When AT&T entered the credit card business in March 1990, it had a powerful source of competitive advantage: it knew millions of its prospective customers by name and reputation because they were telephone customers.1 Many of those who called its toll free number in response to advertising were told, “You have been preapproved for the Universal Card with a credit limit of $....”
Even before a customer phoned, AT&T knew how badly it wanted that individual’s business and how large an incentive to offer to get it. The results were impressive: within three months there were over a million Universal Card holders, and they had made more than $100 million in purchases. AT&T was exploiting the freshest option available to marketing in the 1990s, the ability to address each customer personally, with information unique to his or her relationship with AT&T drawn from its on-line database.
The shift from broadcasting to directly addressing customers is a subtle change, but quite radical in its consequences for marketing practice. Broadcast media send communications; addressable media send and receive. Broadcasting targets its audience much as a battleship shells a distant island into submission; addressable media initiates conversations. The new marketing does not deal with consumers as a mass or as segments, but creates individual relationships, managing markets of one, addressing each in terms of its stage of development.
Addressability will change the marketing rules quite fundamentally. Among the changes we will discuss in this paper are the following:
- A database of transaction histories will be the primary marketing resource of many firms, determining what kinds of products they can deliver and what markets they can serve. Far more directly than they do today, customers will shape the firms that serve them.
- Marketing will be more accountable. The unit of measure will be the lifetime value of each customer to the firm. Marketing efficiency will be measured by changes in the asset value of the firm’s customer base over time.
- Distributors’ steady erosion of manufacturer power will slow and may even reverse, as manufacturers take back functions from other channel members and use electronic data systems to administer them.
- Niches too small to be served profitably today will become viable as marketing efficiency improves. Communications will reach small or diffuse targets with increasing precision, and feedback on marketing actions will become more accurate.
- The discipline of marketing will begin to feel more like engineering.