Extracting greater value and profitability from customers is this month’s topic and is the core of the Profitability from Customer Affinity initiative, one of the council’s major initiatives this year.

This authority leadership initiative began in early 2007 in partnership with CMP to undertake milestone research that would determine what drives customer affinity, advocacy, and attachment. Next month, the Profitability from Customer Affinity report will be released along with the first-ever CMP Customer Affinity Index, which will show how B2B technology brands stack up. Further, the comprehensive research, which looked at end user, vendor, channel, and customer service segments, will be the basis for a new metrics and measures framework for customer affinity that will also be released next month.

This issue is the perfect precursor for October’s bountiful barrage of new customer knowledge that will help you maximize customer value and profitability. In fact, three of the contributors to this month’s issue were leaders in helping the council drive the Profitability from Customer Affinity initiative.

Our CMO of the month, John Dragoon from Novell, was one of the leading CMOs who provided valuable qualitative research input. John explains his take on how to extract greater value and profitability from customers in the Get to Know a CMO column. Dr. V. Kumar from the University of Connecticut and author and top consultant Jeanne Bliss both provided expert points of view on the subject during the qualitative phase of research and contributed greatly to the initiative as expert advisors. Dr. Kumar – a recognized leading authority on customer value - provides his Point of View on a new path to profitability, reversing current logic in this area. Jeanne Bliss contributes our lead article on five answers every CEO (and CMO) should want to know about customers.

By the way, you may have cast your vote in one of our monthly “quickie” polls that appear opposite this column each month. We’ve been remiss in not providing you with the results of the polls the following month. We’ll be doing that from now on. To get you caught up, here are the results from our previous polls:

• June: 50% of respondents currently have a formalized MPM system in place, while 50% answered no or unsure.
• July: 75% of respondents have increased customer intelligence research budgets in 2007, while 25% have have not.
• August: 100% of respondents have a formal system to allocate marketing spend.

Bob Nelson is also Academic Director for the CMO Council's MPM Forum and Mastering MPM programs and is a Puerto Vallarta, Mexico-based brand optimization consultant.

GET TO KNOW A CMO:

Marketing Magnified: John, how is Novell marketing organized?

I believe form follows function and have structured marketing accordingly. Accountability is measured in three big buckets: awareness/brand, generating demand, and sales enablement. Our marketing organization structure reflects the skills necessary to execute against those three buckets. I’ve been at Novell for nearly four years and have put our current structure in place over that time. In June I tweaked our organization a bit to beef up our sales enablement capability. I have five direct reports who head teams organized by branding and communications, marketing strategy and planning, marketing execution, sales enablement, and marketing operations. The strategy and planning team is our core group, which works with the other teams to execute our marketing programs. We have 140 marketing people in the global organization with about 60 percent of them headquartered either in Waltham, Massachusetts or Provo, Utah.

Marketing Magnified: How do you go about extracting greater value and profitability from your customer relationships?

First, we make sure we are effectively segmenting the market. We know who both are installed base and non-Novell prospects are. For our installed base client we need to help them leverage and extend their current Novell solutions. Understanding their needs is paramount. For non-Novell prospects, introducing them to Novell and then building preference is key. We need to identify their pain points and then try to position our solutions to them. Importantly, we are always working to improve the profitability of our customer relationships by improving our channel economics and other means to serve them better and more profitably.

Marketing Magnified: How important is customer affinity to Novell and how does it impact your ROI?

We have 52,000 customers worldwide so customer affinity is critically important. We measure customer affinity through quarterly customer surveys conducted by outside companies. Typically we survey 10 to 13 thousand respondents per quarter. We measure customer loyalty, revenue growth, retention, renewal rates, product usage, and other customer affinity-oriented metrics. The key question we ask, though, is “would you recommend Novell to others in the categories we serve?”

Marketing Magnified: How do you measure marketing’s performance?

We measure performance along the three accountability pots I mentioned earlier. First, we speak with key stakeholders to understand their needs and ensure marketing is aligned with them and then we set our marketing metrics and measurements. For our awareness/brand bucket we track unaided awareness, purchase intent, and pr coverage and tone every six months, utilizing outside measurement firms every six months in our three geographic regions. It allows us to have a fact-based discussion with our stakeholders. Our demand generation tracking is a very sophisticated closed loop CRM system that tracks by campaign prospects, leads, single sales opportunities, etc.. Sales enablement metrics are the most qualitative of the group. We measure primarily sales cycle reduction by monitoring our provisioning of the right tools, training, and education. The metrics and results on our marketing dashboard are negotiated and approved at the CEO level.

Marketing Magnified: What are your top three marketing priorities?

The first is successfully positioning Novell in the marketplace. Second is generating qualified demand, especially through Novell’s partners. And finally, attracting and enabling a new set of partners to expand our indirect distribution.

Marketing Magnified: What are your top three marketing challenges?

Top on the list is to apply more disciplined market selection. We have a very complex product offering and need to focus our resources on a sub-set of opportunities. We also need to make roles and responsibilities very specific in our matrix organization. And, we need to continue to simplify the message we are delivering into the market place to ensure that the market understands who we are, what we do, and how we’re different.

POINT OF VIEW: REVERSING THE LOGIC: THE NEW PATH TO PROFITABILITY

It is widely recognized that many successful firms have gained a competitive advantage in the marketplace by implementing a relationship marketing strategy. The success of this strategy has been built upon the constant advances in information and communication technology that allows firms to gather large amounts of information about their own customers (database marketing) and about customers in the general marketplace (marketing research). As a result, this has led to what marketers believe is the conventional path to profitability through relationship marketing (see Figure 1).

This conventional path to profitability starts with innovation being the foundation to acquire customers – where the better the products and services, the better the rate and quality of acquisition. Then, it is expected that when the newly acquired customers are given a richer experience, those customers will achieve a higher level of satisfaction. As a result, these highly satisfied customers will show stronger signs of loyalty, both through their behavioral loyalty (retention) and through their attitudinal loyalty (e.g. positive word of mouth). The improved level of retention gives the firm opportunities to cross-sell and up-sell to these customers, providing enhanced revenues and subsequently higher profits. Finally, the profits are then reinvested in new innovations of product and services, strengthening loyalty programs, and increasing the satisfaction of the firm’s customers.

Figure 1: The Conventional Path to Profitability

However, there is a significant amount of evidence in both the marketing literature and in the marketplace today that suggests that this conventional path to profitability needs to be questioned and that a new path to profitability needs to be developed (Kumar, Pozza, Petersen, and Shah 2008).

Consequently, there are many firms that are beginning to deviate from this conventional path to profitability. They are doing this by first looking at each customer’s profitability and then later thinking about customer loyalty and customer satisfaction. Take Sprint Nextel for example. Recently, they decided to “fire” around 1,000 of their 53 million customers for calling the call center too often resulting in a loss. So, when firms like Sprint Nextel fire customers based on a measure of customer profitability, are they taking the right approach in building the foundation of their marketing strategy around customer profitability?

Anatomy of the relationships

Each link making up the conventional path is only weak at best. Take some examples from the marketplace regarding the satisfaction-loyalty link. Reichheld (1996) observed that between 65% to 85% of satisfied customers will defect, calling it "the satisfaction trap.” In some industries it is potentially worse than others. Then, take some examples from the marketplace regarding the loyalty and profitability link. A recent study showed that the correlation between behavioral loyalty and profitability for four different firms from four different industries were all weak to moderate (Reinartz and Kumar 2002) : 1) grocery retailer: 0.45, 2) corporate service provider: 0.30, 3) direct brokerage firm: 0.29 and, 4) mail-order firm: 0.20. In addition, many firms have spent huge amounts of resources to build loyalty (e.g. CRM systems) that did not result in increases of profits. Similarly, investments in customer satisfaction often resulted in high satisfaction scores, but low profitability.

This happened because customer satisfaction and loyalty initiatives were not linked to profitability from the start. Profitability was just the desired outcome, not a key player in the foundation of the marketing strategy. Investments in customer satisfaction and loyalty were made across the entire customer base without taking into account that 20% of the customers give more than 90% of the profits in most cases.

Consequently, the traditional product-centric approach, where metrics measured across all customers (e.g. satisfaction) are used for new product innovation and customer acquisition, is collapsing to give way to the customer-centric way of doing business. A customer-based approach emphasizes optimal customer selection (Kumar and Petersen 2005), that is, the acquisition and retention of the “profitable” customers for the firms. As a result, there is a need for strategies that incorporate differentiation between more and less profitable customers when trying to allocate marketing resources for customer retention/loyalty and customer satisfaction.

Reversing the logic: The new path to customer profitability

We explore an alternative path to profitability where customer profitability is at the origin rather than the destination (as shown in the conventional path). Consequently, we propose a reverse logic framework (RLF) that follows a similar path as the conventional path, but in the reverse direction (see Figure 2). The RLF draws upon the state-of-the-art customer relationship management research that puts the emphasis on future customer value. The future value of customer profitability can be efficiently measured through the customer lifetime value (CLV) metric (Kumar, Ramani, and Bohling 2004).

Our first contention is that customer profitability (or CLV) needs to be taken into account before making cross-selling/up-selling decisions. Is this tantamount to putting the horse before the cart? Recent empirical evidence has shown that the CLV metric outperforms all other metrics when it comes to selecting customers for appropriate marketing intervention (Reinartz and Kumar 2003). Hence, managers must be cognizant of the customer’s lifetime value before deciding to selectively up-sell/cross-sell the right product(s) to the right customer.

Figure 2: The Reverse Logic Framework: The New Path to Profitability

For example, up-sell/cross-sell initiatives would be more relevant for a low CLV or a medium CLV customer as compared to a high CLV customer. Up-sell/cross-sell marketing initiatives (such as direct mailing or promotion) result in enhanced revenues for customers that favorably respond by buying more number of products or by increasing their level of spending with the firm. At the same time, there may be some low CLV customers that choose to ignore up-sell/cross-sell initiatives of the firm. In such a scenario, should the firm strive to earn the loyalty of all of its customers? Under our reverse logic framework, we contend that customer loyalty strategy of the firm should be contingent upon the profitability potential of the customer. This implies rewarding customers differentially.

Lately, we see an increasing trend of firms differentiating their loyalty rewards programs by rewarding their most profitable customers through both tangible and/or intangible rewards while minimizing or eliminating rewards for the most unprofitable customers. Kumar and Shah (2004) identify this paradigm shift as the emerging dominant logic of customer loyalty programs in the twenty-first century. As a consequence, firms are increasingly striving to satisfy different customers to different extent by varying the level of customer experience with the firm.

Rewarding the most profitable customers (at the expense of less profitable or unprofitable customers) bears the promise of increasing the retention rate of the most profitable customers. This is evident from the fact that both Virgin Airlines and Harrah’s have reported strong fiscal performance in terms of both growth and profitability relative to their competition. Retained customers that are also highly profitable represent a greater fit between the customer and the firm’s products and services. Clearly, any firm would be interested in maximizing the number of such customers. Consequently, firms should profile their retained profitable customers and then acquire new customers that match the retained customers’ profile. In other words, acquisition strategy should learn from retention of profitable customers as depicted in the RLF figure.

While CLV serves as an excellent measure to evaluate the future profitability of the customer with the firm, it does not provide information on the overall profit potential of the customer. To maximize the profitability of each customer with the firm, it is useful to evaluate CLV along with the customer’s size of unused wallet (SUW). The SUW represents the incremental profit potential of the customer.

Our new path to profitability reverses the direction orientation of the conventional path to profitability. Does this make sense? Would such a framework really work in the real world? Recently, IBM implemented the CLV metric and deployed CRM strategies as laid out in the reverse logic framework. The outcome was an incremental profit of about $20 Million (Kumar et al. 2007). Moving forward, we expect the RLF based on the CLV metric to prevail as the most effective framework to manage customer profitability in the twenty-first century.

References

Kumar, V and J Andrew Petersen (2005), "Using a Customer-Level Marketing Strategy to Enhance Firm Performance: A Review of Theoretical and Empirical Evidence," Journal of the Academy of Marketing Science, 33 (4), 504-19. Kumar, V, Girish Ramani, and Timothy R. Bohling (2004), "Customer lifetime value approaches and best practice applications," Journal of Interactive Marketing, 18 (3), 60-72.

Kumar, V and Denish Shah (2004), "Building and Sustaining Profitable Customer Loyalty for the 21st Century," Journal of Retailing, 80 (4), 317-29. Kumar, V, Rajkumar Venkatesan, Timothy R. Bohling, and Denise Beckman (2007), "The Power of CLV: Managing Customer Value at IBM," forthcoming, Marketing Science. Reichheld, Frederick F. (1996), The Loyalty Effect. Boston, MA: Harvard Business School Press.

Reinartz, Werner and V Kumar (2003), "The impact of customer relationship characteristics on profitable lifetime duration," Journal of Marketing, 67 (1), 77-99. ---- (2002), "The mismanagement of customer loyalty," Harvard Business Review, 80 (7), 86-94. Venkatesan, Rajkumar and V. Kumar (2004), "A Customer Lifetime Value Framework for Customer Selection and Resource Allocation Strategy," Journal of Marketing, 68 (4), 106-25. Kumar, V, Illaria Dalla Pozza, Andrew Petersen, and Denish Shah (2008), "Reversing the Logic to Maximize Profitability," forthcoming, Journal of Interactive Marketing.

FIVE ANSWERS EVERY CEO (AND CMO) SHOULD WANT TO KNOW ABOUT CUSTOMERS

Without up-to-date information trending profitable versus non-profitable customers and issues driving the best customers away, CEOs and their businesses are unable to manage customers as assets. As internal leaders of each silo report and recommend customer actions separately, CEOs react to the random issues landing at their feet, rather than focusing on key issues eroding customer loyalty and customer profitability.

CEO’s must take hold of customer profitability!

Organic customer growth drives long-term profitability. So why isn't it as important to most CEOs and CMOs as quarterly sales goals? This is where the customer commitment falls apart, because what’s actively asked for, measured, and rewarded doesn’t always line up with what’s good for customers. The easily understood and well-defined quarterly sales goals win out and stay top-of-mind.

For example: a business-to-business company was counting the number of customer accounts but not the flow or the quality. The sales team was led by an ex-fighter pilot who sent off the sales force on what they actually called “speed kills.” They were fired up to get as many customers as they could, as fast as they could. But they weren’t keeping track of the difference in the value of business each new customer would bring. To them, one unit was one unit: customers had become widgets.

Each speed kill carried the same weight on the tote board used to measure success. The sales team exceeded their goal for new customer accounts that year, but sales became a drag on profits, which actually declined. This is because they didn’t focus on the profitability of customer accounts, just the number of them. And, no one actively identified, prioritized, and eliminated issues driving profitable customers out the door.

Five answers every CEO should want to know I call these “guerrilla metrics” in my book, Chief Customer Officer: Getting Past Lip Service to Passionate Action. They are “guerrilla” because often a campaign is necessary to propel the organization into understanding the customer end game and supply leaders with a platform to stand behind and reinforce. They establish a language for CEOs in how they ask about customers, placing the customer front and center on their agenda. They are a potent first step to kick-start or reenergize a faltering customer ‘focus.’ They work because they clear through the clutter usually encountered in the drive for customer experience and profitability:

• Inconsistencies in defining, reporting, and managing the state of relationships with customers.
• Focusing on survey administration and negotiating survey scores rather than driving action and accountability.

Guerrilla Metrics give leadership five questions for commanding customer accountability inside their organizations:

1. What are our new customers volume and value?
   Ask about the volume and value of your incoming customers as often as you ask about sales goals. You may find that you are tracking incoming customers across a multitude of company areas - with conflicting definitions of what it means to be a new customer. The wild card here is if you have achieved alignment in how customers are classified inside your system. The part that’s not likely tracked is the quality of incoming customers. This is especially important as the market becomes more saturated and new, profitable customers are harder to come by.
   
   
2. What are our lost customers volume and value and reasons?
   Pair this question about lost customers with the one above about new customers. The volume and value of lost customers needs to be paired with the new customer information to lay out the true situation for your company. You must reconcile “Customers In” with “Customers Out” to know how well you are doing with managing customers as an asset of your company. In addition to knowing which customers left, you need to know the reasons why they don’t care to do business with you anymore so you can drive change across the business. Without this information, the organization misses a massive opportunity to galvanize people into taking action.
   
   
3. What customers renewed at what rate and why?
   For this to have relevance for your company, you’ll need to define customer behaviors that constitute renew or the commitment to continue doing business with you, according to your business model. The key is to understand patterns that indicate loyalty based on continuous purchase habits. You must ask for reasons why customers are staying with you to ensure that you personally know what you are delivering to customers that they value – and to ensure that you are well aware when these reasons shift or begin to erode. The “with reasons” part of these metrics are key to taking a leadership role in demanding focused actions to drive customer profitability rather than reacting to random pitches that come across your desk.
   
   
4. What is our revenue and profitability by customer group?
   Getting to this classification of customers is not a trivial project. You need to understand the movement of customers from one profitability group to another so you can strategically lead the customer agenda. Your goal should be driving efforts that cause your costliest customer groups to decline and those most profitable to grow. If you are not demanding that the business be tracked this way and if you do not ask for accountability around these metrics in the regular language of meetings, it won’t happen. Getting this data in line to achieve a regular pattern of accountability around customer profitability patterns will take some time, but stay the course. It will optimize your ability to manage customers as an asset of your business.
   
   
5. What is our referral rate by customer segment?
   If your customers are willing to stick their necks out vouching for you, they have become your marketers. Keeping these customers, growing them, and developing other customers like them are the key. You need to know how far you are down this path of building a customer base that would refer you. Because if you can track the rate of referrals in general and by customer group, you’ll know the strength of your ongoing revenue stream before you even spend another dollar on marketing. Companies completely focused on customer profitability will learn how referral rates differ by customer group and reasons for not referring. They will rigorously apply this learning to constantly adjust and improve.

Use Guerrilla Metrics to drive your customer accountability platform

It’s not enough to simply have the metrics - it’s what you do with them that matters. To make the Guerrilla Metrics stick, and to use them to steer the actions of your business, you need to take them out of the hordes of reports and paperwork and put them front and center as part of your personal mantra. There is nothing like public accountability to take the mystery out of what’s important to you and to start a friendly horse race among peers that motivates performance.

Consider establishing a “Customer Accountability Room,” where a regularly scheduled spotlight is shone on these metrics and their improvement. Use it to kick-start the Guerrilla Metrics into action:

1. Lay out the Guerrilla Metrics to your leaders and begin asking for them within one week.
2. Give a drop-dead date for when you want to know the baseline metrics.
3. Build a customer accountability room, visually mapping each metric and its performance.
4. Within the first month, take your first walk-through in the customer room with your leaders. For each metric require accountability for “Why is this occurring?” and “Who will resolve it" and “When?”
5. Repeat the walk-through quarterly, or up to once a month. People will step up. Change WILL occur.

Use Guerrilla Metrics to power the customer Into board meetings

You can use Guerrilla Metrics to redefine business success with your board, based on how well you are performing in keeping priority customers and driving their growth. According to a November 2004 Harvard Business Review article entitled Bringing Customers into the Boardroom, customer management issues being elevated to the board level are on the decline. Among the large U.S. companies surveyed for that article, over a third of them said that their boards spent less than ten percent of their time on customer-related or marketing issues. You need to be clear with your board that managing the value and trend of profitable customers is not negotiable.

You can use Guerrilla Metrics as a tool to define, quantify, and connect the dots for them on why customers must be discussed and managed as a key asset of your corporation. Guerrilla Metrics will give the perspective you need so you can elevate high-priority customer issues, and get your board to sanction investments required to keep them.

MERGING THE BRANDS AND BRANDING THE MERGER: USING BRAND STRATEGY TO DELIVER THE RIGHT MESSAGE TO KEY AUDIENCES

M&A activity in 2006 reached an all-time high of $3.7 trillion, passing the record previously established in 2000. But the track record of M&As in creating shareholder value remains less than stellar. Most studies estimate that over two-thirds of transactions fail to create value for the acquirers.

Our hypothesis is that corporate brand strategy has an important role to play in improving the chances for M&A success. It is vital that the companies in a merger understand how to select the brand strategy that is best able to communicate a compelling vision for the combined entity and secure the loyalty of customers, employees, and investors (the three constituencies whose behavior will largely determine the success or failure of the merger).

Mapping the full range of branding alternatives

We set out to document the full range of branding alternatives open to management and to assess the upside and downside of each with respect to the three key constituencies. Conventional wisdom says that there are only four branding alternatives in an M&A: adopt one brand, create some combination of the two brands, go with something entirely new, or change nothing. Our research, based on an analysis of 207 deals since 1995 with a transaction value of over $250 million, confirmed that these are indeed the major options, but revealed that there are actually at least 10 variants within these four basic options.

These 10 variants arise from the choices that can be made about whether to maintain, combine, or reinvent the corporate name and symbol of each of the merging companies. The differences between these selections provide managers with the opportunity to craft more context-appropriate positioning and communications strategies than has hitherto been acknowledged. Each variant therefore represents a powerful vehicle for communicating a specific set of messages to customers, employees, and investors.

At the macro level, the choice of corporate brand communicates one of four messages about the transaction:

1. This deal is a merger/acquisition and we are adopting the stronger brand (“backing the stronger horse”)
2. This deal is a merger and we are adopting the best of both brands (“the best of both”)
3. This deal is a transformational merger and we are creating a new brand (“different in kind”)
4. This deal is a portfolio transaction and no visible changes will occur (“business as usual”).

Backing the stronger horse

The key message communicated here is about the benefits to scale and presence that can be achieved through the adoption of a single, well known, unified identity across the merged companies. That message is appropriate in industries that are consolidating or that offer significant opportunities for bundling previously discrete products and services.

Under the most common “backing the stronger horse” approach, representing 40% of the total number of M&As studied, the merged entity adopts the name and symbol of the lead company (strategy 1). An example is Bank of America’s acquisition of Fleet Boston. On occasion, however, the more appropriate brand to adopt is that of the target company (strategy 2). An example would be America West’s purchase of US Airways. Another possibility is to have the lead and target companies share a combined corporate name for a specified period (generally one to two years), after which the company adopts the name and symbol of the stronger brand (strategy 3). An example would be UBS’s merger with PaineWebber. The final variant in the “backing the stronger horse” category involves adopting the corporate name of one of the companies (typically the lead firm) but creating a new symbol and logotype (strategy 4). An example would be Sprint’s merger with Nextel.

The best of both

The main message here is that each company is contributing significantly to the future of the merged entity. The simplest approach is the agglomeration of both firms’ names and visual identities (strategy 5). Examples include MolsonCoors or ExxonMobil. Although it might appear to be low risk, this strategy often has the effect of perpetuating the differences between the partners, rather than facilitating their integration. For that reason, the decision to combine the names of both companies but adopt a new symbol and logotype is a more effective way to communicate a message of change and integration (strategy 6). Examples include the new visual identities selected by ConocoPhillips and BNP Paribas.

Alternatively, a powerful - but underused - alternative is for the merged entity to adopt the name of one of the companies (usually that of the acquirer) and the symbol of the other (strategy 7). This combination is an elegant way of communicating a new, shared future while explicitly acknowledging the value that each party has brought to the table. Examples include UBS (which adopted the “keys” symbol of Swiss Bank Corp.) and Boeing (which adopted the aeronautic “swoosh” of McDonnell-Douglas). The final variant in this category involves one company (usually the acquirer) endorsing the visual identity of the other firm (strategy 8). This can be achieved by using a common endorsement line and/or symbol across separately named subsidiaries. Examples include United Technologies or ABN AMRO.

Different in kind

Sometimes the best approach is to create an entirely new corporate identity (strategy 9). This sends a powerful message to employees, customers, and investors that the merger has resulted in a business that is greater than the sum of its parts. An example is Verizon - created to mark Bell Atlantic’s transformational merger with GTE in 2000.

Business as usual

For mergers that aren’t predicated on synergy between the employee and customer bases of the two companies, a frequent choice is the “business as usual” approach (strategy 10), which accounted for 1 in 4 cases in our study. Here, the target company is absorbed into an existing portfolio and continues to operate as a largely autonomous unit under its existing identity. There may be some consolidation of support functions, supply chains, or distribution channels, but the overall intent of the transaction is to leave employees and customers largely unaffected. A notable example would be P&G’s acquisition of Gillette.

Conclusion

Our research revealed that strategy 1 (where the target brand disappears altogether) and strategy 10 (where both companies’ brands continue to exist independently in unchanged form) accounted for nearly two-thirds of the observations. Although these two strategies are clearly appropriate in certain circumstances, we question whether their popularity is more a product of expediency and simplicity than their intrinsic advantages. Our hope is that, by informing managers about the full range of branding alternatives at their disposal, we can promote the more effective use of corporate brand strategy as a tool in ensuring the success of M&As. When executed effectively, corporate brand strategy can greatly facilitate the merger of the two companies by communicating the right messages to the key audiences inside and outside the organization.

THE NAKED TRUTH: SECURITY CAN GROW CUSTOMER KNOWLEDGE, INSIGHT, AND CONVERSATIONS!

In a move that would make even Seth Godin proud we - as two seasoned security professionals - have finally uncovered the naked truth about security. Security can be marketing’s secret weapon in the challenge to grow customer knowledge, insight, and conversations. There is no shortage of evidence, either.

Our discovery didn’t happen overnight. Most of the work we performed during our combined forty years in security involved dangers and threats, malfeasance and exploitation, hackers and espionage – not customer insights. We were focused on digital forensics and root cause analysis of data breaches - not new product development.

But now that security has reached a new level of sophistication, we have begun to see some surprising trends. Not everything uncovered during a data breach investigation was bad news. In fact, tracing back to the root cause of a data breach very often uncovered valuable intellectual property (IP) that wasn’t stolen. We soon realized that the core problem in uncovering this IP is these assets were often never accounted for in the first place.

Now as awareness of the importance of security spread beyond the IT department, we had become accustomed to working closely with marketing on strategic issues such as brand protection and preservation of intellectual property. Every security professional does that. But what we’ve discovered goes far beyond those issues.

We’ve discovered that good security is truly marketing’s secret weapon. Good security can actually help marketing build new products that customers do want, increase the success rate of new product launches, and help quantify the business value of marketing programs.

It’s not intuitive to think so. We certainly didn’t expect these would be the deliverables. But we have collected far too much evidence to deny it any longer.

Here are just a few examples described in exactly the same way we discovered them; not as security problems, but as marketing challenges.

What do customers want? Ask your CIO

An energy company involved in litigation was required to sift through thousands of email accounts to find the source of a specific slanderous remark. Once the e-discovery portion of the case was complete, the security team reviewed the volume of email threads and recognized immediately what was gathered. Actual customer conversations were in those emails.

While the company did have a sophisticated CRM system, its sales and customer support staff - as is the case in most companies - used the CRM minimally at best. Customers were openly telling sales staff what they did and didn’t like about a variety of products. The level of detail customers would readily share with customer support about products, features, and pricing was astounding. Yet these same customers would never take the time to fill out even the barest of marketing surveys.

In an increasingly global economy where ‘long tail’ markets of endless choice and unlimited demand hold most of the world’s purchasing power, discovering this trend was an epiphany for us.

We understand the conundrum that companies today are drowning in data, but starved for useful information. Yet we were finding invaluable, customer insight data like this all of the time for our customers.

Left unharnessed this invaluable data becomes a security liability, rather than the strategic corporate asset that it is. Most data security breaches are diagnostic of a missed market opportunity or uncaptured revenue streams.

In an age when the number one concern of CEOs is being able to anticipate new market demands, cases like these offer an invaluable opportunity to stay ahead of the competition.

Blog security = Product success

The convergence of several conditions should cause alarm among security, risk, and privacy professionals and executive management. Instant messaging, blog, and social networks are emerging as key communications methods, particularly among the younger work force. Combined with proliferating mobile technology that broadly distributes previously centralized information, and wireless networks, these trends are particularly troubling because many companies have failed to adequately create and enforce the controls, policies, and procedures necessary to properly manage the risk carried by social, workforce, and technological change.

The greatest risk behind corporate blogging is the potential for intellectual property theft through social engineering of unwitting bloggers who may not realize the intelligence value that even snippets of proprietary information can offer miscreants. Today’s security professional is highly skilled at detecting social engineering behavior and can be marketing’s greatest resource in preventing these types of breaches.

Corporate blogging is the electronic version of competitive intelligence gathering at trade shows where companies send an employee over to a competitor’s booth pretending to be a prospective customer to entice an unsuspecting marketing engineer to brag about future product features. Not every blog responder can be trusted to be an actual customer prospect. Marketing collaborating with security can ferret out the imposters.

Yet corporate blogging under properly created and enforced security policies can be an extremely effective marketing tool, specifically in the area of new product development. Marketing can micro test new product features in days rather than months based on blog results. Marketing can also use metrics provided by blog results to more accurately price and forecast market demand for a new product before it reaches the final build stage, saving millions of dollars in wasted resources.

For example, Tim Ferris, a first time author whose book made the New York Times bestseller list in just four days, credits blogging with much of his success. He used blog results during much of his product development process. He reports having over a dozen titles for his book, which he micro-tested over the Internet pre-release until the final title - ‘The 4-Hour Work Week” - showed unmatched response.

Monetizing data is measurable marketing

Proliferating mobile technology broadly distributes information and distributes it to your end customers. More importantly, those end customers are responding like never before. In part due to the relative anonymity and in part due to the need for speed in their busy work lives, customers are sharing their insights and viewpoints in a variety of new media.

While they may never have had time to write and mail a letter about great customer service in the past, they now will send an instant message in a flash. In our rapidly globalizing and digitizing economy, customers are very comfortable telling salespeople – even those they have never met in person - what they like or don’t like about a product.

Along with the proliferation of mobile technology comes a proliferation of customer data. Data has become the new global currency. Marketing needs to monetize that data! But in order to monetize the data, marketing needs to capture it on these ubiquitous technologies.

Terabytes of unstructured customer data are available that can be converted into invaluable business intelligence using a variety of emerging technologies.

Leveraging the expertise of the security professional - whose key role it is to protect and preserve corporate data - will further improve the effectiveness and efficiency of the marketing organization. In the mind of every CEO, being able to monetize customer data is undisputed marketing success that gives even greater measurability of the business value of the CMO. And that’s the naked truth!

THE POWER OF HUMAN NETWORKS^®: DRIVING PERFORMANCE THROUGH AUTHENTIC CUSTOMER ENGAGEMENT

The Holy Grail of market research has been the ability to predict buying behavior. For more than a half-century, demographics have been the primary predictive methodology. However, extensive research proves that personal relationships, not demographics, have the strongest impact on buying decisions. In the current information economy, purchasers are bombarded with more marketing information than they can possibly digest about your products and solutions as well as those of your competitors. They adapt to this information-overload by filtering it through relationships of trust and advice seeking. Thus, prudent market research must be dedicated to identifying and understanding these relationships, so that sales and marketing initiatives can be designed to leverage the powerful and complex interaction of social networks.

The buzz about social networks

As the social networking buzz permeates the marketing world, vague questions about MySpace, SecondLife, and Facebook strategies are surfacing in board rooms everywhere, but it’s not a new concept. Sociologist J. A. Barnes coined the term “social networks” back in 1954 to describe the personal connections that span traditional professional, family, ethnic, or socioeconomic groupings. Though they’ve garnered massive attention in recent years, these networks of relationships have always been the way we seek advice — from choosing a dry cleaner to joining a gym, from buying a house to changing careers, and from installing a database platform to implementing a company-wide retirement plan.

Sites like MySpace have been dubbed marketing panaceas. However, University of Toronto sociologist Barry Wellman cites an interesting flaw: They “assume that everyone in your life is on one happy network.” Therefore, in these egalitarian environments, professional colleagues are provided the same information and given the same weight as distant college friends, members of the local PTA, or teammates from the neighborhood softball league. The reality is that different people impact your life and decisions in significantly different ways.

Evidence that the impact of these sites may have been somewhat overstated can be found in both consumer and business markets. Consider the George Washington University student who holds the school’s title of “most Facebook friends” with 3,456 and counting – an impressive social network. When asked where he would turn for help in finding an apartment, this avid Facebook user responded, “The furthest I’d go with Facebook would be to ask someone to borrow a textbook. I’d want to actually trust the person.”1 In the business-to-business realm, consider the recent study2 of U.S. and U.K. executives conducted by the Keller Fay Group. Word of mouth was cited as the number-one influence on business purchase decisions. More importantly, the majority of these word-of-mouth interactions are happening offline.

Against this backdrop, the real question may not be “What is our MySpace strategy?” or “How do we develop a presence on SecondLife?” Perhaps a more critical line of questioning is how to become a meaningful part of the existing relationships of trust and advice seeking through which target individuals examine ideas, evaluate existing offerings, and make decisions. Effectively answering that question is the elusive formula to achieving sales and marketing goals.

Fostering communities to drive performance and move market share

As a general rule, marketing and sales executives have two primary goals:

1. Increasing revenue through customer acquisition and retention
2. Decreasing the costs of acquiring and retaining those customers

The most effective way to achieve these two objectives is to understand the existing relationships of trust and advice seeking among the target audience and to become an integral part of these communities through authentic customer engagement. Integrating a brand into the exisiting communities among a target audience is a four-stage process:

1. Identify opportunities
2. Build partnerships
3. Promote connectivity
4. Monitor and sustai

The first two stages will be examined in this article. A comprehensive review of the four-stage process, however, can be found by clicking on this link: Driving Performance Through Influence Networks.

Identifying opportunities

To successfully and accurately identify communities, the key is to construct a research methodology that places emphasis on the relationships that matter most to current and prospective customers, from their perspective. Trying to predict relationships based on communication patterns, Web traffic, publications, online mentions, or other such research may reveal formal relationships or thought leaders, but this approach will not map out the relationships of trust and advice-seeking. Similarly, attempting to identify these relationships based on the observations of sales professionals or other members of your organization fails to take into account the actual customer’s perspective and results in a largely anecdotal understanding of the network.

To accurately identify the communities that comprise your target audience and the dynamics of advice seeking, there is simply no substitute for direct contact with that audience. Once the communities are known, we can begin to identify opportunities for more meaningful engagement. For example, our research reveals that more than 80 percent of the key opinion leaders identified by decision-makers are unknown to our Fortune 1000 clients. This means there exists a significant opportunity to develop relationships with market-influencing minds, who currently have no relationship with the organizations they impact.

Building partnerships

With an empirical knowledge of the communities within the market, one can chart a clear roadmap to partnership building with these communities and their critical members. This does not require dramatic changes to marketing and sales activities. Rather, the influx of “influence network” data, combined with existing strategies, tactics and resources, can inform and improve marketing and sales initiatives and can inspire the discoveries that lead to new approaches. A few examples are given below.

• Customer Councils/Advisory Panels. Invite key opinion leaders to serve on advisory boards or leadership roundtables.
• Focus Groups. Invite critical members of the communities within your market to serve on your focus groups to reduce unqualified attendee contributions.
• Online Forums/Newsletters. Recruit advocate opinion leaders to moderate forums, serve as guest editors for online publications or write a column for a monthly newsletter.
• Product Development/Product Launch. Enlist key network members to participate in private betas or other forms of product testing that can then be tied to the marketing activities around product launch.

Partnering with the communities within a target audience empowers an organization to become a meaningful part of the conversations among them. By providing key community members with a sense of ownership in the development and success of your brand, you build advocacy among their communities in a genuine, organic way. This type of authentic customer engagement is what truly drives revenue and moves market share.

¹ M. Hesse, ^"An Unmanageable Circle of Friends”, August 26, 2007, Washington Post
² Driving Word of Mouth Advocacy Among Business Executives: The Experiential Marketing Connection.” Keller Fay Group.

UPCOMING EVENTS

2007 CMO Council European Summit:
Impacting Value
How Marketing Drives Business Innovation & Growth
Dates: November 27-28, 2007
Location: Hotel Adlon Kempinski
Berlin, Germany
Website: http://cmosummit.org/2007/europe/index.html

Global organizations, regional operations and micro-businesses are being challenged like never before to evidence the business value of their strategies, programs, resources and spend. Today’s marketers must face globalization, new media channels, market fragmentation, increased customer control and demands, product and service commoditization and the constant push for innovative competitive edge and increased profit, senior marketers have quite the burden to bear. more »

2007 CMO Council Summit:
The Elite Retreat
Less Burn: More Return
Dates: December 12-13, 2007
Location: The Lodge at Sonoma
Sonoma, CA
Website: http://www.cmosummit.org/2007/north_america/index.html

The 2007 CMO Council North America Summit, dubbed The Elite Retreat, will take on the theme “Less Burn: More Return” to contemplate, formulate and advocate best practices to eliminate the agony of allocation. By invitation only, attendees will enjoy an intimate networking opportunity mixed with knowledge sharing and participation in establishing the best practices around some of the most hotly contested, questioned and vital challenges that face senior marketers. more »

ClickZ Specifics: E-mail Marketing 
Date: October 2, 2007
Location: Hilton New York. New York, NY
Website: http://www.clickzevents.com/email/fall07/

Mid Market eTail 
Date: October 22-24, 2007
Location: Crowne Plaza, San Jose, CA
Website: Click here
Mid Market eTail 2007 is an event that focuses on strategies to drive profitability and growth for small and mid-sized businesses that have limited resources. This 2nd annual event will take place in San Jose, California from October 22nd – 24th at the Crowne Plaza Hotel. This year’s agenda includes topics that help you to build consumer loyalty, grow business through prioritization of external and internal resources, achieve quantifiable results by investing in key technologies, increase brand equity by strategically driving consumers to product websites, and create a personalized, unique site experience with key mix of analytics and metrics. Join companies like CafePress, StubHub, ProFlowers, Roxio, Sur La Table, Zazzle, Coastal Contacts and Alibris to gain insights to the latest industry trends. CMO Council members save $100 off the price of registration using code 10544.002XY59.* Please visit www.MidMarketeTail.com for more details or call 1-888-482-6012.

*This offers applies to qualified retailers only

BtoB's NetMarketing Breakfast  
Date: November 15, 2007
Location: San Francisco, CA
To register, click here.

Learn how to optimize your interactive marketing strategies! Our panel of experts will reveal the best strategies for effective e-mail marketing, search, webcasting, online advertising and more.

Search Engine Strategies Chicago
Date: December 3-7, 2007
Location: Chicago Hilton, Chicago, IL
Website: http://www.searchenginestrategies.com/chicago

To register, click here.

Voices in Business
Join Donovan Neale-May, Executive Director of the CMO Council, as he speaks with B2B Marketing for their featured Podcast brought to you by Voices in Business.  To listen »

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