The Emerging Era of Customer Advocacy

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For decades, companies relied on push marketing to sell their products and services. Then in the 1990s, the emphasis shifted to relationship marketing, as “customer care” and slogans like “delight your customers” became the mantra of many marketers. But those tactics have been losing their effectiveness, particularly as the power of customers to make product selections that are best for their needs continues to grow. Thanks to digital technologies like the Internet, today’s increasingly educated consumers expect companies to do more than just delight them.

In response, innovative companies are now trying a different approach: They are providing customers with open, honest and complete information — and then finding the best products for them, even if those offerings are from competitors. In short, they are truly representing their customers’ best interests, essentially becoming advocates for them. The strategy is this: If a company advocates for its customers, they will reciprocate with their trust, loyalty and purchases — either now or in the future. The firm might then command higher prices for its products and services, as many customers will be willing to pay for the extra value. And when people trust a company, they will often tell others about it, helping to reduce the organization’s costs for acquiring new customers.

Advocacy strategies have been emerging in a range of industries, including the financial, automotive, industrial and high-tech sectors (see “About the Research”). General Motors Corp., for instance, has cosponsored a Web site that helps consumers select the vehicles best suited to their needs. The tool asks prospective buyers a number of questions (for example, how much they can afford and what features they would like) and then comes up with a list of eight suggestions, including vehicles from manufacturers other than GM. Even the telecommunications industry, long notorious for its aggressive marketing tactics, may be moving toward the use of customer advocacy tactics. Qwest Communications International Inc., for instance, is currently developing a virtual advisor to help people select the service package that suits them best from among a number of different plans, including those from competitors.

About the Research »

The Growth of Customer Power

New technologies, such as the Internet, provide easy access to tremendous amounts of information, and people have been taking advantage of that to become smarter shoppers. In the United States, for example, 60% of car buyers now use the Web to research models, features and prices, visiting an average of seven different sites, including those of Kelly Blue Book, Autobytel and Edmunds.1 And 6% go on to save an average of $450 per vehicle by using an Internet buying service.2 A great advantage of the Web is that it reduces search costs, providing people with a quick and easy means of doing comparison shopping. Because of companies like Travelocity.com, Orbitz and Expedia, the sales of travel services over the Internet grew 37% in 2002 to $28 billion — all while sales of the travel industry as a whole fell 5%.3 Those types of Web firms also simplify transactions for customers by enabling them to connect directly with the providers of goods and services, thus obviating the need for traditional middlemen, such as local travel agents.

Moreover, digital technologies like the Internet also facilitate communication among customers. Specifically, Web sites like Epinions.com and Amazon.com enable people to share information about their experiences using various products and services. In 2002, for instance, 110 million people in the United States surfed the Internet for information on health care.4 Through various Web sites, patients can exchange information on the effectiveness of certain products and treatments, and that knowledge has a substantial impact on the industry. According to a recent study, medical providers honor 86% of patient requests for specific prescriptions.5

These points illustrate that the Internet is a great enabler of customer power. People are more educated and informed than ever, and they have the tools to verify a company’s claims and seek out superior alternatives from competitors. That power enables customers to avoid pushy marketers and make their own purchasing decisions. Indeed, 50 million people recently signed up for “no-call” protection against telemarketers, and 64% of consumers say they are furious about pop-up ads on their computers — slightly more than the percentage that is furious about spam e-mail.6 To make matters worse, consumers have a growing distrust of business. Corporate America has recently been tarnished by a host of accounting scandals, and many CEOs have lost credibility due to their excessive salaries and questionable ethics. It’s no wonder that, according to a February 2002 Golin/Harris International poll, nearly 70% of Americans agree with the statement, “I don’t know whom to trust anymore.”7

What To Do?

Some companies are responding to the growth of customer power by pushing harder using traditional marketing methods, such as media advertising, aggressive promotions and one-sided communications. After all, those tactics have been the core of marketing for decades, ever since the halcyon days of media when people more frequently read their local newspapers and watched ABC, CBS and NBC. But today’s consumers are far harder to reach. Newspapers have suffered declining readership, and since 1970, the three national broadcast networks have seen their prime-time audience plummet by over 50%. Cable and satellite TV have greatly fragmented the viewing audience, and even when an ad does reach consumers, only one-third actually watch it, as many viewers routinely use their remote controls to mute commercials or switch channels.8 Another trend is that people are switching from their televisions to their computers, with average Internet use now almost the same as for TV (about 15 hours per week) and 36% saying they watch less television.9 Web surfers, too, are also getting tougher to reach: Click-through rates for pop-up and banner ads plummeted by almost an order of magnitude from 1996 to 2001.10

Another strategy taken by companies is to strengthen relationships with customers. To implement a relationship-marketing approach, a company must first build better products through total quality management (TQM) and then emphasize customer service. The organization can then use customer relationship management (CRM) software and one-to-one marketing concepts to target consumers more effectively, efficiently delivering persuasive information and promotions. Compared with push tactics, relationship marketing is more agreeable to today’s customers — better service and more targeted offerings provide some competitive advantage. But although most CRM programs are developed on the basis of building a sophisticated data warehouse and mining that information, the next step is usually to hit the identified segments of customers with aggressive e-mail, phone and Internet promotions — with or without their permission.

More innovative companies have been moving beyond such approaches. Instead of a monologue, they are establishing a dialogue with their customers and are advocating for their needs. The assumption is that those customers will then reciprocate with their trust and enduring loyalty, leading to growth in sales and profits. Advocacy is a major step forward in the evolving relationship between companies and their customers (see “The Advocacy Pyramid”). The foundation of an advocacy approach is TQM (specifically, quality products) and satisfied customers. Customer advocacy is further supported by relationship marketing. In particular, learning about each customer and developing a relationship with those individuals helps a company to become a better advocate for their needs.

The Advocacy Pyramid

View Exhibit

As a company continues to develop its strategy toward customer advocacy though, it will use CRM differently. Initially, it might deploy CRM to target promotions and other information to certain customers. But later it will begin to use CRM programs to advocate for customers, providing them with objective advice in addition to open and balanced information. (In such cases, the process might better be labeled “advocacy relationship development” instead of “customer relationship management.”) And the company won’t use one-to-one and permission marketing simply to deliver information to highly targeted segments of customers. Rather, it will use such marketing techniques to establish a mutual dialogue with individuals in the hope of maximizing their interest in the firm’s available products and services.

In certain ways, the differences between push marketing and customer advocacy are reminiscent of the differences between theories X and Y on the management of employees. Proposed by the social psychologist Douglas McGregor in 1960, Theory X represents an old style of management that treats employees like mindless automatons who must be pushed into working. Theory Y, on the other hand, views workers as intelligent, responsible individuals who can be trusted to do a good job. Similarly, push marketing assumes that customers are passive individuals who must be coerced into buying. In contrast, advocacy marketing treats them like intelligent individuals who seek to make informed decisions about the goods and services they purchase.

The Elements of Customer Advocacy

The key to an advocacy strategy is that a company must become trustworthy in the eyes of its customers. To achieve that, organizations should consider the following eight factors:

Transparency

To develop trust-based relationships, a company must become more transparent to customers, supplying them with honest and open information. Internet travel services like Expedia and Orbitz, for example, provide information on virtually all flights and fares, enabling consumers to choose easily among different options. On the other hand, wireless telecommunication services have complex fee structures (including activation fees, roaming charges and early-termination fees) that make comparison shopping difficult.

Quality of Products and Services

Without quality, companies can never honestly recommend their own products, making it difficult for them to gain customer trust. Push strategies can use aggressive pricing to cover up marginal quality, but both relationship and advocacy strategies require high-grade products and services. In the 1980s, U.S. auto companies were manufacturing vehicles with more defects than their Japanese counterparts, but since then they have worked hard to improve, eventually achieving higher ratings from J.D. Power and Associates that enabled them to compete through the use of both relationship and advocacy strategies. Customer advocacy requires an even higher level of quality than relationship strategies because without superior products, a company that is honestly trying to represent the customers’ best interests will not be able to recommend itself.

Product Comparison

Even when a company has excellent products, those goods will likely not be the best choice for every possible customer. For an advocacy strategy to succeed, a company must be willing to tell prospective customers when they should instead consider a competitor’s offerings.

Alignment of Incentives

Savvy customers are suspicious of any incentives that a seller might have, and they are unlikely to trust a company fully unless they are confident that the relationship will be mutually rewarding and long term. A good example of a company that tries to maximize its alignment with customers is Charles Schwab & Co., the discount broker. Schwab pays its brokers a straight salary, unlike other brokerage firms that offer commissions on the basis of the number of transactions that a client makes — an incentive that can lead to brokers encouraging customers to buy and sell stocks excessively. Moreover, Schwab has no investment banking division and is thus free to offer unbiased ratings of company stocks.

Partnering

To develop trust, a company can partner with its customers. A good approach is to help customers help themselves. This tactic expands the notion of a consultative selling relationship into an engagement that is more purely consulting in which a company helps its customers even in areas outside of the strict boundaries of its product line. Although altruistic in appearance, such partnerships can greatly benefit a company if those customers prosper and increase their purchasing.

Cooperative Design

Collaborative work between a company and its customers helps build trust between the two parties, and many organizations have come to rely on their customers for valuable information, including design ideas. In the software industry, for example, user groups routinely help manufacturers by identifying bugs (and developing patches for them) and by creating lists of desired features for new releases. To encourage such activity, a company can supply its customers with tools to help them solve their problems, with the side benefit of creating customer solutions that sometimes lead to successful future products.11

Supply Chain

In many industries, manufacturers rely on a network of channel partners, such as distributors and retailers. Such organizations can greatly affect (for better or worse) a company’s brand image and its relationships with customers. Consequently, a company that implements an advocacy-marketing strategy must avoid channel partners with pushy salespeople, shady business practices or questionable ethics. As far as many customers are concerned, a company is only as trustworthy as its business partners.

Comprehensiveness

At first glance, customer trust might seem to be only the responsibility of a company’s marketing, advertising, sales and distribution functions. In reality, though, an advocacy strategy requires participation from the entire organization. For example, R&D, engineering and manufacturing are critical to creating high-quality products that meet the needs and standards of demanding customers. Human resources must hire the right people (and train them properly) for any job that requires interactions with customers. Management must create the incentives and organizational structures that lead to a culture of trust. Specifically, the values of the company must reflect the primacy of customer advocacy, and the organization must also engender the trust of employees and other stakeholders. After all, if employees can’t trust their own company, why should customers?

The Path to Advocacy

Some companies have had customer advocacy as their strategy from the ground up. The prime example is eBay Inc., which helped facilitate the exchange of more than $10 billion of goods in 2002. Consumer trust is the crucial element to that success, enabling the company to grow and support commerce between millions of seemingly anonymous buyers and sellers, even for expensive goods such as used cars, which at eBay accounted for transactions of $2.5 billion in 2002.12 To establish that trust, eBay tracks and publishes the reputations of both buyers and sellers on the basis of feedback from each transaction. A controlled experiment found that buyers bid 7.6% more for goods listed by repeat sellers with good reputations,13 and the eBay Web site creates the transparency needed for buyers to identify those parties easily. The company also has an aggressive fraud-protection program. Buyers who have switched their user identifications in the last 30 days are flagged to indicate the change; an escrow service (www.escrow.com) helps ensure that both payments and goods reach their respective parties; and another third party (www.squaretrade.com) helps to resolve any disputes. Such measures have helped to limit fraud to less than 0.01% of eBay transactions.

Other organizations have been trying to make the transition to customer advocacy, either from a strategy of push marketing or CRM. To accomplish that, they have stepped up their efforts with respect to the eight factors. Consider General Motors Corp., which has created a new software program that helps prospective customers select the vehicles best suited to their needs. Called AutoChoiceAdvisor, the tool asks buyers for information such as how they plan to use the car, how much they are willing to pay, what features they feel strongly about and what brands they like or dislike. Using that data, the advisor then presents a ranked list of its top eight suggestions, including vehicles from manufacturers other than GM.

Sponsored by GM and J.D. Power, the tool relies on unbiased data from the Automotive Information Center and J.D. Power. It has been implemented as an independent Web site (www.autochoiceadvisor.com) that an estimated 700,000 people visited in 2003, and it is also being used by third parties (such as Kelly Blue Book and Car Talk) that have certified the tool’s objectivity. The auto advisor has been expanded to capture explicit feedback pertinent to product development: A virtual engineer listens in on the dialogue between the advisor and customers to learn about unmet needs, and that information provides opportunities for future design improvements.14

AutoChoiceAdvisor is just one part of GM’s advocacy strategy. The company has also implemented “AutoShow in Motion,” a program that allows consumers to test drive and compare GM cars with those from other manufacturers, and a new dealer initiative that allows prospective buyers to test drive a GM vehicle for a 24-hour period. For owners of GM vehicles, the company has a Web site (www.mygmlink.com) that is a one-stop center for important information, including owner’s manuals, warranties and recall notices. The site also enables people to maintain records of their car servicing and estimate the value of their vehicles for trade-in or resale. And GM has sponsored an active Internet community to involve customers in the design of its new hydrogen fuel-cell vehicle. In such ways, GM has addressed a number of the eight factors (product comparison, transparency, supply chain, partnering and cooperative design), helping the company to move closer to a strategy of customer advocacy.

Another organization making similar efforts is General Electric Co. In a corporatewide initiative, GE is sharing its management experience with industrial customers in customized workshops and consulting engagements that teach Six Sigma and other methodologies “at the customer, for the customer.” Through the program, GE’s resident experts visit customers to help them improve specific business processes. These small-scale consulting efforts are conducted free of charge and are intended to help jump-start, rather than actually perform, the customer’s entire effort.

It is important to note that a project does not have to relate to GE in any way for GE to provide assistance; the goal is mainly to transfer best practices that will help GE customers remain profitable. For instance, GE’s aircraft engines division is helping the ailing airlines cope with the brutal downturn in the travel industry. The reasoning is simple: If airlines aren’t flying, they won’t need GE jet engines, spare parts or maintenance. And GE’s efforts in this area go far beyond those related merely to the products that the company sells and supports. The projects include any aspect of airline operations that GE’s expertise might help, from finance to flight scheduling to operations in the tire shop. After the Sept. 11 terrorist attacks, GE tripled the number of its teams in the field, and so far the company estimates that it has helped kick off efforts that have saved the airlines some $400 million. Other divisions at GE have also scored successes, helping Homer TLC Inc.’s Home Depot chain to improve workflows across its 1,300-store chain, reducing waiting times for CT scanners in hospitals and increasing copier sales in Europe. Overall, GE participated in 6,000 such projects in 2001, triple the number from the previous year.

GE’s initiative raises an important point. Although customer advocacy is important on the consumer side of marketing, it is even more applicable in business-to-business efforts. For industrial marketing, the rule of thumb is that just 20% of the sales force is responsible for 80% of the sales volume, and that effective minority frequently owes much of its success to building advocacy-based relationships with clients. Often, the best sales-people are those who help solve customer problems even when their company’s products are not involved.

Customer advocacy is also becoming a trend in the financial industry, particularly for credit unions, which are typically established to serve the interests of their members. Recently, a number of innovative credit unions — for example, First Tech (serving the Northwest region, including Intel and Microsoft employees), SACU (San Antonio), Mission Federal (San Diego) and Bellco (Colorado) — have implemented online advisors: Web-based tools that help customers select mortgages, loan programs, IRAs and other financial instruments.15 The mortgage advisor, for instance, educates customers about the complexity of mortgages (presenting explanations of terms and options, along with advice and caveats) to help people choose the one that is best suited for their circumstances. These types of online advisors have been well received. For example, 95% of people who have used the mortgage selector say they would recommend it to a friend.

For the credit unions, the online advisors have had substantial ancillary benefits. Although the technology is meant primarily for customers, the mortgage advisor has been a powerful time-saving tool for loan officers, helping them double their productivity by automating various functions. And the financial results have been impressive: After implementing the online advisors, the credit unions were able to grow their mortgage businesses by over 65% (after adjusting for changes in the interest rate).16

Even companies in industries that rely heavily on push strategies can make the move toward an advocacy-based approach. Consider Qwest in the wireless-telecommunications market. The company has faced an uphill battle in its efforts to become more trustworthy, as charges of fraud and accounting irregularities have shaken the confidence of customers and stakeholders. But under the new leadership of CEO Richard C. Notebaert, Qwest has embarked on an intensive campaign to rebuild employee trust and pride. The company has improved its TQM procedures and training of call-center personnel. It has also reduced its tele-marketing and simplified its rate plans by charging a flat fee of 5 cents per minute. Moreover, Qwest has developed a Web site (www.myqwest.com) that enables customers to perform various functions online, including reporting problems with their service, checking the number of wireless minutes they’ve used, viewing their bills and ordering products and services. The company is also developing a virtual advisor to help people select the best service package for themselves after they consider all plans, including those of competitors.

The Limits – and Advantages – of Advocacy

The efforts of Qwest, GM and others notwithstanding, an advocacy strategy is not suitable for every organization. Indeed, many companies face competitive situations, operating conditions or customer characteristics that preclude the use of such an approach. For instance, a company could enjoy a monopoly position in the marketplace, or its products could be undifferentiated, highly standardized commodities requiring little involvement from customers. Or buyers could be deal-prone individuals who evaluate offerings on price alone. In addition, an organization’s goals can be a major factor. If short-term results are crucial, then advocacy might not be the best approach because it requires a long-term outlook and patient expectations for return on investment.

That said, many companies have realized that there are advantages to being a first mover with respect to advocacy because once customers develop a trusting relationship with a supplier, they are much less likely to switch to a competitor. Trust creates a barrier to entry by increasing customer loyalty and by forcing would-be competitors to spend considerable time and resources to make inroads. If Qwest’s efforts in customer advocacy are successful, for example, the company could gain a leadership position in the telecommunications industry that competitors might find difficult to assail. Even when others do enter and try to gain customers’ trust, the pioneers can maintain their superior positions by continuing to innovate in the design of advocacy programs. In contrast, choosing not to embrace advocacy can present great risks to a company if competitors are able to gain the trust of customers first.

Topics

References

1. J.D. Power and Associates, “2002 New Autoshopper.com Study” (Westlake Village, California: J.D. Power, Oct. 10, 2002).

2. F.S. Morton, F. Zettelmeyer and J. Silva-Risso, “Internet Car Retailing,” Journal of Industrial Economics 49, no. 4 (December 2001): 501–519.

3. L. Sileo and J. Friedman, “PhoCusWright’s Online Travel Overview: Market Size and Forecasts 2002–2005,” vol. 5, no. 1 (Sherman, Connecticut: PhoCusWright, February 2003), 1.1.

4. Harris Interactive, “Four-Nation Survey Shows Widespread but Different Levels of Internet Use for Health Purposes,” Health Care News, May 28, 2002, http://www.harrisinteractive.com/news/newsletters/healthnews/HI_HealthCareNews2002Vol2_Iss11.pdf.

5. “Cybercitizen Health v2.0 — The Integration of Information Technology and Consumer Healthcare,” research study, Manhattan Research, New York, 2002.

6. J. Neff, “Spam Research Reveals Disgust With Pop-Up Ads,” Advertising Age, Aug. 25, 2003, 1.

7. J. Lukaszewski, ed., “Trust,” consumer study, Golin/Harris International, Chicago, February 2002.

8. Tandemar Research Inc., “Quality of TV Viewing Experience,” consumer study, Montreal, 2000.

9. Jupiter Research, “Marketing and Branding Forecast: Online Advertising and E-mail Marketing Through 2007,” vision report, Jupiter Research, New York, Sept. 16, 2002.

10. Ibid.

11. S. Thomke and E. von Hippel, “Customers as Innovators: A New Way To Create Value,” Harvard Business Review 80 (April 2002): 74–81.

12. N. Wingfield and K. Lundegaard, “Clicking the Tires: eBay is Emerging as an Unlikely Giant in Used Car Sales — Web Auctioneer Wins Drivers Seeking Deals on Wheels, and Plans for Long Haul — In the Beginning, Toy Ferraris,” Wall Street Journal, Friday, Feb. 7, 2003, A1.

13. P. Resnic, R. Zeckjhauser, J. Swanson and K. Lockwood, “The Value of Reputation on eBay: A Controlled Experiment,” working paper RWP03-007, Harvard University John F. Kennedy School of Government, Cambridge, Massachusetts, July 1, 2002.

14. G.L. Urban and J.R. Hauser, “‘Listening In’ To Find and Explore New Combinations of Customer Needs,” Journal of Marketing 68 (April 2004).

15. Author’s interview with Ross Blair, CEO, Experion Systems Inc., Maynard, Massachusetts, October 10, 2002.

16. G.L. Urban, “Digital Marketing Strategy: Text and Cases” (Upper Saddle River, New Jersey: Prentice Hall, 2003): 161–162.

Acknowledgments

Research was funded by the Center for eBusiness at MIT, General Motors Corp., Intel Corp. and Qwest Communications International Inc. The author is grateful to Vince Barabba, Ross Blair, Iakov Bart, Mary Murphy-Hoye, Jeff Katz, Melanie Kittrell, Andrea and Dana Meyer, Stefania Nappi, Brian Rhodes, Venkatesh Shankar, Ron Shelvin and Fareena Sultan. And the author acknowledges his MIT research assistants David Gagnon, Mahesh Kumar, Susan Lee, Lauren McCann, Rami Musa, Fernando Ramirez, Siva Ravikumar, Jessica Santiago and Telmo Valido.

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