The Road to One-to-One Marketing
Many are calling it the smartest new way to make any company more valuable to its customers -- and more competitive. Can one-to-one marketing work for you? It has for Capitol Concierge
Like every company builder who finds success, Mary Naylor has more than once been blessed. Some of her good fortune was standard issue: Her two investors turned out to be "phenomenal mentors." And her hometown of Washington, D.C., turned out to be the perfect locale for her company, Capitol Concierge -- which sets up concierges in office-building lobbies to provide personal and business services, from picking up dry cleaning to managing a catered lunch.
But the best blessing was one few founders would deem a blessing at all: the business Naylor stumbled onto turned out to be so demanding that survival depended not just on satisfying customer needs with alarming proficiency but on learning enough about customers one by one to anticipate their needs even before they knew they had them. For Naylor's company, now at $5 million and expanding fast enough to make last year's Inc. 500, great customer service was just the market's cost of entry. What was required to stay alive -- let alone grow -- was one-to-one marketing.
Which would have been fine, probably, if Naylor had known what it was.* * *
Today savvy marketers everywhere rue the runaway costs of acquiring new customers. The savviest, one of whom the 32-year-old Naylor has determinedly become, go further. They've responded to those costs and a host of other competitive pressures by focusing not on accumulating more customers but on getting more business from the customers they already have. They aim not to find customers for their products and services but to find products and services for their customers -- the deceptively simple theme of the recent business best-seller The One to One Future: Building Relationships One Customer at a Time. ("You can reduce almost every principle in the book to that basic truth," says coauthor Don Peppers, a former advertising executive.)
One-to-one marketing borrows from several popular marketing concepts: relationship marketing, database marketing, customer-satisfaction initiatives, and even airline frequent-flier programs. It champions the use of now-popular technology to identify, track, and interact with individual customers -- noting "every transaction, every time they call to ask a question or make a complaint," says Martha Rogers, Peppers's coauthor and partner on the lecture circuit. (See "Ask the Marketing Doctors," [Article link], for the pair's advice to the sales-lorn.) Dale Carnegie meets Bill Gates? Sort of. But it's not as expensive or time-consuming as that sounds -- not given how much more profitable it is to win repeat business than to chase new prospects. And if technology is the glue of one-to-one marketing, you still needn't be a Net head or an ACT addict to get started. You just need a different point of view. Forget market share and economies of scale. Think customer share and economies of scope. Fortunately, the customer-share mentality comes easily to entrepreneurs. The corner grocer was the original one-to-one marketer.
Nowadays, Speedy Car Wash, in Panama City, Fla., inputs license-plate numbers to instantly identify customers by name and retrieve information about previous visits, such as whether they like the trunk vacuumed or the window seams washed -- or whether they are due a discount on waxing. A Seattle country-music station sponsors not only a listeners' club but also a toll-free line listeners can use to respond to individual ads. You may have heard of Peapod, the Chicago virtual grocery store that takes your order by PC and remembers your brand of peanut butter. In Burlington, Mass., Individual Inc. produces a customized business newsletter that's downloaded to your fax or computer. And Oriental Trading Co., an Omaha direct marketer with millions of customers, responds individually to people who order Alleluia kites, Jesus Loves Me bracelets, and praying-hands stickers from its main catalog by sending them its Inspirations catalog.
Smart and economical tactics, all. In fact, Peppers and Rogers's one-to-one tract might have been subtitled "How to Beat the Big Guys by Changing the Rules" -- except that the big guys are doing this stuff, too. Federal Express's intricate package-tracking system reveals worlds about its corporate clients. If you subscribe to Time, you may have noticed a recent offer from Godiva with your name on it -- fill out a survey and receive a chocolate-dipped strawberry. And Levi's custom fits blue jeans according to your measurements.
In short, one-to-one marketing is fast becoming a competitive imperative. As companies learn more about their customers, they will use their newfound knowledge to create, borrow, or broker goods and services for loyal clients. In the one-to-one future, a lot more companies will look like or partner with operations such as Capitol Concierge.
For Capitol Concierge, that future is now, and it has been three years in the making. Though the company was founded eight years ago, it was not until 1992 that Mary Naylor began to discover how valuable she could be to her harried clientele -- lawyers, lobbyists, office managers -- when she could anticipate and solve their individual everyday problems. She began to discover a system. Today if the customer has a wish, and if it isn't illegal -- and there have been those requests -- Capitol Concierge makes it come true. It does so from concierge desks in 85 buildings, housing 1,700 companies and close to 50,000 people, in and around the District of Columbia.
Of course, it was not always thus. In those first years, Naylor certainly didn't feel blessed. How could she -- what with all the nights spent standing in the rain outside RFK Stadium, trying to score some customer an impossible-to-get concert ticket? "I was establishing the service, the magic wand, that could make things happen," she says. But it wasn't so magical when she and her staff searched frantically for missing suits at a dry-cleaning plant. For the first few years, it wasn't even clear she had a viable business. Naylor knew how to please customers, but she was losing money at it.
And yet, by struggling to get it right, Naylor worked her way toward a competitive approach that now informs every operating decision she makes.* * *
It seemed back in 1992 that capitol Concierge should have been hitting its stride. Sales had risen to $2.4 million the year before. Profitability appeared near. Naylor employed more than 55 people.
Once an anomaly, concierge desks were a familiar trapping in prominent Washington buildings, and expansion possibilities abounded. Concierge to Capitol Hill? Naylor considered it. Indeed, she could consider lots of things, since she was no longer running around making rush-hour deliveries personally.
Naylor's start-up vision had suffered some revamping, but whose doesn't? When she chanced upon a story in 1987 about the first commercial concierge service, she was just two years out of college and only 24 years old. She visited the California company and saw guys in Hawaiian shirts running errands. She knew she'd have to create a more professional look for D.C. but went home excited nonetheless. Her mother lent her $2,000 and a room in the basement.
At the time, Naylor figured she could charge property managers $5,000 a month to put a concierge on-site (she was right) and knew she could cover her expenses and make a profit on those fees alone. She did, however, also see the potential for selling √ la carte errand services to individual executives, middle managers, and executive assistants. A little market research revealed that an average office building's tenants could spend hundreds of thousands of dollars per year on catering alone and that the typical office worker spends an easy two grand a year on dry cleaning, flowers, film processing, and the like. But Naylor viewed the service sales as icing on the cake.
It took her eight long months to land her first customer. "Everyone said, 'This is a great idea, but I don't want to be your guinea pig. Come back when you've done it." The John Akridge Co., a well-respected regional real estate company, took a chance on Naylor. She hired her first concierge and ran around like a madwoman, picking up tickets, videos, food, and more. She wrote Akridge's tenant newsletter. "I did everything," says Naylor.
Then almost as suddenly as she was in business, Naylor had four competitors, who ate into her market share. Worse, their predatory pricing forced her to cut her own building fees by half. There went the profit model. When several rivals folded within a year -- the IRS saw to that -- Capitol Concierge picked up their "abandoned" buildings left and right. "It was great -- and insane," Naylor attests. And life-threatening. Her newly bone-thin margins left no funds for expansion. She raced from bank to bank and maxed out her credit cards to meet payroll. "Lifestyles of the poor and pitiful," she called it. With her accountant's help, she landed two angel investors, one the owner of a travel agency, in the nick of time. She managed to keep growing -- but sales of individual services weren't just a bonus anymore.
Those individual sales didn't come fast enough. By 1992, even as Capitol Concierge somersaulted toward $3 million in revenues, Naylor could no longer ignore the obvious: to become reliably profitable and give her company a chance to last, she had to shift her focus from getting more buildings to doing more business inside the buildings she had. "Adding buildings alone wasn't the answer," she says. Her managers -- several top-notch concierges who'd moved up in the organization -- knew it, too. "We started looking at the numbers more," says Dana Wright, who has devoted much of her time to developing customers rather than product lines.
This is what the numbers said: although total concierge-driven service sales had doubled and tripled nearly every year as dozens of buildings were added, they still lagged far behind the building fees. With all those people in all those buildings, that hardly seemed possible. Personal service was the hallmark of the business.
What was lacking, Naylor and her team concluded, was a consistent system for developing ongoing relationships with individual customers. So in the middle of 1992, Capitol Concierge began its three-year trek toward one-to-one marketing.* * *
A close look at the service-sales problem told Naylor plenty. The performances of different concierges varied widely. Some concierges were naturals; Michelle Heskett went from 0 to 1,000 clients in a year. Others -- most, unfortunately -- wore a pretty smile but were more reactive than proactive in addressing customers' needs. As a result, lots of stressed-out middle managers remained unaware of Capitol Concierge's one-stop-shopping potential. Though the company had spent years painstakingly constructing a network of 50 vendors -- florists, courier services, travel agents, and the like -- to whom it could turn to meet its customers' needs, "many clients used us for only one service and had no clue about the rest," Naylor admits. She admits, too, that the service-sales marketing challenge was bigger than she'd imagined. "It takes a lot of trust for someone to hand over their to-do list."
Naylor blamed herself for some of the problem. She'd had little time to focus on relationship marketing during the go-go start-up years. She and her small staff were forever engaged in interviewing and basic training. Now she would make up for lost time.
She decided to take three specific steps. First, she and her managers would develop a system to formalize how the company would interact with current and potential customers -- a one-to-one-marketing system, though Naylor didn't know to call it that at the time. Second, she would train concierges to make the system work for them. And third, she would revamp her hiring practices to ensure she got potentially effective employees in the first place.
Steps one and two were taken together. Capitol Concierge's marketing manager was dispatched to the field to help install a consistent operating system. Previously, each concierge had her or his own marketing notebook, calendar, scrapbook, or photo album. Some kept "service cards" that tracked birthdays, anniversaries, and who was interested in which services. It was crude, but it was at least some record when concierges turned over, as they did every 18 months or so. The cards also allowed for some basic targeting of flyers. "But," notes Dana Wright, "if somebody says they're interested in dry-cleaning services, that doesn't tell you a lot about the person."
It was the marketing manager's job to help the concierges personalize their service, track their activities, and create monthly goals. The initial plan targeted office managers. The concierges made presentations one office at a time. Meanwhile, back at headquarters, Naylor was starting to rank individual buildings and tenants -- a crucial one-to-one component. Who was using the service the most? Which buildings or individuals were the most profitable? Could she get more of their business?
The "executive focus" program, conceived in late 1992, was a more detailed and professional attempt to gather information about individuals and industry-specific issues -- what lawyers need versus what accountants need, for instance -- so that the concierges could double their efforts to target services, offers, and information to specific people. Naylor took inspiration from envelope king Harvey Mackay, whose exhaustive "66 questions" customer profile delves into everything from spouse's name and hobbies to business goals. The concierges started with a list of five individual executives to get to know. The new client dossier was more detailed than the old service card. "How does the client enter the building?" was one question it asked (via the lobby? parking garage? side door?). It prompted concierges to note how clients preferred to receive service information, as well as the names of the client's clients.
The executive-focus program looked good on paper, but some concierges were afraid to ask questions, lest they resemble uncouth salespeople. The new program didn't take off until Capitol Concierge held its first-ever executive roundtable, in January 1993. For many concierges, it was a one-to-one-marketing turning point -- hearing from both current and prospective clients about how, why, and when they'd like to be personally contacted about services. "It was very liberating for concierges to hear them talk," says Naylor. It was the encouragement hesitant concierges needed to call a tennis fan with news of the Washington Tennis Classic. Or to remind a busy working mom of her car-inspection date -- and take care of it before she even thought about it. "That's not selling," Naylor had always told the concierges, "that's proactive service." Hearing it from the horse's mouth, they now believed her. It also became clear that concierges could help tenants with their own customer-retention needs -- in essence, helping them do relationship marketing.
Top-performing concierges, who'd already mastered the art of anticipating client needs, were tapped to be roving coaches (there are 3 now) and team leaders (there are 15). But for all the new programs, teamwork, and prompting, it became more and more obvious that some concierges were unhappy and just plain no good at the work. "We had to let some people go," says Naylor, who was clearly reluctant to do so. She faced facts: "We had to educate ourselves on how to hire."
In the summer of 1993, Naylor brought in a hiring consultant to learn about personality testing. Could the best concierges be cloned? Well, not exactly, but the most effective ones seemed to have certain characteristics in common -- and isolating them proved helpful in recruiting. Debbie Pearson, who knows by name some 550 of 800 people at 1350 I Street, was tagged as the ideal concierge. Dana Wright, working with the consultant, studied the habits and demeanor of Pearson and a handful of others to come up with a composite personality profile. The ideal concierge was extremely outgoing but a solid team player. By the end of the year, Wright could match the characteristics of prospective hires against the ideal. The predictive index is the company's most powerful tool for reducing bad matches. With the ideal profile in mind, Naylor and her managers began seeking out exemplary retail workers in malls, handing out business cards listing four reasons they should work for Capitol Concierge.
In fact, Naylor and her managers became so good at hiring, a new problem arose: corporate customers were stealing their employees. "Sometimes you wanted to say, 'Quit it!" says Wright. But it was a price they were willing to pay. Naylor wanted to spend her time and money training the kind of people who would be in demand.* * *
The fixes worked, or began to, anyway. Capitol Concierge finished 1993 with $3.8 million in sales, 70 employees, and the 475th spot on the Inc. 500. Its net profit? In the 1%-to-5% range. Not great, but on the rise. The business model, once so cloudy, was now clear. The company would make its money as a commissioned broker of products and services. Vendors paid an average of 15% of sales to Capitol Concierge, which in turn shared the profits with the individual concierges. Vendors even participated in training and staffwide rap sessions. All of that was good for relationship building. But not good enough. The concierge channel -- sales of individual services -- grew only 33% in 1993, to $1.7 million in sales. That was still way off Naylor's projections, given the increase in the number of Capitol Concierge-served buildings. Without service-sales growth, profits wouldn't hold up.
Capitol Concierge's new marketing motto was "Consider It Done." But Naylor wasn't done. She realized she had to automate -- another one-to-one linchpin -- to get the most out of relationship marketing. The knowledge that Mr. Hall sends Oceana roses to his wife and to clients throughout the year resided in a marketing notebook somewhere, but that didn't make the information accessible enough to ensure it could be capitalized on. To finish solving the service-sales problem, Naylor realized, she had to build a centralized system that automated the collection and use of information gathered in the field through sales transactions or marketing questionnaires. Unfortunately, she considered managing technology to be one of her weaknesses.
It seemed as if all her colleagues in the Young Entrepreneurs Organization had already become automated. In 1993 Naylor and her managers began visiting companies to study their computer systems. They took a course on how the Ritz-Carlton hotel chain approaches database marketing. They started asking around for the names of programmers.
The idea of building a marketing database wasn't brand-new inside the company. Its first effort, the Capitol Concierge Request Tracking System, created in 1989, led to regular activity reports for the property managers, letting them know how many and what kinds of functions were held in their buildings. The system, designed by a local Macintosh programmer, produced great marketing reports but died out because it wasn't hooked up to accounting.
Naylor wouldn't make the same mistake twice. She considered popular off-the-shelf programs such as GoldMine, ACT, and Pack Rat but rejected them all. She needed more room and flexibility to record notes about everything from cake messages to vendors' backgrounds. She also wanted a database tied directly to her Great Plains accounting system. In the fall of 1993 she met with Dan Johnson, of Pro Systems, in Gurnee, Ill., an authorized Great Plains software developer.
In 1994 they got down to business. What, exactly, would the system track? There were two parts to it: one, historical requests -- what Naylor terms a "reactive" approach to marketing; and two, clients' preferences -- a proactive approach that uses information from Mackay's 66 questions and Naylor's executive-focus program to trigger future transactions.
Naylor wanted the system to reflect the best concierge practices, but that was easier said than done. In the course of automating, she had to ask herself hard questions. Who were the 20% of customers generating 80% of sales? Were they indeed the most valuable long-term customers? What was crucial to learn about VIP clients? What would she do with the information once it was on the computer? How would she protect personal information about individual customers? Last but not least, how could she get her de facto field sales force to buy into the new system?
Above all, Capitol Concierge desperately needed a streamlined order and invoice system. Too often, concierges called the shots, and occasionally they forgot to tell the home office about an order. Also, Naylor couldn't tell half the time whether her sales were profitable. Because vendors billed her at different times, the cost of goods sold never lined up with sales. Her new computer system was designed to solve both problems. Now concierges must call in or fax all orders to the home office, where they're entered into the computer. A confirmation is faxed to the vendor, making the order official, and to the concierge. The confirmation also prompts Naylor's accounting system to generate an instant invoice. That means Capitol Concierge pays its bills sooner but also is paid sooner, in real time, so that orders can be matched against the cost of goods sold.
Naylor's new system included another neat feature: the ability to generate a purchase order every time the computer's tickler function projects that a concierge should write an order -- on someone's anniversary, say. That would enable Naylor's team to track results. Were they getting all the sales they should, given the customer information they possessed? A mock order was attached to every tickler. Building in a tracking mechanism was crucial to measuring return on investment and repeat business.
As Naylor lurched toward a central system, she kept in mind that only 2% to 10% of a given building's population used her service, and Capitol Concierge had captured only 10% of the average person's business. Those figures underscored the opportunity the company was presented with -- and kept Naylor's attention well focused during the year-plus process of developing, testing, and tweaking the marketing database. (In the end, she'd spend $100,000 on software and hardware.) In January 1995 the company entered the first orders into the system. Soon after, property managers and vendors began asking about it. Her dry cleaner agreed to download orders directly into the system, saving Naylor painstaking labor. The system was beginning to click.* * *
At capitol concierge's office one Friday afternoon in June, Mary Naylor and several managers are hunched over a computer. The PC screen glows with the company's latest experiment in one-to-one marketing: an electronic storefront on the new AT&T Interchange, an America Online wanna-be cosponsored by the Washington Post. Capitol Concierge is testing its site with a Father's Day promotion. "Wow, look at how fast the graphics fill in," someone says.
The screen shows how far Naylor has come and how far she must go. In 1994 she achieved sales of $4.9 million with 98 employees. Service activity just about caught up with building fees.
Now, here she is on the forefront of interactive marketing. A page on the World Wide Web is on the drawing board. She's poised to become concierge to all of D.C. and perhaps beyond -- and she doesn't even need a concierge in every building to do it. She's seen the future, and it's home offices and something called "office hoteling," the latest catchphrase in the brave new world of outsourcing and virtual operations. Earlier this year Capitol Concierge kicked off a 24-hour program for Deloitte & Touche. The accounting firm's traveling agents use Capitol Concierge as a virtual valet, with the first $100 in services provided free by their employer. "Call x4164 and consider it done," promises Naylor's brochure.
And yet, Naylor is still racing against the clock to get the crucial information about individual clients from paper to computer. She's worked up a new information-gathering form, an ambitious four-page "service planner," but she has no idea whether lawyers and office managers will fill it out. She'll need to hold more customer roundtables and confer with her concierges. The education process continues. Wright meets Friday afternoons with small groups of concierges to bring them slowly onto the system. Naylor has the staff reading The One to One Future.
Today every new concierge receives a six-month planner, an essential 12-page blueprint for making friends and influencing people -- focusing first on the building staff, then on relationships with individual tenants, office managers, and executives. Customers for Life (see "Resources," below) is required reading. All concierges complete a monthly service-activity summary -- not unlike a sales report -- detailing how they've spent their time. The summary tallies new clients, special events held in the building, activities in progress, office presentations, key client meetings, prize drawings, and note cards sent. Also recorded: examples of going the extra mile for a client and unusual requests. "One man asked me to research hair-bulb transplants for him," a concierge recently wrote, "and a woman was interested in canine vacation kennels."
Hair transplants and pet vacations -- who could have known? It's that kind of quirky, utterly individual customer information that normally gets lost when a salesperson or customer-service rep leaves a company -- but it's exactly what Naylor's one-to-one system holds on to and puts to use.
"This has been a three-year journey for us," Naylor says simply. And it will probably take another three years to get the whole approach humming. She's already faced "every conceivable problem," she says, knowing, in fact, that some as yet inconceivable ones are sure to arise down the road. But she's learned from her struggles. And she knows she's ahead of the one-to-one-marketing curve.
Her view of the competition is different now, because Capitol Concierge has remade the rules. It's not the two other concierge services in D.C. that attract her competitive attention. Without hesitation Naylor says, "It's the florist and the dry cleaner in the suburbs."
She who has the best information wins.
HOW TO BE A ONE-TO-ONE MARKETER
The Inc. Cheat Sheet to the Seminal Tome
Simplified, one-to-one marketing requires learning enough about individual customers to identify which are most valuable to you and then tailoring your product or service in a way that enhances your company's value to each one.
The bible for practitioners of the approach is The One to One Future: Building Relationships One Customer at a Time, by Don Peppers and Martha Rogers, two former ad executives. Here, culled from its contents, is a tip sheet for would-be one-to-one marketers.
Identify your customers, or get them to identify themselves. Consider all options for collecting names: sales transactions, contests, sponsored events, frequent-buyer programs, 800 numbers, credit-card records, simple survey cards, and quick one-question polls when customers call.
Link customers' identities to their transactions. Credit-card records are especially useful but not necessary. The best way to build individual customer transaction records is often to approach business differently. Consider Staples' and Waldenbooks' membership clubs. Inexpensive contact-management programs also make it possible to link information about purchases with people.
Calculate individual customer lifetime value. Knowing what a customer is likely to spend over time will help you decide which customers are most desirable (because their business is more profitable) and how much to invest in keeping them. In this light, unusual and seemingly expensive offers can make powerful economic sense. Rogers and Peppers imagine an innovative diaper company that gives away a changing table in exchange for the expectant mom's business "for as long as your baby needs diapers."
Practice "just-in-time marketing." Whether for cars, computers, vacation packages, or accounting services, there's a purchase cycle that can be measured in months or years. Identify when a customer is planning to buy the next PC or BMW, and enter the customer's shopping process. Time your marketing material to meet that person's needs, rather than your quarterly sales goal. Send handwritten postcards or preprinted work-sheet forms with a new catalog, for example.
Ratchet up your customer-satisfaction program. Even your customer-survey questions can be tailored to a customer's wish list, business issues, and so on. Customizing what you say to customers takes time, not money.
Treat complaints as opportunities for additional business. Call back complaining customers; don't make them chase you down. By responding quickly, you can turn a complainer into an advocate for your product.
Enhance your product with information. Build in some form of information that will keep customers coming back. For example, a tofu maker could provide stir-fry recipes to those who respond to back-of-the-package coupons.
Don't talk to strangers when you're recruiting new customers. Always try to approach a prospect through a friend of that prospect.
For More About One-to-One . . .
From Currency Doubleday (800-323-9872): The One to One Future: Building Relationships One Customer at a Time, by Don Peppers and Martha Rogers, 1993, $22.95; and Customers for Life, by Carl Sewell and Paul Brown, 1990, $24.95
From Irwin Professional Publishing (800-634-3966): The New Direct Marketing: How to Implement a Profit-Driven Database Marketing Strategy, by David Shepard Associates, 1995, $60, the second edition of this how-to bible; and Strategic Database Marketing, by Arthur Hughes, 1994, $35
From IDG Books (415-655-3200):
ACT for Windows for Dummies, by Jeffrey Mayer, 1995, $19.99; salvation for those who have had ACT sitting unused on their computers
Business-to-Business Database Marketing, sponsored by Dun & Bradstreet Information Services, October 23-25, in Dallas. Call 203-857-5660 for more information.
Great Plains Software maintains an extensive list of applications for a variety of industries. Save time and money by adapting an already-tested system. Call 800-456-0025 for names of developers.
With "on-demand printing," it's just as easy to produce 5 pieces as 5,000. There are several vendors. One is R.R. Donnelley's Digital Division; call 312-326-7260 for details.