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dunnhumby dunnhumby
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by Clive Humby
clive_book_cover_spread_2.qxp 17/12/2004 10:27 Page 3

A true understanding of brand value should be at the heart of every

organisation.
It should inform every element of strategic decision making from product
development to customer service initiatives.
But traditional measurements of brand value are fundamentally flawed
and marketing mistakes are endemic across every business sector, argues
Clive Humby in this challenging but accessible look at where so many
organisations are going wrong.
‘Brand is dead, long live the Customer’ offers a new way of measuring
brand value.
It is an approach based on insight driven by customer behaviour rather
than outdated and irrelevant qualitative measures.
Measuring real customer behaviour through buying patterns, argues
Humby, is the only way organisations can create an accurate brand
measurement that reflects the three cornerstones of brand value:
contribution, commitment and championing.
Clive Humby is one of the major influences behind the spectacular
success of the Tesco Clubcard and a world-renowned expert in
challenging accepted marketing ‘wisdom’.
Clive Humby, Chairman
In this book he demonstrates clearly how widespread misconceptions, a
sustained focus on the non-existent ‘average’ customer and a refusal to
accept that marketing can have negative as well as positive effects is
Clive works with dunnhumby’s clients on the strategic issues that affect
undermining not just brand but corporate value.
their businesses and on the systems and strategy of the company itself.
Despite a decade of one-to-one marketing hype, Humby challenges the He is also leading the company’s work in the development of innovative
persistent commitment to mass mailings and ill thought-out call centre
media measurement techniques.
investments that fail to boost customer satisfaction.
‘Brand is dead, long live the Customer’ Co-author of Scoring Points, the compelling story behind Tesco’s
– explains the dangers inherent in traditional measurements of brand phenomenally successful loyalty scheme, Clive travels the world advising
value
organisations how to win and sustain long-term competitive advantage by
– reveals the value of measuring the customer to achieve a brand
understanding that is both accurate and truly representative of a linking continuous understanding of customers with relevant responses.
business
– develops a methodology for using this new brand measurement to
support strategic decision making.
As market-leading businesses see years of brand value eroded almost
overnight, it is clear that traditional marketing is no longer working.
For any business looking to maximise its marketing, product development
and customer service spend, it is time to tear up the rulebook.
Brand is dead,
long live the Customer*
An essential guide for organisations who want to understand
their customers and take the guesswork out of marketing.

by

Clive Humby

* Yes, we know brand isn’t really dead – but its life is in jeopardy in organisations
that pay more attention to brand image than customer behaviour.
© dunnhumby Limited 2005
All rights reserved. Except for the quotation of short passages for the purposes
of criticism and review, or as otherwise permitted under the Copyright, Designs
and Patents Act 1988, no part of this publication may be reproduced, stored in
a retrieval system or transmitted, in any other form or by any means, electronic,
mechanical, photocopying, recording or otherwise, without prior permission of
dunnhumby Limited.

The right of Clive Humby to be identified as author of this work has been
asserted in accordance with the Copyright, Designs and Patents Act 1998.

dunnhumby Limited is not connected in any way with, or in any way endorsed
by, any of the companies whose products are listed following. Any registered
trademarks used are acknowledged and recognised as being the property of the
organisations to which they belong.

Fable by Suzanne Cadisch

Illustrations by Neil Chapman, Beehive Illustration, 42A Cricklade Street,

Cirencester, Gloucestershire GL7 1JH, UK

Designed and produced by Information Technology PR Limited, Premier House,

Gogmore Lane, Chertsey, Surrey KT16 9AP
http://www.itpr.co.uk

Typeset and printed by Infotype Ltd, Eynsham, Oxford, UK

but first …….

A Tale of Two Kings

A fable for business today

4 A TALE OF TWO KINGS
 A FABLE FOR BUSINESS TODAY 5

nce upon a time, in a faraway land, there lived a King whose

reign was as untroubled as his father’s, his grandfather’s and his
great-grandfather’s before him.
Like his ancestors, King Talkandtell followed the Royal Book of
Rules for Contentment in the Kingdom, which had guided his
family for generations.
The King was popular with his subjects. He was clever and strong,
he looked after them and he used their taxes well. Once a year he
issued a special proclamation to spread goodwill across the land.
“Hear ye! Hear ye!” his heralds would trumpet. “King Talkandtell
hereby decrees that for this month of June there shall be no taxes
payable to the Crown!”
6 A TALE OF TWO KINGS
 A FABLE FOR BUSINESS TODAY 7

Or they would announce: “Hear ye! Hear ye! King Talkandtell

hereby decrees that from this day forth, the last week of September
shall be a public holiday.”
Or they would declare: “Hear ye! Hear ye! King Talkandtell hereby
bestows upon every subject in the land the right to gather fallen
apples from the Royal Orchards.”
King Talkandtell’s courtiers told him how clever he was and how
his people loved him for his bountiful ways. Sometimes they came
up with new ideas for keeping the people contented.
“Your subjects are a simple people,” they told the King. “They will
love you more if you double the size of the cakes baked in the Royal
Ovens but charge the same price for them.”
And sure enough, everyone who ate cake loved the King even more.
They told the Royal Baker as much whenever they visited the Royal
Bakery.
So the King decided to distribute a free cake to every household in
the land to show his subjects how much he cared for each and every
one of them.
8 A TALE OF TWO KINGS
 A FABLE FOR BUSINESS TODAY 9

“I am doing a grand job here,” thought King Talkandtell, “just as

my father, my grandfather and my great-grandfather did before me.
They would surely be proud of how I have followed the Royal Book
of Rules to keep this kingdom happy and prosperous.”
But not everybody in the kingdom was quite as contented as the
King’s courtiers led him to believe.
There were some people who would have preferred their tax
holiday at Christmas instead of in June. There were others who
would have liked to pay a bit less all year round.
Not all the King’s subjects wanted a week off in September either.
Some wanted time to play in the snows of deep winter and others
wanted to bask in the high summer sunshine.
Then there were people who couldn’t get to a Royal orchard to
collect fallen apples and people who always ate pears.
And all over the land there were people who just didn’t like cake.
But King Talkandtell did not know any of this. He sat on his throne
in the Royal Palace, surrounded by his courtiers who told him: “All
the people we know are very happy to live in a land ruled by such
a great and generous King.”
And the taxes flowed in to the Royal Counting House and King
Talkandtell supposed that all was well in his kingdom.
10 A TALE OF TWO KINGS
 A FABLE FOR BUSINESS TODAY 11

ar to the north, across the valley and over the lake, lay another
peaceful land ruled by King Talkandtell’s distant cousin King
Askandhear.
He too was popular with his subjects. He was wise and strong, he
looked after them and he used their taxes well.
King Askandhear also had a copy of his family’s Royal Book of
Rules for Contentment in the Kingdom but he kept it locked away
in the Royal Archives. He had vowed never to look at it again after
making a Royal Tour of his lands soon after he acceded to the
throne.
What happened was this. The journey was long and arduous. It
took King Askandhear to the farthest reaches of the land; to the
gentle mountain people of the north, to the wealthy lakeside settlers
of the south, to the fierce cave dwellers of the east and to the poor
forest folk of the west.
12 A TALE OF TWO KINGS
 A FABLE FOR BUSINESS TODAY 13

And King Askandhear discovered that his subjects were very differ-
ent from one another and lived their lives in different ways.
“If I am going to keep my subjects happy,” thought wise King
Askandhear, “I cannot treat them as one people. I must find out
what they want me to do for them before I issue any proclamations
to spread goodwill across the land.”
So he locked away the Royal Book of Rules and thought instead
about a Plan for Pleasing the People.
This is what he did. Each month, King Askandhear sent heralds into
every corner of the land to find out if anything was troubling his
subjects and what would make them happy.
When the heralds came back to the Palace, King Askandhear
listened to their reports carefully. Then he sent them back to the
mountains, to the lake, to the caves and to the forest with Royal
Messages and Royal Gifts for his subjects.
14 A TALE OF TWO KINGS
 A FABLE FOR BUSINESS TODAY 15

But the messages and gifts he sent the mountain people were
different from the messages and gifts he sent the lakeside settlers.
And the messages and gifts he sent the cave dwellers were different
from the messages and gifts he sent the forest folk.
What King Askandhear did, made his subjects very happy.
They told the heralds: “Truly, our King is doing a grand job
keeping this kingdom happy and prosperous. He shows his loyalty
to us with these thoughtful acts and gifts and he deserves our
loyalty in return.
“We are happy to live in a land ruled by a King who so clearly cares
about us and understands our lives.”
And the taxes flowed into the Royal Counting House and King
Askandhear knew that all was well in his kingdom.
16 A TALE OF TWO KINGS
 A FABLE FOR BUSINESS TODAY 17

ar to the south, over the lake and across the valley, in the land
ruled by King Talkandtell, the Royal Treasurer was scratching his
head. It was his job to keep every chamber of the Royal Counting
House filled floor to ceiling with the King’s money but, in one or
two chambers, gaps had started to appear between the pile and the
roof.
“How strange,” he thought. “Perhaps I have stacked the money the
wrong way up.” So he spent a long time re-stacking the money but
found that if anything the gaps seemed a little bigger when he had
finished.
Eventually the Royal Treasurer went to the King with the only
explanation he could find.
“Your Highness,” he said. “It seems that the Royal Counting House
is receiving less in taxes than it is costing to run the Kingdom. You
must act to stop the piles of money getting any smaller.”
18 A TALE OF TWO KINGS
 A FABLE FOR BUSINESS TODAY 19

King Talkandtell was not worried. He opened the Royal Book of

Rules for Contentment in the Kingdom to see what his father, his
grandfather and his great grandfather before him would have done
and he summoned the Magic Man of Mystic Mountain to the
Palace.
“Tell me what I can do to make my people happy to live here and
happy to pay their taxes so the piles of money I need to run my
Kingdom don’t get any smaller,” he commanded the Magic Man.
So the Magic Man went back to Mystic Mountain to perform the
ancient Rite of Riches and conjure up a vision of how the King
could make his people happier. A month later he returned to the
Palace to tell the King about his revelation.
20 A TALE OF TWO KINGS

“You must do three things Your Highness,” he said. “First, you must
give your subjects a two week holiday in September. Secondly, you
must build new Royal Ovens to bake Royal Biscuits as well as your
famous cakes. And thirdly, you must let the people pick apples from
the trees in the Royal Orchards.”
“That will cost the Crown a great deal of money,” thought King
Talkandtell. “But if the ancient Rite of Riches has revealed that this
is what I must do to make the people love me more and be content
to pay their taxes, then so be it.”
And King Talkandtell issued new proclamations giving his subjects a
two week holiday in September, announcing the new Royal Biscuits
and bestowing the right to pick apples in the Royal Orchards.
Sitting on his throne in the Royal Palace, King Talkandtell basked in
the praise of his courtiers. They told him: “All the people we know
are even happier to be living in a land ruled by such a great and
generous King.”
 A FABLE FOR BUSINESS TODAY 21

ne year later the Royal Treasurer again went to see the King.
This time he was in great distress. He was wringing his hands and
weeping as he told King Talkandtell: “I have grave news Your
Majesty. One entire chamber in the Royal Counting House is
EMPTY!
“The vision, as revealed to the Magic Man of Mystic Mountain, has
not produced the results that you were promised.”
What had happened was this. In the north, close to the lake, lay a
tiny fishing village, far, far away from the Royal Orchards and
further still from the Royal Bakery. That year the catches had been
poor and the people were struggling to make ends meet.
22 A TALE OF TWO KINGS
 A FABLE FOR BUSINESS TODAY 23

One day, the villagers had an idea. “If we move to the other side of
the lake where the fishing is better our lives will certainly improve,”
they reasoned. “King Talkandtell knows so little about us we will
surely not be missed.”
So they packed up their homes, loaded their boats and sailed to the
land across the lake.
By giving his subjects a two-week holiday in September the King
had made it possible for more of his people to visit distant lands.
Some liked what they found and decided not to return to the land
of King Talkandtell.
24 A TALE OF TWO KINGS
 A FABLE FOR BUSINESS TODAY 25

And by allowing everyone to pick free apples from the trees in the
Royal Orchards, the King had upset one of his oldest friends, Lord
Corecore, the richest apple-grower in the land whose taxes filled
one whole chamber of the Royal Counting House.
Lord Corecore decided that he didn’t like King Talkandtell much
any more and he no longer wanted to live in a land where nobody
would buy his apples. So he packed up his household and moved
north, across the valley and over the lake, to settle in the land of
King Askandhear where he told anyone who would listen that King
Talkandtell had lost his way.
And that was when the first tiny gap appeared between the top of
one of King Talkandtell’s piles of money and the roof of the
chamber in the Royal Counting House.
All along the borders of the kingdom – far, far away from the Royal
Orchards and further still from the Royal Bakery – lay other poor
villages. Here too the people believed they were of little value to
their King and one by one they left the land of King Talkandtell
to seek a better life elsewhere.
26 A TALE OF TWO KINGS

Sitting on his throne in the Royal Palace surrounded by courtiers who

knew only the people living in the heart of the kingdom, King
Talkandtell did not know that his subjects in the furthest flung reaches
had been leaving the land for pastures new.
He did not know his proclamations to spread goodwill across the land
were of little worth to these villagers.
And he did not know that they felt of little value to the kingdom.
But it was worse than that. Some of the measures the King had taken
to keep the people happy, as revealed to the Magic Man of Mystic
Mountain through the ancient Rite of Riches, had started to work
against him.
And King Talkandtell didn’t know about that either.
 A FABLE FOR BUSINESS TODAY 27

And that was when the Royal Treasurer discovered that one whole
chamber in the Royal Counting House was empty.
King Talkandtell once again summoned the Magic Man of Mystic
Mountain to the Palace.
“Why are my subjects deserting me?” he demanded. “Who is leaving
my kingdom for pastures new? What can I do to stop them?”
Once again the Magic Man returned to Mystic Mountain to
perform the ancient Rite of Riches, hoping it would reveal the
answers to the King’s questions.
Again and again he performed the ritual but the mists would not
clear and the revelation the King desired would not come into focus.
Finally he was forced to admit to the King: “Your Highness, my
powers have failed me. I cannot answer the first of your questions,
nor the second.
28 A TALE OF TWO KINGS
 A FABLE FOR BUSINESS TODAY 29

“As for the third, the ancient Rite of Riches, as practised by my

father, my grandfather and my great-grandfather before me, has
shown me a tried and trusted path, as followed by your father, your
grandfather and your great-grandfather before you, to ensure
contentment in the kingdom.
“You must declare the whole of September a national holiday, you
must bake yet more biscuits and you must start to grow pears as
well as apples in the Royal Orchards.”
But King Talkandtell had lost his faith in the Magic Man of Mystic
Mountain.
And he was worried that there was not enough money left in the
Royal Counting House to put into action yet another plan that had
served his father, his grandfather and his great-grandfather before
him but which might fail him.
30 A TALE OF TWO KINGS

“Where have I gone wrong?” he thought. “Where have I gone

wrong?
“Why is it that far to the north, across the valley and over the lake,
in the land of King Askandhear, the Royal Counting House is
bursting at the seams?
“What does my cousin do to make his people so happy?
“What do my subjects like so much about his kingdom that they
wish to live there instead of remaining loyal to me?”
And being a clever King, he decided to find out………….

THE END
Brand is dead,
long live the Customer

Contents
Fallacies and failures 35
The customer is king 43
No such thing as the average customer 47
Different customers deliver different value 49
Different customers require different approaches 55
Negative outcomes matter 59
It’s time to tear up the rulebook 63
Think about it 65
34 BRAND IS DEAD

Successful strategies are based on facts not supposition.

 35

Fallacies and failures

Assessment of brand value determines almost every decision in
business.
It governs investment choices and strategy from the ground up.
So measurement of brand value has to be spot on. If it is
skewed then decisions based on it will be flawed.
Imagine for a moment that you are a small biscuit manufac-
turer. People buy your biscuits so you know your brand has
value. You decide to build a second factory.
But what exactly is the value of your brand? If you knew most
of your customers were about to switch to cake would you
build that second biscuit factory? Of course not. You would
build a cake factory.
The value of your brand is rooted squarely in your customers.
Your decision was wrong because you didn’t know what they
wanted.
You can only be sure that strategic business decisions are
correct if your measurement of brand value is accurate.
And that value is revealed not in last year’s biscuit sales, not in
the number of factories you have or the size of your workforce
and certainly not by any disinterested focus group asked about
their theoretical biscuit-eating habits.
It is revealed in the actual, real-time behaviour of your cus-
tomers today.
Gauge brand value any other way and those all-important busi-
ness decisions, from product development to customer service
initiatives, will be based on supposition rather than fact.
Brand value is determined by customers. It is their behaviour –
contribution, commitment and championing – that underpins
that value.
Customer assets are a brand’s assets.
And a business that doesn’t fully understand what its cus-
tomers are thinking and doing, is operating with one hand tied
behind its back.
36 BRAND IS DEAD

Effective marketing is a response to customer insight not a

conjuring trick.
 FALLACIES AND FAILURES 37

Marketing mistakes
Effective marketing strategy can’t be conjured out of thin air. It
has to be a response to customer insight.
You need to know your customers, not make educated guesses
about them.
The key to maintaining brand value is knowing not only what
they want but what they don’t want.
Too much marketing activity puts the cart before the horse. It
looks at the business proposition and tries to sell it in the
marketplace.
It takes the biscuits and markets them, even if the people don’t
want biscuits any more.
Doesn’t it make more sense to find out that what they really
want is cake and focus your energy on making that instead?
38 BRAND IS DEAD

Focus on only one part of the picture and your perception

will be distorted.
 FALLACIES AND FAILURES 39

Measuring the wrong things

Once you realise that value is actually rooted in real customer
behaviour, the flaws in traditional measurements of an organis-
ation’s worth are plain to see.

You can’t know for sure that the assets of a business are going
to generate the same earnings in the future. If its customers
are disaffected those assets could prove relatively worthless.

And why base any view – or decision come to that – on

‘intelligence’ garnered from a focus group?

Think about it. You gather together a bunch of people who

might or might not be interested in your product or service. But
they’re being paid to say something so they take a view. To
base what might be a significant investment decision on what
they say simply makes no sense. You need to get inside the
heads of the people who really matter – your customers.

Say you’re a supermarket and you are thinking about extending

your range of organic produce. Obviously, your goal is to
increase revenue.

Ask a focus group of non-customers what they think and,

whatever they tell you, ask yourself why that is relevant to your
business? You might win a few new customers by increasing
brand awareness but it’s a drop in the ocean.

But ask the people who are already buying organic produce
from you and you will find out whether they would buy more if
it was available and therefore whether extending the range
would actually increase revenue.

Undermining business success

If you measure the wrong things then your evaluation of your
true worth will be inaccurate.

And a distorted perception of your business means you will

make mistakes, many of them in marketing.
40 BRAND IS DEAD

At best your marketing activity is likely to be misdirected – at

worst it will be actively damaging.
There is more at risk here than cash and missed opportunities.
Pushing the wrong message to the wrong people at the wrong
time won’t simply fail to yield a return, it can undermine your
entire business.
But organisations persist in overlooking negative outcomes of
marketing activity.
Did that mass mailing switch some customers off altogether? Is
your emphasis on brand image over pricing pushing others into
a competitor’s camp? Are you ploughing money into customer
service tactics that pander to the vocal few while the less-vocal
many leave quietly by the back door?
Without understanding how different customers perceive the
brand, an organisation cannot develop winning strategies that
boost brand value and deliver a great return on the marketing,
customer service and operational budgets.
How many organisations know how the top 20% of customers
feel about the brand? The 20% of customers, that is, who
contribute 80% of revenue and over 100% of profit.
Is the customer satisfaction survey looking specifically at these
customers? Are their responses given a higher weighting?
No? Then why on earth not? Their behaviour contributes di-
rectly to the bottom line success of the organisation so surely
it makes sense to know just how the current product, pro-
motion and price mix is making them behave.
Marketing activity that damages brand, damages corporate
value.
And there are five fallacies about marketing that help do just
that:
1. The brand is king
2. Brand assets are distinct from customer assets
3. There is an average customer
4. Only positive outcomes matter
5. Marketing campaigns can be undertaken in isolation
 FALLACIES AND FAILURES 41

A marketing strategy based on these fallacies will fail – and

ultimately so will the business.
It’s time to tear up the rulebook.

“In the coming decade marketing will be re-engineered

from A to Z. There is little doubt that markets and
marketing will operate on quite different principles in the
early years of the 21st century.”
PHILIP KOTLER
42 BRAND IS DEAD

The winning strategy puts customers on the pedestal.

 43

The Customer is king

While many organisations pay lip service to the notion that the
customer is king, all too often it is a philosophy that only the
customer service departments actually live by.
Elsewhere the emphasis is on brand image. What is brand
image? Is it right? Exactly how is it characterised? Should it be
honed in this direction or tweaked in that?
The highly-polished brand is on the pedestal and customers are
expected to pay homage.
Enthroned and revered internally, brand image rules every
aspect of marketing activity.
But it is the customers who should be on that pedestal. It is
their contribution, commitment and championing that the brand
is aiming to win. Without them, the brand has no real value.
Every organisation spends time and money measuring brand
value to justify marketing initiatives and support strategic
planning. But how often is that value expressed in terms of the
customer?
Brand assets and customer assets are one and the same thing.
• A brand is described as ‘premium’ – that relates to the
willingness of the customer to pay more for a specific
lifestyle.
• A brand has ‘longevity’ – customers are with the brand for
life, resisting competitive offers.
• A brand engenders ‘trust’ – its customers are a ready market
for new products or ranges.
Some organisations have few financial assets apart from their
customers. Buy the business and you are, in effect, buying its
customers.
44 BRAND IS DEAD

And brand value can change fast. Customers, however loyal at

any given moment, are essentially fickle. They make rapid
decisions. They won’t stay loyal if they perceive any dilution of
a brand’s promises about cost or quality.
So brand value cannot be aligned with customer behaviour in
the past. It’s what is happening now and what will happen in
the future that count. It is customers, not brands that drive
future revenue.
Every choice a business makes in terms of product develop-
ment, pricing, promotion and customer service has an impact
on its customer assets.
Why then does traditional marketing activity focus so heavily on
The Brand? This emphasis is entirely at odds with what seems
to be widespread acceptance of the value of personalised
customer communications.
Marketing departments must adopt the mantra of their cus-
tomer service colleagues – ‘The Customer is King’.
Look at what happens when a leading brand discounts price for
example. Sales go up yes. But the big picture is far more
complicated than that – and it’s all about the different behaviour
of different customers.
• Customers who normally buy Own Label goods trade up to
the premium brand at this new affordable price.
• Customers of a major competitor switch allegiance to buy
this brand at deep discount – they could remain customers or
churn back when prices return to normal.
• Loyal customers stock up on their favourite brand at a great
price.
• Customers who would never normally consider this brand are
tempted to try it.
• Premium customers are put off by deep discounting, perceiv-
ing the brand to have gone down market.
Now imagine if you knew which customers had reacted in what
way. Your next piece of marketing could be targeted so much
more effectively to capitalise on advantages won and minimise
potential for any negative outcome.
 THE CUSTOMER IS KING 45

The big picture is all about customer behaviour.

It is customers, not the brand, who must be at the epicentre of
all marketing activity.

“Marketing as we have known it for the last 100 years has

been all about helping sellers to sell. Now a new and very
different win-win system of buyer-centric marketing is
emerging.”
ALAN MITCHELL
46 BRAND IS DEAD

All customers are different.

 47

No such thing as the average customer

Organisations do of course look at their customers when
assessing brand value and devising business strategies. They
look at satisfaction, affinity, preferences, bonding – all vital
pieces of the jigsaw.
There’s just one problem. These measurements treat all
customers as one large homogenous group. Every one of them
is based on the concept of the average customer.
Finance looks at ‘profit per customer’. Most marketing
initiatives assume every customer has the same emotional
response to the brand.
Quite clearly, in the real world, the ‘average customer’ doesn’t
actually exist – or at best forms only the same tiny fraction of
the customer base as any other handful of individuals whose
profit contribution and feelings about the brand are identical.
Individual customers are just that – individuals. Each one is a
brand asset – but each has a different value. Some may be high
spenders but liable to switch loyalties at any time. Others may
contribute little in financial terms but may champion the brand
at every opportunity. It’s a rich, endlessly diverse mix.
And just as different customers contribute different value, they
also respond to different initiatives.
So why do organisations base evaluations and strategies on the
non-existent ‘average customer’?
Because to do anything else seems too complicated and costly.
But what is it costing to ignore the key differences between
customer groups?
In opportunities lost alone, the cost is high. It is higher still
when you take into account the negative impact of certain
pieces of marketing activity on certain segments of the
customer base.
Different customers will have different perceptions of the brand
and therefore need different treatment.
A business that ignores that will never extract maximum value
from its customers.
48 BRAND IS DEAD

Some customers are worth far more than others.

 49

Different customers deliver different value

The Pareto Principle maintains that around 80% of revenue is
derived from 20% of customers.
The exact ratio will vary of course but the principle that a small
percentage of customers contributes a disproportionate amount
of revenue is widely accepted.
All the more reason then to distinguish between one customer
and another.
Just how important to your business is the customer you risk
alienating by a particular piece of marketing?
How much do you want to invest in a group of customers whose
contribution is far less valuable?
The Pareto Principle also states that 80% of variable customer
costs come from 20% of customers (clearly not the same 20%
who are responsible for the biggest proportion of revenue).
Investment decisions based on the non-existent ‘average
customer’ have foundations of sand, as graphically illustrated by
the example of the call centre.
The business argument for setting up a call centre might run like
this. If the ‘average customer’ is worth £300 per year and the call
centre results in an annual saving of £20 per customer, then
‘average customer’ value is boosted to £320 per year.
But each customer isn’t worth £300. The few truly profitable
customers are worth significantly more than that and are likely to
be low level users of the call centre.
It is the least profitable customers who use the call centre the
most. Take a utility company. Only one customer in 30 will
contact its call centre each year but these customers will call four,
five, even ten times asking for payment to be deferred, arguing
over accuracy, insisting a new bill is issued because the
automated reading is out by a few units. The behaviour of these
customers – who are likely to be the customers with the smallest
bills – adds significantly to the cost of running the business.
So the call centre has been set up to service perhaps 20% of
revenue. Its creation may reduce the cost per customer service
50 BRAND IS DEAD

call but it certainly won’t deliver the value expected by the board
as promised by the ‘average customer’ argument.
Investment decisions based on the ‘average customer’ concept
are quite simply unsound.

Contribution is not the only measurement

Customers generate income, of course they do. But an individ-
ual’s true value to your business cannot be measured in
financial contribution alone.
How loyal is one individual against another? A relatively low-
spender who sticks with you in the face of deep discounting by
a competitor might prove more valuable in the long term than
a high-spending customer who chops and changes allegiance at
the drop of a hat.
What about the low spender who is ultra-receptive to a new
line simply because it bears the name of your brand, the name
he trusts?
Or the low-spender who recommends your brand at every
opportunity?
It’s that big picture again. All these values count. And they need
to be measured.
Imagine if you knew where individual customers fell in this
dynamic. How effectively could you target your marketing then?

The Customer Value Cube

Customer value is three dimensional – contribution, commit-
ment and championing.
Contribution is the profit delivered by each customer.
But that profit is dependent on both revenue and cost so it is
how a customer behaves that determines the bottom line
contribution. And contribution certainly doesn’t reflect loyalty.
Commitment determines future income to be derived from a
customer.
For brands in a fiercely competitive world awash with new
product development and promotions, commitment is a key
 DIFFERENT CUSTOMERS DELIVER DIFFERENT VALUE 51

measure since it indicates ability to retain market share against

strong promotion or discounting by rival brands.
The long-term value of a customer’s commitment may well
exceed his sales value. This measure is all about loyalty. If you
know who your most committed customers are then you can
take steps both to secure that loyalty and to exploit it.
Championing is the generation of value through
recommendation, active support and trust.
Low-spending ambassadors might recruit higher value
customers. And brand champions are open to cross-selling and
brand extensions. Targeting a new line at your brand champions
is relatively low-risk and requires less marketing investment.
Knowing how many customers require little marketing effort to
change behaviour – compared with the number likely to be
tougher nuts to crack – is a vital key to marketing success.
Imagine a three-dimensional cube. Its three axes measure
contribution, commitment and championing. A customer’s
position within the cube is determined by those three things.

Customer Value Cube

52 BRAND IS DEAD

Obviously, a brand’s customers will be widely distributed within

the Customer Value Cube. It is this distribution that reveals a
brand’s true strength and value.
The relative importance of the different axes to your organis-
ation will depend on a number of factors.
For example, how do customers choose between brands in
your field? A utility company or a mobile phone network for
instance is likely to be an exclusive supplier for a period of time
whereas customers of, say, a supermarket will probably use
different organisations concurrently.
What is the brand experience? Is it mostly about customer
service, performance of the product, or image? A premium car
brand will focus more on commitment and championing while
a biscuit manufacturer will look for contribution and commit-
ment.
Whatever the emphasis, understanding where different groups
of customers fall within the cube enables highly-targeted, and
therefore highly-effective, marketing. It shows you which types
of customers need what type of attention.
But it is only looking at actual customer activity that reveals this.
If you can pinpoint a group of customers that buys a product on
promotion but not at full price, you have highlighted a commit-
ment issue – and the people you need to tackle.
Identifying customers who have bought brand extensions in the
past offers exciting, low-risk marketing opportunities.
And if you can see which customers always buy a product
whatever the price, you might choose to direct marketing
spend away from them.
Plotting groups of customers within the cube reveals chal-
lenges as well as opportunities.
If you can see most of your champions are high-spenders, how
can you improve your profile among the low-spenders?
But if you don’t know which customers deliver what value and
in what proportion, you won’t know this is an area for action.
 DIFFERENT CUSTOMERS DELIVER DIFFERENT VALUE 53

Any company looking to maximise the lifetime value of

customers needs to understand each of the three customer
asset measurements – contribution, commitment and
championing.
And it needs to monitor those shifting measurements not just
today, not just this year, but always.
54 BRAND IS DEAD

Different customers respond to different initiatives.

 55

Different customers require different

approaches

“What creates loyalty is how much we understand your

life and what we do about it that helps your life.”
SIR TERRY LEAHY

When it comes to marketing, one size most definitely does not

fit all.
Different characteristics of the brand need to be emphasised to
different groups of customers. Different customers respond
to different initiatives.
And negative outcomes matter.
You figure out who needs what from you by breaking down
your customer base into truly meaningful segments.
Segmentation is the key to all this customer insight.

Effective segmentation
First of all you need to look at existing, actual customer
behaviour.
Then you can start putting customers into distinctively different
groups – groups that are dictated by behaviour, not by simple
demographics.
Next you begin looking at how different groups respond to
different initiatives.
Measuring that response is the key to being able to target your
marketing activity with ever-increasing accuracy.
It’s an on-going process of fine-tuning. With the measurement
tools in place, you never stop learning more about your
customers. You never stop honing the relevance of your offer
to specific groups.
56 BRAND IS DEAD

You can see how a piece of direct marketing or a particular

innovation enhances commitment in one segment but leaves
another segment cold – or worse.
Pretty soon you can tailor marketing strategies in ways that
make your customers feel as if you really do know them
personally.
There are four key rules to segmentation:
i. Segments must be based on real customer behaviour
ii. They must be distinctive
iii. There mustn’t be too many of them
iv. The customers in any one segment must have enough in
common
It is discovering similarities between customers that makes
segmentation such a powerful tool.
Effective segmentation offers insights that allow a business to
exploit its strengths and address its weaknesses.
It offers a means for measuring accurately the contribution,
commitment and championing of different groups of cus-
tomers.
In short, it takes understanding to a whole new level. And that
means decisions about customer service, product development
and promotions will probably be right.

One size doesn’t fit all

An excellent example of how detailed knowledge of customers
offers an in-depth understanding of a customer service initiative
is provided by Tesco’s ‘One in Front’ policy.
‘One in Front’ promises customers that if there is more than
one person ahead of them in the queue, the store will open
another checkout.
But the initiative could easily have backfired if customers per-
ceived it as costly and therefore likely to impact on prices,
especially if they were used to having to queue in other stores.
Tesco knew from customer research that busy, time-poor shop-
pers would welcome the move to cut queuing times. But
 DIFFERENT CUSTOMERS REQUIRE DIFFERENT APPROACHES 57

it also knew that its more cost conscious customers would

see it as an expensive policy and fear price hikes as a result.
Crucial to the assessment of the initiative was one simple
question. Was there a correlation between when time-poor
customers were in the store and when queues were long?
Again, detailed customer data provided the answer. Time-poor
customers who would most value ‘One in Front’ shopped at the
busiest times – Thursday nights, Friday nights and Saturdays –
when the most price-sensitive customers were least likely to be
in the store.
Tesco therefore knew exactly how to use ‘One in Front’ for
best results – apply the initiative at specific times to please one
group of customers without alienating another.

Understand and predict

Once you start accumulating real insights into actual customer
behaviour, you begin to acquire a deep understanding of how
different groups will react to different initiatives.
Accurate analysis of customer data enables you to monitor
positive and negative outcomes of marketing activity.
Take the example of a television company that offers its
customers unlimited tariff changes as part of the package.
One low value customer uses this facility to change tariff each
week depending on whether a particular football team is playing
at home or away.
This costs the company far more in administration than the
customer offers in profit so the policy is changed to limit the
number of tariff changes.
But then another customer, who also likes to change tariff but
still remains profitable, takes umbrage and goes to the
competition.
The change in marketing proposition has destroyed value.
Understanding how your customers behave and why is the key
to accurate predictions about the overall success of a marketing
activity.
Without it, you’re shooting in the dark.
58 BRAND IS DEAD

Does one negative result of marketing activity outweigh all

the positives?
 59

Negative outcomes matter

Misplaced marketing activity can undermine business success
– a fact that is overlooked in many organisations.
Take the airline club. A valuable frequent-flyer with ABC Air is
awarded the perks of Gold membership, which makes him feel
valued in return and boosts his commitment and loyalty to the
brand.
But then this customer has to make a series of trips to
destinations not served by ABC.
His temporary reduction in custom – which would have been
revealed by an examination of the air miles he was continuing
to collect – triggers downgrading of his club membership to
Silver.
This brand champion, whose business is still of high value to
ABC, feels he has been pushed out of the club. His
commitment to the airline plummets and he switches all flights
to another carrier.
ABC Air has lost value in every direction – contribution,
commitment and championing.
Better understanding of customer behaviour could have
prevented that.
When it comes to measuring the success of marketing
initiatives, too many businesses focus only on the positive
outcomes.
But if one high-value customer leaves as a result of marketing
activity, that might actually outweigh the benefits of the
initiative in other groups.
Take the example of a financial services company that
bombards its customers with repeated offers for loans or credit
cards.
The marketing department is likely to deem as irrelevant the
reaction of those customers who fail to respond.
60 BRAND IS DEAD

But it needs to know if this mass mailing is irritating some of

those unresponsive customers to the point where it impacts
commitment and championing.
Has it prompted some customers to take their custom else-
where?
That’s the problem with defecting customers. They don’t just
disappear. They become somebody else’s asset.

Measure what has not happened

As well as measuring actual negative outcomes, organisations
must look at what has not happened as a result of marketing
activity.
Segmentation is the key to that too.
By tracking groups of similar customers over time you can see
whether a specific marketing activity has done what it set out
to do.
The true value of a marketing initiative is revealed by three
measurements:
i. Has it affected the behaviour of the target customer group?
ii. Has it changed the behaviour of any other segment?
iii. Has it provoked a negative response anywhere within the
business?

Campaigns cannot be undertaken in isolation

For a marketing campaign to carry any guarantee of a net gain
to the business, it has to be viewed as part of the big picture.
Organisations must look at its potential impact – positive,
negative and everything in between – on the business overall.
Say for example a department store decides to sell-off its
financial services division. It must take into consideration the
role that financial services plays in customer perception of
the company.
 NEGATIVE OUTCOMES MATTER 61

But to do that it needs to know what value customers place on

this element of the business. Will the sale make some feel
disenfranchised and affect their contribution and commitment?
Does the sell-off therefore risk damaging the company’s overall
proposition?
Making any business decision in isolation and without
understanding its full consequences is extremely dangerous.
62 BRAND IS DEAD

Just because something worked in the past doesn’t mean it

works today.
 63

It’s time to tear up the rulebook

The ability to measure and demonstrate customer and brand
value is becoming increasingly important in business today.

Some companies are beginning to talk about different

segments of the customer base in annual reports.

City analysts are looking not only at increases in customer

numbers but also at attrition.

Boards are demanding ever-more accountability from their

marketing departments. They want to see the value delivered
by escalating marketing budgets. And they want that
information presented in crystal-clear business language.

Bring real customer behaviour into sharp focus and true brand
value will be revealed.

That information can then be used to drive pinpoint accurate

marketing strategies, which will increase both brand and
shareholder value.

If you could retain an extra 5% of your most valuable customers

and persuade them to buy 5% more and reduce the cost of
acquiring new customers wouldn’t that make the board sit up
and listen?

When you segment your customers into meaningful groups you

can target your spending, justify your decisions and measure
your success.

The ‘average customer’ does not exist. Organisations that

continue to pursue him will continue to make bad decisions
that waste money, dilute the brand and damage corporate
value.

Organisations that understand the Customer Value Cube will

see the balance between contribution, commitment and
championing within each segment and can make changes
where they count.

That sort of insight offers clear competitive advantage.

64 BRAND IS DEAD

It takes the guesswork out of marketing.

Successful marketing isn’t an art – it’s a science, with creative
bits around the edges.
 65

Think about it …
• Does your organisation talk about customers as a
generic group?

• Can you identify your most valuable customers?

• Do you know what they most value about you?

• Do you know where their value to you lies in terms of

contribution, commitment and championing?

• Do you ever question how closely your offer is aligned

with what your customers want?

• Have you tried changing customer behaviour by

changing your offer?

• If you could talk to each and every one of your

customers on a regular basis, what would you ask
them?

• Who are you rewarding in your business? Your brand

and creative agencies? The people managing your
customer relationships? Or your customers?
66

Notes
 67

Notes
68

dunnhumby is an international marketing consultancy and ser-

vices company that has developed revolutionary customer man-
agement and analysis techniques to drive powerful business
strategies.
The dunnhumby discipline is a combination of IT, data analysis,
creative skills and business expertise that enables a client
to create a relevant response derived from unprecedented
insights into customer behaviour.
dunnhumby’s clients include Tesco, Kroger, Gillette, P&G,
GlaxoSmithKline, Müller, Nestle and AirMiles.
clive_book_cover_spread_2.qxp 17/12/2004 10:27 Page 3

A true understanding of brand value should be at the heart of every

organisation.
It should inform every element of strategic decision making from product
development to customer service initiatives.
But traditional measurements of brand value are fundamentally flawed
and marketing mistakes are endemic across every business sector, argues
Clive Humby in this challenging but accessible look at where so many
organisations are going wrong.
‘Brand is dead, long live the Customer’ offers a new way of measuring
brand value.
It is an approach based on insight driven by customer behaviour rather
than outdated and irrelevant qualitative measures.
Measuring real customer behaviour through buying patterns, argues
Humby, is the only way organisations can create an accurate brand
measurement that reflects the three cornerstones of brand value:
contribution, commitment and championing.
Clive Humby is one of the major influences behind the spectacular
success of the Tesco Clubcard and a world-renowned expert in
challenging accepted marketing ‘wisdom’.
Clive Humby, Chairman
In this book he demonstrates clearly how widespread misconceptions, a
sustained focus on the non-existent ‘average’ customer and a refusal to
accept that marketing can have negative as well as positive effects is
Clive works with dunnhumby’s clients on the strategic issues that affect
undermining not just brand but corporate value.
their businesses and on the systems and strategy of the company itself.
Despite a decade of one-to-one marketing hype, Humby challenges the He is also leading the company’s work in the development of innovative
persistent commitment to mass mailings and ill thought-out call centre
media measurement techniques.
investments that fail to boost customer satisfaction.
‘Brand is dead, long live the Customer’ Co-author of Scoring Points, the compelling story behind Tesco’s
– explains the dangers inherent in traditional measurements of brand phenomenally successful loyalty scheme, Clive travels the world advising
value
organisations how to win and sustain long-term competitive advantage by
– reveals the value of measuring the customer to achieve a brand
understanding that is both accurate and truly representative of a linking continuous understanding of customers with relevant responses.
business
– develops a methodology for using this new brand measurement to
support strategic decision making.
As market-leading businesses see years of brand value eroded almost
overnight, it is clear that traditional marketing is no longer working.
For any business looking to maximise its marketing, product development
and customer service spend, it is time to tear up the rulebook.