The power of personal services

Using storecard data, mass retailers like Tesco are developing bespoke marketing activities for their most valuable customers

Five years after Bain & Co’s Fred Reichheld wrote his Harvard Business Review article, pointing out that a company’s most loyal customers are also its most profitable, the customer loyalty revolution is sweeping all before it. Discount the coming backlash against its corruption – loyalty scheme as short-term sales promotion in clever clothing – and we still have a marketing revolution on our hands.

Like most revolutions, the most profound consequences may be the least expected. Take its impact on marketing department organisation. So far there is a miss-match. We have individual customers’ names and addresses of, and – if you’re an Amex or a store- card holder, a rich history of transactional data – but still the entire machinery is driven by mass-marketing assumptions. If segmentation and targeting is deployed, the main impetus is cost-cutting, not relationship building.

Indeed, most marketing departments are still production-led. They are built around products and product managers whose job it is to shift their wares to as many consumers as possible. But they do not have customer managers. “Customer focus” is merely a means of achieving volume sales targets.

Now there’s a whiff of change in the air. Surely, if customer loyalty and maximising life-time customer value is a key priority, should we not have expert staff who concentrate on this, and only this? Yet how many companies are structured to do it? Take banks, whose branch managers, loans managers and savings product managers may all be “focusing” on the same customer, separately, and and at cross-purposes.

Now advocates of “one-to-one” marketing, like US guru Don Peppers, are beginning to suggest a new customer-centred marketing structure is needed. The core of it could be a new-style “customer manager” whose job it is to maximise the relationship with – and value of – a certain group of customers with similar characteristics. Instead of trying to find more consumers for the same product, they would seek to maximise their portfolio of products and services to meet existing customers’ needs, thereby relegating the product managers to mere “capabilities managers” alongside the rest of production and distribution.

According to Peppers, speaking at this week’s Institute of Direct Marketing symposium on The One-to-One Future, marketers’ commonplace boast that brands are their companies’ most important assets is often mere vanity. For many companies their most important asset is their customer base. While marketers like to think brands create and sustain customer relationships, increasingly it is the company’s relationships with customers that make sales possible, he suggests. “In the long run, all products and services are ephemeral. Only customers are real.”

An extreme example is the United Services Automobile Association. Virtually unknown outside the US armed forces, it’s hardly a brand, actively limiting its marketing to a relatively tiny market of current and former military officers and their families to sell them insurance, banking, travel services and retirement homes.

But it has found a way to grow without acquiring customers. It simply sells more to existing ones, including other companies’ products such as cars, jewellery and white and brown goods. “While brand managers try to increase brand equity, customer managers try to increase customer equity,” Peppers commented at a recent Royal Mail conference.

The ultimate, suggests Peppers, is the “learning broker” who, on the strength of a trusting relationship with its customers and close monitoring of their changing needs, makes its money by going out and finding the particular products and services they want. It need not produce any itself, though usually the relationship will have started, say, with a bank account, storecard, or mail order catalogue and developed from there.

Reality check time. Most UK companies are yonks away from having the technology, the database or relationship marketing skills to embark on such a revolution. Yet the intriguing thing is how many companies are beginning to edge in that direction. NatWest’s personal account executives started offering bespoke integrated services to high net worth individuals many years ago, for example. The scheme was a great success. Amex’s relationship marketing strategy prom-pted it to split its department to create separate customer loyalty and acquisition managers.

Computer and telecoms companies such as BT, Microsoft and Amstrad Direct are moving away from product marketing to customer marketing: creating packages of products and services for the home-based self-employed, the “edutainment”-crazed kid or the telecommuter. Another example: the increasing popularity of partnership marketing, where the core motive is to gain access to another company’s customers.

Even mass marketers are tentatively shifting in this direction. The whole basis of the Heinz direct marketing initiative is to develop bespoke offers and communications for consumers who identify their particular interests, such as dieting or ethnic foods. Next step? Tailor NPD to suit their particular desires.

Likewise, using their storecard data, mass retailers are developing bespoke marketing activities for, say, the most valuable 500 customers in each location. A pilot promotion for Tesco’s Clubcard targeting hefty winebuyers with a Chardonnay offer was so successful, that rolling it out across the entire chain would have involved it buying up the world’s entire stock. Peppers’ chart (above) suggests that as such skills and expertise develop, the line can be moved left, from niche, to mass.

Of course, rumours of the death of the brand manager are now so common it’s tempting to dismiss this as just another exaggeration. The difference here, however, is that the rise of both the database and of customer loyalty makes the emergence of the customer manager inevitable. As Brann’s Alan Bigg comments: “It is one of the consequences of knowing more about your customers.”

Watch this space.