The customer is always . . . Tom Peters On excellence

TOM CLANCY couldn't keep me awake during a recent redeye flight from San Francisco to Washington DC. Don Peppers and Martha Rogers did. In The One to One Future: Building Relationships One Customer at a Time, Peppers and Rogers brilliantly re-conceive the basis for marketing.

They urge companies to 'turn even the simplest products and services into collaborative ventures with individual customers, to create lasting, impregnable relationships'. New technologies, they claim, make it 'possible for . . . even the mass marketer . . . to assume the role of small proprietor, doing business again with individuals, one at a time'.

The core mechanism is straightforward: gather as much information as you can about the customer, then tailor the entire enterprise to customers' very personalised needs. Customer segmentation (rather than product segmentation) already exists - American Airlines' variety of frequent-flier programmes and American Express's assortment of credit cards. But there's a much longer road to travel. Tomorrow's cataloguer, Peppers and Rogers speculate, will do the following:

Encourage you to send any number of gifts to friends and relatives by ordering them all at once, up to 16 months in advance.

Schedule the delivery of each birthday or anniversary gift on the date you request.

Charge you separately for each gift two days before its delivery, rather than for everything on the day you place the big order.

Send you a reminder postcard 10 days before each gift is scheduled to be delivered, reminding you of item, delivery date, recipient and gift message.

Send you a pre-printed work form with each new catalogue, including a list of last year's addresses, dates and gift items.

Although the authors acknowledge that the product must remain important, they say the focus should change 'from high-quality product to high-quality relationship' - with an emphasis on 'share of customer' rather than share of market.

Consider traditional packaged-goods marketing. 'In the mass-marketing paradigm, which governs the way Kellogg and nearly every other consumer products company views its business, the brands have managers watching out for them, but the customers don't,' the authors write.

'A brand manager's assignment is to use advertising to persuade you and 26.7 million other faceless consumers to buy all the boxes of Frosted Flakes that Kellogg hopes to sell this coming quarter. The shareof-customer alternative would be for Kellogg to assign a customer manager the task of figuring out how to increase Kellogg's share of perhaps 1,800 boxes or more of dry cereal you will buy in your lifetime.'

This shift entails fundamentally altering organisation structure. Peppers and Rogers say that in order to hold 'marketing managers in your company responsible for concentrating on share of customer, you must first turn your marketing department into a 'customermanagement' organisation', designed around portfolios of customers, arranged according to expected lifetime purchasing value. Even new product-development activities become secondary to the customer-management structure.

The payoff can be enormous. 'Increases in market share can only be bought and paid for with lower unit margins,' Peppers and Rogers argue, but companies can 'generate increasing marginal returns on sales to any individual customer, as your share of customer grows'. That is, margins grow as you do more business with the same customer.

For those who sense Orwell's nightmare come true, there may be good news. The authors urge marketers, for their own sake, to protect rather than threaten privacy.

Take MCI's approach to its successful Friends and Family service: 'MCI could have combed through its own computerised records of long-distance phone calls by its most valuable customers, and then proposed individual caller networks to each customer based on each one's actual calling patterns. But to have launched (the service) this way would have been regarded as invasive by many. Instead, MCI invited each customer to initiate a dialogue first (by identifying the members of his or her own would-be network), and in the context of that dialogue the customer and the company collaborated to create an all- individualised product.'

These approaches are in their infancy, and no company has yet fully embraced a customer-management organisation structure. Nevertheless, those who effectively get their hooks into customers this way will probably have the basis for relationships that can, even in these fickle days, stand the test of time. While brand loyalty is atrophying at an astonishing rate, customer loyalty may be there for the taking - if companies are brave enough to swallow the entire Peppers and Rogers prescription.

Copyright TPG Communications