Differentiating members.

Is it heresy or common sense? An inappropriate challenge or the essence of survival? Management consultant Martha Rogers answers the questions.

Want a good workout? Talk to Martha Rogers about one-to-one marketing.

Rogers, a former advertising executive, is professor of telecommunications at Bowling Green State University, in Ohio, and co-author (with Don Peppers) of The One to One Future: Building Relationships One Customer at a Time (see "For More Information" sidebar). Peppers and Rogers are just completing the soon-to-be-released Enterprise One-to-One: Competing in the Interactive Age (Currency/Doubleday, New York City, 1997). Rogers is a member of several professional societies and has a doctorate in communications from the University of Tennessee, Knoxville.

Out of the turmoil that is the current condition of so many organizations-profit and nonprofit alike - one can be tempted to seek solutions that "put all the ducks in a row." Rogers's comments here are more likely - at least initially - to make you break rank, pacing in agitation.

The discomfort comes in pushing aside the concept of market share to make room for "share of customer," a concept that first requires that you differentiate among your members to identify those most valuable to your association. I'll let Rogers explain.

What is one-to-one marketing, and what's new about it?

Rogers: One-to-one marketing is based on our ability to do two things: differentiate members by value and by need, and learn more about each member. Instead of treating everybody the same, we treat different people differently.

The step before meeting members' needs is differentiating members. I can't imagine an organization where every member is worth exactly the same. Members participate at different levels, they pay different levels of dues, some buy more services, some bring more new members in. So some are always worth more to us than others.

The value of members. We can't meet every need of every member. So what guides us as to which needs to meet for which members and how much of their needs to meet and how well to meet them depends a lot on the value of that member.

We do different things for different members because of two things: For one, they need different things from us. And secondly, we decide at what level we can serve members based on how valuable they are to us.

Let's take it out of the association arena for a moment. If you and I walk onto a car dealer's lot, and you say to the dealer, I want to spend $50,000 on a car, and I say, I want to spend $20,000 on a car, and she shows us both the same car, are you offended? You bet. And yet organizations do that to members all the time and think nothing of it.

Sealing the relationship. Treating everybody the same way is not necessarily equivalent to treating them fairly. As I weigh what professional memberships I'm going to renew, will it be the ones that treat all members the same or the ones that give me precisely what I need? Even on a small scale, there are levels of things that associations can do that some do better than others. In the process of meeting individual needs you seal the relationship with members.

Additionally, helping your members see one-to-one marketing as a viable way for them to accomplish their goals with their constituencies is an important role that you can play. Understanding the role one-to-one marketing will play in your members' organizations helps you increase your competitiveness, do your business better, know what to lobby for in Washington, and more.

Mass customization. One-to-one marketing involves mass customization, and the ability to mass customize is new. Most associations have always offered their services and products - meetings, conferences, books, tapes - pretty much the same way to all members, for pretty much the same price.

With one-to-one marketing, instead of sending every single member a mailing piece, we send mail to some, e-mail to others, and we call others. We learn from them their preferences and then basically propose to them different things that we might do for them based on what we know about them.

So, for instance, we design a conference marketing piece based on what we know about somebody. Wouldn't it be wild if we knew something about a particular member well enough to change the conference flyer? Wouldn't it be wild if you got something from your association that said, "Ann, see page 3 for the most exciting day of your life"? And on page 3, the brochure says, "We're offering this and this and this, but here's a day we've planned just for you. . . . And furthermore, Ann, there's going to be a special session in the early afternoon for not-for-profit magazine editors. We think you'll really love this one because . . . and besides, all your colleagues will be there." Wouldn't that conference offering stand out on your desk?

And it's cost-efficient now to do that, whereas it wasn't even five years ago. There are printers today using digital technology to print in lot sizes of one. Yes, one individualized piece may cost more than thousands of copies of the same piece, but the effectiveness of the customized piece is so much greater that, in the long run, it more than pays for itself. I think there's a bigger mental block to adopting the technology than there is a financial block.

Not starting from scratch. Most associations have some kind of database or database management system already in place with the names and addresses of their members. They have some record of whether they're big spenders or whether they're students, how long they've been a member, and maybe their special interests.

My point is that most associations are not starting from scratch. And that means they're now able to pick out their most valuable members.

Scoring the value. I can speak to you from my experience. I'm a member of the American Marketing Association, which gives you the option of signing up for certain special-interest groups. I'm signed up for relationship marketing, public policy and marketing, and advertising of controversial materials. There are about 18 other categories that I'm not signed up for. They know that I've participated a lot in two of those categories - for example, I've presented papers and purchased books - and that I've never run as an officer or otherwise gotten involved at that level.

They should be able to see - with what data they have today - that I'm sort of a medium-value customer. I would get a high score on how long I've been a member of the organization - about 15 years. I get a low score on participation because I'm not there at every meeting and I don't try to run for office. I get a high score because I actually pay a little extra dues to be a member of the special-interest groups I mentioned. So it ought to be pretty easy to give me a score.

After a while we can do that with all our members and figure out which members are our most valuable members based on such things as how much they spend, how often they show up at meetings, how long they've been with us. And we take our most valuable members and do special things for them. We figure out what they need next.

What's the difference between database marketers and one-to-one marketers?

Rogers: Database marketers have done a pretty good job in most cases of figuring out the value of their customers, but they haven't yet been able to differentiate customers by need. Frequent flyer programs are a good example of this. The platinum flyers get treated better than the gold flyers. I am a platinum flyer, so I get treated better than a gold flyer, but I don't get treated any differently than any other platinum flyer.

Remembering preferences. The airline is doing things based on the data, but not based on the customer. The flight stewards will know my name because the computer tells them what seat I'm in, but when they ask me what I'd like to drink, they haven't bothered to learn that in advance. So on certain airlines, each time I ask for a sugar-free, caffeine-free Coke, the steward says, "Oh, I'm sorry, we don't carry that." Now there's no reason in the world they can't stock that. I pay top dollar for all the tickets I buy. I'm on their airlines several times a week. They know I'm there - the computer tells them that. How hard would it be? Can you imagine the effect if a steward said to me, "Martha, welcome back. Would you like a sugar-free, caffeine-free Coke?"

Charge an extra $5 and make $2 profit. But change the level of service for me and remember my preferences. That gives me a really good reason to get on this plane rather than some other airlines.

You're talking about capturing the interaction. How does an organization "institutionalize" that process?

Rogers: The solution lies in talking about what people are compensated for. What if we instructed an association's magazine staff, for example, that what we want them to accomplish is not, for instance, publication of the magazine on time, within budget, 12 times a year, but rather to increase the value to those 20 percent of our members who are our most valuable members. At the end of the year, we want the magazine staff to show us how the magazine has done that.

Wouldn't that change what the magazine staff does? At the end of the year, we'll reward the magazine staff based on how often the magazine was published on time and how strong the editorial content was, but equally importantly, we'll also evaluate them on how well they met the needs of and increased the satisfaction of these most valuable members - members we want to make sure we never lose. This new focus gives staff a different way of looking at their jobs.

Changing compensation. I find that discussions with organizations about one-to-one marketing always end up in a conversation about compensation. It's not fair to want people to do something and not compensate them for it. It's natural that every single person hearing about expected changes is going to ask, How will this affect my job? How will it affect my next raise and chances for promotion? And how will it affect the amount of work I have to do?

So one of the first things we have to do is come to grips with what it is we reward people for doing. I believe there's always a way to compensate people for doing what we really want them to do.

An evolutionary shift. Implementing one-to-one marketing might require some rethinking of the organization's structure - be it function-based or product-based - or some slow, evolutionary shift. We don't ever suggest, by the way, sudden shifts. You can't walk into an organization and say, "We're going to make this such a great organization. Tomorrow we're going to start doing this differently, which means all of your jobs will change." You can't do that without having either a loud or a quiet revolution; either one would sabotage the whole effort.

Relationship managers. So what my partner and I do is go into an organization and identify the most valuable customers - the ones we never want to lose and whose participation we want to increase. Might be half a dozen, or a hundred. Depends entirely on the organization, what its resources are, how much on board staff is, and everything else. But we start with this first group.

And we take one or two staff and change what they're doing. They become what I call "relationship managers," or "customer managers." Their job is to focus entirely on these selected members and to record their activities and what the association is learning about them. That's when we start developing the conference brochure I described earlier, just for these most valuable members. And we use the information we're collecting on them to figure out what to sell them next - that is, figure out what we need to do for them next that will be to both of our benefits.

Everybody else in the organization keeps on doing what they've always been doing. As these first two staff start having some success stories and start improving the retention rate of these valuable customers and increasing the participation levels or the investment levels, word spreads. Soon a few other sharp people in the organization start looking over their shoulder, asking, "What is it that you're doing?" That's pretty cool.

Reallocating resources. That's when you start moving what we call the picket fence - the demarcation in your member database between your most valuable members and all other members: You start including the next most valuable members in your customized marketing efforts, and you start including those staff people in the organization who now want in on one-to-one marketing. At this point you're going to have to start reallocating resources. And it's going to require slow but steady reorganization. But you won't need as many people to handle the members who are left. These are the members who are less valuable for the most part.

What happens structurally is that the association slowly moves 90 degrees from being function- or product-oriented to being one-member-at-a-time-oriented. With this frame of reference, you're always asking, "What products or services does this member need to become more valuable to us? What else can we do for this member?

How does changing the focus from products or functions to members change some of the traditional power bases that exist within an organization?

Rogers: Well, if an association is in business to do something besides serve its members, then there's probably something askew anyway. One-to-one marketing does change this: To reflect the member focus of a one-to-one approach (versus the traditional function and product focus of most organizations), the organizational structure is based on the intersection of the customer, or relationship, managers - who are in charge of the member portfolios (members grouped by similar needs) - and what we call capabilities managers - who are in charge of products and services. The customer managers work with the capabilities managers to meet the specific needs of their member portfolios.

What skills do staff need for one-to-one marketing?

Rogers: The first thing is to have someone who understands the power of database building and management. Somebody who also understands what we need to do in terms of getting us onto the Web and making that work for us. Then we have to have a champion inside who understands one-to-one marketing and who's always looking out for member needs.

We need a champion of the strategy. I'm not sure you have to have everyone at the organization turned on at once, but it is good to have a general understanding throughout the organization. When I work with organizations, I emphasize that one-to-one marketing isn't the marketing strategy du jour. This is about a technology-based discontinuity that is changing everything about the world we live in and will affect history, so you better believe it's going to affect this organization.

How do you know where to start customizing?

Rogers: In some cases it's as simple as starting where you know you can customize. So in many cases it's the communications that are going to get customized first because they're the easiest to customize. Things like a customized catalog with product and service offerings in it. And conferences a little bit - at least enough to feel like it.

You can customize small, almost trivial things that will feel good while you work toward bigger things. For example, if I know enough about you when you get to the conference, then I can have the right kind of snacks for you. I can have something in your hotel room that's special for you. If you love chocolate, chocolate goes in your room; if you love wine, then it's a bottle of wine in your room. Make the little things significant. Don't spend any more money, just have a bevy of opportunities that you match up to the right people.

What do you say to the association executive who says the special tax-exempt status of associations makes it impossible for associations to choose their members?

Rogers: I heard the same thing from the utilities companies and the phone companies, but now they're embracing one-to-one marketing pretty hard. We still have a differentiation issue. We still know that some customers are more valuable to us then others. If we continue to do the same thing for all of them, then we're going to be outstripped by the organization next to us, our most direct competitor, who's able to treat our most valuable members better than we can.

It's not so much how many members we can have; it's more a matter of do we have all the right members? Just as the phone company has universal access requirements, if they're facing deregulation, the good news is, they won't have to have 100 percent market share anymore. Now they can know which customers they're going to keep. But that doesn't mean they're going to turn off service to people who are on fixed incomes and may not be able to afford the service. In fact, those people may be part of their mission. But it also means there are some customers that they might not take the time or trouble to solicit anymore. I would just suggest that an association that feels an obligation to solicit everyone equally is maybe missing out on an opportunity - because members aren't all equal to the organization or to each other.

What is the CEO's role in implementing one-to-one marketing?

Rogers: The CEO is critical to making one-to-one marketing work because she or he is the only one who can integrate the entire operation by customer. In other words, instead of letting the financial people or the conference people or the membership people in essence run the organization, the people who really have to run the organization are the customer/relationship managers, who are looking after the welfare of the portfolio of members to which they are assigned.

Keeping valued members. And instead of being judged by how much a product or service brings to the bottom line, these people will be judged by what they're doing to increase the value of their portfolio of members and to keep those members forever.

It's not whether the product makes the numbers, but whether the organization is going to keep its valued members. There's a difference between making sure every product makes money and making sure every member breaks even. In the case of members, you measure actual lifetime value or, alternatively, "strategic valuation," which is how valuable the member would be if you could win over his or her allegiance.

We've found organizations can tell us to the penny how profitable a product was last year, but they don't know how profitable a customer is. We just worked with a bank and found that it was losing money on 31 percent of its customers. Well, if you find a way to make money on every one of those customers, you can stay in the black operationally, even if it means you have a loss-leader product that keeps those members doing more business with you.

An integration process. The CEO's role is really to decide when and how to move that virtual picket fence I mentioned earlier - to pull someone off the job he or she is doing now and make that person into a customer manager; to oversee how everyone else will reallocate the job that that person was doing; and to change the compensation structure for that person while leaving everything else in place. It's the CEO's job to be aware of and encourage the next most resourceful and visionary people in the organization to become customer managers. That integration process is critical, and one that only the CEO can ultimately take responsibility for.

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An Association Version of One-to-One

It's one thing to hear about one-to-one marketing from a management consultant and another to see it in action at an association. In next month's issue of ASSOCIATION MANAGEMENT, look for "Pursuing One-to-One," a short feature in which Kerry C. Stackpole, CAE, president of The Association for Work Process Improvement, Boston, describes TAWPI's initial experiences with the costs and benefits of a one-to-one approach. Here's a heads up: Stackpole has good reason to conclude that it's a direction worth pursuing.

For More Information

The Don Peppers and Martha Rogers book The One to One Future: Building Relationships One Customer at a Time is available from ASAE for $24.95; request item AMR-210907. It's also available on video for $195; request item AMR-250034.

To order, call [phone], fax to [phone], or e-mail to [e-mail].

Ann I. Mahoney, CAE, is editor of ASSOCIATION MANAGEMENT.