October 2005 Cutter Benchmark Review: The Business Value of Customer Data

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October 2005
In This Issue:
From the Editor, Gabriele Piccoli

An article in the 31 March 2005 Economist, aptly titled "Power at Last," proclaimed that new information technologies and the Internet have finally tipped the balance of power in economic exchanges to the side of the buyer. With information available on an unprecedented scale and competition looming just one click away, the Economist suggests, the customer is finally king.

While there is evidence of a power shift happening in many industries, an attentive look at what gave customers this power reveals some interesting caveats. Customers are more powerful because they have access to more information now than ever before, information that does not overload them -- at least not all the time -- because it can be effectively managed using advanced IT. Think, for example, of the last time you purchased an airline ticket. Chances are you visited one or more online agencies (e.g., Orbitz), a shopping agent or two (e.g., Kayak.com), and your favorite airline's own Web site. This process not only took just a few minutes, but you received a huge amount of information -- I found 474 fares on a recent search using Kayak -- in an easy-to-navigate, easy-to-digest format. Orbitz even offers to remember your search parameters, asks you for a target price you'd be happy with, and promises to keep searching -- alerting you only when it finds the ticket that suits your fancy.

Intermediaries, of course, have a huge incentive to offer more information to consumers in an easier and easier-to-consume format -- after all, information management is their business, and the amount of data they provide and the ease with which they provide it are the key drivers of their value proposition. But the frenzy to cater to customers' information hunger is starting to affect suppliers as well. Progressive Insurance, for example, advertises its willingness to quote competitors' offers when you are shopping for insurance products.

The increase in customer power seems undeniable and is quite frightening, particularly for commodity sellers and businesses that used to make a bulk of their profits banking on information asymmetry. But just as your customers have access to more and more powerful technology that is increasingly cheaper and easy to use, so does your organization. In fact, the typical firm has access to much more sophisticated IT then does the average customer. Armed with this technology, firms should be able to devise strategies to collect and analyze unprecedented amounts of customer data in an effort to customize their products, personalize the customer's experience, reward the most profitable customers, and attract new high-margin customers while identifying and managing low-margin ones.

For this issue of Cutter Benchmark Review, Cutter Consortium Senior Consultant Ken Collier and I devised a survey to investigate firms' perceptions of customer data. With this foundation, we tackle the issue of customer data head-on and benchmark current practice. We set out with the goal of determining the current practices and challenges that organizations face when it comes to collecting and using customer data. Then we each offer up some guidance and ideas focusing on the strategic possibilities of customer data use.

In my contribution, I propose to start with developing a sound appreciation of the possibilities (and constraints) that the industry in which you operate creates. I then offer a framework designed to help you prioritize amongst the many possible initiatives that may be available to your organization at any given point in time. At this level, my work links with Ken's.

In his article, Ken provides suggestions for how to develop a compelling business case for initiatives that leverage customer data. He offers a convincing framework for decision making, including a roadmap for developing a customer analytics strategy, and a thorough discussion of the technical infrastructure and data acquisition strategies needed to enable such initiatives.

As the new editor of Cutter Benchmark Review, I am quite pleased with the introductory issue of our new format. It captures our vision for what CBR should do and offers a compelling example of the value proposition we will provide monthly to our readers.

-- Gabriele Piccoli, Editor, Cutter Benchmark Review