Lock in customer loyalty - using information technology to build customer loyalty - excerpt from "Enterprise One to One" by Don Peppers and Martha Rogers - Industry Trend or Event

Home Office Computing, Jan, 1997 by Don Peppers, Martha Rogers

Imagine this weekly grocery-shopping scenario: Log on to Cyber-Foods, key in a few needed items, and you're reminded to include Braun coffee filters, Green Giant corn, and Plax mouthwash. Place the order, pay via credit card or direct debit, and have the groceries delivered to your door 20 minutes after you get home from work. Now let's suppose you've been ordering online for months--long enough for Cyber-Foods to have built a database detailing your shopping preferences and to have monitored the rate at which you consume products. Soon, a second automated grocer is launched, offering the same services, quality, and price. But for you---or any customer--to get the same customized service provided by Cyber-Foods, you'd have to spend months placing orders. So it's in the customer's best interest to remain with the original grocer, who's now gained an insurmountable competitive edge.

Whether you sell groceries or create greeting cards, market footwear or financial services, you can learn from clients, customize your services, and beat rivals using information technology. It's what authors Don Peppers and Martha Rogers call customer-driven competition in their latest book, Enterprise One to One (Currency/Doubleday), from which this article is excerpted. This new form of marketing was inconceivable to entrepreneurs a few decades ago. But today, with huge databases; interactive mechanisms such as online storefronts, PINs, and debit cards; and customized distribution tools, businesses can serve clients better and build loyalty.

Track What Customers Tell You

Scores of businesses could gain an advantage by remembering the things customers teach them. For instance, Burger King has been promoting itself for years as the "Have it your way" fastfood chain, but few take advantage of this service because the company doesn't recall how any particular customer wanted it the last time. It's more trouble to specify what your way is than to say, "I'11 have a number 3."

But imagine the success of the Burger King that allows its customers to identify what their way actually is by entering personal identification numbers with each order they place. In time, individual clients could announce "I'll have my number 3, please." Now that would be a fast--rood company that has made it convenient for people to eat there.

Whether you run a large franchise or small operation, you will gain an edge on the competition by being customer-driven. Take the florist who, after a client has ordered flowers for his Mom's birthday, e-mails a reminder the following year--in advance of her birthday; the travel agent who remembers that a client prefers window seats on planes, four-door sedans, and hotels with dataports; and the bookshop owner who, by keeping a record of a customer's past purchases, knows she likes mysteries, self-help, and romance novels and sends a notice when a new book arrives.

Inspire Clients to Inform

For you to gain information about customers, however, you must ask them to expend effort to teach you. Consider The Custom Foot approach. This made-to-order footware chain based in Westport, Connecticut, asks its customers to spend about 20 minutes informing its system. First, the client places her feet on a scanning device that measures each foot's contours. Next, she sits at a computer, answering questions about the type of wear she's experienced on current shoes. Then, after an additional set of marketing questions are answered, the customer is ready to make her purchase decision.

Once the customer has selected a combination of styles and features from the firm's database, the information is sent online to Custom Foot's manufacturing facility in Italy. Three weeks later, the shoes are either shipped to the store for the customer to pick up or delivered directly to her home. Sure, the Custom Foot customer must take the initiative, but once she has, she'll think twice before switching brands.

Increase Loyalty, Lower Your Costs

Until you build a solid base of established customers, you'll have to attract new ones with discounts and two-for-one offers, which get expensive. That's because even though your promotions were intended for new clients, any current ones--many of whom would have been willing to pay full price--may also take advantage of it. In general, loyal customers are more willing to pay regular price and less likely to look for discounts. Therefore, your marketing costs for loyal customers decrease.

If lower marketing expenses aren't enough to convince you to become a customer-driven company, consider this: Repeat clients buy more frequently, in greater volume, and over a longer period of time. Your firm has a higher value to your best customers, because you've reduced their risks. They don't need to search for a new source, to qualify a new service, or to waste time making a decision. In short, they'll pay more.

A perfect example is Streamline, a Boston home shopping service. By closely monitoring each of its subscriber's purchases, the company knows exactly which tomatoes to select for a customer's pasta, what videos his or her kids can watch, and other detailed information. With every order, Streamline is locking in the loyalty of subscribers by building a database. And because of this, the company can expect a larger portion of customers to be willing to pay extra for this convenience. To structure its fees fairly, the company charges subscribers who remain with the firm--and thus have a larger database--a "data handling" fee. What's best, this approach is quite different from the unfair practice of charging the faithful customer full price for the exact same service that new customers get discounted.