Question: How would you define customer equity?
Todor: Customer equity is the wealth-creation potential that lies in forming close relationships with your customers. We're not talking about branding or market share; we're talking about gaining mind share with your customers. In an era of rapid change and innovation, products are coming and going very quickly. The companies that can successfully create emotional or intellectual relationships with their customers will still have those relationships even after the products have come and gone.
Question: After years of focusing on cost control, are companies becoming more interest in increasing their customer equity?
Todor: Products generally have a short time to shine and generate high margins. There are too many competitors out there who are probably willing to offer a product at the lowest price. If an organization is going to play the price game, then it better be the Wal-Mart of its industry. If a customer is buying on convenience or price, there is generally little if any loyalty. Conversely, when a customer is emotionally engaged with a purchase, they'll skimp elsewhere for those buying opportunities. If a company can offer a customer a purchasing experience that is emotionally and intellectually gratifying, the customer will continue buying from them. Harley-Davidson has been quite successful at this. Customers aren't as concerned with whether they are buying the absolute best product; it's about a lifestyle for them.
Question: Obviously it may be a challenge for companies to shift their emphasis from products to services. What kind of corporate changes are required, and what are some ways companies can move in that direction?
Todor: In the traditional world, most of the focus is on producing a product and making the sale. But that is becoming less relevant now that there is an abundance of everything. Companies need to think more about what they can offer the customer to make purchasing a better experience. Think of Apple's Genius Bar in its stores, for example. The focus needs to shift from just getting more customers to getting more customers engaged with products. Employees play a key role in improving the customer experience. Yet most employee reward systems are centered around the number of deals an employee completes. So these reward systems need to be modified to better acknowledge employees' contribution to improving the customer experience. Companies must also align their corporate strategies with an overall mission of improving the customer experience.