Creating A Customer Centered Organization

Creating a
Customer-Centered
Organization

A Harvard Business Review
Insight Center Report

sponsored by

The HBR Insight Center is an interactive resource
that highlights the emerging thinking around
today’s most important issues. In this installment
of the series, Harvard Business Review focused on
how managers are turning their companies into
customer-focused organizations.

The growing obsession with customer excellence is
driven, in part, by technology. Today customers can
obtain and exchange more information about the
good and bad of their encounters with companies
than ever before. That gives companies a great
incentive to work harder to make customers happy
— before, during, and after their purchases.

© 011 Harvard Business School Publishing. All rights reserved.
2 Harvard Business Publishing is an affiliate of Harvard Business School.

Creating a Customer-
Centered Organization

A Harvard Business Review
Insight Center Report

CONTENTS
1 Create Brand Superfans
Matthew Rhoden

3 How Philips Uses Net Promoter Scores to Understand Customers
Suhail Khan

5 What Zipcar Can Teach the SP 500
Stephen Wunker

7 How Fidelity Used Design Thinking to Perfect Its Website
Frederick S. Leichter

9 The Coming Point-of-Sale Revolution
Grant McCracken

11 Using Mobile Phones to Capture Customer Experiences
Emma Macdonald, Hugh Wilson, and Umut Konus

13 How to Play Marco Polo When Setting Prices
Rafi Mohammed

15 Beyond Mass Customization
B. Joseph Pine II

17 Understand Your Customers with Colored Pencils and Cartoons
Eddie Yoon

19 Coca-Cola Marketing Shifts from Impressions to Expressions
Joe Tripodi

21 Memorable Events Are the Most Valuable Experiences
B. Joseph Pine II

23 Why Nokia’s Collapse Should Scare Apple
Patrick Barwise and Seán Meehan
CONTINUED ON NEXT PAGE

www.hbr.org

CONTENTS, CONTINUED

25 Why Retail Workers (Like Me) Drive Customer Experience
Caitlin Kelly

27 Customer-Centric Continuous Improvement
Brad Power

29 How American Express Transformed Its Call Centers
Jim Bush

31 Welcome to Creating a Customer-Centered Organization
Dan McGinn

33 Experience Co-creation
Francis Gouillart
35 The Rise of the Chief Customer Officer
Paul Hagen

37 Unleash the Power of Marketing—to Drive Innovation and Profit
Harvard Business Review Webinar Summary
Ranjay Gulati with Angelia Herrin

SAS and all other SAS Institute Inc. product or service names are registered trademarks or trademarks of SAS Institute Inc. in the USA and other countries.
ii ® indicates USA registration. S105275_0711

hbr.org insight center blog

Create Brand Superfans
by Matthew Rhoden

Forget customer satisfaction. It’s a lagging indicator, not a leading one, and you can’t build a
forward-thinking strategy based on historical data. Instead, companies need to take satisfaction
to the next level and create advocates of their customers.

Advocacy strongly differs from satisfaction, or even loyalty. It is a business strategy built upon
trust, an enduring competitive advantage that has become increasingly important as companies
lose control of the brand message to customers who can reach the masses in an anonymous,
everlasting way.

Three hallmarks of a customer advocate differentiate her from simply being a supporter, influ-
encer, loyalist, or satisfied customer. A customer advocate:

Supports the brand. An advocate will stand by the brand even in times of difficulty, isn’t afraid
to react to criticism or correct factually incorrect statements about the brand, and will purchase
brand products as gifts for friends and family.

Actively promotes the brand. Advocates share their experiences via various social media, openly
praise company employees both internally and externally, and provide unsolicited feedback on
service and quality. In some cases, they consider themselves “brand protectors.”

Is emotionally attached to the brand. Advocates have a sense of ownership in the brand. They will for-
give shortcomings (such as price) when buying products, and treat the brand as part of their inner circle.

But how does one go about turning customers into advocates?

Silence detractors. Develop an environment where customers will not want to talk badly about a
brand. I once spoke with an executive who said his goal was to “not have customers hate us.” Iden-
tify and prioritize customer pockets with a high concentration of negativity, and allocate resources
to fix the root issues. In other words, to get your customer-experience house in order you must

www.hbr.org 1

Creating Brand Superfans

honestly focus on your most common com- Meanwhile, committed customers should be
plaints. encouraged to become members and partici-
pate in the customer community, as well as
Build a solid and positive customer experi- create “networking” opportunities. In another
ence. Create consistent, coordinated interac- case, Victoria’s Secret has begun to build an
tions across channels to meet customer needs. extraordinary online community by providing
Develop efficient internal processes, integrate members with the ability to upload photos and
data, and empower employees so customers are videos, share their product experiences, and
satisfied every time they interact with you. Sat- discuss special A-list events they were invited
isfaction and loyalty are critical to the success to and attended together.
of a business. But you don’t have to stop there.
Satisfaction and loyalty are important, but
Offer extraordinary experiences. Go that extra they’re old news. Forward-thinking compa-
mile when customers least expect it, and in nies will be the ones that identify and work
return you will receive their long-term busi- with their customer advocates to genuinely
ness. For example, as a Delta “very” frequent build the brand, the customer base, and the
flier, I have received two unusual offers. One bottom line.
was a black-tie invitation to the grand opening
of Delta’s new Terminal A in Boston. The sec-
ond was an offer for two free flights to Miami, FEATURED COMMENT
two tickets to an NFL game, and a free night
at the Ritz Carlton. While the latter offer was “It strikes me that there are certain products
potentially very expensive, it created a strong (like books, sports, or even fraternities) where
advocate of me for life — despite the fact that the business itself is that of creating superfans.
I’ve had many instances of frustration with the The brand itself IS the product.” — Zane
carrier.

The process of creating an advocate depends
on the level of customer engagement that
already exists. Imagine that customers sit on
a spectrum, from indifferent on one side to
advocates on the other. For indifferent cus-
tomers, emphasize the value they receive
over price and create specialized services
addressing their specific needs. For customers
who already feel fulfilled, you need to create
emotional connections between them and the
brand. For example, one Middle Eastern tele-
com operator has begun to create the brand
connection by extending extraordinary dis-
counts from third-party partners, such as the-
aters and car rental agencies.

2 Creating a Customer-Centered Organization


How Philips Uses Net
Promoter Scores to
Understand Customers
by Suhail Khan

To understand what your customers really think about your company, here’s one simple exercise:
ask them to rate you on a scale of 0 to 10. Customers who give you a 9 or 10 are “promoters,” and
would generally recommend you to a friend. People who score you at 6 or below are “detractors,”
and are likely to make negative noise about your brand. The 7s and 8s are “passives” or “on the
fence” — they don’t feel strongly positive or negative about you.

If you calculate the number of 9s and 10s, then subtract the number of 6-or-belows, the result is a
company’s Net Promoter Score.

At Philips, where I direct our customer experience efforts, we began using Net Promoter Scores
during an initial pilot in late 2006. Since then, we’ve embraced the tool across our company to
try to become an outside-in, customer-focused organization. This tool has deepened our focus on
organizing ourselves around the needs and expectations of our markets. We have realized that our
products and services have to be more than just feature-rich and technologically advanced; they
have to deliver an unsurpassed experience at all customer touchpoints, from the initial shopping
experience to postsales service. We also realize the need to measure our performance relative to
our competitors.

Consider a simple example: a customer, accompanied by his family, goes to an electronics store on
a Saturday to buy a home theater system. His whole family is excited. The kids are looking forward
to playing their video games, his wife waits to watch her favorite show, and he can’t wait to play
his favorite music. They come home, unpack the system (so far so good), and plug it in. And then...
nothing! No picture, no sound. He calls the customer support number (which in the Netherlands
is in most cases is a 900 number, making the customer pay for the call) and works his way through
the initial menu options to eventually discover that support is only available during the week. At
that moment, he begins to question his whole decision for purchasing that brand. His family is
disappointed, and the weekend potentially ruined.

www.hbr.org 3

How Philips Uses Net Promoter Scores to Understand Customers

At Philips, our customers had exactly this To achieve this we launched the Reference Pro-
experience. As a result of our NPS efforts, moter program. The concept was to get custom-
we heard about it and quickly made some ers who are willing to recommend you to actu-
changes. We opened our customer care center ally do so. As a result, customers are allowing us
on weekends, and customers responded with a to capture their testimonies on video or audio
surge of positive reaction. Since then, we have interviews and as case studies. These testimo-
driven these kinds of changes throughout the nies are then catalogued by topics that typically
company. From tying NPS performance to show up in proposals, allowing our sales force
executive compensation (and eventually the to leverage this to target responses and increase
entire organization) to making NPS a key filter sales. If a customer wants to learn more about
for strategic business and portfolio decisions, the topic of how we manage relationships, we
we have embedded NPS into our company’s can pick a relevant testimony and showcase
fabric. To further bolster our NPS learnings, that to them. This brings NPS into the realm
we launched a web-mining project to capture of driving business and creating more market
the chatter in cyberspace around our brand share growth opportunities.
and products. We then triangulated this to bet-
ter understand the impact of social media on There is so much more to do in this journey.
NPS. Studies show that over 78% of purchase To truly dominate a market, we must execute
decisions are made based on peer-to-peer and focus on delivering a “wow” experience
recommendations, while only 14% are based to all our consumers, customers, and business
on advertisements. This is critical. Whether a partners in all the things we do for and with
company is paying attention or not, the cus- them. The approach: listen, build relation-
tomers are out there, sharing their experience ships, and adhere to the fundamentals of good
about products and services with anyone who corporate citizenship. Customers are telling
is willing to listen. us how to behave; it’s up to us to create trans-
parency and accountability standards that are
In the last two years, we have put in place a acceptable to our audience, substantiating
methodology that enables us to determine that we’ve heard them.
how new products would contribute and influ-
ence NPS ratings for Philips. Products indicat-
ing high NPS rating potential are allowed to FEATURED COMMENT
continue down the development chain. Those
that don’t are either sent back for additional
“Good article. I’ve seen success in asking the
work, or even killed. NPS question (‘would you’). For promoters,
we asked them a follow-up question of ‘will
It’s important to have a large number of pro- you.’ Those who assented or wanted more
moters, but it’s just as important to activate information before committing were contacted
these promoters as your brand evangelists.
within 24 hours to arrange their participation in
Most companies using NPS (or similar pro-
one of a variety of reference programs. Result?
grams) spend most of their time focused on
20% increase of reference accounts in less
detractors, while promoters are left on the
shelf to collect dust. We decided it was just
than a year.” — Andy
as critical to engage our promoter as it was to
address the concerns of our detractors.



What Zipcar Can Teach
the SP 500
by Stephen Wunker

If American companies are to grow their way out of the doldrums, they will need to show some of
the imagination of upstarts. Consider Zipcar, whose recent IPO valued the 11-year-old company at
over $1 billion. The company came from nowhere into a rental car business dominated by giants
such as Hertz and Avis, creating a new market of by-the-hour rentals. Meanwhile, the incumbents
focused on battling each other at longstanding airport locations. As the giants continue to duke it
out, Zipcar has captured 80% of the industry it created. Ironically, Zipcar repeated a story that was
told once before in the rental car industry. Hertz is the leader at the airport, but Enterprise Rent-A-
Car grew to become more than double Hertz’s size through concentrating on neighborhood-based
locations, where the giants did not compete.

The SP 500 companies, which now have nearly $1 trillion of cash on hand, should take heed.
While entrepreneurs are grasping for venture capital, the nation’s leading firms seem puzzled
about how to spend their money. Their lack of imagination stunts economic growth.

A big problem is that these companies tend to treat nascent opportunities the same way that they
approach established businesses. They want data, even though data on nonexistent markets is
inherently fictional. So they focus on the market as it is today, where data are more easily obtained,
and they employ the most conservative estimates about new sources of growth. They may also
concentrate exclusively on what their customers want, which biases them toward incremental
improvements on current solutions. As Henry Ford reputedly said of his industry, “If I had asked
customers what they wanted, they would have said a faster horse.”

When they do go after an idea, big companies can pursue it so cautiously that opportunity slips
through their fingers. For example, a decade before Apple released its iPad, Bill Gates demon-
strated a tablet computer to a capacity audience of 12,000 at a big Las Vegas hotel. Unfortunately,
Microsoft tied its tablet concepts to its Windows operating system and made them merely pen-
enabled personal computers, so these products remained a tiny niche of the computing industry.

www.hbr.org 5

What Zipcar Can Teach the SP 500

Stephen Wunker is the Entrepreneurs follow a different path for a Progress starts from finding and capturing
simple reason: they have to. If a new rental new markets, and recognizing how different
author of Capturing car company wanted to defeat the behemoths they are from established ones. By embracing
New Markets: How at the airport, it would have a rough slog. If its uncertainty, demanding bold ideas, and realiz-
ambition was to improve on current products ing how little they understand about how new
Smart Companies Create in tiny increments, venture capitalists would ventures will fare, big companies can put that
Opportunities Others Don’t ignore them. Start-ups create new markets, or $1 trillion to use. They can give entrepreneurs
they struggle for oxygen. Necessity truly is the a run for their money. This would cause some
(McGraw-Hill, June, 2011). mother of invention. headaches for venture capitalists but make
both customers and the national economy
If big companies are to seize more fast-growth much better off.
opportunities, they can learn from the venture
capitalists that back the most successful entre-
preneurs. Venture funds create a basic thesis FEATURED COMMENT
about which industries will grow, and then
they place a lot of inexpensive bets and give “Shareholder mentality is part of the problem.
start-ups leeway. Rather than invest in fancy Shareholders, or rather ‘shareturners,’ expect
spreadsheets and measure progress against quick returns on their investments, leading
detailed financial projections, they toss companies to focus on short-term profitability.
growth estimates out the window and expect To rephrase Henry Ford’s quote: ‘If I had asked
companies to iterate their way to a viable posi-
my shareholders what they wanted, they
tion. In a big company, success is measured
would have said a higher dividend.’” — Achim
by a track record of success, whereas a typi-
cal venture fund expects more than 60% of its
investments to be total write-offs. Yet venture
capitalists exceed the returns earned by public
companies for one simple reason — they fail
very fast and very cheaply.

What could happen if these companies
embraced the venture capitalist playbook?
Johnson Johnson once tasked a team to
compete against its market-leading suture
business. It sent executives to a new city and
gave them freedom to build a new business,
while making clear its investments would be
limited. The result, Ethicon Endo-Surgery, is
now a nearly $5 billion enterprise. Barclays
Global Investors hired an industry outsider to
pioneer its exchange-traded funds, iShares,
and gave him the freedom to build a new busi-
ness oriented around Main Street customers.
Within a decade iShares grew to be worth over
$4 billion. The approach has even worked for
the U.S. Army, which puts majors and colonels
through an 18-week course to become “red
team” leaders who look at problems from the
standpoint of adversaries and other nations to
identify alternative strategies. Red teams are
not looking to confirm the status quo; their
whole mission is to disrupt it.



How Fidelity Used
Design Thinking to
Perfect Its Website
by Frederick S. Leichter

Fidelity’s websites account for the vast majority of interactions our company has with its custom-
ers. We have always invested heavily in usability research and online interaction design, and our
customer-facing websites have been continually refined over the past 15 years — and as Fidelity’s
chief customer experience officer, I’m part of a team that helps ensure that our websites continue
to drive high customer satisfaction scores.

For the latest set of improvements to our website, Fidelity sought outside help from an unusual
source: students at the Stanford University d.school (formally known as the Hasso Plattner Insti-
tute of Design). At the d.school, students learn to use the practice of design thinking to solve big
problems, and they’ve helped us adopt this methodology to define, validate, and address our own
challenges in a new and highly effective way.

Design thinking is rooted in the principle that to design a great product or service, one must
develop empathy for and deep insight into the customer’s behaviors and needs. Teams spend time
with customers from the beginning of the development process, asking questions, rapidly generat-
ing multiple ideas, and testing them. The point is not to validate or prove an idea “right,” but to get
instant, unfiltered reaction. Design thinking promotes a culture of prototyping and a bias toward
action. These “low resolution” prototypes can be as rough as a napkin sketch or a model built with
pipe cleaners. Some of the greatest design thinking successes begin with a concept that fails to
resonate with customers, leading the team to ask why and to use that insight to generate new and
better ideas.

A group of d.school students were using design thinking to tackle problems like providing better
water supplies for sub-Saharan Africa or designing low-cost incubators for remote villages world-
wide. In our industry, there are also complex challenges that affect millions of people. We pre-
sented two questions as the project for a class titled “Creating Infectious Action”: How do you get
workers to save money for the future? How do you get younger people to do something that they
know is good for them, yet for which the positive payback is many years away?

www.hbr.org 7

How Fidelity Used Design Thinking to Perfect Its Website

In a matter of weeks, student teams con- time that you interacted with your benefits?
ducted research, created prototypes, and How was the experience? What was good?
tested numerous concepts. The ideas included What could be better? Why? Why? Why?” At
“future visualizers,” candy bars for savers, one point during this session, we asked cus-
grandparent graduation gift packs, dynamic tomers to formulate their benefits needs as a
charts to illustrate savings progress, and Craigslist ad and were floored by the direct-
a financial education program for kinder- ness, humor, and clarity of their responses.
gartners. The students found that even the The customers’ verdict: “That was the best
brightest graduate students are turned off by five-hour meeting we’ve ever been to.”
complexity, financial jargon, and fine print;
Gen Y-ers, surrounded by tangible and virtual In another session, customers and Fidelity
media, tend to lack reward recognition for team members broke into groups and gener-
long-term behavior and need motivation; and ated three different low-resolution paper pro-
invariably, baby boomers not only remember totypes:
their first savings-bank passbook, but have ■■ “ hat if benefits enrollment worked
W
saved it and can find it to show you. like a navigation system?”
■■ “ hat if benefits looked like an
W
Ultimately, Fidelity used images of a 1970s
airplane cockpit?”
bank passbook to create new ways to illustrate
balance history and performance data on its
■■ “ hat if benefits enrollment was a
W
website, giving customers positive feedback perfect first date?”
and providing motivation for achieving their
We let the customers react without offer-
savings and investment goals.
ing editorial commentary, remaining open to
After our experience with the class — and hearing reactions. At the end of the session,
inspired by the quality of ideas and the speed the Fidelity team emerged not only with a far
with which they were generated by the stu- superior picture of customer perspective, but
dents — we brought the practice of design with an enthusiastic invitation to return to
thinking back to Fidelity. Simply put, rather show progress. Clearly, the customers were
than developing and then testing, we now pleased to have been listened to and valued.
begin projects with customers, to incorporate
Being focused on the customer, with a bias
their thinking earlier and more effectively.
toward action, fostering a culture of proto-
We’ve learned that customers give better, typing by interdisciplinary teams, learning to
more genuine feedback with low-resolution “show, not tell” and then — above all — lis-
prototypes and an explicit invitation to con- tening, these design thinking practices have
tribute thoughts to the development process. helped Fidelity gain important insight into
Designs and project plans can then be adjusted meeting customer needs, and increased the
or scrapped before the team has spent signifi- odds we’ll continue to provide excellent cus-
cant amounts of time and resources polishing tomer experiences.
a product offering. Perhaps most important,
this methodology avoids the model of inviting
customers to review a mockup website that
FEATURED COMMENT
is more or less fully functional, which leaves
“Good informative article. I agree with your
customers feeling as if their input is largely an
approach. Usography did a similar study for
afterthought.
a large financial institution, but we also went
When a Fidelity team met with a group of its out to homes, looked through file cabinets of
workplace-services customers to understand financial records, and used participant diaries,
how they used their employer-offered Fidel- as well as the co-creation methods you
ity benefits, the team brought blank paper and describe.” — Paul
markers instead of PowerPoint slides and slick
Photoshopped pictures. “When was the last



The Coming Point-of-Sale
Revolution
by Grant McCracken

My wife and I recently paid a visit to the new Whole Foods in Stamford, Connecticut. In the time
it took us to walk from one end of the store to the other, I made three new friends.

Each was a Whole Foods employee who began our interaction with “Can I help you, sir?” and end
up sharing a little story about themselves, the new store, or how much they liked my jacket. I was
feeling like Major Grumpy-Pants at the time, yet I was charmed and disarmed.

If it happens once, that’s an accident. If it happens three times in the space of five minutes, you
know it’s policy. Whole Foods is hiring gregarious people.

How much friendliness the employee gives off is the employee’s choice. Some companies have
a minimum standard. They don’t want snooty, obnoxious, or eccentric. (They don’t want that
superbly dingy cashier lady played by Kristen Wiig on SNL.) If the employee can deliver pleasant
and agreeable, or facsimiles thereof, that’s fine.

Some companies — like, apparently, the Stamford Whole Foods — ask for much more. Zazzle asks
employees to deliver shouts of joy at the approach of guests. I walked by Best Buy in New York City
where all the staff were doing some sort of affect-building exercise on the sidewalk. Greeters at
Walmart are supposed to be forthcoming. Disney is famous for big emotions.

But there are problems. One of them is the American conviction that your emotions are your own
personal business. Generally, we believe emotions are a private matter and that it is wrong to ask
the employee to use them for public, commercial purposes.

And then there’s the problem of evident insincerity. No one believes the truculent server who
promises to be our friend for the duration of a meal. Does it add value to the occasion? Well, per-
haps as low comedy, but not otherwise. There is something manifestly unconvincing about the
airline staffer who recites, “Buh-bye! Buh-bye! Buh-bye!” as we leave the plane.

www.hbr.org 9

The Coming Point-of-Sale Revolution

Finally, there is a mechanical problem. Greet- The customer is no robot. Standard greetings
ings are little gifts, and when we force people are just so very boring. To be sure, we don’t
to be friendly, they are no longer making a gift. want to be intrusive or presumptuous. We
No social value is being created. The problem are all Major Grumpy-Pants some of the time
is not insincerity but a paradox. A forced gift and when that’s the case we just want to be
isn’t a gift. left alone. It’s also true that respect must be
shown, and distance honored.
The best way around this may be to hire peo-
ple who are naturally friendly. And surely this Human beings, most of them, come into the
wouldn’t be very difficult. It’s not hard to spot world with a good ear for things social. We’re
a social soul. But are there enough of them? wired to be convivial. (Imagine having a
Especially now that Whole Foods, Zappos, and chance of contributing to the gene pool if we
Disney have gone on a hiring spree? What hap- were not.) Wiring aside, we are rewarded for
pens when we run out of nice people? good interactions and punished for bad ones.

There just has to be a growing accumulation People with a really good ear for social interac-
of the socially inept and the downright rude. tion are probably 20% of the population. With
Think of all those back offices filled with the right hiring and training, we can probably
grouchy people. Thank God for back rooms double that number. And now in the place of
and locked doors. that sullen teenager who avoids eye contact,
we have retail staff fantastically good at read-
Clearly, we are going to have to go beyond just ing people and responding to them in real
selecting for cheerfulness and start training it. time. 7-Eleven sells 1 million cups of coffee a
We may also have to start paying for it. day. Imagine what that number would be if
Let’s see what we can learn from Dolores. they had a Dolores in every store.
Dolores is the reason a 7-Eleven in Shirley, When we turn our service staff into automata,
N.Y., sells more coffee than any other store in we squander a great opportunity.
the system. She was featured recently in an
episode of Undercover Boss. Have a look at this
excerpt to see Dolores in action. (Feel free to FEATURED COMMENT
skip ahead to the 1:10 minute mark.)
“Interesting post, and, as always, thought
Dolores is no mere greeter. She’s there to
provoking. As I read your story, I was thinking
make the coffee flow. And after 18 years here,
of the last shopping trip I had at my local
she knows a lot of people by name. And if she
Kroger. About half of the check-out lanes are
doesn’t know your name, she is prepared to go
with an endearment. (And who doesn’t want
‘self check-out,’ so you actually can go there,
to be called “hon”?) Most astonishingly, she spend about half an hour doing your shopping,
punches people. And she’s not asking for per- and leave without having a single human
mission either. “I gotta hit ya,” we hear her say, interaction. All about being efficient: go in/
“You know I gotta hit ya.” get out/carry on with your life. Very different
experience, and I think there is a place for
Hitting customers. Now there’s a big idea.
both of them: one where the gift is efficiency,
I believe Dolores shows us that our conven- the other one with its more unique gift. The
tional instincts are wrong. We offer the cus- really interesting point I got from your story
tomer a glassy, scripted welcome. We craft our is the model of empowering your frontline
greetings as if the staff person were a butler, employees to be themselves, and be better off
all frosty detachment and sangfroid. “Good for it.” — Carlos
afternoon, sir, may I help you find something?”
There are options here. In some cases, it’s actu-
ally okay to hit the customer.



Using Mobile Phones
to Capture Customer
Experiences
by Emma Macdonald, Hugh Wilson, and Umut Konus

How well do you know your customers?

We’re guessing not as well as you would like to ... and not as well as you’ll need to in the future.

Understanding customers has never been more important as empowered, fickle consumers take
less notice of your marketing campaigns, listening instead to the experience of other customers,
online and offline, and doing their own research. Surveys are useful for obtaining quick feedback
from a large number of customers but may lack the depth we need. Ethnographic programs such as
Procter Gamble’s “Living It,” which sends managers to live with a family for a time, can be invalu-
able, but they are not always practical, the effects are difficult to quantify, and the act of observing
customers in such close proximity influences them significantly.

So what can you do?

Imagine you could live in the pocket of your customers as they use and talk about your products
and services. While you can’t get that close to your customer, their mobile phones can. What if you
could appropriate the phone to provide real-time updates on the customer’s behaviors, percep-
tions, and emotions? This is just what companies — from Coca-Cola to LG Electronics and Unilever
— are doing by using a real-time experience tracking approach.

With this approach, you recruit a consumer panel that will send a text message whenever they
come across your company or its competitors. The brief, structured text messages capture what
kind of touchpoint it is, how the consumer feels in response to the company touchpoint, and what
they think about the brand as a result of this encounter. (A touchpoint includes every way that a
customer comes into contact with your company’s product, service or brand, including your chan-
nels, your communications, your service points, and product usage — and even encounters a com-
pany doesn’t control, including hearing about your brand from a colleague or seeing it in a friend’s
home.)

www.hbr.org 11

Using Mobile Phones to Capture Customer Experiences

Emma Macdonald is a Add these encounters up across a week and tomer-initiated encounters — such as going
across a whole sample, and you can assess into a store or having a conversation — are
senior research fellow experience share and experience effective- often more frequent than posters, mailings,
and Hugh Wilson is a ness. (“Experience share” is a brand’s share of radio, and many other supplier-driven touch-
all touchpoints in its category, and “experience points.
professor of strategic effectiveness” is the quality of a brand’s touch-
points, as measured by emotional response and Without this breadth as well as granular-
marketing at Cranfield
perceptual response, measured in real time.) ity of information, we don’t know whether
School of Management to allocate resource to improving call cen-
From our analysis of over 230,000 customer ters, retail channels, advertising campaigns,
in the U.K. Umut Konus
touchpoints collected by market research or new product innovation. Managers might
is assistant professor of agency MESH Planning, we’ve reached two have traditionally spent money on outbound
broad conclusions about the lessons for all media, without clearly understanding its rela-
new product development
companies. tive impact on the customer compared to all
at Eindhoven University the other aspects of their brand experience. If
First, it’s important to track your customer’s these encounters aren’t right then no amount
of Technology in the brand experience in real time. To get closer to of spending on outbound communications is
Netherlands. your customers, you would ideally walk along going to do the trick.
with them, seeing what your customers see, lis-
tening to the conversations they have, watch- For instance, one major cellphone network
ing who they take notice of online and observ- provider had such poor word-of-mouth that
ing how they use your brand. This observation its disgruntled customers talked about it all
would happen in real time so you could record the time. As a result, among its prospects, con-
when your customers “touch” your products, versation was the single most common touch-
services, or communications and their imme- point. Any amount of ad spending was going to
diate responses to these experiences. Present be wasted until the customer service problems
your customer with a survey question that were fixed.
asks about their emotional response to a brand
encounter that occurred two months ago and Time was when customers learned about our
they’ve probably long forgotten. However, by products and services through what we told
capturing this emotional impact in real time, them. No more. Rather, we need to listen
it is possible to understand how your brand to customers in real time. Customers touch
is affecting your customers. By collating the the brand more often than we think. By bet-
series of encounters your customers have with ter understanding the magic moments that
your brand over a period time, you can better our customers have with our brands, we can
understand the relative impact of brand touch- identify the most profitable opportunities to
points and how they lead to purchase. You can improve our customer interaction.
work out which aspects of your operations you
should be spending on.
FEATURED COMMENT
Second, it is vital to capture all touchpoints,
including those that you don’t control.
“You seem mainly to be referring to products,
but I think this could be very powerful as a way
The consumer panel sends texts for all touch- of tracking customer interaction with services
points. This is not onerous — it requires a time brands. I look forward to hearing more.”
investment of 20 seconds for the customer — Dianne
after each time they see your brand in a TV ad,
in a newspaper article, online, etc. The wide
scope of experiences tracked is important and
revealing. Customer experiences with service
touchpoints have traditionally been evaluated
via satisfaction surveys. But we also need to
understand our customers’ responses to those
activities we don’t control, such as word of
mouth or observing other customers, which
often occur without any visibility to us. Cus-



How to Play Marco Polo
When Setting Prices
by Rafi Mohammed

Remember playing Marco Polo when you were a kid? In this swimming pool game, the person who
is “it” closes his or her eyes while other players (eyes open) spread out around the pool. The goal of
the “it” player is to tag another player by yelling “Marco” and locating the other players by sound
when they respond “Polo.” Winning this game requires listening and responding.

The same is true for setting prices: companies need to listen and respond to consumers. One price
does not fit all — creating a successful pricing strategy is much like playing Marco Polo. Companies
need to listen for clues from potential customers (“Marco”) and respond with the right plans/prices
(“Polo”).

In terms of their pricing needs, customers for any product or service tend to differ in three primary
ways: (1) desired pricing plans (for instance, instead of outright ownership, a preference to lease),
(2) product needs, and (3) willingness to pay. The following strategies can generate new profits and
growth by understanding and meeting these needs.

Pick-a-Plan. Customers are often interested in a product but the pricing plan simply does not work
for them. Offering a new pricing strategy can “activate” these dormant customers by meeting their
pricing needs. A friend recently decided to take his entire family to the Caribbean to celebrate his
70th birthday. Inquiring about his destination, he emphasized: “I have to go to an all-inclusive
resort — it would kill me to see my grandchildren drinking $5 Coca-Colas all day” (“Marco”). By
offering an all-inclusive plan (“Polo”), resorts satisfy an important need of consumers who are will-
ing to pay a premium for the freedom of not having to think about the price of every meal, drink,
or activity while on vacation. Offering this pricing plan moves a resort to the top of the list for a key
segment of vacationers.

www.hbr.org 13

How to Play Marco Polo When Setting Prices

Implementing a new pick-a-plan pricing strat- Differential Pricing. For most products or ser-
egy can create “home run” profits. Fundamen- vices, some customers are willing to pay more
tal to iTunes’ success was its willingness to than others. The strategy of differential pric-
listen and respond to customers’ needs. When ing involves discreetly offering lower prices
iTunes’ was introduced, the only legal way to to price-sensitive customers without inducing
purchase digital music was to pay a monthly fee cannibalization — the potentially profit-erod-
(~$10 per month), which provided unlimited ing side effect of discounting. Common dif-
access as long as the fee was paid. In announc- ferential pricing tactics require customers to
ing iTunes’ pricing strategy, Apple CEO Steve credibly announce “a low price is important to
Jobs declared, “We think subscriptions are the me” by jumping over a “hurdle.” For example,
wrong path. We think people want to own their using coupons involves several hurdles such
music.” He was right: in its first week, iTunes as looking for, cutting out, organizing, carry-
sold over a million songs — the number that ing, and then redeeming at the checkout coun-
Apple hoped to sell in a month. ter. Other techniques designed to provide low
prices to budget-minded customers include
Versioning. Offering variations of your prod- rebates, sales, distribution (outlets), negotia-
uct or service to meet unique customer needs tion, price match guarantees, and bundles.
can result in higher margins as well as growth.
Many gourmet restaurants offer early bird, reg- Take a moment to ask your frontline workers
ular, and chef’s table versions. One hundred– how customers are reacting to your pricing
calorie snack sizes of consumer items are typi- strategy and what they are looking for. The key
cally 20% more profitable on a margin basis to pricing for profit and growth is to respond
compared to larger sizes, for instance. Seeking with the appropriate set of “Polos.”
more profitable consumers, Royal Caribbean’s
market research concluded that high-margin
cruise customers are seeking perks such as FEATURED COMMENT
separate places exclusively reserved for them.
To meet the needs of this coveted segment,
“This approach is more like a guessing game
cruise lines are creating a “ship within a ship” and I’m still figuring out just what is ‘affordable’
by providing separate pool areas, private cock- and fair for my customers that will make
tail parties with the captain, and priority sta- them pay for a monthly service fee. I like your
tus to avoid waiting in lines. The result is the concept about ownership vs. subscription —
opportunity to attract new customers who and the first one gives customers that special
are willing to pay premium prices. On Disney feeling of owning something valuable at a
Dream cruises to the Bahamas, regular state- fraction of the cost.” — Dianne
rooms start at $439 per person while concierge
level rooms targeted to higher-end cruisers
run $2,159 per person.



Beyond Mass
Customization
by B. Joseph Pine II

Let me tell you a secret for creating the customer-focused organization: focus on the customer!
That may sound tautological or even trite, but it has real meaning, because most so-called
customer-focused organizations do nothing of the kind. Rather, they focus on markets (anony-
mous agglomerations of customers) rather than on any real, living, breathing individual customer.

Most recognize that there are no truly mass markets any more. But we must go beyond looking at
market segments and niches to embracing the truism that every customer is his own market. Every
customer deserves to have exactly what he wants at a price he’s willing to pay, and companies
must make that happen in a way that makes them money.

Multiple Markets Within
First identified by Stan Davis in his 1987 book Future Perfect, this progression from mass markets
through segments and niches to mass-customized markets doesn’t end there. That notion may
seem strange. After all, what could possibly be next after recognizing that every customer is his
own market?

There is one more step: recognize that every customer is multiple markets. Customers want differ-
ent offerings at different times under different circumstances.

Think of travel. If you travel for business, you want one thing from the airline, the hotel, the rental
car company, the restaurants you frequent, and so forth. Bring your spouse with you and suddenly
all of those requirements change. Bring the kids along and they change again. Travel for pleasure,
rather than for business, and each permutation mutates yet again.

Or consider how your reading habits change with time. Why do newspapers always publish larger
editions on Sunday? That’s when most people have extra time in their day to consume more infor-
mation. In addition, consider how what you read is influenced by your current interests, what is on

www.hbr.org 15

Beyond Mass Customization

B. Joseph Pine II, co- your mind, how much time you have, and even is not being everything to everybody; rather, it
your mood. Each and every time you read, you is doing only and exactly what each individual
founder of Strategic are in a different market than you were before. customer wants and needs. The former is a
Horizons LLP in Aurora, surefire route to higher costs; the latter can
actually lower your costs by eliminating waste
Ohio, is the coauthor of Mass Customization
in your operations and sacrifice in your cus-
That’s why mass customization is so important
the forthcoming updated tomers’ lives.
today. (See my Harvard Business Review arti-
edition of The Experience cles, “Making Mass Customization Work, Do In addition, don’t forget to remember your cus-
You Want to Keep Your Customers Forever?,” tomers’ preferences. Create a database of cus-
Economy with James and “Four Faces of Mass Customization.”) tomer profiles so that with every interaction
H. Gilmore and Infinite you have with them you can lower your cus-
When Stan Davis coined the term mass cus-
tomers’ sacrifice — what they have to settle for
Possibility: Creating tomization over 20 years ago, it truly was an
to buy from you versus what they truly want
oxymoron. When I wrote a book on it in 1993,
Customer Value on the and need. Again, this is not because they’ll
it was, as its subtitle attested, “the new fron-
always want the same thing, the same activity,
Digital Frontier with tier in business competition.” Today, it is an
or the same event; rather, it’s to provide a base
imperative in industry after industry to dis-
Kim C. Korn. from which you can more easily ascertain their
cover and fulfill the multiple markets within
current preferences and then fulfill them.
each customer.
Only then can you hope to fulfill the multiple
To make it work, you must modularize your
markets within each customer. Be the one
capabilities. Take your offering — whether a
company to recognize them as the unique indi-
physical good, intangible service, or memo-
viduals they always were.
rable experience — and break it apart into
modular elements like LEGO building bricks.
Think about it: What can you build with LEGO
FEATURED COMMENT
bricks? Anything you want, thanks to the large
number of modules (with different sizes, dif- “Joe, your piece effectively illustrates how
ferent shapes, different colors) and the simple important it is to ‘know’ your customer, and
and elegant linkage system for snapping them to understand how the same person can be
together.
a very different consumer — based on the
Then you must work with each individual cus- situation. Describing individuals as persons
tomer, creating a design experience through with ‘multiple markets within’ is brilliant way to
some sort of design tool that helps custom- describe this phenomenon. Lastly, I really like
ers figure out what they want. For customers your challenge at the close of your post — to
don’t always know what they want, and even if ‘be the one company to recognize them as
they do, they can’t always articulate it. Recog- the unique individuals they always were.’” A
nize also that the most frequent mistake mass worthy goal, indeed!” — S. Drag
customizers make is overwhelming their cus-
tomers with too much choice. Fundamentally
customers don’t want choice; they just want
exactly what they want.

Provide a design tool so you can figure out
what they want at this moment in time, and
then get that information back into operations
to do something different for that customer. It
can be as simple as Dell’s website configura-
tor or as sophisticated as LEGO’s DesignbyMe,
where you download a digital designer to cre-
ate a virtual design of whatever you want,
which LEGO analyzes to sell you exactly the
bricks to create that design on your family
room floor. Recognize that mass customization



Understand Your
Customers with Colored
Pencils and Cartoons
by Eddie Yoon

Some CEOs truly crave direct customer contact. Apple’s Steve Jobs and Mark Cuban, owner of the
Dallas Mavericks, are well known for directly emailing and engaging with their customers. I know a
former CEO of a large beverage company who so loved direct consumer contact he couldn’t contain
himself at focus groups. After watching behind the mirror for a spell, he’d burst into the room and
start talking directly with the subjects, much to the chagrin of his market researchers.

Unfortunately, many CEOs have limited direct contact with their customers, and much of the feed-
back they receive from customers isn’t very useful, for three reasons. First, too much of it feels
like a massive game of telephone: it’s hard to know if the unfiltered truth is coming through. Sec-
ond, consumer research often requires trading off depth for breadth. Do you trust the data from
a snazzy, emotive, and authentic ethnographic video of a few specific consumers, or do you trust
the power of aggregate data from thousands of customers, even if that data is one dimensional and
at times difficult to interpret? Third, sometimes the data is so fragmented by the function where
it came from (e.g., from marketing vs. RD) that it is hard to get an integrated picture of what to
do next.

One solution to this problem: help CEOs really hear their customers by using crayons, colored
pencils, and cartoons. We refer to these as “psychological drawings.” We ask consumers the same
kinds of questions that companies normally ask, but we use pictures. We give consumers simple
instructions like, “Draw me a picture of a person, not you, but someone else who is having this
specific problem or issue.” Or we will say, “Draw me a picture of Brand X. Imagine Brand X comes
to life and is able to think and speak.” It’s amazing what consumers draw, even the ones who are
self-conscious about their art skills. The results can jar our CEO clients and spur new thinking
about strategy.

For example, a major pharmaceutical company discovered that consumers’ incredible loyalty to
one of its OTC products had very little to do with its product efficacy or branding. The drawings
revealed that its most loyal consumers didn’t believe the product really worked, but they were

www.hbr.org 17

Understand Your Customers With Colored Pencils and Cartoons

so desperate to solve their medical issue that I’ve seen psychological drawings help a major
they were afraid to stop using the medicine, industrial company come to grips with a long-
despite these doubts. One consumer’s cartoon standing quality issue that they were in denial
depicted the brand secretly thinking: “Yes my over. These cartoons have helped a company
clinical results are tenuous, my commercials realize its pricing strategy was far too aggres-
are overhyped, and my results are marginal. sive. This visual form of customer feedback has
But you have no other option. Do not try to driven big shifts RD priorities and budgets.
stop using me, or I will punish you.” This car- In another case, customer drawings helped a
toonist had just spent two hours describing her CEO realize that a business unit he believed to
loyalty to the brand in a focus group. be commoditized and near-death actually was
deeply emotional for a sizable portion of con-
After senior managers recovered from shock, sumers and had significant latent demand to
they quickly concluded that “hostage taker” unlock. In a few cases, I’ve seen psychological
was not the consumer strategy they wanted. drawings find their way beyond the CEO and
They realized they had a better chance of into board meetings. Psychological drawings
defending the drug’s record as preventative, are an example of how even the most elemen-
not curative, and that they should shift their tary art can have a big strategic impact.
focus toward proving its efficacy on a differ-
ent part of the body. They shifted their clinical
research, reformulated the drug for the new FEATURED COMMENT
part of the body, and had much better results
both from an economic and consumer loyalty “Great article. Visual representation of key
standpoint. ideas and thoughts can help business leaders
better understand various concepts and spur
Psychological drawings can be powerful
more creative thinking.” — Tom Abreu
because they represent raw consumer out-
put. There’s no filtering. The drawings can be
intense and personal, as they often contain
raw feelings that consumers rarely articulate
in traditional research techniques. The best
examples of this work are vivid and arresting
— they often leap out of a typical PowerPoint
presentation filled with numbers and text.

When we ask consumers to create psychologi-
cal drawings, we impose two requirements to
increase the effectiveness. First, we confine
this exercise to “super consumers,” people
who fall into an elite group of extremely well-
informed, very profitable, and very influential
consumers. This limits the ability of senior
management to dismiss disturbing news by
questioning the value of a particular con-
sumer’s views. Second, we make sure these
projects are cross-functional by design, with
participation from marketing, sales, RD,
and manufacturing. Having all the relevant
functions represented is important, since the
results of this work may lead to important
strategy shifts.



Coca-Cola Marketing
Shifts from Impressions
to Expressions
by Joe Tripodi

A lot of us remember when the role of the CMO was much simpler. Information flowed in one
direction: from companies to consumers. When we drew up our plans and budgets, the key metric
was consumer impressions: how many people would see, hear, or read our ad?

Today the only place that approach still works is on Mad Men. Now information flows in many
directions, consumer touchpoints have multiplied, and the old one-size-fits-all approach has given
way to precision marketing and one-to-one communications. Perhaps the most consequential
change is how consumers have become empowered to create their own content about our brands
and share it throughout their networks and beyond. It has changed my role as the chief marketing
and commercial officer at Coca-Cola, and the company’s approach to consumer engagement as we
work to double our business by 2020.

In the near term, “consumer impressions” will remain the backbone of our measurement because
it is the metric universally used to compare audiences across nearly all types of media. But impres-
sions only tell advertisers the raw size of the audience. By definition, impressions are passive. They
give us no real sense of engagement, and consumer engagement with our brands is ultimately
what we’re striving to achieve. Awareness is fine, but advocacy will take your business to the next
level. (I used to think that loyalty was the highest rung on the consumer pyramid until I became
the CMO of Allstate Insurance. There, I saw clearly that so much business was driven through per-
sonal referrals and advocacy by individuals for their agent.)

So, in addition to “consumer impressions,” we are increasingly tracking “consumer expressions.”
To us, an expression is any level of engagement with our brand content by a consumer or con-
stituent. It could be a comment, a “like,” uploading a photo or video or passing content onto their
networks. We’re measuring those expressions and applying what we learn to global brand activa-
tions and those created at the local level by our 2,700 marketers around the world. For example,
in our 24-hour live session with Maroon 5, we captured impressions (the number of online views)
but gained tremendous insights from expressions by our consumers — their comments, input on

www.hbr.org 19

Coca-Cola Marketing Shifts from Impressions to Expressions

Joe Tripodi leads global the song that was being created, and what they tent, and our Facebook page is growing by
shared with their networks. about 100,000 fans every week.
marketing, customer
So what are the keys to winning in this new era Build a process that shares successes and fail-
management, and of empowered, engaged, and networked con- ures quickly throughout your company. Increas-
commercial leadership as sumers? Here are some of the top “expression” ing consumer expressions requires many exper-
lessons we’ve learned so far: iments, and some will fail. Build a pipeline so
executive vice president you can quickly replicate your successes in
Accept that consumers can generate more other markets and share the lessons from any
and chief marketing and
messages than you ever could. Don’t fight this failures. For example, our “Happiness Machine”
commercial officer of the wave of expression. Feed it with content that video was a hit on YouTube so we turned it into
touches consumers’ passion points like sports, a TV commercial, and we’ve replicated that low-
Coca-Cola Company.
music, and popular culture. We estimate that cost, viral concept in other markets.
on YouTube there are about 146 million views
of content related to Coca-Cola. However, only Be a facilitator who manages communities, not
26 million views were of content that we cre- a director who tries to control them. In 2009, we
ated. The other 120 million views were of con- launched Expedition 206. Consumers voted for
tent created by others. We can’t match the vol- the three people they wanted to see travel the
ume of our consumers’ creative output, but we world as Coca-Cola Ambassadors, visiting most
can spark it with the right type of content. of the 206 countries where Coca Cola is sold
and driving an online conversation about what
Develop content that is “Liquid and Linked.” makes people happy around the world. On every
Liquid content is creative work that is so com- step of their 273,000 mile journey, the ambas-
pelling, authentic, and culturally relevant sadors blogged and created all the content. Our
that it can flow through any medium. Liquid role was to facilitate their journey, which was no
content includes emotionally compelling sto- small task. We had to give up control of the con-
ries that quickly become pervasive. Similarly, tent, so our ambassadors could share their own
“linked” content is content that is linked to experiences. In an era of consumer expressions,
our brand strategies and our business objec- seek to facilitate and participate with communi-
tives. No matter where consumers encounter ties, not control them.
it, linked content supports our overall strategy.
When content is both “Liquid and Linked,” it Speak up to set the record straight, but give
generates consumer expressions and has the your fans a chance to do so first. Of course, not
potential to scale quickly. An example of “Liq- every consumer expression will be positive.
uid and Linked” was our FIFA 2010 World Cup You have to be part of the conversation so you
program, which was the largest-ever Coca-Cola can set the record straight when you need to.
activation in history. More than 160 countries Even better, we’ve found that our fans make
used a common World Cup Visual Identity Sys- online communities self-policing. When our
tem, a pool of television commercials, and a Facebook site was targeted by an activist group
common a digital platform. All were linked by whose members posted negative messages,
the common thread of celebration. our fans responded with messages of support
for our company, and our fans challenged the
Accept that you don’t own your brands; your use of the community for activist purposes.
consumers do. Coca-Cola first learned this les-
son in 1985 with the introduction of New Coke, Marketing has changed dramatically since Doc
but it’s become even more important with the Pemberton poured the world’s first glass of
growth of social media. As I write this, Coca- Coca-Cola in 1886. On May 8, 2011, Coca-Cola
Cola’s Facebook page has more than 25 mil- and our fans around the world will celebrate
lion likes (fans). Our fan page wasn’t started our 125th anniversary. While I’ll be curious
by an employee at our headquarters in Atlanta. how many impressions our activities gener-
Instead, it was launched by two consumers ate, I will look most closely to the expressions
in Los Angeles as an authentic expression of of our consumers as a better measure of our
how they felt about Coca-Cola. A decade ago, success in keeping the world’s most valuable
a company like ours would have sent a “cease brand relevant for the next 125 years.
and desist” letter from our lawyer. Instead,
we’ve partnered with them to create new con-



Memorable Events
Are the Most Valuable
Experiences
by B. Joseph Pine II

When most people use the term customer experience, they mean things like being easy to work
with, convenient, hassle-free, taking little of the customer’s time, and so forth. And while each one
can help companies focus better on their customers’ wants and needs, they fall far short of the true
power of the value that experiences can create.

Economic Experiences
Experiences are a distinct economic offering — as distinct from services as services are from goods.
Experiences are memorable events that engage each customer in an inherently personal way and
thereby create a memory as the hallmark of that experience. Think of going to a movie, attending a
sporting event, enjoying a concert, or visiting a museum. All of these are economic experiences —
as are going to Walt Disney World, sipping coffee in a Starbucks, dining at an Ed Debevic’s, immers-
ing yourself in an Apple Store, spending time in an American Girl Place, or playing LEGO Universe
on your computer.

Some of these companies are easy to work with (I love Apple’s immediate checkout capability)
while others are not (prepare to be insulted at Ed Debevic’s). Some are convenient (such as the
nearly ubiquitous Starbucks) while others are not (prepare to travel to an American Girl Place — a
trip well worth it). Some are hassle free (just load the LEGO Universe software and go), while others
are not (prepare to queue, over and over again, at Walt Disney World). But none of them takes little
of the customer’s time, which is the whole point: A true experience is about getting your customers
to want to spend time with you.

Spending Time
Time is the currency of all experiences. The time that customers spend is what they actually value
when they buy an economic experience. If your focus on the customer leads you to spending less
time with customers, then you’re commoditizing yourself, teaching your customers that interact-

www.hbr.org 21

Memorable Events Are the Most Valuable Experiences

B. Joseph Pine II, co- ing with you isn’t worth their time. It is for this Providing What Customers Value
exact reason that no industry has more com- Unless you have no higher hope than being a
founder of Strategic moditized itself than banking: Banks came to mere commodity, turn your focus from the
Horizons LLP in Aurora, view spending time with customers as costing customer experience to the economic expe-
them money. And now their work on customer rience. For as people cut back on goods and
Ohio, is the coauthor of experience is all about how to reduce that time services, buying them at the lowest possible
the forthcoming updated as much as possible. price and, yes, greatest possible convenience,
they seek to take their hard-earned time — and
edition of The Experience Look, however, at ING Direct, whose purpose
harder-earned money — and spend them on
— “leading America back to savings” — and
Economy with James more engaging, more memorable, and more
true focus on the customer led it to innovate
highly valued experiences.
H. Gilmore and Infinite ING Direct cafés around the country, where
potential and current customers actually want
Possibility: Creating
to spend time with the bank in its engaging
Customer Value on the cafe environments.
FEATURED COMMENT
Digital Frontier with Some experiences such as these are specifi-
“Excellent way to start my morning —
Kim C. Korn. cally marketing experiences whose purpose is
thanks for the post. Your work on ‘mass
to generate demand for a company’s core offer-
ings. These include Apple Stores and Ameri-
customization’ and this notion of authenticity
can Girl Places but also Procter Gamble’s in the digital economy is critical in what
Charmin Restroom experience, the Heineken you call the ‘experience economy.’ I really
Experience, Volkswagen’s Autostadt, the Case appreciate this notion of a ‘multiverse.’”
Tomahawk Customer Center, and so forth. A — Lauren Klein
very simple rule applies: the more time your
customers spend with you, the more money
they will spend now and in the future.



Why Nokia’s Collapse
Should Scare Apple
by Patrick Barwise and Seán Meehan

Nokia’s inability to field a credible response to the launch of the iPhone in 2007 and Google’s
Android operating system in 2008 has precipitated a freefall in its share price. Today, Apple is rid-
ing high, making this the perfect time for it — and every successful company — to reflect on Nokia’s
fall and ensure that they don’t suffer the same fate.

Not so long ago, Nokia was the disrupter. In 1994, the dominant global provider of mobile handsets
was Motorola: its shares were trading at an all-time high and it was seen as an outstanding inno-
vator and even described by a senior consultant at A. T. Kearney as “the best-managed company
in the world” — not so different from Apple today. By 2000, Motorola’s global market share had
collapsed from 45% to 15%, while Nokia’s had grown to a market-leading 31%. Nokia had won by
promising, communicating, consistently delivering, and relentlessly improving straightforward,
relevant customer benefits, in line with its easily understood brand promise, “connecting people.”

Although Nokia introduced few radical new products, in the 1990s it was a bold, innovative com-
pany in broader business terms — more than most people realize. Previously a straggling and strug-
gling conglomerate, it bravely focused 100% on mobile communications, was an early adopter and
driver of 2G technology, and quickly became a recognized world leader in both supply chain man-
agement and brand-building. It was the first handset manufacturer to target the bottom two-thirds
of the global income pyramid as well as the top one-third and among the first to understand the
importance of ease of use, aesthetic product design, and that handsets were as much lifestyle as
technology products.

Motorola missed most of these market trends, was slow to invest in digital (it was a classic victim
of the innovator’s dilemma), and dissipated its efforts on a bewildering array of technologies, prod-
uct designs, and brand messages. As the failures piled up, so did the stories of mounting bureau-
cracy, backstabbing, and top management “living in a different world.” Effective execution became
harder and harder, creating a vicious cycle of falling behind in the market, losing money, canceling
projects, and shedding staff, all of which further damaged its ability to execute. Motorola is finally

www.hbr.org 23

Why Nokia’s Collapse Should Scare Apple

Patrick Barwise is attempting a comeback with handsets using There was also widespread shock and disap-
Google’s Android operating system, but is now pointment when Jobs announced that Apple
emeritus professor only a minor player. would take a whopping 30% cut of content
of management and owners’ sales through the iStore (Google takes
Over time and with success, Nokia too lost 10%). Apple also insisted that the iStore must
marketing at London some of its ability to stay in touch with, and be able to offer any deal publishers offer else-
adapt early to, market trends. In particular, where. Further, Apple will not share customer
Business School.
just as Motorola missed the switch to digi- data with content providers (Google does share
tal, Nokia failed to see that the long-heralded these data). Such is Apple’s market power that,
Seán Meehan is the mobile Internet was now, at last, a practical for now, most publishers have accepted its
Martin Hilti Professor of option. In 2004, three years before the iPhone, terms, but they are not happy and will con-
it rejected a proposal to develop a Nokia online tinue to search for a better alternative.
Marketing and Change applications store.
Management at IMD, Part of Apple’s brand appeal has always been
Finally, after a wholesale change of top man- that it was a plucky challenger, first against
Lausanne, Switzerland. agement, Nokia is now responding vigorously IBM, then against Microsoft. But in smart-
to Apple’s and Google’s challenge. It is phasing phones, the challenger was Google and —
The authors’ new book
out investment in its own Symbian operating maybe — Apple is the new Nokia. If so, this
Beyond the Familiar: system and collaborating with Microsoft to could be the start of a bigger change in terms of
try to create a powerful “third force” in smart- whose platform will dominate the wider Inter-
Long-Term Growth through
phones. Making this work will be hard, not net. Apple should indeed be scared. As Intel’s
Customer Focus and only for technology and marketing reasons — Andy Grove famously noted, only the paranoid
although the challenges here are huge — but survive.
Innovation has just been
also because of the disparity in size and culture
published by Jossey-Bass. between Nokia and Microsoft.

Why should Nokia’s problems scare Apple, the
FEATURED COMMENT
world’s most admired company with a stellar “Brand loyalty, like political party affiliation,
record of product innovation, design, brand-
is no longer a lifelong love affair. The world is
ing, customer satisfaction, and business perfor-
now working on 140-character sound bites,
mance ever since Steve Jobs rejoined it in 1997?
and I don’t see that improving and neither
The immediate answer — of which Apple is should the Apples or Googles of today, for they
well aware — is that a host of handset manu- can be the Motorola, MySpace, and Nokia of
facturers using Google’s Android operating tomorrow.” — Wayne Spivak
system are outpacing it in the smartphone
market, threatening to make Android the dom-
inant standard for application developers, net-
work operators, and consumers.

Less obviously, Apple’s success may have left
it less open, less sensitive, less flexible, and
less responsive. The signs are there. When
iPhone 4 users complained of poor signal
strength, a normally highly tuned-in Steve
Jobs responded in a manner many regarded
as ungracious, advising customers to hold the
device properly and offering a very non-Apple
“patch” (a form of a rubber band) to anyone
who asked for one.



Why Retail Workers
(Like Me) Drive
Customer Experience
by Caitlin Kelly

Few managers would have hired me into the job, at $11 per hour with no commission, as a retail
sales associate at a suburban mall. I had no retail experience. I was 50 years old and my last job as
a staff reporter for the New York Daily News paid a high five-figure salary.

On paper, I was vastly overqualified, with no appropriate skills — and I was twice the age of my
assistant manager. I’d surely have difficulty getting along with my much younger coworkers, many
of them college students.

Fortunately, the hiring manager (“Joe,” as I call him in my new memoir of working retail, Malled:
My Unintentional Career in Retail) saw things differently. He hired me, he told me later, because
I was engaging. As an athlete and world traveler, I could easily share my experiences and insights
with The North Face’s customers.

And I wanted to work for Joe the minute I met him, an easygoing athlete and world traveler with a
decade of retail management experience. If he thought I could do the job, why not try?

I’d also applied at Nordstrom, but — as are millions of would-be hourly associates — I was merely
seated at a computer and subjected to a standard questionnaire. I was never called for an interview.

Yet within weeks of starting at The North Face, I was easily meeting, and often doubling or tripling,
our daily individual sales goals. I was creating positive customer experiences for my employer, for
a simple reason: Joe had hired smarter.

As more shoppers arrive in stores with price and product data literally at their fingertips via smart-
phones, their interaction with sales associates — most still earning a risible $7 to $10 an hour in an
era of $4-per-gallon gas — is more crucial than ever. A study conducted by the Verde Group and the
Wharton School of business found that the single most critical element in customer satisfaction
was not billion-dollar branding, advertising, or extensive use of social media, but the quality of
those personal moments when a shopper chooses —or not — to become a paying customer.

www.hbr.org 25

Why Retail Workers (Like Me) Drive Customer Experience

Caitlin Kelly is a former Getting the right people into these jobs —and Retailers can profit if they engage and retain
retaining them — is a challenge. According to the right set of workers on store floors. How?
reporter at the New San Diego management consulting firm Peter Pay them better. Offer worthwhile bonuses,
York Daily News who Barron Stark, which has surveyed 100,000 significant raises, and commission. Give them
employees over the past five years, employees clean, well-designed stores where workers on
has also written for the seek satisfaction in eight categories, from feel- the floor also have a say in choosing stock or
New York Times, USA ing they’re a valued team member to having merchandising it. Consistently ask for, and lis-
good bosses. The company has worked with 17 ten to, their feedback. Reconsider the use of
Today, the Wall Street major retailers, including Lowe’s, PETCO, and “secret shoppers” whose primary task is find-
Journal, Glamour, and the TJX Companies. ing fault, which often lowers morale. Promote
your best people, and train them in the neces-
other publications. Her When I asked senior consultant Jane Flaherty sary skills. Ambitious workers seek, and need,
how many of these retailers conduct face-to- new challenges.
new book, Malled: My
face interviews, the answer was disappoint-
Unintentional Career in ing. Because these companies receive so many This is not the time to be hiring by computer
applications, many don’t conduct personal quiz. This is the time to value your lowest-
Retail, was published this
interviews for store associate jobs. “Face- wage workers and treat them as the business
month by Portfolio. to-face is absolutely the best,” she agreed, partners they are, with the respect and warmth
but many companies rely primarily or exclu- they deserve. These frontline workers are the
sively on computerized tests and tools like the final and most critical final link in your global
30-minute Predictive Index. supply chain. Their skills and enthusiasm can
make — or break — your business.
James Sale, whose British consulting firm is
motivationalmaps.com, sells his services to
employers eager to match workers emotionally FEATURED COMMENT
to the right job. His brief but probing question-
naire drills down to our most essential values, “Great post — re-emphasizing the importance
why we work. Employees fall into one of nine of frontline employees to the well-being of the
primary categories, such as builder, director, retail business, especially retail businesses
friend, or seeker. My primary motivator is that cater to shoppers with large sums of
creator, which partly explains why Joe was disposable income.” — Dan
able to keep me far longer than the industry
average of three months — by allowing me as
much creative freedom as he could in how I did
my job.

Jan van der Hoop, cofounder of HiringSmart.ca,
a six-year-old firm in Toronto and Halifax, is
also passionate about job fit: “If the fit isn’t
right, nothing else matters,” he says. And stud-
ies have found that fewer than 30% of workers
are fully engaged at work because of poor fit.



Customer-Centric
Continuous Improvement
by Brad Power

Improving customer value continuously is difficult in almost any organization. That’s true partly
because so many organizations are still organized around functional silos, which are managed to
optimize their own performance rather than to deliver value to customers.

If internal feuds don’t sabotage things, process attention deficit disorder will. An astonishing num-
ber of executives think of service improvements as the slow, boring route to competitive advantage.

Then there’s a third killer of continuous improvement: the performance management system. A
single-minded focus on next quarter’s numbers is sure to crowd out costly, ongoing investments
in process improvement.

Leading organizations use some powerful long-term techniques to get around these problems. I
categorize these as tools of the heart, head, ears, and feet.

Inspire people to improve customer value — Heart. Organizations whose people share a clear
sense of who they are and the impact they are trying to have on the world can overcome internal
barriers to improving customer value.

For example, hospitals attract employees who care about people, want to provide better patient
care, and are proud of their professionalism. They aren’t motivated by cost reduction, and they
aren’t likely to embrace cost-saving approaches. But they will enthusiastically adopt approaches
that eliminate waste and improve patient experiences.

Focus on achieving a distinctive customer value proposition — Head. Not all organizations take
the same approach to creating customer value, nor should they. Having a clear strategy helps an
organization focus its efforts. One strategy is to eliminate inefficiencies and waste so that you’re
providing consistent, reliable, low-cost services. Another is to tailor your offerings for each indi-
vidual customer, based on deep knowledge of her unique needs. A third is to offer cutting-edge,
technically innovative products and services.

www.hbr.org 27

Customer-Centric Continuous Improvement

Brad Power is a consultant I once helped the Dana-Farber Cancer Institute In my post What the C-Suite Needs to Do for
define its customer value proposition; one of Process Improvement, I described how Jeff
and researcher in the organization’s objectives turned out to be Bezos and other Amazon.com executives
process innovation. His world-class service delivery. This understand- spend time listening to customers’ problems
ing, in turn, led to a concentrated focus on and visiting distribution centers. Mickey Drex-
current research is on improving the process for scheduling patient ler, CEO of J. Crew (and CEO of The Gap during
sustaining attention to appointments. its go-go years), is famous for anonymously
visiting his stores to observe and talk with
process management Build online communities with customers shoppers and staff. He personally answers
to drive product and service improvements shoppers’ emails and telephone calls and
— making improvement
— Ears. Online customer communities (inter- makes at least five store visits per week.
and adaptation a habit active websites where customers collaborate
with the organization and one another) are a Continuously improving processes to deliver
(even fun?). He is currently
relatively new phenomenon. According to my more customer value often conflicts with opti-
conducting research friends Vanessa DiMauro of Leader Networks mizing departmental performance or deliver-
and Bob Buday of The Bloom Group, these ing aggressive short-term returns. But there
with the Lean Enterprise
communities can help organizations tap into are powerful techniques that can leverage an
Institute. customer trends and thereby develop better organization’s heart, head, ears, or feet to bet-
products and services. ter connect it to customers. Different compa-
nies will find different approaches work better
In September 2009, the Palladium Group, for them, and smart ones will use a combina-
founders of the Balanced Scorecard, launched tion.
XPC — The Execution Premium Community
for senior strategy professionals worldwide. What systemic approaches to improving cus-
It now has 2,700 company members who can tomer value have you seen organizations build?
access Palladium’s resources around the clock, Did they play to employees’ hearts, heads, ears,
share knowledge and experiences, and join and feet? Have you seen an organization man-
in discussions with Palladium Group strat- age more than one approach at a time?
egy consultants. The community has helped
the Palladium Group understand which top-
ics customers need help with, to gather ideas FEATURED COMMENT
about what new offerings might look like, and
to test those offerings before marketing them
“Strong article. Only seldom is a connection is
broadly. made between the internal focus on process
optimization and the external focus on
Take a personal interest in improving pro- customer value. This should be higher on the
cesses to meet customer expectations — Feet. agendas.” — Peter Sparreboom
Employees learn what managers value by
watching what they spend time on. If they see
you listening for and solving customer prob-
lems, they’ll follow suit.



How American Express
Transformed Its Call
Centers
by Jim Bush

In the not-so-distant past, it was standard practice in customer service to hire only those
candidates who knew how to follow scripts, were familiar with the necessary technology, and
had several years’ experience in another call center.

But a few years ago, American Express reexamined its call-center strategy. We recognized that
the people in our call centers are the front line of our business and interact with customers every
day. We also recognized that customers know instantly when a service professional really cares, is
listening, and takes accountability for addressing their needs. We began to ask ourselves whether
we were taking the right approach to hiring.

We looked at what distinguished our best performers. We determined that they truly “get” our
brand, love to build relationships, are able to empathize and connect with customers over the
phone, and have a passion for delivering exceptional service. We decided to focus on these abili-
ties, which hadn’t always been taken into account during the hiring process. We decided not to
worry so much about candidates’ previous call-center experience. We took our cue from that old
basketball philosophy that “You can’t teach 7 feet.”

We widened our recruiting focus and began targeting employees of service companies that hadn’t
traditionally been paths to call centers, to say the least. We recruited from top-tier hotels, cruise
lines, and customer-centered stores.

One challenge we faced is that the intangibles we are looking for don’t always show up on résumés.
To attract the right candidates, we changed the job descriptions to make clear that relationship
skills are more important than the positions’ purely transactional elements.

Another issue was keeping our new hires happy. We set about creating an environment where
employees are paid for the value they provide to customers. That meant measuring performance
not according to what managers think, but according to what customers say about us every day. The
vast majority of employee performance evaluations are now tied directly to customer feedback,

www.hbr.org 29

How American Express Transformed Its Call Centers

Jim Bush is the executive which also drives compensation. Employees FEATURED COMMENT
can earn an incremental 25%-35% of their base
vice president of pay if customers are satisfied. “Jim’s post is excellent. American Express
World Service at uncovered the secret to hiring the right people.
Since we began our new approach to hir-
As a thought leader in customer satisfaction
American Express. ing, we’ve seen substantial improvements in
and retention, but more importantly as a
customer satisfaction and the percentage of
customers who say they would recommend
customer of American Express, I can tell
American Express to a friend — key metrics you that the service is not only outstanding
we measure ourselves against. Our service on every contact, but each contact with a
margins are up approximately 10% since we representative helps build or enhance the
started our reinvention, and between 2006 and customer/card relationship.” — Richard Shapiro
2009, U.S. employee attrition was cut in half.

The new hires have also had a powerful effect
on our organization and our customers. There
is an even greater sense of shared purpose and
passion when it comes to service, and the new
hires are driving greater customer engage-
ment and loyalty. When a company is looking
to stand out, it needs to go beyond the bound-
aries and limitations of the traditional job
description to get the right people in the door.



Welcome to Creating
a Customer-Centered
Organization
by Dan McGinn

Earlier this month, I had a problem: I could hardly hear callers on my iPhone. “Could you please
SPEAK UP,” I’d yell, trying to discern their mumbles before giving up and redialing from a landline.

This absurd telephonic ritual went on for a couple of weeks, and I assumed it was a hardware or
software glitch. But my annoyance was surprisingly minor, for a simple reason: at a nearby mall,
there’s an Apple Store equipped with one of those ballyhooed Genius Bars. If the problem didn’t
go away, I figured, I could always stop in and get a genius to fix it. Just knowing that no-cost, low-
hassle fix was available made the situation less irritating.

Apple’s stores in general, and its Genius Bars in particular, have become an oft-cited example of
the lengths to which companies are going to improve the customer experience. Writing on HBR.
org last fall, Adam Richardson defined customer experience as “the sum totality of how customers
engage with your company and brand, not just in a snapshot in time, but throughout the entire arc
of being a customer.”

Over the next month, HBR will examine this topic — how managers are turning their compa-
nies into customer-focused organizations — in depth. This subject is a hot one in c-suites at the
moment. That may not be a good thing: as Forrester analyst Paul Hagen writes in his post analyzing
the growth of “Chief Customer Officers,” some observers worry it’s simply the latest fad, a flavor-
of-the-month management fix that will have limited long-term impact.

This doesn’t appear to be the case at companies with bottom-line evidence that customer-centricity
is transforming their businesses. In posts we’ll publish over the next month, readers will learn how
American Express began using out-of-the-box hiring strategies to dramatically increase the effec-
tiveness of its call centers. You’ll read the account of a journalist who became a stock-floor employee
at a mall-based retailer, and argues that hiring and retaining these front-line workers are the key to
making positive connections with customers. We’ll catch a glimpse of cutting-edge methods to mea-
sure and improve the customer experience — including a research experiment that replaces 20th-
century survey research with real-time, high-tech feedback techniques done via text messaging.

www.hbr.org 31

Welcome to Creating a Customer-Centered Organization

Dan McGinn is a The growing obsession with customer excel- Of course, some customer problems turn out to
lence is driven, in part, by technology. Today be short-lived, as was the case with my iPhone.
senior editor at customers can obtain and exchange more I didn’t require a genius to solve the low-vol-
Harvard Business Review. information about the good and bad of their ume problem. After a couple of weeks, I real-
encounters with companies than ever before. ized the phone’s idiot owner (that would be
(Here, the obligatory links to Yelp and the me) had installed a new scratch-guard on the
United Breaks Guitars video.) That gives com- touchscreen but had neglected to punch out
panies a great incentive to work harder to the little oval near the top, effectively cover-
make customers happy — before, during, and ing the speaker. (To friends at whom I repeat-
after their purchases. The focus on experi- edly screamed “SPEAK UP” during recent calls,
ence is also a function of economic develop- I can only say: my bad.) Even though I didn’t
ment. In the developed world, where homes need Apple’s assistance in this case, I experi-
already overflow with physical goods, much enced a positive touchpoint simply by know-
of what we spend our money on — mortgages, ing it was there — which, in a roundabout
life insurance, cable, or Internet service — way, is what every company should strive for:
are intangible, commodity-like services that make customers feel like you’re ready to help,
don’t really enter our consciousness unless whether they need it or not.
something goes wrong. And when problems
happen, a single interaction with a website, a
help desk, or a service technician can have a FEATURED COMMENT
huge influence on how we regard a brand —
and whether we choose to keep spending our
“Great article, Dan. In my experience most
money with it. companies that are really customer-centric
started out that way. The great, oft-repeated
As always, our hope is this special series of stories (think Nordstrom, Amazon, Zappos)
posts will become a dialogue. As regular read- all seem to come from organizations that have
ers of HBR.org know well, the reader comments
customer-centricity in their DNA. I’m really
below the posts can become an engaging con-
interested to hear about companies that have
versation, and we’d invite you to participate.
successfully made the transition from an inside-
How is your company trying to improve the
customer experience? What companies do you
out state to an outside-in one. Looking forward
think do an outstanding job of anticipating and to reading more in the series.” — Kate Feather
fixing problems?


How to Use Your Superpower for Good


Experience Co-creation
by Francis Gouillart

Many companies now have senior officers in charge of customer experience. The executives’ role is
to define the attributes of the customer experience in partnership with their operational colleagues,
organize the customer-satisfaction-measurement process against those attributes, and encourage
remedial action wherever warranted. What they hardly ever have, though, is an approach to evolve
the design of the customer experience, let alone create a new experience.

To develop a new customer experience, companies need a real-time engagement process that
encourages customers and employees to devise new interactions between them and facilitates the
emergence of innovative customer experiences.

Yes, this co-creation takes time, but there is no alternative. Each customer designs her own experi-
ence in the unique context of each interaction she has with the company. So when companies rely
solely on market research to design the customer experience, the result is a manager-biased lowest
common denominator of customers’ expectations.

There are also practical challenges tied to the massive nature of the required market research.
Attempting to design a customer experience is like chasing a million shadows. It requires gathering
a huge amount of customer insights across a multitude of products, geographies, and touchpoints,
and driving a large number of external and internal stakeholders to consensus on what the new
experience should be. Doing so in a cost-effective fashion is a practical impossibility.

A far better way to design new customer experiences is an organized process of experimentation
where customers and company progressively evolve existing offerings into new ones. Starbucks
took a long time before settling on the customer experience it currently provides. The first stores,
originally called Il Giornale, were pompous Italian places where the whole menu was in Italian,
customers could not sit down, baristas were fully dressed up, and loud Italian opera music hin-
dered any socialization.

www.hbr.org 33

Experience Co-creation

Francis Gouillart is New customer experiences grow out of new Companies are generally unprepared for this
interactions. The proverbial touchpoints are transformation to experience co-creation.
president of the Experience only the company’s side of the interaction. Most product development groups continue
Co-Creation Partnership, More important is the customer process and to design non-interactive products. Company
how he engages with the organization. When people in call centers and company stores still
a management education companies let their customer-facing pro- generally follow company narratives. Most
and consulting firm in cesses co-evolve with customer processes, corporate IT departments and suppliers are
they inevitably find that the customer expe- trained in one-way project-management tech-
Concord, Massachusetts, rience improves (and so does the experience niques incompatible with true engagement-
and is coauthor of of the customer-facing employees). It took platform development. Herein lies the trans-
many years for eBay to figure out that custom- formational challenge customer experience
The Power of Co-Creation: ers wanted to buy and sell cars on their auc- managers will face as they become customer-
Build It With Them to Boost tion site, or were prepared to trade new prod- experience co-creators.
ucts rather than second-hand products. This
Growth, Productivity, evolved from the creative bending of existing
and Profits. interactions that eBay already had in place. FEATURED COMMENT
So how should customer experience manag- “Perhaps people have yet to realize how
ers go about transforming the company’s inert easy — as well as how important — it is to
touchpoints into live interactions that co- include customers. Social media offer many
evolve with customer processes? By design- ways to ‘listen’ to customer feedback. The
ing engagement platforms — the physical and major roadblock here to both better customer
virtual places through which customers can
relations and more sales is a mindset that
interact with the company and other stake-
communication is one-way, from business to
holders in order to design their own person-
customer, and feedback takes a long time. It
alized experience. The four types of interac-
tion a company typically offers — through its
doesn’t any more, thanks to technology.”
products, its people, the physical places it does — Gerist Engel
business, and the digital sites it possesses —
can be made into such engagement platforms.

This means the company needs to make its
products interactive, train its people for co-cre-
ative dialogue, redesign its physical places for
two-way interactions, and open up the archi-
tecture of its digital sites to other processes
and content that the company doesn’t control.
Nike puts a sensor in its shoes that lets runners
track their runs and has a web platform where
data can be exchanged with others. Starbucks
encourages a dialogue across all its stakehold-
ers through the highly popular mystarbucksi-
dea.com website. 3M invites its B2B customers
to co-create new products with its RD people
live in their corporate labs. Apple invites third
parties to develop new applications for its
iPhones, iPads, and iPods.



The Rise of the Chief
Customer Officer
by Paul Hagen

The customer’s voice has a new champion sitting at the highest levels of power in companies.
Whether firms call the position Chief Customer Officer (CCO) or some other label, these individuals
serve as top executives with the mandate and power to design, orchestrate, and improve customer
experiences across the ever-more-complex range of customer interactions. The role exists in B2B
and B2C firms as diverse as Allstate, Dunkin’ Brands, USAA, Philips Electronics, FedEx, the Cleve-
land Clinic, and SAP.

Who are these new customer experience executives — and why do companies appoint them? Over
the past five years, we have followed the rise of customer experience efforts from small outposts to
central players in executing company strategies, especially as firms have faced growing challenges
in maintaining meaningful differentiation based on product innovation alone. This past year, we
gathered data on 155 CCOs, surveyed a panel of customer experience decision makers from large
North American firms, and conducted in-depth interviews with CCOs from both B2C and B2B com-
panies. In our recent report, “The Rise Of The Chief Customer Officer,” we found that:

Titles can vary. While many of these executives hold the title of chief customer officer, others go
by names like chief client officer (at OptumHealth), chief experience officer (at Cigna), executive
vice president, member experience (at USAA), or chief global customer and marketing officer (at
Dunkin’ Brands).

Senior leaders are in a new position. These individuals are new to the job and typically are the first
to hold the position. Just over 80% of CCOs have spent two years or less in the position and 55%
have one year or less on the job. The majority are internal hires who have a significant history at
their companies: median time at their firms is nearly eight years. A third of the CCOs previously
held division president or GM roles, and almost as many worked in a marketing and/or sales posi-
tion. About one quarter of these CCOs formerly held operations positions.

www.hbr.org 35

The Rise of the Chief Customer Officer

Paul Hagen is a principal They have power and influence resources. With the growing interest in customer experi-
Three-fourths of those we examined sit on the ence, some CCOs worry that companies will
analyst at Forrester executive management team within the com- rush too quickly into creating the position
Research where he serves pany. Even if their teams are small, their voice before building an environment for them to
on the executive management team means be successful. The CCO from a major software
customer experience they have influence over how the company company said this: “I worry about this as a
professionals. prioritizes and spends resources. role ... it’s in vogue and many companies will
hire one because they think they need one. In
It’s not just about fixing problems — it’s about three to five years, I’m afraid we may see lots
accelerating growth. While some firms turn to of flameout because they weren’t given the
a customer experience leader to fix issues that seniority or authority to make a difference.”
are creating legions of unhappy customers,
most focus on the desire to accelerate growth, CEOs considering a CCO should establish three
better integrate acquired companies, or shift preconditions for success: a strategic mandate
priorities for a changing competitive envi- to differentiate based on customer experi-
ronment. Sometimes it’s new leadership that ence, a portfolio of successful projects that
spurs action, other times efforts percolating create buy-in and a cultural maturity in the
within companies capture executives’ atten- organization, and a uniform understanding on
tion. the executive management team for what the
position can accomplish.
Consider one example: The Boeing Training
Flight Services division, a 1,500-employee
group at The Boeing Company that serves 500 FEATURED COMMENT
airline customers in over 90 countries, sought
to accelerate growth by reorganizing around “Good article and prescient comment from
the customer. CCO Roei Ganzarski defined the ‘CCO from a major software company.’ The
the division’s breakthrough moment as “the success/failure of these initiatives (if indeed
realization that, in order to continue growing they last past the new shiny toy phase) will
successfully, we needed to be more focused on be if those positions are given power and
our customers than ever before. Our organiza-
budget to protect customers and advocate on
tional culture wasn’t optimal to say the least.
their behalf. Too often budgets are allocated
Our operations departments were focused
solely to growth initiatives at the expense of
on our products and services, our finance
teams on collecting payments, and our sales
customer initiatives. When companies realize
and business development teams on meet- the two are not mutually exclusive, CCOs will
ing short-term revenue goals. But no one was have a better chance to succeed.” — Andy
looking at things from the customers’ holistic
perspective. We knew we needed to change
our culture to better serve the one reason we
all exist — our customers.”

Not all CCOs have operationally structured
configurations like Boeing’s Training Flight
Services division. In many more cases the CCO
runs a smaller customer experience team that
acts in an advisory or change management
role to other parts of the organization. Cus-
tomer experience executives like Trina Evans
at KeyBank and Marti Woods at Deluxe have
fewer direct reports and smaller budgets, but
sitting on the executive management teams
they exert significant influence over budgets
and priorities.


webinar summary

Unleash the Power of
Marketing—to Drive
Innovation and Profit
by Ranjay Gulati with Angelia Herrin, Moderator

OVERVIEW
When markets experience commoditization, what do companies do? They proclaim “customer
centricity” and try to differentiate themselves in multiple ways. But few companies truly know
how to become customer centric and most don’t pull it off.

Genuine customer centricity is “providing innovative solutions to customers’ unique problems.”
That requires knowing customers and markets far more deeply than most companies realize.
There are ways to achieve deep customer understanding, requiring humility and curiosity. There
are ways to turn customer insights into innovative solutions customers will pay for, requiring
bridging internal silos.

One corporate function is well positioned to be accountable for customer centricity: Marketing.
That would mean a reinvention of the marketing function as marketers become not just enablers
of value creation but producers of it.

CONTEXT
Professor Gulati explained what genuine customer centricity looks like, why it matters more than
ever, and how organizations can achieve it.

www.hbr.org 37

Unleash the Power of Marketing—to Drive Innovation and Profit

“Companies think: ‘Maybe if I love my customer enough,
I can get price stabilization.’ ”—Ranjay Gulati

KEY LEARNINGS So, volume is the lever that must be used. But
high-end market leaders aren’t able to boost
In a commoditized environment, volume by competing on price. Most won’t
customer-centricity matters to and/or can’t remake themselves as low-cost
companies more than ever. competitors. That is because “businesses are
cost structures looking for customers.”
Customers today have more information and
choices than ever before. With more infor- The key is driving volume up via differentia-
mation and choices, the distinctions among tion, as most companies realize. Where they
options offered in a market can blur; compet- go wrong is striving for differentiation via “the
ing offerings can all look the same. Price stands great corporate giveaway,” offering stuff that
out as the most significant difference. Mean- consumers don’t much want. That drives up
while, commoditization is flooding markets costs while conditioning consumers to expect
with low-cost products (and even services) free features.
that are over the “good enough” bar to satisfy
consumers. The low-price leaders in markets So either strategy — competing on price or
are thriving while the traditional market lead- pursuing differentiation without offering con-
ers are struggling to differentiate themselves. sumers relevant value — lands high-end com-
panies in the “commoditization trap” with low
As this occurs, companies are trying to com-
prices and a high cost-to-serve (see graphic).
pete on every aspect other than price: brand,
efficacy, accessibility, service. But to consum-
ers, these simply are not as relevant as price. Few companies know what genuine
The cacophony of marketing voices proclaim- customer-centricity is or are able to
ing customer love reinforces the impression of achieve it.
sameness.
Ten years ago when Professor Gulati began
High-end leaders in commoditizing markets researching customer-focused companies,
do need to stand out from the crowd, but via he started by looking at hundreds of compa-
an offering that provides consumers with nies lauded by the media for their focus on
relevant and significant enough value that customers. That list dwindled to just 12 truly
they are willing to pay up for it. That requires customer-centric companies; many firms had
understanding customers more deeply than employees who insisted that their compa-
companies realize. Most companies claim nies were not customer centric. The 12 that
to be customer focused, but few really know remained were the only ones that Profes-
what true customer-centricity looks like or sor Gulati, after much investigation, thought
how to achieve it. deserved that characterization.

Customer-centricity holds the key to profit- Evidence that these 12 were different in a
able growth in rapidly commoditizing mar- value-creating way can be seen in their stocks’
kets. Consider: at the center of all business is dramatic outperformance from 1999 to 2009.
a simple equation: Profit = Volume x Price – Collectively, they returned 134% to sharehold-
Cost. When price is falling, the only levers to ers versus the SP 500’s negative 0.6%. Sales
drive profitable growth are volume and cost. growth was 233% for the 12 versus 10% for the
Costs can’t be lowered as fast or as much as a SP 500.
market’s prices can drop. Best case: temporary
margin stabilization before prices fall again Why do so many companies profess customer
owing to commoditization forces. focus, recognizing its importance, and yet fail


Webinar Summary

Commoditization Trap They ask narrow, product-focused
questions like, “Do you like my lettuce? Do
you like the packaging?” More revealing

HGIH
would be broader, open-ended questions
such as “How do you like to eat? What’s
diﬀerentiation
dinner time like in your household?”
Only by understanding customers’ life
struggles and challenges can companies
PRICE LOW HIGH
connect the dots between what solutions
customers need and company capabilities
to provide them. Notably, it was not one
low cost dog house of the big lettuce producers that launched
the fastest-selling grocery product in the
last five years: chopped, washed, bagged
LOW

salad (priced at five times the cost of
COST-TO-SERVICE the ingredients). A lettuce-focused line
of questioning would never have led to
so miserably to achieve it? Isn’t that the stuff of the insights that harried parents want
Marketing 101? nutritious food that is fast from refrigerator
to table, packaged to last, sized right for no
The problem: most companies don’t really
leftovers, and stackable in the refrigerator,
know their customers or markets well enough
or that white-collar folks prefer not to get
to anticipate behavior.
their hands dirty.
Reasons they fail: ■■ acking humility and curiosity. Humility is
L
■■ ver simplifying the process of knowing
O necessary to admit that one lacks answers
the customer. They think customer- and curiosity is necessary to pursue broad,
centricity is about CRM or customer open-ended lines of questioning. There
service or listening to the customer or has to be genuine interest in customers as
customer segmentation. Those tools are people to empathize with their struggles.
merely starting points, yielding relatively
Shallow customer understanding prevents
superficial insights that don’t approach
companies from finding a win/win value
an understanding of customers’ thought exchange. Too often, company/customer rela-
processes. tionships are characterized by too much “push”
■■ N
ot realizing that customers’ attitudes of products by the company to the customer
toward products change constantly or too much “pull” from the customer, with
depending on the choices they have, the companies doing whatever they ask. Customer-
information they have, and their private centricity integrates these extremes. Genuine
price/value calculations. When sales customer-centricity means: “Providing innova-
volumes drop in response to such shifts, tive solutions to customers’ unique problems.”
companies are often caught by surprise.
■■ N
ot realizing how fluid what customers Becoming customer-centric requires a
value can be. In dynamic markets, the line reinvention of the marketing function.
is constantly shifting between product/
service attributes that are purchase Narrowly focused functional silos prevent
motivators and factors that are basic companies from gaining the perspective of
expectations that can be demotivators if both customers’ needs and company capa-
absent, but whose presence doesn’t drive bilities that are needed to see innovative solu-
purchase decisions. Cell-phone range was tions to customers’ unique problems. Breaking
once a purchase motivator; now it’s an down silos and rebuilding more open struc-
tures isn’t practical. But bridging silos is.
expectation.
■■ ixating on their own products/services.
F One function needs to “own” the challenges of
Most companies pursue customer insights customer-centricity, including connecting the
through the lens of their own offerings. dots between what customers need and what

www.hbr.org 39

Unleash the Power of Marketing—to Drive Innovation and Profit

company capabilities can deliver, and bridg- departments and the identity of marketers must
“Unleash the Power of
Marketing—to Drive Innovation ing silos to get ideas implemented. Among the be re-envisioned. Marketers need to become:
and Profit” with Ranjay Gulati functions, marketing is singularly positioned to ■■ Innovators—not just product/service
and Angelia Herrin was broadcast play this role. Marketing already has a foot in innovators but value-creation innovators.
live online April 29, 2011. This the customer’s world and a foot in the compa-
webinar summary was created ■■ Instigators—instigating new ideas and
ny’s world; it’s the only “bilingual” department.
for Harvard Business Review turning those ideas into action.
by BullsEye Resources,
But to take on this critical work, marketing Integrators—asking the right questions
www.bullseyeresources.com.
■■

must change. Marketers’ identity must change. to produce actionable consumer insights,
Typically, marketers see their roles in the connecting the dots between customers’
company too narrowly to be the catalyst for problems and company capabilities, and
product/service innovation and execution. Ask- bridging silos to make execution happen.
ing marketers to explain simply what they do ■■ mplementers—accountable for execution
I
for their companies invariably meets with ner- that produces value. GE has transformed its
vous laughter. They see themselves as enablers marketing function in these ways; CEO Jeff
versus producers of value. Immelt refers to marketing as a “line job.”

For marketing to realize its calling as owner
of customer-centricity, the role of marketing

ABOUT THE PRESENTERS
Ranjay Gulati, Professor, Harvard Business Angelia Herrin, Editor for Research and
School; Author, Reorganize for Resilience: Special Projects, Harvard Business Review
Putting Customers at the Center of Your
Organization Angelia Herrin is editor for research and spe-
cial projects at Harvard Business Review. At
Ranjay Gulati is the Jaime and Josefina Chua Harvard Business Review, Herrin oversaw the
Tiampo Professor at Harvard Business School. relaunch of the management newsletter line
He is an expert on leadership, strategy, and and established the conference and virtual
organizational issues in firms. His recent work seminar division. More recently, she created a
explores leadership and strategic challenges new series to deliver customized programs and
for building high-growth organizations in tur- products to organizations and associations.
bulent markets. Some of his prior work has
looked at both when and how firms should Prior to coming to Harvard Business Review,
leverage greater connectivity within and across Herrin was the vice president for content at
their boundaries to enhance performance. womenConnect, a Web site focused on women
business owners and executives.
Professor Gulati has received numerous schol-
arly awards. He was ranked as one of the top Herrin’s journalism experience spans 20 years,
ten most cited scholars in economics and busi- primarily with Knight-Ridder newspapers and
ness over a decade by ISI-Incite. The Economist USA Today. At Knight-Ridder, she covered
Intelligence Unit and the Financial Times have Congress, as well as the 1988 presidential elec-
listed him as among the top handful of busi- tions. At USA Today, she worked as Washing-
ness school scholars whose work is most rel- ton editor, heading the 1996 election coverage.
evant to management practice. He has been a She was awarded the John S. Knight Fellow-
Harvard MacArthur Fellow and a Sloan Foun- ship in Professional Journalism at Stanford
dation Fellow. University in 1989–1990.

Professor Gulati holds a PhD from Harvard Busi-
ness School; an MBA from MIT Sloan School of
Management; a BS in computer science from
Washington State University; and a BA in eco-
nomics from St. Stephen’s College, New Delhi.


Poll
HBR.org readers were polled on communication issues.

15%

37%

21%

27%

How strong is your company's customer focus?

■ Very strong. Customer focus is a major factor in shaping strategy.
■ Strong. Customer focus helps drive improvement at my company
but does not shape strategy.
■ Marginal. My company provides adequate customer service on a
case-by-case basis but doesn’t take its customer focus beyond that.
■ Weak. My company pays only minimal attention to its customers.

Creating A Customer Centered Organization

More Related Content

What's hot (19)

Viewers also liked (20)

Similar to Creating A Customer Centered Organization (20)

Creating A Customer Centered Organization