So now we’re going to go into our second keynote. And the man who’s giving this in some sense needs no introduction. I’ve already introduced him once in my keynote. But he’s in a sense the godfather of one-to-one, having written The One to One Future 25 years ago. And so our next speaker has been recognized as one of the world’s leading authorities on customer-focused business strategies. He is an acclaimed author and original founding partner of the Peppers and Rogers Group. In 2015, Satmetrix, the co-creators of the NPS score, listed Don and Martha as #1 on their list of the world’s most influential customer experience authorities. So please join me in welcoming, Don Peppers.
Thank you, thanks very much, Karl. That was great. Just the way I wrote it. I’ve been working with Martha Rogers for 25 years since we wrote our first book. And, someone asked me at lunch: do you teach? Well, no I don’t, but Martha is a professor. And she has a doctorate. I always had to remind people that she’s the doctor. Because people would get it backwards. They would say Dr. Pepper and Mr. Rogers and that’s not the right neighborhood!
I’m going to talk about living the dream of the 1-to-1 Competitive Advantage. I heard a lot of talk today about the dream of true 1-to-1 marketing. Why do we do that? Well obviously we do it to serve our customers better, to be a better company. But we also do it in order to compete with other companies and we want a competitive advantage.
So I’m going to talk to you about how to turn personalization into a competitive advantage, but where we’re starting is with technology. Technology has created a new normal for us. You know what used to be normal? What used to be normal is that you’d tell your children “don’t make friends with anybody on the Internet” and “don’t get into a stranger’s car.” And today, of course, the new normal is you make friends on the Internet, you get into their cars. Right?
The new normal in business competition is 1-to-1. Think of it this way. There are two things that you have to do to be able to compete as a business. You have to be able to satisfy some need and you have to have a customer who wants that need satisfied. But if I put those two things on a two dimensional chart with “customer needs satisfied” up the vertical and “customers reached” across the horizontal, traditional marketing has always been in the horizontal direction. I have a particular product that meets a need. I want to find as many customers as I can who want to have that need met. And the width of that bar, that’s my market share.
But, because of technology, because of interactive technology, because of computer databases, because of mass customization technologies, we can now focus on one customer at a time and try to satisfy as many of that customer’s needs as possible. And this is 1-to-1 marketing. 99% of companies today think of their businesses in terms of maximizing every product’s profitability. But I think if you’re a 1-to-1 marketer, your job is to maximize each customer’s profitability. And when you go back to your companies, as yourself the question: for all the products and services that my company sells, can name the person who is in charge of that product or service; getting it out to the market, making sure it’s profitable, making sure the margins are right and so forth. And whose job depends on the profitability of that product. But now ask yourself the question: if I pick a customer at random, is there some person or department at my company whose job depends on that particular customer’s profitability to the business? Because that’s the dream of 1-to-1. It’s an organizational dilemma that a lot of companies face today.
Now one of the important issues when you think about marketing is in this direction, marginal product profitability declines with higher market share. Why is that? Because each of these transactions comes from a different customer. And to get each additional transaction, you’ve got to sell to some customer who didn’t want to buy it at last quarter’s price. So every time you add a unit of production, your marginal profitability declines because your marginal price needs to decline.
But, in the other direction, marginal customer profitability increases with share of customer. Why? Because all of these transactions are related to the same customer. A customer has a memory. A customer who bought here and then remembers and he bought here and he bought here. In fact, the more you transact with an individual customer, the higher your unit of profit is with that customer.
So that’s one of the key lessons of 1-to-1 marketing. It’s a different dimension of competition.
Let me give you a decile analysis at a life insurance company. They arranged their customers in ten deciles from the highest profit over the last five years down to the lowest. And now let me show you a map. Ok, this top 30% of customers is more than 100% of profits, which is typical at a lot of companies. Let me show you a map of policy face values and what’s the average policy face value? Well, obviously as policy face value declines, the less profit. Except here. Why is that? Why is it that policy face values are actually correlated with both high and low customer profitability? Well, what’s the most expensive part of selling a life insurance policy? Paying the commission to the salesperson. Right? And if I sell you a new life insurance policy and I get the commission and you don’t stay loyal at least three or four years, the company doesn’t earn the commission back. In fact, the higher the face value policy that I sold you, the more the company loses if you leave early. This is a graphic description of the benefit of customer loyalty.
Customers create value two different ways with a business. Yes, they buy things and they generate costs in the current period. That’s the stuff that you put on the quarterly statement. But customers also change their intent to buy in the future. If I have a great experience, and I intend to buy more later, that experience created value. Let me put it this way: Suppose you have a really valuable customer and the customer calls you with a complaint and you don’t handle the complaint very well and the customer hangs up, slams the phone down angrier than he was when he started. Didn’t you just lose a little bit of value as a company? Because your value of a company is the discounted net present value of the future cash flow you expect, and you don’t expect as much cash flow now because that customer is really ticked off.
Here’s the point: You’re not going to realize the cash effect of that bad experience until much later. But the bad experience destroyed value today. Today.
Here’s the way some academics did it. They looked at Amazon, Ameritrade, eBay, and ETRADE. They’re all direct selling B2C companies. And this is ten years ago so these values are small, but they looked at the sum total of all their customer lifetime values and they looked at the impact on those lifetime values with a 10% reduction in acquisition costs, 10% improvement in margin or a 10% improvement in retention. With acquisition cost, you get about a 0.5-1.5% to the overall value of the business, the customer equity. Margin you get a scalar increase of about 10%. Improve customer retention by 10% and you get a 30% increase in the value of the company! Why is that? Because of loyalty.
Customer loyalty is the gift that keeps on giving. It creates immense customer equity. That’s your goal as a business. Build and maintain customer equity.
Now, I define customer equity differently from some academics. But I think the correct definition of customer equity is the sum total of lifetime values of all your current and future customers. That is what is the lifetime values of all your customers today and what is the lifetime values of all the prospective customers that you have today. And a prospect’s lifetime value is the chance that he’s going to become a customer times his lifetime value if he becomes a customer. You can think of it analytically if you want, but the truth is, just because you can’t calculate it exactly, doesn’t mean that the quantity doesn’t exist. Customer equity is equal to the enterprise value of your company. Because all your cash flow comes from customers. You don’t get any cash flow from anybody other than the customer. You take all your fixed assets and fixed liabilities off the balance sheet the enterprise value of your company is the money you’re going to get from customers today and in the future. Anybody disagree with this? It’s very rough, but economically, your goal as a businesses to build and maintain and increase your customer equity.
So, I think the new normal in business competition involves treating different customers differently so that we can maximize the profitability of each customer and build our customer equity over time. And when I use the word customer, I’m talking about customers and prospects. So just because we treat customers in a 1-to-1 fashion, we should also be treating our prospects in a 1-to-1 fashion. Think about it this way: A prospect is really just a customer with whom you have a 0% share of customer today. Your goal is to increase your share of customer of that prospect. So there’s two ways to do that. One is you go after prospects who are likely to have higher lifetime values in the future. And the other is you increase the likelihood of a prospect becoming a customer in the future. Both ways are amenable to personalization.
How are customers and prospects different? Well, they’re different in two primary ways: Their value to you and what they need from you. Now if you think about it, that’s both sides of the value proposition. What does the customer want from you and what do you want from the customer. Right? Customer behaviors — they’re indicators of value. The customer needs something so they behave in a certain way which creates value. And when I say creates value, it could create cost. Or it could create value. It’s an economic transaction. But that’s the customer needs that start this. Right? And that’s what the customer sees. But the value that the customer represents, that’s what you’re trying to maximize.
Let’s talk a little bit about value. When I talk about the value of a customer, what do I mean? Well, I think there are two ways to think about the value of a customer. One is what I’d call the actual value, the customer’s lifetime value. The net present value of the future stream of cash attributable to that customer. That’s the customer’s lifetime value.
But of course, nobody can actually know a customer’s lifetime value. We can predict it. We can guess at it. We can use algorithms and analytics to try to surmise that other customers in this kind of setting have this kind of pattern in the future. That’s our guess. But the future is the future. I could change the future with my action. In fact, that’s the definition of marketing. The reason I do marketing is to get a customer to do something that he wouldn’t have done without the marketing. Right? So if I have the ideal kind of marketing, if I actually treat this customer in an optimal way, what’s the maximum possible value that customer could generate for me? That’s what I would call the customer’s potential value. That’s the net present value of future financial contributions that could be attributed to a customer if, through action on our part, we succeed in changing the customer’s behavior to an ideal state.
Now, think about this, again this is very theoretical, but if I divide actual value by potential value, what do I get? Share of customer. My share of customer is the customer’s current lifetime value divided by what I think the value could be if I behaved perfectly optimally for that customer. If I had personalized everything for that customer, if that customer had a completely frictionless customer experience with my business. That’s the potential I could realize.
So you can manage your customers by value. I want to put unrealized potential value at the vertical and actual value across the horizontal. These are my most valuable customers. My MVCs. And I have a strategy for MVCs. My strategy is to retain them and use account management to keep them happy and loyal. Just to keep their business.
In the upper left hand quadrant, I have my most growable customers. These are customers I haven’t realized a lot of actual value, but they’ve got a lot of growth potential. So my strategy here is to invest and maximize growth and to differentiate them by the customer’s needs in order to better suit each customer’s proposition.
In many businesses, I have a few super growth customers. This is particularly true in B2B categories. Let’s say you sell to Microsoft. And they’re a large customer today, but they could be a hundred times larger. That’s what I call a super growth customer. And my strategy is retain and invest.
And down here I have all my low maintenance customers. These are customers on whom I don’t make much money today, but I have millions of them. So what’s my goal here? My goal is to streamline my resources, to automate. These are the customers that you want to take machine learning-driven, automated, 1-to-1 technology to, based on the personal service you’re already providing to your most valuable customers who are each worth an account manager. Think of it this way, you’re automating this process into the low maintenance customers in order to supercharge your business.
And of course, don’t forget, every business also has some below zero customers. What I call bozos. “BZs.” A bozo is a customer that you’ll probably never make any money on. If you think you don’t serve any bozo customers, go talk to a salesperson at your company. Most sales people can name a couple of customers who are commissionable, that they can sell to, but the company will never make any money on them. Companies sell to BZs all the time. Probably 50% of most retail banks’ customers are BZs for the bank because their business model is from the 19th century.
Here is an actual scattergram we did for one of our B2B clients at Peppers and Roger Group. And you can see here that here are that company’s most valuable customers, here are the company’s most growable customers. Most of these customers were this company’s competitor’s MVCs. Most valuable customers. They had a few super growth customers. They had a lot of below zeros down here. This is reality. It’s reality.
And how much are customer advocates really worth? We hear all sorts about customer reference value. Well, there was an academic study done of a telecom company and a financial services company in the HBR a few years ago and I mapped out the telecom company’s figures onto a bar chart. They looked at the telecom company’s figures and they divided their values into two types of value: customer spending value and customer referral value. CSV and CRV. And here are the most valuable spenders. What’s interesting is, the most valuable referrers are quite different. They’re not low customers, but they’re middle tier. Why is that? Why wouldn’t the most valuable spender be the most valuable referrer? Well, I want you to think a little bit about what are the qualities of a really good customer advocate. Their authority with their peers right? Their knowledge. Their smarts. Ok? You don’t copy off the dumb kid in class. You copy off the smart kid, don’t you? And 1-to-1 personalization improves the customer experience and makes it worth sharing with others. First of all, you don’t have to wait for people to look over your shoulder. And, you need to design your value proposition to satisfy the most knowledgeable customer, which is by the way, the way any trustable company would do it.
Ok, so much for value. I’ve talked a lot about how to think about customers in terms of their different values, but what’s important to the customer is what the customer wants from you. Most customers don’t know and don’t care what they’re worth to you. What they care about is getting their problem solved. And so the question is, can you speak the customer’s actual language? Can you talk in the way the customer is talking. Speaking the language requires understanding the customer’s point of view and he’s not really interested in your website or your emails or your products or your differentiation. The customers just want their needs met. He wants his need met. I want to play you a video real quickly, just to show you the importance of speaking the right language. You’ve got to be able to speak the customer’s language. Customer language is not the same as business and product and profitability language.
Different customers have different needs. Now I’ve been using the word needs, but what I’m really talking about is wants, whims, preferences — anything the customer prefers, that’s what I would call a need. It’s a generic need. We have some needs in common with others. So, we can have segments. Different kinds of customers have different needs. Needs can be situational in nature. On any one day of the week, I could be a business traveler with certain needs, I could be a pleasure traveler with other needs on a different day of the week. And needs frequently do link to a customer’s value. Sometimes a customer’s needs mean that a customer has a great deal of value or very little value to the business.
But let me give you a few examples. In commercial real estate, one of our clients said there were three different types of customers that they planned for. Active deal makers. What do they need? They need speed and agility. They never stay with a deal very long. There were the operators. They simply want to improve synergies, they want synergies with other properties. And there are the buy and hold investors. For them, costs really are important. They’re not interested in speed. They want low transaction costs and so forth.
Or, take an airline. For an airline you could have price sensitive, non-business flyers. You could have schedule and utility buyers. You could have dealmakers, insecure decision makers, luxury and comfort seekers. These are all standard ways that companies, for a long time, have thought about their customers’ needs in terms of categorization.
And one of the best, maybe some of you have seen this before: Forrester’s segmentation of telecom customers. They came up with 10 needs-based groups based on whether people used their phones primarily for career, family or entertainment. Whether they were technology optimists or technology pessimists. Whether they were high income or low income. So they had the fast forwards, the new age nurturers. You know, this is all marketing research lingo. This is segmentation. Segmentation is really, really important.
But as Karl said this morning, and other people repeated earlier today, it’s not just segmentation. What you really want is individualization of your process so that a customer feels that when they’re dealing with you, you’re really dealing with them personally, individually.
And needs are not the same thing as products. Three ten-year-old kids might go into the same toy store on the same day and buy the same Lego Star Wars set for three totally different reasons. One kid wants to put that set together and then be Luke Skywalker or Princess Lea or Darth Vader. He or she is a role player. Another little kid puts the set together and that’s his fun. He lives to put the set together exactly the way the diagram has it. It’s like a puzzle. When he’s finished, he’s had his fun. He may leave the set together for a couple weeks in his room and then he tears it apart and does it again. And still another kid is a creator. He or she wouldn’t dream of putting together something somebody else had already put together in a diagram. He’s going to do something totally different.
Lego says if we just knew which child was which, think of what other things we could sell them. To the role player, we could sell hats and storybooks and costumes and toy lightsabers. To the constructor, we could sell extra diagrams, we could sell inventory control software for your Lego sets. You don’t believe me? They got it and your ten year old might have it. To the creator, we could sell storybooks and costume ideas. If we just knew. If we just knew. We could treat different customers differently.
Often, customer differences like this can be discerned through simple observation. I’ll tell you a quick story. When I was in sales, I used to divide prospects (and I basically still do), into two basic categories just for my own edification. I’d think of a person as whether they’re a “make me rich” type of person or a “make me famous” type of person. If they had a choice, would they rather be rich or would they rather be famous. And if I see somebody that is a very heavily rich or famous type person, I change the way I treat that person in the sales meeting.
A “make me rich” person is a person who has no time for golf, doesn’t want to go to lunch, unless it’s for a business reason. You can observe these differences. You go to their office and they might have the most spacious office on their floor but it’s cluttered with company-grade art and spreadsheets and things like that. The conference table is littered with stuff. They’re no-nonsense.
Whereas the “make me famous” person, they’ll have a really good office and they’ll have pictures of their kids on their wall. Or they might have pictures of them and the star of the TV commercial that they just shot in Las Vegas on the wall. Or an award. Something like that. They’ll have personal books on their bookshelves that are important.
Let me just give you a secret. If you ever meet a “make me rich” person, a very simple way to get through to them is take the verbs out of your sentences. The project: $12 million. Time frame: 10 months. Profit: 20%.
But sometimes observation isn’t enough. Sometimes some kind of interaction is required. And the right kinds of interactions is what I call Golden Questions. A Golden Question is a question you can ask of a customer that reveals a great deal about that customer and their preferences and needs without subjecting the customer to a 100-page questionnaire. Sometimes the person even finds it fun to answer the question. One example given to me recently was how does Lowes assess the value of the customer in terms of yard. How much are they going to spend on their yard? They simply ask: “What brand of lawn edger did you buy last.” And the type of lawn edger they bought reveals a great deal about this customer.
Or, one car company put a loyalty program together and said “Join our loyalty program and we’ll give you a choice of gift for joining our program.” Each gift was worth about ten dollars, but your choice is this: We’ll give you a pair of racing gloves with our logo on them, a package of three children’s videos, or a collapsible umbrella and road atlas. And the gift that you choose tells us how to communicate with you and deal with you in the future, doesn’t it?
And my favorite question of all time was the question that pets.com, during the heyday of the dot com buzz, used to ask their visitors to their website and it reliably identified the most valuable pet owners. It was a fact-based, yes or no question. And it was not “Do you love your dog? or “How much does your dog weigh?” The question was, “Last year, did you give your pet a Christmas present?” Yes or no.
Every bit of customer feedback improves your customer experience. Here’s a lovely letter from an eight year old girl to a Qantas flight attendant. “Dear Captain, My name is Nicola. I’m 8 years old. This is my first flight but I’m not scared. I like to watch the clouds go by. My mum says the crew is nice. I think your plane is good. Thanks for a nice flight. Don’t f*** up the landing. Love Nicola.” Now I want you to think about this. Think about why you laughed. Why was this so funny? Because it’s so out of context right? Here is the lovely little 8 year old girl with a lovely little letter and suddenly she drops the f bomb, right in the middle? It’s out of context. Human beings are creatures of context. That’s how we process the world. Context allows everyone to read lengthy strings of scrambled words perfectly well. It’s context that allows that to happen.
And, context is how we interpret our interactions with others. Context gives strength to relationships. What creates a relationship’s strength is the context of the relationship. So we can use personalization to add context to our relationship with individual customers, one customer at a time. The more you personalize for a customer, the greater the context of your relationship is with that customer.
Think about the context this way. A husband and wife having a conversation over breakfast and the conversation goes like this: Honey, where’d you hide it? Hide what dear? You know what I’m talking about. Dear, it is in the same place, just look again. Ok.” What were they talking about? Nobody knows. They know what they were talking about because all the information in that interaction is in the context of all the previous interactions, maybe dozens, maybe hundreds that they’ve had about whatever “it” is.
When I order a book from Amazon and it comes to my house with one click because they already have my credit card number and my address, all the information in that interaction is in the context of my relationship with Amazon. So personalization develops that context.
By interacting, the customer tells you what he wants, or how he wants it. Personally. You remember that information. You personalize your digital experience, your product, some aspect of the experience based on that information from the customer from that interaction. And now, the more effort the customer invests in teaching you how to tailor his experience, the greater his stake is going to be in making the relationship work. Think about it. The benefits of enriching the context of your digital experience with personalization. Because of the added context introduced by personalization, the customer now finds it more convenient to continue with you, rather than having to re-teach a competitor. We’ve all seen companies for which this is true. It’s not just Amazon. It’s Netflix, it’s Lego, Tesco, it’s everybody.
But more than that, more than just convenience, there’s an emotional connection also. Because having participated in the process, the customer now becomes psychologically committed to your joint success. And we’ve seen companies like that, where I’ve helped you and now I’m committed to continuing to do this. It’s called the commitment bias. It’s a very human thing and it’s emotional. And it could be done with software on an industrialized basis now because of technologies like Evergage.
So let me give you a 1-to-1 personalization checklist. And if there is one slide you get later and you want to look at, this is probably worth it.
- What do different customers do differently on your site, with your app, or in their e-interactions with you?
- Can you save your customer time or effort by remembering some detail or specification?
- Are there any ancillary services, aids, or benefits that you customers might desire to improve their digital experience?
- What additional, unrelated tasks must your customer accomplish to benefit the most from the digital experience?
- Are there any particular types of customers with more complex problems or more involved management issues?
- What transactions or interactions has your customer not done, that might indicate a variance from expectation?
This is very important here. What variances do you see in your customers? You might anticipate a customer by personalizing, but you have to constantly tune his personalization to variances. It’s like constant error correction. You’re constantly adjusting your personalization controls
Customer trust, I think, is a prerequisite for profiting from personalization. Because let me tell you something, if the only reason you personalize is to sell more stuff, you’re almost certainly going to fail. If you’re here for that reason, give up. It’s not going to work. If, however, your primary goal is to personalize in order to improve your customers’ lives, you’re probably going to sell more stuff. Probably. If you do it right. But this is where your heart has to be.
I think, trust, customer trust, it’s always been important. If you look at the academics around customer trust as Martha and I did when we wrote our book Extreme Trust, most academics say customers trust companies if they think the company is competent to handle the problem, that the product is going to work on time, it’s going to be delivered on time, it’s not going to break. And if the company has good intentions towards the customers. If they’re acting in my interest, they’re not just trying to sell me something to make a profit, but they think that this is going to work for me. That’s good intentions. Competence and good intentions. Those are the two elements that primarily inform trust.
You could think of competence as doing things right. Whereas good intentions, that’s doing the right thing.
So customer trust has always been important, since the beginning of commerce. But Moore’s Law has a corollary. Remember Moore’s law, every 20 years, computers get a thousand times more powerful. The corollary to Moore’s law is Zuckerberg’s law. Every 20 years, we interact a thousand times more with others. Think about your life today in 2018 compared to 1998. Before there was Facebook or Linkedin or YouTube. Before a lot of people even used text messaging. In Europe they were using it, but not much in the US. Today’s American teenager sends between 300 and 500 text messages a day. A day. It’s the way they interact. And I’m not talking about SMS necessarily. I’m talking about Facebook messages, Instagram, Pinterest and so forth. So, interactions have greatly increased and they increase along with Moore’s law because of the technology.
But here’s the thing, the more we interact, the more trust we demand. We demand more trust. Why? Because trust makes interactions more efficient. Right? I mean, I don’t have time to interact with businesses and people that I can’t trust. I don’t have time. I don’t want to have to talk to my lawyer or do my due diligence. Just like I don’t have time to count my change at the supermarket. Ok? I just trust them to do it the right way. The cashiers or the cash registers. It works. Nobody is going to short change me. I don’t have time for that. And these days, online I don’t have time to check my settings. I want to make sure they’re operating in my interest.
And so trust make interactions efficient. But also interactions themselves generate transparency. The world is way more transparent today than it ever was before. You don’t have to look any further than the evening news to see this. The world is way more transparent. Or, as somebody put it once, more picturesquely, “Dude, you can’t take something bad off the Internet. That’s like trying to take pee out of a swimming pool.” Once the pee goes into the pool, you’re not going to get it out. You can add water, that’s all you can do. Ok? And if you’re putting pee in the pool, if you’re not trustable with customers, it’s going to get around and pretty soon, that’s going to catch up with you.
So, our argument is that consumers, because of this rapid increase in interactivity, are beginning to hold businesses to a higher standard than simple competence and good intentions. It’s not just doing things right, instead you need to proactively watch out for me. I can’t trust you just because you don’t cheat and don’t steal. If you’re not looking out for my interests, I still can’t trust you. You have to proactively watch out for me. We call this trustability. So doing the right thing, proactively.
Let me give you some examples of trustability in action. Amazon. A few months ago I ordered a book from Amazon. I saw it referenced in an academic article, I thought I ought to get this book. And it usually comes right to my house. From the academic article, I go to the book on Amazon, I click on it, and it usually comes right to my house. This time I got a warning: you already bought this book from Amazon, are you sure you want to buy another copy? No, I don’t want to buy another copy, thank you very much. So think about it. My very frictionless customer experience just became that much more frictionless. Now, not only do I not need to give them my credit card or my address, I don’t even have to check to see if I have the book. In fact, sometimes today I order a book from Amazon to see if I already have it! Think about it. Amazon could make more money if they just sold me the book. It’s my mistake, not their mistake. It’s not unethical for them to do it. Ninety nine percent of companies would do it and thank God that this mistake was on the customer’s part so we can make more money. There are companies in business tricking customers to spend more money. But not Amazon, not if you’re going to be trustable.
Or, consider Ally bank. At Ally bank — it used to be GMAC and now it’s an online bank called Ally bank. Every product page at Ally Bank has a customer review section on it. You can turn to it and see what other Ally Bank customers have said about that product. They moderate the reviews to make sure there’s no obscenities, and of course they’re a regulated body so they have to be careful about what’s promised by customers to other customers. But within regulatory constraints, that’s a great service. And every page on Ally Bank’s website has a toll-free number with the number of minutes estimated before you can actually talk to a human being. That’s trust. That’s proactive trust.
Or, consider JetBlue. I was on a JetBlue flight that was five hours late into Kennedy Airport. As we got off the plane, the gate agent handed everybody a note: “Dear Passenger, Sorry about the delay, it was mechanical. Under our customer bill of rights we take responsibility for mechanical issues. You’re due a refund. The amount of your refund depends on whether you paid in True-Blue points or dollars and when you bought your ticket. Don’t worry, we know the conditions under which you bought your tickets and we are going to automatically credit the refund to your account.” Pardon me, has anybody ever get a refund from an airline like that? Right? What do they usually do? Usually you have to put your confirmation number in, find your ticket number and put it in, put a chicken in a bag and wave it over your head six times and it might give you a refund. Why? Because most airlines are product marketers. They’re traditional marketers and refunds are a cost of doing business. What do you do with cost? You minimize them. How do you minimize them? You make them hard, make them difficult. That’ll minimize the cost of refunds, but guess what it does to customer equity? Steals customer equity right out of your pocketbook.
Or consider sequel servers at Microsoft. When you buy a sequel server from Microsoft, you get vouchers. You can send your IT people to training with some of Microsoft’s value added reseller partners (VARS). The problem Microsoft had was only about 20% of these coupons were being redeemed. So they came to me and they wanted to know: Did I think that was good or bad? And I said well I bet your marketing people love it because the money goes right back into the marketing budget. They said yeah they like it, they don’t want to change. I said, but I don’t think that’s good for customer trust. And now what Microsoft does is send out reminders. If you don’t use the vouchers after about two weeks, you get an email reminder from Microsoft: “Don’t forget two weeks ago you bought this sequel server, we installed it. We gave you the vouchers, they’re free. There is no cost. Your people will get more out of it.” And now they’ve got a 60-70% renewal rate around the world. And in the Edelman Trust Index, the world’s most trusted single brand is Microsoft. This company used to be the evil empire of the tech world, remember that? Anybody old enough to remember when Microsoft was thought of as the evil monopolist? Today they’re the world’s most trusted brand because of policies like this. It’s not the only policy, but it’s one of them.
Alright. Last thought. There is an elephant in this room isn’t there? That elephant is privacy. Personal privacy. If we personalize to our customers, won’t our customers feel like their privacy is invaded? They could. There’s a wrong way and a right way to do personalization. Trustable personalization, however, doesn’t threaten privacy. You want to personalize and protect privacy in the same way you’re personalizing to meet that customers need. As Theresa Marwah said earlier today: you’re not personalizing to sell so much as personalizing to help a customer get faster to the solution of the problem they’re trying to solve. That’s what you’re trying to do. That’s how you do it. You do it from the customer’s interest. You personalize for the customer’s interest.
So let me give you some examples. First, provide obvious benefits on data. Don’t just ask customers to complete Golden Questions and fill out forms and interact and not give them anything back. Personalize based on the data, provide those benefits and have a process for acting on individual customer privacy preferences. What’s a privacy preference? A privacy preference is when you ask me if I want your newsletter, I should be able to choose weekly, every other day or monthly. I ought not to have to have an every other day newsletter. Why not an hourly newsletter, if a daily newsletter works, how about a minute-by-minute newsletter? Right? See how ridiculous that is? Customers, they don’t have time for that.
So privacy preference is how often do you want me to contact you? May we use information about your family members to improve your experience? Right now, if you’ve seen the new privacy initiative in the EU, all the worldwide sites are asking are you ok with cookies and that’s permission. And everybody basically says yes, especially if they think they’re getting something for this. But, when you’re using observational data, don’t telegraph that you’re personalizing: based on what we saw you do on Google search three days ago. Right? You don’t do that. You just personalize as if it was you. What would you like to see in that message stream? And always keep the customer’s interest in mind. We always keep the customer’s interest in mind.
If you don’t remember anything else from my presentation today, just remember this: You need to always treat the customer as you’d like to be treated if you were that customer. This is the principle of reciprocity. Trustability depends on the principle of reciprocity.
One of the most principled businesses today is USAA. The direct writing and insurance company. They specialize in handling the military service members’ auto and home ownership policies. At the end of the Gulf War, the first Gulf War in 1991, USAA had about 10,000 members that had gone overseas to Kuwait and Iraq and they came back after 8-10 months each. And at its own expense, without being required to, USAA sent out refund checks for members’ auto policies for the time they had been away from home. They hadn’t been driving, or hadn’t been driving much. Right? They were away. They were outside the US. Over 2,000 of those refund checks came back to USAA from the members. They were mailed back with notes like no, my sister was driving my car, or I lent my car to my mother, or I don’t want this refund right now, I just want you to be there when I need you. You know why? Because when you use the principle of reciprocity, there’s no such thing as one-way reciprocity. When you treat the customer the way you’d like to be treated, the customer going to treat you the way he’d like to be treated. That’s reciprocity. It encourages mutual empathy, mutual respect.
One more thing. No one ever has some integrity. You either have integrity or you don’t have integrity. If you build your business based on the principle of treating customers the way you’d like to be treated if you were the customer, then not only will your customers trust you, but your employees are going to trust their managers, your managers will trust employees, your vendors will trust you. In other words, you’re not just going to have a more profitable company, you’re going to have a better company. A better place to work. Better for you, better for the world.
Thank you very much, you’ve been a great, great audience.