Many companies claim to be customer-centric. However, when asked, consumers claim that it is the product and not the customers’ needs that are at the centre of most companies’ direct marketing strategies.
Where there are few alternatives to choose from, consumers may be prepared to settle for a product that meets part of their needs. But in markets where there are many competing brands, a firm that puts its own convenience before the needs of its customers may be courting disaster.
According to research by the Henley Centre, 70 per cent of customers who switch suppliers do so for reasons of “neglect” – not just in terms of communication, but also failing to give them what they want.
Offering consumers more choice is not the issue here. What the fickle customer is seeking is a better fit between the purchased goods or service and their own requirements, not more variety in terms of the number of products. With the development of flexible manufacturing, and tools for profiling the usage habits of consumers, companies increasingly have the means to customise their products or services to suit the preferences of progressively smaller groups of consumers at an individual level. But does the reality of mass customisation live up to expectations?
Mass customisation is different from true customisation in that it uses technology to increase the value that the customer perceives in an essentially standard product or service.
A good example of a company that does this convincingly is the US credit card issuer Capital One.
What distinguishes Capital One from its competitors is not its core product, which is relatively standard, but how it uses information technology and continued market testing to identify the combinations of features that are most effective and which yield an acceptable net present value from different groups of customers. The end result is a product range of 6,000 cards, each designed to appeal to different micro-segments of the company’s 18 million customer base.
Capital One’s information based approach to mass customisation could be replicated by direct marketers operating in any sector where customer usage data can be accessed to determine how consumers differ in their patterns of use and sensitivity to changes in price and quality. In some sectors, such as telecommunications, companies are already practising mass customisation, albeit at a relatively simplistic level.
BT, for example, offers a range of overseas calling plans which it targets, through direct mail, at customers who have recently made calls to particular parts of the world. This is a considerable advancement on what happened in the past, but still falls short of the level of customisation that could be offered if its marketers were able to exploit the detailed call data generated on a daily basis by its billing systems.
Sybase Business Intelligence Europe general manager Sean Kelly says: “The end-game for the telephone companies is to be able to target customers with structured offers that reflect their individual pattern of use; not just by route, but by time of day, season and call duration.”
Most companies still lack the IT capabilities necessary to support mass customisation. This includes not just the memory capacity to house the data, but also a single company-wide database into which information can be fed from all customer contact channels, including call centres, direct response channels, Web pages and field sales. Unfortunately IT is not the only force working against the ability to deliver a more customised service – organisational weaknesses compound the problem.
Kelly says: “A great deal of direct marketing fails, not because the offer is irrelevant to the consumer, but simply because the approach is mis-timed.”
In many sectors, such as banking, telecommunications and insurance, companies have access to data which pinpoints the precise moment at which the consumer enters the market for an additional product. All too often, however, this intelligence goes to waste, because the company in question has no process for extracting the significant data and using it to trigger a relevant “event-driven” marketing communication.
Event-driven marketing is beginning to make headway in Europe, but is much more common in the US. The basic idea is to equip the data systems in operation with intelligent filters that can pick out pre-defined transactions that indicate an opportunity to sell to a customer. For example, if an application is made for a home loan, it would suggest the customer is potentially interested in home insurance. Similarly, a change in status from employed to self-employed would suggest an opportunity to sell the client a private pension plan.
Knowing when to contact a customer can confer huge benefits on direct marketers. However, the difficulties involved in turning detailed knowledge of individual consumers into marketing action cannot be underestimated.
Mark Patron, managing director of the lifestyle database company Claritas, says: “Mass customisation is potentially a logistical nightmare. The biggest challenge is to make mass customisation manageable and that means implementing it in conjunction with conventional segmentation.”
Patron makes a good point. Mass customisation is often portrayed as something that is qualitatively different from the marketing that has been practised in the past. In reality, it can only be rendered profitable if the conventional steps have already been taken. At a strategic level, the company still needs to be able to divide its customer base into conceptually manageable groups to guide product development.
Contacting customers one at a time is more expensive than conventional mailing strategies. However, as consumers make more use of the Internet the cost of communicating may fall to almost nothing. This will open up the possibility of direct marketers being able to communicate with their entire customer base on a monthly, weekly, and even daily basis. However, more communication is not the ultimate goal – used indiscriminately e-mail has the power to become as big a source of annoyance to consumers as poorly targeted direct mail.
Where the Internet adds most value is in creating a two-way channel of communication that enables the supplier to develop and then play back their understanding of the consumer’s requirements. Skillfully done, it gives customers the impression they are receiving something extra from a standard product – something that meets their needs better than any of the competing brands on the market.
When the communication is carried out extremely well, it is the customer, not the supplier, who puts in the hard work to produce this effect. One company that has mastered this art is the US direct clothing merchant Lands’ End, which enables female customers to construct and store a 3-D representation of their basic figure type on its Website. The software then recommends outfits from a standard stock that would suit the customer’s shape.
Many of the criticisms levelled at mass customisation focus on the difficulty of realising the concept in its ultimate form, that is treating each individual customer as a segment of one. Whether this ultimate objective will ever be achieved by most companies is debatable, but in a sense the preoccupation is a distraction. Mass customisation is mainly concerned with exploiting the ways in which customers resemble each other – not isolating the factors that make people unique. This is evident in the way the early adopters of mass customisation added value to their services.
When customers enter the Website of Amazon.com, for example, they gain access to book recommendations tailored to their particular interests. But the way that Amazon makes these recommendations is by comparing the individual’s past purchases to those of other customers who have purchased from the same category. The more purchases that the customer makes, the more detailed the profile becomes, and hence the better the recommendations. Pursued in this spirit, mass customisation enables firms to build an understanding of individual customers that goes beyond the information any single customer could verbalise or feed back to the company explicitly.
Amazon’s practice points the way to a future of creating learning relationships with consumers. However, what is perceived as added value today will rapidly become the norm. Keith Johnston, managing director of Manifesto, a customer value management agency, explains: “To recoup their investment, direct marketers will need to put more emphasis on improving, not just the value of the service as it is perceived by the customer, but also the received value from the customer to the firm.”
In effect this means building tiers of value into the Website to reward the most profitable customers and create incentives for the less profitable ones to spend more. That could be accomplished by giving more valuable customers privileged access to certain parts of the site, or using advanced technologies to change the contents of the screen to reflect the status and interests of the user.
Ultimately, however, technology is not the main issue of mass customisation. The real challenge is for companies to differentiate between customers that are profitable, potentially profitable, or simply loss-making – and at the moment very few are in a position to do this. Until such times as direct marketers make the effort to acquire that knowledge, there is a danger that mass customisation may deliver greater customer satisfaction and greater loyalty – but not added profit.