book.chapter Core principles of customer revolution

In the midst of a transformative customer revolution, businesses are facing a trio of fundamental principles that are reshaping the commercial landscape. These principles are not just fleeting trends but are the bedrock of a thriving future for companies that embrace them. At the core of this revolution is the undeniable fact that customers, once they become digitally integrated into a company's operations, begin to alter the business's functioning to better suit their own needs for time and cost savings. This shift is driven by the expectation that information technology should be leveraged to enhance convenience in their lives. When a single entity within an industry adopts a customer-centric approach, it sets off a domino effect, compelling competitors to either adapt or face the threat of obsolescence. Consider the seismic changes in the music industry brought about by the advent of Napster and similar peer-to-peer file-sharing platforms. These services have illuminated several truths about consumer preferences: the desire to sample products prior to purchase, the preference for customizing personal collections, the enjoyment of using products in unforeseen ways, the inclination to purchase individual items rather than prearranged bundles, the pleasure of personalizing and sharing collections, and the appeal of co-branding materials with personal flair. The Napster phenomenon, regardless of its own fate, has disrupted the music industry's longstanding norms and placed consumers firmly at the helm. This pattern of industry transformation is not unique to music; it is progressively permeating every sector. Today's technologically empowered customers are voicing twelve specific demands, ranging from open and equal access for all to the ability to control the sharing of their information. These demands include expectations for real-time and specialist information, convenient and portable access to services, transparency in processes, logistics, and pricing, fair global pricing, the power to set prices, a variety of distribution channels, and control over personal data sharing. At first glance, these customer demands may appear overwhelming, and it might seem implausible that any business could satisfy them all. Yet, eBay stands as a testament to the contrary, having met each of these demands and fostering the growth of diverse electronic trading communities. Looking ahead, we can anticipate the evolution of e-markets into "Customer Scenario Nets," where customers outline their objectives and suppliers compete to fulfill them, offering a streamlined and competitive business model. In this new era of business, customers possess the tools—such as the Internet, mobile devices, and adaptable applications—to rapidly and effortlessly reconfigure their relationships with businesses. Some may believe their industry is immune to such customer-driven upheaval, while others may think they have already weathered the storm. However, both perspectives are fraught with risk. Leaders in the customer economy are vigilant, constantly seeking new customer-driven practices from other industries to adopt before their competitors do. Transparency has become a non-negotiable aspect of modern business. Companies can no longer conceal their pricing, inventory, product development, or errors. Customers are demanding and gaining greater visibility into price, inventory, and logistics, and they expect to peer into the inner workings of businesses to make informed decisions. Regardless of the industry, businesses should brace themselves for the impact of these customer demands, if they haven't already felt it. The three key principles that underpin this customer revolution are: the recognition that customers wield control, the acknowledgment that customer relationships are paramount, and the understanding that the customer experience is crucial. In today's successful businesses, there are typically two sets of figures: one reported to the financial community, reflecting past financial performance, and another, more critical set that guides the business's operations. This second set comprises measures of customer capital, such as the number of customer relationships, the depth and quality of those relationships, customer satisfaction and loyalty metrics, and the analysis of customer spending share. Increasingly, the present and future value of a business hinges on this customer capital rather than traditional financial indicators. This is because the value of customer relationships is the linchpin for generating future revenue streams. Investors, therefore, are more interested in the concept of a "customer franchise," where a robust customer franchise equates to a higher business valuation. The formula for determining the value of a customer franchise encompasses customer capital—the aggregate lifetime value of all current customers—and customer momentum—the value of future earnings from new customers. While initially challenging to quantify in dollar terms, tracking changes in these values over time can provide illuminating insights into the business's trajectory. The value of the customer franchise can serve as a gauge for investors to assess business performance, highlight the importance of intangible assets, be tailored to specific industries, encourage the strengthening of customer relationships, and act as a management tool to evaluate the impact of actions on the franchise's overall value. The notion that customer relationships are assets may seem alien in a world accustomed to valuing tangible assets like land and factories. Customers, unlike fixed assets, cannot be owned or controlled. Yet, our relationships with customers are indeed assets because they are the source of revenue, much like a right-of-way for a railroad or a network for a telecommunications company. Without these relationships, future revenue and earnings are in jeopardy. It is imperative to explore ways to deepen our connections with customers, as Amazon.com's Jeff Bezos would attest, customer relationships must be continuously earned. Building customer relationships involves understanding customers as individuals and providing them with valued experiences. The impending shift is towards investors evaluating the quality of customers' experiences, as it is this quality that will determine customer retention. Managing by customer value offers a comprehensive view of business performance, akin to a flight deck's navigation controls. However, to truly steer the business's destiny, one must focus on the quality of customer relationships and the overall customer experience. This is the secret to success in the customer economy. By 2005, it is predicted that most companies will report their customer numbers using a consistent standard known as the 'Customer Value Index,' reflecting the future earnings potential of the company. Investors will also begin to scrutinize the quality of companies' customer relationships. If customers are in the driver's seat, the only way to ensure they don't lead the business astray is to provide them with an experience they cherish and feel passionate about when interacting with your brand. Success hinges on creating a customer experience or brand presence that consistently delivers high value, resonates with customers, fosters habitual engagement, maintains quality across all delivery channels, and forges an emotional bond between the customer and the brand. Creating a stellar customer experience and forging individual customer relationships used to be achievable through polished advertising. Today, it involves a blend of trust-building through meaningful two-way conversations, attention to customer-valued qualities, and unique product features. Trust should be the business's focal obsession. While trust is the foundation of great customer experiences, brand identity is also integral. The process of crafting a brand identity involves steps that can be exemplified by the Virgin Group's approach. A strong brand identity leads customers to identify with your brand, think of themselves in terms of your brand, and become loyal advocates and critics. Delivering a great customer experience around a unique brand personality is key to creating lasting customer relationships. Customers are more likely to remain loyal if they resonate with your brand, consistently have positive experiences, and build positive relationships with brand representatives. Once customers have a clear sense of your brand's principles, they will actively protect them, as seen with eBay's customers who enforce ethical standards to preserve the brand's integrity. This level of customer ownership over the branded experience represents the pinnacle of customer loyalty. In conclusion, customer relationships are set to become more significant for businesses than ever before.