Q&A with Martha Rogers (Peppers & Rogers Group)

 

MarketingNPV (MNPV): On the whole, are you seeing good progress in terms of companies getting closer to measuring marketing return on financial terms?

Martha Rogers: Many times when people talk about progress towards measuring marketing effectiveness, they are referring to building better relationships with customers or some other sort of soft "relationship" kind of answers. But measuring return on a financial basis is really the only way that matters because it rolls up all the softer pieces. If we start seeing ways that marketing activities are improving the bottom line, it's almost a given that those improvements have come through building customer trust and increasing customer value. There is implicit success in the soft stuff that enables us to get to the harder measures.

MNPV: When you think about companies you've seen who are making good progress, what are some of the things that characterize their success?

Rogers: We are beginning to see great progress in some new sectors like telecommunications, financial services, insurance, and even with some retailers, companies like USAA, Tesco, Royal Bank of Canada. What those companies have done is to figure out how to use technology to develop a knowledge of each customer that allows them to do something to get close to that customer and offer value that that customer cannot get anywhere else for that price. That creates sustainable competitive advantage as long as the company can keep up with what that customer wants and keep them happy and ideally not talking to any of the competitors. Each of these companies has made an effort to adopt throughout their organizations an understanding of what it means to become customer-centric. They have built new DNA into the organization to understand the relationship between building customer value and company value.

MNPV: Do you need to bring in this DNA from outside?

Rogers: Right now, there are only about 20 true, experienced customer relationship officers in the world. And none of those received their training in a graduate school program. So the problem is there are 6,000 major companies in the world and only 20 high-level people who have done the job from the inside who can attack the job at the right level. And even if you could get one of these proven executives to consider coming to your company, how open are you to let them make changes across the entire footprint of the organization?

Several years ago a colleague and I did a study of B2B marketing companies and looked at when they brought in their first true CMO to do things like branding and product development, which for previously sales-driven organizations was a fairly radical step. So radical, in fact, that within two years, almost 90% of those CMOs were gone. But the second CMO seemed to make more progress and have a much longer tenure. The first just had too many changes to affect and too tough a road to hoe. It was almost impossible for them to last.

Likewise, at most organizations, the first chief relationship officer is going to have a tough time. It will be difficult for most organizations to accept someone from "marketing" poking into all aspects of the business at the board level, particularly in companies where the leadership is asking questions like "How many tons of metal did we sell yesterday?" or "How many widgets did we get out the door?" or other "product-oriented" questions.

MNPV: So for companies who are not quite ready to "drink from the fire hose," what steps can they take to begin making progress?

Rogers: The first thing is to find someone really good at this, most likely a consultant or college professor to help set up a plan to measure the right things, the customer dimensions — things like percentage of customers identified; percentage of customers interacting; use and sharing of customer information across the organization — all the things we might want to hold the company accountable for in addition to measuring customer value (current and potential) and retention, which we see a lot of in the early days.

MNPV: So are you talking about a balanced scorecard sort of approach?

Rogers: That's an interesting way to think about it. Whether you call it a scorecard or a dashboard, you need to be thinking about what you really want to accomplish with this. Fact: You will never make any money in your entire company's lifecycle except that which you make from your current and future customers. So it makes sense to begin measuring the customer value side of the equation.

MNPV: Seems like a penetrating glance into the obvious, doesn't it?

Rogers: Yes. Yet there are many companies that believe that emphasis should be on Product A in Geography B through Channel C. But these are just tools you use to help you make all the money you can from current and future customers.

So start with measurements that balance the current metrics with some new customer metrics and begin holding people accountable for actions that change customer value. For example, it might save the company a few million to cut weekend access to live agents in the call centers, but what is the customer cost in current and future profits? These two need to be looked at in concert.

At some point we need to look at it like this: On December 31, our customer base was worth X in current value and Y in potential value. It's now a month later, and we hold people accountable for increases in both those numbers and reward people at least as much for that as we do for moving widgets out the door.

MNPV: But "customer equity" and other customer-centric metrics aren't accepted GAAP or FASB. They aren't ones that the market looks for, are they?

Rogers: Correct. Customer equity has made some inroads in becoming a key metric for company valuation and many analysts view it as a good diagnostic tool of company health, but it is still far from being a core metric like revenues, EBITDA, etc. Yet it should be right up there on the company's list of ways to monitor and report on the health of the business. EBIT may still be the result we're reporting, but customer equity will become a decision-driver metric that guides our decisions on where and how to invest. It's a radical notion that still makes people roll their eyes.

MNPV: Some argue that marketing ought to report to CFO. Is that a good idea?

Rogers: Yes. We believe that having a company where the CFO understands the strategic and tactical implications of customer equity management in addition to the financial aspects increases the likelihood of becoming truly customer-centric. And that's a rough concept because it's very different from the world most CFOs grew up in and it's still not a concept that the CFO reads about every day like the CMO does. But we agree that having marketing report to CFO is a good idea.

Another organizational question specific to marketing is "Who's in charge?" Is it the product managers? The brand managers? Or the customer managers? There has to be an accountability at a level with sufficient authority to get things done.

Of course the other thing we believe strongly in is that the reward and incentive structures have to be aligned with the implementation of customer equity management too. If I tell you to manage customer equity, but bonus you on the number of widgets sold this quarter, you can kiss the customer relationship goodbye.

The real point to drive customer equity improvement is to ensure that every employee in every role in the company has in the back of their mind the question "How does this improve the value to the customer?" as they go about their daily jobs. If everyone does that all day, every day, it will bring about a sea change and some terrific results. But to make that happen we're going to have to put in place the proper incentives (financial and otherwise).

MNPV: So are you saying that the position of CMO is today, in most companies, poorly architected? That CMOs should be CROs?

Rogers: Not poorly architected per se, but anachronistically architected. It was fine when we had to get widgets out the door and send the same messages out to vast audiences of consumers as efficiently as possible. But that might not be appropriate in today's environment where enterprise value is increased by increasing customer value.

In all fairness, it takes a lot of time to become fluent in and comfortable with these concepts. Time that most busy executives just don't have these days.

Some good progress has been made. A lot of companies have made good starts. But there's still a long way to go.

Martha Rogers, Ph.D., is a founding partner with Peppers & Rogers Group, a best-selling author of several books on customer relationship marketing, adjunct professor at the Fuqua School of Business at Duke University, and a recognized thought leader in customer-centric marketing strategy.