Branding Customers Marketing 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 xxxxxx xx xxxxxxxxxxxx xxxx xxx xxxx xxxx xxx x x xxxxxx xxx x x x x x x x xx x xxxx xxxx x x x x x x xxxxx xxxx xxxxxxxx xx xx xxx A typical Customer Map Value High Low Cost-to-serve LowHigh

Xxx xxxxxx xx xxxxxxxxxxxx xxxx xxx xxxx xxxx xxx x x xxxxxx xxx x x x x x x x xx x xxxx xxxx x x x x x x xxxxx xxxx xxxxxxxx xx xx xxx Goal: Manage customer relations toward the diagonal Value High Low Cost-to-serve LowHigh

Xxx xxxxxx xx xxxxxxxxxxxx xxxx xxx xxxx xxxx xxx x x xxxxxx xxx x x x x x x x xx x xxxx xxxx x x x x x x xxxxx xxxx xxxxxxxx xx xx xxx Demand Chain Management: Service delivery system driven by the customer’s assessed value Value High Low Cost-to-serve LowHigh

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 nights 6 million guests B2C Revenue 33% Conferences 13 million nights 7 million guests B2B 33% Resorts 13 million nights 7 million guests B2B 33%

Business Travelers 13 million nights 6 million guests B2C Revenue 33% Conferences 13 million nights 7 million guests B2B 33% Resorts 13 million nights 7 million guests B2B 33%

Business Travelers 13 Million Nights 6 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%

We could depict the story this way: Conferences Resorts Non-member business guests Members Top-tier members account 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 per night 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 members account for 20% of all discretionary revenues, and more than 100% of profits Break-even Cost of retaining this business is essentially zero Hilton spends $500 million each 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: FungibleRelationship-Specific Benefits are... Buyer is... Anonymous Identified Trading Stamps Quantity Discounts Money back Privileges

FungibleRelationship-Specific Buyer is... Anonymous Identified Trading Stamps Quantity Discounts Money back Identity Recognition Status and Reputation Privileges

Enterprise Supply Chain Management Ariba -CommerceOne -I2 Customer Relationship Marketing from 2000 on -Siebel -BroadVision -Pivotal -E*piphany Databases 1980s -Oracle -IBM -Microsoft Suppliers Customers ERP SAP -Peoplesoft -Oracle

Enterprise Suppliers Customers 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 by gross 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 Value IdentifyDifferentiateInteractCustomize

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.