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Using an Outside in Strategy to Value
 

Using an Outside in Strategy to Value

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Customer Value seems old hat and so un-marketing like in this day of Social Media, Analytics, Inbound-Outbound, Trending and Buzz. However, the successful companies are not necessarily writing about ...

Customer Value seems old hat and so un-marketing like in this day of Social Media, Analytics, Inbound-Outbound, Trending and Buzz. However, the successful companies are not necessarily writing about marketing they are doing it and relying on a simple term, Customer Value.

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    Using an Outside in Strategy to Value Using an Outside in Strategy to Value Document Transcript

    • Business901 Podcast Transcription Implementing Lean Marketing SystemsOutside in Strategy– Customer ValueGuest was Christine Moorman, co-author ofStrategy from the Outside In: Profiting from Customer Value Related Podcast: Outside in Strategy– Customer Value Outside in Strategy– Customer Value Copyright Business901
    • Business901 Podcast TranscriptionImplementing Lean Marketing SystemsChristine Moorman is the T. Austin Finch, Sr. Professor andfounder of The CMO Survey at The Fuqua School of Business,Duke University. Professor Moorman is the author of over 60 journal articles, reports, and conference proceedings. She has co-edited the book Assessing Marketing Strategy Performance (with Don Lehmann) and has made over 100 presentations of her work at companies and universities all over the world. Her primary areas of activity are marketing strategy and customer-focused innovation Professor Moorman has served on the Board of Directors and chair of the Marketing Strategy Special Interest Group for the American Marketing Association, as Director of Public Policy for the Association forConsumer Research, and as a Trustee for the Marketing ScienceInstitute. She won the 2008 Mahajan Award for CareerContributions to Marketing Strategy from the American MarketingAssociation and the 2008 Distinguished Marketing Educator fromthe Academy of Marketing Science.Professor Moorman’s research has won two best paper awardsand been published in Journal of Marketing Research, Journal ofConsumer Research, Marketing Science, Journal of Marketing,Journal of Public Policy & Marketing, International Journal ofResearch in Marketing, Academy of Management Review, andAdministrative Science Quarterly. Her research has beensupported by grants from the Marketing Science Institute, theInstitute for the Study of Business Markets, and the NationalScience Foundation. Outside in Strategy– Customer Value Copyright Business901
    • Business901 Podcast TranscriptionImplementing Lean Marketing SystemsJoe Dager: Welcome everyone. This is Joe Dager, the host ofthe Business 901 podcast. With me today is Christine Moorman.She is the co-author of Strategy from the Outside In: Profitingfrom Customer Value, a recent book published by McGraw Hillthat discusses profiting from customer value. Christine, could youstart out by giving me the elevator speech about yourself?Christine Moorman: Im a professor at Duke University and Iteach courses in marketing strategy at the Fuqua School ofBusiness. Ive done both research and consulting work looking athow organizations can really learn from the market, learn fromcustomers, and how they can grow and innovate in response towhat theyve learned.Joe: What prompted you to write the book?Christine: Thats a good question, Joe. I spent the last 20 yearsin my career studying companies, teaching about companies,working with companies, and one of the reoccurring themes isthat a lot of companies fall into what we call inside out thinking.They just lose touch with what their customers want, what theircustomers need, they lose sight of the fact that competitors startdoing a better job service those customers wants and needs.They begin to focus on what theyre good at. They begin to focuson the bottom line. And, they begin to focus on other things likeshareholder value, which is a perfectly reasonable outcome, butwhen it takes precedence over first serving customers, and thenwe have a problem on our hands.It was observing that over and over and over again that made mewant to try to take it apart and understand why this washappening and what companies could do instead and what I couldoffer them in terms of advice about how to manage theircompanies so instead they could manage from the outside in. Outside in Strategy– Customer Value Copyright Business901
    • Business901 Podcast TranscriptionImplementing Lean Marketing SystemsJoe: You talk about customer value. Is that really how acustomer perceives the value that your organization puts forth orgives to them?Christine: Exactly. We talk about the idea that what is it thatcustomers want? You know, how are their needs changing overtime? How can we then serve them more effectively than thecompetition? Its not rocket science in that sense. I mean, itspretty basic business 101.Joe: What is interesting that I find is customer value isnt rocketscience, but its pretty difficult sometimes to get that informationand to really understand it. Does your book describe how to dothat?Christine: I think youre right. Its the idea of customer isntvery complex, but then getting a true sense of what it is thatyour customers really want can be difficult. One of the difficultiesis that companies I think fall prey to two common mistakes.First of all, they gather way too much data. So, they get stuck inthis sort of big data trap and theyre trying to analyze their wayout of it.The second trap that they fall into is that a lot of that datadoesnt reflect direct interaction with customers. I think the bestway to really understand whats going on with your customers isto spend time with them.We talk about living with your customers in the book. We dontmean literally living with them; we mean spending time directlywith them either in their homes where theyre using the productor in the stores where theyre buying the product, and on salescalls where theyre interacting with the sales force it manifestsitself having that direct contact. Outside in Strategy– Customer Value Copyright Business901
    • Business901 Podcast TranscriptionImplementing Lean Marketing SystemsThe very best companies do this well. They not only have theirfront line employees out there engaging with customers, but theyhave top managers all the way from the very top, CEOs, youknow, who are out running the cash register to see what thecustomer problems are, to see what the unmet needs are, youknow, all the way through middle managers who again, might beattending to different activities that involve face-to-face contactwith the customer.Joe: Can you name a couple companies that you think that aregood at this?Christine: Yes, I can. In terms of the market insight part of it orthe overall managing per customer value?Joe: I would say for managing for customer value because Ithink youve got to get the big picture first.Christine: Sure. So, well one company that we profile quite a bitin the book is Tesco, which is a British retailer who really pulleditself out of a death spiral in the mid-90s under the leadership ofTerry Lahee who was the chief marketing officer and later wenton to become the CEO.They just do so many things well that help them achieve thissuccess at managing for customer value. As I was mentioningbefore, they spend time directly with their customers. They havea program thats called Tesco Week In Store where the topmanagers are out there with the customers.They also rely on employees to, you know, in various focusgroups and ways of gathering information from employees allover the company, for insights about what customers want andneed. Outside in Strategy– Customer Value Copyright Business901
    • Business901 Podcast TranscriptionImplementing Lean Marketing SystemsThey have an incredible way of capturing for their loyalty card,The Club Card, capturing a lot of information about whatconsumers are doing in their interactions with the company.They systematically mine that information to be able to drivetheir strategy towards what the customer wants and also todefend against encroaching competitors in all the ways that wetalk about in the book.We talk about a set of things that are called the customer valueimperatives. Tesco does all of these imperatives pretty well. Butfundamentally, these imperatives involve getting informationabout consumers and the driving the strategy off of thatinformation.I mean, we could talk specific about those imperatives. But at thecore, the idea is that these are principals that will allow Tesco andother companies like Procter and Gamble, you can even talkabout other business to business companies, as well, that do this,that really do drive strategy from the outside in as opposed tojust saying Ive got this little bundle of resources and Im going tonow play them out in ways that are efficient.Firms have to do that. But, if they sort of put the cart before thehorse, if they put those efficiencies ahead of servicing customers,those efficiencies will eventually dry up and competitors willencroach.The other company I would just mention briefly that we talkabout is almost a paragon of this outside in view is Amazon. A lotof your listeners know about the different things that Amazon hasdone.One thing that Amazon reflects at the core is this outside in viewof strategy because Chuck Bezos, the CEO, has made it clear thatthey will go where their customers need them to go. He makesthis quote which we really play up in the book that I think is Outside in Strategy– Customer Value Copyright Business901
    • Business901 Podcast TranscriptionImplementing Lean Marketing Systemstremendous that we can all learn from. He says rather than askwhat were good at and what else we can do with that skill, youask who are our customers, what do they need? You say youregoing to give it to them regardless of whether we have the skillsto do so.At the core of that statement is the idea that, obviously hes notgoing to go off and make aircraft engines. There are somelimitations to this mentality. But nevertheless, it still reflects anopenness to grow in the direction and to evolve the company inthe direction that where it reflects customer interest andcustomer needs. Theyve done that from the online bookstore allthe way through the Kindle. If you look at the Kindle, they had noexpertise in electronic devices. But, what they did have was astrong relationship with customers who trusted them for onlinecontent.Joe: I think thats interesting they developed the Kindle. Theyalso bought Audible for listening to the books too for an extensionof business. So, its just not innovation of a new product too, itsalso some acquisition involved there too.Christine: Absolutely, I think this strategy from the outside incan involve organic growth, and it can involve growth throughacquisition. Im all on paper with that. I think that makes sensedepending on the costs and benefits of growing this yourself orbuying someone who is already good at it.Joe: I enjoy hearing its not necessarily what youre good at. Somany of my listeners are continuous improvement of people andto get them outside of their four walls and they wonder whycontinuous improvements efforts dont last. And to me, thereason they dont last is because theyre not driven by customervalue. Theyre driven by internal structure, and if the customer ispulling in from you, then that drives and keeps the continuousimprovement efforts going. Outside in Strategy– Customer Value Copyright Business901
    • Business901 Podcast TranscriptionImplementing Lean Marketing SystemsChristine: Absolutely, and its a very virtuous cycle then. On theother hand, if you just focus on continuous improvement, atsome point, you cant squeeze any more blood from a turnip, soto speak. I mean, there is only so much you can take in terms ofcosts out of the system before you actually start to affect qualityand value.I think this whole dynamic of really understanding andresponding and creating customer value and then driving thesystem in a way internally, developing the business model, forexample, that can do that extremely efficiently, is a powerful,powerful combination of having the customer value on the onehand and these terrific efficiencies. Thats very hard to beat.Competitors will turn away, as they consider entering marketswhen they see that combination on the part of companies.Joe: I think youre right there. If youre driven by your valueproposition and being able to spread that gap, even if you are aleader in that certain field, if you are able to spread that gap byyour quality improvement, thats what continuous improvement isabout.Christine: Exactly! Exactly!Joe: When I read your book, I pulled an older book off mybookshelf, and your book seemed to be a 2010 version ofTreacys "Discipline of Market Leaders.” If nobodys ever read thebook, I wouldnt tell them to go and read "The Discipline ofMarket Leaders" now. I would have them read your book. But, itdid really seem like a 2010 version of that book, and I mean thatas a compliment.Christine: Well, thank you. I appreciate that. I see the parallelis that Paul talks about the three sources of leadership. I forgethis exact terminology, but he has three sources of leadership thatactually parallel very closely what we offer in our first imperative,which is this idea of really try to be a customer value leader, Outside in Strategy– Customer Value Copyright Business901
    • Business901 Podcast TranscriptionImplementing Lean Marketing Systemswhich means, pick a position in the marketplace that you willreally like to excel at and dont try to be all things to all people.He talks about these three different kinds of sources of value thatthe firm can attempt to compete on. And we have three similarsources. In fact, we cite him in our articulation of those.But, I think we do slightly differently than in that particular point.Where we take him a step further, is that we actually talk aboutthe fact that there are points of parity and points of distinctionthat the firm is looking for that if you want to be, for example, aperformance leader, where we talk about having sometechnological performance advantage, that might be in biotech,or that might be in hardware, software. We also talk in that sameway about fashion leadership, or style leadership.In either of these cases though, you will exceed, if you want to bea leader on that dimension, youll exceed the competitors. Youwill go beyond the average, if you will.But, that doesnt mean that you can be, that your service, forexample, that you provide customers, or that the price that youcharge can be so out of line that consumers see the whole valueproposition as unreasonable. So, we talk about being really goodat one of these and then being at parity on the other two. I thinkthats one point.The other point is the fact that we try to make clear, which is Iknow something really important to executives is that the worldjust keeps changing from underneath you that you have thisposition of value. And as soon as the competitor comes in, theyteach the consumer something new and their perception of whatsvaluable or not valuable starts the shift. Maybe also thatcompetitor takes the position thats more attractive on thatparticular value than youve been able to achieve. Outside in Strategy– Customer Value Copyright Business901
    • Business901 Podcast TranscriptionImplementing Lean Marketing SystemsSo, its a case in managing this position of customer valueleadership that is really being very vigilant, staying in touch withwhats going on in the market, what are competitors doing. Moreimportantly, how customers see those competitors and whattheyre doing. Do they see them as taking that position thatsgreater than yours?Thats a very important aspect of this outside-in mentality, andprofiting from customer value that a lot of companies arentwilling to do over time, to really take seriously that we are goingto have to monitor the market, monitor what customers arethinking on a continuous basis, and find a way that makes senseof that so that we know how to move at which direction, at whattime, in response to whats happening out there.These are some of the ways in which a company that is focusedon customer value can be assured that they will not only do wellin the market place, but maximize profits.The first of these is to be a customer value leader. And to reallyhave a position where, again, you have a position of leadership.You have a business model that supports it, that will allow you tocreate that value for customers over time and also to make a lotof money in the process. In other words, capture value for thecompany.So, this whole dynamic of creating value for the customer,capturing value for the company, is very important. I know thatthis is something that they put a lot of stock in getting thatbusiness model right. If the business models snapped onto avalue proposition, its really powerful. Then you have a greatcombination of capabilities that can serve the company well.If you get that first imperative right, so in the case of Tesco, youknow, they are a company that is, interestingly enough, althoughthey are a supermarket, theyre a superior relative valueprovider. They understand their customers. They give them Outside in Strategy– Customer Value Copyright Business901
    • Business901 Podcast TranscriptionImplementing Lean Marketing Systemsexcellent service. They customize the stores to provide thatvalue.In terms of moving to the second imperative, they had toinnovate new value over time for those customers. They couldnot sit still, because Sainsbury were at their heels. Othercompanies were putting pressure on them that were higherquality stores. So, they started offering new store formats, like ametro express, big box stores.They entered financial services and started competing head tohead with the bank, which was really interesting. Its beensuccessful for them in the UK. Theyve also entered newgeographies around the world. Now, theyre third in the world.But they didnt stop there. They capitalized on both theircustomer assets, and their brand assets, which are our third andfourth imperatives. The idea here is that, youve done greatthings for your customers; you hold a position of leadership.Youve innovated some new value for them.And now, the viewpoint is that there is money on the table to bemade from these relationships that you have with customers, andthe perceptions that they hold, of your company. But you have toexplicitly manage those customers, and explicitly manage thebrand asset that youve built in their minds and hearts.Tesco did both of those things, really well. Most important thingthat theyve done is to really convince the employees that theyrepresent the brand and that every encounter that their customerhas with a Tesco employee in a Tesco store is a reflection of theTesco brand. And so, kind of this, uncompromising position, thatreally protects the brand against loss of relevance, and also,competitive encroachment.Joe: Im only good at three out of the four, two out of the four.Do I have a chance? Outside in Strategy– Customer Value Copyright Business901
    • Business901 Podcast TranscriptionImplementing Lean Marketing SystemsChristine: Absolutely. In the book, we talk about the fact that,these are pieces that you can build, over time. I think the onethat you definitely do need, to start with, is you have to takeseriously, this issue of customer value leadership, and you haveto seek that. Once you own a position like that, then you canstart to think about new value, capitalizing on the customerassets. If you havent started this process yet, that is definitelythe place to start.Once youve done that, then you can think about exercisingresources in different areas across these three other imperatives.They dont have to be done, necessarily, in any sequence, otherthan the first one.Joe: Is this a how to book? Do you discuss certain things to doto carry these things out, and to measure them?Christine: We talk in the book about, first of all, we try toexplain why we think these imperatives are really the way tomanage, an outside in company to maximize profits. We offer aseries of, if you will, pointers, tips for doing this.I hope you found the examples in the book illuminating becausewe worked very hard to find companies who were actually doingthese things, and to point those examples out. In my classrooms,at least, people are much more likely to believe the case that Imtrying to build if I can show them, "Oh, heres an example ofGeneral Electric doing this. Heres an example of this Internetstartup doing it. Heres an example of another company."We offer a lot of examples. Depending on your business, you maybe able to learn differently from the variety of examples.But in each of the chapters, we also hold up some metrics thatfirms could use in thinking about how they would measure theirprogress on each of these customer value imperatives. Outside in Strategy– Customer Value Copyright Business901
    • Business901 Podcast TranscriptionImplementing Lean Marketing SystemsJoe: When you look at, lets say, capitalizing on the customer asan asset. Can you take that, I mean, the customer is our asset, ina business. Theres nothing else that we really have as a businessas a stronger asset, is there?Christine: There is nothing that you, which a company wouldclaim as an asset that is more important than its customer. But,the irony is that, at least for now, and this is going to change, butat least for now, that of course isnt on the balance sheet.You know, so, its, you know, you dont put down the value ofyour customer relationships in the United States, and you dontsay that, "Well, we have this many customers, and, you know,theyre worth this much." There are some conditions when firmsare forced by the SEC currently, to make disclosures, if theircustomers are of a certain size, and percentage of their business.But on average, most companies arent making those disclosures.So what happens is that companies start thinking about, "Well,its these other resources, that we have, these other assets, thatwe own, that really should be driving our business." But, thats ahuge mistake as weve made, as a point that Ive madethroughout this conversation. So, yes, it is the most importantasset, the customer is.Joe: I think its kind of funny, because I just wrote a blog articleyesterday about Michael Porters value chain. Thats been aroundfor ages, but when you look at all the continuous improvementefforts that TQM, Lean, Six Sigma, and all these different effortspeople made, theyve left sales and marketing, off of thecontinuous improvement cycle, they havent really attacked thedemand side of the business.That part of the value chain, is the most important, but still theone that Id think is, people have a tendency to stay away fromit. They want to control, they want to have the control within the Outside in Strategy– Customer Value Copyright Business901
    • Business901 Podcast TranscriptionImplementing Lean Marketing Systemscompany, and your title, "Strategy from the Outside In," hit meas so relevant, that I pre-ordered the book.Christine: Well, we talk about these four imperatives as the newvalue chain. Maybe better put, instead of the extension of Portersvalue chain, which of course if very powerful and important.But I think youre right, there are a lot of reasons why companiessort of get stuck there, and we talk in the book about what someof those reasons are, but one of them is that theres a lot ofpositive reinforcement, at least, for a while, in terms of increasingefficiency. You know, it looks good. It shows up on the bottomline, immediately, when you start. I think thats one of thereasons that people tend to stay in those earlier stages of thevalue chain.Also, if you think about it, its easier, in a sense, to manage,because you have more control. Think about the things thatyoure controlling in those earlier stages, your operations. Whichis a whole lot easier to manage than customers, who, of course,have their own businesses, and their own households to run, andthey dont often do exactly what we want them to do. Theyrehard to understand, take time.Then competitors get in there and start rumbling around, andmessing up our strategies. You notice, those conditions make itvery hard to learn from customers, but also, hard to get a goodread on how well were doing with them. I think companies tend,a lot of managers would tend to go to the easy read, and theeasy manage. Get that positive reinforcement.Joe: One of the things I think is really unique is that you talkeda about other people within the company participating withcustomers and how important that may be. You talk about someof the Tesco strategies, and the reason that your employees canbe effective with customers is because they understand thatvalue proposition? Is that fair to say? Outside in Strategy– Customer Value Copyright Business901
    • Business901 Podcast TranscriptionImplementing Lean Marketing SystemsChristine: Absolutely. I think thats fair to say. Do an interview,we include a couple of deep case studies about companies thathave a very successful marketing leader, who are part of theseoutside in efforts, and one of the companies that we profile in thebook is Wal-Mart. Steven Quinn, who is the current chiefmarketing officer, he makes a very bold statement to theemployees at one point in the transformation of Wal-Mart, frombeing a retail company, to a customer focused company. He tellsthem all, "You are the brand."Thats not something that Wal-Mart really focused on. They didtry to make it a pleasant place for people to shop but at somepoint in the evolution of the company, they kind of lost sight ofthe fact that, everythings happening in the store environmentthat werent necessarily pleasing to customers, like, overstuffedaisles or dimly lit store. Not supporting employees in the waythat, a lot of the customers felt that the employees should besupported. Customers didnt want to give their business to acompany that wasnt taking care of their employees.Quinn was trying to not only get the employees to realize theywere representing the brand, but to get that whole constellationof store level, corporate level activities all pointing in the samedirection, so that the customer understood, this is what Wal-Martstands for. And I want to give them my money.Joe: Is that what you mean by capitalizing on the brand?Christine: Absolutely. I think, in Wal-Marts case, they neededto really further build their brand before they could completelycapitalize on it. They had the great beginning, under Sam Walton,but the culture had not really stayed true to his vision.I think with Quinn, and a lot of other leaders who came throughduring this time, you know, Eduardo Castro, right, the presidentof Wal-Marts US unit, who is Quinns boss, they did a lot ofwonderful things. Under Quinn, they shifted the brand message Outside in Strategy– Customer Value Copyright Business901
    • Business901 Podcast TranscriptionImplementing Lean Marketing Systemsfrom, "Always low price." to "Save money, live better." If youthink about that, thats a very important shift, and it wasnt justthe words, it was also kind of a shift in the way that Wal-Martwas thinking about itself.A focus just on low price, thats not as meaningful to customersas saying, save money, live better. Use that money for moreimportant things in your life, and use our store as a means fordoing that.It turns out that, Sam Walton had actually said something likethat, earlier on in his career, and so it was easy for Quinn toevoke that, and bring that to the company. But if you think aboutit that was something that had to be pulled through every aspectof the companys activities, not just their advertising, physicalassets, like signs, or truck logos, all of those things had to bechanged.It was important to be able to show the customers that Wal-Martstood for more than just cheap. Which is, I think, if you hadasked consumers 10 years ago, I think most consumers wouldagree, thats what Wal-Mart stands for. "Save money, live better," means something completely different.Joe: I think he has, when I think of Wal-Mart now, I dontnecessarily, cheap isnt the word that I use. Its more, savemoney, and Im pretty oblivious to a lot of that type ofinformation thats coming across?Christine: Absolutely, yeah. Im with you on that. Im with you.Do you want me to give you the quote that Sam Walton, do youwant me to give you that quote?Joe: Yes, what was that? Outside in Strategy– Customer Value Copyright Business901
    • Business901 Podcast TranscriptionImplementing Lean Marketing SystemsChristine: Sam Walton said, If we work together, well lowerthe cost of living for everyone. Well give the world theopportunity to see what its like to save and have a better life."Joe: Quinn just broke that down to our sound bites that we liveby now, right?Christine: Right, which is "Save money, live better". Exactly. .But brilliant, because one of the things that Im sure yourlisteners can appreciate is that, its hard to bring cultural changeto an organization. Theres no doubt that moving from the insideout to the outside in, is a big culture shift.If you can rely on especially venerated leaders, like Walton, youknow? They just, the employees love him. They called him "Mr.Sam, " you know, even the public relations person, when I wasworking with Steven on the interview, talked about how "Mr. Samsaid this, Mr. Sam said that." It just, really struck me, howimportant it was for Quinn to be able to understand what thisprior leader had said, and tried to do, and to be able to evokethat, to whatever extent he could, and if he tried to bring thecompany back to a customer focus.Joe: I read your book and I buy into it. I think I need tocompete in the customer value arena, which, Im a firm believerof. But how do I change? How do I organize and do that?Christine: There are a lot of things that I think companies cando, that we talk about in the book. Ill mention a few here.One is that, if you look at most companies, theyre still organizedby product or service divisions. So, therell be a product groupthat takes care of this product, and another group that takes careof another product.Even at Procter and Gamble and Company that we talkextensively about in the book they still have a group that takes Outside in Strategy– Customer Value Copyright Business901
    • Business901 Podcast TranscriptionImplementing Lean Marketing Systemscare of, you know, this deodorant, and that group that takes careof this diaper product, and the two dont talk to each other, eventhough they might actually have the same customer. Thats theproblem.Instead, companies can think about, how do we organizeourselves by the customers that we serve? Actually havingcustomer groups, instead of product groups, thats a huge way.Then you can nest the products within or across those twogroups, depending on exactly what the products are. But if youstart with a structure, that, first off, is focused on customers, andnot on products, this will go a long way to moving the companyfrom, you know, an inside out view, which is really productfocused, to an outside in view, which is more customer focused.Thats probably the most important thing that companies can do.Joe: Instead of having the old product manager per se in anorganization, were talking more about having a product marketmanager, with "market" being the key word, and maybe thatmanaging of that will have several products under it, because wereally need to organize by markets.Christine: Exactly. You would have customer groups, productswithin them; you might even have a Chief Customer Office there.Instead of even a Chief Marketing Officer, I mean, theres goingto be a lot of similarities in their jobs, but if you think about it,what are marketing people doing? Theyre helping lead theorganization to stay focused on the customer. So, why not, evenjust re-label the activities that theyre engaged in as being, youknow, Chief Customer Officer, Assistant Customer Manager,instead of Assistant Marketing Manager, or Vice President ofMarketing, Vice President of Customers.Were starting to see these transformations, within companies,and I think its a very positive thing. Outside in Strategy– Customer Value Copyright Business901
    • Business901 Podcast TranscriptionImplementing Lean Marketing SystemsJoe: What type of companies would I recognize that are doingthat?Christine: One company that you could study as a case study isFidelity. They went through a transformation where theyorganized their front end employees by customer segment.Instead of being focused on, certain kinds of investments, whichwould be, again, product centric, they organized their employeesby segment.So these employees were dedicated to different groups ofcustomers that were more or less valuable to the company. Andso, the most skilled employees, the highest knowledgeemployees, would be dedicated to the most valuable customers,and they would be trained and set up with procedures to givethose customers the highest level of service.This makes a lot of sense. These are your most valuablecustomers, lets go ahead and give them the best employees andthe highest level of services that we can give to them, becausewe know that theyre going to be able to give us the profits.Theyre going to be able to give us a return on our investments.For customers that dont want as much from the company, ordont have the means to spend on certain kinds of investments,maybe they would get a moderate level of service. There are alsocustomers who dont want to interact face to face withemployees. They would rather do everything online, knowingabout their needs, you would set up a system whereby they coulddo their own trading, for example. They would be more satisfied,than having to talk with somebody about their investments, andget advice.The idea is that knowing all this about your customers knowledgelevels, their need levels, their investment levels, their profitabilitylevels, you can then organize your front end, organize youremployees so that theyre serving these different groups in Outside in Strategy– Customer Value Copyright Business901
    • Business901 Podcast TranscriptionImplementing Lean Marketing Systemsdifferent ways. That makes a huge difference in terms of howprofitable your activities are, in part, because youre giving yourmost valuable customers, most of your resources. The other thingis, those customers are getting what they want, so theyre goingto give you a greater share of their wallet, in other words, of theirinvestment business, theyre going to give you a higherpercentage.When Fidelity did this, their share of wallet went from 30% up to54%, of these customers. Their retention rate, which is whethercustomers continue to come back, went from 89% on a yearlybasis up to 94%. These numbers are huge increases. If you thinkabout it, that all comes from, again, segmenting the market, andthen structuring your organization around these differentcustomer groups, so that you can serve them better.Joe: I think its interesting that you quote that differential, thatimprovement, because I think thats really is how companiesshould measure themselves, is by market share. Or, as you said,a bigger share of the wallet or, that, them are definitely goodsigns on whether youre improving or your improvement effortsare working.Christine: Absolutely. I think the idea here is that, if we can usecustomer focused metrics, there are a lot of metrics that dontnecessarily reflect whats going on with consumers. So, we wantthings that look at metrics like, the lifetime value of a customer.The value of our customers, how does that compare, you know,to our competitors? Are our customers more valuable than ourcompetitors? That might be a hard question for a lot ofcompanies to answer, but there are questions that and metricsthat companies can use that are customer focused.Retention rate is a really good one. Ill give you an example ofhow powerful this is. USAA, which is a financial services firm,they sell insurance and financial services to military personnel Outside in Strategy– Customer Value Copyright Business901
    • Business901 Podcast TranscriptionImplementing Lean Marketing Systemsand their families, a tremendous company. I dont know if yourlisteners have experience with them, but theyre a tremendouscompany. They have a retention rate, which again, is, thepercentage of your customers that come back in any time period,well just say on a yearly basis. Their retention rate is 96%,against an average in the automobile industry of 80%.If you just do some really simple math on that, youll see howpowerful it is. Because if I, let me do this with you, because Ithink, I do it with my students and I always find it to be reallyvaluable, which is that, if we look after three years, for theaverage automobile insurance company, how many, whatpercentage of the various customers that are with them today willbe gone?We take 80%, raise it to the power of 3, and we realize that only51% of their current customers will be here in three years.Versus USAA, with a retention rate of 96%, raised to the power of3. 88% of their customers will be here in three years.That differential is huge, when you think about a stream of cash,thats coming from those customers that you can be assured ofover time. That retention rate is a powerful indicator of yourfuture cash flows coming in to the company.Joe: Why dont we measure companies this way? Why arent welooking at companies, especially when you go to acquire acompany? Arent these key metrics that should be looked at in,lets say, a merger and acquisition?Christine: Yes. They definitely are. I think, part of this is,frankly, that were just now really starting to understand howimportant it is to focus on these customer level measures, thingslike retention rate, lifetime value, the value of brands. I mean,the value of brands is something that you see many, manycompanies touting in M&A activities. Outside in Strategy– Customer Value Copyright Business901
    • Business901 Podcast TranscriptionImplementing Lean Marketing SystemsIve not been privy to a lot of the details associated withcustomer level information, showing up in M&A activities, but, ifyour listeners are involved in those kinds of activities, they shouldbe asking about, what is the retention rate of this company?Whats their retention rate of this companys closest competitors?Whats the acquisition rate? You know, for every customer outthere, when we go after them, how likely are we to get them, tosign up for our service, or to buy our product?Hows the company performing with different groups ofcustomers? By that, I mean, does the company have a certainreputation or relationships with very profitable customers?Because thats where the profits will come from over the longrun, if the company forms relationships, strong relationships, withprofitable customers, and works to make those relationships lastover time, those will be the profitable acquisitions, and theeffective mergers.Joe: We use customers in a pretty broad term. From your booksperspective, are you looking at market value, maybe thecustomer within the market value, and also looking at, lets say,competitors. One of the points that I always try to look at, is thatwhen someone says, "I got a customer satisfaction score of60%." Well, if all my competitors have a customer satisfactionscore of 60%, Im just average. I mean, 60%, 70% might soundgood, but if the entire industry is at 70%, its average, right?Christine: Exactly. So, what you can do is, you can actuallymake an index. I like to recommend that you can put your score,whatever the customer metric is, if its satisfaction, if itscustomer retention, you could put that over the industry average,thats one way. But most firms dont want to just comparethemselves to the average. You can also put it over the top firm.You would put your score over the top firm, and then, whateverthat number is, you can multiply, I multiply times 100, and then, Outside in Strategy– Customer Value Copyright Business901
    • Business901 Podcast TranscriptionImplementing Lean Marketing Systemsif you end up with a score of 100, that means that youre on parwith either the average or the best company, whichever you putin the denominator.An easy metric like that is helpful. Because then, if youre, forexample, if youre at 110, that means youre 10% above theaverage. If youre at 90, that means youre 10% below. Its aneasily interpretable metric. Those kinds of indexes can be veryimportant, and I think, as youre saying, to be honest, and to geta, not just a number, but to put that number in context, to give itmeaning, by virtue of well, how are firms doing in this industry?The other thing is, the industry itself may be in trouble. So, Ithink its really important for firms to not only learn from whatsgoing on in their own industries, but to learn from whats goingon in other industries, too, to get that big picture view, in termsof, what are the best companies doing, in terms of innovation?Across industries, how are the best companies leveraging theirbrands, across industries?We talk in the book about Procter & Gamble, and how they tookthis idea seriously of learning from other industries. They weretrying to figure out, weve got all these huge brands that wevebuilt, your listeners know a lot of these names, of Tide, andCrest, and Jif was one of them at the time, Pringles. Weve builtthese big brands, now how do we leverage them, without killingthem? Because thats always the concern as you start to extend abrand, you might dilute it.Where do they look to figure out how to do that? They didnt lookat other consumer package goods only. They took this broad viewto say, "Lets look at other companies who have done thissuccessfully, and who have failed it, doing it. Lets see if we canlearn from their lessons."Im aware of the fact that they drew a huge sample of these casestudies, and one in particular, that they found to be helpful, was Outside in Strategy– Customer Value Copyright Business901
    • Business901 Podcast TranscriptionImplementing Lean Marketing Systemsthe example of Titleist, which is the golf equipment company, andtheyd observed there that Titleist didnt have any troubleextending their brand into all kinds of balls. For example, thereare very high end balls, that, the most, you know, elite golferswere interested in, that had certain features associated withthem, and then there were other balls that didnt have thosekinds of qualities, so, for example, the serious golfer might beinterested in the Titleist Pro V, which is going to sell for $58. Butthe lower level golfer might be interested in the Titleist DT Solo,which sells for $40.Now, a strict view of brand management might say, "Wow,doesnt that Titleist DT Solo kind of dilute the value of that higherend product?" The answer is no. That, theres a way to be able tomanage both of these brands and have them on the marketplace,and make it clear that one of the balls is for a certain type ofgolfer, a recreational golfer, and the other ball is for the seriousgolfer. Theres no confusion that Titleist is targeting these twodifferent golfers.Well, Procter learned from that. They learned from othercompanies about how they could actually take their brands andoffer them to different groups of consumers, if the products weredifferent enough from each other, but under the same brandname.Thats an example of an important principle, which is if you reallyare going to have the customers point of view; you should lookbeyond your own industry, and think about how you could usewhat other excellent companies are doing to help serve thosecustomers more effectively. There are a great number ofexcellent examples of how companies kind of learn by studyingother industries. They just have to open their eyes and spend thetime reading and thinking about those other industries. Outside in Strategy– Customer Value Copyright Business901
    • Business901 Podcast TranscriptionImplementing Lean Marketing SystemsJoe: Whats something that I may have left out that youd like totell me?Christine: The thing I would want to emphasize is that this issomething that takes time. That, it requires, it cant be justplugged into in an existing organization, that you do need tothink about how to structure the organization, and introducemetrics that will get people motivated to focus on these kinds ofcustomer things, that you need to think about how to reallymanage this within the organization.You dont have to do all the imperatives at once, but just to getthis outside in view, kind of focused, within the organization, andin the minds and hearts of what the managers and employees areworrying about every day. That will take persistence, and it willtake leadership, and the CEO, of course, needs to be the frontrunner in leading by example on this issue. They will need to beout in front, waving the flag.Theyre going to need everyone in the organization, all of the topleaders, but all of the employees as well, following them. Werecommend in the book that its also important to have oneperson whose job it is to really worry about managing thecustomer value, and to be the sort of ringleader, if you will, andthat, we recommend is the Chief Marketing Officer. That personsjob will be to be the customer advocate.I think in the organizations where this works well, everybodystarts to get it so well that, you know. We talk about PhilipsElectronics in the book quite a bit, and the CMO there made thepoint that, at some point, in the transformation of Philips frombeing a company that had what they call a "factory mindset", to acompany that was very focused on the customer, that realized, inthe end, that profits dont get made in the factory, they get madein the market. Outside in Strategy– Customer Value Copyright Business901
    • Business901 Podcast TranscriptionImplementing Lean Marketing SystemsThat at some point in that transformation, the members of the Csuite were coming to him, and asking him for information aboutthese different customer metrics, that they were using within theorganization. They realized that they were important indicators ofthe companys long term profit success.That type of transformation is what youd like to see happen overtime, because one person cant make this happen. A strong CMO,as smart and hardworking as he or she may be, isnt going tomake this happen. But, if everyone joins together, over time,thats definitely the most effective way to pull it off.Joe: I think its interesting you point out, the CMO. One of myquestions I have for you, you put him as the champion fromoutside in. Why wouldnt you put the VP of sales?Christine: Thats a good question, Joe. I think, at a lot ofcompanies they often are the same person. In fact, we see a dualtitle, I dont have an exact percentage for you, but I have someresearch going on, where we actually ask for that information,and look at the longevity of the CMOs within companies. Thosewith, both the sales and the marketing, expertise tend to havehigher retention rates.In many companies, sales can often have the strongestconnection to the customer, right? Because, they are the onesengaging directly with the customer and in those companies, itmay make sense for a Chief Sales Officer to take the position ofleadership on this. That, I think, is a matter of looking at thecompanies and what theyre doing. The problem with sales is thatthere can be short term thinking about managing the customers.The bigger problem there is that incentives have been set up toreward that kind of short term management of the customer,meeting quota and not the long term relationship, which is whatmarketing would probably tend to advocate more. But if thoseincentives can be fixed, and the salesperson, the head of sales Outside in Strategy– Customer Value Copyright Business901
    • Business901 Podcast TranscriptionImplementing Lean Marketing Systemscan adopt this kind of customer focus, then I dont see anyreason why that would be a problem. I think, as long as you havesomebody who accepts that point of view, and is willing tomanage, help manage the rest of the organization to get there, Ithink thats fine.Ill just add one other thing that, on this particular point, is thatin a lot of companies, especially like packaged goods companies,say, like Proctor, Nike, etc., the sales organization will not have avery strategic role within the organization. I think giving the ChiefSales Officer, or the VP of Sales that position, probably wouldntwork.So theres always this question, when you look at anyorganization, you know, where is the power, where is theknowledge, and how can we get this done most effectively? Ithink those are important things to consider as you think aboutwhere to locate the right leader for this job.Joe: Id really like to thank you, very much for this conversation,Christine its been a wonderful time spent. This podcast will beavailable on the Business901 blog site and also available on ouriTunes store, and again, Id like to thank you again, Christine.Christine: Thank you, Joe, its been my pleasure. Outside in Strategy– Customer Value Copyright Business901
    • Business901 Podcast TranscriptionImplementing Lean Marketing Systems Joseph T. Dager Lean Six Sigma Black Belt Ph: 260-438-0411 Fax: 260-818-2022 Email: jtdager@business901.com Web/Blog: http://www.business901.com Twitter: @business901 What others say: In the past 20 years, Joe and I have collaborated on many difficult issues. Joes ability to combine his expertise with "out of the box" thinking is unsurpassed. He has always delivered quickly, cost effectively and withingenuity. A brilliant mind that is always a pleasure to work with." James R.Joe Dager is President of Business901, a progressive company providingdirection in areas such as Lean Marketing, Product Marketing, ProductLaunches and Re-Launches. As a Lean Six Sigma Black Belt,Business901 provides and implements marketing, project and performanceplanning methodologies in small businesses. The simplicity of a singleflexible model will create clarity for your staff and as a result betterexecution. My goal is to allow you spend your time on the need versus theplan.An example of how we may work: Business901 could start with aconsulting style utilizing an individual from your organization or a virtualassistance that is well versed in our principles. We have capabilities toplug virtually any marketing function into your process immediately. Asproficiencies develop, Business901 moves into a coach’s role supporting theprocess as needed. The goal of implementing a system is that the processeswill become a habit and not an event. Business901 Podcast Opportunity Expert Status Outside in Strategy– Customer Value Copyright Business901