In 1993 we published our first book, The One to One Future: Building Relationships One Customer at a Time (New York: Currency/Doubleday). We had no way of knowing how or when ubiquitous, cost-efficient interactivity would arrive, but the march of technology was inevitable, and we felt strongly that genuinely interactive media channels would become widely available sooner or later, in one form or another. And when interactivity did arrive, we suggested, the nature of marketing would have to change forever. At the time, marketing consisted primarily of crafting outbound messages creative or noticeable enough to break through the clutter of other one-way messages. These messages promoted standardized, mass-produced products with unique selling propositions that appealed to the most commonly held interests among the widest possible markets of consumers.

In sharp contrast to this model of marketing, we maintained that interactive technologies would compel businesses to try to build relationships with individual customers, one customer at a time. To our minds, this new type of marketing—which we dubbed “one-to-one marketing” or “1to1 marketing”—represented literally a different dimension of competition. We predicted that in the one-to-one future, the battle for market share would be supplemented by a battle for “share of customer”; product management organizations would have to be altered to accommodate managing individual customer relationships as well; and the decreasing returns of production economics would be supplanted by increasing returns of relationship economics.

We did not know it at the time, but also in 1993, the first genuinely useful Web browser, Mosaic, was introduced, and by the end of 1994, the World Wide Web had begun making major inroads into business and academia. This meant that interactivity arrived even sooner than we had suspected it would, via a more robust, vibrant technology than we anticipated. Over the next 10 years, our predictions about the nature of marketing in an interactive world proved uncannily accurate, and we were gratified at the popularity our little book enjoyed among the many marketers and information technology professionals wrestling with the question of how, exactly, to use this new capability for interacting with their customers on the Web. The term one-to-one marketing was often used interchangeably with the easier-to-say computer-industry acronym CRM, standing for “customer relationship management.” Some think of CRM as a reference only to the software, but from our standpoint, the 1to1 rose smells as sweet by any other jargon.

By the time the first edition of Managing Customer Relationships was written, 10 years later, many other academics, business consultants, and authorities had become involved in analyzing, understanding, and profiting from the CRM revolution. Our goal with the first edition was to provide a comprehensive overview of the background, methodology, and particulars of managing customer relationships for competitive advantage. Although we significantly updated the material in the second edition, and now again in this third edition, we believe the original approach has in fact been confirmed. So we will begin with background and history, outline the Identify-Differentiate-Interact-Customize (IDIC) framework, and then address metrics, data management, customer management, and company organization.

Since our first edition of that first book came out, the steady march of technology has continued to change the business environment, bringing us two particularly important developments, each of which requires some treatment in this new edition. One has to do with the increasing influence of social media—including everything from blogging and microblogging to sharing and collaboration Web sites such as Facebook, Twitter, LinkedIn, YouTube, Amazon, Instagram, and eBay. The other has to do with the increasing proliferation of mobile devices and interactive services for them, including not just broadband Wi-Fi at places like business hotels, Starbucks, and McDonald’s, but smartphones that can surf the Web, keep your calendar, deliver movies, and track your location, as well.

Over the past few years, there has also been a major change in the way businesses think about the process of value creation itself, given their new technological capabilities to track and interact with customers, one at a time. Increasingly, companies are coming face-to-face with the question of how to optimize their businesses around individual customers. When you think about it, this is the very central issue when configuring a Web site, or when trying to design the work processes or scripting for a call center, or when outlining new procedures for sales reps or point-of-sale operations. Each of these tasks involves optimizing around a customer, and none of them can be completed adequately without answering the question, “What is the right communication or offer for this customer, at this time?”

But a business can answer this kind of question accurately only by disregarding its existing, product-based metrics and using customer-based metrics instead. This is because the fundamental issue at stake is how to maximize the value a particular customer creates for the enterprise, a task that contrasts sharply with the financial objective of the old form of marketing (mass marketing), which was maximizing the value that a particular product or brand created for the enterprise. So we have considerably upgraded the financial issues we consider in the metrics discussion in this edition of Managing Customer Experience and Relationships.

Among other things, we will suggest that a metric, Return on Customer^SM, is sometimes more appropriate for gauging the degree to which a particular customer or group of customers is generating value for a business. Return on investment (ROI) measures the efficiency with which a business employs its capital to create value, and Return on Customer (ROC) is designed to measure the efficiency with which it employs its customers to create value. The ROC metric is simple to understand, in principle, but it requires a sophisticated approach to comprehending and analyzing customer lifetime values and customer equity. With the computer analytics available today, however, this is no longer an insurmountable or even a particularly expensive or difficult task. And this kind of customer-based financial metric will ensure that a company properly uses customer value as the basis for executive decisions.¹

In the years since the second edition of this book was released, we have continued to teach seminars and workshops at universities and in for-profit and nonprofit organizations, and we have collaborated in depth with our own firm’s working consultants in various Peppers & Rogers Group offices around the world, from São Paulo to Dubai, and from London to Johannesburg. We have wrestled with the serious, real-world business problems of taking a customer-centric approach to business in different business categories, from telecom, financial services, and retailing, to packaged goods, pharmaceuticals, and business to business. Over the years, our experience in all these categories has reinforced our belief that the basic IDIC model (identify, differentiate, interact, customize) for thinking about customer relationships is valid, practical, and useful, and that financial metrics based on customer value make the most sense. And we have continued documenting these issues, coauthoring a total of eight business trade books, in addition to this textbook.

The biggest change in this third edition, reflected in the title itself, is the additional consideration of the importance of the creation of better and more personalized customer experiences. CX (customer experience) plays an increasingly greater strategic role, and we’ve devoted much discussion to it, as well as to the idea of CX journey mapping.

While we obviously know more about our own work than anyone else’s, and this book draws heavily on our fairly extensive direct experience in the work environment, we also continue to believe that a textbook like this should reflect some of the excellent work done by others, which is substantial. So, as with the first two editions, you will find much in this edition that is excerpted from others’ works or written by others specifically for this textbook.

When it first appeared in 2004, Managing Customer Relationships was the first book designed specifically to help the pedagogy of customer relationship management, with an emphasis on customer strategies and building customer value. It is because of the wonderful feedback we have had over the years with respect to its usefulness for professors and students that we have undertaken this third edition. And while we hope this revised work will continue to guide and teach our readers, we also encourage our readers to continue to teach us. Our goal is not just to build the most useful learning tool available on the subject but to continue improving it as well. To that end, you may always contact us directly with suggestions, comments, critiques, and ideas. Simply e-mail us at [email protected].

How to Use This Book

Each chapter begins with an overview and closes with a summary (which is also an explanation of how the chapter ties into the next chapter), Food for Thought (a series of discussion questions), and a glossary. In addition, chapters include these elements:

• Glossary terms are printed in boldface the first time they appear in a chapter, and their definitions are located at the end of that chapter. All of the glossary terms are included in the index, for a broader reference of usage in the book.
• Sidebars provide supplemental discussions and real-world examples of chapter concepts and ideas. These are italicized in the Contents.
• Contributed material is indicated by a shaded background, with contributor names and affiliations appearing at the beginning of each contribution.

We anticipate that this book will be used in one of two ways: Some readers will start at the beginning and read it through to the end. Others will keep it on hand and use it as a reference book. For both readers, we have tried to make sure the index is useful for searching by names of people and companies as well as terms, acronyms, and concepts.

If you have suggestions about how readers can use this book, please share those at [email protected].