Chapter 2
The Evolution of the Customer-Focused, Data-Driven Business

Having a strong focus on customers is nothing new. Neither is using data to better understand your customers. In fact, companies that have combined these approaches are among the standouts in business history.

In the late nineteenth century, two entrepreneurs, a thousand miles apart, established famed department stores built on a philosophy of serving the customer. In Chicago in 1862, Marshall Field founded the company that would become his eponymous department store. At Marshall Field's, the term customer and customizing the experience of each buyer were core to the business model. Field implemented two guiding principles at his store: "Give the lady what she wants" and "The customer is always right," according to Donald L. Miller's City of the Century (Simon & Schuster, 1996).

In those days when there were no databases or computers, it was difficult to measure exactly how well Field's stores lived up to those two principles with individual customers. But the old-fashioned ledger demonstrated the success of Marshall Field. By 1894, Field was successful enough to pledge $1 million (roughly $25 million in today's money) to the founding of the Field Museum of Natural History in Chicago.

Across the country in Philadelphia, John Wanamaker founded his own eponymous store in 1861. Like Field, the customer experience was central to the business model. Wanamaker eliminated haggling (he is said to have invented the price tag), and allowed returns-revolutionary concepts at the time. One of his stores was the first retail establishment to install electric lighting. By focusing on innovating with the customer in mind, Wanamaker saw his business flourish. In 1910, he built what has been described as a massive "palace" for his customers on a square block in Philadelphia's Center City, according to PBS's They Made America.

Those advances alone were enough to land Wanamaker a place among retailing's master innovators. But he also blazed trails in marketing. He invented the "white sale." His was the first department store to run half-page and full-page newspaper ads. Wanamaker's was also the first retailer to hire a full-time copywriter, John Emory Powers; during his tenure creating marketing copy for Wanamaker's, the company's revenues doubled from $4 million to $8 million.

In an era when hyperbole ruled advertising, Powers went against the grain and attempted to speak the plain truth in the advertisements he wrote for Wanamaker's. For instance, after he was told that the department store was trying to push "rotten gossamers," he wrote an ad that featured the line "We have a lot of rotten gossamers and things we want to get rid of." Legend has it that the gossamers were sold out by noon the day the ad ran.

With results like that, Wanamaker was a true believer in the value of advertising. But, like the marketing-oriented executives who followed him, he wanted more. He wanted data on how his advertisements were performing, which was in short supply in the print age and which is why Wanamaker reputedly said, "Half the money I spend on advertising is wasted; the trouble is I don't know which half."

While Wanamaker and Field established businesses that served the more cosmopolitan customers living in cities, in 1893 Richard Sears and Alvah Warren Roebuck established Sears, Roebuck & Company to serve customers in the farmlands. Through an unwanted delivery of a watch shipment in 1886, Sears gained an insight into a key data point: general stores serving rural areas were charging prices on goods that Sears could undercut by serving a broader market. By understanding both the marketplace and customer behavior, Sears built a mail order catalog business that Investopedia describes as the "Amazon.com of its day."

Here's the story: While Sears was working as a railroad agent in Minnesota, a shipment of wholesale watches arrived for the local jewelry store. When the store refused the delivery, Sears stepped in and bought the watches. He found that even though these watches typically retailed for $25 in stores, he could sell them for as little as $14 and still make a profit.

Sears moved to Chicago to take advantage of the city's position as a railroad hub and Sears, Roebuck & Company began its ascent by selling watches and jewelry via a mail order catalog, but rapidly increased the variety of products customers could buy and have delivered to their door.

Local store owners were not able to purchase the bulk quantities or offer the pricing or distribution that Sears, Roebuck could. Threatened by the new business, local shops intercepted and even burned the catalogs.

In the 1906 catalog, according to Illinois History magazine, Sears responded by providing its customers with some basic truth and data-some pretty devastating information that offered insight into the business practices of the general store merchants: "As a rule, the merchant from whom you buy adds little profit to the cost of goods as he can possibly afford to add. For example, a certain article in our catalog is quoted at $1.00, while your hardware merchant asks for $1.50 for that same article.."

Eventually, the Sears catalog became a 500-page behemoth that expanded far beyond watches. The catalog even sold ready-to-assemble houses that were shipped via rail.

John Deere is another iconic corporation that caters to rural customers and thrives because of its focus on designing and delivering products its customers need-both through its products and through its content. Joe Pulizzi, founder of the Content Marketing Institute, recognizes John Deere as one of the first companies to use content marketing to build their customer base. That's because in 1895 Deere began publishing a magazine that was full of information to help customers (and prospects) become better farmers. The magazine, called The Furrow, is still published today.

While The Furrow's foremost purpose is to deliver valuable content to its readership, it also fosters a sense of community, establishes brand recognition, and offers insight into the John Deere customer base. Subscribers to the magazine provide their names and mailing addresses as well as information about their businesses, which in turn provides John Deere with a database containing a wealth of knowledge about both customers and prospects. How many customers and prospects can John Deere reach with one magazine? Today, The Furrow has 1.5 million subscribers in 40 countries, according to the John Deere website.

Farming is perhaps the oldest industry, but it remains an innovative part of the economy. Farm Journal has covered the agricultural industry since 1877. Beginning in 1952, the magazine began publishing regional editions. In the early 1980s, it began using customer data to segment its audience; each subscriber received a customized magazine based on the region and whether the subscriber was a dairy, corn, or wheat farmer. The May 1984 issue of the magazine had 8,896 unique editions, according to the Farm Journal website. Advertisers could take advantage of this segmentation by running their advertisements in the editions delivered to the farmers they wanted to reach.

In the pre-Internet age, no marketers used data with more skill than direct mailers, particularly banks marketing their credit cards. American Express, MasterCard, and Visa used zip codes and demographic data to target their mailings to customers who could use their cards. These brands also used sophisticated A/B testing to measure the relative performance of myriad variables, including envelope size, colors used, and offers. Even an incremental increase in direct response success rates meant millions of dollars to the bottom line of a credit card company.

The Internet gave rise to a new breed of direct marketer, and Dell Inc. was one of the first companies to realize the power of online marketing-and its capability to provide deep insight into the customer. In 1996, Dell entered into e-commerce marketing, constructing its website so consumers could buy computers online. More than simply allowing consumers to order computers via the web, Dell enabled consumers to configure their PCs. Consumers could specify the amount of storage and RAM, and whether they wanted a CD burner. The process made buying a high-end PC easy, and it put the consumer in control.

The direct-to-consumer marketing provided Dell with keen insight into who its customers were, where they lived, and what they needed. As a result, Dell was able to execute marketing campaigns that targeted past Dell buyers to deliver information and peripherals or upgrades. This direct sales model also gave Dell immediate insight into consumer trends. The company, for instance, had a head start on its competitors who sold via retail outlets on what features consumers were clamoring for in their PCs. This data enabled Dell to be incredibly nimble, maintaining manufacturing inventory for only what customers wanted and to adjust manufacturing to consumer demand on the fly. By 1999, Dell had surpassed Compaq as the number one PC manufacturer in the world.

Russell Fujioka, a former Dell marketing executive and now an executive in residence at Bessemer Venture Partners, said the...