Feature

posted 29 Feb 2004 in Volume 7 Issue 6

Did someone say customer?

Knowledge management needs to break through organisational walls and address the ultimate focal point of every business, the customer. Arno Boersma examines why knowledge-management practices rarely appear in marketing strategies and outlines some simple formulae that can bring the disciplines together.

Managing explicit as well as implicit knowledge has become the source of competitive advantage for modern organisations. This presents new challenges to all knowledge workers, including the modern marketer. However, as the marketing world evolves around his or her customer, KM seems inwardly focused. In all the best-selling literature and applied theories on knowledge management, the word ‘customer’ seems hard to find. Are they not the ultimate goal of KM initiatives? Shouldn’t we strive to tap into the knowledge potential within the organisation to create added value beyond its walls? Why doesn’t marketing play a more dominant role in this process?

Knowledge management must make its mark on the marketing scene. This involves more than just implementing CRM projects or using lifestyle databases. This article examines the need to bring KM and marketing together and offers an instrument based on the simple but successful knowledge formula developed by professor Mathieu Weggeman, of the Technische Universiteit Eindhoven.

The knowledge-intensive world of the modern marketer

First, it is important to examine why the world of the modern marketer has become
so knowledge intensive. We all know that for marketing professionals it is essential to understand the customer’s needs and characteristics. This makes managing knowledge about customers especially important. However, a number of developments here have made this a complicated affair:

Customers have become more demanding and individualistic and are more difficult to target or assign to specific segments. For example, one customer could have dinner at McDonald’s on Tuesday and at a Michelin-star rated restaurant on Thursday;
Customers have large amounts of information at their disposal to make their buying decisions. They can either gather information from the internet and buy at the store, or do the exact opposite in terms of clicks and bricks;
Through new technologies, such as the internet and mobile phones, interactivity between organisations and customers has increased tremendously with new channels and touch points.

These developments also provide enormous opportunities for an effective and efficient marketing strategy in terms of product marketing (such as new product and channel development) and marketing communication (for example, the type and timing of communications). Unfortunately, within organisations, knowledge about customers is often dispersed among different departments, subsidiaries or business units in a variety of databases and systems that are often not linked. The modern marketer needs to struggle through ever-growing mountains of internal and external data, information and knowledge to achieve results. Ultimately, his most powerful tool – depending on the organisation – often relies on his gut feeling.

A useful approach for structuring this information is the matrix in figure 1. This matrix gives an initial snapshot of the available information within the organisation. Each quadrant has key questions, such as:

Q1 Do we have the right information within our organisation to obtain our marketing objectives?
Q2 Is it feasible for us to depend on external sources for this crucial information?
Q3 Does our non-marketing information support the marketing department, or does it create inefficiencies or distractions?
Q4 How much of the marketing capacity is spent dealing with the non-marketing external information sources? Could this time be spent more effectively?

By conducting such an exercise, marketers will usually find that the quantity of information is not the problem. What is at issue is whether it is the right information and if it accessible at the right time and place. A simple exercise like this demonstrates that the existing marketing processes and systems are not adequately adjusted and in effect, the knowledge scope of marketing activities is not fully exploited. In these challenging economic times, insight into cause and effect is more necessary than ever. The results of marketing efforts have traditionally been tougher to grasp and quantify than sales efforts, due to the simultaneous and diverse customer contacts. As American advertising legend, David Ogilvy once said, Half the money I spend on advertising is wasted, and the trouble is I don’t know which half. Knowledge management can help bring the marketing’s efforts and results to the surface of the organisation.

Knowledge management must be brought onto the marketing scene to improve product development, communication and marketing-information processes. This allows marketers to apply knowledge more successfully, which will improve the efficiency of internal marketing research, deliver well thought-out products and services, and adopt a more effective customer approach.

Customer vs knowledge awareness

Marketing is about branding products and services. From a KM perspective, a brand is a product with unique knowledge surrounding it. For marketers the following formula can offer something to think about:

Brand = Product + Knowledge or
Knowledge = Brand - Product

What is Coca-Cola without the Cola, or Nike without the sneakers? Successful brands will find that their knowledge of the customer and communication provides them with enough image, goodwill and emotional bonding to make the brands go beyond the initial products. The Coca-Cola Company could recover quite quickly if all of its factories were shut down tomorrow; however this would not be the case if its brand collapsed, or its employees were to disappear. Nike, for example, does not own any factories.

It is time for marketing to claim a more dominant role within KM. The growing importance of marketing is already having an impact on organisations as a whole. As David Packard, co-founder of Hewlett Packard, once stated, marketing is too important to be left to the marketing department. Marketers also need to play a role within KM projects. The key question behind these market-driven projects should and will be what has our customer benefited from our KM initiatives, in terms of satisfaction, penetration or bonding? Customers are starting to realise which companies are applying KM practices within their marketing departments, such as at the L’Oréal Group (see box 1).

Towards a knowledge-based marketing approach

The objective would be a marketing approach that connects customer knowledge to the company’s capacity to address their needs based on internal experiences, skills and attitudes. This can be called knowledge-based marketing (KBM). By combining ‘traditional’ KM with modern marketing we should be able to create more insights into what happens with marketing investments. Our definition of knowledge-based marketing is: ‘Making data, information and knowledge about vital customer values transparent and re-usable in order to leverage this knowledge potential through (new) products and services, which in turn, better serve customer needs.’
The advantages of adopting a KBM approach depend on the priorities within your organisation. A few examples:

Being able to clearly define and approach the most interesting target groups through the most relevant communication channels, for example through one-to-one communication and target-group segmentation;
By adding knowledge to products and services builds the brand and elevates brand perception. Examples here include consumer information hotlines and retail outlets run by brand manufacturers;
The ability to introduce customer-focused innovations by better understanding customers’ needs and wants, and ultimately providing targeted proposition. A great example is the $3.3m dollars earmarked by Volvo to have a team of 120 employees (mostly women) work for 15 months to create a concept car for women;
Reducing information overload, can increase the effectiveness of the internal organisation. At one FMCG multinational, for example, the head of innovation has
established a set of criteria for colleagues wishing to suggest new ideas. The first
condition is that they only approach him if they are absolutely sure nobody else is working on a similar innovation;
Optimising processes by making the necessary explicit and implicit knowledge about vital customer values transparent for internal purposes.

To structure the focus areas within KBM, we will use the formula for knowledge created by professor Weggeman from the Technische Universiteit Eindhoven in The Netherlands. He states that knowledge is the equation of information multiplied by experience, skills and attitude of the knowledge worker.

Knowledge = (Information) x (Experience + Skill + Attitude)

Hereby more explicit, codified knowledge is captured in the ‘I’ and the more tacit knowledge is placed within the ‘ESA’. This very simple but powerful formula helps organisations pinpoint the key elements that require improvement, but also emphasises that knowledge is always a combination of hard (explicit) and soft (tacit) factors. To translate this formula for our KBM objective, we first use the following marketing formula:

Marketing = (Communication) x (Relevance + Logic + Understanding)

Marketing is about communicating with customers in a way and with content that is relevant to their needs, is logical to them, and is understood in a way that leads to brand awareness, and ideally action.
Combining these two formulae for the KBM approach would mean that:

Knowledge-based marketing = K(I xESA) x M(CxRLU)

The ‘K’ here focuses more on the internal organisation of product marketing (for example, redefining markets, new product development, channel development). In other words, do we have the intellectual capital to better serve our customers?

The ‘M’ is taking this capital to the customer through marketing-communication. The ‘ESA’ elements of the modern marketer are therefore linked to the ‘RLU’ elements that must be absorbed by the customer.

Redefining the knowledge formula for marketing would mean the following:

I = information about vital customer values, needs and wants as a basis for marketing communication;
E = the capacity of the modern marketer to experience the customer situation or look through their eyes to make it relevant;
S = the skills of being sensitive to customers through new, better or different services and the logic of these services;
A = attitude that surprises the customer with more than they expect and creates an understanding for the products and services.

Just as the formula K = IxESA hones in on valuable company information and knowledge to improve the company’s business, KBM focuses on elements within marketing and customers that help organisations better understand and serve their customers.

Implementing a KBM approach

The implementation of a knowledge-based marketing approach allows a company to focus on the most profitable target groups with limited (human) resources. This does however require accurate and structured activities that can be carried out in three steps.

Step one: Knowledge transparency
(focused on customer capital)

Analysis of marketing and sales strategy: This offers insight into the marketing, sales and communications strategy and the key performance indicators to be used, such as customer satisfaction and loyalty, market penetration, and profitability of the products and services.
Formulating the marketing and sales ambitions: This aims to create a joint focus concerning the ambitions for market and customer approach, customer-relationship management, and product development and innovation. An element could be the customer intimacy and bonding strategy based on market and customer needs.

Analysis of process and systems: Analysis of the marketing and sales processes identifies the crucial knowledge-sharing elements. This includes gaining insight into the main knowledge carriers on products, services, markets and customer knowledge, and the quality of existing knowledge.

Creating knowledge awareness: The organisation looks into the parts of the K=IxESA formula that need improving. The concept of using KM as a driver for marketing results is introduced, as is the value of customer knowledge and need for the right experience, skills and attitude.

Step two: Knowledge re-use (process capital)

Defining the process and system: In this step, the bottlenecks for efficient knowledge transfer are identified, as are the future knowledge needs based on changing customer demands. This should lead to an internal customer knowledge base and a structured approach to market research.
Organisational realisation and developing the marketer: This is an action plan for creating the skill set of the modern marketer. This increases their commitment and understanding to the KBM approach and increases their marketing knowledge towards internal marketing processes, customers focus, brand experience and drive for innovation.

Step 3: Marketing and communication (organisational capital)

Implementation of the approach: Everything comes together in this step. The internal customer knowledge base is linked to the ESA of the modern marketer who in turn effectively communicates the relevance and logic behind the products and services towards the market.

Product innovation and development: Based on internal knowledge, products are improved and new products are created. In the ideal situation, brands can be created that consist solely of knowledge.

Box 1 - L'Oréal

The L'Oréal Group is a global beauty empire with well-known cosmetics brands such as Lancome, L'Oréal and Biotherm. It has a narrow focus on just four categories (hair, skin, makeup and perfume products) and an uncompromising attention to detail on brand management in different cultures.

L'Oréal acquires much of its information on new cosmetic technologies and customers by investing about three per cent of revenues on consumer research, compared to the two per-cent industry average. In more substantial cases, the company simply buys a local company to really get to know the local cosmetics consumer. This was the case with the Japanese Shu Uemura cosmetics firm. Customer knowledge flows back towards marketing through the different, relevant distribution channels within which L'Oréal is positioned. By taking the L'Oréal Professionnel hairdressers as an example, imagine the knowledge these hairdressers around the world learn about their customers every day. It is difficult to be more 'in touch' with the market than they are. In addition, L'Oréal is skilled in sharing local successes in specific countries with its global market.

On the softer side, it is no secret that the careers of most L'Oréaliens start on the road as sales reps selling the products to drugstores or perfumeries. These experiences and skills are extremely valuable to each employee as they take on new roles within the company.

The results of such an approach have shown double-digit profit growth over the last 19 years. L'Oréal has also been able to use these approaches to take dull, inactive brands to new heights, such as Maybelline and Soft Sheen.

Box 2 – TPG Group

A great example of a knowledge-based marketing approach that went beyond the core target group of customers, is the partnership between TPG Group and the World Food Program. This example illustrates that KM for marketing can evolve into the marketing of knowledge.

The TNT Post Group (TPG) was formed in 1998. TPG is active in mail delivery, express and logistics, and is the largest employer in the Netherlands with 65,000 employees, and 148,000 worldwide. The CEO, Peter Bakker is the youngest CEO of a listed Dutch company and is one of the first of a new generation of Dutch managers. "Knowledge was power, now knowledge sharing is power", is his motto.

Soon after he was named CEO, Bakker read an article on world hunger that touched him. As this crisis is essentially a logistical issue, he decided that TPG would help the third world not by giving money, but by providing their knowledge on logistics.

Bakker met with Kofi Annan and decided to partner with the World Food Program. In his words: “The best logistics company in the world helps solve the largest logistical problem in the world.” TPG Post made their core knowledge transparent and re-usable for the logistics infrastructure of the WFP. A marketing and communications machine made sure that all stakeholders involved were informed and enthused.

Considering that this was largely the former Dutch Post, the improvement in corporate image and internal pride within the organisation increased greatly.

Arno Boersma is co-founder of Squarewise. He can be contacted at boersma@squarewise.com