Most corporate boards are completely in the dark about their.docx

Most corporate boards are completely in the dark about their
companies' marketing strategies. A simple series of management
reports can give them the light they need.
M ISGUIDED MARKETING STRATEGIES have de-stroyed
more shareholder value - and probably
more careers-than shoddy accounting or shady fiscal
practices have. In almost every industry - telecom-
munications, airlines, consumer products, finance - it
is easy to point to poor marketing as a major cause
of low growth and declining margins.
If marketing were simply the sum of advertising
and promotion, as some marketers seem to believe,
this would he a douhtful claim. But marketing is a lot
more, as the famous "four Ps" (product, price, place,
and promotion) suggest. Classical marketing encom-
passes all the activities organizations engage in to hear
and respond to their customers-from market research
into the Boardroom
by Gail J. McGovern, David Court, John A. Quelch,
and Blair Crawford
70 HARVARD BUSINESS REVIEW
ll - I M . I I ( I c c i i l I'
) Ji-rd tiof (liiii
71

B r i n g i n g C u s t o m e r s i n t o t h e B o a r d r o o m
to product development to customer management to
sales. Marketing discovers what customers want, drives
the creation of products that meet customers'needs, and
ideally generates profitable relationships. Indeed, a com-
pany that excludes marketing from its product develop-
ment may build faster, lighter widgets, but it could miss
what customers really want - widgets that have longer
battery life.
When marketingactivitiesare tightly aligned with cor-
porate strategy, they drive growth. But in too many com-
panies, marketing is poorly linked with strategy. Market-
ing may seem to be performing well according to
standard metrics, like the number of repeat purchases
customers make, but i f t h e company's strategy is to, say,
build market share, simply boosting
repeat purchases isn't enough. In
many organizations, marketing ex-
ists far from the executive suite and
boardroom. Marketing managers
are rarely held accountable for ROI
and rarely expected to explain, ex-
actly, bow what they do supports
corporate strategy. This isn't a case
of dereliction; most companies are
struggling to make their marketing work.
Rather, it's a case of myopia. No one in the organization
sees the relationship between marketing and strategy
well enough to diagnose the problem and begin to fix It.
The failure of marketing strategy is a crisis that requires

attention at the highest levels of the organization-from
the corporate board itself. Here we provide a simple set of
tools that can bring companies' marketing performance
into focus, help directors gauge how well marketing sup-
ports corporate strategy, and allow boards to direct re-
pairs tbat can revive their companies' growth.
Mismanaged Marketing
To understand how marketing fails, it's helpful to look
first at a success. After tbe events of September n . South-
west Airlines swiftly agreed to grant refunds to ali cus-
tomers who asked for them, putting hundreds of millions
of dollars on the line. A potential fiood of refund requests
never came. Southwest's risky but brilliant gesture (en-
suring that its customers felt they were being taken care
Gait J. McGovern is a professor of management practice al
Harvard Business School in Boston. David Court is a director
in McKinsey & Company's Dallas office and leads McKinsey's
global marketing practice. John A. Quelch is the Lincoln
Filene Professor of Business Administration and the senior
associate dean for intemational development at Harvard
Business School. Blair Crawford is a principal in McKinsey's
Boston oftice and a leader in McKinsey's North American
marketing practice.
of) reflected how well its marketing strategy was aligned
with its customer-centric business strategy. And the air-
line's smart marketing is one reason why it has remained
profitable in every quarter since the twin towers fell. Most
other carriers-American, Delta, and Northwest among
them - have missed customer cues and bungled their
post-September l i marketing, as tbeir dire situations
make plain. Tbey fussed about adding leg room and in-
fiight services. Meanwhile, Southwest gave customers
what they really wanted: cheap seats and a hug.

Similarly, in the retail sector, a significant factor in
Kmart's decline was its misjudged shift from high-low
pricing to "every day low prices" in an attempt to compete
with Wal-Mart. But Kmart's core customers were deal
In a survey of large U.S. companies, more than
one-third reported that their boards spend
less than 10% of their time discussing marketing
or customer-related issues.
hunters, and the new value proposition didn't satisfy their
needs. Lucent Technologies missed an important cus-
tomer trend and chose not to enter the networking ser-
vices husiness, electing instead to sell only hardware. In
2000, Lucent was one of Fortune's top ten most admired
companies, and its stock was trading at more than $60 per
share. Today, the company's stock price is down to about
$3 per share.
To execute their corporate strategies successfully, com-
panies must back up those strategies with superior mar-
keting. Boards of directors, it would seem, have a com-
pelling reason to monitor their companies' marketing
activities. Our research shows, however, that marketing
and customer management issues are receiving less and
less attention in boardrooms. In a survey of 30 large D.S.
companies, more than one-third reported that their
boards spend less than o% of their time discussing mar-
keting or customer-related issues. Today, few CEOs have
marketing experience, and few boards have customer
management, marketing, or strategy committees. Only
a handful of boards visit or receive presentations from
maior customers, and if companies have customer coun-
cils, few boards ever get to hear what they have to say. In
many boardrooms, discussions about customers are

purely anecdotal.
Part ofthe problem is the current corporate climate, in
which questions of governance and financial purity dom-
inate CROs' and boards' attention. But the seeds o f t h e
problem were planted long before the ethical crises at
the turn of this century. For at least the past two decades.
72 H A R V A R D B U S I N I SS R I V l t VV
boards have neglected marketing in favor of presumably
more pressing issues such as mergers and acquisitions, ex-
ecutivc incentive packages, and succession pianning.
Additionally, boards, and even CEOs, hiave been luiled
into complacency by the new executive on the block-tiie
chief marketing officer (CMO), With the emergence of
the CMO position, one might expect that oversight of
marketing would be efficiently consolidated. After all,
with a CMO holding the marketing reins, why should the
board have to ride shotgun? Because marketing decision-
making has been increasingly pushed down through the
corporate hierarchy. While CEOs have commonly dele-
gated advertising and advertising strategy to outside
agencies, now they are delegating sales, distribution strat-
egy, pricing, and product development to CMOs, who
often lack overarching strategic responsibiiity. Many
CEOs have the right aspirations for their CMOs; they want
better ideas, more growth, and higher marketing ROI. But
CMOs are often hamstrung: They are senior executives
with broad responsibilities for marketing - but without
profit-and-loss accountability.

With a high-profile CMO in place, husiness unit man-
agers may lose control of or, at best, share responsibility
for the marketing communications that touch their cus-
tomers. CEOs expect their CMOs to drive marketing de-
cisions, but no one is singularly accountable for the
results. This lack of accountability makes it very
difficult to track the financial impact of market-
ing investments. And so marketing becomes
abstract to both the CEO and board.
The New Curriculum
No doubt companies and their share-
holders would have benefited from the
board's attention to marketing decades
ago. But today such attention isn't a lux-
ury; it's a must, for three reasons. First,
top-line revenue growth, especially or-
ganic growth, ultimately boosts share-
holder value, so investors increasingly
demand it. In fact, the presumption of
organic growth is baked into companies'
stock value. If you decompose the stock
prices of the leading consumer product
companies, you'll see that future growth
accounts for as much as 54% percent of
the stocks'total value. Still, boardroom
discussions of growth almost always
focus on alliances and acquisitions,
which may be glamorous but are noto-
riously poor at generating increases. As
a result, many companies and their
boards are faced with a requirement for
organic growth that they're unsure how
to meet. For these companies, the yawning gap between

actual revenue growth and investors' expectations is a
ticking time bomb.
Second, responsibility for brand equity still resides in
the marketing function, which is often far removed from
top management-yet brand equity has never been more
volatile and important than it is today, and so it must be
a concem ofthe board's. These days, powerful brands can
emerge almost overnight. Thanks to its savvy global mar-
keting, Samsung is now ranked by consultancy Interbrand
as the 21st most valuable brand in the world; five years
ago, it wasn't even rated. And another survey ranked
Google as the world's most powerful brand in 2003,
ahead of Coca-Cola. Similarly, in recent years, brands have
toppled virtually overnight. Just look at Ford, Nokia, and
Kodak, all of which have seen steep declines in their
brand ranking and, consequently, in shareholder value.
Why? While there were many factors at play, poor mar-
keting was surely one ofthe most significant. When so
much shareholder value is tied up in the corporate brand,
the board must become a watchdog, aggressively guard-
ing the brand's health.
Third, and perhaps most important, the fundamental
nature of marketing has changed so rapidly that many
2004 73
B r i n g i n g C u B t o m e r s i n t o t h e B o a r d r o o m
companies have not kept pace, making them vulnerable
to savvy competitors and unable to capitalize on new
growth opportunities.

To counter this trend, every board should have on its
agenda a regular review of the company's marketing tal-
ent. For most of its history, marketing has been a creative,
right-brain discipline that puts a premium on innovative,
out-of-the-box thinking. As a result, the field is chock-
ablock with creative thinkers,yet it's short on people who
hew toward an analytic, left-brain approach to the disci-
pline. Expertise in the left-brain fields of IT, finance, and
data analysis is no longer optional in marketing depart-
ments. Information technology has become central to the
intensive and critical data gathering and analysis compa-
nies use to segment customers,track their behaviors, and
calculate their lifetime values. And IT is driving the rapid
evolution of strategies for targeting these precisely mon-
itored and measured customers; these strategies include
multichannel marketing, dynamic pricing, and micro-
segmentation.
Hand in hand with basic IT smarts, marketing execu-
tives need (but often lack) a solid grasp of corporate fi-
nance to align marketing strategy with financiai goals. A
creative product promotion that extends customers'
credit terms may boost sales, but unless the marketing
manager has some financial literacy, he or she probably
isn't thinking about the impact of extended credit on the
company's balance sheet.
Consider also how the marketing curriculum has
changed in just the last few years. The Web is only ten
years old; online marketing is in its infancy. Multichannel
marketing is also a new discipline. Customer relationship
management is not much older, and the software to sup-
port it has been in wide use only for the last five years.
The growth of ethnic populations has created a need for
nuanced and sophisticated go-to-market strategies across
segments. The proliferation of cable channels has pro-

duced a sliced-and-diced viewing population that would
have seemed unimaginable ten years ago. The growing
clout of downstream channel partners such as Wal-
Mart-a customer tier in and of itself-presents manufac-
turers with the complex challenge of managing pricing
and product assortment through these mammoth inter-
mediaries for sale to the consumer.
The board's iob in this new era isn't to direct specific
remedies for its company's marketing deficits. Few boards
would have the necessary expertise. But it is the board's
responsibility to expose inadequate marketing, direct
management to address the problem, and monitor man-
agement's progress. The brand and the company depend
on it. But how does the board-already stretched thin-ex-
ecute this responsibility without being crushed by it? By
calling on its CMO and CFO to create a marketing dash-
board that will efficiently reveal the true performance of
the company's marketing activities.
A Glance at the Dashboard
Many marketing managers will tell you that marketing
performance can't be measured-or at least that doing so
is of little strategic value. But the situation is rarely as
simple as this. It's not that managers are short on mea-
surement tools or that marketing metrics lack utility. The
problem is that these managers don't know what to mea-
sure or how to interpret the results. They may collect ail
manner of plausible performance metrics-such as cus-
tomer satisfaction scores and customer retention r a t e s -
but if these can't be correlated to marketing activities and
revenue results, the data aren't very helpful.
Measuring marketing performance isn't like measuring
factory output - a fact that many nonniarketing execu-
tives don't fully grasp. In the controlled environment of a

manufacturing plant, it's simple to account for what goes
in one end, what comes out the other, and then determine
your productivity. But the output of an advertising cam-
paign can be measured only long after it has left the
"plant." Countless factors influence customers' behavior
between the time they receive a marketing message and
the time they act on it. Determining the KOI on an ad-
vertising campaign can be as much an art as it is a science.
So what do boards need to see? Plainly, they'd have lit-
tle use for a fiood of unfiltered marketing data. At UK-
based grocery chain Tesco, the marketing group has de-
veloped a scorecard that attempts to measure the impact
of marketing activities across roughly 20 variables, in-
cluding consumer awareness, brand image, and customer
conversions. But this is probably too many metrics for
any board to track.
At the same time, boards should not be handed one or
two generic measures of marketing performance and be
expected to interpret them. Popular metrics such as cus-
tomer satisfaction, acquisition, and retention have tumed
out to be very poor indicators of customers' true percep-
tions or the success of marketing activities. Often, they're
downright misleading. High overall customer satisfaction
scores, for example, often mask narrow but important
areas of major dissatisfaction, such as customers' unhap-
piness with long wait times or bad service. They can also
mask any backsliding the company is experiencing rel-
ative to competitors; gently climbing satisfaction scores
may be reassuring to management and the board, but if
competitors' scores are increasing faster, that should be
cause for alarm. Acquisition rates may be robust, but if old
customers are abandoning ship as fast as new ones are
coming on board, those rates may be offering a deceptive
picture of marketing's performance. And what, exactly,

should the board make of stable customer retention
rates? If customers are staying on because they're being
held hostage by a contract, good retention figures may be
obscuring the truth that customers will flee the instant
they can.
74 HAIWARD BUSINFSS RtVltW
Even if today's boards wanted to exercise their gover-
nance over marketing activities, they wouldn't have the
information they need to make sound judgments. Boards
need a thorough understanding of how their companies
are meeting customers' needs and how their marketing
strategies support those efforts. No company we know of
provides its board with a scorecard that allows this.
The dashboard we've devised can give the board criti-
cal knowledge. Regardless of what industry a company is
in, or what products or services it supplies, the dashboard
is structured to reveal the fundamental relationships
between a company's main business drivers, its growth
strategy, and its marketing talent
pool. Unlike isolated measures of « — — « - . ^ — .
marketing performance that are
often insufficient, irrelevant, or
misleading, the dashboard allows
the board to quickly and routinely
assess how effectively marketing
is supporting corporate strategy
and to determine when marketing
and strategy are misaligned. Armed — • ' • • •

with a clear understanding of market-
ing's role and performance, the board can optimize this
critical function in the organization. Let's take a closer
look at the dashboard's structure, the best way to build
one for your company, and how to interpret the informa-
tion you uncover.
UMMM Business Drivers
w h a t are our company's key business drivers,
and how well does our marketing strategy
support them?
Any marketing dashboard must lead with a survey ofthe
company's main business drivers. Astonishingly, many
companies don't fully know what those drivers are, or
they understand their drivers but don't measure them
correctly.
A driver is a business condition that, when manipu-
lated or otherwise changed, will directly and predictably
affect performance. Business drivers are, by definition,
leading indicators of revenue growth. Net new business
and share of wallet are business drivers. Increase or de-
crease either, and you'll see a direct impact on revenues.
Customer satisfaction, on the other hand, isn't always a
business driver. Consider the case of a low-volume prod-
uct with a low repeat-purchase rate and limited word of
mouth - home air conditioners, for example. If market
research revealed that current customers were unhappy
with the product's performance, fixing the problem
would not have a direct and immediate impact on sales.
In this case, customer satisfaction wouldn't be a useful
metric for the board to monitor. However, customer sat-
isfaction could be a business driver in the case of a high-
volume product with a high repeat-purchase rate, such as
a soft drink. A real or perceived quality problem with such

a product could instantaneously translate into a drop-off
in revenues. Similarly, an improvement that boosted cus-
tomer satisfaction could be expected to rapidly translate
into new revenues.
As these examples show, business drivers that are criti-
cal in one company may be unimportant in another.
Thus, marketers must accept that there's no one-size-fits-
all dashboard they can use; they must customize the tool
for themselves. After establishing what the company's
true business drivers are, management must cull the
It is the board's responsibility to expose inadequate
marketing, direct management to address the
problem, and monitor management's progress.
The brand and the company depend on it.
myriad possibilities down to the three or four key ones
that will be the most fruitful to follow. At least one of
these drivers, such as share of wallet, should indicate per-
formance relative to competitors. At least one, such as
loyalty, should clearly measure the customers'experience.
And one, such as customers' average annual expenditures
or lifetime value, should measure the growth of retained
customers' business. Finally, any driver on the dashboard
must be one the company can manipulate. It may be in-
formative for an automotive company to track the size
ofthe population that is over the legal driving age, but the
company can't influence that number, so it's not a useful
metric for the board to follow. {See the sidebar "Design-
ing a Dashboard.")
Although it's currently rare for an analysis of business
drivers and marketing strategy to reach the boardroom,
managers at some companies have linked the two. Har-
rah's Entertainment, the $4 billion hotel casino operator,

for example, is famous in the industry for its strategic use
of customer data. Unable to match the opulence ofthe
top Las Vegas casinos, Harrah's in 1999 took a close look
at its business drivers and devised a customer-service-
based marketing strategy that wouid cement existing cus-
tomers' loyalty and lure new customers away from the
Trump Tai Mahal's fountains and chandeliers. Rather
than track the traditional customer-satisfaction, reten-
tion, and acquisition metrics, Harrah's monitored three
crucial business drivers that were directly correlated to
revenue growth: share of wallet; percentage of customers
who were cross-sold {that is, during a given year, their rev-
enues were derived from two or more Harrah's proper-
ties); and customer loyalty as measured by the percentage
NOVEMBER 2004 75
of customers who. because oftheir increased spending at
the casino, ascended to the highest tiers of Harrah's re-
wards program.
The company built customer segmentation and market-
ing programs around the expected lifetime value of each
customer and created a loyalty program (using frequent-
player cards) that captured detailed customer data and
allowed the company to understand individual custom-
ers' behavior. When customers walk into Harrah's, they
immediately feel like high rollers.They're treated like roy-
alty. The wait staffers greet them by name and reward
them for returning. The most profitable customers are
reeled back in with lavish promotions such as free dinners
and overnight stays. Within five years, Harrah's shrewd

alignment of its marketing strategy and its business driv-
ers increased its share of wallet from 36% to 43%. and its
revenues tripled.
By contrast, consider the confusion at Starbucks when
it failed to appreciate one of its important business driv-
ers-customer wait times. A crucial part of Starbucks's
value proposition is innovation, a promise enshrined in its
famously complicated menu. To drive growth, the com-
pany put a tremendous amount of effort into new prod-
uct development, and it continually researched metrics
to tease out customer attitudes about new beverages.
Popular metrics such as customer satisfaction,
acquisition, and retention have turned out
to be very poor indicators of customers'true
perceptions or the success of marketing activities.
what Starbucks missed was that as it added complex, in-
novative offerings, it increased the amount of time the
wait staff took to serve customers. As menu innovations
increased - and, therefore, demand for labor-intensive
customized drinks - customer satisfaction mysteriously
dropped.
According to the company's research, a "highly satisfied
customer" spent $4-42 on average during each visit and
visited an average of 7.2 times each month. An "unsatis-
fied customer" spent $3.88 pervisit and averaged only 3.9
visits each month. Clearly, corrosion in customer satisfac-
tion was a serious threat. Further market research re-
vealed that 75''!' of customers highly valued friendly, fast,
convenient service, while only 15% considered new, innc>
vative beverages to be highly important. Innovative of-
ferings are a cornerstone of Starbucks's proposition, but
they lose their luster if customers have to wait too long

for them. Starbucks spent $40 million adding staff to cut
wait times. The company also streamlined the processes
for taking customer orders and preparing drinks, and it
introduced the Starbucks Card to speed payment. Before
these changes, only 54% of customers were being served
in under three minutes; with the new systems and more
help behind the counter, the figure jumped to 85%, and
customer satisfaction levels increased 20%.
If Starbucks were to create a dashboard for its board of
directors, customer wait times would be one sensible
driver to include. The board should also have an abiding
interest in the development of any marketing innovations
that promote the company's fast, convenient service.
Ulklll Pipeline of Growth Ideas
What do our customers want, and how is our
knowledge oftheir desires being translated
into a pipeline of innovations?
The trends revealed by the main business drivers give the
board important insights about customers and revenue
growth. But these trends indicate only the rate of growth,
not the company's strategy for sustaining it. How does
management plan to reach its growth targets? Certainly,
not by remaining so focused on short-term earnings that
it clings to low-risk initiatives. Too often, product manag-
ers simply launch line extensions or repackaged"new and
improved" products that fail to advance
the innovation and growth agenda
over the long term. This is partly the
fault of senior management, which
often responds coolly to specula-
tive, high-risk initiatives that have
long payback periods but that could

secure longer-term growth.
To keep customers, you have to
delight them, exceed their expecta-
tions, and anticipate, discover, and ful-
fill their latent needs. With the increasing sophistication
of market research tools, it's becoming easy and inexpen-
sive to track customers' needs, and most companies now
do this effectively. The board needs to be attuned to this
research. Once or twice a year, marketing should review
for the board how the customer base is segmented, how
the size and profitability of each segment is changing, and
how the company's products and services address the
needs of each segment. If the board can't get a succinct
answer to the question, "How are your customers' needs
changing?" marketing isn't doing its job.
Assuming that marketing does have a handle on what
customers want, the organization must be able to show
the board how it is translating this knowledge into prod-
uct or service innovations that will drive growth. The sec-
ond part ofthe dashboard must describe the specific in-
novations in a pipeline of growth ideas that will allow the
company to reach its short- and long-term revenue goals.
And it must detail how revenues and profits associated
76 HARVARD BUSINESS REVIEW
B r i n g i n g C u s t o m e r s i n t o Lhe B o a r d r o o m
with each innovation will add to those
Ffom~core products to achieve growth
obiectives at least one to three years out.

The total projected revenue stream should
meet - a n d , in most cases, exceed - the
organic-growth expectation embedded
in the firm's stock price. If it doesn't, all
priorities pale in comparison to the need
to identify new sources of growth.
For a given innovation - let's say it's a
sleek new MP3 player - the dashboard
must indicate anticipated revenues, their
timing, and the assumptions behind these
estimates. What are the product's odds of
success in the marketplace? What is the
anticipated take r a t e - t h e percentage of
the market that will buy the IV1P3 player?
What portion of revenues will be cap-
tured through ancillary sales-purchases
of player accessories or song downloads?
The board should review the company's
pipeline of growth ideas quarterly and in-
spect the assumptions behind the reve-
nue estimates, challenging any that seem
questionable. The board also should use
these regular updates to track the perfor-
mance of previous product launches by
comparing their projected and actual rev-
enues. If management misses targets for
new-product revenues it has some ex-
plaining to do: Why the shortfall, and
what's the strategy for closing the gap?
Consider Gillette's sophisticated management of its
innovation pipeline. Over the past 30 years, the company
has parlayed its unparalleled understanding of men's
grooming needs to drive the development and mass adop-
tion of successive razor technologies-from the first twin-

blade razor, the Trac 11, i m g j i , to the recently introduced
vibrating M3Power shaver. Today, Gillette dominates its
market, with more than a 65% dollar-market share in
North America across its portfolio. Given its strong posi-
tion in the category, Gillette has to be extremely thought-
ful about the timing and strategy for each new product
launch so it can grow the category while minimizing the
cannibalization of existing product sales. Since the intro-
duction of its trendsetting Trac ll,the company has rolled
out a series of increasingly advanced razors, including the
Atra, SensorExcel, Mach3Turbo, and M3Power, each of
which outperformed its predecessor. For each of these in-
novative new products, the company's elaborate revenue
projections include detailed analyses of revenue sources
and, crucially, the potential effect of these new products
on existing product revenue streams. Gillette's is the sort
of careful growth analysis that any board should expect to
see-and should demand if it doesn't
Korean consumer-electronics giant Samsung offers
another example of a shrewdly managed innovation
pipeline and marketing machine, hive years ago, Sam-
sung bet the ranch on digital technology and transformed
itselffrom a middling manufacturer of analog televisions
into one ofthe leading consumer electronics companies
In the world. Samsung's 17,000 scientists are charged with
translating insights gleaned from the company's massive
customer research programs into a flow of new product
concepts that can be moved from the drawing board to
commercialization in less than five months. From among
these innovations, the chief marketing officer selects and
ranks four or five so-called"pillar"products-those judged
most likely to win in the marketplace-and is given addi-
tional marketing dollars to back them. This ranking exer-
cise allows Samsung to match marketing expenditures
with perceived opportunities for revenue growth, and it

makes the CMO accountable, to some degree, for gener-
ating a retum on investment.
Contrast Gillette's and Samsung's strategic approach
to R&D and marketing with Callaway Golf's growth
struggles. In 1991, Callaway introduced its now legendary
Big Bertha golf club, a technological breakthrough that
NOVfiMBIiR 2 0 0 4 77
B r i n g i n g Customers into the Boardroom
Designing a Dashboard
with a set of reports that lay out the organization's main
business drivers, product develop-
ment plans, and marketing skills, the board can gauge the
effectiveness of the company's
marketing strategy and see emerging threats to revenues. Lefs
consider what a marketing
dashboard for a hypothetical cellular phone company,
TelecomCo, might look like.
Business Drivers
Dollars
03 04
Revenue
(average annual revenue per retained customer)

Dollars
Q l Q2 Q3 Q4
Value
(retained customers'average lifetime value)
Perceni
Ql Q2 Q3
Market Share
TtltoMnCo^ mirinting S M I I H idcquitt
«t attracting and kMphig autenwn.
Htrt wt SM that a v m f f annual
m t H M fwr rttainid aistonw ant
n i r * g « lifttimt value of rttikntd
tbt company^ didininfl nurlut share
thowi Kut, in fact, TckcwnCo b not
attracting Mtoagti new oiitofMn.
The first part of the marketing dash-
board surveys the company's main busi-
ness drivers. At least one driver, such as
shareof wallet, should indicate the com-
pany's performance relative to competi-
tors; one, such as loyaity, should clearly
measure the customers' experience; and

one, such as retained customers' average
annual expenditures, should measure
the growth of existing customers' busi-
ness. The board should review these
business drivers monthly. At left is the
business driver outlook for TetecomCo,
Taken as a whole, the dashboard pan-
els indicate that TelecomCo's increasing
revenues are masking significant cus-
tomer dissatisfaction, The company
must conduct market research to un-
cover the source of this dissatisfaction
and address the threat. Marketing must
launch promotional, product develop-
ment, and pricing strategies to attract
new customers. The board's monthly
review of these metrics will quickly
show whether marketing's efforts are

effective.
Percent
Q2 03 04
Loyalty
(the average likelihood that customers will renew their service)
Of tqMl conctm, existing aistonwn'
dMTHud IIMUiMd of rencwinf their
plans luggtsts th«t many of thtin are
bowMl by smrtcc wntracts-antf wffl
•bHMlon tht companir whtn thOM
contncts npire.
HARVARD BUSINESS REVIEW
Bringing Customers into the Boardroom
lilUii Pipeline of Growth Ideas
The second part ofthe dashboard describes new products
or services in the pipeline and details the expected revenues
from each.their timing, and their contribution to growth ob-
jectives one and two years out. The board should review the
pipeline of growth ideas quarterly, and it should inspect
the assumptions behind revenue estimates. TelecomCo's

growth agenda outlook appears below:
$175M
2004
Core Product
Revenues
2005
Target
Core Product
Revenues
2006
Target
Core Product
Revenues
For each new p r o d u c t , t h e d a s h b o a r d m u s t indicate
ex-
pected a n n u a l revenues a n d t h e i r t i m i n g ; revenue
assump-
t i o n s such as success a n d f a i l u r e rates, assumed p r i c i
n g ,
l e n g t h o f t i m e c u s t o m e r s w i l l stay, n u m b e r o f
repeat pur-
chases, and so o n ; a n d the product's p e r f o r m a n c e
relative

t o t h e c o m p a n y ' s p l a n .
In TelecomCo's case, revenues f r o m p r o d u c t s in the 2005
p i p e l i n e w i l l p r o b a b l y not m e e t t a r g e t core
revenue goals
f o r 2 0 0 6 . T h e board s h o u l d hear f r o m m a n a g e m e
n t h o w i t
plans t o close the revenue gap and t h e n c o n t i n u e t o m o
n i t o r
the c o m p a n y ' s revenue p e r f o r m a n c e u n d e r those
strategies.
EZmm Marketing Talent Pool
The third part of the dashboard gives the board a detailed
review ofthe marketing skills the company needs, its in-
ventory of talent, and the recruitment and development
plans that will address any gaps in the personnel pipeline.
The board should review its marketing talent annually.
TelecomCo's talent pool outlook appears here:
Skills Required
Product Development
Brand Management
Marketing Strategy

Market Research
Dirert Marketing
Skills I
Inventory* 1 Action Plan
Mass-Media Advertising
Channel Management
Vendor Management
(Contracts)
Strategic Pricing
Customer Relationship
Management
Customer Analysis
Database Management
* Scale of 1 to 5. where 1 equals "superior" and 5 equals
"inadequate"
Although the company has superior product develop-
ment skills, it is weak in marketing strategy and lacks the
capabilities it needs in market research, channel manage-
ment, CRM, and customer-data management and analysis.
These shortcomings may explain why TelecomCo was

blindsided by falling loyalty scores. Management plans a
combination of recruitment, executive education, and out-
sourcing to address these weaknesses.
NOVEMBER 2004 79
B r i n g i n g C L i s t o m e r s i n t o t h e B o a r d r o o m
alloweci average golfers to hit expert drives. Big Bertha
helped Callaway penetrate retaii channels and pro shops,
which improved the efficiency ofthe company's market-
ing. And the price premium the club commanded allowed
Callaway to invest more in marketing and product devel-
opment. Though Callciway has steadily improved the
product, it has been unable to come up with a new club
as formidable as Big Bertha that could seize market share
back from encroaching competitors. Had the board been
tracking the innovation pipeline more closely, it might
have seen earlier that Callaway's R&D lacked the bench
strength it needed and that the company's marketing
executives were having trouble translating laboratory dis-
coveries into products customers wanted.
Marketing Talent Pool
Wh.it iiKirlu'tiiu) s k i l l s d o we n e e d , i i i K l
' ( . > ( • . i K t v v r , u i i u n r t i n - s k i l l s v v f k i c k : '
A company doesn't need to excel in all areas of marketing,
just those that support its main business drivers. The
question it should be asking isn't, "Do we have enough

marketing talent?" It's, "Do we have the right marketing
talent?" A company may have the best mass-marketing
capability money can buy, but if it's a customer-service-
driven firm with a pipeline of service innovations, what it
really needs are customer-relationship-management skills.
The board should expect a thorough appraisal ofthe
company's marketing strategy and its inventory of mar-
keting capabilities. If senior managers understand the
company's key drivers and the company's overall strat-
egy, it should be apparent to them what marketing skills
will be required. This may seem self-evident, and, in fact,
many companies do know what marketing capabilities
they need and bave developed world-class performance
in those areas. Procter & Gamble excels at product posi-
tioning, advertising strategy, and account management.
MBNA is outstanding in customer relationship manage-
ment. Gillette has superior skills in new-product develop-
ment. But at a surprising number of organizations, mar-
keting needs and marketing skills are poorly aligned.
Most consumer goods companies, for example, have
been slow to transition from mass-marketing programs
targeted at consumers to tailored marketing plans devel-
oped in partnership with major retailers. Their expertise
in advertising and brand building may have served these
companies well in the past, but what they increasingly
need are skills in push marketing and major-account man-
agement so they can collaborate effectively with power-
ful retailers like Wal-Mart. To return to the beleaguered
airline industry, a lack of market awareness and a mis-
match of marketing skills and needs lies at the heart of
many carriers'tribulations. Recall that American Airlines
and other carriers missed a shift in customer needs a few
years ago-away from frequent-flier programs, more leg-

room, and premium in-tlight services to, simply, low-cost
fares. American's powerful CRM marketing capability was
of little use when what the carrier needed was a 15% re-
duction in costs, a simpler product offering, and the mar-
keting ski Its to push competitive pricing. American's CRM
and loyalty programs actually added costs for the carrier.
As these examples suggest, the third part ofthe market-
ing dashboard must identify the skills needed to achieve
the reventies promised in the growth agenda and the
steps required to develop or acquire any skills the com-
pany lacks. Once a year, tbe company's cbief talent officer
or other HR e.xecutive should provide the board with a
detailed review ofthe recmiting and people-development
plans that will address any gaps in the required marketing
skill set. Do you need to hire a CMO with a strong back-
ground in finance? Should you send your senior market-
ing managers to executive education programs in IT?
Do you have people who can anticipate customer trends
rather than just react to them? Are there marketing ca-
pabilities such as database management tbat you could
acquire tbrough outsourcing?
Harrah's offers a prime example of brilliantly aligned
marketing skills and needs. CRO Gary Loveman knew that
the best way for Harrah's to compete with its more posh
competitors was to coddle its customers. To do this, Love-
man invested heavily in CRM and database management
capabilities, hiring a group of propeller-heads, as he called
the IT-savvy marketing team, to give Harrah's an un-
precedented level of detail on customers' behavior. This
intelligence gathering and analysis, as we saw earlier, al-
lows Harrah's to deliver the superb customer experience
that keeps people coming back-and spending more.
Mind the Gap

Companies need to close the gap between tbeir boards
and their marketing functions if they are to meet their
expectations for growth. The dashboard we describe here
can help bridge the divide, but for it to be truly useful, it
must be accompanied by a change in organizational mind-
set. The board of directors needs to welcome the com-
pany's customers and marketing strategies into the board-
room and pay careful attention to them. And marketers
needtostart thinking of themselves as general managers
who can drive the business forward rather than as func-
tional specialists who are isolated from the company's
strategy.
Organizations take their cues from the top. When the
board turns its attention to the company's customers, the
entire organization will become more market driven,
more customer-centric, and more focused on generating
organic growth. ^
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The Emerging Era
of Customer Advocacy
W I N T E R 2 0 0 4 V O L . 4 5 N O. 2
R E P R I N T N U M B E R 4 5 2 1 3
Glen L. Urban
MITSloan
Management Review
P l e a s e n o t e t h a t g ra y a re a s re f l e c t a r t w o rk
t h a t h a s
b e e n i n t e n t i o n a l l y re m o v e d . T h e s u b s t a n t
i v e c o n t e n t

o f t h e a r t i c l e a p p e a rs a s o ri g i n a l l y p u b l i s
h e d .
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or decades, companies relied on push marketing to sell their
products and serv-
ices. Then in the 1990s, the emphasis shifted to relationship
marketing, as “cus-
tomer care” and slogans like “delight your customers” became
the mantra of many
marketers. But those tactics have been losing their
effectiveness, particularly as the
power of customers to make product selections that are best for
their needs con-
tinues to grow. Thanks to digital technologies like the Internet,
today’s increas-
ingly educated consumers expect companies to do more than
just delight them.
In response, innovative companies are now trying a different
approach: They
are providing customers with open, honest and complete
information — and
then finding the best products for them, even if those offerings
are from com-
petitors. In short, they are truly representing their customers’

best interests,
essentially becoming advocates for them. The strategy is this: If
a company advo-
cates for its customers, they will reciprocate with their trust,
loyalty and pur-
chases — either now or in the future. The firm might then
command higher
prices for its products and services, as many customers will be
willing to pay for
the extra value. And when people trust a company, they will
often tell others
about it, helping to reduce the organization’s costs for acquiring
new customers.
Advocacy strategies have been emerging in a range of
industries, including
the financial, automotive, industrial and high-tech sectors (see
“About the
Research”). General Motors Corp., for instance, has
cosponsored a Web site that
helps consumers select the vehicles best suited to their needs.
The tool asks
prospective buyers a number of questions (for example, how
much they can
afford and what features they would like) and then comes up

with a list of eight
suggestions, including vehicles from manufacturers other than
GM. Even the
telecommunications industry, long notorious for its aggressive
marketing tactics,
may be moving toward the use of customer advocacy tactics.
Qwest Communi-
cations International Inc., for instance, is currently developing a
virtual advisor
to help people select the service package that suits them best
from among a num-
ber of different plans, including those from competitors.
The Growth of Customer Power
New technologies, such as the Internet, provide easy access to
tremendous
amounts of information, and people have been taking advantage
of that to
become smarter shoppers. In the United States, for example,
60% of car buyers
WINTER 2004 MIT SLOAN MANAGEMENT REVIEW 77
The Emerging Era
of Customer Advocacy
Glen L. Urban is professor of management at the MIT Sloan
School of Management,

where he serves as codirector for the Center for e-Business @
MIT. He can be reached at
[email protected]
F
As customer power
grows, innovative
companies are moving
beyond traditional
push marketing and
customer relationship
management to become
full proponents of
the customer agenda.
Glen L. Urban
78 MIT SLOAN MANAGEMENT REVIEW WINTER 2004
now use the Web to research models, features and prices,
visiting
an average of seven different sites, including those of Kelly
Blue
Book, Autobytel and Edmunds.1 And 6% go on to save an aver-

age of $450 per vehicle by using an Internet buying service.2 A
great advantage of the Web is that it reduces search costs,
provid-
ing people with a quick and easy means of doing comparison
shopping. Because of companies like Travelocity.com, Orbitz
and
Expedia, the sales of travel services over the Internet grew 37%
in
2002 to $28 billion — all while sales of the travel industry as a
whole fell 5%.3 Those types of Web firms also simplify transac-
tions for customers by enabling them to connect directly with
the
providers of goods and services, thus obviating the need for tra-
ditional middlemen, such as local travel agents.
Moreover, digital technologies like the Internet also facilitate
communication among customers. Specifically, Web sites like
Epinions.com and Amazon.com enable people to share informa-
tion about their experiences using various products and
services.
In 2002, for instance, 110 million people in the United States

surfed the Internet for information on health care.4 Through
var-
ious Web sites, patients can exchange information on the effec-
tiveness of certain products and treatments, and that knowledge
has a substantial impact on the industry. According to a recent
study, medical providers honor 86% of patient requests for spe-
cific prescriptions.5
These points illustrate that the Internet is a great enabler of
customer power. People are more educated and informed than
ever, and they have the tools to verify a company’s claims and
seek out superior alternatives from competitors. That power
enables customers to avoid pushy marketers and make their
own purchasing decisions. Indeed, 50 million people recently
signed up for “no-call” protection against telemarketers, and
64% of consumers say they are furious about pop-up ads on
their computers — slightly more than the percentage that is
furious about spam e-mail.6 To make matters worse, consumers
have a growing distrust of business. Corporate America has
recently been tarnished by a host of accounting scandals, and

many CEOs have lost credibility due to their excessive salaries
and questionable ethics. It’s no wonder that, according to a Feb-
ruary 2002 Golin/Harris International poll, nearly 70% of
Americans agree with the statement, “I don’t know whom to
trust anymore.”7
What To Do?
Some companies are responding to the growth of customer
power by pushing harder using traditional marketing methods,
such as media advertising, aggressive promotions and one-sided
communications. After all, those tactics have been the core of
marketing for decades, ever since the halcyon days of media
when
people more frequently read their local newspapers and watched
ABC, CBS and NBC. But today’s consumers are far harder to
reach. Newspapers have suffered declining readership, and since
1970, the three national broadcast networks have seen their
prime-time audience plummet by over 50%. Cable and satellite
TV have greatly fragmented the viewing audience, and even
when

an ad does reach consumers, only one-third actually watch it, as
many viewers routinely use their remote controls to mute com-
mercials or switch channels.8 Another trend is that people are
switching from their televisions to their computers, with
average
Internet use now almost the same as for TV (about 15 hours per
week) and 36% saying they watch less television.9 Web surfers,
too, are also getting tougher to reach: Click-through rates for
pop-up and banner ads plummeted by almost an order of mag-
nitude from 1996 to 2001.10
Another strategy taken by companies is to strengthen rela-
tionships with customers. To implement a relationship-market-
ing approach, a company must first build better products
through total quality management (TQM) and then emphasize
customer service. The organization can then use customer rela-
The research underlying this paper began in 1997 with an
MIT project funded by General Motors Corp., the goal of
which was building a virtual trusted-advisor site called
“Truck Town” to help customers select the best pickup

truck. This advisor was complemented by a virtual engineer
who “listened in” to the advisor/customer dialogue in
order to identify opportunities for new products so that
GM could develop the best cars with these ideas in mind
and win through a fair comparison. Both the advisor and
the virtual engineer were evaluated with in-depth market
research and model building.
A large sample study (more than 6,000 respondents) of
trust correlates was conducted from 1999 to 2001 to iden-
tify how trust was built through the use of an Internet site;
it was funded by McCann-Erickson WorldGroup and NFO
WorldGroup Inc.
From 2001 to 2003, additional research extended and
tested the theories of trust generation with five market
experiments at the customer-support division of Intel Corp.
Currently, research is under way with Qwest Communi-
cations International Inc. to develop a profiling and evalua-
tion technique designed to determine how much trust is

appropriate for the company.
These specific projects generated specific trust findings
and tools. That work has been supplemented by 12 cases
(for example, based on research from Citibank, Dell, Osram
Sylvania, Travelocity.com and Terra Lycos) written to
explain fundamental elements of trust building within a
digital marketing strategy.
About the Research
tionship management (CRM) software and one-to-one market-
ing concepts to target consumers more effectively, efficiently
delivering persuasive information and promotions. Compared
with push tactics, relationship marketing is more agreeable to
today’s customers — better service and more targeted offerings
provide some competitive advantage. But although most CRM
programs are developed on the basis of building a sophisticated
data warehouse and mining that information, the next step is

usually to hit the identified segments of customers with aggres-
sive e-mail, phone and Internet promotions — with or without
their permission.
More innovative companies have been moving beyond such
approaches. Instead of a monologue, they are establishing a dia-
logue with their customers and are advocating for their needs.
The assumption is that those customers will then reciprocate
with their trust and enduring loyalty, leading to growth in sales
and profits. Advocacy is a major step forward in the evolving
rela-
tionship between companies and their customers (see “The
Advocacy Pyramid”). The foundation of an advocacy approach
is
TQM (specifically, quality products) and satisfied customers.
Customer advocacy is further supported by relationship market-
ing. In particular, learning about each customer and developing
a
relationship with those individuals helps a company to become a
better advocate for their needs.

As a company continues to develop its strategy toward cus-
tomer advocacy though, it will use CRM differently. Initially, it
might deploy CRM to target promotions and other information
to certain customers. But later it will begin to use CRM pro-
grams to advocate for customers, providing them with objective
advice in addition to open and balanced information. (In such
cases, the process might better be labeled “advocacy
relationship
development” instead of “customer relationship management.”)
And the company won’t use one-to-one and permission mar-
keting simply to deliver information to highly targeted seg-
ments of customers. Rather, it will use such marketing
techniques to establish a mutual dialogue with individuals in
the hope of maximizing their interest in the firm’s available
products and services.
In certain ways, the differences between push marketing and
customer advocacy are reminiscent of the differences between
theories X and Y on the management of employees. Proposed by
the social psychologist Douglas McGregor in 1960, Theory X

rep-
resents an old style of management that treats employees like
mindless automatons who must be pushed into working. Theory
Y, on the other hand, views workers as intelligent, responsible
individuals who can be trusted to do a good job. Similarly, push
marketing assumes that customers are passive individuals who
must be coerced into buying. In contrast, advocacy marketing
treats them like intelligent individuals who seek to make
informed decisions about the goods and services they purchase.
The Elements of Customer Advocacy
The key to an advocacy strategy is that a company must become
trustworthy in the eyes of its customers. To achieve that,
organi-
zations should consider the following eight factors:
Transparency To develop trust-based relationships, a company
must become more transparent to customers, supplying them
with honest and open information. Internet travel services like
Expedia and Orbitz, for example, provide information on virtu-
ally all flights and fares, enabling consumers to choose easily
among different options. On the other hand, wireless telecom-

munication services have complex fee structures (including acti-
vation fees, roaming charges and early-termination fees) that
make comparison shopping difficult.
Quality of Products and Services Without quality, companies
can
never honestly recommend their own products, making it
difficult
for them to gain customer trust. Push strategies can use
aggressive
pricing to cover up marginal quality, but both relationship and
advocacy strategies require high-grade products and services. In
the 1980s, U.S. auto companies were manufacturing vehicles
with
more defects than their Japanese counterparts, but since then
they
have worked hard to improve, eventually achieving higher
ratings
from J.D. Power and Associates that enabled them to compete
through the use of both relationship and advocacy strategies.
Cus-
tomer advocacy requires an even higher level of quality than
rela-

tionship strategies because without superior products, a
company
Customer
Satisfaction
Customer
Advocacy
Relationship
Marketing
Total Quality
Management
(TQM)
The foundation of customer advocacy is quality products
(through total quality management, or TQM) and satisfied cus-
tomers. Customer advocacy is further supported by relation-
ship marketing, which helps companies learn enough about
each customer to become that person’s advocate.
The Advocacy Pyramid

that is honestly trying to represent the customers’ best interests
will not be able to recommend itself.
Product Comparison Even when a company has excellent
products,
those goods will likely not be the best choice for every possible
customer. For an advocacy strategy to succeed, a company must
be willing to tell prospective customers when they should
instead
consider a competitor’s offerings.
Alignment of Incentives Savvy customers are suspicious of any
incentives that a seller might have, and they are unlikely to trust
a company fully unless they are confident that the relationship
will be mutually rewarding and long term. A good example of a
company that tries to maximize its alignment with customers is
Charles Schwab & Co., the discount broker. Schwab pays its
bro-
kers a straight salary, unlike other brokerage firms that offer
com-
missions on the basis of the number of transactions that a client
makes — an incentive that can lead to brokers encouraging cus-
tomers to buy and sell stocks excessively. Moreover, Schwab

has
no investment banking division and is thus free to offer
unbiased
ratings of company stocks.
Partnering To develop trust, a company can partner with its cus-
tomers. A good approach is to help customers help themselves.
This tactic expands the notion of a consultative selling relation-
ship into an engagement that is more purely consulting in which
a company helps its customers even in areas outside of the strict
boundaries of its product line. Although altruistic in
appearance,
such partnerships can greatly benefit a company if those cus-
tomers prosper and increase their purchasing.
Cooperative Design Collaborative work between a company and
its customers helps build trust between the two parties, and
many
organizations have come to rely on their customers for valuable
information, including design ideas. In the software industry,
for
example, user groups routinely help manufacturers by identify-
ing bugs (and developing patches for them) and by creating lists

of desired features for new releases. To encourage such activity,
a
company can supply its customers with tools to help them solve
their problems, with the side benefit of creating customer solu-
tions that sometimes lead to successful future products.11
Supply Chain In many industries, manufacturers rely on a
network
of channel partners, such as distributors and retailers. Such
organ-
izations can greatly affect (for better or worse) a company’s
brand
image and its relationships with customers. Consequently, a
com-
pany that implements an advocacy-marketing strategy must
avoid
channel partners with pushy salespeople, shady business
practices
or questionable ethics. As far as many customers are concerned,
a
company is only as trustworthy as its business partners.
Comprehensiveness At first glance, customer trust might seem
to
be only the responsibility of a company’s marketing, advertis-
ing, sales and distribution functions. In reality, though, an

advocacy strategy requires participation from the entire organ-
ization. For example, R&D, engineering and manufacturing are
critical to creating high-quality products that meet the needs
and standards of demanding customers. Human resources must
hire the right people (and train them properly) for any job that
requires interactions with customers. Management must create
the incentives and organizational structures that lead to a cul-
ture of trust. Specifically, the values of the company must
reflect
the primacy of customer advocacy, and the organization must
also engender the trust of employees and other stakeholders.
After all, if employees can’t trust their own company, why
should customers?
The Path to Advocacy
Some companies have had customer advocacy as their strategy
from the ground up. The prime example is eBay Inc., which
helped facilitate the exchange of more than $10 billion of goods
in 2002. Consumer trust is the crucial element to that success,
enabling the company to grow and support commerce between

millions of seemingly anonymous buyers and sellers, even for
expensive goods such as used cars, which at eBay accounted for
transactions of $2.5 billion in 2002.12 To establish that trust,
eBay tracks and publishes the reputations of both buyers and
sellers on the basis of feedback from each transaction. A con-
trolled experiment found that buyers bid 7.6% more for goods
listed by repeat sellers with good reputations,13 and the eBay
Web site creates the transparency needed for buyers to identify
those parties easily. The company also has an aggressive fraud-
protection program. Buyers who have switched their user iden-
tifications in the last 30 days are flagged to indicate the change;
an escrow service (www.escrow.com) helps ensure that both
payments and goods reach their respective parties; and another
third party (www.squaretrade.com) helps to resolve any dis-
putes. Such measures have helped to limit fraud to less than
0.01% of eBay transactions.
Other organizations have been trying to make the transition
to customer advocacy, either from a strategy of push marketing

or CRM. To accomplish that, they have stepped up their efforts
with respect to the eight factors. Consider General Motors
Corp.,
which has created a new software program that helps
prospective
customers select the vehicles best suited to their needs. Called
AutoChoiceAdvisor, the tool asks buyers for information such
as
how they plan to use the car, how much they are willing to pay,
what features they feel strongly about and what brands they like
or dislike. Using that data, the advisor then presents a ranked
list
of its top eight suggestions, including vehicles from
manufactur-
ers other than GM.
Sponsored by GM and J.D. Power, the tool relies on unbiased
data from the Automotive Information Center and J.D. Power.
It has been implemented as an independent Web site (www.

autochoiceadvisor.com) that an estimated 700,000 people vis-
ited in 2003, and it is also being used by third parties (such as
Kelly Blue Book and Car Talk) that have certified the tool’s
objectivity. The auto advisor has been expanded to capture
explicit feedback pertinent to product development: A virtual
engineer listens in on the dialogue between the advisor and cus-
tomers to learn about unmet needs, and that information pro-
vides opportunities for future design improvements.14
AutoChoiceAdvisor is just one part of GM’s advocacy strat-
egy. The company has also implemented “AutoShow in
Motion,” a program that allows consumers to test drive and
compare GM cars with those from other manufacturers, and a
new dealer initiative that allows prospective buyers to test drive
a GM vehicle for a 24-hour period. For owners of GM vehicles,
the company has a Web site (www.mygmlink.com) that is a
one-stop center for important information, including owner’s
manuals, warranties and recall notices. The site also enables
people to maintain records of their car servicing and estimate

the value of their vehicles for trade-in or resale. And GM has
sponsored an active Internet community to involve customers
in the design of its new hydrogen fuel-cell vehicle. In such
ways,
GM has addressed a number of
the eight factors (product com-
parison, transparency, supply
chain, partnering and coopera-
tive design), helping the com-
pany to move closer to a strategy
of customer advocacy.
Another organization making
similar efforts is General Electric
Co. In a corporatewide initiative,
GE is sharing its management
experience with industrial cus-
tomers in customized workshops
and consulting engagements that
teach Six Sigma and other

methodologies “at the customer,
for the customer.” Through the
program, GE’s resident experts
visit customers to help them
improve specific business proc-
esses. These small-scale con-
sulting efforts are conducted free
of charge and are intended to
help jump-start, rather than
actually perform, the customer’s
entire effort.
It is important to note that a project does not have to relate to
GE in any way for GE to provide assistance; the goal is mainly
to
transfer best practices that will help GE customers remain prof-
itable. For instance, GE’s aircraft engines division is helping
the
ailing airlines cope with the brutal downturn in the travel indus-
try. The reasoning is simple: If airlines aren’t flying, they won’t

need GE jet engines, spare parts or maintenance. And GE’s
efforts
in this area go far beyond those related merely to the products
that the company sells and supports. The projects include any
aspect of airline operations that GE’s expertise might help, from
finance to flight scheduling to operations in the tire shop. After
the Sept. 11 terrorist attacks, GE tripled the number of its teams
in the field, and so far the company estimates that it has helped
kick off efforts that have saved the airlines some $400 million.
Other divisions at GE have also scored successes, helping
Homer
TLC Inc.’s Home Depot chain to improve workflows across its
1,300-store chain, reducing waiting times for CT scanners in
hos-
pitals and increasing copier sales in Europe. Overall, GE
partici-
pated in 6,000 such projects in 2001, triple the number from the
previous year.
GE’s initiative raises an important point. Although customer
advocacy is important on the consumer side of marketing, it is

even more applicable in business-to-business efforts. For indus-
trial marketing, the rule of thumb is that just 20% of the sales
force is responsible for 80% of the sales volume, and that effec-
tive minority frequently owes much of its success to building
advocacy-based relationships with clients. Often, the best sales-
people are those who help solve customer problems even when
their company’s products are not involved.
Customer advocacy is also becoming a trend in the financial
industry, particularly for credit unions, which are typically
estab-
lished to serve the interests of their members. Recently, a
number
of innovative credit unions — for example, First Tech (serving
the Northwest region, including Intel and Microsoft employees),
SACU (San Antonio), Mission Federal (San Diego) and Bellco
(Colorado) — have implemented online advisors: Web-based
tools that help customers select mortgages, loan programs, IRAs
and other financial instruments.15 The mortgage advisor, for
instance, educates customers about the complexity of mortgages

(presenting explanations of terms and options, along with
advice
and caveats) to help people choose the one that is best suited for
their circumstances. These types of online advisors have been
well received. For example, 95% of people who have used the
mortgage selector say they would recommend it to a friend.
For the credit unions, the online advisors have had substantial
ancillary benefits. Although the technology is meant primarily
for
customers, the mortgage advisor has been a powerful time-
saving
tool for loan officers, helping them double their productivity by
automating various functions. And the financial results have
been
impressive: After implementing the online advisors, the credit
Often, the
best salespeople
are those
who help solve
customer

problems even
when their
company’s
products are
not involved.
unions were able to grow their mortgage businesses by over
65%
(after adjusting for changes in the interest rate).16
Even companies in industries that rely heavily on push strate-
gies can make the move toward an advocacy-based approach.
Consider Qwest in the wireless-telecommunications market. The
company has faced an uphill battle in its efforts to become more
trustworthy, as charges of fraud and accounting irregularities
have shaken the confidence of customers and stakeholders. But
under the new leadership of CEO Richard C. Notebaert, Qwest
has embarked on an intensive campaign to rebuild employee

trust and pride. The company has improved its TQM procedures
and training of call-center personnel. It has also reduced its
tele-
marketing and simplified its rate plans by charging a flat fee of
5
cents per minute. Moreover, Qwest has developed a Web site
(www.myqwest.com) that enables customers to perform various
functions online, including reporting problems with their serv-
ice, checking the number of wireless minutes they’ve used,
view-
ing their bills and ordering products and services. The company
is also developing a virtual advisor to help people select the
best
service package for themselves after they consider all plans,
including those of competitors.
The Limits – and Advantages – of Advocacy
The efforts of Qwest, GM and others notwithstanding, an advo-
cacy strategy is not suitable for every organization. Indeed,
many
companies face competitive situations, operating conditions or
customer characteristics that preclude the use of such an
approach.

For instance, a company could enjoy a monopoly position in the
marketplace, or its products could be undifferentiated, highly
stan-
dardized commodities requiring little involvement from cus-
tomers. Or buyers could be deal-prone individuals who evaluate
offerings on price alone. In addition, an organization’s goals
can be
a major factor. If short-term results are crucial, then advocacy
might not be the best approach because it requires a long-term
outlook and patient expectations for return on investment.
That said, many companies have realized that there are advan-
tages to being a first mover with respect to advocacy because
once
customers develop a trusting relationship with a supplier, they
are much less likely to switch to a competitor. Trust creates a
bar-
rier to entry by increasing customer loyalty and by forcing
would-be competitors to spend considerable time and resources
to make inroads. If Qwest’s efforts in customer advocacy are
suc-

cessful, for example, the company could gain a leadership posi-
tion in the telecommunications industry that competitors might
find difficult to assail. Even when others do enter and try to
gain
customers’ trust, the pioneers can maintain their superior posi-
tions by continuing to innovate in the design of advocacy pro-
grams. In contrast, choosing not to embrace advocacy can
present great risks to a company if competitors are able to gain
the trust of customers first.
ACKNOWLEDGMENTS
Research was funded by the Center for eBusiness at MIT,
General
Motors Corp., Intel Corp. and Qwest Communications
International
Inc. The author is grateful to Vince Barabba, Ross Blair, Iakov
Bart,
Mary Murphy-Hoye, Jeff Katz, Melanie Kittrell, Andrea and
Dana
Meyer, Stefania Nappi, Brian Rhodes, Venkatesh Shankar, Ron
Shelvin and Fareena Sultan. And the author acknowledges his
MIT
research assistants David Gagnon, Mahesh Kumar, Susan Lee,
Lau-
ren McCann, Rami Musa, Fernando Ramirez, Siva Ravikumar,
Jes-
sica Santiago and Telmo Valido.

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3. L. Sileo and J. Friedman, “PhoCusWright’s Online Travel
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9. Jupiter Research, “Marketing and Branding Forecast: Online
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12. N. Wingfield and K. Lundegaard, “Clicking the Tires: eBay
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Explore
New Combinations of Customer Needs,” Journal of Marketing
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2004).
15. Author’s interview with Ross Blair, CEO, Experion Systems
Inc.,
Maynard, Massachusetts, October 10, 2002.
16. G.L. Urban, “Digital Marketing Strategy: Text and Cases”
(Upper
Saddle River, New Jersey: Prentice Hall, 2003): 161-162.
Reprint 45213. For ordering information, see page 1.
rights reserved.
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