The Almighty Customer

The customers of tomorrow will reign with relentless power, and they're already a latent force. Is your company prepared for a new generation of customers that will be demanding beyond imagination?

by Louisa Wah

"Traditional customer surveys give you reliable information about what people think they think, but not what they really think and want."

~Robert Passikoff

"Your satisfaction is our guarantee," a company states proudly on its Web site. "How may we serve you better?" asks a storefront display seeking customers' suggestions.

Satisfy them and they will return? What a dangerous assumption to make as we hurtle toward the 21st century. Leading companies have recognized for some time now that "satisfied customers" can prove fickle, yet most companies still follow this marketing canon like a religion, tirelessly conducting satisfaction surveys in the hope of striking tomorrow's gold.

Such a simplistic model barely scratches the surface of customers' true desires. Companies must look beyond the static and the present to understand and meet those desires-and to position themselves to survive the reign of the Almighty Customer that awaits them in the new millennium.

Indeed, what will customers want from you in the next century? What will they be like 25 years from now? Though mind-stretching, an ability to answer these questions may help decide your company's fate in the future-as an organization on an eternal catch-up-with-the-world treadmill or as a pioneer of innovation who's light years ahead of the crowd. Where do you want to be?

Get It? 

Before you find out what the next generation's customers will be like, you have to understand today's customers. Not only are they way past the Industrial age, but they're also leaving the information age behind and rapidly moving into the knowledge age. Some even see a blo-materials age fast approaching. While the customer of the future may be difficult to envision in any detail, it seems certain that they will be smarter, more powerful and demanding beyond Imagination (see sidebar).

Your understanding of human existence will have a big impact on how you survive and thrive in the future. A company stuck in the industrial- age mentality is very likely to get squashed because "zero-defect" quality has become an ante to compete, not a differentiator. Even "zero-time" operations that address customers' expectations for immediate response and gratification are becoming common in today's digital environment. The truly progressive companies are moving quickly to the knowledge age because they recognize the importance of leveraging customer knowledge to the fullest.

Indeed, progressive companies know the difference between knowledge of the customer and customer knowledge, says Debra Amidon, founder, president and chief strategist at Entovation International, Wilmington, Massachusetts, and author of Collaborative Innovation and the Knowledge Economy (SMAC, AICPA and CAM-I, 1998). She offers a telling illustration of what this means: Knowing the number .of hits a browser makes on your Web site doesn't mean anything. But knowing what they do with the hits-which is customer knowledge-means a great deal.

With this "customer capital," companies can leap beyond customer satisfaction to "cus tomer success"--helplng customers achieve their goals. Better still, they will find themselves in a win-win situation as they continuously learn from customers and Innovate with them. And those that constantly foster this new type of relationship will find themselves transformed as the next generation of customer comes of age.

You can't just practice in your lab. Practice with customers and let them see what's possible. 

~Bill Miller

Is the Customer Always Right?

"Yes," you say. "Of course! That's why we do marketing research to find out what our customers want. You can't argue with hardcore data. Right? Wrong, wrong, wrong!

Look at how companies stumble when they stick to these principles. Have you ever wondered why a prominent company like AT&T failed to predict what its customers would want, even though It used to have a fabulous R&D arm, Bell Labs? In 1985, when Bell Labs first invented the cell phone, AT&T asked a big consulting firm to do a customer survey. The results convinced management there was no market for cell phones, and AT&T shelved the new product. But eight years later, AT&T ended up acquiring McCaw Cellular to catch up with the irreversible trend of cell-phone usage. IBM and Microsoft played the same catch-up game after initially missing the PC market and the Internet market, respectively.

What went wrong? Why do similar scenarios occur today, even in deep-pocketed companies? Why is it that most companies around the world haven't even begun to understand their customers? Clearly, the first thing that companies should move away from is their overreliance on traditional customer surveys.

These measurement tools are based on an inherently flawed methodology, according to Robert Passikoff, president of Brand Keys, a brand equity and customer loyalty consultancy in New York. Traditional customer surveys give you reliable information about what people think they think, he says, but not what they realty think and want. To develop a clear understanding of customers' true desires, you need a system that's not constrained by reality.

Passikoff says, " What you need to have in place is some sort of mechanism that is able to track the direction and velocity of where the value is going from a customer's point of view."

And Indeed, understanding customer value is the only way to propel your business ahead to a market that does not yet exist.

The Nonexistent Market 

It sounds ethereal, but the "invisible market" is where you really need to cast your eyes. Why? Let's say you put all your energy into perfecting an existing product, whereas your next-door neighbor constantly comes up with previously unknown ideas that address the changing values of customers, such as the shifting priority they place on time. Where do you think customers will go? The answer is obvious.

But the question remains, how do you identify the latent, unexpressed needs of customers? The answer lies in "mutually dependent learning," an important business process that Bill Miller introduces in Fourth Generation R&D (John Wiley & Sons, 1999). This approach to customer research goes beyond asking what they want to determine what their values are, says Miller, a pioneer in innovation and knowledge management and former vice president of research and business development at Steelcase, an office furniture manufacturer.

In the process of mutually dependent learning, the concept of "the customer is no longer restricted to the end user, but also extends to the customer's management, support group, distribution channels and so on. All of these people are invited to engage at a high level in a company's innovation processes, during which the company gathers invaluable tacit knowledge from them. This learning process resembles ongoing experiments rather than closed-door lab tests. "You can't just practice in your lab," Miller says. "Practice with customers and let them see what's possible."

Suppose, for example, that you think a basketball game would be more exciting with two balls, Miller says. The concept is innovative, but unless you experiment with it, you'll never know what you can learn from customers about the Idea.

It's important to videotape the entire learning process, he adds, because people don't necessarily know why they behave in certain ways. Only by watching them nonintrusively can a company learn what changes are needed to increase the value provided to customers, be it productivity, convenience or speediness.

Some of this progressive Innovation is already happening today. Smart companies have started to put "customer windows" in their R&D labs and factories, according to Richard Oliver, professor of management at the Owen Graduate School of Management at Vanderbilt University, Nashville, Tennessee. Take Honda, for example. The Japanese car manufacturer constantly listens to customers by observing them and learning what works for them and what doesn't. It has a routine process to track how many times customers come in for readjustments and what their needs are. It also videotapes test-drives, which led to the discovery that subtle changes can make customers happier. For example, parents making frequent fast-food runs suggested changes in the backseat window that would allow food and drinks to be passed to the kids with fewer spills.

Innovating with customers should really drive businesses in the next century. "If you only sup ply what your customers are demanding today, you are not tapping into the unarticulated needs and the unserved markets, which is really the prescription of the future," Amidon says.

Miller adds that most companies focus on gaining a competitive advantage with quality improvements. "But that's only about 10 percent of what you should be doing in your company, he laments. Unfortunately, many companies are spending 100 percent of their time doing that and trying to sell a surplus of "me-too" products to overseas markets. "It's like running blind. We're talking about the core of management. If innovation isn't driving management, what is?"

According to Miller, innovation is not just about changing the R&D focus. It Is about changing the entire business operation so that R&D and marketing work together seamlessly arid financial resources are allocated to the "right places." A company's investments should no longer focus solely on its revenue-producing activities, but also be directed to the "practice sessions" in which experimentation and learning take place.

"Make customers the head of marketing. Let them dictate-because they do at the end, so you might as well do it faster."

~Richard Oliver

Customers Are Smarter than You Think

Launching the latest and greatest in your field won't guarantee you an edge over competitors--not at a time when products are commoditized with increasing speed. So what should you do?

You've got to drop the premise that customers' expectations always follow the market. William Ghormley puts it well: The customer is the one who is the driving agent in the business processes.... The [customer-centric] model is to give up power to the customers to get results. And if you don't give it up, you won't get it, says the president of Marketing Science Institute, a Cambridge, Massachusetts, marketing research institute.

Oliver, who is author of The Shape of Things to Come (McGraw-HIll, 1999), believes companies should put this theory of customer empowerment into radical action: "Make customers the head of marketing. Let them dictate-because they do at the end, so you might as well do It faster."

And, in fact, companies like Procter & Gamble, Ritz-Canton and Levi Strauss have long recognized the importance of integrating customers into their business processes. They treat customers like "prosumers," a futuristic term Alvin Tofller used in his renowned Future Shock to describe customers who also play the role of the producer.

By seeking out prosumers, a company can identify future market trends and accelerate its rate of innovation. According to Eric von Hippel, professor of management of technology at MIT's Sloan School of Management, "lead users" or "user-innovators" are the rare members of the population who have such a strong need for new products or services that they set about creating them on their own. Because relatively few people share the same strong needs for these functionally innovative things, lead users' ideas really lead the market and foreshadow general demand, says von Hippel, who co-authored Breakthrough Products via Lead User Research (Oxford, 1999) with Mary Sonnack and Joan Churchill.

When von Hippel worked with a company that wanted to develop a performance-enhancement food for weekend athletes, for instance, he started by approaching athletes and trainers in the target market to find out what their needs were. He then talked to "lead users" who had an extreme need for this type of food, such as commanders in the Navy Seals, who have to carry high-performance food in their backpacks for as long as one month. He also talked with nutrition scientists working with Olympic athletes. These lead users actually developed food that could aid athletic performance. By drawing on these solutions developed by lead users, the food company was greatly aided in its effort to develop its "Olympic cookies."

The future market will tolerate no laggards in the innovation process. As tomorrow's business environment will be a lot more transparent than today's, tricks in pricing and categorization will no longer lure customers into buying. Only true innovations will do the job. "A truly transparent environment will raise the innovation bar dramatically," Susan Mackey, director of market research at Procter & Gamble's global food and beverage division, said in an address to the board of trustees meeting of the Management Science Institute last November. "Innovation will have to be bigger-and they'll have to come faster to win with consumers."

Who Exactly Are Your Customers? 

New approaches to Innovation will help corn- panics understand the customer of the future. But there is another piece to the puzzle: In two decades' time, the very definition of "the customer" will be more fluid as companies, suppliers and consumers play the roles of collaborators, competitors and customers at different times.

The linear business relationships of yesteryear will give way to these intertwining webs, making the standard business-to-business classifications obsolete, says Paul Cole, national director of Ernst & Young's Customer Connections Solutions practice, who also co-authored Customer Connections (Harvard Business School Press, 1997) with Robert Wayland.

"In that community, who will be the customer will be blurred, because companies will be interacting with each other in multiple roles," he says. "In one division of my company, I'm going to compete with you. In another division, I'm your customer."

According to Cole, the shifting definition of "the customer" will change the nature of the planning process: It will be much less static In the future, and that means companies must be more comfortable with real-time decision making.

Cole's advice: be as nimble as possible in assembling and disassembling the economic web within which your company decides to play for a given period of time. When the "web" loses value for you, exit quickly and involve yourself in the next set of relationships.

On the consumer front, customers from different parts of the world will have more similar wants and needs in the future. As more and more people are exposed to the same products via the same media, their behaviors and attitudes will converge, said P&G's Mackey. A teenager in Tokyo has more in common today with a teenager in New York than with a rice farmer in her own country. Therefore, it's crucial to look at your customers through a global lens.

The United Kingdom of Customers

If there's one thing the customer of the 21st century will have plenty of, it's power. With the relentless development of technology, they will not only be "voracious in searching out new information, but increasingly skeptical of the answers they get," as futurist Greg Schmid puts it.

Resourceful and demanding customers will dominate the market and bring about a dramatic shift in the supplier/customer relationship. The new customers will be more than "always right" ; they will be "supreme." "Industries that don't begin to understand that are going to lose out," Cole says. "The changing of the equation is going to be the big driving force in the future."

Companies are likely to enter into some very tough courtships with customers who are wooed by many competitors at the same time. Therefore, "attention is what you have to manage," Cole says. Some companies are already compensating their consumers for the time they spend viewing their ads. One example is Internet startup CyberGold Inc., which has a Web site containing ads of its clients. In response to what economist and physicist Michael Goldhaber calls the "Attention Economy," the virtual marketing agency re wards browsers with bonus points and credit-card deposits after they browse through an ad and, in some cases, follow up with certain actions or a pur chase.

Getting the attention of the "new customer," who will be ever-more pressed for time, will no doubt be harder. Monetary incentives alone may not capture their hearts if what they crave is personal attention. The problem is, "the needs of the new consumer are not being met in today's world of big averages and mass solutions, said Mackey of P&G. "People want and expect to be treated as unique individuals and unique families."

This begs the question of how manufacturers can personalize commodities like tooth paste and potato chips. Mackey  will pointed out that it's not just personalized products people want: "Sometimes, all it takes is the right mix of service and information surrounding the product." The challenge is to customize that mix by creating very individual portraits of consumers. The technology needed to develop those portraits already exists in today's data-mining techniques.

No matter who your customers are, and despite the changes you will see in the material world 20 years from now, it is important to remember that your customers will still be human! Cole says, " Twenty-five years from now, customers haven't metamorphosed. They are still human beings and still driven by needs and desires. Don't delude yourself into thinking that virtual environments create virtual customers. You need to connect with them in some form; you need to nurture them."

In fact, Scott Gross, author of Outrageous! Unforgettable Service...GuiltFree Selling (AMACOM, 1998), believes the customers of the future will place a greater value on "face time" -time spent eyeball to eyeball with the customer-because fewer people will be serving more customers as technology eliminates jobs and processes. And those remaining employees will have a greater impact on the overall service impression, he says.

When it comes to customers in business-to-business relationships, five basic values are expected to survive well into the next century, according to Miller. The live categories of values are: business productivity and effectiveness; employee health, safety and comfort; the lifecycle cost of different assets in the company; the agility needed to respond to change; and product/service design integrity. " These are what customers value and will be valuing in the future," he says.

Uprooting the Old

As we wrap up the 20th century, it's only natural to consider what the next millennium will be like. Following the waves of mergers, downsizings and reengineering that marked the 1 990s, what will the future hold? Are these activities really making businesses more profitable and customers more successful?

While lean-and-mean companies may be able to run more cost-efficiently, they also run the risk of squeezing out the space needed for creative innovation. What's more, they may be so focused on the needs of internal customers that they've started losing sight of their external customers.

What's needed is a radical change in the business paradigm. "Unlearn your traditional customer practices and embrace the new reality that customers are both your source of innovation and the partner in your success."

While it's always fun to think about what people will be like in the future, not all experts believe that constructing future scenarios is a worthwhile exercise.

Silicon Valley marketing guru Regis McKenna thinks the world is such an unpredictable place that it's a waste to time to surmise what will happen tomorrow, let alone in the next generation.

" Why spend the time predicting something that can't be predicted? Why not spend the time building systems, methodologies and processes that monitor the market all the time?" asks McKenna, chairman of the McKenna Group, Palo Alto, California, a management and marketing consulting firm specializing in information and telecom technologies.

"Companies have to worry about what's happening in the rapidly changing marketplace today, he says. "They can sit around talking about 25 years from now, but they may not live to see that day."

The only thing we can be certain of, he says, is that the world will be different in ultimately unpredictable ways. No matter how customers change, they will still have their needs and wants, he says, so businesses should be capable of responding to them in real time.

McKenna explains that a company's preparation for future competitiveness should be built on a series of short-term practices. " I'm a long- distance runner," he says. "The way you prepare for that is by doing lots of short runs... which allow you to be durable for the long run. So people who want to be dealing with the long run have to be capable of dealing with their present environment."

For him, the future is now.

AT THE RITZ-CARLTON: THE FUTURE IS NOW

AT THE RITZ-CARLTON HOTEL, where the workplace credo is genuine care and comfort of our guests, management's philosophy regarding customer service can be summed up in two words: carpe diem (seize the day).

Nadia Kyzer, corporate manager of guest recognition, says the hotel has not developed a profile of the next-generation customer 25 years hence. "If you assume too much about customer needs in the future, you might end up alienating them," she says.

For example, had the hotel assumed today's guests would automatically want a fax in their room and electronic check-in service, it might have driven many repeat customers away. When guest surveys found that they wanted neither service, management was relieved it hadn't made the changes.

That said, the hotel does consider the future a top priority. its renowned guest recognition program, for example, focuses on the anticipation side of serving customers, says Kyzer. By recording and tracking each guest's personal preferences and values, the hotel constantly surprises and delights its repeat customers.

How is this achieved? The staff pays attention to all the details and habits of guests, such as the type of room they like, special dietary needs or their favorite wine. Recognizing behavior patterns is the key.

"If some guests often ask for extra towels for their friends when they check in, we would give them extra towels every time so they don't have to ask for them, Kyzer says. Every day, a dedicated staff check s on the day's arrivals and distributes information about the guests around the hotel to make sure personalized welcome packages are prepared.

Ritz-Carlton's employees also take an active approach to gathering knowledge from guests. For example, hotel employees are expected to escort guests rather than point out directions to another area of the h_otel. This allows employees to chat with customers end learn what their needs and concerns are.

With the help of databese technology and the practice of connecting intimately with customers, Ritz-Caflton is able to anticipate customers' needs well in advance. " The customer of the future could be the customer of today if you start ha lis tenihg early enough," Kyzer says.