There’s a scene in the biopic movie “Coal Miner’s Daughter” where a young Loretta Lynn (Sissy Spacek) is recording her first demo.  Halfway through the session, the engineer/producer tells Loretta’s husband, Mooney (Tommy Lee Jones) that he’s going to need to “get some more [guitar] pickers.”  “More pickers!  I can’t afford the ones you’ve got.”  The engineer calms Mooney, saying, “I mean more better pickers.”  In the recording business, the synergy created by a specific combination of musicians can be the difference between a hit and a song that doesn’t make the charts.  In the same way, more better customer knowledge can separate an industry leader from the also rans.

Having worked in the market research business for many years, I can say that in most industries–especially B2C industries–the key competitors tend to do the same kinds of market research and ask the same questions about their customers.  Many companies also purchase syndicated market research that gives all competitors access to exactly the same information.  The supplier industry is fairly close knit, and any innovations such as new analytical tools tend to be adopted quickly by most suppliers.  Ten years ago only a handful of consultants offered discrete choice modeling.  Now it’s one of the most popular methods of quantifying consumer preferences, and most market research suppliers offer choice modeling in some form.

So, given that most firms have access to similar or identical facts about their customers and prospects, how does customer knowledge become a competitive advantage?

When we talk about “knowledge” in connection with customers and prospects, we might be talking or thinking about any or all of the following:  facts (observations, answers to survey questions, numerical data, and so forth), summarization of the facts (via cross-tabulation or correlational analysis for example), and “insight” or understanding.  Each of these notions corresponds to a critical step in the creation of knowledge, but taken separately they don’t constitute knowledge.  Knowledge emerges from the intersection of the patterns in the data and the previous experiences of the individual who is looking at those patterns.  An important activity in this process is conversation, which lets us find out what others think about these patterns.

Therein lies the competitive advantage in customer knowledge–it’s difficult to duplicate.  Even when competitors have access to the same facts, they may not draw the same (or “correct”) inferences from those facts.  Moreover, knowledge is cumulative–different patterns emerge when we look across facts gathered at different points in time, different geographies and different samples of customers and prospects.  Each company’s history will be somewhat different in this regard.  Add to that the unique perspective that each individual brings to the interpretation of the facts, and knowledge quickly becomes a powerful point of competitive advantage.  There’s a downside to this, of course.  As people come and go, the collective customer knowledge changes.  More importantly, the knowledge that gave the organization its competitive advantage can be lost over time.  In companies where advancement means moving into different business units or functions with any one assignment lasting only a couple of years or so, there can be a high rate of “knowledge turnover.”

To get an idea of how serious knowledge loss can be, consider NASA.  In his book Lost Knowledge: Confronting the Threat of an Aging Workforce (Oxford University Press, 2004), David W. Delong describes the way in which the space agency lost the know-how required to send humans to the moon.  Engineers who designed and built the massive Saturn 5 booster rocket were encouraged to take early retirement in the 1990’s, and along the way the detailed blueprints for the rocket were lost.  And consider the bottom line–$24 billion was spent over 10 years to send Americans to the moon.  It will cost at least twice as much to recreate that achievement.

As I noted in my first post, companies and other organizations spend several billion dollars each year gathering data about customers and markets.  Positive return on that investment requires active and effective customer knowledge management.

Copyright 2009 by David G. Bakken.  All rights reserved.