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.
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