In their best-selling book The Discipline of Market Leaders, Michael Treacy and Fred Wiersema delineate three generic strategies, which they call “value disciplines.” One is “operational excellence,” a relentless focus on business processes to drive out cost and waste and improve quality and cycle times. Another is “product leadership,” entailing innovation in design, engineering, and user experience to create compelling products and services. Finally, there is “customer intimacy,” which involves moving beyond independent transactions to deep, long-term customer relationships, by better understanding, anticipating, and fulfilling stated and latent customer needs. Their framework is just as valid today as when it was introduced twenty years ago in the Harvard Business Review. However, with the digital revolution well underway, customer intimacy is evolving to what I’ll call "collective intimacy," enabled by digitally-mediated relationships—such as mobile access to online services—and big data analytics—number-crunching massive volumes of data such as point-of-sale transactions.
An intimate relationship is the exact opposite of an anonymous transaction. Rather than a standalone profitable transaction, such a relationship is oriented towards a long-term win-win. Customer intimacy is a competitive strategy, corporate culture, and organizational design—all rolled into one—supporting multiple such relationships.
If customer intimacy entails multiple independent pairwise relationships between a firm and each of its customers; collective intimacy deepens each relationship via insights developed across all relationships. When
To illustrate customer intimacy, Treacy and Wiersema described companies whose “unmatched value was not in product or price, but in the extraordinary level of service, guidance, expertise, and hand-holding" provided to clients; companies who “continually surprise customers with knowledgeable, caring, and unhurried sales personnel who give sage advice about the products and their application.” They detail examples of the era including IBM, Home Depot, Cott (beverages), Airborne Express, and Roadway Logistics. These firms illustrated the approach of the time: an organization-wide customer-focused culture, organizational competence in consultative solution creation, flexible contracting and financial engineering, and knowledgeable salespeople, up to and including dedicated account representatives and on-site account teams.
Twenty years later, the digital revolution—encompassing cloud computing, big data, Moore's Law, mobility, broadband, and the web—has extended value disciplines into digital disciplines. Now, the keys to collective intimacy include:
Massive Data Collection—companies must begin with data collection, which sometimes requires active customer effort, such as purchasing items or rating books and movies. Increasingly, such data collection is passive and frictionless. Queuing, halting, pausing, rewinding, or watching movies multiple times are all potential indicators of customer preferences and intent. Mobile analytics startups such as Keen offer technology that “records every touch, every swipe, every purchase, every share.” Bricks and mortar retailers examine data from head to toe, literally, ranging from eye movements to foot traffic.
Data Analysis Skills and Tools—“data scientist” was recently termed “the sexiest job of the 21st century.” A data scientist is someone who mines these mounds of data to develop insights. However, Mark Cunningham, CEO of Indicee, speaking recently at the Cloud Analytics Summit, said that “putting this person on a pedestal...that can do all these magical things, …that’s moving in the wrong direction.” In other words, rather than restricting the ability to leverage data to a few experts, it would be better to democratize these capabilities through easy-to-use tools and platforms. Moreover, it’s been argued that big data requires a mix of intuition and analytics.
Algorithm Design Skills—Collective intimacy is different than business intelligence, which is largely focused on description and prediction. Collective intimacy leverages big data analysis but feeds it into uniquely customized relationships at scale, leveraging sophisticated algorithms. Algorithms today use blends of technologies obscure to most of us. GNS Healthcare uses artificial intelligence techniques and chaos theory. The Netflix Prize winners—enlisted to improve the Netflix recommendation algorithm—used Singular Value Decomposition, Restricted Boltzmann Machines, Gradient Boosted Decision Trees, the Nelder-Mead Simplex Method, and other complicated mathematical techniques. They further adjusted for “temporal dynamics,” i.e., the fact that people’s tastes and interests change over time. Amazon uses "item-to-item collaborative filtering," and moreover solves not just for recommendations, but also for maximizing expected revenue. Companies must either acquire and nurture these quantitative competencies, or leverage external subject matter experts, crowdsourcing, or open innovation.
Hyperscale Computing Excellence—Just having a clever algorithm is not enough; it needs to run cost-effectively when employed across millions of users. Simple personalization algorithms—such as using mail merge placeholders to change “Dear Valued Customer” to “Dear Brunhilde”—scale linearly: having 10 million customers implies that a particular computer subroutine needs to execute 10 million times. But other algorithms scale, say, as the square of the number of users, requiring 100 trillion times the effort of that for a single user and thus being impractical. The original Netflix prize algorithms had to be adapted to scale, because, according to the company blog, “they were built to handle 100 million ratings, instead of the more than 5 billion” that they had at the time. Moreover, having an algorithm that retains its efficiency at scale is only part of the challenge; massive quantities of data and massive processing resources need to be reliably and cost-effectively maintained and operated, either in house or via a public cloud service provider. As Adrian Cockcroft, Netflix’s chief cloud architect, said recently, "We make sure that we push our systems into failure so that we know how they react;” specially developed tools and methods are used to continuously enhance the resilience of the enormous cloud computing infrastructure that Netflix utilizes.
Social Network Integration—Humans are of course social animals, and collective intimacy can involve more than just relationships between customers and the firm, but also relationships among customers. Leveraging people’s friends and connections via a social graph—and thereby developing insights into their needs and preferences—is a means to that end, whether built in to company system or by leveraging capabilities such as
Management of Privacy—Intimacy can be beneficial or intrusive: the demarcation point varies by culture, demographic, and individual.
Continued Innovation—Just like the Red Queen, companies must run faster than ever merely to stay in the same place in terms of market share. This can mean better algorithms or increasing the scope of solutions, products, and services offered through existing relationships.
Collective intimacy represents more than a century of evolution: from handcrafting, to mass production, to mass customization, and then on to personalization, mass intimacy, contextualization, and now collective intimacy. It’s more than simple personalization, which at its heart is not much more than selecting a photograph for your lock screen or monogramming your shirt. It’s more than mass intimacy, which is personalization at scale. It’s more than contextualization, which, e.g., might consider your current location.
Deeper, long-lasting customer relationships can mean greater revenue, higher customer lifetime value, lower relative customer acquisition costs through lower churn, and greater share of wallet. Enabled by big data, the cloud, sophisticated algorithms and technologies, and a new generation of corporate and individual competencies, collective intimacy can form the foundation for market leadership.
