When I first started writing about marketing 45 years ago, the Industrial Age was in its prime. Manufacturers churned out products on massive assembly lines and stored them in huge warehouses, where they patiently waited for retailers to order and shelve boxes and bottles so that customers could buy them. Market leaders enjoyed great market shares from their carefully crafted mass-production, mass-distribution, and mass-advertising campaigns.

What the Industrial Age taught us is that if an enterprise wanted to make money, it needed to be efficient at large-scale manufacturing and distribution. The enterprise needed to manufacture millions of standard products and distribute them in the same way to all of their customers. Mass producers relied on numerous intermediaries to finance, distribute, stock, and sell the goods to ever-expanding geographical markets. However, in the process, producers grew increasingly removed from any direct contact with end users.

Producers tried to make up for what they didn’t know about end users by using a barrage of marketing research methods, primarily customer panels, focus groups, and large-scale customer surveys. The aim was not to learn about individual customers but about large customer segments, such as “women ages 30 to 55.” The exception occurred in business-to-business marketing, where each salesperson knew each customer and prospect as an individual. Well-trained salespeople were cognizant of each customer’s buying habits, preferences, and peculiarities. Even here, however, much of this information was never codified. When a salesperson retired or quit, the company lost a great deal of specific customer information. Only more recently, with sales automation software and loyalty-building programs, have business-to-business enterprises begun capturing detailed information about each customer on the company’s mainframe computer.

As for the consumer market, interest in knowing consumers as individuals lagged behind the business-to-business marketplace. The exception occurred with direct mailers and catalog marketers who collected and analyzed data on individual customers. Direct marketers purchased mailing lists and kept records of their transactions with individual customers. The individual customer’s stream of transactions provided clues as to other items that might interest that customer. For example, in the case of consumer appliances, the company could at least know when a customer might be ready to replace an older appliance with a new one if the price was right.

Getting Better at Consumer Marketing

With the passage of time, direct marketers became increasingly sophisticated. They supplemented mail contact with the adroit use of the telephone and telemarketing. The growing use of credit cards and customers’ willingness to give their credit card numbers to merchants greatly stimulated direct marketing. The emergence of fax machines further facilitated the exchange of information and the placing of orders. Soon the Internet and e-mail provided the ultimate facilitation of direct marketing. Customers could view products visually and verbally order them easily, receive confirmation, and know when the goods would arrive. Now that experience is enhanced by the way customers speak to one another. Even companies that don’t really understand social networking realize they have to get on board. If 33 million people are in a room, you have to visit that room.¹

But whether a company was ready for customer relationship management depended on more than conducting numerous transactions with individual customers. Companies needed to build comprehensive customer databases. Companies had been maintaining product databases, sales force databases, and dealer databases. Now they needed to build, maintain, mine, and manage a customer database that could be used by company personnel in sales, marketing, credit, accounting, and other company functions.

As customer database marketing grew, several different names came to describe it, including individualized marketing, customer intimacy, technology-enabled marketing, dialogue marketing, interactive marketing, permission marketing, and one-to-one marketing.

Modern technology makes it possible for enterprises to learn more about individual customers, remember those needs, and shape the company’s offerings, services, messages, and interactions to each valued customer. The new technologies make mass customization (otherwise an oxymoron) possible.

At the same time, technology is only a partial factor in helping companies do genuine one-to-one marketing. The following quotes about customer relationship marketing (CRM) make this point vividly:

CRM is not a software package. It’s not a database. It’s not a call center or a Web site. It’s not a loyalty program, a customer service program, a customer acquisition program, or a win-back program. CRM is an entire philosophy.

—Steve Silver

A CRM program is typically 45 percent dependent on the right executive leadership, 40 percent on project management implementation, and 15 percent on technology.

—Edmund Thompson, Gartner Group

Whereas in the Industrial Age, companies focused on winning market share and new customers, more of today’s companies are focusing on share of customer, namely, increasing their business with each existing customer. These companies are focusing on customer retention, customer loyalty, and customer satisfaction as the important marketing tasks, and customer experience management and increasing customer value as key management objectives.

CRM and its kindred customer-focused efforts are more than just an outgrowth of direct marketing and the advent of new technology. This approach requires new skills, systems, processes, and employee mind-sets. As the Interactive Age progresses, mass marketing must give way to new principles for targeting, attracting, winning, serving, and satisfying markets. As advertising costs have risen and mass media has lost some effectiveness, mass marketing is now more costly and more wasteful. Companies are better prepared to identify meaningful segments and niches and address the individual customers within the targeted groups. They are becoming aware, however, that many customers are uncomfortable about their loss of privacy and the increase in solicitations by mail, phone, and e-mail. Ultimately, companies will have to move from an “invasive” approach to prospects and customers to a “permissions” approach. On the flip side, customers—now in contact with millions of other customers—have never been more informed or empowered.

The full potential of CRM is only beginning to be realized. Of course, every company must offer great products and services. But now, rather than pursue all types of customers at great expense only to lose many of them, the objective is to focus only on those particular customers with current and long-term potential in order to preserve and increase their value to the company.

Philip Kotler

S. C. Johnson Distinguished Professor of International Marketing, Kellogg School of Management, Northwestern University

Philip Kotler is widely known as the father of modern marketing. His textbook Marketing Management, coauthored with Kevin Keller, has become the foundational text for marketing courses around the globe. First published in 1976 by Prentice Hall, it is now in its 15th edition.