The Customer Revolution

How to Thrive When Customers Are in Control

June 1, 2001

In The Customer Revolution, the essential truths of business today are identified: “The Internet economy is the customer economy, and the fundamental source of value in the new customer economy is customers.” In the customer economy, the depth of your customer relationships is directly proportional to the value of your business. Attracting and retaining customers will be the core competencies of successful firms. Companies will be increasingly valued based on how they build relationships with their customers and on those customers' long-term value to the company.

Preface

Why does the customer revolution matter to you and your business? Every industry is under siege by its customers. The Napster phenomenon was not an isolated incident. Renegade customers in the music industry created demands that the major industry players couldn’t ignore. The Napster revolt wasn’t just about copyright infringement; it was about letting customers have it their way. All the music labels have now capitulated to making digital music available for electronic downloads. The producers and suppliers in the music industry spent all of 2000 scrambling to react to renegade customers’ actions. The suppliers and retailers surrendered to customers’ desires to have access to digital music files, and to be able to mix and match tracks of music and to manage their own music collections.

What happened in the music industry is happening in your industry. It may not be as dramatic or as obvious. But there’s definitely a radical movement afoot. Customers are wresting control away from suppliers and dictating the new business practices for the digital age.

This book is your survival guide. By reading up on what to expect as customers demand unthinkable changes in your industry—changes that will radically transform the way your business operates—you’ll be prepared. Not only that, but you’ll be forewarned and forearmed with the best practices that will make it possible for your firm to surrender gracefully to its customers and to win their current and future loyalty.

In short, in these pages, you’ll learn how to not only survive, but to thrive in the new customer-driven economy. In fact, you’ll gain new insights into the mechanisms for value-creation in the customer economy.

How do you assess the current and future value of a company in today’s turbulent economy? That’s one of the questions that led me to research and write this book. As I watched NASDAQ stock prices plummet in March 2000, triggering a flight of capital away from Internet and technology companies, I sensed that investors wouldn’t permanently abandon Internet, high tech, and telecommunications stocks. But what investors were doing was demanding an accounting for the unreasonably high valuations that had been promoted by the investment banking and venture capital communities. As the year 2000 drew to a close, economic growth in the U.S. economy had declined dramatically from its exuberant 5 percent level. Much of that decline was caused by a crisis in consumer confidence. When a portion of your retirement income is invested in equities whose value has diminished by 30 percent over the past nine months, of course you become wary about spending more money! Consumers stopped over-consuming and tightened their belts. Companies scaled back on their capital investments. They pared down inventory. They reprioritized projects.

I believe that the hype that led to the over-valuing of Internet and high tech companies came from a fundamental misunderstanding of the basis of value in the current economy. Companies are valued based on their future earnings potential. Where do companies’ earnings come from? From customers. To increase your earnings potential, you need to focus on winning and retaining profitable customers whose needs you’re serving. It’s as simple as that.

In 2001, as investment analysts refocus on the fundamental drivers of value and begin to regain confidence in technology-leaders, I hope they’ll add some new reality checks to their value assessments. I’m suggesting that we all begin valuing companies more explicitly on their customer franchise—the value of the earnings they’ll receive from their current and future customers. This isn’t just a “back to basics” suggestion. It’s also a prediction: Your company’s value will be determined by the strength of your customer franchise. Investors have a right to know how many customers you have, how much you’re earning per customer, how well you’re treating your customers, and how fast you’re growing the value of your customer franchise.

What I discovered in researching and writing this book is that there are many companies in the world that have been single-mindedly focusing on customer value and on improving the total customer experience for a number of years. These are the companies that are wellpositioned to thrive in the current customer economy. In the ensuing pages, you’ll read in detail about the current best practices these firms employ to build, monitor, and sustain value.

Why are customers more important than ever? What’s different today? Over the past four years, a subtle shift has been underway around the world. Economic power has shifted from suppliers to customers. Why? Thanks to the Internet, the Web, and to other ubiquitous technologies, customers now have access to information that lets them make much more informed decisions. They are no longer willing to be “locked in” to suppliers who don’t value their time or their patronage. Customers are now in control. Customers’ actions and their demands are profoundly impacting every industry.

What does the customer revolution mean to your business? Ignore it at your peril! Your customers and prospective customers will be more demanding than ever. In order to meet their needs, you’re going to need to master a new set of competencies. You’ll need to learn how to redesign your business based on customers’ scenarios. You’ll need to measure what matters to customers. You’ll need to monitor, in near real-time, all of the business events that matter most to your customers through your entire value chain. And, you’ll need to manage your company by and for customer value. That’s a tall order. Let’s get started!

January 2001

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