You’ve heard it a thousand times: "The customer is king." And it’s truer than ever.

In the excerpt that follows, Seybold says that, to succeed, companies need to stop measuring profitability by region, by product line, or by distribution channel. Instead, she says, companies need to care about their customers as much as financial-services company Charles Schwab & Co. Inc. (www.charlesschwab.com) does. Companies must focus on continuously making their relationships with each customer broader and more profitable, for both the companies and the customers. Seybold’s bottom-line message: Refocus or disappear.

The companies with the "right stuff" to thrive in the customer economy share one key element: a corporate culture and core values centered on caring about customers—not as revenue targets, profit contributors, or advertising magnets, but as people.

Caring about and for your customers isn’t, of course, the only requirement for success—healthy cash flow and profits from operations are necessary prerequisites. Yet, there are many companies with strong balance sheets that won’t make it in the customer economy. The reason is that they don’t take the time to learn who their customers are as people; to determine what they want and need; and to make them feel special, valued, and welcome.

For a lesson in making soul connections with customers, make a trek to Galway, Ireland, and visit with Maureen Kenny and her sons at Kennys Bookshop & Art Galleries Ltd. (www.kennys.ie). Maureen and her husband, Des, built their business on a strong foundation of deep customer relationships. Their son Desi has an uncanny ability to listen to or correspond with a potential customer and then come up with three or four books that the person will love to read.

What has become a highly profitable service began one rainy day, Desi recalls, when an American visitor was browsing in the front room in Kennys and suddenly started to curse vehemently. Desi asked if he had offended the man.

"It’s not you," the man replied. "I’m not a rich man. I can only come to Ireland once every couple of years. I walk into your shop, I see all these books, and I want to buy them all!"

Desi’s mother piped up: "We’ll send you a package every so often, if you’d like."

"Would you really do that?" the man asked.

"Sure," Desi replied, "I know what you like. I’ve watched you when you’ve been in here." He picked out three books. "You like that and that."

"Fantastic," the man replied. "Here is my credit card. Send me four books every three months. If I like them, I’ll keep them. If not, I’ll send them back."

With that, Kennys Irish Book Parcels was born. It now has more than 3,000 members around the world. Each of us receives a handpicked selection of books "every so often."

How does Desi know what each customer would like—particularly those who turn up through his Web site and whom he has never met? "I start a conversation with them by phone and/or e-mail, and I keep track of the dialogue," he says. "I speak to the customer through the books. ‘This is what I think you’d enjoy,’ or ‘This person has something to say that I think would be of interest for you.’ Then I get feedback, and I juggle with it, change it until it’s right.

"The books are sent on approval, which means they can come back. You give the client the choice. I send out 150 packages per week and get four or five books back.

Through the medium of books, we start talking, we get to know each other. I get involved in my customers’ births, deaths, and other family matters. One of my customers was buried with a copy of a book I had sent him."

Most companies and employees want to be truly focused on customers. But distractions and realities keep the company’s soul from shining through to customers.

The biggest obstacle we’ve encountered in helping companies shift their corporate cultures is a deep-rooted confusion about who the customers are. Pharmaceutical firms focus on doctors, not on patients. Newspapers focus on advertisers, not on readers. Automobile manufacturers are obsessed with dealers, not with drivers. Here is the bottom line: Your customer is the person who uses your product or service.

Until everyone in your company is in vigorous agreement about who your end-customers are and what matters most to them, you won’t be able to build a great customer experience.

A look at Charles Schwab shows how to design the right customer experience—and how successful a company can be when it gets things right.

As we’ve watched Schwab plot and execute its technology strategy and its acquisition activity over the past several years, what has shone through most clearly is that all the company’s decisions are grounded in its desire to improve its customers’ experience and their financial results. Everyone from the cashier in the cafeteria to the chief executive officer is passionate about the company’s customers and what customers are trying to accomplish. Nobody will beat Schwab in caring about customers.

Schwab hires only people who truly share its customer-centric values: fairness, responsiveness, and respect when dealing with customers. Schwab uses rituals to revitalize and reinforce its core values. For instance, facilitated workshops, known as VisionQuest, help employees internalize the company’s vision and values. So do the "market storm" emergencies, when everyone pitches in on the phones to handle a spike in trading volume.

Of course, Schwab also uses its measurement and feedback systems to reinforce its customer-centric culture, monitoring and rewarding employees based on customer satisfaction, the quality of the customer experience, and the growth of customers’ assets.

"We are constantly surveying customers to gauge their satisfaction with our different touchpoints, including every individual who interacts with customers," says Gideon Sasson, who runs Schwab’s online brokerage division. "If you interact with us on the phone, we’ll call and ask you to rate that experience. If you interact with us on the Web, we’ll e-mail you and ask you to fill in a survey. If you interact with us in a branch, we’ll call with a follow-up."

In addition to asking customers how satisfied they are, the company does extensive automated monitoring. If Schwab customers in some part of the country are experiencing slow response times on the Schwab Web site, the company’s online brokerage team will probably already be aware of the problem and working to fix it. Schwab’s six large customer-service centers also monitor the number of rings before a call is answered, the amount of time a customer is on hold, and the number of times customers hang up. Sasson’s online brokerage team monitors customers’ navigation paths through the Web site to spot areas that need to be streamlined. They monitor how quickly customers’ e-mails are answered and how satisfied customers are with those responses.

Schwab tests prototypes, software releases, and ideas on actual customers and prospects on a daily basis. Whether it’s new capabilities for the Web site, a new script for the voice-response system, or a new user interface for pulling up data via a wireless device, Schwab brings customers and other people off the street into its usability lab in downtown San Francisco several times a week. Engineers, marketing executives, and customer-support representatives watch as customers try to use the new features. The videos of these sessions are used to improve the proposed features.

Schwab is one of the few companies that design effectively for different customer segments. Schwab’s customer-experience planners know, for example, that prospective customers, affluent customers, and active traders all have completely different desires when they come to Schwab’s Web site. New prospects want to compare commission rates among online brokerage firms; to see where the nearest branch is; and to be reassured about the quality and the sources of the investment research they can get. So, Schwab highlights those capabilities for visitors it identifies as new prospects—while pointing active traders and affluent customers to other features.

Schwab was also one of the first companies to understand the benefits of offering customers a set of services that were seamless, no matter how the customer touched the company. It was Schwab’s president and co-CEO, David Pottruck, who in 1998 coined and later trademarked the term "clicks and mortar." By that time, Schwab had already pulled ahead of its online-only competitors, in part because its online customers could walk into physical branches and talk to someone who would get to know them and would care about their situation.

In addition to giving customers access to it via the Web, Schwab also deals with them through 415 branches and six call centers. Customers can talk with service representatives or can get data through automated voice response systems, e-mail, or hand-held wireless devices. Those wanting professional investment advice can go two ways. They can sign up for a branch consultation with one of Schwab’s investment specialists or financial counselors. Or, if they have more than $100,000 to manage, they can get a referral to a third-party investment adviser, financial planner, or tax adviser who is part of Schwab’s AdvisorSource network.

There’s clear evidence that the clicks-and-mortar approach is working: Every time Schwab opens a new physical branch, the number of online customers in the region grows as well.

What’s still missing is a completely seamless and integrated customer relationship management system that would capture and gather customer behavior in real time across interaction touchpoints. Today, Schwab can monitor my customer experience on the phone or on the Web. But it can’t yet monitor the quality of my experience when I do research on the Web and then pick up the phone, or when I walk into a branch and go home and log on to the Web. Those capabilities will, however, be added soon.

Because of all this attention to customers, Schwab’s results are stellar. [While tough times might be ahead for all Wall Street firms, Schwab] has delivered predictable 20% growth in annual revenue, an after-tax profit margin of 12%, and a return on equity of 20% for seven years in a row. Most impressive is Schwab’s growth in customer numbers and customer assets, despite downturns in the market. For example, Schwab clients’ assets grew 45% in the 12 months ended August 2000. On the online brokerage front, Sasson’s team grew accounts to 4.3 million and assets to $420 billion.

What can you do to ensure that your company will survive the customer revolution and thrive in the customer economy? It’s not enough to have a great customer experience, measure the right stuff, execute well, and be flexible and ready to morph. You also need to have a corporate culture that cares about customers. Here are five important steps to help you get there:

START AT THE TOP. Your CEO needs to reinstill a clear passion for end-customers at all levels of the company.

HAVE EVERYONE FOCUS ON THE CUSTOMER EXPERIENCE. Top executives need to be made accountable for the total customer experience, and every segment of your business needs to focus on continuously improving. If there is a question about how to set priorities, the tie-breaking question should be: "Does this improve our customers’ experience of doing business with us?"

USE CUSTOMER MEASUREMENTS. Improve the way you measure satisfaction, loyalty, and the quality of the customer experience. Make these measurements meaningful and build them into the company’s compensation structure. Give them at least as much weight as your financial and market-share goals.

MEASURE LONG-TERM CUSTOMER PROFITABILITY. Don’t spend so much time and effort focusing on the profitability of individual product lines or of the means you use for interacting with customers, such as face-to-face dealings, the telephone, or the Web. Instead, measure your revenue and profit per customer and per account and focus on making each more valuable. Don’t focus, though, on improving these measures over a month or a quarter. That’s too short-term. Focus on customer profitability over two to three years.

TELL CUSTOMER STORIES AND INSTILL VALUES. Revisit your company’s values and mission. Make sure all your values are ones that resonate with customers. Values like teamwork, integrity, fun, and innovation are ones that customers will be able to sense and benefit from. Use customer-service stories to reinforce your values by encouraging everyone to put customers first.

Customers drive your business. It’s time to embrace that, surrender to it, and get good at understanding customers’ current needs and anticipating new ones.

From The Customer Revolution by Patricia B. Seybold. Copyright ©2001 by The Patricia Seybold Group. Reprinted by permission of Crown Business, a division of Random House, Inc.