Why Make Business Personal?

This is the first half of Chapter One from Bruce Kasanoff’s 2001 book Making It Personal: How to Profit from Personalization without Invading Privacy.


AUTHOR’S NOTE: I’m writing about sensitive subjects. To avoid embarrassing any company, every section in italics is fictional, but designed to illustrate realistic scenarios.


ELECTRONIC BOOK REAL TIME REPORTING NETWORK
DATE: Today
READER TRACKING NUMBER: B43267
BOOK: Making It Personal ISBN 0-7382-0536-2
READER STATUS: Now reading
READER LOCATION: Page 1
ELAPSED TIME ON CURRENT PAGE: 35 seconds
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READING SESSIONS: 1
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PRIMARY MOTIVATORS: Career, societal impact, conversational interest
MOTIVATION (CONFIDENCE LEVEL): Medium

Someday soon, when you read a book like this on your digital book reader, a record of your reading habits will be created in a company’s database. You’ll be motivated to allow this intrusion on your privacy by some sufficiently attractive offer. Your reading habits will be analyzed, categorized, and compared. You’ll be much more aware than you are today how your reading skills compare to other people’s, and so will the rest of the world. But you may not think much about this process, because everything in your life will be monitored and analyzed in this fashion, unless you take forceful steps to prevent it.

Businesses will get much more personal in their interactions with individuals. These interactions will span from the intrusive to the supportive, depending on the attitude of each business. This is not a trend or a business fad. It is not the result of a decision made by a CEO. It cannot be reversed, short of a global disaster. It is the inevitable result of the continuing spread of interactive and database technology. The question is: What do you do about it?

Making it personal means treating different people differently. Even in business-to-business settings, such as when IBM is buying a service from General Electric, individuals at both companies influence the outcome of the transaction through their behavior and values. The more you can understand and accommodate each individual’s values, the greater your ability to influence the outcome. Technology makes this possible to a much greater degree than ever before.

In this book, I primarily use the word “personalization,” which I intend to describe the practice of companies using information about an individual to change the way they treat that person. Whatever you call it, we won’t be talking much longer about personalization as
though it were a separate discipline. Everything is going to get personal, and the techniques I describe will become a critical, taken-for-granted element of the way we all do business. You will no more think of ignoring the differences between people than you would think of charging a customer for a product you never delivered. When business nears this level, words such as “personalization” will fade from use. So, too, will personalization as a software category or a trade show focus. It will be everywhere.


With fifteen years of engineering experience under his belt, Ryder McAllister was in his first week as director of product marketing for a high technology company. This was his first meeting with the unit’s other senior managers.

“OK, let’s review what we know about this group of consumers,” said Jeffrey Neves, COO, turning towards the database expert, Michael Golder, who rose faster than you would expect a six-foot, six-inch man to move.

Michael clicked on the projector and started his spiel.

“As you know, we’ve identified 50,000 consumers as a test group to prove that our one-to-one marketing program works.”

“Each of these consumers is in a household that earns over $110,000 per year. They’re all two-career couples, which makes it more likely they are time-starved. At least one adult in each household has graduated from college, which increases the odds that they are Web savvy, and thus will be easier-and less expensive-for us to serve.

“We’ve also done an analysis of each household’s purchases over the past year, and know which ones have purchased one or more new cars during the past two years, taken expensive vacations, or generally spent aggressively on discretionary luxury items.”

Ryder was impressed. Maybe marketing was more of a science than he had assumed.

“How precise is your analysis?” asked Jeffrey.

Michael shrugged. “Every transaction we have is accurate, but we aren’t able to capture all the transactions. So if we know they bought three cars, it really means they bought at least three cars.”

Jeffrey seemed to be satisfied with that and gestured for Michael to continue.

“Of course, we also know their addresses and phone numbers.”

Spotting an opportunity to ask an obvious question without betraying his lack of knowledge, Ryder asked, “Michael, I didn’t hear you mention any details regarding our sales to this group over the past year. Do you have information on that?”

Michael looked confused. He glanced at Jeffrey, who seemed interested in the answer.

“These aren’t customers,” said Michael. “They are prospects, people to whom we want sell.”

It was Ryder’s turn to be confused. “You have all these reams of information about people who have never bought a single product from us? How do we know so much about them?”

“It’s not hard,” said Michael, “Just expensive and time-consuming. We acquire the information from third-party database providers, and then use our own data analysis and segmentation processes to build profiles of this test group. But under expansion economics, with the right response rates and purchase patterns, this could be extremely profitable.”

Ryder paused, not sure if he was being really stupid, or if he wanted to push so hard during his first week in a new business. But it was such an obvious point, even a hard-nosed engineer couldn’t miss it.
“How do these folks feel about the fact that we know so much about them before they’ve expressed the slightest interest in our firm?”

There was an extended silence while the people around the table considered this point. At last Michael said, “I don’t know. No one ever suggested we should ask them. Besides, if we did, it could just spook them, and we’d be defeating our own purposes.”

Ryder nodded thanks and forced a smile on his face, but he was thinking: I want my old job back.

This is one current view of personalization, but far from the complete picture. I call this superficial marketing, designed to generate mass sales from the use of personal information. It may work, but it’s not the subject of this book.

Too many companies ignore the personal side of one-to-one relationships. Typically, this means they just collect personal information so they can sell more of whatever products happen to be in their marketing plans. It’s as if a husband explained, “Sure, I care about my wife’s feelings and our relationship, I just don’t want to have to listen to her problems or worry about understanding her needs.”

Personalization is not just a topic for marketers, but rather the logical result of technology’s impact on all business relationships, from those with customers to employees, suppliers, and partners.

In 1993, Don Peppers and Martha Rogers wrote a now classic book called The One to One Future: Building Relationships One Customer at a Time. It talked about why every business must establish a Learning Relationship with each and every one of its customers. The idea was that if a company could motivate people to teach it how to best serve their needs, then that firm would be able to serve the customer better than any of its competitors. By making loyalty more convenient for a customer than disloyalty, the company gains a loyal customer, perhaps for life. A simple example of this practice is PC banking. To start paying your bills online, you must first enter the names and addresses of each company you wish to pay. If you like, you can also set up automatic monthly payments for bills that are the same amount each month, such as your mortgage or cable bill.

Imagine that you sign up with the first bank to offer online bill payment and go through the lengthy set-up process. A few months later, every bank in town starts offering a similar service. How attractive is the idea of switching? Would you do so to save an extra one dollar per month? How about three dollars? The more work you have invested in sharing your personal information with a company, the greater interest you have in making the relationship work. This is the essence of a Learning Relationship, and the driving factor behind personalization, which Peppers and Rogers refer to as one-to-one relationships.

Done properly, one-to-one initiatives create a win/win situation for a firm and the people who have dealings with that firm. In the case of customers, personalized service saves them time and money and gives them access to better and more relevant information. Firms that develop personalization techniques enjoy reduced costs, increased revenues, and stronger loyalty. These companies are also better able to adapt to changing markets. If companies listen to feedback and react to it in a meaningful way, they are able to change every day. This type of change is less wrenching, and more profitable, than waking up one day and realizing sales have declined by 50 percent.

Traditional product-driven companies such as Black & Decker and Prudential Insurance have a limited number of products to sell. When they get feedback from customers, they typically use this information to steer the customer towards one of their existing products. “Based on your needs, I suggest our variable rate annuity product,” an insurance salesman might say. But only a small percentage of customer feedback actually changes the firm’s behavior. Real one-to-one marketing or personalization means that a company takes customer feedback and uses it to actually customize a service or product for that customer. So while product-driven firms stay rooted producing the same products for all their customers, one-to-one firms change every time they interact with a customer. The better they are able to do this, the closer they come to evolving just as fast as their markets are changing. Technology lowers the cost of both gathering customer feedback and using it to customize a service.

In the last few years, many companies have hopped onto the one-to-one marketing bandwagon and started developing personalization techniques for their customers. However, most firms that say they are implementing one-to-one marketing programs are doing it for their own benefit, not for the customer’s benefit. Here is what many companies are doing:

Computer-Aided Direct Marketing

Remember Michael Golder’s marketing plan? His firm is using personal information to attract prospects. Using a combination of advertising and targeted promotions, the company will be focused on selling certain products or simply making more money, not on understanding each customer’s needs. Direct marketing-what most people think of as junk mail-was merely annoying when computers were 100,000 times dumber than they are today. Now it’s becoming unacceptably invasive. For reasons that I’ll explain in this book, the days of using personal information for advertising are numbered. It’s likely that this practice will be outlawed or highly restricted by new legislation.

One-Way Dialogues

In a true relationship, either party can initiate a conversation, and both parties have to be ready to interact and willing to change their behavior based on feedback from the other party.

Selling Out Relationships

With growing frequency, companies are being vilified in the press because they have decided to sell information about their customers to other companies. In many cases, such sales represent a complete departure from the purpose for which the customers supplied their information. Network Solutions, the domain name database firm that initially had exclusive rights to maintain the Web’s “address book,” is selling information about all the customers in its database. “On your mark, get set, go!” announces an ad targeted at direct marketers. “Available for the first time ever. Approximately 6 million unique customers, sliced and diced for you to target prospects, learn about a specific audience or retain customers Take this information and run with it.” This type of action sends a loud and clear message to customers that the company values its relationship with them less than it does their own wallet.

When we strip away these false impressions of one-to-one relationships, what is left?

First, and most importantly, in any relationship between an enterprise and a person the enterprise must acknowledge that the person has a right to control and access his or her personal information. Without this understanding, there will be no trust and no lasting relationship.

The most valuable information about a person’s needs and preferences exists in that person’s head. Despite the proliferation of third-party data providers and devices that track our movements and actions, humans are complicated, often irrational, creatures. We are fickle, and our lives take unexpected turns. It is vastly more difficult to serve a person without that person’s compliance. People will be less likely to cooperate with an enterprise if they feel unsure about the company’s true intentions.

Second, one-to-one relationships work when an enterprise seeks every opportunity to provide a meaningful benefit to individuals, such as saving them time or money, or providing them with more relevant information. These are not the traditional benefits that accrue to companies, but rather to stakeholders in that company, whether they are customers, employees, investors, or suppliers. Most businesses need to think about how their actions benefit the individuals as well as the firm’s bottom line. Businesses that do this will enjoy dramatic benefits, but only as a result of satisfying individuals.

Third, this type of relationship only works if the individual provides feedback and value back to the enterprise. Companies exist to make a profit. Somehow, the person must be able to compensate the company fairly for its services.

Finally, true one-to-one relationships are constantly evolving. Companies that are motivated to accommodate the qualities that make each person unique will enjoy the benefits of loyalty. People are motivated to collaborate because they are rewarded for doing so. The result is a series of ongoing interactions that benefit both the individual and the company.

These four characteristics can be applied to any business relationship, whether it involves finance, human resources, operations, product development, information technology, marketing, legal, sales, maintenance, quality control, logistics, customer service, or the loading dock. One-to-one relationships will become increasingly important in all these areas. By understanding these relationships, and how to support them, you’ll be able to stay close to the people that bring you business success, and you’ll be able to avoid-or at least minimize-the privacy issues that will increasingly plague other businesses.

Memory Is Everywhere

(Obtained from the files on an insurance company)

COMPANY CONFIDENTIAL: INSURANCE RISKS

To summarize the results of Project X-9, we have built profiles of 5,000 current policyholders that detail:

- All the foods they have purchased through supermarket loyalty programs, highlighting purchases that are high in fat and excessive purchases of alcohol and/or sweets

- Cruises they have taken that have a tendency to attract people with sedentary lifestyles and/or excessive consumption patterns

- Motor vehicle records showing speeding tickets and DWI offenses

- Plus eight other negative lifestyle indicators

Based on the above, we have validated our ability to use such third-party information to identify high-risk policyholders. The next step is to decide on the appropriate corrective actions. In our next meeting, we must decide whether to:

- Adopt an holistic approach and show these policyholders how to lead a healthier lifestyle

- Discourage or reject outright policy applications from people who exhibit these behaviors

- Take no action, due to the sensitive nature of this personal information

When you think about how personal a business relationship should be, it’s important to understand the preponderance of new technologies that will increasingly track our every movement and interaction. Technology has changed the rules of business relationships, and the laws under which we operate, to a much greater extent than most people realize. Each technology is a potential double-edged sword, which can be used to benefit people, or to work against them. Before you use such a sword, it’s critical to dull the edge you don’t want to use accidentally.

Nothing short of a global disaster will stop the spread of technologies that make it easier to track the daily actions of people and organizations. We take for granted how quickly voicemail, ATMs, e-mail, the Web, cell phones, PDAs, GPS devices, alphanumeric pagers, wireless computers, and countless other microchip devices have permeated our daily lives. Every device adds a layer of memory that didn’t exist before, because most are linked to a database owned by at least one company.

Every time a person uses a piece of technology to communicate with others, to save time or money, or to enjoy special treatment such as a shorter line at the airport, that person takes a risk that the information revealed by his activities will be used against him.

Technology remembers what we do, and few people understand the extent to which business-and life-will be drastically different in a society that never forgets than it was in one that forgot 90 percent of what happened.

Techniques that seem innocuous when applied to customers, such as keeping records of what people buy or who they communicate with on the Internet, are perceived as terrifying when applied to employees. Few employees recognize how widespread employee monitoring has become.

The American Management Association conducts surveys that examine how companies monitor their employees. In 2000, they discovered that “nearly three-quarters of major United States firms (73.5 percent) record and review employee communications and activities on the job, including their phone calls, e-mail, Internet connections, and computer files. The figure has doubled since 1997, when AMA inaugurated its annual survey, and has increased significantly over the past year.”

Matt Kramer of Control Data Systems in Minneapolis, a firm that helps companies analyze their e-mail traffic, reminds us that you can never erase your e-mail messages. “I can take my machine out in the parking lot, run over it in a car, throw it in the bottom of a swamp, never to be recovered again, and it still doesn’t matter. Because copies of the e-mail I sent to other people are sitting on servers all over the world.”

Given that companies collect data about their employees’ activities, let’s think about the types of patterns for which a firm could search:

- Employees who contact competitors or executive recruiters via e-mail or telephone

- Employees who call their home number more than three times a day more than 50 percent of the work days, which could indicate a lack of focus on work

- Employees who are failing to contribute an acceptable amount of content to the firm’s knowledge management systems

I’ve kept this list short for now, just to give you the general idea. We’ll explore these implications in far greater detail later in the book. But it’s important to recognize that until now, companies haven’t had access to nearly as much information about individual employees, suppliers, partners, and customers as they will have over the months and short years ahead.

Every day, someone invents a better way to identify, differentiate, interact with, and customize the treatment of individuals.



Bruce Kasanoff is Managing Director of Now Possible