How Do They Know Their Customers So Well?

Internet portal Yahoo! records every click made by every visitor, accumulating some 400 billion bytes of data per day — the equivalent of 800,000 books.1 Direct marketing giant Fingerhut has 4 million names of repeat customers and stores up to 1,000 attributes on each one. Its data warehouse can hold 4.5 trillion bytes.

Can even a fraction of this data find its way into a thoughtful analysis of customer needs or more personalized, innovative services?

The answer is “yes,” but it may be a mere fraction. Companies are rushing to invest in technologies that enable them to track patterns in customer transactions. Yet when the transaction collection-and-tracking dust settles, most firms have a larger data warehouse but very few additional insights into their customers. In other words, they may know more about their customers, but they don’t know the customers themselves or how to attract new ones.

Interviews with 24 standouts in customer-knowledge management, including Harley-Davidson, Procter & Gamble and Wachovia Bank, reveal that a firm needs more than transaction data to gain such insight. Many of the executives interviewed say that their companies succeed because they consider the person behind the transaction — recording what customers do during sales and service interactions. By examining this “human” data, they can better understand and predict customers’ behaviors, and they can rely less on technologies to collect, distribute and use transaction-driven knowledge.

Not that the transaction data isn’t important. It’s why a firm can flash “Hello, Mary Jones” on the screen — along with a set of suggested products customized to her preferences —when Mary enters its Web site. But the smart firms realize they can’t just collect data. The data has to translate into something meaningful about existing or potential customers. This requires first understanding which transaction-based approaches will provide the right data.

It may also mean mixing transaction and human data, a strategy that the customer-knowledge management leaders say gives them the best results. However, having a mix of approaches doesn’t mean you have to integrate the data. Even the most successful firms seem unsure about how — or even whether — to integrate data types into a comprehensive customer database.

Clearly, questions and uncertainties abound. We have a long way to go in capturing a customer’s psyche. But to compete for customer satisfaction, firms must work harder to collect, distribute and use the right data.<

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References

1. H. Green, “The Information Gold Mine,” Business Week Online, July 26, 1999.

2. US WEST Inc. merged with Qwest Communications International Inc. on June 30, 2000.

3. For example, see: Rashi Glazer, “Winning in Smart Markets,” Sloan Management Review 40 (summer 1999): 59–69.

4. C. Hildebrand, “One to a Customer,” CIO Enterprise, October 15, 1999, 62.

5. This work is described in: J.W. Schouten and J.H. McAlexander, “Subcultures of Consumption: An Ethnography of the New Bikers,” Journal of Consumer Research 22 (June 1995): 43–66.

6. A. Kohli and B. Jaworski, “Market Orientation: The Construct, Research Propositions and Managerial Implications,” Journal of Marketing 54 (April 1990): 1–18.

7. Economist Intelligence Unit, “Managing Customer Relationships: Lessons from the Leaders,” 1998 (www.eiu.com/).

ADDITIONAL RESOURCES

Books

M.A. Berry and G. Linoff present 20 case studies about applying data mining to customer-relationship problems in the book “Mastering Data Mining: The Art and Science of Customer Relationship Management,” published in 1999 by John Wiley. J. Curry and A. Curry provide the basic techniques for customer segmentation, direct marketing and customer-oriented organization, along with an update on Internet applications of customer-relationship management in “The Customer Marketing Method: How to Implement and Profit from Customer Relationship Management,” published in 2000 by Free Press. “Defying the Limits: Reaching New Heights in Customer Relationship Management” (San Francisco: Montgomery Research, 2000) is a collection of articles by academics, consultants and practitioners on leading practices in customer-relationship management. A.M. Hughes’ book, “Strategic Database Marketing” (Probus Publishing, 1994), is a classic introductory text on database marketing. J.H. Gilmore and B.J. Pine edited a compilation of Harvard Business Review articles on customer relationships in a book published in 2000, titled “Markets of One: Creating Customer-Unique Value through Mass Customization.” A book by A. Payne and his colleagues, titled “Relationship Marketing for Competitive Advantage: Winning and Keeping Customers” (Butterworth-Heinemann, 1998), is a useful collection of articles on customer relationship marketing from academics and consultants. D. Peppers and M. Rogers provide concrete approaches and tactics from the founders of the “one to one” school of marketing in “The One to One Manager: Real-World Lessons in Customer Relationship Management” (Doubleday, 1999). In “Customer Connections: New Strategies for Growth” (Harvard Business School Press, 1997), R.E. Wayland and P.M. Cole give an overview of how to develop customer insights that includes a chapter on customer-knowledge management.

Web sites

www.crmproject.com contains the text of “Defying the Limits” (the book version is mentioned above) and a collection of articles on leading-edge practices in customer-relationship management.

www.customerinsight.org presents research from the University of Texas Business School’s Center for Customer Insights.

www.cio.com/forums/crm/ is a collection of CIO magazine articles and other resources on customer-relationship management.