Don Peppers, author and founding partner of the customer-centric consultancy Peppers and Rogers, spoke at the SAP Hybris Commerce Masterclass in Melbourne recently. Marketing spoke with Peppers about his theories, stories and advice surrounding the importance of ‘extreme trust’ and customer experience in today’s marketplace.

Marketing: Please give us a bit of background on your career in marketing and how it led you to develop your opinions on customer experience.

Don Peppers: I’ve never really held a job for which I was educated. I’m an engineer by trade but I’ve never had an engineering job. I gravitated to marketing and advertising, because it’s very entrepreneurial. I really enjoyed the entrepreneurial aspect of it, and I came to it naturally. But I’ve never actually taken a course in marketing, which you don’t really have to. I tell people ‘you either get marketing or you don’t, and if you’re going to get it, you’re going to get it in weeks.’ You can take all the courses you want, but if you don’t get it, you won’t get it. So I get it, and I was a good marketer.

I was in the advertising business and somebody asked me to give a speech on the impact of interactivity. In my job in the advertising business I was trying to win new clients. So, in the mornings I would make phone calls to marketing vice presidents, advertising representatives, and the point of my phone call was to have them tell me things, and to write it down in a three ring binder. Six months later I’d call and say ‘how did that product launch go in China, did it go OK for you? I want a relationship with you, so that when I read that your advertising account is up for grabs, you will take my call, that’s all I want.’

I realised, in interactivity, I tried to give this speech about interactivity, and this is 1989, and people thought interactivity was: you’d be watching TV at home and you’d see a commercial for something you like, and you push a button and a coupon would print out on your set top box, that’s what they thought interactivity was.

I asked it a different way. I said ‘if a child could interact with Tony the Tiger, during a Frosties commercial, if the child could talk back to Tony the Tiger, what would Kellogg do?’

The answer is, as a mass marketer, they wouldn’t do a thing, because it’s not representative information, it’s anecdotal. In mass marketing, you don’t need anecdotal, it’s worthless. But, that’s exactly what I was trying to do in my day job, trying to get relationships with business-people. So, I said, when interactivity happens, companies will want to engage even consumers, in relationships. I gave that speech, and somebody came up from the audience and said, ‘You oughtta write a book’.

I said, ‘I’m really busy.’

She said, ‘let’s collaborate’, and that was Martha Rogers, and three years later we had our book. Six months after our book came out the first commercial web browser appeared. We were just totally lucky. We thought we were writing a book on business science fiction. We predicted social media, we predicted ecommerce, there’s a chapter called ‘Take products to customers not customers to products.’

M: In your presentation you mentioned that the customer is the biggest disruptor of all. What makes that so?

DP: Well, everyone knows of course that only customers create value. You can create all the products in the world, you can have all the inventory in the world, but if you don’t have a customer, you don’t have a business. You may have a hobby, but you don’t have a business. Customers create value. The value they create, however, is two-fold.

They create short-term value and long-term value. Short-term value is when a customer buys something from you, and you put it in your earnings, that’s short term value. But customers have memories, and they remember how they were treated, and what it felt like. They have an impression of the business, and if I have a really good experience with a business, on the basis of that experience, my liking of that company goes up, my likelihood of buying from that company goes up, well my lifetime value has increased. You do not realise the cash effect of that until later, when you buy more. The value was created with the experience.

The analogy I use, let’s suppose you had a really valuable customer, who’s buying from you all the time, and they call in, let’s say with some kind of complaint, and you don’t handle that interaction very well, and they end up angrier at the end than they were in the beginning. Your company just lost a bit of its value because your value as an enterprise is the net present value of the future stream of cash flow you expect. Nobody can actually know what this is, because it’s the future, but there are lots of instruments to predict it, analytics and statistics and so forth, and we make approximations, and you can’t deny that a customer actually has a lifetime value just because you can’t measure it precisely. But you know it’s out there. So, that customer’s lifetime value goes away, your value as a company is down. Again, the cash effect you won’t realise til later, but you destroyed the value with that interaction.

So, today, it’s the interaction through customers, that are creating long term value. The reason Google has a $250 billion market cap, maybe more, the reason it has that kind of market cap, is that the stock market – which is a very, very smart, possibly the smartest predictor of value – is estimating that the value of all Google’s customers, if you add them all up, and took all the income you could ever get from those customers, now and in the future, it’s $250 billion worth. That’s why I’m going to pay for the stock.

M: You mentioned the notion, of ‘extreme trust’ between providers and customers. What changes in technology and the marketplace have resulted in the need for the relationship of ‘extreme trust?’

DP: The thing is, we’re way more connected than we ever were. Consumers share their opinions with other people, they don’t need to learn about a brand from the advertising, they can learn it from their social circles, at work and so forth.

Because of all this interaction, they demand that they can rely on the interactions that they have. You can’t rely on an untrustworthy interaction.

Imagine, if every time you went into a convenience store, you really had to count your change, to make sure that you weren’t being cheated. Imagine that. Now we don’t do that, because convenience stores don’t cheat. But if you had to do that, it would slow you down, it’d be a pain, right? Well, that’s the way a lot of businesses operate, with marketing. Traditional marketing, they make a lot of money off consumer mistakes.

Look at gift cards, you know why retailers like to sell gift cards? Because 10% to 20% gift cards are never redeemed. When I go in and buy a card, it’s better than cash for the retailer.

Now, a trustable retailer would take down your name and email address and in six months they’d say ‘hey, don’t forget you bought this gift card, you’ve still got $100 on it, oh, you lost it? Whatever, we’ll disable that one and maybe do another one.’ That’s trustability, that’s what I call ‘proactive trustworthiness.’

I think what consumers are finding, is that the really successful business marketers, whether it’s Amazon, or Zappos, or Ally Bank, they’re engaged in trustable marketing. They don’t make their customers count their change. They don’t make money when their database is showing that their customer is doing something that they’re going to regret. Even though they could.

And so, from the customer’s standpoint, it’s going to be a lot less trouble to deal with you. In the direct marketing business, when it first started up, direct mail, the first catalogue marketers. One of the things that made catalogue selling the success that it became in the 100 years that it existed, was the immediate refunds, no questions asked policy, which direct marketers had. They realised that was necessary to develop trust.

An analogy is in e-commerce, trustability is a minimum standard. So, if I’m dealing with a website like Amazon, that reminds me that I already bought this book, why wouldn’t American Airlines tell me I’ve already got this reservation? You know what I mean?

So my expectations go up, and that’s why ‘extreme trust’ is necessary.

M: You also mentioned the fact that the more we interact, the more trust we demand. Do you think this represents some sort of loss in value of these interactions?

DP: No, I think it’s an increase in value. Here’s the thing, interactions generate activity, innovation and commerce, and commerce thrives on interactions. The more interactions we have, the better the commerce is, the better the economy’s going to be, the better people’s lives are, the better technology and innovation we have.

It’s important to have enough human interaction. I think the fact that the human race is now wired together more tightly is even better. And I think it tends to generate empathy. Social interaction is built on empathy. When I feel your pain I’m much more likely to be social.

The only drawback with interaction is the type of interaction is electronic. With electronic interaction I can’t look into your eyes and see your expression when you’re reading my email. So I can’t have that, I give that up. But what I get in its place is tremendous volume, and speed, ubiquity.

M: You expressed the importance with the separation/more accurate alignment of financial metrics with customer experience metrics. Why is this important? And what suggestions do you have for a better structure which expresses and understands each?

DP: I think alignment issues – actually misalignment issues – are one of the most damaging and difficult to remedy problems facing businesses today, especially those businesses trying hard to become more customer-centric. There are many misconceptions about numbers, just to start.

A number is not more reliable or important just because it is accurate, for instance. You can measure the cost of providing better service to the penny, but that doesn’t mean that the cost of doing so is any more credible or important than the harder-to-measure benefit of better service.

You’ve heard the expression ‘you can’t manage what you can’t measure,’ right? Well that’s just bullshit. Pure and simple. Grow up. Every manager has to manage many things that can’t really be measured. How do you measure the enthusiasm and spirit – or lack thereof – of your employees? Or the financial benefit of a happy customer spreading the word about your business? Or the opportunity cost of an unresolved complaint?

The prejudice in favor of relying on quantifiable things in making decisions is just a prejudice, also. I’m not advocating that we renounce data. Not at all. I’m saying that relying on objective data requires making an objective judgment with respect to where data isn’t as available, or isn’t as clear-cut.

The problem comes home to roost in the fact that so many companies will do such harmful things in order to be sure to make relatively short-term goals – because the financial goals can be quantified, and the costs of making them cannot. That is the primary affliction in business today.

M: You also expressed the importance of bottom-up management of companies and organisations. Is this even more important today than it has been in more traditional consumer and marketing organisation settings, or has it always been vital? 

DP: I would say bottom-up management has always been worth considering, but with the density of communications and interactions available with modern technology, there is an even stronger case to be made for it. The transaction costs of employee-to-employee communication have shrunk enormously. There is less reason for hierarchical controls when the lowliest worker can leap tall organisation charts with a single click.

The reason self-organisation is more important now than ever before – as well as being more feasible, with technology – is because the pace of change has so accelerated. No one in business is more than a start-up cycle away from disruptive innovation and creative destruction. So being more agile, responsive, alert, flexible – all these qualities are sharper when an entire organisation is made up of people who are thinking for the organisation, not simply taking directions from it.

M: You mentioned Moore’s law and Zuckerberg’s law, In another 20 years when our technology is 1000 times more powerful, and we have 1000 times more interactions, how do you think the role of the customer experience will evolve further as technology advances?

DP: I think the next major evolution in this journey will be what is sometimes called ‘VRM’ or ‘vendor relationship management.’ That is, consumers taking charge of their relationships with vendors, rather than the vendors having charge of their relationships with customers – CRM.

Doc Searls has a whole posse of followers who are speculating about how this might happen, but you can already begin to see it in the apps that allow customers to take more charge. Today’s ‘big data’ algorithm that allows a marketer to forecast demand for his inventory is tomorrow’s smartphone app that will allow a consumer to make a judicious bet on the future price or discount to expect on some product they’re considering. And only a matter of time before we see privacy protection apps that, combined with ad-blocking tech – already very widespread – will in effect give customers the control over their own clickstreams and data.