The Seven Myths of Customer Management: How to be Customer-Driven Without Being Customer-Led
In 1987 we founded a consultancy that specialized in market and customer management. Our work centred on helping our clients make more money by increasing their revenues. While we also advised on how to reduce costs or change processes, the majority of our activity was directed at improving the efficiency, effectiveness and, critically, the profitability of our clients’ operations by growing the value of the customers they served.
Over the course of the following 15 years, we were able to work with some of the UK’s largest and most successful companies, across many industries. We observed a wide range of strategies being implemented by an extraordinary array of senior managers, who adopted a diverse set of management styles and techniques to address many and varied business challenges.
Irrespective of the differences in objectives, strategies and styles, there was always one common factor. Every organization with which we worked (without exception) relied on its customers to generate the income that paid the bills, the salaries and, of course, our fees! Notwithstanding the ability of financiers to move a company’s share price by fancy manipulation such as off-balance-sheet financing, this same income is the fundamental and, arguably, the only lasting source of long-term shareholder value.
Although we worked in an exceptionally competitive consultancy market and competed against firms that were many times larger than our own, we nevertheless grew our practice steadily, year by year developing a blue-chip client list and a top-quality consulting team. The success of our business undoubtedly stemmed from our focus on generating profit for our clients by maximizing the value of both existing and potential customers. Of course all our competitors had something to say on the subject too, but what we said was, usually, quite different. Fortunately, it was sufficiently compelling that organizations as diverse as Thomas Cook, Norwich Union, GUS and Switch, to name just four, were prepared to listen and take our advice.
The fundamental beliefs that governed our approach can be summarized as follows: • Customers are an asset of the business and the primary source of long-term shareholder value.
• Like any other asset, customers have to be managed positively to maximize the return on the investment in them.
• Unlike any other asset, customers constantly change and thus a deep and insightful understanding is required to manage them successfully.
• Any investment in the acquisition or ongoing management of customers must only be made if there is an acceptable probability that the investment will yield a satisfactory return.
These may seem statements of the obvious. They are, but the fact is that these principles are unrecognized, or ignored, by many companies and the ‘experts’ who often advise them.
Over the years we observed one specific trend that continually baffled us. Many organizations increasingly invested vast sums in the purchase and implementation of extremely sophisticated customer management technology. Yet many of them failed to achieve even a small fraction of the benefits that had been promised when the investment decision was made. Despite this, hardware, software and consultancy suppliers continued to thrive, selling ever more complex solutions at ever higher prices.
Introduction xiii It seemed to us that at the heart of the failure lay a lack of understanding of the principles described above. The belief seemed to be that a sprinkling of the magic dust of expensive technology was all that was required. Our opinion was, and remains, that while technology can be a very powerful enabler of many aspects of customer management, its introduction to a business that has not addressed the basics will almost always fail.
This book is about those basics.
We agreed to sell our consulting business at the end of 1999 and had both left by the spring of 2002 to pursue other interests – one of which was writing this book. We wanted to challenge some of the nonsense we had read and observed; to argue the case for a different approach based on our experience of what actually works – and what does not; and, most importantly, to provide all managers concerned with the management of customers and revenues with a fresh perspective.
The book is called The Seven Myths of Customer Management because in many organizations the basic tenets according to which customers are managed are founded more in mythology than reality. Of course everyone pays lip service to the need to treat customers well, everyone recognizes that they are important. But does everyone balance the need for a strong customer orientation with sound commercial common sense? It is sadly true that, despite the fact that only customers generate revenues and profits, many organizations remain unclear of how to unlock their potential value.
We hope you will find the book interesting and challenging. You may not agree with everything we say; we would expect nothing else. There is no single ‘right’ answer, or the definitive manual would have been written years ago. We simply offer our perspective gained from (far too many) years of observation and experience.