Winning in Smart Markets

Smart markets, or markets defined by frequent turnover in the general stock of knowledge or information embodied in products and possessed by competitors and consumers, are based on new kinds of products, competitors, and customers. As a result, companies seek to understand the degree to which their own capabilities and motivations as information-processing "organisms" are crucial in enabling them to extract maximum value from their customer information assets.

Firms that have gained a significant competitive advantage are distinguished by their ability to see beyond their IT infrastructure and view information itself as the core asset and the management of information as the company's main priority. Understanding how consumers are adapting their behavior to the demands of an increasingly information-intensive environment has been a starting point for companies that have achieved success in smart markets.

By observing the activities of these firms across industries, it is possible to identify generic strategies and develop a preliminary taxonomy, or categorization scheme, that can be used to compare and contrast them. The placement of individual strategies within a conceptual framework guides managers in making customer-management decisions.

The organizing tool, or asset around which the full range of strategies is based, is the customer information file (CIF) -- a single virtual database that captures all relevant information about a firm's customers. Underlying the notion of the CIF as the key asset is the assumption that the firm's operational goal is to maximize communication with its customers -- to look for every opportunity to "talk" with them. After all, the data collected from these interactions are the raw material from which companies craft their information-intensive strategies.

A company thus sets as its main objective the maximizing of returns to the CIF. It then chooses any one of several strategies to accomplish that objective. This approach represents a shift in performance goals. In particular, concepts such as profitability or market share per product are being replaced with concepts such as profitability per customer (sometimes referred to as "lifetime value of a customer") or customer share (the total share of a customer's purchases in a broadly defined product category).