Don Peppers: Forgo short-term profit to build customer trust

Leading marketing and customer experience strategist shares his views on how automated and digital marketing change the nature of customer value

Don Peppers
Don Peppers

As interactions between brands and consumers become automated, and as businesses streamline and mechanise processes, humanity and honesty become even more vital to customer success.

That’s the view of leading customer and marketing strategist, Don Peppers, who caught up with CMO during Sydney’s World Business Forum to speak about the challenges of modern customer engagement. Thanks to automation and digitisation, customer experiences are going to get more frictionless and easier, and more services will be delivered online, he said.

“But it’s essential businesses never lose sight of the fact that humanity will be more important and significant than ever before,” Peppers said. “Consider the call centre: The more calls diverted by good websites and electronic handling, the fewer calls will be made by customers. But when they are required, those calls will be more serious and more important. They’ll be for problems that are more difficult to solve because they couldn’t be automated.

“Even more empathy, more skills and more human qualities will be required to handle those interactions.”

Peppers sat down with CMO to discuss how to foster authenticity and honesty as a brand and with customers, as well as how CMOs can lead modern customer experience management.

Why is customer experience such an important focus for businesses now?

There are three technologies that have made the customer-centric revolution possible: Databases – I can track individual customers one at a time; interactivity – I can interact with a customer individually and not have to advertise to them; and mass customisation – I can digitally configure a service or even a product for particular customers. Instead of me figuring out what the average customer wants, producing that and seeing who does then want it, I can now ask you what you want and make it.

In the product-centric world, companies had a product that met a certain need and they wanted to find as many customers as they could who wanted to have that need met. So they advertised, with the goal of managing the public’s perception. That’s because the customers were anonymous; they were just points in the market place.

Because of the technology now available to us, I can focus on customers one at a time and try to satisfy as many of that customer’s needs as possible over the duration of my relationship with them, across my many business units. The measurement of success is not share of market, but share of customer. And I don’t mean share of wallet, but the portion of the customer’s need I am meeting and what part of their life I’m participating in.

In your latest book co-authored with Martha Rogers, Extreme Trust: Honest as a Competitive Advantage, you say honesty and humanity are the cornerstones of modern business success. What do these look like in practice?

The first step for us was realising technology’s Moore’s Law has a corollary, which Martha and I call ‘Zuckerberg’s law’. Every 20 years, we interact 1000 time more with others. Think of your life in 1995 – you didn’t have a cell phone, LinkedIn, Facebook, and your company probably didn’t have broadband. In 20 years, we have come to interact 1000 times more than we did back then, and 20 years from now, our children will interact 1000 times more than we do today. The more you interact, the more trust is important, because trust makes interactions more efficient.

If I am interacting with a person or company I don’t trust, it slows me down. What has developed as a result are certain transactions that are routinely honest. It would be such a hassle if you had to count your change every time you went shopping, for example. So we have developed certain social standards to overcome that.

Over time, companies are going to be expected, on a routine basis, to proactively watch out for their customers’ interests.

Over time, companies are going to be expected, on a routine basis, to proactively watch out for their customers’ interests. That’s why our new book is about extreme and proactive trustworthiness. Let me use an example. I buy a lot of books from Amazon as it’s easy – I click on the book online, my credit card is automatically charged, and it gets delivered to my house. Recently, I saw a book online I thought was worth buying, but when I clicked on it, I received a warning that I’d already bought the book. Just think about the mechanics of this: It wouldn’t have been cheating for Amazon just to sell me the book; it’s not even dishonest. Instead, Amazon chose not to get the profit on that book sales, but earning my trust.

From my standpoint, buying from Amazon is so much easier now, because I don’t need to stop and count my change. I not only don’t have to give my credit card number and address each time, I don’t even have to look at my bookshelf to check if I have that book already. That is the future of marketing.

Will all industries be expected to offer such services?

This is an inevitable transformation of business, and it’s going to happen over the next generation. If you’re currently in business today, you have two choices. One is waiting for this transformation to occur in your category, and be forced to do it to compete with everyone else. Or, you can be a leader and get the credit for doing it in advance. Give a little bit of short-term revenue and get immense benefit and competitive advantage longer term.

Read more: Peppers shares why brands need to create frictionless customer experiences

How must the financial and results metrics marketers and organisations use to gauge success change in order to support this transformation?

The problem we have is that the accounting system we’re forced to use today is from the 19th century. It’s totally outdated by the customer age. As recently as 1980, 98 or 99 per cent of the market cap of Standard & Poor 500 companies was tangible assets – hard goods, inventory, factories. In 2010, only 40 per cent of the market cap was tangible and 60 per cent was intangible. Look at Google: It’s worth hundreds of billions of dollars, but do you think the company has that much in computers and ping pong tables? Of course not. All of that intangible value is the customer base.

If Google had a terrible disaster tomorrow and customers left in droves, it wouldn’t cast a shadow on the financial statement, because customers aren’t on the balance sheet. What does that say about accounting systems? They suck.

So what do marketers do to ensure the rest of the business understands the tangible value of customer experience and engagement?

Marketers already know customers create two types of value: Short-term, when they buy things; and long-term, when they change their opinion of you. If I have a great customer experience today, which results in me being more likely to buy from you in future, then that experience created value for the business. The cash effect of that value, however, won’t be realised until some future point or quarter when I actually do return more often. But just because we don’t account for it today, doesn’t mean that value isn’t there.

As marketers, we need to educate our finance people and talk about ways to best get at customer value and articulate what that value is. There are a couple of ways you can do this. If you have a data rich environment, like a mobile phone, retail or finance company has, you could do customer lifetime value analysis. You need to look at the way lifetime values change according to your model every month across that population of customers, and how their values go up and down based on their transactions and sales volume.

Then look at other data points that vary and see if there are correlations. See if it isn’t true, for example, that when the NPS [Net promoter Score] in a particular market segment goes up by two points, lifetime values increase by X per cent in the next month. If so, then NPS or some other attitudinal variable would be a leading indicator of lifetime value.

Currently, most organisations monetise NPS by unpacking it into detractors, neutrals and promoters, against the churn rate of A, B and C, so this tells you if you can move a detractor to a neutral and decrease churn by X per cent. Another way is to just make arbitrary assignments of value to non-financial metrics. So we just that an increase in NSP is worth a 1 per cent increase in the value of the customer base it applies to.

The problem really comes at the senior levels of the company, because investors aren’t going to get it. In some businesses, like telecoms, they know churn rate is critical as they have been educated and analysts look for it. That education should be going on in other industry categories as well, but it doesn’t. Marketers should be coaching the CEO how to educate the board and investors around this kind of customer value.

As a marketer, you also need to visualise yourself as the representative of the customer. That means more than just selling the customer – what you’re really trying to do is create the best experience to serve your customers the best way possible, so your customer will serve you the best way possible.

All things being equal, the customer is going to create the most possible value for you as a business at about the time when they think you’re creating the most value for them. When does that happen? When the customer thinks you are acting in his or her interest, and they can trust you.

Customer loyalty programs are often positioned as a way to better engage with customers, yet these are often transaction, rather than value-based. Can loyalty programs still help brands drive engagement?

Loyalty programs really never were about loyalty, they were about getting a customer’s data. If you are a retailer, they’re about linking a customer’s identity from transaction to transaction; if you’re an airline, they are about linking across systems and processes. They’re buying the customer’s personal data by giving points, awards and mileage.

It doesn’t mean loyalty programs have no purpose – they do. If you are a retailer, it is the most cost efficient way to get into the heads of your individual customers. Tesco’s Clubcard program, which launched way back in 1993, is a great example of an approach based on treating different customers differently. Thanks to all that data on individual customers and what they buy, Tesco has done a number of different things.

Related: Are customer loyalty programs stuck in the past?

The Tesco Loves Baby club, for example, represents three-quarters of pregnant women in the UK and revolves around giving them information based on the baby’s age and development. These members buy millions of pounds of baby products form Tesco, which they could have bought at rival chains. Yet the club isn’t designed to sell products, and there’s no rewards structure. What Tesco offers to get a customer’s data is information and help.

That’s the modern loyalty program – it’s content marketing.

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