Treating different customers differently could be prohibitively expensive, if every interaction and transaction had to be individually crafted as a tailored offering for a single customer. Fortunately, information technology can be used to improve and streamline the manufacturing and service delivery processes, so that an enterprise can deliver individually different products or services to different individual customers cost efficiently. This technique is called mass customization.

For the past 100 years, enterprises have standardized their products and services to take advantage of economies of scale. They have standardized the product and their messages about the product, and they have standardized its distribution. In the process, they have also standardized the customer. Even sophisticated segmentation strategies aggregate customers into groups a marketer defines as being alike, so the communication and the offer made to all customers in a “segment” can be standardized. By contrast, the customer-strategy enterprise, spurred by the rising power and declining cost of information processing, interconnectedness, and customization technologies, identifies each of its most valuable customers (MVCs), remembers everything it learns about each one, and acts on that learning in all its dealings with that customer.

Mass customization can be defined as the mass production of goods and services in lot sizes of one. Stan Davis, who first coined the term in his groundbreaking book Future Perfect, says the term implies delivering “customized goods on a mass basis.”¹ The principles of mass customization are not limited to physically produced goods; they can also be applied to the customization of services and communication. For some customers, being treated individually with personalized services and communication may be an even more important dimension than being treated to uniquely tailored products made possible by individualized production.²

How Can Customization Be Profitable?

The mechanics of mass customization are simple in theory. A mass customizer does not really customize anything at all—at least not from scratch. What a mass customizer actually does is not customization but configuration. The mass customizer preproduces dozens, or hundreds, of “modules” for a product and/or its related services, delivery options, payment plans, and the like. Then, based on an individual customer’s needs, the company puts different modules together to yield thousands, or even millions, of possible product configurations, but a customer will only be offered one or a very few.³ When an enterprise embraces mass customization and determines how to modularize its offerings, it must thoroughly understand all of the component elements its products or services can be combined with, connected to, reduced from, or built onto. By determining the related products or services it could offer to customers, either by producing them itself or by forming alliances with other firms, the enterprise takes a critical step in the mass customization process (see Exhibit 10.1).

Consider how a credit card company might go about mass-customizing its credit card. Perhaps the company is capable of offering 10 different interest rates, 5 different annual fee schedules, and 4 different physical card designs. Altogether, in other words, the credit card company can make 19 different modules of the product. But these modules fit together to make a total of 10 × 5 × 4, or 200 different credit card configurations. This is the basic principle of mass customization, and it applies to manufacturing in the same way. A window manufacturer, for instance, could offer 5 different sash types, 10 windowpane styles, 3 grades of insulation, and 12 frames. That would be 30 modules that could configure a total of 1,800 different windows, many of which would never be requested but any of which could be configured on demand. An important part of this process is the customer interface that makes individual configuration easy for both the customer and the company.

The biggest obstacle to mass-customizing a manufactured product, as opposed to a delivered service, is simply ensuring that different parts actually work with one another and can be fit together easily. But if a product’s components can be put together in a standardized way, or modularized, then the process of mass customization actually can reduce a company’s all-in costs, when compared to traditional mass production. Using modularization, building to order is inherently more efficient than building to forecast, because the enterprise need not take ownership of the parts any earlier than it needs them, and often the final product itself isn’t even built—or the parts even ordered—until the product has already been paid for by a customer. Mass customization can significantly reduce speculative manufacturing as well as inventory costs, and these two benefits are often enough to more than offset the cost of producing digitally combinable components. Indeed, cost reduction is one of the principal reasons manufacturing companies consider mass-customization technologies in the first place.⁴

Consider NikeID shoes, which has been customizing shoes since 1999, and now capitalizes on sharing sites such as Instagram, where buyers show off their newly configured colors and styles.⁵ Original Stitch lets customers configure a shirt from 200 fabrics, 10 button styles, and multiple monogram options. “With more than 176 trillion different possible combinations, each design is as unique as the customer that built it,” says founder Jin Koy. Original Stitch has no inventory and no warehouse for shirts, but does help you post your new design on Facebook and Twitter for your friends.⁶ Adagio Teas encourages custom blends on their Web site, which incorporates comments and reviews, and social media sharing.⁷

Analogous cost reductions are possible when mass-customizing a delivered service. By giving a customer exactly what she wants—and especially if the enterprise remembers this preference for the next interaction—the entire transaction can be streamlined, made not only more convenient for the customer but more cost efficient for the firm. Some banks, including Wells Fargo, can remember your “usual” transaction, if you have one, at automated teller machines (ATMs). In these banks, when you put your card into an ATM and enter your personal identification number (PIN), the first menu item will offer you your usual cash withdrawal amount and receipt preference. This means the first question for returning customers will not be “What language do you prefer to use?” or “Do you want to (a) check your balance, (b) withdraw funds, (c) make a deposit, (d) transfer funds between accounts, or (e) other?” but instead will be “Would you like your usual $250.00 cash deducted from your checking account—yes or no?” Remembering a customer’s “usual” not only provides faster and more convenient service for him, but it also yields more efficient asset utilization for the bank—that is, the ATM asset will generate more value to the bank when customers use it faster, and from the customers’ perspective, the line moves faster.

Technology Accelerates Mass Customization

No matter how much value an enterprise adds, it is the value a customer adds for herself that makes a product or service worth a higher price. As the demand for personalized and customized products grows, more enterprises are offering build- to-order services to enable customers to configure products to their own needs—and improvements in technology have made it possible. Technology is enabling enterprises to meet their customers’ demands through mass production, but in ways that offer people their own choice of products that are personalized and made to measure.¹⁸ The Web, for instance, has become an ideal tool for mass customization, precisely because anything that can be digitized can be customized. The Web permits consumers to submit their specifications online directly to the manufacturer or sales executive.

Capital One Financial Corp. developed a successful mass-customization model that changed the credit card industry.¹⁹ The company is best known for gathering and analyzing consumer and customer data. Technology enables Capital One to observe and evaluate customer preferences and behavior and to do so dynamically, by market segment. The company can forecast trends and strategically shift its focus away from commoditized products, such as balance transfer cards, before the market is saturated with offers from competitors. Capital One planned for the obsolescence of balance transfer cards and plotted a course to move the credit card company into mass customization. This strategy enabled the firm to leverage its information resources to identify customers with low-limit, high-fee potential and to send these customers the marketing materials about products that would likely interest them, such as secured cards for people with poor credit. Using a database that contains the histories of all consumer interactions with Capital One enabled the firm to customize its credit card offerings. Capital One’s ImageCard also has allowed customers to add a personalized image to their card for free—well worth it, considering that it increases security and is popular enough with customers to increase use per card by 15 to 20 percent.²⁰

One technology that has begun to deliver on its promise of affordable customization is 3-D printing. Created in 1980s by engineer Charles Hall, 3-D printing was typically used for making a plastic or resin prototype of an object that would then be manufactured. 3-D printing takes a digital file of a 3-D object and uses software to print it in layers to form the object. Today materials used in printing include not only plastics, but silver, gold, and other metals, ceramics, wax, even food. And uses are growing. The machines are falling in price, and Staples and Amazon now offer 3-D printing services, and the list of 3-D-printed products generally available includes nuts, bolts, earbuds, eyeglasses, athletic cleats, jewelry, cremation urns, Star Wars figurines, architectural models, and even entire houses.²¹ Pop-up stores in shopping malls now offer 3-D selfies, so you can have a tabletop statue of yourself or your pet.

The ultimate in customization may be 3-D printing of biological parts that allow custom-made medical solutions—stents that fit exactly into a person’s unique individual valves, titanium plates that are printed to precisely replace damaged bones in faces, and knee implants. Sometimes a 3-D printed model of a patient’s body part is used by surgeons for practice. The holy grail will be a working organ, printed with live cells.²² Already 3-D printing has overhauled the American hearing aid industry.²³

Although a lot of major manufacturing such as cars, planes, and drones, is moving toward 3-D printing to save money, 3-D printing also offers small businesses a way to enter the market affordably. With 3-D printing, inventors and personalizers can produce a new product on demand, bypassing the need for inventory, investors, working through online 3-D communities and marketplaces such as Shapeway.²⁴ It raises huge questions about legal ownership of parts and other physical objects, but giant machines could be used to produce inexpensive housing (imagine giant Lego blocks!) to reduce homelessness and displacement.²⁵

Customizing products and services can yield a competitive advantage if the enterprise deploys the correct design interface and remembers its customers’ unique specifications and interactions. By linking an individual customer’s interactions with previous knowledge of that customer, and then using that learning to drive the production process, the enterprise takes an integrative approach to competition—one customer at a time.

Customization of Standardized Products and Services

When the executives of a company believe they can sell only standardized products, sometimes those executives bemoan their inability to participate fully in the strategic payback of the customer relationship revolution. It’s important to realize that even companies that cannot customize a product per se still can customize what they offer to individual customers and thus build loyalty through customer experience, and also build Learning Relationships. A company may, for example, be able to change the product, add features, or combine it with other products. It may be able to sell standardized product, but provide various services that enable a customer to receive personalized attention before and after she buys the product, and make it possible for her collaboration with the firm to benefit her. The company that truly cannot mass-customize its products can look for service and communication opportunities to build in mass customization that makes the customer’s investment in the relationship pay off—for both the customer and the company. There are many customization options beyond the physical product itself, and many ways an enterprise can modify how it behaves toward an individual customer, other than customizing a physical product. These include mass customization of:

• Configuration of the product or services surrounding it
• Bundling of multiple products or services
• Packaging
• Delivery and logistics
• Ancillary services (repair, calibration, finance, etc.)
• Training
• Service enhancements
• Invoicing
• Payment terms
• Preauthorization

The key, for any enterprise trying to plan ways to tailor its products and services for individual customers, is to visualize the “product” in its broadest possible sense—not simply as a product but as an object that provides a service, solves a problem, or meets a need. One widely cited Harvard Business Review article suggested, for instance, that we should try to think of products as being “hired” by customers to do a “job,”²⁶ and this is even more true as the Internet of Things makes products smarter and smarter and companies can know and remember more and more about each customer who uses the product.²⁷ This is exactly what we mean when we talk about visualizing the broadest possible definition of the service a product provides, or the problem it solves, for a customer. And this is where a strict adherence to the discipline of differentiating customers by their needs will pay off. What a customer needs and what she buys are often two different things. But if an enterprise has a full understanding of the customer’s own need, then that enterprise can often devise a customized set of services or products that will meet that need. Meeting the customer’s need is the service being performed by the enterprise, and the product itself is the means for delivering that service, or for doing that “job.”

This product-as-service idea can be thought of in terms of three successively complex levels in the set of needs a customer is trying to meet (see Exhibit 10.3):

1. The core product itself includes its physical nature, if it is an actual product, or its component services and executional elements, if the core product is actually a service. Customizing the core product could include:
   • Product configuration
   • Features or capabilities
   • Fit and size
   • Color, design, style
   • Timing or frequency
2. The product-service bundle includes the services and features that surround the core product. Customization of the product-service bundle could include:
   • Invoicing, billing, and cost control (i.e., helping the customer manage or control costs)
   • Additional services
   • Packaging and palletization of the products
   • Promotion and marketing communication
   • Help lines and product support
3. The expanded need set includes product or service features that could meet related customer needs, enhancing or expanding the customer’s original set of needs. Activities undertaken to customize an expanded need set could include:
   • Offering related products or services.
   • Forming strategic alliances with other firms serving the interests of the same customers.
   • Providing the customer with opportunities to collaborate in product or service design.
   • Offering value streams of services or benefits following the actual sale of a product or service (more on value streams later in the chapter).

As the definition of the customer’s need is broadened and as the need set is expanded, the definition of the product itself will become more complex. With a more complex product, the enterprise can make customization more beneficial. At each successive level of product complexity, the enterprise has another opportunity to remember something that later will make a difference to a specific individual customer. Remember, when a customer base is characterized by customers with dramatically different needs, remembering an individual customer’s own personal needs or preferences will be highly beneficial to the customer. The more different the customers are in terms of their needs, the more benefit each customer will see in engaging in a Learning Relationship.

Thus, when customers have more uniform needs, as is particularly true of companies selling commodity-like products and services, the customer-strategy enterprise should try to expand the need set. Customers then will be seen as more diverse in the way they individually define their needs. The enterprise should assess which products and services it now offers that can cement the loyalty and improve the margin on its customers, even if the firm’s competitors offer the same products and services at the same price, customized in the same way. Simply improving the quality of a product or service, while advantageous in the short term, will not necessarily yield a competitive benefit over the long term. A customer-strategy enterprise instead tries to improve a product’s quality by customizing some aspect of it to suit the different needs of an individual customer in order to build a collaborative Learning Relationship with that customer. If the firm is selling a commodity-like product, what it actually customizes might not be the core product but the bundle of services surrounding the product or a configuration of additional products and services designed to meet an expanded definition of the customer’s need.

One of the easiest ways for a B2B enterprise to customize its product-service bundle, for example, is to remember how and when each customer wants to be invoiced. A credit card company with corporate cards, a phone company, or any other firm that sells a high-transaction product or service to other businesses might consider offering some customers the opportunity to tailor the invoices to weekly totals rather than monthly ones. Or a firm could provide the invoices on a quarterly summary basis, or even offer to allow the customer itself to specify which time periods to invoice at one time. Some banks are already offering some personalization capabilities for formatting of monthly statement options. Enterprises that already offer customized products can benefit by customizing these ancillary services even further.

In addition to the services and operations that naturally accompany a core product, most products and services can easily be associated with a customer’s other, related needs. When a customer buys a car from a car dealer, for instance, she will likely need automobile insurance, loan financing, a good mechanic, and, possibly, a carwash subscription. Catering to an expanded need set means providing extra services to meet the customer’s broadest possible set of needs.

Some hotels, such as Estelar La Fontana Hotel in Bogotá, Colombia, cater to the international business traveler. If a guest has a trip to Bogotá planned, the hotel will set up her appointments in advance for her. All the guest need do is tell the hotel the names and phone numbers of the people she will meet. The deeper an enterprise can penetrate a particular customer’s needs, the more likely that enterprise will be able to cement a Learning Relationship with the customer, earning the customer’s loyalty not simply out of gratitude but because it is more convenient for that customer to remain loyal. As long as she is certain her own interests are being protected, the customer will trust the enterprise with a greater and greater share of her business.

Think of this simple example: A grocery store can’t “customize” the products in its stores, or even the stores themselves. But starting with Tesco in 1995, even grocery stores can customize their discounts and other offers to the individual needs of each customer. Tesco didn’t start by trying to design the largest database it could, but instead focused on designing the smallest store of data that would give it useful information. Using this data, in 2005, roughly 10 million customers each quarter were mailed some four million variations of coupon offers, based on each individual customer’s history and profile. At that time, the program generated £100 million of incremental sales annually for the retailer.²⁸

Today, a number of retailers offer cards such as Kroger’s Plus Card, which delivers highly relevant, personalized coupons through their “Loyal Customer Mailings,” also available through a mobile app, which allows customers to sort digital coupons by relevance to them.²⁹

Value Streams

Some enterprises believe they have nothing to offer their end-user customers to entice them to want relationships. A firm that produces a single product, infrequently purchased, is in this kind of situation. One strategy for a one-product company would be to create a “stream of value” behind the actual product sale. Here’s the choice: Find another customer for the product you sell, and then another and another, to generate more and more transactions; or find a related stream of products and services you could offer in order to get a greater share of customer from each of the customers you’ve already acquired.

Usually a value stream relies on some type of follow-on service, after the product sale, but it could also be an interaction designed to generate income later from customer referrals. The home builder who, in order to satisfy customers and generate more referrals, calls her customer the week before the one-year warranty expires and offers to inspect the home for any persisting problems is creating a value stream behind the sale of the home. The simple fact is that most people who build a home won’t build another any time soon. But having received this kind of service, they will likely tell their friends about their positive experience, and the builder could generate a much higher level of referral service, and existing customers will call when they want to put on an addition.

We could cite other examples. A furniture retailer could create a different kind of value stream behind its infrequently sold products, selling a sofa with a free upholstery cleaning, to be scheduled by the customer one year after the initial purchase. That way, when it comes time to schedule the cleaning appointment, the retailer would be reestablishing contact with the customer, to the customer’s own benefit. At that point, the retailer could generate more revenue from the customer in any number of ways—selling a longer-term subscription to furniture cleaning, or selling items of furniture to go with the original purchase, and so forth. A clothing store could offer a dry cleaning or repair service for the clothing it sells. Customers who buy their suits from the store and pay an extra fee could have all of their dry cleaning, pressing, laundering, tailoring, and sewing done for the first two or three years, perhaps.

Note that in each of these hypothetical cases, the enterprise increases the revenue generated from each customer by expanding the needs set, and builds an interactive Learning Relationship at the same time. The value stream approach has been used to encourage warranty card registration, particularly by software vendors whose products are bundled into the original equipment manufacturer’s personal computer hardware. Those who mail in the registration (or who connect to register online) could receive 90 days’ free advice and help in putting the software to work. Value streams eventually lead to supplemental revenue streams for the enterprise. A customer is willing to pay for the ancillary product or service because it is valuable to her. But, meanwhile, the enterprise will be strengthening its ongoing relationship by exchanging information with the customer, as the value stream is delivered.

Mass customization, as we defined the term near the beginning of this chapter, involves creating a product by digitally combining a number of different modules representing premanufactured or preconfigured product and service components. The business processes that result in a product or service being rendered for a customer in a certain way can also be thought of, metaphorically anyway, as “modules” of the enterprise’s overall behavior toward a customer. The instructions that an enterprise follows in configuring different processes for different customers are business rules that allow the company to ensure that its own behavior is delivered in what amounts to a mass-customized way—that is, tailored, as a matter of routine, to each situation. As Bruce Kasanoff explains in the next section, monitoring how the business rules operate at an enterprise is an important task, especially for any customer-strategy enterprise.

Culture Rules

Mass customization makes a lot of intuitive sense, but aren’t there still some situations that won’t be covered by an enterprise’s business rules? What happens when a customer presents some problem or need for which there is no valid, preconfigured set of solutions that can be rendered in a cost-efficient way?

An enterprise can automate the contact report a sales rep has to file, but no computer can look into a client’s eye and judge whether to push for the sale or ask another question first. And no enterprise can write a business rule that requires employees to delight customers. The employees themselves have to want to do that. An enterprise’s secret sauce is its culture—the unwritten rules and unspoken traditions that define how employees actually approach their jobs. This is what guides employees when there is no policy—no applicable business rules. Culture is what employees do when no one’s looking.

Abraham Lincoln was once asked the secret of General Ulysses S. Grant’s success during a particularly difficult Civil War campaign. Always ready with an anecdote, Lincoln told the reporter it reminded him of a story about the great “automaton” chess player that had astonished Europeans nearly a century before. Popularly known as the Mechanical Turk, it had been constructed to resemble a mechanical man, dressed in a costume like a Turk, seated behind a wooden cabinet, and apparently capable of playing chess. It had defeated many human players, but after one celebrated competitor suffered two embarrassing defeats at the hands of the machine, he angrily wrenched off the cabinetry to peer inside and then rose up to exclaim, “Hey! There’s a person in there!” That, said Lincoln, was the secret of Grant’s success.

It is also the final, underlying secret of any business enterprise’s success when it comes to satisfying customers and ensuring they continue to create value. There has to be a person in there somewhere. No matter how well the business rules are architected, and no matter how many “modules” of product or service delivery are available to drive the mass-customization effort, human judgment always will have to be accommodated in the enterprise’s customer-facing processes. It’s impossible to serve customers well without it, and generally the more important decisions are the ones that require the most judgment and innovation. For a customer, the most vital problem or difficult issue often involves some type of crisis situation—a situation that is likely to be unusual or at least one that hasn’t already been anticipated by the enterprise. This means that almost by definition, any issue of utmost importance to a customer is likely to be something that falls through the cracks if an enterprise is operating entirely by predocumented processes and procedures. The enterprise won’t be able to specify it in advance. There has to be a person in there, capable of making the right judgment call.

As a result, nowhere does an enterprise’s corporate culture play a more important role than in dealing with customers, because doing this often requires conceptual-age, nonroutine skills such as empathy, creativity, and sensitivity.³⁰ Many companies try to cut costs by outsourcing and automating their more routine customer service tasks. Most find out the hard way that it’s a big mistake to outsource judgment calls. Nor is it the best idea to hardwire all a company’s policies and processes entirely into “the system,” leaving no room for flexible responses to unanticipated situations.³¹

A few years ago, American Express redesigned its customer service. The company “removed call center scripts, traditional behavior-based quality monitoring metrics, and limits on average handling time. Instead of focusing on traditional productivity measures largely aimed at controlling call center costs, [the company] made it a key success measure to earn the enthusiastic recommendations of card members. The American Express team’s framework substitutes guidelines for hard limits, judgment for scripts, and coaching for monitoring.” Service expenses actually went down because employees “devised and shared” solutions to common problems.³²

Not long ago a friend of ours went online to book family trips on two different airlines for successive weekends. The first trip was on a well-established carrier with a great service reputation, but it is heavily unionized and often hemmed in by its own bureaucracy. It was a complicated itinerary involving coordinating with some other people, so our friend first booked her family’s outbound trip, then did some more calling to make sure the return flight was coordinated with others before booking it too. But guess what? When she booked the return flight, she realized that a round trip would cost less than either of the one-way trips just purchased. So she called the reservations office directly now, having been defeated by the online experience, and—you guessed it—“No, sorry, no can do.” Basically, she was told, she had bought the tickets online and a deal was a deal, that’s that. Then the agent even said something to the effect that “Yes, I know it’s unfair, but I am powerless to make the change; the system just won’t let me.”

Fast-forward to the following weekend, and our friend was on the way to a different weekend destination with her family, this time on a new entrant carrier, one of the price competitors. You book your seat, and it’s a great low price but absolutely nonrefundable. The family ran into a traffic snarl and arrived at the airport way too late for the flight. Our friend found herself thinking that this was going to be a very expensive weekend for not going anywhere at all. But when the family got to the counter, an agent said something like “Sorry you missed your flight, but why don’t you just take a room at the airport hotel tonight and I’ll put you all on the 7 a.m. flight tomorrow morning? Tell you what, I’m also going to waive the $50 rebooking fee, and I’ll call your destination hotel, see if they can resell your rooms for tonight, maybe save you some money.”

Here are two different companies with two different ways to handle exceptional customer service situations. Although it’s important to do a competent job using efficient processes, good service cannot spring solely from processes or rules or systems. The important process for winning customer loyalty is customization, which has been the subject of this chapter. We need to remember that mass customization is simply a process for customizing more cost efficiently. However, it is in the exception to the rules, the unusual and problematic situation, the moment of truth, that a company has to rely on individual people to make wise decisions. If an enterprise has the wrong employee culture, for whatever reason, good systems and processes actually might magnify this problem. Instead, particularly in the service sector, the enterprise wants frontline employees who are not only empowered to make decisions and take action (as the first airline’s employee was not) but also motivated to make those decisions in a way that is in the long-term interest of the firm (i.e., in a way that customers feel they have been treated fairly).³³

The payoff for enterprises that engage in customization is twofold. In most cases, by employing automation and business rules to mass-customize its products or the delivery of its services, the enterprise actually can reduce its unit production costs, on an all-in basis, essentially because it will only make those goods that customers will have already bought. More important, however, customization will enable the enterprise to engage in a collaborative Learning Relationship with each customer.

Summary

Instead of expecting a customer to use what she knows about a company to figure out what she should buy, the customer-focused enterprise uses what it knows about the customer to figure out what she genuinely needs. In the process, such an enterprise increases the number of transactions it gets from a customer, makes it progressively easier for that customer to come back to that enterprise for purchases and service, and likely increases the profit per transaction.

Our story of managing customer experiences and relationships in the interactive era now takes a turning point. We have laid the foundation of relationship theory and provided a comprehensive examination of each of the four tasks of the IDIC methodology: Identify-Differentiate-Interact-Customize. We have shown the importance of Learning Relationships and the sensitive issues related to privacy protection. We have peeked at the technical tools that help to accelerate the relationship management process and reinforced how technology does not, and should not, manage customer relationships alone.

With Part III (beginning with Chapter 11), we begin to look at what it means to manage the customer relationship process. We discuss the challenges an enterprise faces in measuring and maintaining a customer-based initiative and look at the quantifiable metrics associated with managing customer experiences and Return on Customer. We delve into the science of customer analytics as a method to predict each customer’s behavior and anticipate his needs so he will be treated the way he wants and remain a customer. Finally, we show how transforming into an enterprise that grows through building customer value requires a number of different infrastructure changes that will need to be addressed by managers who fully understand and support the underlying concepts we have been discussing so far—and so much more that we have yet to discuss.

Food for Thought

1. How will Lego practice mass customization? To think about mass customization for Legos, consider:
   • Who are the customer types for Lego? (Think retailers, B2B.) Who are the MVCs? The most growable customers (MGCs)? The below zeros (BZs)? (See Chapter 5.)
   • What are customers buying when they buy Legos? (It’s not “toy building bricks.”)
   • If customers buy packages of Legos to resell, what else do they need? What is their expanded need set?
   • What is the opportunity to lock customers into a Learning Relationship and build share of customer for Lego?
   • Is there any opportunity, ever, at all, for Lego to build Learning Relationships with any end user? How and why?
2. If customization is such a good idea, why don’t we see more of it in the marketplace right this minute?
3. Name half a dozen examples of mass customization or expanded needs sets in the enterprises where you do business.
4. Imagine the 3-D photography tied to 3-D color printing that allows the creation of individualized tabletop sculptures of customers themselves, their children, and their pets. Although the product has immediate commercial promise, the real question is how a company as well as a customer could benefit from having this data stored about individuals. What are some ancillary applications?

Glossary

3-D printing

Through the use of a printer and precise computer programming, the ability to “print” 3-D figures made of plastic or food or other substances.

Adaptive customization

Offering a standard but customizable product that is designed so that customers can alter it themselves.

Below zero (BZ)

The below-zero customer will, no matter what strategy or effort is applied toward him, always cost the company and its best customers more than he contributes.

Benefits

Advantages that customers get from using the product. Not to be confused with needs, as different customers will get different advantages from the same product.

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.

Collaborative customization

Conducting a dialogue with individual customers to help them articulate their needs, identifying the offering that fulfills those needs, and then making customized products for them.

Commoditization

The steady erosion in unique selling propositions and unduplicated product features that comes about inevitably, as competitors seek to improve their offerings and end up imitating the more successful features and benefits.

Cosmetic customization

Presenting a standard product differently to different customers.

Crowd service

Customers helping other customers solve problems online.

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.”³⁴ At the core of customer centricity is the understanding that customer profitability is at least as important as product profitability.

Customer Interaction and Experience Touchmap

A graphical depiction of the interactions a company has with each segment of its customers across each of the available channels. Its purpose is to take an outside-in view of the customer interactions, instead of the traditional inside-out view typically taken in business process reengineering work. Current State Touchmaps depict all the enterprise’s current interactions with customers and identify gap areas; Future State Touchmaps depict the desired customer interactions that will be customized based on the needs and values of individual customers.

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 sacrifice

See Satisfaction gap.

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.

Customization

Most often, customization and mass customization refer to the modularized building of an offering to a customer based on that customer’s individual feedback, thus serving as the basis of a Learning Relationship. Note the distinction from personalization, which generally simply means putting someone’s name on the product.

Customize

Become relevant by doing something for a customer that no competition can do that doesn’t have all the information about that customer that you do.

Demand chain

As contrasted with the supply chain, “demand chain” refers to the chain of demand from customers, through retailers, distributors, and other intermediaries, all the way back to the manufacturer.

Demand chain management

According to Pankaj M. Madhani, demand chain management reduces or if possible eliminates “buffers of inventory in the supply chain and at the same time deliver what the customer demands.” It’s distinct from supply chain management in that it includes the view of the customer as an integral part of the chain, and focuses “on real-time flow of demand-related information from . . . end-users to . . . suppliers.” Its goal is “to coordinate the demand creation and the demand fulfillment processes to gain competitive advantage by differentiating not only the products but also the delivery process, as well as to exploit synergies between marketing and SCM.”³⁵

Expanded need set

The capability of a company to think of a product it sells as a suite of product plus service plus communication as well as the next product and service the need for the original product implies. The sale of a faucet implies the need for the installation of that faucet, and maybe an entire bathroom upgrade and strong nesting instinct.

Internet of Things (IoT)

A term describing the network of products and other objects that have intelligence or computational capability built into them, along with interconnectedness to the Web, via Wi-Fi or other technology. As defined by the ITU, a UN agency, the IoT is “a global infrastructure for the information society, enabling advanced services by interconnecting (physical and virtual) things based on existing and evolving interoperable information and communication technologies.”³⁶

Market segment

A group of customers who share a common attribute. Product benefits are targeted to the market segments thought most likely to desire the benefit.

Mass customization

See Customization.

Modularization

Configuring a product’s components to put them together in a standardized way, in order to facilitate the process of mass customization and reduce company costs.

Moment of truth

Interactions with a customer that have a disproportionate impact on the customer’s emotional connection, and are therefore more likely to drive significant behaviors.

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.

Personalization

Refers to a superficial ability to put a customer’s name on something—to insert a name into a message, for example, or to monogram a set of sheets. Note the distinction from customization, which means creating an adapted product or service or communication based on the customer’s individual feedback.

Satisfaction gap

The difference between what customers want and what they’re willing to settle for.

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.”

Supply chain

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

Supply chain management

“The management of the flow of goods and services. It includes the movement and storage of raw materials, work-in-process inventory, and finished goods from point of origin to point of consumption.” [Wikipedia]

Transparent customization

Providing each customer with a customized product or service without necessarily telling him about the customization itself.

Value stream

A compilation of related products and services a company could offer to an existing customer in order to get a greater share of customer from each customer already acquired.