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Q&A with Martha Rogers and Don Peppers July 15, 1999 Collaborating with the Customer Consultants Martha Rogers and Don Peppers talk about the using data to create one-to-one relationships with consumers Martha Rogers and Don Peppers don't see each other very much. The two partners at consultants Peppers & Rogers Group have separate offices in Stamford, Conn., and Bowling Green, Ohio. Yet even without the benefit of office hallway chats, they have a mindmeld about the critical importance of one-to-one relationships with customers. They are also focused as one on learning and adapting to what customers reveal through words, actions, and purchases. Business Week's Heather Green spoke with them about the importance of using data online to become a "one-to-one enterprise." For more on their approach, see "Gurus' Guide to Knowing Your Customer," in the July 26 edition of Business Week e.biz. BW: Why are companies more involved with tracking and learning from customer data? Peppers: It's happening because it can. They are doing it because in just the past few years, the technology has become available to them. It's not just that database prices are falling but that the software and algorithms are now available that can make the comparisons and scan the data in faster ways. But there is a difference between simply using detailed information and practicing one-to-one marketing. One-to-one marketing involves not just the database but the interaction with a customer and some form of customized response. I change how I treat the customer based on what he has told me. Rogers: When we first realized we could keep track of individual customers, that was an astounding thought. Companies used it to slice and dice mailing lists more efficiently. But what they really needed to do was move from database marketing to one-to-one marketing. It's not just using the information I know about a customer to figure out better-targeted harassment. Instead, it's about figuring out what this customer needs next from us, when, in what form, at what price, and how." BW: What does this approach mean for a company? Rogers: That's how we break out of that price-driven commoditization rat race of the Industrial Age. In the Industrial Age, we standardized products, services, and customers. In the Information Age, we customize the service or the product. We do something the customer can't get anywhere else. If you and I have the same products and our customers perceive them as the same, the customer will choose the one that's lower-priced. So a competitor will cut prices to get a short-term advantage. I, as a company, will always be at the mercy of the stupidest competitor. But the one-to-one approach makes it possible for us to build learning relationships with customers." Peppers: When we talk about some form of customized treatment, most companies say, "Holy cow! That's expensive." Mass customization is actually less expensive on a unit-cost basis than mass production. What it's all about is the digital configuration of a product from many different components and modules. Because it's a make-to-order business model, I only make the product when I have a customer, so I don't take inventory risks." BW: What are the benefits? Rogers: There are two benefits of one-to-one. First, the customer actually works with us to add value. He's actually working with us to create a product he wants, so that means the switching cost for him is greater than the staying costs. The second benefit is it reduces costs of sales in the long run. Peppers: The real benefit is that the customer is participating in the product risk and it becomes as much his product as yours. The more engaged the customer becomes in specifying the product he wants, the more committed he is to you. He's not doing this out of love for you. He's staying with you because he has already taught you what he wants. Companies are faced with commoditized products. They're faced with well-informed consumers who are bidding them against the competitors and are less loyal. The only real defense is creating a relationship with customers. In order to do that, firms will embrace the Web, sales-force automation, and customization. BW: What's difficult about actually collecting and using data effectively? Rogers: It's hard because most companies that exist today were born in the Industrial Age. The cultural change is, instead of being product-oriented, companies are being customer-oriented. As we go forward, the most valuable thing we can make is the customer. If you are an Industrial Age company, you have to make a good product and make profits. If you're an Information Age company, you have to make customers. BW: What is your perspective on privacy concerns? Peppers: Increasingly, companies that are operating digitally are realizing that this will be a big issue. They need to protect their customers' data. You're seeing companies like Microsoft, IBM, and Disney saying they won't advertise on sites that don't have privacy policies. We haven't seen the government regulation that's...what it's cracked up to be. In trying to regulate, you repress the ability to engage in E-commerce, and you obstruct efforts to increase customer service. Regulation will create more damage than good, as well intentioned as it may be. Rogers: Privacy will continue to grow as a public-relations and political issue. It's good that people are protecting customer data in an era where that's very valuable to companies and where some harm could come to customers. I take it seriously, but at the same time, there are some fanatics on this issue who thought that subliminal advertising was controlling the world. BW: What do companies do then to deal with privacy concerns? Rogers: The one-to-one enterprise would never even consider violating our customer's privacy because that customer information is the most valuable asset we have. The mass marketers sell the name and address information, and they make pennies, and then you get assaulted by more marketing. As a one-to-one enterprise, we would never find ourselves in that situation because we recognize that's our valuable asset. Since we won't violate it, we issue a privacy pledge." Peppers: Companies have a very clear interest in reassuring customers that their privacy will be protected. Companies online need to start with a privacy protection policy. You don't get involved with collecting or using consumer information if you don't have a privacy policy. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP					PREVIOUS Q&As Amazon.com's Jeff Bezos eBay's Meg Whitman MIT's Michael Dertouzos Authors Jerre Stead and James Belasco Diamond Technology's Mel Bergstein Motorola's Les Shroyer Author Clayton Christensen Venture capitalist John Doerr