The human mind treats a new idea the way the body treats a strange protein; it rejects it.

—P. B. Medawar

During the transition to a customer-centric model, enterprises frequently underestimate the degree to which all facets of the business—beyond “marketing” and other customer-facing parts of the company—will be affected by the changes and the ongoing efforts that will be required to achieve full business benefits. The organizational and cultural transition to customer management can sometimes represent a genuine revolution for the enterprise, but it is more likely to be successful when it can be treated as an evolution within the organization.

Here, we discuss three ways to speed this evolution process, any or all of which can be adopted by an enterprise:

1. Pilot projects and incremental change.
2. Picket fence strategy.
3. Segment management and portfolio management.

Pilot Projects and Incremental Change

Most companies launch their customer initiatives in a series of pilot projects. There are so many things to do, if a customer-specific perspective is to be adopted, that usually it is a relatively simpler process for a company to “cut and paste” various self-contained customer initiatives into the enterprise’s current method of operating. The objective, over the longer term, is to accumulate a large number of small improvements.

It is not necessary to resolve the customer-governance problem throughout the organization in order to launch a pilot project or to make an incremental change. Instead, the IDIC (Identify-Differentiate-Interact-Customize—see Chapters 3 to 10) implementation process itself is an ideal vehicle for conceiving and executing incremental changes. A small change might involve, for instance, obtaining, linking, and cataloging more customer identities, using a sweep of existing databases containing customer information. Or it could involve setting up a prioritized service level for customers now identified as having higher long-term value to the enterprise, or higher growth potential. Many incremental change initiatives are also likely to involve streamlining the customer interaction processes, so as to cut duplicative efforts or to resolve conflicting communications.

Particularly for large and complex organizations, often the most direct and immediate route to a broad transition for the overall enterprise is to implement a series of incremental changes, one small step at a time. Hewlett-Packard (HP), for instance, was a customer pioneer, and began trying to wean its corporate culture away from the simple worship of products in the 1990s, launching an effort to create a better balance for the enterprise, in which both customer growth and product excellence would be prized.

According to Lane Michel, at that time a marketing manager at HP (later a partner at Peppers & Rogers Group, and now VeraHeart), staying focused on incremental gains helped HP win acceptance for its overall program. “We try to avoid boiling the ocean,” says Michel. “Then again, it’s important to show immediate results. Those early successes earn you the right to take bigger steps.”¹

One example of such an incremental step was the customer-interaction program engineered by the Barcelona Division of HP’s Consumer Products Group, which produced, among other things, the DesignJet high-end printer. In order to make it possible to have a continuing dialogue with its customers, the division developed a Web site, HP DesignJet Online, to serve as a user-friendly channel for interactive customer communication. The password-protected site offered self-diagnostic tools to DesignJet customers as well as a quarterly newsletter, a user feedback section, new product notifications, and an upgrade program. The division counted on the site to increase market share, reinforce customer loyalty, and provide a steady stream of timely market knowledge.² Many other companies have set up similar programs to interact with users.

Another incremental but important step taken by HP was the development of a central and global electronic customer registration system, along with a master set of questions and a master customer database to store the information. The initiative was born from ideas and feedback generated across several of the company’s groups and geographies. The new system replaced paper registration, which had proved a poor method for collecting usable customer data.

Over time, baby steps like these added up to great strides. By 1999, HP had roughly 100 such incremental initiatives under way at various locations around the world, which it called “one-to-one campfires.” Each was being tracked and monitored centrally, with information made available throughout the HP enterprise on the firm’s intranet at a special relationship marketing section. Nearly every one of these initiatives, also, could be categorized easily in terms of which aspect of the IDIC implementation process it represented. Some of these early initiatives blossomed into major programs causing the reformulation of product designs, operational retooling, customer interactions, and management roles accountable for returns on investments made.

Keeping the process going required champions and leaders of change. At HP, these leaders initially had titles such as relationship marketing manager, customer advocacy manager, and installed base loyalty manager.³ Over time, vice presidents and marketing managers across HP took leadership of the company’s drive into customer experience, measurable results, and segment-wide changes.

A large number of incremental changes can add up to big change. In addition, an incremental change project itself could serve as a pilot for rolling out a particular idea or strategy across an entire division or enterprise. Pilot projects are a common method many companies use to make the kinds of changes required in the transition to a customer-strategy enterprise. But a pilot project differs, slightly anyway, from other forms of incremental change. A pilot project is, in essence, a feasibility study. It usually represents a test bed for trying out a new policy or strategy that, if successful, will be rolled out in a broader application. Therefore, the success metrics of the individual pilot project will have less to do with the actual profitability or business success of the pilot itself and more to do with an assessment of whether the idea represented by the pilot project would be beneficial if it were rolled out to the broader organization. And pilots have a built-in advantage when it comes to metrics. Because, by their nature, they usually involve only a selected portion of the enterprise, it is easier to measure the pilot’s performance against a “control group”—meaning, in essence, the rest of the enterprise, doing business as usual.

Incremental change projects are rarely undertaken to resolve the problem of relationship governance for the enterprise. One of the key benefits, in fact, of concentrating on the IDIC process implementation methodology is the fact that significant progress can still be made without having to come to grips with this very thorny problem. At some point, however, any enterprise that wants to begin engaging customers in actual relationships, individually, will have to deal with the issue of relationship governance, and there are at least two methods for dealing with it on an incremental or transitional basis.

Picket Fence Strategy

The right way to transform a company gradually into a customer management organization is not to do it product by product or division by division but customer by customer. And one way to begin such a transition is by placing just a few customers “under management,” then adding a few more, and a few more (see Exhibits 14.1 and 14.2). In order to make this type of transition successful, it must be recognized that the enterprise will be operating under different rules with respect to the customers under management than it will be with respect to all other customers. In essence, the customers under management will be fenced off and treated differently from the remainder of the customer base. As the transition progresses, the number of customers behind this “picket fence” will increase. As the portion of the customer base behind the picket fence continues to grow larger, the enterprise will be effecting a gradual transition to a customer management organization.

If an enterprise has ranked its customers by value, it can prioritize its transition in such a way as to place the more valuable customers behind the picket fence first. When customers go under management, the implication is that a customer manager in the enterprise will be setting objectives and strategies for each of them individually. The objective and strategy set for any particular customer should reflect the entire enterprise’s relationship with that customer. For this reason, at least with respect to the customers behind the picket fence, the customer managers must have not only an integrated view of the enterprise’s offering to and interactions with those customers, but they also must have authority to make policy and implement programs, on behalf of the enterprise, for everything from levels of service to inclusion in online pop-up advertising.

The picket fence transition strategy is especially compelling for companies that already identify their customers individually, during the natural course of their business, and differentiate them by value. This would include banks and financial services firms, telecommunications companies, personal services businesses, some retailers, and most business-to-business (B2B) companies with internal sales organizations. The highest-value customers at many companies like these are already being singled out for attention. If a retailer, for instance, has identified any customers who merit special treatment, it is likely they are the store’s very high-volume, repeat spenders; the “special treatment” might include assigning personal shoppers or relationship managers to watch over the individual interests of such customers. Because the picket fence strategy is already in place at such a firm, the enterprise’s goal should be to extend the idea and automate it, by codifying the business rules that are being applied and ensuring that proper metrics are in place.

Remember that the customer manager should own the business rules for determining all of the communications that her customers receive. This means that the enterprise’s general online offers, mobile messaging, or direct-mail pieces would not go to customers behind the picket fence without the initiation or approval of the customer manager responsible for them. For each customer behind the picket fence, there should be a particular objective and a strategy for achieving that objective, set by the customer manager. In fact, the customer manager will herself be rewarded and compensated based on her ability to meet the objectives set for each of her customers, one customer at a time. Over time, as technology makes it better and more cost-efficient to process customer information, and the enterprise gains more knowledge and confidence in the process, it can expand the picket fence and put more customers behind it.

Although the transition involves expanding the area behind the picket fence (i.e., placing more and more customers under management), the enterprise most likely will never actually place all of its customers behind the fence. Some customers, for instance, may not be willing to participate in a relationship of any kind, or to exchange information. Moreover, no matter how cost efficiently the enterprise has automated the process, there will always be customers who are not financially worth engaging in relationships.

Segment Management

Another way to begin the transition to a customer management organization is with segment managers. The picket fence transition is a customer-specific process that places an increasing number of individual customers under management; the segment management transition is a function-specific process that gives segment managers an increasing number of roles and capabilities with respect to their segments.

Remember that we chose the term portfolio rather than segment with deliberation, when we introduced the concept of customer management. The primary reason for this choice was to convey the thought that, in a customer portfolio, the customers themselves are uniquely identified and unduplicated: No customer would be in more than one portfolio at a time. And just as you manage each stock in your stock portfolio individually, you would manage each customer in your customer portfolio individually.

But even if an enterprise has not identified its customers uniquely, it still can differentiate them approximately, using survey-based consumer research and other tools. Even though the enterprise might not be able to classify any specific customer into a particular segment with certainty, the segments themselves represent different types of customers who have needs and values that are different from the customers populating other segments.

Segment management is particularly appropriate for the types of businesses that have greater difficulty identifying and tracking customers individually. The picket fence transition works best for companies that either identify customers in the natural course of their business or can easily do so, whereas the segment manager transition works for all other companies. A consumer packaged-goods company, for instance, might have a highly developed customer management organization already in place to ensure that its relationships with its retailer customers are managed profitably, but the company is unlikely to have the identities of more than a microscopic fraction of its consumer-customers—even those who interact with the company’s brands through Facebook or other online media. Such a firm might establish an organization of consumer segment managers who are responsible for shaping the firm’s advertising and promotion efforts with respect to particular segments of consumers, across a variety of different products and brands.

A segment management organization, therefore, can be thought of as a transition state somewhere between product management and customer management. The most critical missing ingredient in a segment management operation is likely to be the capability to identify individual customers and track their interactions with—and individual values to—the enterprise over time. Until the enterprise is able to add this capability, it will not be able to move from segment management to true customer portfolio management. But even in the absence of customer-specific capabilities, a segment management organization still can be a useful tool for an enterprise to begin treating different customers differently and for creating the value proposition for the relationships that eventually could come.

Customer Portfolio Management

At the heart of the customer management idea is the concept of placing customer managers in charge of portfolios of separate and individually identifiable customers who have been differentiated by their value to the enterprise and grouped by their needs. It is these customer managers who are charged with managing customer profitability. This is the core structure of the customer management organization, one in which each individual customer’s value and retention is the direct responsibility of one individual in the enterprise. Managers may each be in charge of a large number of customers or portfolios, but the responsibility for any single customer is assigned to one customer manager (or, in a B2B setting, often to a customer management team). That manager is responsible for building the enterprise’s share of customer (SOC) for each of the customers in his portfolio and for increasing each customer’s lifetime value (LTV) and potential value to the enterprise (see Chapter 5).

The responsibility for customer management may spring from the marketing department, or sales management, or product development, or even, occasionally, from the database and analytics department, where the customer data are housed. Wherever in the organization customer management resides, however, it must have a clear voice in the enterprise and have enough power to make decisions and influence other areas of the enterprise. One difficulty for this group is that the enterprise might try to hold it accountable for increasing the value of customers but fail to give it the authority to take the appropriate actions with respect to those customers. In the customer-value-building enterprise, the customer strategies should become the unifying theme for the organization; other areas of the enterprise should be made to understand how their own departmental goals relate to the customer strategies developed by the customer management group, and these other departments should be held accountable for executing the strategies ultimately designed to increase customer equity.

Transition across the Enterprise

Many companies believe that the biggest hurdle to becoming a successful customer-strategy enterprise is choosing and installing the right software, or setting up Big Data or the idea of managing and analyzing a dizzying flood of customer data. This unfortunate outlook has led to poor results on customer initiatives. Many organizations learn the hard way that customer relationships cannot be installed; they must be adopted. The biggest hurdles to successful customer management have little to do with technology. The greatest obstacles are a firm’s traditional organization, culture, processes, metrics, and methods of compensation. The transition needed will affect not just the whole enterprise but each of its parts as well. Let’s take a look at the changes that the enterprise will face.

Transition Process for Other Key Enterprise Areas

Finance, research and development (R&D), information technology/information services (IT/IS), and human resources (HR) also need to make the transition to a customer-strategy organization, but these changes are not as readily apparent as those required by the marketing, sales, and customer service organizations. All four areas are directly responsible for capabilities building—or how well the organization is able to adapt and change to the new processes. For now, let’s look at how the transition affects these other areas of the enterprise in more detail.

Managing Employees in the Customer-Strategy Enterprise

The road to becoming a customer-value-building enterprise is fraught with speed bumps. We have shown so far how the transition requires a new organizational infrastructure—one that is populated by customer managers and capabilities managers who fully support the migration from day one. The enterprise moving to a customer-strategy business model will likely require new capabilities for relating to customers individually. It will need to assess where the gaps lie in its established capabilities so it can improve its focus on customers, not just products, and build profitable, long-term customer relationships.

Organizations used to be simpler to manage, because most tasks were routine, most problems could be anticipated, and desired outcomes could be spelled out in official policy. An employee’s job was to follow the policy. But with the advent of new information and communications technologies, more and more of these routine tasks have been automated or outsourced, and the resulting organizations are slimmer and more efficiently competitive. What remains at most firms, and will continue to characterize them, are the functions and roles that cannot be automated or outsourced. These are the kinds of jobs that require employees to make decisions that cannot be foreseen or mapped out and therefore aren’t spelled out in the standard operating processes. These jobs require nonroutine decision making. Many of them involve high-concept roles and other functions that simply can’t be covered by a rule book.

At a bank in Australia, one contact center manager was very determined to create an environment that created good experiences for thousands of customers who reached the contact center every day. Although many of the issues, problems, and queries raised by customers could be handled by training and established protocol, there were inevitably many callers and online customers who presented new issues. Rather than frustrate the customer by making her wait while the rep went to find a “supervisor,” the contact center manager encouraged reps to figure out what would be good for the customer and fair to the company, and if that rep could get another rep to agree the idea was sound, the original rep could help the customer promptly and effectively. Later the incident could be incorporated into future training, if it seemed to predict a trend, but even in the moment, it saved executive time and created a better customer experience.¹¹

In A Whole New Mind, author Dan Pink persuasively describes this new, postautomation, postoutsourcing “Conceptual Age.” It may once have been true that information workers would inherit the world, but today’s information workers can live in Ireland or China, and even doctors and lawyers are finding their jobs increasingly threatened by computers and online substitutes. Indian technology schools turn out some 350,000 new engineers a year, and most of them are willing to work for $15,000 annual salaries. So what type of work can’t be outsourced or automated? Pink says the type of work that will characterize successful executives in the future (at least in the United States and other advanced Western economies) is work that involves creativity and sensitivity and requires skills in design, entertainment, storytelling, and empathy. This idea makes sense. Consider lawyers, for instance: Legal research and paperwork can be outsourced to Ireland or India, but cases have to be argued to juries in the courtroom, in person. Or doctors: X-rays can be evaluated remotely and diagnoses rendered, but bedside manner has to happen, well, bedside.¹²

This trend is already showing up in employment figures. According to one prediction, about half of total employment in the United States is in the high-risk category of being at least partly automatable in the next decade or so. Even in the seemingly human fields of diagnosing illness and fraud detection, for example, estimates suggest “that sophisticated algorithms could eventually substitute for approximately 140 million full-time knowledge workers worldwide.”¹³ In another view, supply chain, production and transactional jobs, which recently made up about 60 percent of the workforce, are being automated rapidly, while the other 40 percent of jobs, involving nonroutine decision making, have grown two and a half times faster in recent years and pay 55 percent to 70 percent more than routine jobs.¹⁴ There are limits; certain manual labor require human dexterity that is not likely to be replaced with robots very soon—such as dentists, cooks, and gardeners. The nonroutine jobs require workers to deal with ambiguous situations and difficult issues—problems that often have no direct precedent or at least no “correct” solution—in creative areas, and in arenas requiring interpersonal contact; machines are not good at “motivating, nurturing, caring, and comforting people.” So entrepreneurs, kindergarten teachers, salespeople, CEOs, and nurses have job security for the foreseeable future.¹⁵

A company can automate the contact report a sales rep has to file, but it can’t get a computer to look into a client’s eye and judge whether to push for the sale right away or ask another question first. Jobs like this require judgment, creativity, and initiative on the part of the employee. As a result, according to one study, many companies are turning their attention to “making their most talented, highly paid workers more productive,” because this is the surest way to gain competitive advantage.¹⁶

Companies have spent the last several decades economizing, streamlining, and automating their more routine, core processes, but the cost and efficiency advantages they secured from these activities were short-lived, as the benefits of automation quickly permeated whole industries and their competitors became equally efficient. Efficiency, cost cutting, running lean and mean—these are just the greens fees required to remain in the game. By contrast, when a company gains an advantage by making its nonroutine decision-making employees more productive and effective, that company is building a competitive advantage, described by three authors writing in the McKinsey Quarterly as likely being:

more enduring, for their rivals will find these improvements much harder to copy. This kind of work is undertaken, for example, by managers, salespeople, and customer service reps, whose tasks are anything but routine. Such employees interact with other employees, customers, and suppliers and make complex decisions based on knowledge, judgment, experience, and instinct.¹⁷

If an enterprise can figure out how to manage these “conceptual age” employees better, in other words, it will have an advantage that is hard for a competitor to see or imitate. Good managers will “grapple with the tricky business of redefining processes and roles.”¹⁸ The secret, however, is not technology and process, because it just can’t be spelled out like that. If it could be documented in advance and defined as a process, then it could be automated, right?

Just as the customer-strategy enterprise strives to keep and grow its customers, so too must it seek to keep and grow its best employees. The truly customer-centric organization will be better able to do this, however, because of its very corporate mission. If the firm’s mission is encapsulated by earning the trust of customers, always acting in the interest of customers, this philosophy itself can provide the underpinnings for a culture of trust to permeate the entire organization. If employees are taught that every problem at the firm needs to be tackled from the standpoint of respecting the interests of the customer involved, then it is only a very short step to suggest that employee problems should be addressed from the standpoint of respecting the interests of the employee.

Jonathan Hornby, visionary and performance management expert at SAS Institute, cites an example of a bank in which Department A believed Department B was a drain on resources (and this attitude was likely a drain on company culture). Their manager used a tool created by Joel Barker called the Implications Wheel®, where employees were prompted to specify the first-order, second-order, and third-order implications of a certain action—in this case, eliminating Department B. By the time both departments completed this exercise, Department A realized that their potential customers came directly from Department B, and they changed their position of their own accord. Strategic managers will come up with similar creative ways to encourage trust and transparency between employees as well as with customers.¹⁹

Mike Volpe, CMO of Hubspot, described a moment when the company had doubled and he realized he was becoming a bottleneck to his team by requiring his approval on everything they did. He also began town hall meetings called “Ask Mike Anything,” and feedback showed that trust and happiness improved as he trusted his staff more, and they could query him openly in a way that helped them trust him more.²⁰

Trustworthiness is not an elastic concept. It doesn’t stretch. No one ever has just “some” integrity.²¹ You either have integrity or you don’t. You are either trustworthy or you are not trustworthy. And if earning the trust of customers is the central mission at a company—the primary way it creates value through first-rate experiences, and grows—then it is highly likely that this business will also enjoy the trust of its employees, since research confirms that employees’ trust in and helpfulness to each other is the primary indicator of the success of work teams and achieving objectives.²² And earning and keeping the trust of employees may be the single most critical step to having a productive and value-creating organization.

Never forget, also, that employees are not only networked with each other, they’re networked with the rest of the known universe. The same interactive technologies that empower customers to share their experiences electronically with other customers also empower the employees at any firm to share their own experiences with the employees at other firms. The old “command and control” philosophies of management—philosophies that might have worked reasonably well throughout most of the twentieth century, are no longer very effective. It’s been over a decade since Doug Monahan, founder and chairman of tech marketing firm Sunset Direct, sent this charming message to employees:

I expect my computers to be used for work only. Should you receive a personal call, keep it short. Should you receive a personal email, I expect the email either not answered, or a brief note telling whoever is sending you emails at work to stop immediately. Should I go through the machines, which I assure you, I will be doing, and I find anything to the contrary, you will be terminated immediately. For those who think I am kidding, and do not get with this program, I promise you that by Christmas Eve 8:00 you will be gone.²³

Not surprisingly, it’s difficult for a company such as Sunset Direct to trust employees. And for good reason. In such a setting, it’s nearly impossible for anyone to feel good about anybody; and, whatever culture develops, it certainly won’t be based on trust. Soon after this ominous threat was issued, however, and in direct violation of the edict, a Sunset Direct employee used one of the company’s computers to post Monahan’s message on InternalMemos.com, where it has now become a legend. Doug Monahan has realized immortality on the Web, as Scrooge.

Contrast that with the leaders at the companies that have made the lists of “The 100 Best Companies to Work For” and “100 Best Companies for Working Mothers.” Carlson Companies has been on both lists. Marilyn Carlson Nelson was at the helm of Carlson, Inc., as its chief executive officer from 1998 to 2008. Here are her views about it.

We have a spent a good deal of time thinking about how to evolve from traditional product-centric companies to customer-centric companies. But in the final analysis, it is almost certain to be the new companies and the start-ups that employ these tactics to overturn the old way. They have less invested in the current paradigm, and less to lose by destroying it. They will realize from Day One that customers account for all revenue, that building stronger relationships with customers and generating better experiences for those customers is the path to success, and they will deliberately build cultures of trust based on doing things right and doing the right thing, proactively. Gradually, they will use trustability to transform our entire economic system, in the same way that interactivity itself has so dramatically transformed our lives already. They will deploy honesty as a brutally efficient competitive weapon against the old guard.

As standards for trustability continue to rise, the companies, brands, and organizations shown to lack trustability will be punished more and more severely. But the sting of the transparency disinfectant will be greatest when the wounds are new. Very soon, for competitive reasons, all businesses, old and new, will begin to respond to the increase in demand for trustability by taking actions that are more worthy of trust from the beginning—that is, actions that are more transparently honest, less self-interested, more competently executed, less controlling, and more responsive to others’ inputs. More proactively trustworthy. Trustable.

Summary

We have been reinforcing the idea that a customer-based initiative is not an off-the-shelf solution but rather a business strategy that will imbue an enterprise with an ever-improving capability to know and respond to its customers’ individual needs. Executed through a cyclical process, customer-strategy principles can provide an enterprise with a powerful source of competitive advantage. But doing so requires organizational commitment, careful planning, and, ultimately, a well-orchestrated array of people, culture, processes, metrics, and technology. Successful implementation comes only with an understanding of the nature of this comprehensive business model.

Customer-centric companies depend on listening to the voice of the customer, managing customer data, and using that data to build better customer relationships through better customer experiences. This happens throughout the organization—not just in marketing, sales, customer care, and customer experience, but also in finance, technology, research and development, and human resources. By definition, all revenue comes from customers, and therefore, ultimately, every employee has a role to play in increasing that customer revenue for this quarter and in the future.

Food for Thought

1. Choose an organization and draw its organizational chart. How would that chart have to change in order to facilitate customer management and to make sure people are evaluated, measured, and compensated for building the value of the customer base? Consider these questions:
   1. If a customer’s value is measured across more than one division, is one person placed in charge of that customer relationship?
   2. Should the enterprise establish a key account-selling system?
   3. Should the enterprise underwrite a more comprehensive information system, standardizing customer data across each division?
   4. Should the sales force be better automated? Who should set the strategy for how a sales rep interacts with a particular customer?
   5. Is it possible for the various Web sites and call centers operated by the company to work together better?
   6. Should the company package more services with the products it sells, and if so, how should those services be delivered?²⁴
2. For the same organization, consider the current culture. Can you describe it? Would that have to change for the organization to manage the relationship with and value of one customer at a time? If so, how?
3. At the same organization, assume the company rank-orders customers by value and places the MVCs behind a picket fence. What happens to customers and to customer portfolio managers behind that picket fence?
4. In an organization, who should “own” the customer relationship? What does that mean?

Note: Because this topic spans two chapters, we have included the Food for Thought questions twice for ease of use.

Glossary

Business model

How a company builds economic value.

Business rules

The instructions that an enterprise follows in configuring different processes for different customers, allowing the company to mass-customize its interactions with its customers.

Customer care

See Customer service.

Customer centricity

A “specific approach to doing business that focuses on the customer. Customer/client centric businesses ensure that the customer is at the center of a business philosophy, operations or ideas. These businesses believe that their customers/clients are the only reason they exist and use every means at their disposal to keep the customer/client happy and satisfied.”²⁵ At the core of customer centricity is the understanding that customer profitability is at least as important as product profitability.

Customer churn

The rate at which customers leave and enter the franchise. High churn indicates a simultaneously high number of defecting customers and high number of new customers. Usually a symptom of low customer loyalty. Also called churn rate or turnover.

Customer equity (CE)

The sum of all the lifetime values (LTVs) of an enterprise’s current and future customers, or the total value of the enterprise’s customer relationships. A customer-centric company would view customer equity as its principal corporate asset. Below the enterprise level, “customer equity” can also be measured as it applies to individual segments or groups of customers.

Customer interaction center

Where all calls are handled, regardless of type, for a certain customer segment or customer portfolio.

Customer life cycle

The “trajectory” a customer follows, from the customer’s first awareness of a need, to his or her decision to buy or contract with a company to meet that need, to use the product or service, to support it with an ongoing relationship, perhaps recommending it to others, and to end that relationship for whatever reason. The term customer life cycle does not refer to the customer’s actual lifetime or chronological age but rather to the time during which the product is in some way relevant to the customer.

Customer manager

A customer manager is the person at an enterprise who is “in charge” of particular customer relationships. The customer manager’s objective is to increase the value of the customers in his or her charge, and the authority required to do this should include responsibility for every type of individually specific action or communication that the enterprise is capable of rendering to the customer. In communication, this would mean that the customer manager would control the enterprise’s addressable forms of communication and interaction, with respect to his or her specific customers.

Customer portfolio

A group of similar customers. The customer-focused enterprise will design different treatments for different portfolios of customers.

Customer portfolio management

The deliberate management of a portfolio of customers to optimize the value of each customer portfolio to the firm. By utilizing the feedback from each customer, a portfolio manager analyzes the differing values and needs of each customer and sets up the best treatment for each customer to realize the largest return on each relationship, often in an automated way using business rules.

Customer relationship management (CRM)

As a term, CRM can refer either to the activities and processes a company must engage in to manage individual relationships with its customers (as explored extensively in this textbook), or to the suite of software, data, and analytics tools required to carry out those activities and processes more cost efficiently.

Customer service

Customer service involves helping a customer gain the full use and advantage of whatever product or service was bought. When something goes wrong with a product, or when a customer has some kind of problem with it, the process of helping the customer overcome this problem is often referred to as customer care.

Customer service representative (CSR)

A person who answers or makes calls in a call center (also called a customer interaction center or contact center, since it may include online chat or other interaction methods).

Customer’s point of view

Thinking the way the customer thinks, within the context of daily business processes as well as customer interactions. Customer advocacy is the set of actions that results from taking the customer’s point of view, or treating the customer the way you would want to be treated, if you were the customer.

Customer-strategy enterprise

An organization that builds its business model around increasing the value of the customer base. This term applies to companies that may be product oriented, operations focused, or customer intimate.

Differentiate

Prioritize by value; understand different needs. Identify, recognize, link, remember.

Identify

Recognize and remember each customer regardless of the channel by or geographic area in which the customer leaves information about himself. Be able to link information about each customer to generate a complete picture of each customer.

Interact

Generate and remember feedback.

Lifetime value (LTV)

Synonymous with “actual value.” The net present value of the future financial contributions attributable to a customer, behaving as we expect her to behave—knowing what we know now, and with no different actions on our part.

Most growable customers (MGCs)

Customers with high unrealized potential values. These are the customers who have the most growth potential: growth that can be realized through cross-selling, through keeping customers for a longer period, or perhaps by changing their behavior and getting them to operate in a way that costs the enterprise less money.

Most valuable customers (MVCs)

Customers with high actual values but not a lot of unrealized growth potential. These are the customers who do the most business, yield the highest margins, are most willing to collaborate, and tend to be the most loyal.

Needs

What a customer needs from an enterprise is, by our definition, synonymous with what she wants, prefers, or would like. In this sense, we do not distinguish a customer’s needs from her wants. For that matter, we do not distinguish needs from preferences, wishes, desires, or whims. Each of these terms might imply some nuance of need—perhaps the intensity of the need or the permanence of it—but in each case we are still talking, generically, about the customer’s needs.

Picket fence

An imaginary boundary around customers selected for management. Customers outside the picket fence likely will be treated as customers have always been treated, using mass marketing and traditional customer care; each customer behind the picket fence, however, will be the management responsibility of a customer portfolio manager, whose primary responsibility will be to keep and grow each of the customers assigned to her.

Potential value

The net present value of the future financial contributions that could be attributed to a customer, if through conscious action we succeed in changing the customer’s behavior.

Relationship governance

Defines who in the enterprise will be in charge when making different decisions for different customers, with the goal of optimizing around each customer rather than each product or channel.

Relationship manager

See Customer manager

Return on Customer (ROC)

A metric directly analogous to return on investment (ROI), specifically designed to track how well an enterprise is using customers to create value. ROC equals a company’s current-period cash flow (from customers) plus the change in customer equity during the period, divided by the customer equity at the beginning of the period. ROC is pronounced are-oh-see.

Sales force automation (SFA)

Connecting the sales force to headquarters and to each other through computer portability, contact management, ordering software, and other mechanisms.

Share of customer (SOC)

For a customer-focused enterprise, share-of-customer is a conceptual metric designed to show what proportion of a customer’s overall need is being met by the enterprise. It is not the same as “share of wallet,” which refers to the specific share of a customer’s spending in a particular product or service category. If, for instance, a family owns two cars, and one of them is your car company’s brand, then you have a 50 percent share of wallet with this customer, in the car category. But by offering maintenance and repairs, insurance, financing, and perhaps even driver training or trip planning, you can substantially increase your “share of customer.”

Social media

Interactive services and Web sites that allow users to create their own content and share their own views for others to consume. Blogs and microblogs (e.g., Twitter) are a form of social media, because users “publish” their opinions or views for everyone. Facebook, LinkedIn, and MySpace are examples of social media that facilitate making contact, interacting with, and following others. YouTube and Flickr are examples of social media that allow users to share creative work with others. Even Wikipedia represents a form of social media, as users collaborate interactively to publish more and more accurate encyclopedia entries.

Supply chain

A company’s back-end production or service-delivery operations.

Total Shareholder Return (TSR)

Represents the change in capital value of a listed/ quoted company over a period (typically one year or longer), plus dividends, expressed as a plus-or-minus percentage of the opening value.

Value of the customer base

See Customer equity.