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Branding CustomersMarketing in the Information Age
Before Demand Chain Integration, we branded Products:
Branded Product Customer
Identity
Differentiation
Reputation
Now we brand customers...
Branded Product Customer
Identity
Differentiation
Reputation
Success is measured in growth in customer equity
Now we brand customers...
Branded Product Customer
Identity
Differentiation
Reputation
IT lets firms recognize the customer as an individual with a history and a future, and be treated as such.
Now we brand customers...
Branded Product Customer
Identity
Differentiation
Reputation
IT lets marketer manage customers for profit, balancing each customer’s value against cost to serve!
Xxx xx xxxx xxxx xxx xxx xxxx
xxxx xxx xxxx xxxx xxxx x xxxxxx xxx x x x x x x x xx x xxxx xxxx x x x x x x x xxxx
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A typical Customer Map
Value
High
Low
Cost-to-serveLow High
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xxxx xxx xxxx xxxx xxxx x xxxxxx xxx x x x x x x x xx x xxxx xxxx x x x x x x x xxxx
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Goal: Manage customer relations toward the diagonal
Value
High
Low
Cost-to-serveLow High
Xxx xx xxxx xxxx xxx xxx xxxx
xxxx xxx xxxx xxxx xxxx x xxxxxx xxx x x x x x x x xx x xxxx xxxx x x x x x x x xxxx
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Demand Chain Management: Service delivery system driven bythe customer’s assessed value
Value
High
Low
Cost-to-serveLow High
Hilton Facts:
68% break-even occupancy
Margins after break-even 80%
Life is lived on Knife’s edge
How many transactions a year?
Business Travelers
13 million nights6 million guests B2C
Revenue
33%
Conferences
13 million nights7 million guests B2B 33%
Resorts
13 million nights7 million guests
B2B 33%
Business Travelers
13 million nights6 million guests B2C
Revenue
33%
Conferences
13 million nights7 million guests B2B 33%
Resorts
13 million nights7 million guests
B2B 33%
Business Travelers13 Million Nights6 Million Guests
104,000 top-tier
324,000 mid-tier
990,000 lowest tier
710,000 airline clubs
3,900,000 not members
% Guests
2%
5%
16%
12%
65%
Contribution
20%
20%
20%
20%
20%
We could depict the story this way:
Conferences
Resorts
Non-member business guests
Members
Top-tier membersaccount for 20% of all discretionary revenues, and 100% of profits
Break-even
But of course this is depiction is pretty arbitrary...
All guest revenues contribute to profitability.
Indeed frequent guests may contribute less pernight than infrequent guests if their patronage is bought with low prices.
So what’s attractive about frequent guests?
Frequent guest programs economize on customer acquisition costs.
Frequent guest programs economize on customer retention cost.
We could depict the story this way:
Conferences
Resorts
Non-member business guests
Members
Top-tier membersaccount for 20% of all discretionary revenues, and more than 100% of profits
Break-even
Cost of retainingthis business is essentially zero
Hilton spends $500 millioneach year to acquire this business
Result:
Loyalty programs are not to be viewed as a ‘cost of doing business.’
They are tools to brand customers.
They are the entry price for managing markets at the customer level - they let Hilton run the business in the best interest of the best customers.
Not all Loyalty Programs have this effect:
Fungible Relationship-Specific
Benefits are...
Buyer is...
Anonymous
Identified
Trading Stamps
Quantity Discounts
Money back
Privileges
Fungible Relationship-Specific
Buyer is...
Anonymous
Identified
Trading Stamps
Quantity Discounts
Money back
IdentityRecognitionStatus and Reputation
Privileges
EnterpriseSupply Chain Management1995-00-Ariba-CommerceOne-I2
Customer Relationship Marketingfrom 2000 on-Siebel-BroadVision-Pivotal-E*piphany
Databases1980s-Oracle-IBM-Microsoft
SuppliersCustomers
ERP 1990-1995-SAP-Peoplesoft-Oracle
Enterprise
SuppliersCustomers
Demand Chain Management
Supply Chain Management
Q. 1: Who gets to be the demand chain manager in your industry?
Ans.: Whoever has the strongest customer brand
Q. 2: So how do you get to have a strong customer brand?
Steps to a Strong Customer Brand
Identify each customer upon acquisition
Rank each bygross margin or
lifetime value Ask, learn and remember key customer characteristics and preferences
Give preferred Customers more of what they value
For low margin customers, reduce cost-to-serve
Cost-to-serve
Val
ue
Identify Differentiate Interact Customize
Conclusions
The future of marketing lies in mastering Interactivity.
Interactivity demands identity. Consumers get identity through the initiatives of producers.
Which initiatives? Brand the customer and manage one customer at a time. The frequent flyer program may be the prototype of marketing generally.
Just as powerful 20th century producers controlled product brands, so powerful 21st century producers will control consumer brands.
