The Quest for Customer Focus

The cry for customer focus is more urgent than ever, as companies seek to differentiate themselves and spur profitable growth in an increasingly commoditized world. But major customer-oriented initiatives (think CRM) have yielded lukewarm results, leaving a bitter taste in executives’ mouths.

The secret to real customer focus? Collect data on every customer transaction—then analyze its implications. When Royal Bank of Canada (RBC) surveyed 2,000-plus customers, it found they wanted much more than just access and convenience. They wanted their bank to value them as individuals, regardless of when and where they did business. RBC’s response? Shift resources from building new branches toward managing 10 million customer relationships.

Also reorganize your business around customers, not products, sharing customer information across your organization. When Continental Airlines examined revenue generated by each passenger, across flights, it realized a flight previously considered unprofitable—thus expendable—might be a key connection between airports used by a large pool of highly profitable customers.

Truly customer-focused companies leave rivals far behind. RBC, for instance, grew dividends from $.68 a share in 1996 to $1.75 in 2003 by driving high-value customer growth 20% and average customer profitability 13%.

The Idea in Practice

To organize your firm’s people, processes, and structures around your customers, follow these steps:

Create a companywide repository containing customer-transaction data from various parts of your enterprise. Have each unit contribute data to the repository. Make the customer—not account, purchase, product, or location—your fundamental unit of data analysis. To overcome political boundaries, have a neutral entity (such as IT) control data pooling.

Share insights from customer data across your organization. Use expert analysts to interpret customer data for your business units, who can use that information to serve their markets more profitably. Example: 

Royal Bank of Canada learned that 60% of the product packages that combined a checking account, credit card, and ATM-based bill paying, were unprofitable. Instead of discontinuing the product or raising its fee, RBC pinpointed the problem’s source: Bank employees had to enter ATM bill-paying transactions manually. Using input from the marketing, analytics, product-management, and finance groups, RBC added low-cost telephone and online bill paying to the package. Customers snapped up these options, making 90% of the packages profitable.

Anticipate and shape future customer interactions. Use your data to determine which customers might switch to a competitor, buy a new offering, or pose an unacceptable credit risk. Create models predicting customer behavior, then design interventions to alter that behavior. Example: 

Telecom provider SBC learned that its DSL customers were least likely to switch their local phone service from SBC to another vendor. Using “propensity-to-buy” models generated from its information pool, SBC identified potential new customers most likely to purchase DSL, and therefore most likely to keep SBC as their local phone provider. Product managers then targeted only this customer segment—thus increasing profitability while significantly reducing marketing costs.

Weave customer focus into your workforce’s everyday behavior. Give employees autonomy and technical tools to make customer-focused decisions. Example: 

Employees at Harrah’s Entertainment know that customers spend more when they stay at Harrah’s hotels rather than just visiting its casinos. By tracking customers’ casino expenditures, they can book rooms to optimize profitability. Highly profitable casino customers get rooms for free; unprofitable ones pay premium rates. Profit per available room jumped 30% during 1999–2003—generating an additional $20 million a year.