Seen the Light?

Seen the Light?

It seems a simple proposition: deploy the latest technology to capture more information about customers, and then use that information to serve them in an individualised way that will earn their loyalty. One hears the wisdom of this approach touted at conferences, in hallways and on ads during televised sporting events. What could be more straightforward? Unfortunately, the vast majority of companies taking up this proposition are investing heavily in the IT portion of the equation but are skirting or struggling with the other critical factors that enable a company to carry out a successful customer strategy. While it is easy enough to buy IT, it is devilishly tough changing a business's structure, culture, processes and information habits, not to mention finding leaders who dare to champion such changes. The upshot? A corporation can be IT rich but still informationally inept.

So argues customer relationship specialist John McKean, who has devoted several years to this problem. His book, Information Masters: Secrets of the Customer Race (Wiley & Sons, 1999), takes a holistic and sharply critical view of common customer strategies. It should become a beacon to any marketer, sales chief, product developer or information executive navigating in the thick fog of customer data and unsure of where they are headed.

For his book, McKean interviewed executives at dozens of companies in the United States and Britain about their challenges and sometimes failures in executing customer strategies. Although his sources requested anonymity in Information Masters, a handful of them agreed to go on record with CIO to discuss their attempts to develop what McKean calls information competency (see "Mistaken Priorities").

Banking on Groceries

Sainsbury's, the British supermarket chain with 10 million customers using "loyalty cards" that track purchases, had a novel idea two years ago: If we are constantly accumulating information about our customers' grocery shopping habits, management figured, then couldn't we make some assumptions about their banking needs as well? Why not offer veterinary health insurance to that man bringing home the dog food? A mortgage pitch for that woman with a shopping cart full of diapers? These are examples of a new cross-marketing strategy being led by Rodger McArthur, CEO of the two-and-a-half-year-old Sainsbury's Bank in London, which as of March 1999 had 1 million customers.

As McArthur paints it, the bank is something of a virtual organisation: just 45 full-time employees and a call centre and back office in Edinburgh, Scotland, staffed by 500 employees at the Bank of Scotland, the joint venture partner with the supermarket chain. The Bank of Scotland also handles all of Sainsbury's processing. There aren't any branches and nothing more than a few brochures at the checkout counter. Just a phone number, call centre and the watchful, data-scanning eyes of a team of Sainsbury's analysts who work directly for McArthur, looking for new marketing opportunities.

But there is a problem with the virtual bank. "The way I look at it, when I started in banking 30 years ago, we did understand our customers. And then came along horrible things called computers, and the computer kept all the information," McArthur says, with only the tip of his tongue in cheek. "When I was posting entries in a bank, I knew my customers and whether they paid their fuel bills or were posting checks to the local casino." Nowadays, bank executives have had enough of averages and aggregates that computerised back offices have produced and instead need to track the individual customer.

To resolve this problem of computers rather than humans managing customer information, most companies try to find increasingly sophisticated IT remedies.

But McArthur sees plenty of opportunity to go down the wrong IT path with his new venture. Last year Sainsbury's Bank began working on data warehousing with the Bank of Scotland. "We face the danger of being offered sexy technology, and my dour job is to say, 'Never mind the grey box, what's available in the culture of the company and its way of dealing with customers that will help us to progress?'" McArthur cautions. "I'm very keen on the full development of data warehousing, but it will not be the panacea for all our problems. It will take an awful lot of iterations of knowing the customer before we get it right." And of knowing how much data is necessary to capture and not overdoing it. In recent years, he says, "I've been inundated with the tech solution providers: everyone wants to sell me a solution, but nobody wants to know what my problem is." Equally as important as the IT, he has found, are customer focus groups and Sainsbury's team of analysts. "A great evening out is to go to [a focus group], sit behind a one-way mirror and listen," McArthur says. The bank's customers typically say: "I trust the brand, I'm prepared to try your banking products, but don't take me for granted. And last but not least, how do you provide a service to my children?" "I've got to be honest," McArthur confides, "I don't have the solution for that yet." His analysts may resolve that and other puzzles before long, however.

McArthur describes them as people who can see patterns and get ideas from information that computers cannot.

McArthur modestly places his bank at the beginning of the road to information mastery but with the right approach to technology -- rolling out only what customers are comfortable with. For the moment, that is telephone banking. In Britain, Sainsbury's practices of telephone banking will probably lead at some point to Internet banking, and TV set-top boxes may be the next phase since many consumers don't own a PC. But there's no rush. "Where I have criticism of bleeding-edge technologists is their saying that by the year 2000, the whole world will be full of the Internet. Let's not be driven entirely by technology; it's a matter of understanding what your customers need." Segment and Conquer It would be easy to think that a telecom giant that has been in business for ages would have a pretty good grasp of its customers. But deregulation changed AT&T's market, and the company has found itself competing in a crowded and new landscape, and sometimes in businesses it had not imagined. "We were a Baldrige-award-winning company, and everything had to be world-class. But some of the marketing people would describe [the company] as third-class in getting mailing lists out the door," says John Peterson, database marketing vice president in Basking Ridge, New Jersey "Analytics of any type was a painful task." That was about four years ago, one year into a partnership between IS and marketing to reverse that embarrassing discrepancy.

"When we started on this journey, we were just a long-distance company and we thought we were getting close to the top of the mountain in targeting segments, in treating customers better," Peterson explains. "Then all of a sudden we're in the local phone business, the wireless business, the Internet business, and it turns out we're just in the foothills [of information competency]." AT&T has decided it must transform itself from a product-driven to a customer-segment-driven organisation at the same time as the company is broadening its range of products, Peterson says. Long-distance users, for example, are now grouped as direct dial, phone card, collect and international users. "We had to define the rules for belonging to a customer segment and the rules for what we do when a customer changes [telecom companies] or buys another service [from AT&T]." But harder still was reassigning responsibility for the new customer segments.

Here was a classic case of having sophisticated IT systems that were designed for an old set of questions. A marketing manager is now in charge of one customer segment, for example, college students, and must make revenue projections for the CFO. But all past customer data was organised by product, so marketing to the new customer segments was like starting from scratch. "The experience of people owning segments -- selling, forecasting and hitting targets of these customers -- was a challenge. We had no paradigm for that," Peterson says.

The company needed to rework financial reporting systems, a critical technological and cultural change, since people still believed they were paid and rewarded on the income statement of their product lines instead of the new customer segments, Peterson explains. The existing systems had some ability to analyse customer data geographically, "but the customer segment [data] was something totally unknown".

The changes necessary are hardly limited to IT, however. Under AT&T's old product-driven strategy, each product manager could mail his or her customers, and some customers might get hundreds of mailings a year. "It wasn't our intent, but it was the luck of the draw," Peterson says. But the problem has been fixed. "As we've moved to segment strategy, the manager who controls the segment controls who gets to 'touch' that customer. We're constantly reminding people that nobody can go to market unless the segment manager approves." In other words, the in-state toll-call marketers can't mail the college students without that segment manager's approval. It wasn't an obvious procedure to follow in the beginning of the shift from product to segment, Peterson acknowledges.

A recent advance in the segment strategy has been to let the heads of each market segment determine how their customers will be handled by customer service. Some customers may always be sent to a live phone rep, international callers might be sent to reps who specialise in their geographic areas, and customers who prefer to be addressed in a language other than English will be recognised by the system and routed to someone who speaks that language.

But Peterson says that many information challenges remain before AT&T fully masters the customer information challenge. One of the current issues he's struggling with: who owns a customer's profile when that customer moves across the United States? "You move from Chicago and appear in New York as a new customer. How do we recognise you, and who in the organisation [is responsible for handling your account and segment change]? Our answer right now is nobody," Peterson says. "We know who owns the system that tries to match addresses, but it doesn't work too well." For a company that has 75 million customers in a country where each year one out of five people change homes, that's a problem.

Cultural Adaptations

What happens when better use of information reveals something about your customer that challenges the way you do business? That question is one that the British upscale supermarket chain Safeway Stores PLC has faced recently. When the company began issuing customers its new loyalty card, it discovered from the resulting sales data that it had been paying too little attention to what its most valuable customers bought. That's because of the food retailers' traditional reliance on averages, says Michael Winch, IT director. Safeway forgot that its most valuable customers are not average. Take, for example, a feta cheese that ranked 295th in sales out of some 300 cheese products the chain sold in the United Kingdom. It naturally was placed in the least accessible spot in the cheese section. But this cheese, it turned out, was one of the preferred products of Safeway's top 25 per cent of customers, that is, its regular, highest-spending customers. "They didn't buy a lot of it, but they would have gone somewhere else [to find it]," Winch says.

"The trick is to maintain the loyalty of the top 20 per cent and motivate the secondary and tertiary to become prime customers," he adds. Safeway is now doing this by combining IT, such as data warehousing and data mining, with targeted communications. Plus a dose of common sense. Two stores, one in London and another in rural Scotland, had similar revenues, but the customers in London appeared to be spending less on average. Marketing people wanted to offer a discount to London customers to get them into the store to buy more.

But it turned out the Scots were buying more because they lived far from the market and came in every two weeks, while the Londoners came in frequently but often picked up just milk and bread. "If you had given a discount you'd be throwing away money. We had a diametrically opposed problem to what we thought it was," Winch says.

But such IT-enabled insights don't always sit well with traditionally trained marketers. "For a start, [the business clients of IT] saw they were being challenged, criticised. First they wanted to use the information to show that the position they had taken was correct," Winch recalls. "We could have moved a lot quicker if people could change fast. But you need time to change people's mind-set." And in the end, a few senior managers chose to leave rather than adopt the new strategy.

In fact, Winch was among the lucky ones. One of the painful lessons from his research into customer strategy, McKean says, is that sometimes the best, most visionary strategists lose. "Some firms have a customer culture and have to tweak the balance of their investments less. Some have a leadership team from the dinosaur era," he says. "Many visionaries ran out of steam, it was too much, they were only human." Companies that have succeeded in the struggle are the "ones where the change agent got the buy-in. Others do too much change for the corporation to handle." His advice: Information executives and others responsible for customer strategies should learn the lessons of information competency and then pick their battles -- very carefully.

Mistaken Priorities

Why companies fail to build information competencyJohn McKean, customer relationship specialist and author of Information Masters: Secrets of the Customer Race (Wiley & Sons, 1999), describes information competency as a company's ability to use information about customers well. He identifies seven components of this ability: people, processes, organisation, culture, leadership, information and technology. In a measurement of how companies invest in those components as part of their customer strategy, he notes discrepancies in what they do and what they should do to build an optimum, overall information competency.

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