CHAPTER 1

First PrincipleHonor the Customer

Because the customer has a need, we have a job to do.Because the customer has a choice, we must be the better choice.Because the customer has sensibilities, we must be considerate.

Because the customer has an urgency, we must be quick.Because the customer is unique, we must be flexible.Because the customer has high expectations, we must excel.

Because the customer has influence, we have hope of more customers.Because of the customer, we exist.

—Anon

Strategically

Honoring the customer aims at building a lifelong relationship.

Tactically

Honoring the customer aims at satisfaction with every interaction.

If the customer doesn't purchase your product or service, nothing else matters.

Sun Tzu's "customers" were the people—the citizens of the empire. In marketing,people are our customers, and our customers are king—we serve at their pleasure.

SERVE YOUR CUSTOMERS

Every aspect of marketing must focus on the customer. He or she is the judge andjury of your marketing and your business.

The ultimate objective of marketing is to produce products and services that notonly satisfy customers' needs but delight them, so they will return and buyagain. Marketing is all about winning and retaining customers. Use the customeras a compass to determine the direction of your marketing programs. Customerfeedback tells where you should be going. If you do not have marketing data toguide your business, at the end of the day you will not have a business.

So we need to concern ourselves first with the principle "Honor the Customer."To serve our customers, we need to

• Know who they are

• Know what they want

• And give them what they want

We serve our customers by giving them what they want, when they want it, betterthan anyone else. Let's be clear:

• Not everyone is a potential customer. The breadth of our products and servicesdetermines which people are our customers. Equally important, we are, in effect,declaring which people are not our customers.

• We determine how we will serve customers. We meet them at the intersection ofour business proposition and their specific needs.

This is where the timeless "positioning" comes in. A positioning statement keepsan organization on task. And it creates clarity among your employees and yourcustomers as to how you will serve your customers well.

The positioning statement identifies:

• Your target customers

• Your business

• The benefits you offer your customers

• Why your customers will prefer your products and services

TARGET CUSTOMERS

You must know more about what your customer needs than the customer knows. Ifyou do know your customer, and if you do bring real value to that customer, thetwo of you will be doing business for life.

Your target customers are those customers you can serve particularly well, basedon your company's strengths. These are the customers who care about what yourcompany cares about—and you care about them.

• If you don't care how you look, you are not a candidate for expensive Europeanfashions, and companies that sell those fashions should not be targeting you.

• If you don't like to read, you should not be a target customer for magazinesales promotions, retail booksellers, or publishers.

People who care about what you care about are more likely to recognize thequality of your product or service offering—and be willing to pay for it. Yougrow your margins over time by finding a group of customers whom you want toserve, and who want to be served by you. If you are loyal in serving theirneeds, they will be loyal to you. And you will be able to charge a fair price inany economic climate.

YOUR BUSINESS

Defining your business always sounds so simple—but it isn't. Defining it wellallows you to differentiate yourself from competition. A clear definition willhelp you allocate your resources in a unique manner that serves your customers.You will win customers in new and unusual ways.

Consider Harley-Davidson. What business is it in? Maybe "motorcycles." Maybe"big touring motorcycles." But look at all the Harley events the companysponsors. Maybe it is actually in the "entertainment" business. Any of thesebusiness definitions could make sense and provide guidance for future growth.But Harley-Davidson was once owned by AMF, a big sporting goods conglomerate.Along with Harley-Davidson motorcycles, AMF made volleyballs, and outboardmotors, and bowling lanes! What true consumer need united those products? None!Eventually that showed up in bottom-line performance. On its own, Harley-Davidson has true clarity about the business it is in.

Remember the Beatrice Company of the 1980s? It owned Stifle lamps and a sausagecompany. Give me a break! In this case, the company simply got broken up.

Knowing what business you are in is a long-term, viable, consumer-driven way toensure your investors of a superior return on their investment.

THE BENEFITS YOU OFFER CUSTOMERS

Customers don't really care whether you are in a particular business. Theyshouldn't care. Your focus is on giving them reasons to care about what is in itfor them.

The act of buying starts with a customer need. As the customer considers actingon that need, why should your product be the one she or he selects? Answeringthat question focuses your efforts on where you make contact with yourcustomers. It is the timeless wisdom of Sun Tzu again: Where do you want tofight for their business? Name your battleground. It is your choice, so pick aspot that is inherently advantageous to your company.

If your costs are not the lowest in your industry, don't pick low prices. Searsand Kmart did that and lost because they had high costs.

If your people are not the best and most motivated, don't pick customer service.Howard Johnson did that—if you don't remember the name, the company operatedhotels and restaurants. Its customer service was undistinguished.

If you can find nothing that distinguishes you from the competition, picksomething, and make your organization better at that "something" than anyoneelse.

CUSTOMER PREFERENCE FOR YOUR PRODUCTS AND SERVICES

This is gut-check time on positioning. What is your company really about? Whenit is time to dig deep, where do you dig?

Why do so many people swear by Dell computers? You can't really go anywhere tosee them. They use the same processors as anyone else. Their pricing seems fair,but other computers sell for less. There is something in Dell's overall serviceand reliability position that makes people fans.

Dell's positioning seriously considers customer service—and customers give thecompany great credit for its service.

Being a valued lifetime supplier goes beyond delivering a product or service.You need to delight the customer. Whatever it is that makes you a preferredsupplier must answer the customer's question, "What does it do for me?"

The customer is the force that drives your business. Think about the customer'sproblems and how to solve those problems—forget yours.

SIMPLE IDEAS, EXECUTED WITH GUSTO, HAVE A TENDENCY TO WORK

Simplicity powers many good ideas. If an idea is simple, both employees andcustomers can understand it. Every fiber of your organization can be harnessedto a simple idea.

How does simplicity differentiate your company and build a future? By creating atowering strength your competition can't copy. Simple execution followed bysimple execution adds strengths that can be difficult for competitors toemulate.

Southwest Airlines provides good service. It has a strong on-time performancerecord. Its employees have a great sense of service. A lot of people preferSouthwest to its competitors.

In the Northeast, JetBlue airlines has been creating these same feelings.

What do these two airlines do? They live their mission throughout the workforce;everyone gets involved in getting planes out on time and serving customers. Insome areas, however, they do less:

• They fly fewer varieties of planes.

• They serve fewer meals.

• They have less complicated fare structures and fewer fare restrictions.

In these instances, less is more. These airlines screw up fewer things. Have youever heard anyone complain about the food on Southwest? Nope, since Southwestdoesn't serve you a meal. Have you ever heard anyone complain about a seatassignment on Southwest? Nope; Southwest doesn't have assigned seating. Do youhear people complain about being late on Southwest? Not nearly as much as peopledo on other airlines; operating just one kind of aircraft has contributed tohistorically strong on-time performance—and lower operating costs.Southwest and JetBlue don't have the best frequent flyer program. They don'thave the most destinations. But they sure are building customer loyalty.

Wal-Mart is now the largest company in the world. In survey after survey,customers say they don't like its service, and they don't like the conditions ofits stores. Wal-Mart customers don't like the congestion of its parking lots.Customers like just one thing: the prices.

Wal-Mart's success is built on the customers' perception that it delivers goodprices on everything from lawn mowers to dish detergent to blue jeans. Through acombination of logistical efficiency and technological prowess, Wal-Mart is ableto move shelf-stable goods to customers at a low cost. In those areas, Wal-Martthrives and grows.

Wegmans Food Markets is popular in the Northeast among customers who like tocook or have a high appreciation for food. Over time, the company built thisimage—one program at a time. The prepared foods areas are an example. First,Wegmans offered Chinese food, prepared authentically in-store. Next, it offeredhot meals to go at a few stores. And over time, with some experimentation, thatworked. Later came in-store quality pizza shops. And after that, sub shops.Still later, French patisseries were added for dessert. This is simpleexecution, followed by simple execution, all targeted (and relevant) to the samecustomers.

ARE CUSTOMERS MAKING SACRIFICES TO PURCHASE YOUR BRAND?

The best indicator of loyalty is whether your customers are making a specificeffort to purchase your brand. How do you identify whether customers are makingsacrifices for your brand? Not big sacrifices, but little, everydayinconveniences.

If you are a retailer, are customers driving a little farther to shop at yourstores—maybe occasionally driving past a competitor to get to you? Then you arebuilding customer loyalty.

If you are a manufacturer of consumer goods, are your end customers reachingpast your competitors' products to get your goods? Will your customers changewhere they shop in order to get your brand? If so, you are building customerloyalty.

If you are a business-to-business marketer, are your customers willing to paymore for your product than for a competitor's? If so, you are building customerloyalty.

Sandy Beal, the chief executive officer of Ruby Tuesday's restaurants, says hiscustomer service creed is, "The answer is yes. Now, what's the question?"

FIND OUT WHAT THE CUSTOMER THINKS

Don't prioritize according to your needs. Don't guess about the customer'spriorities. Ask your customer about his or her priorities, then prioritize youractions according to your customers' needs. Talking to your customers on aregular basis is common sense, and doesn't cost much.

At Hyatt hotels, the executives become bellhops and waiters for 1 week each yearin order to reach out and touch the customer. At Procter & Gamble's productmanager seminars, one day is spent talking to customers in stores. Why is itthat actions like these are not common and that people are always so surprisedat what they learn when they talk to customers?

Because marketing people know customers, marketing people know the direction thecompass is pointing for future business.

Don't get into the rut of fixing the same customer problems over and over again.Get the information from customers concerning shortcomings into a form that yourorganization can use to improve its performance. Continuous improvement, drivenby feedback from customers, is a fundamental component of good marketing.

If what you are doing is not providing benefits that customers recognize, stopdoing it. Forget the dollars you have spent to provide the product or service.It's not the way you've always done it that counts. What counts is what thecustomer wants.

Explore with your customers where you are falling short (they will probably giveyou credit just for listening!). Turn the problem into a positive by showingcustomers how responsive your company can be.

Without the loyalty of your customers, your business doesn't have a securesource of future profits. It all starts with your customers.

It's simple but true: Happy customers come back again and again and again.

CHAPTER 2

Second PrincipleOrganization of Intelligence

What is needed in waris to obtain the name of the enemy leaderand decide on his capacity,so as to calculate what his plans will beand make use of this surveyto obtain success without great difficulty.

—"Wu Chi on The Art of War"Third Century B.C.

Strategically

Intelligence reduces surprise and focuses plans.

Tactically

Intelligence helps you take calculated risks.

Know your market as well as you know yourself.

Military commanders are divided over whether good intelligence or a soundobjective is the primary consideration for success. In marketing, there is noquestion about it. This often-repeated story about the dog food that isn'tselling tells it all: At a meeting where members of the headquarters staff aretrying to determine why the dog food isn't selling, various reasons for the lackof business are presented. One bureaucrat says it's poor packaging; anotherblames bad advertising. All kinds of imagined weaknesses are suggested. Finally,someone who has been out in the market points out that the real reason why thedog food isn't selling is that the dogs don't like it. The lesson: The market isthe best source of information. Marketing research is the business system thathelps you determine the market for your products and services.

The German field manual Command of Troops says, "Confusion concerning thesituation is a normal state of affairs. Only rarely will exact details of theenemy be known. While the attempt to find out about him is a matter of course,waiting for news in a bad situation is a bad error."

A good formal and informal intelligence system coupled with good marketingpractices puts you in the business of managing risks instead of taking risks.

INFORMATION PROCESSING SYSTEMS

Organizing, synthesizing, and disseminating information is a major problem inevery organization. Most companies are plagued with "islands of information."Many people know many things, but no system exists to put it all together forverification and application to specific objectives.

Uncertainty surrounds many of the issues that challenge the customer-drivenleader. The antidote for uncertainty is more relevant information. However, moreinformation requires more processing time, and not all information is useful.Too much information can make it difficult to separate the useful from theuseless.

The ultimate solution is a combination of

• Structures that size the decision making

• Good information at all levels

• Personal reconnaissance on the part of the ultimate decision maker

• A predisposition to take action on information gained

With good intelligence systems, we make the invisible become visible. Successfulstrategy needs good information. Good information is a product of goodintelligence. Whatever warnings we're going to get about the future, we alreadyhave. Analysis of major events proves that maxim. Postmortems of the World TradeCenter disaster or the breakup of the shuttle Columbia indicate that criticalinformation was ignored. The problem is sifting through the data prior to anyincident to determine which information is critical for taking the correctpreventive course of action.