Fast Company

Digital Matters -- Issue 45

"Customers expect more than a coupon from P G."

Given that business has never been more competitive, given that the Internet enables both richness and reach, given that peer-to-peer computing will soon offer nearly infinite processing power and data storage to everyone -- given all of the imperatives of a networked world: What is the deal with coupons?

What, exactly, is the value proposition of 25 cents off a tube of Crest toothpaste? Do companies such as Procter & Gamble really think that coupons work? Do they think that we'll be loyal to them after we spend 10 minutes scissoring out the damn slips of paper, storing them in some kitchen drawer, promptly forgetting which drawer, then hunting for them before going to the supermarket -- only to find that most of them have expired?

Companies such as P&G spend millions of dollars on coupons every year. In 1999 alone, 256 billion coupons were distributed in the United States, which is a stunning statistic because it runs counter to a central demographic fact of our age: No one has any time.

Just as important, it speaks volumes about how clueless companies continue to be about a subject that is arguably essential to their survival in the newly networked world. That subject, in the marketing argot of the old economy, is customer loyalty.

Here's the thing about customer loyalty: It's mostly a one-way street. We customers are loyal to certain companies, products, and services, but the companies that provide us with those products and services, in the main, exhibit little loyalty toward us.

Let me give you an example. I am a devoted Diet Coke drinker, a loyal Frito-Lay customer, and a dedicated drinker of Tropicana orange juice. If PepsiCo ever made one step in my direction (rewarding me for my loyalty to Frito-Lay and Tropicana), I would switch from Diet Coke to Pepsi One in a second. Likewise, if Coke would move my way on Diet Coke, I would happily toss Tropicana and drink Minute Maid instead.

But they don't. I drink a case of Diet Coke a week, and as far as Coca-Cola is concerned, that's it. Once I buy the product, that product is no longer connected to the company. Rather, it belongs to me -- and I am thus alienated. I get no discount for my devotion, no price break or special status for my loyalty. When I walk into my local Stop & Shop to buy my soda, I'm just another customer -- even though I have been drinking Diet Coke for 27 years. That's crazy. I am not just another customer -- I happen to be one of Coca-Cola's best customers.

To make matters worse, at the same time that Coke is taking me for granted, it is trying to entice my kids, through advertising, to drink caffeinated soda. That's what those polar bear TV spots are about. So not only is Coke not rewarding me, it's actually working against me (by trying to get my kids to drink a product that I don't want them to drink before they're old enough). And the same is just as true, of course, for Pepsi.

All of which goes against the basic tenets of the networked customer relationship. The whole point of a networked world is to be connected and to remain connected at all times. I don't buy the Wall Street Journal for 75 cents every day, throw it away, and then become a new customer the next day. I buy it, read it, and have read it every day for the past 25 years. Do you know what the Wall Street Journal's response is? It charges me $30 annually to use its Web site! Hello? I actually pay more annually for my Wall Street Journal subscriptions than does a new customer who gets the "special deal" for the first 12 weeks. What is wrong with that picture?

It is true that certain companies have good customer-loyalty programs. MSN Messenger enables me to make free phone calls from my desktop computer in my home office to anywhere in North America. We loyal customers like that. American Airlines, Delta, and United have given me many free airline tickets in return for my loyalty to them. We like that too. Amazon.com, Banana Republic, and the Gap frequently send us gift certificates that we can use over the Internet to buy things for our children. We appreciate that. And as a result, we are fiercely loyal to those companies.

It is also true that many companies (such as American Express, Garnett Hill, General Motors, L.L. Bean, and Washington Mutual) provide such superb customer service that we keep coming back for more. And many other companies provide a sensational customer experience, as anyone who has ever purchased a Dell computer or who has been to a Wal-Mart will attest.

But the vast majority of companies still view customers as alienable and disconnected. They think in old-economy terms. They say that they don't think that way: Their senior managers all talk a good game about customer-relationship management, customer care, customer service, and customer outreach. But in the thought bubbles that float over their heads, most senior managers see customer service as a cost center. The only customers they really care about are the ones that they can play golf with.

The networked customer relationship is one of the fault lines between the old-economy mind-set and the new networked economy. After the dotcom sector imploded last April, there was palpable glee in certain sectors of corporate America. You saw it in all the sniping at and gunning for Amazon.com. Aside from envy, companies feared that they would have to deliver the Amazon.com customer experience in the future. Amazon's enormous success in connecting with customers raised the bar of customer-relationship management to a whole new level -- to the level of the networked customer relationship. That scared the bejesus out of everyone with the old-economy mind-set because it meant that they too would have to pass the Amazon test. And the Amazon test was ferociously difficult: It meant anticipating what the customer might want. To paraphrase Jeff Bezos, it meant thinking not in terms of your competition's level of performance but in terms of your own level of performance: Were you doing everything possible to deliver a consistently excellent experience to your customers?

The collapse of the dotcoms and the industry shakeout that followed offered a hope at least that the genie might go back into the bottle -- that all of those Internet customers might forget all of those newfangled ideas about customer experience. Coke could go on selling Coke at a discount one week and at full price for the next three weeks. And then Coke's management could say, "We have a Web site," and pretend that such a proclamation somehow qualified as a customer-relationship strategy.

And it wasn't just old-economy companies that hoped the genie would go back into the bottle. Most of the dotcoms were (and still are) every bit as devoted to the idea of a command relationship with customers. Priceline.com offers customers cheap airfare and hotel lodging, but it doesn't offer customers any control over which airline or which hotel room. It's a take-it-or-leave-it deal, and once you click on the "buy now" button, priceline.com makes the decision. Once you take it, you can't leave it without paying the freight.

Last year, America Online offered upgrades that bollixed up its customers' computers so that those customers would stay within the parameters of AOL's content. And then there are a number of Internet-based businesses that shamelessly sell their customer data to whoever is willing to offer the highest fee.

Old-economy companies as well as those such as priceline.com argue that they deliver a ton of value. But for the most part, they quantify that value in terms of price and ignore the rest of the networked customer relationship. Increasingly, customers quantify value as what they value: time, convenience, or price, for example. It could be something larger, or it could be pieces of each of those things. Whatever it is, customers expect companies to understand that value is something that the customer determines. Put more simply, customers expect more than a coupon from P&G and more than a three-legged, two-airline flight to Chicago from priceline.com.

There's value in ownership. The basic idea of a peer-to-peer computing world is that information pertaining to what is bought and what is sold is "captured" by each customer and by every company. Right now, such companies as Encirq Corp. and Groove Networks, to name just two, are writing code that enables millions of computers to communicate and to share data with one another in much the same way that Napster enables the musical content of one compact disc to be "owned" by 33 million Napster users.

And in that soon-to-be-truly-networked world, there's no reason why some small percentage (let's say, 1%) of everything that I buy cannot be rebated to me in the form of stock in those companies whose products I buy. And there's no reason why that same small percentage cannot be rebated in the form of stock to everyone who buys products from Coca-Cola, Dell, GM, or Pepsi. Using a product that you own (by actually using it) is not just a killer customer-loyalty application, it's politically dynamic. It networks millions of customers to the political cause of free markets and democratic capitalism. It links your behavior as a consumer to your values as an individual. And it gives everyone a stake in the outcome.

There's also value in education. A company called UPromise Inc. enables any company to engage its customers in the future of education. Depending on how much Diet Coke I buy in any given year (and how many other Coca-Cola products I buy during that same year), some small percentage of that money can be set aside in a college-education fund. The fund might be for my children or for another child I designate. UPromise has also set up a foundation that has created a scholarship pool for youngsters who can't afford private school or college tuition. Think about the math at work here: If 1,000 companies were to sign up with UPromise and 20 million people did business with those companies, in 10 years the number of better-educated kids in America could skyrocket.

Building a better society is a terrific customer-loyalty program. It's the kind of business proposition that customers long for. If American Express or Coke or Pepsi or Verizon offered me such a deal right now, I'd never use their competitors' products again.

The winners in the new networked economy will be the companies and the leaders who understand that the game has changed forever. Winners will not meet the Amazon customer-experience test -- they'll beat it. Stock rebates and education-fund rebates are pin-sized dots on a very big map right now. But those rebates offer a peek into what customer experience and customer loyalty will be about in the future of the networked economy.

John Ellis (jellis@fastcompany.com) is a writer and consultant based in New York.

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