Creating and using customer

insight: 12 Rules of best practice

Brian Smith
is a Research Fellow at Cranfield School of Management and runs PragMedic, a specialist consultancy that helps companies
create strong strategies in medical markets. He welcomes comments or questions on this paper at Brian.smith@pragmedic.com.
More papers on medical marketing strategy can be seen at www.pragmedic.com.

Hugh Wilson
is Senior Research Fellow and Director of the Customer Management Forum at Cranfield School of Management.
(http://www.som.cranfield.ac.uk/som/research/centres/ccmf/)

Moira Clark
is Professor of Marketing Strategy at Henly Management College

Keywords customer data, customer insight, customer knowledge, customer value,

marketing mix, marketing strategy

Abstract It has become a truism that the ability to learn is an organisation’s only
sustainable source of competitive advantage. In practice, this means the capability of
translating data about customers into customer preference and hence shareholder value.
Firms with superior data-to-value capability understand both the stages in this process
and the organisational actions that determine their efficacy. Our research-based
understanding of how firms achieve such superior capability is extensive and well-
founded, but scattered and fragmented across various academic disciplines. This paper
summarises this understanding of the data-to-value process and identifies 12 rules for
creating and using customer insight.
Journal of Medical Marketing (2006) 6, 135–139. doi:10.1057/palgrave.jmm.5050013

INTRODUCTION success and strategic marketing skills are

of equal importance. This fundamental
The importance of definition shift in the industry, driven by irreversible
The subject of customer insight has changes in the social, legal, economic,
recently become of great interest to political and technical environment, is the
pharmaceutical and related industries. In explanation of recent interest in how to
part, this is because of the potential create and use customer insight from the
offered by information technology but at data we find ourselves swimming in.
least as significant is the changing nature Fortunately, how firms go about
of competition in the industry. Whereas, a translating data into value has been the
generation ago, competitive advantage lay subject of many years of learned research
mostly in the research and development and hundreds of useful papers.
Brian Smith
Pragmedic Limited, 6 (R&D) function, the maturation of the Unfortunately, this work is fragmented
Whetstone Close, Welwyn
Hertfordshire AL6 0QW, UK industry is gradually changing this. Now, across numerous academic domains,
Tel: + 44 (0)1438 712441
Fax: + 44 (0) 1438 712442 excellent research and development is including organisational learning,
e-mail:
brian.smith@pragmedic.com necessary but not sufficient to commercial knowledge management, customer

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 Smith, Wilson and Clark

behaviour and strategy making. So,
although the research contains much that
is useful to improve practice, it is difficult
for medical marketers to access and make
sense of. This paper is an attempt to help
those marketers understand what is already
known about creating and using customer
insight within the limitations of time faced
by all practising managers.
The first challenge to a practical
understanding of customer insight is one
of definition. The terms used (eg data,
information, knowledge, insight, value) are
often used interchangeably and often
imprecisely, making it hard to draw sense
out of the research. A detailed reading of
the literature however, reveals a workable
consensus about what the key terms mean
and this is essential to begin understanding
best practice in both this and any other
industry.
The definitions outlined in Table 1 are,
with the exception of that for customer
insight, representative of the consensus
among researchers.1–6 Customer insight,
however, does not appear to be well
defined anywhere, either by academics or
practitioners. The definition we have used
here imports a valuable idea from a body
of research that studies how firms’
resources lead to value. Originally, this
body of work considered resources as
things like physical assets or intellectual
property or cash. By applying those ideas
to the customer knowledge as a resource
however, it becomes a useful definition of
customer insight.
THE DATA-TO-VALUE CYCLE
In most medical companies, the process by
which data is used to create value
resembles an iceberg. While some of it is
visible in procedures like market research
and the Target Product Profile, these parts
represent only a small part of the whole.
Much value creation goes on informally
and the processes by which it happens are
nebulous, implicit and unclear. Clearly, to
emulate and improve best practice, we
need first to make it explicit.
This unravelling of how firms manage
knowledge has been the subject of much
case-study work by management
researchers.7–9 As is typical with academic
research, each piece of research yields a
slightly different explanation of the value
creation process, with different terms and
details. As with definitions, however, a
detailed reading of this work reveals a
high degree of overlap and consensus.
This consensus, built from close
examination of how firms actually
translate data into value, shows that it is
an iterative-linear process (Figure 1) and
must be read using the definitions in
Table 1.

Table 1: Definition of terms in the translation of data to value

Term Definition Representative

references

Customer data Customer data is the recording of transactions or interactions with 1

customers, quantitatively or qualitatively, explicitly or implicitly
Customer information Customer information is data which has been organised into patterns 2
Customer knowledge Customer knowledge is information which has been placed into the 3
context of the relevant situation
Customer insight Customer insight is knowledge about customers which meets the 4
criteria of an organisational strength; that is, it is valuable, rare,
difficult to imitate and which the organisation is aligned to make
use of
Marketing actions Marketing actions are changes to the core, extended or augmented 5
product or service which impact significantly on the customer
Customer value Customer value is the degree to which the customers’ preference 6
for a product or service is changed by marketing actions

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Customer Customer
data information
Customer
value
Marketing Customer
actions insight
Figure 1: The data-to-value cycle
In such a linear-iterative process, data is
organised into information. That
information is analysed and synthesised in
the context of the firm’s objectives and
strategies to create knowledge about the
customer. As Zack10 defines it, there are
broadly three types of knowledge:
• Declarative (knowing what something is)
• Process or procedural knowledge (knowing
how something is done)
• Causal (knowing why something happens).
Whatever the type of knowledge created,
some of it can be seen as an organisation
strength when it meets all of four criteria
of such a strength, as understood by the
resource-based value researchers. These are:
• It is valuable (ie it can be used to guide
decisions)
• It is rare (ie it is not commonly held by
competitors)
• It is inimitable (ie it is difficult and costly for
others to acquire)
• The organisation is capable of acting on the
information.
Knowledge that meets these criteria can
be regarded as customer insight and is
then used to guide changes to the
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Creating and using customer insight
marketing programme (eg the 7Ps:
product, price, promotion, place,
process, people and physical evidence).
To the degree that these changes create
customer preference, they create customer
value that is expressed in some
Custome combination of higher share or higher
knowledg
prices. To the extent that such value
exceeds the costs of creating it, it
represents shareholder value. Further, the
transactions and other data that are created
as a result of customer preference and
purchases provide the input to future value
creation.
BEST PRACTICE IN
MANAGING THE
DATA-TO-VALUE CIRCLE
The data-to-value cycle is not a
revolutionary glimpse into best practice.
Rather, it is a surfacing of what goes on
when a firm successfully translates data
into value and its usefulness is that it
allows us to better understand the process.
More to the point, defining the terms and
explicating the process allows us to
understand why some firms are good at
this and others are not and, by extension,
how we might become one of the
former.
The research in this area is huge but
contains a lot of overlap and consensus in
which different researchers have found the
same things in different cases. Not only
does this increase our confidence in the
findings, it means they can be carefully
unpicked to reveal a manageable number
of lessons that can be applied by medical
marketers. These lessons are perhaps best
summarised as 12 ‘rules’ of value creation,
as expressed in Table 2. To better illustrate
the points, the authors have included
illustrations from their consultancy work,
in which they apply this research to the
pharmaceutical, medical device, diagnostic
and related areas.
Journal of Medical Marketing 137
 Smith, Wilson and Clark
Table 2: The 12 ‘rules’ of value creation
Rule Explanation
1 Find data which Insight is more likely to arise from data analytics when the
records data under analysis is associated with unmet needs of
customers’ unmet, both served and non-served customers. By contrast,
as well as met, most data analytics is based on transactional data
needs about currently served customers
2 Use and synthesise Insight is more likely to arise when data from multiple
multiple data sources and of multiple types is aggregated and
sources synthesised into information. By contrast, much
practice involves the separate management of different
types of data with little formal attempt at synthesis
3 Use information to Insight is more likely to arise when information is used to
challenge current explicitly test current beliefs about the
thinking market. By contrast, much practice involves only
implicit beliefs about the market which are not
deliberately tested against new information
4 Do not rely on purely Insight is more likely to arise when appropriate
statistical analysis processes are used to translate different types of data
of quantitative data into information. By contrast, much practice relies
almost exclusively on quantitative analysis of explicit,
numerical and documented data and neglects other
methods of analysis of tacit,
non-documented data
5 Be explicit and Insight is more likely to arise when a deliberate set
rigorous about of processes are used to acquire, store, interpret,
managing disseminate and apply knowledge. By contrast, much
knowledge practice involves a relatively unclear and unconnected
set of processes
6 Begin with real, Insight is more likely to lead to value when it is applied
needs- based in the context of a strategy which targets appropriate
segments segments. By contrast, much practice involves poor
segmentation and targeting based only on data
classification
7 Target value Insight is more likely to lead to value when the
seeking segments organisation’s strategy involves the targeting of
segments who perceive a tailored value proposition as
valuable. By contrast, some practice involves targeting
segments that are price driven with undifferentiated
propositions
8 Value delivered Insight is more likely to lead to value when it leads to
is proportional to significant adaptation of the value proposition. By
change achieved contrast, many firms have low adaptive capacity for
both cultural and structural reasons
9 Change what the Insight is more likely to lead to value when the adaptation
customer wants of the value proposition reflects the target segment’s
changing, not sensitivity to different parts of the marketing mix. By
just what you can contrast, some organisations’ adaptation of the value
change proposition is driven largely by the adaptive capacity of
the organisation
10 Act faster than the Insight is more likely to lead to value when the adaptation of
market changes the value proposition is obviated by market turbulence or
competitive action. By contrast, some organisations are
unable to adapt the value proposition at a speed equal to
or beyond the rate of market change
11 Create a knowledge- Insight is more likely to lead to value when the
sharing culture organisational culture supports knowledge flow within
the organisation. By contrast, many organisational
cultures hinder intra-organisational knowledge flow
12 Value creation does Insight is more likely to lead to value when measures
not happen in are taken that enhance knowledge flow within the
isolation from organisation. By contrast, some organisations make
the rest of the structural and other changes that exacerbate barriers
business to intra-organisational knowledge flow.
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Medical industry illustration
Much medical industry practice relies heavily on usage
data, especially because this data is already available
for other purposes. Data about prescribing or other
usage records only the met needs of existing customers
(or, at best, competitors’ customers). It reveals little or
nothing about the unmet needs of those customers or
of potential customers not currently served
Much medical industry practice is reliant on one source of
data, such as externally purchased quantitative market
research. Even when other sources of data (eg rep.
reports, qualitative market research) is accessible, it is
analysed separately in functional silos and synthesis is
poor
Much medical industry practice is unscientific, in that
information is not examined objectively, but filtered and
manipulated to support pre-existing beliefs or to support
‘political’ decisions
Much medical industry practice is ‘positivistic’, believing
only that information which is quantitative (eg survey
data) can be statistically analysed. This leads to the
neglect of aspects of insight that cannot be easily
quantified (eg customers’ emotional drivers)
Much industry practice is tacit and implicit. For instance,
the process stage by which knowledge is deemed
to be insight. This makes it harder to test, challenge
and improve the processes and makes them more
vulnerable to subjective biases
Much industry segmentation practice is based on
classifications (eg high prescribers, large teaching
hospitals) and not on true needs-based segments.
This leads to an averaging of data across segments
and loss of insight
Much industry practice involves targeting by volume
opportunity, with little allowance for the firms’ relative
competitive strength in this area. This leads to
unprofitable tailoring of the value proposition for an
audience that is unwilling to pay for added value.
Much industry practice involves only superficial
adaptation of the value proposition between customers
or segments (eg promotional material or packaging).
This is often the result of technical or cultural
constraints on the firm’s adaptive capacity and leads to
relatively low levels of value creation
Much industry practice is driven by the capabilities of the
firm (eg medical education programmes are easy to
change, pricing structures are not), rather than the
needs revealed by the customer insight
Much industry practice is bureaucratic (eg requiring
multiple levels of agreement) and therefore slow.
This leads to changes being implemented that have
already been rendered useless by market changes or
competitor action
Much industry culture is siloed and political (eg power
struggles between functions). This leads to deliberate
withholding of information for personal, rather than
organisational, reasons
Much industry practice involves actions that inadvertently
reduce knowledge flow (eg restructuring, rapid staff
movement, pressured schedules). This leads to
implicitly reduced knowledge flow
© 2006 Palgrave Macmillan Ltd 1745–7904

IMPLICATIONS FOR
PRACTITIONERS
Most organisations seek to use knowledge
to create value. In fact, they seek to do
this in a manner that is both more
effective and more efficient than their
competitors. From the extensive research
in this area, three lessons can be drawn for
how they might achieve this laudable but
ambitious aim.
The first is simply to define their terms.
Creating value is clearly a cooperative
activity and is hindered by misuse of terms
as much as it helped by clarity. The
definitions in Table 1 are intended to aid
such clarity.
The second is to explicate their process.
Management of value creation must be
based on an agreed understanding of what
is going on in the firm, its stages, activities,
inputs and outputs. The data-to-value
cycle shown in Figure 1 is intended to
aim such explication.
The third is to obey the rules. The
efficacy of the data-to-value process is
clearly a function of multiple factors,
all of which must be considered and
where possible optimised. The 12 rules of
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Creating and using customer insight
value creation are intended to aid this
process.
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