
In our last book, Customers.com, we introduced the mantra "make it easy for customers to do business with you." That phrase has become the rallying cry for businesses and organizations all over the world. Forward-thinking companies have been harnessing the Internet, the Web, and other customer-convenient technologies-like mobile phones and wireless hand-held electronic gadgets-to make it easier for customers to do business with them. These companies are the ones poised to thrive in the customer economy, not just because they've implemented customer self-service strategies but, more fundamentally, because their corporate strategies are now being driven by customers.
Companies that have already adopted the eight critical success factors outlined in Customers.com have an advantage over those that are just beginning their transition to a customer-centric business model. They're much further along on the customer technology learning curve. Their customers are more satisfied and more loyal, and they've continued to refine their ability to measure and enhance the things that matter to customers.


From the Audio edition.

Copyright 2001 by Patricia B. Seybold with Ronni T. Marshak and Jeffrey M. Lewis
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Table of Contents

Preface
1 Embrace the Customer Revolution and Thrive in the Customer Economy 1
Principle 1 Customers Are in Control - They're Reshaping Businesses and Transforming Industries 21
2 What Happened in the Music Industry Will Happen to You 23
3 A Dozen Customer Demands that Will Change Your Business 44
4 Surviving the E-Market Revolution 59
Principle 2 Customer Relationships Count - The Value of Your Company is Based Upon the Value of Your Present and Future Customer Relationships - Your Customer Franchise 77
5 It's the Customer Economy: Leverage Your Customer Capital and Grow Your Customer Franchise 79
6 Managing By and For Customer Value 98
Principle 3 Customer Experience Matters - The Feelings Customers Have When They Interact with Your Brand Determine Their Loyalty 105
7 The Saving Grace: Deliver a Great Total Customer Experience 107
Principle 4 An Operational Framework - Measure Customer Value, Monitor Customer Experience, and Deliver a Great Total Customer Experience 143
8 Implement a Customer Flight Deck and Take the Eight Steps to a Great Total Customer Experience 143
9 The First Step: Create a Compelling Brand Personality 157
10 The Second Step: Deliver a Seamless Customer Experience Across Channels and Touchpoints 170
11 The Third Step: Care about Customers and Their Outcomes 203
12 The Fourth Step: Measure What Matters to Customers 228
13 The Fifth Step: Hone Operational Excellence 248
14 The Sixth Step: Value Customers' Time 280
15 The Seventh Step: Place Customers' "DNA" at the Core 296
16 The Eighth Step: Design to Morph 326
17 Conclusion: Flight Plans for the Customer Economy 372
Index 383
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First Chapter

EMBRACE THE CUSTOMER REVOLUTION AND THRIVE IN THE CUSTOMER ECONOMY

Fasten your seatbelts! The turbulence you've been experiencing in the stock market isn't over yet. In fact, it's probably going to get worse.

Why? Because we're in the midst of a profound revolution. And it's bigger than an Internet revolution or a mobile wireless revolution. It's a customer revolution.

Customers have taken control of our companies' destinies. Customers are transforming our industries. And customers' loyalty-or lack thereof-has become increasingly important to executives and investors alike. If you try to understand the ups and downs of the current economy by focusing on technology trends and investment fads, you're going to miss the true underlying shift that's underway. Customers are in control. They're changing the face of business as we know it. And your company's value is in their hands. Your customer franchise has suddenly become the scarcest and the most crucial resource for your business.

What's more, your company is probably at risk. Unless you act now to focus on the quality and consistency of the customer experience you offer, your firm will be hopelessly lost in the turbulence. Other companies-like the ones described in this book-have quietly reorganized themselves to manage by and for customer value. They measure and monitor what matters most to customers. If you continue to operate your business using the metrics of the old economy, you're going to be left standing on the ground as your competitors take off in the customer economy.

Listen to the Beat of the Customer Revolution

Over the past year, executives in a variety of industries have begun to feel the impact of the customer revolution. Let's listen to their stories:

* Arne Frager is the president of The Plant, a professional music recording studio in Sausalito, California. Arne's been in the music business for twenty-seven years and he's never seen the flow of new music dry up before:

"My recording business is off 50 percent. The whole music recording business is off 50 percent this year (2000). About half the revenues in our industry come from new acts. But the big record labels are so paralyzed by the MP3/Napster/Gnutella/Freenet free distribution of digital music that they're not signing any new acts! Without the labels paying for the production of new albums, our studio isn't recording."

Customers, taking matters into their own hands, have profoundly altered the landscape of the music industry.

* Brennan Mulligan is president of Timbuk2 Designs, a U.S.-based manufacturer of backpacks and messenger bags:

"Customers love the ability to custom-design their backpacks. But there's just no way to convince retailers to take custom orders in their stores. They can't handle one-off products. So we'll go direct to the customer and do it on the Internet. Customers can design their own backpacks, we'll ship them out the next day, and if the retailers want to participate we'll set up shop on their Web sites and put kiosks in their stores, too!"

Customers want capabilities that retailers haven't been able to offer. Now manufacturers are responding to customers' desires.

* Gideon Sasson, executive vice president of Electronic Brokerage, Charles Schwab & Co.:

"Before the Internet, companies used to talk about how to lock the customer in. They thought about how to 'own' the customer. They incented customers. They brought them in, and then they worried about, 'How do I make a profit with these customers' and 'How do I get them to buy this product.' But companies can't afford to think that way any more. Even before the Internet, at Schwab we realized that if we do the right thing for our customers, they'll reward us. But other companies are facing a rude awakening. Before the Internet, companies could be customer-aware, but they didn't have to be customer-centric. Now they have no other choice. The Internet is forcing everyone to behave differently. What the Internet did was to move control to the customers' hands. People say, 'Your customers are only a mouse-click away from the competition.' Actually, the more important fact is that they're only a mouse-click away from other customers who will give them the real skinny!"

Customers are no longer willing to be locked in. They want great service, fair prices, and innovative offerings. If they don't get these, they'll go elsewhere, and they'll tell the world.

Sweet Surrender

You're no longer in control of your company's destiny. Your customers are. Thanks to the Internet and to mobile wireless devices, customers are now armed with new, more convenient tools with which to access our businesses (as well as those of our competitors) around the clock and around the globe. Business and consumer customers are challenging and disrupting the standard practices in virtually every industry. They're demanding that we change our pricing structures, our distribution channels, and the way we design and deliver our products and services to them. They won't be denied. They have the power and they know it. Companies that don't "get it" will be out of business soon.

Like most revolutions, this can't be stopped. We can't turn our backs on it. We have no choice but to surrender gracefully. Customers have always been the raison d'être for businesses. But now, for the first time in the history of modern business, we have the wherewithal to detect customers' needs in near-real time and to adapt quickly to their changing desires. Using the Internet, we can now reach out to new customer segments to test new offerings, innovate, and experiment more rapidly than ever before. Using the power of the 'Net, customers are inventing and refining new business models, including peer-to-peer file-sharing (Napster), open-source design communities (Linux), and self-policing marketplaces (eBay). Instead of resisting these customer-led business models, we need to embrace and extend them.

Surrendering to the customer revolution is a winning proposition. Our employees want to be customer-focused. Customer-centric companies have a much easier time attracting and retaining employees because companies that have a strong, unwavering customer-focused culture are much more fun to work in than those with warring, product-centric fiefdoms. It's much easier to make budget decisions based on customer priorities than it is to argue over product-centric goals and objectives. What's more, the companies that focus on building and sustaining relationships with customers are the most profitable companies in the world.

Welcome to the Customer Economy

This new customer economy is also spurring a new way of measuring company valuation. We have historically measured businesses on their use of investment capital, primarily through their return on fixed capital assets. High stock prices went to firms that extracted the most profit and growth from tangible assets or that owned the most valuable assets. Most general managers cut their teeth on such primary management indicators as profit and loss (P&L), return on assets (ROA), return on investment (ROI), return on capital employed (ROCE), and price-earnings (P/E) ratios. These performance disciplines are well established and important. Ignore them at your peril! Yet management is the art of the best use of scarce resources. Investment capital is no longer our scarcest resource.

In the customer economy, loyal customers have become the most precious commodity. Today the hardest thing for a company to acquire is not investment capital, products, employees, or even a brand. It's customer loyalty. Customer relationships are the fundamental source of value in the new customer economy. Customer capital is now at least as important as investment capital. And the value of your present and future customer relationships-your customer franchise-will determine the value of your company.

Managing By and For Customer Value

The seismic impact of this customer revolution is being registered by the world's stock markets. If you look below the surface to distinguish those stocks that are doing well from those that are languishing, you'll discover something important: the most highly valued companies are managing themselves by and for customer value.

Investors and financial analysts may not yet have articulated the importance of customer metrics for the companies they follow, but the executives who are running these companies know how important their customer relationships are to their future earnings.

It's customer metrics that matter to companies like Charles Schwab and Cisco Systems, not just P&L. Schwab and Cisco have consistently delivered revenue growth, after-tax profits, and return on equity year after year. They're examples of the many companies you'll be reading about in the following chapters that watch their bottom lines but run on customer metrics. In fact, that may be the most surprising finding in the research behind this book. The measurement systems that leading consumer-oriented and business-to-business companies are using to manage their businesses internally have shifted. If you ask them, you'll discover that the real leaders in today's economy run their businesses based on things like customer retention, customer satisfaction, growth in the number of customers, growth of customers' spending, and the predictors of customer defection. These metrics have become the major focus for weekly and monthly management meetings.

Look at Cisco's CEO, John Chambers. John spends 80 percent of his time in conversations with customers. Through speeches, visits, phone calls, executive briefings, and strategy sessions, he is taking the pulse of his customers constantly. He also personally reviews the interactions Cisco has had with its top customers every day. And he requires every Cisco executive to spend 50 percent of his or her time face-to-face with customers. Whether you're the CIO or the CFO, you aren't doing your job at Cisco if you aren't spending time talking with customers. Every Cisco employee knows what customer satisfaction goal she needs to beat in order to make her bonus-she walks around with that number in her head (and on her badge) every day. This approach really works. Every year Cisco's employees beat their customer satisfaction goal and set a higher goal for the next year.

The leaders in the customer economy understand that a laser-focused, customer-driven culture combined with a few key customer metrics are driving their revenues, their shareholder value, and their long-term profitability. Do you?

How to Survive this Profound Revolution

What should your company be doing to ensure that it will survive and even thrive in the customer revolution? How should you guide your business through the turbulence ahead? The first thing to recognize is that this revolution doesn't pertain only to e-businesses. Every business is now an e-business. Virtually every business on the planet now has ways for customers and suppliers to interact electronically. Second, you need to realize that there are no e-customers, only customers. At some point in time, every business or consumer customer may need to interact in different ways-by talking to knowledgeable people, interacting with your retailers, sending an email, picking up the phone, transacting via a hand-held device, or doing business online. Third, you need to be prepared to adopt new, dynamic partnering relationships as customers' needs present new challenges and priorities. Fourth, be prepared to participate in customer-led, self-organizing communities and to respond flexibly as customers' behaviors reshape the practices in your industry.

Master the Basics

In our last book, Customers.com, we introduced the mantra "make it easy for customers to do business with you." That phrase has become the rallying cry for businesses and organizations all over the world. Forward-thinking companies have been harnessing the Internet, the Web, and other customer-convenient technologies-like mobile phones and wireless hand-held electronic gadgets-to make it easier for customers to do business with them. These companies are the ones poised to thrive in the customer economy, not just because they've implemented customer self-service strategies but, more fundamentally, because their corporate strategies are now being driven by customers.

Companies that have already adopted the eight critical success factors outlined in Customers.com have an advantage over those that are just beginning their transition to a customer-centric business model. They're much further along on the customer technology learning curve. Their customers are more satisfied and more loyal, and they've continued to refine their ability to measure and enhance the things that matter to customers.

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Interviews & Essays

Exclusive Author Essay
Will Your Company Survive the Customer Revolution? by Patricia B. Seybold

Revenues and earnings are down. Customers are holding back. How do you ensure that they'll still be with you when they reopen their pocketbooks? Above all, don't ignore the profound forces in play in this economic downturn. Why did investors get confused about the "New Economy"? Why did price/earnings ratios go out of whack? Why did so many people get caught up in the Internet hype? Investors -- both institutional and casual ones -- have been disregarding the major revolution that's afoot. The new Internet and mobile/wireless technologies that have recently graced our lives have precipitated an unparalleled shift in the balance of power from companies to their customers. Customers, armed with information and instant 24-hour access, are reshaping the products we offer and the distribution channels we use, and demanding a higher quality of service than ever before.

That power shift from companies to their customers underlies the new "Customer Economy." What counts in the customer economy? Customers count -- the number of customers you have; the depth of your relationships with those customers, and the loyalty of those customers to your company and your brand. If you know the number of customers a company has, and the cost to the firm of acquiring new customers, the current revenues and earnings per customer, and the quality of the customer experience that company delivers, you're well on your way to being able to predict that company's future earnings. If investors and financial analysts had been gumming the customer numbers that I propose we track in The Customer Revolution, they wouldn't have been caught in the crossfire of the overhyped Internet economy.

But now the downturn is upon us, and customers have become even more precious to our businesses than ever before. Will your company survive the Customer Revolution? Here's a quick preparedness test you may want to take. If you don't know the answers to questions 1-4, find them out; if your answers to questions 5-10 aren't a resounding yes, your company is likely to become a casualty in the Customer Revolution:

1. For what percentage of your end-customers (individuals, not companies or accounts) do you have current, accurate customer profiles and interaction/transaction histories?

2. What's your average customer acquisition cost?

3. What's your current average customer retention rate?

4. What are your average revenues/profits per customer? By customer segment?

5. Do you have a high-level executive who is responsible for the total customer experience across interaction touchpoints (Web, email, call centers), distribution channels (retailers, distributors, agents, direct sales), and product lines?

6. Are you collecting customer satisfaction and customer loyalty ratings every time that customers interact with your firm and its brand? Are those ratings used in calculating executives' and employees' pay?

7. Have you determined what outcomes matter most to your customers and what key customer scenarios they care about when interacting with your firm and its partners?

8. Are you measuring your company's performance against these customer outcomes and monitoring the quality of the customer experience you deliver on key customer scenarios in near real time (e.g., every day and throughout the day)?

9. Have you noticed what your renegade customers are demanding and doing? Are you proactively redesigning your business practices to enable them to do business the way they choose to do so?

10. Do you have a customer-centric corporate culture? One in which execs and employees alike really care about customers and their outcomes?

In short, are you ready for the Customer Revolution? If not, it's time to take action!

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Reading Group Guide

1. Here are a few questions that can be used as discussion points for "The Customer Revolution." It may be helpful to your group if you break the conversations into three parts based on Seybold's Three Principles.

Principle # Customers Are in Control: They're Reshaping Businesses and Transforming Industries
Today's customers know they can go online and find out about our companies and our offerings. They expect to be able to do research, buy our products, and/or get service via the 'Net. Customers interact with our businesses and organizations electronically, making demands and suggesting improvements.

Customers–both consumers and business customers–are taking control. They’re voting with their loyalty. They will no longer tolerate being treated as if they weren’t important. They now know how much clout they have. They refuse to do business with companies that don’t respect their time–time being the scarcest resource our customers have.

Questions: What resources do you have available to your customers to voice their opinion? How open are you to reacting to their opinion?

What information is readily available to your customers about your product? How is it available?

Do you encourage your customers to talk to you? Why or why not?

Do your customers talk to one another?

When have you been pleased or upset with a product and let that producer know how you felt? Did you feel as though they responded in an appropriate manner? Why? Would the same apply to your business?

When was the last time you did research on a product? Why? How? Did you share your findings with others?

Principle #

2. Customer Relationships Count: The Quality of Your Customer Relationships Will Drive the Value of Your Company
What does the stock market care about? Investors are betting on your future earnings. Where do your future earnings come from? Your customers. Therefore in today’s extremely volatile stock market, there are only two things that investors can count on: the breadth and depth of your relationships with your customers and your commitment to sustaining and growing those relationships for as long as possible. This is your customer capital. Customer capital is the sum of the value of all customer relationships–the number of customer relationships you have, the depth and quality of those relationships in terms of their capacity to generate current and future earnings, the duration of those relationships (your customer retention), and the profitability of those relationships.

Questions: Do you know any of your customers by name?

How do you keep track of who your customers are?

What type of information do you know about your customers?

Have you ever filled out a customer survey? Why?

Are there any companies that know who you are? How did they get that information? Does the information that they communicate to you help you in your purchase decision?

Do you like and respect your customers? Has that been communicated to them?

Principle #

3. Customer Experience Matters: The Feelings Customers Have When They Interact with Your Brand Determine Their Loyalty
Your customers are in the pilot’s seat. They control the future of your business, both its course and its value. How do you ensure that your customers remain loyal, that you have a mutually profitable relationship, and that they don’t lead your company in an unprofitable or non-viable direction? By establishing and sustaining a strong customer experience that your customers love.

Customer loyalty is rooted in experiences. There’s a lot more to branding than a logo or a consistent graphical treatment. Your customer’s experience with your brand includes how that customer feels when he is in your brand’s presence, whether he’s on the phone with you, in your physical storefront, on your Web site, reading an e-mail you sent, or using your product.

Questions:
In a few short words, what do you think is your customers' experience, both good and bad?

Have you ever asked your customers if they've enjoyed their experience? What was the response?

Have you actively changed the way your customer experiences purchasing your product? Why?

What products/ stores are you loyal to? Why? Can that be applied to your company?

If applicable, would you become a loyal customer of your company if you didn't work for them? Why or why not?

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  • Anonymous

    Posted March 30, 2001

    Creating Valuable Customer Relationships in the Internet Age

    Patricia Seybold and her co-authors, Ronni T. Marshak and Jeffrey M. Lewis, have taken the familiar concept of establishing customer relationships as the basis of a company's success and updated the notion into the current day and its new technology, the Internet. The book is soundly based on lasting principles about successful customer focus, and details what that means now in many interesting and detailed examples. The book is strengthened by critiques of the weaknesses of some of the most successful companies, such as Charles Schwab and Grainger. Here are the principles: (1) Customers are in control. This point is made with the example of Napster, and the way this enabled people to change the way they acquired and used recorded music. Customers are going to reshape businesses by their behavior, and you had better be ready to respond. The recording companies were not, and great economic harm ensued as well as a slow down in the development of new acts. (2) Customer relationships count. The book points out that your economic value as a firm is related to how many customers you can attract and keep, and profitably supply. The authors argue that this will become a formal part of security analyst reports in the future. That would be progress over the way they value companies now! (3) Customer experience matters. This section focuses on how people feel emotionally about how they are being treated, and contains an interesting example of the on-line financial institution, Egg. The book then shifts into eight areas to focus on that supplement the list from their last book, which I have paraphrased: (1) Memorable, compelling, and desirable brand personalities (2) Smooth, continuous customer experience across channels and points of contact (3) Genuine caring about customers and the outcomes they experience (4) Measure how you are doing in what matters to customers (5) Improve your operational excellence (6) Make careful use of customers' time (7) Integrate customer preferences and information into the company and its interactions (8) Create products, services, and processes that can be quickly transformed as customers shift their focus. The book addresses how all of this can be better managed, and proposes a 'flight plan' approach managed by a 'Customer Flight Deck' that keeps the enterprise focused on what is most important. Essentiall

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