Data, data everywhere, but ne'er the time to think. That is the state of most companies' knowledge of their customers today. "Know your customer" is one of the most widely used maxims in business. Yet, many companies devote little thought to improving their own understanding of their customers, or using insight to drive actions.
Elsevier Food International, Vol. 6, Number 1, February 2003
Brian Kalms

Often companies have been discouraged by previous efforts, such as failed data warehousing projects or unsuccessful attempts to persuade sales personnel to document customer interests. Many companies that do seek to improve their customer understanding take limited measures, such as conducting a study of customer profitability, implementing a new CRM software product to improve sales force effectiveness or performing high-level segmentation for direct marketing. Too often these efforts provide improved efficiencies, but yield little in the way of improved useable customer insight.

Recent research reveals that the best companies within any particular industry derive as much as six per cent of additional operating margins in certain areas, simply by having a better understanding of their customers.
In our research of 100 leading companies, we identified multi-pronged approaches that allowed these companies to develop superior customer understanding. We noted that all were tackling the challenges simultaneously on many fronts, combining both transaction-derived and human-based knowledge. While specific tactics differed in many respects, the leaders excelled in three areas: strategic focus, knowledge creation, and organisation integration.

Strategic Focus
A company's market position and corporate strategy must be broadly understood before pursuing a customer knowledge initiative. While it might be nice to be thoroughly knowledgeable about every customer, the reality of resource constraints dictates that there be an emphasis on some highly valuable subset. Leading companies focus their resources on the most valuable customer segments. Microsoft, for example, shifted its emphasis a few years ago to understand the needs of chief information officers because it anticipated a future where vastly more revenues would come from corporate than from individual software purchases. A similar shift occurred at Procter &Gamble when it altered its focus in the] 980s to become more knowledgeable about Wal-Mart and other increasingly powerful trade customers. Until then, its efforts were largely focused on end-consumer research.

Knowledge Creation
Leading companies align their knowledge management initiatives with their business strategies and customer relationship objectives. These leading companies use both transaction-driven and human-based information to build a complete customer picture, fostering customer loyalty. Detailed databases can be helpful, but the best companies recognise that much more sophisticated human-based knowledge, gathered through personal interaction with the customer, must be managed as well. This is especially true in situations where the past is not a particularly relevant guide to the future. For instance, for a company selling largely fashion goods, past transactions are probably not the best indicators of what will sell to whom this season.

Procter & Gamble employs transaction-driven and human-based approaches to gaining consumer and retailer knowledge. Going a step further than the concept of focus groups, Procter & Gamble constructs highly detailed "mental maps" of consumer thinking about products, such as detergents, which are based on extended, wide-ranging discussions with typical consumers. Procter & Gamble marketing people walk the floors of stores with shoppers, noting what they say and do not say, and observing what they do. With thorough mapping, a great deal of insight can be extrapolated from the thinking of a few consumers.
At the same time, Procter & Gamble has been a heavy user of statistical data from point-of-sale transactions. Now the company has begun to focus on managing explicit knowledge about key retailer chains as customers, and encourages members of customer teams to capture and share key information about retailers with other members serving the same customer.

Organisation Integration
Customer knowledge initiatives do not exist in a vacuum. Rather, their success is dependent on the broader context of roles and responsibilities, the culture of the workplace and organisation structure. It is imperative that the organisational structure enforces the strategic objective of customer understanding and therefore must be conducive to generating and managing customer knowledge.
Reorganising around customers may however be a double-edged sword. If a company is organised around types of customers, each type will receive significant attention, and approaches will be developed for managing knowledge about that type of customer. However, this segmented organisation may mean that generalised solutions for customer knowledge will not be developed, and that useful approaches may not be shared easily across different customer types.

Making Knowledge Useful
Companies that are most recognised for knowing their customers and getting value from customer insights are making significant investments to develop both transaction analytic capabilities and a wide variety of human-based approaches to gain customer knowledge. In fact, they give most of the credit for their success to their efforts in increasing the collection, distribution and use of human-based, as opposed to transaction-derived, knowledge, for example:
• Promoting a higher level of interaction between employees and customers.
• Tightly linking corporate identity to their customers' identity.
• Improving product design.

We would argue that information from both customer transactions and human customer relationships are necessary for real customer insights, but they must generate real insights that can be turned into useful knowledge. There is no doubt that an organisation's ability 10 analyse and interpret transaction data can be a source of competitive advantage. Examples of the use of transaction-driven knowledge are:
• Using past-purchase or other personalised data to target and deliver promotional offers.
• Increasing customer relevance of products and product ranges,
• Achieving a sense of relationship through personalisation.
• Improving cross selling.
• Improving product design, presentation and sales methods.

The best approach to customer knowledge is a mix of transaction-driven and human-based knowledge, though even the best companies struggle with achieving the right balance and integrating different types of knowledge. Those that are most successful take a conscious, deliberate approach to transforming data into knowledge and through actions into results. Companies must not be tempted by the easy availability of transaction data to mistake transactions for customers, or to gravitate into territory where the projects are least ambiguous and where knowledge finding looks easiest. Customers are first and foremost people, and building a relationship with them entails more than just tabulating their transactions. It requires transaction and human-based data collection and the rigorous use of insights to drive all customer related actions.