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Library of Congress Cataloging-in-Publication Data
HBR’s 10 must reads on strategic marketing.
p. cm. — (HBR’s 10 must read series)
1. Marketing—Management. 2. Strategic planning. I. Harvard business review. II.
Title: HBR’s ten must reads on strategic marketing. III. Title: Harvard business
review’s 10 must reads on strategic marketing.
Roland T. Rust, Christine Moorman, and Gaurav Bhalla
Branding in the Digital Age
David C. Edelman
Clayton M. Christensen, Scott Cook, and Taddy Hall
The Brand Report Card
Kevin Lane Keller
The Female Economy
Michael J. Silverstein and Kate Sayre
Customer Value Propositions in Business Markets
James C. Anderson, James A. Narus, and Wouter van
Getting Brand Communities Right
Susan Fournier and Lara Lee
The One Number You Need to Grow
Frederick F. Reichheld
Ending the War Between Sales and Marketing
Philip Kotler, Neil Rackham, and Suj Krishnaswamy
About the Contributors
by Roland T. Rust, Christine Moorman, and Gaurav Bhalla
IMAGINE A BRAND MANAGER sitting in his office developing a marketing strategy
for his company’s new sports drink. He identifies which broad market segments to
target, sets prices and promotions, and plans mass media communications. The brand’s
performance will be measured by aggregate sales and profitability, and his pay and
future prospects will hinge on those numbers.
What’s wrong with this picture? This firm—like too many—is still managed as if it
were stuck in the 1960s, an era of mass markets, mass media, and impersonal
transactions. Yet never before have companies had such powerful technologies for
interacting directly with customers, collecting and mining information about them, and
tailoring their offerings accordingly. And never before have customers expected to
interact so deeply with companies, and each other, to shape the products and services
they use. To be sure, most companies use customer relationship management and other
technologies to get a handle on customers, but no amount of technology can really
improve the situation as long as companies are set up to market products rather than
cultivate customers. To compete in this aggressively interactive environment,
companies must shift their focus from driving transactions to maximizing customer
lifetime value. That means making products and brands subservient to long-term
customer relationships. And that means changing strategy and structure across the
organization—and reinventing the marketing department altogether.
Not long ago, companies looking to get a message out to a large population had only
one real option: blanket a huge swath of customers simultaneously, mostly using oneway mass communication. Information about customers consisted primarily of
aggregate sales statistics augmented by marketing research data. There was little, if any,
direct communication between individual customers and the firm. Today, companies
have a host of options at their disposal, making such mass marketing far too crude.
The exhibit “Building relationships” shows where many companies are headed, and
all must inevitably go if they hope to remain competitive. The key distinction between a
traditional and a customer-cultivating company is that one is organized to push products
and brands whereas the other is designed to serve customers and customer segments. In
the latter, communication is two-way and individualized, or at least tightly targeted at
thinly sliced segments. This strategy may be more challenging for firms whose
distribution channels own or control customer information—as is the case for many
packaged-goods companies. But more and more firms now have access to the rich data
they need to make a customer-cultivating strategy work.
B2B companies, for instance, use key account managers and global account directors
to focus on meeting customers’ evolving needs, rather than selling specific products.
IBM organizes according to customer needs, such as energy efficiency or server
consolidation, and coordinates its marketing efforts across products for a particular
customer. IBM’s Insurance Process Acceleration Framework is one example of this
service-oriented architecture. Customer and industry specialists in IBM’s insurance
practice work with lead customers to build fast and flexible processes in areas like
claims, new business processing, and underwriting. Instead of focusing on short-term
product sales, IBM measures the practice’s performance according to long-term
Idea in Brief
Companies have never before had such powerful technologies for understanding
and interacting with customers. Yet too many firms operate as if they’re stuck in
the 1960s, an era of mass marketing, mass media, and impersonal transactions.
To compete in an aggressively interactive environment, companies must shift
their focus from driving transactions to maximizing customer lifetime value. That
means products and brands must be made subservient to customer relationships.
And that means transforming the marketing department—traditionally focused on
current sales—into a “customer department” by: replacing the CMO with a chief
customer officer, cultivating customers rather than pushing products, adopting
new performance metrics, and bringing under the marketing umbrella all
customer-focused departments, including R&D and customer service.
Many companies still depend on product managers and one-way mass marketing
to push a product to many customers.
What’s needed is customer managers who engage individual customers or
narrow segments in two-way communications, building long-term relationships
by promoting whichever of the company’s products the customer would value
most at any given time.
Large B2B firms are often advanced in their customer orientation, and some B2C
companies are making notable progress. Increasingly, they view their customer
relationships as evolving over time, and they may hand off customers to different parts
of the organization selling different brands as their needs change. For instance, Tesco, a
leading UK retailer, has recently made significant investments in analytics that have
improved customer retention. Tesco uses its data-collecting loyalty card (the Clubcard)
to track which stores customers visit, what they buy, and how they pay. This
information has helped Tesco tailor merchandise to local tastes and customize offerings
at the individual level across a variety of store formats—from sprawling hypermarts to
neighborhood shops. Shoppers who buy diapers for the first time at a Tesco store, for
example, receive coupons by mail not only for baby wipes and toys but also for beer,
according to a Wall Street Journal report. Data analysis revealed that new fathers tend
to buy more beer because they can’t spend as much time at the pub.
On the services side, American Express actively monitors customers’ behavior and
responds to changes by offering different products. The firm uses consumer data
analysis and algorithms to determine customers’ “next best product” according to their
changing profiles and to manage risk across cardholders. For example, the first
purchase of an upper-class airline ticket on a Gold Card may trigger an invitation to
upgrade to a Platinum Card. Or, because of changing circumstances a cardholder may
want to give an additional card with a specified spending limit to a child or a
contractor. By offering this service, American Express extends existing customers’
spending ability to a trusted circle of family members or partners while introducing the
brand to potential new customers.
American Express also leverages its strategic position between customers and
merchants to create long-term value across both relationships. For instance, the
company might use demographic data, customer purchase patterns, and credit
information to observe that a cardholder has moved into a new home. AmEx capitalizes
on that life event by offering special Membership Rewards on purchases from
merchants in its network in the home-furnishings retail category.
One insurance and financial services company we know of also proved adept at
tailoring products to customers’ life events. Customers who lose a spouse, for example,
are flagged for special attention from a team that offers them customized products.
When a checking account or credit-card customer gets married, she’s a good crossselling prospect for an auto or home insurance policy and a mortgage. Likewise, the
firm targets new empty nesters with home equity loans or investment products and
offers renter’s insurance to graduating seniors.
These shining examples aside, boards and C-suites still mostly pay lip service to
customer relationships while focusing intently on selling goods and services. Directors
and management need to spearhead the strategy shift from transactions to relationships
and create the culture, structure, and incentives necessary to execute the strategy.
What does a customer-cultivating organization look like? Although no company has a
fully realized customer-focused structure, we can see the features of one in a variety of
companies making the transition. The most dramatic change will be the marketing
department’s reinvention as a “customer department.” The first order of business is to
replace the traditional CMO with a new type of leader—a chief customer officer.
Chief customer officers are increasingly common in companies worldwide—there are
more than 300 today, up from 30 in 2003. Companies as diverse as Chrysler,
Hershey’s, Oracle, Samsung, Sears, United Airlines, Sun Microsystems, and Wachovia
now have CCOs. But too often the CCO is merely trying to make a conventional
organization more customer-centric. In general, it’s a poorly defined role—which may
account for CCOs’ dubious distinction as having the shortest tenure of all C-suite
To be effective, the CCO role as we conceive it must be a powerful operational
position, reporting to the CEO. This executive is responsible for designing and
executing the firm’s customer relationship strategy and overseeing all customer-facing
A successful CCO promotes a customer-centric culture and removes obstacles to the
flow of customer information throughout the organization. This includes getting leaders
to regularly engage with customers. At USAA, top managers spend two or three hours a
week on the call-center phones with customers. This not only shows employees how
serious management is about customer interaction but helps managers understand
customers’ concerns. Likewise, Tesco managers spend one week a year working in
stores and interacting with customers as part of the Tesco Week in Store (TWIST)
As managers shift their focus to customers, and customer information increasingly
drives decisions, organizational structures that block information flow must be torn
down. The reality is that despite large investments in acquiring customer data, most
firms underutilize what they know. Information is tightly held, often because of a lack of
trust, competition for promotions or resources, and the silo mentality. The CCO must
create incentives that eliminate these counterproductive mind-sets.
Ultimately, the CCO is accountable for increasing the profitability of the firm’s
customers, as measured by metrics such as customer lifetime value (CLV) and customer
equity as well as by intermediate indicators, such as word of mouth (or mouse).
In the new customer department, customer and segment managers identify customers’
product needs. Brand managers, under the customer managers’ direction, then supply
the products that fulfill those needs. This requires shifting resources—principally
people and budgets—and authority from product managers to customer managers. (See
the sidebar “What Makes a Customer Manager?”) This structure is common in the B2B
world. In its B2B activities, Procter & Gamble, for instance, has key account managers
for major retailers like Wal-Mart. They are less interested in selling, say, Swiffers than
in maximizing the value of the customer relationship over the long term. Some B2C
companies use this structure as well, foremost among them retail financial institutions
that put managers in charge of segments—wealthy customers, college kids, retirees, and
so forth—rather than products.
What Makes a Customer Manager?
IN A SENSE, THE ROLE of customer manager is the ultimate expression of
marketing (find out what the customer wants and fulfill the need) while the
product manager is more aligned with the traditional selling mind-set (have
product, find customer).
Jim Spohrer, the director of Global University Programs at IBM, hires what
UCal Berkeley professor Morten Hansen calls “T-shaped” people, who have
broad expertise with depth in some areas. Customer managers will be most
effective when they’re T-shaped, combining deep knowledge of particular
customers or segments with broad knowledge of the firm and its products. These
managers must also be sophisticated data interpreters, able to extract insights
from the increasing amount of information about customers’ attitudes and
activities acquired by mining blogs and other customer forums, monitoring online
purchasing behavior, tracking retail sales, and using other types of analytics.
While brand managers may be satisfied with examining the media usage statistics
associated with their product, brand usage behavior, and brand chat in
communities, customer managers will take a broader and more integrative view
of the customer. For instance, when P&G managers responsible for the Max
Factor and Cover Girl brands spent a week living on the budget of a low-end
consumer, they were acting like customer managers. The experience gave these
managers important insights into what P&G, not just the specific brands, could
do to improve the lives of these customers.
We’d expect the most effective customer managers to have broad training in the
social sciences—psychology, anthropology, sociology, and economics—in
addition to an understanding of marketing. They’d approach the customer as
behavioral scientists rather than as marketing specialists, observing and
collecting information about them, interacting with and learning from them, and
synthesizing and disseminating what they learned. For business schools to stay
relevant in training customer managers, the curriculum needs to shift its emphasis
from marketing products to cultivating customers.
In a customer-cultivating company, a consumer-goods segment manager might offer
customers incentives to switch from less-profitable Brand A to more-profitable Brand
B. This wouldn’t happen in the conventional system, where brand and product
managers call the shots. Brand A’s manager isn’t going to encourage customers to
defect—even if that would benefit the company—because he’s rewarded for brand
performance, not for improving CLV or some other long-term customer metric. This is
no small change: It means that product managers must stop focusing on maximizing their
products’ or brands’ profits and become responsible for helping customer and segment
managers maximize theirs.
As the nexus of customer-facing activity, the customer department assumes
responsibility for some of the customer-focused functions that have left the marketing
department in recent years and some that have not traditionally been part of it.
CRM. Customer relationship management has been increasingly taken on by
companies’ IT groups because of the technical capability CRM systems require,
according to a Harte-Hanks survey of 300 companies in North America: 42% of
companies report that CRM is managed by the IT group, 31% by sales, and only 9% by
marketing. Yet CRM is, ultimately, a tool for gauging customer needs and behaviors—
the new customer department’s central role. It makes little sense for the very data
required to execute a customer-cultivation strategy to be collected and analyzed outside
the customer department. Of course, bringing CRM into the customer department means
bringing IT and analytic skills in as well.
Market research. The emphasis of market research changes in a customercentric company. First, the internal users of market research extend beyond the
marketing department to all areas of the organization that touch customers—including
finance (the source of customer payment options) and distribution (the source of
delivery timing and service). Second, the scope of analysis shifts from an aggregate
view to an individual view of customer activities and value. Third, market research
shifts its attention to acquiring the customer input that will drive improvements in
customer-focused metrics such as CLV and customer equity.
Reimagining the marketing department
The traditional marketing department must be reconfigured as a customer
department that puts building customer relationships ahead of pushing
To this end, product managers and customer-focused departments report to a
chief customer officer instead of a CMO, and support the strategies of
customer or segment managers.
Research and development. When a product is more about clever
engineering than customer needs, sales can suffer. For example, engineers like to pack
lots of features into products, but we know that customers can suffer from feature
fatigue, which hurts future sales.
To make sure that product decisions reflect real-world needs, the customer must be
brought into the design process. Integrating R&D and marketing is a good way to do
that. Few companies have done this better than Nokia in Asia, where its market share
exceeds 60%. In an industry where manufacturers must introduce scores of new
offerings every year, the group’s ability to translate customer input about features and
value into hit product offerings is legendary. Among its customer-focused innovation
tools is Nokia Beta Labs, a virtual developer communi ...
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