The Digital Transformation Playbook: Rethink Your Business for the Digital Age

Customers
Company

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relationship. No longer are they relegated to a binary role of “buy” or “do 
not buy.” In the customer network model, current and potential custom-
ers have access to a wide variety of digital platforms that allow them to 
interact, publish, broadcast, and innovate—and thereby shape brands, 
reputations, and markets. Customers are just as likely to connect with and 
influence each other as they are to be influenced by the direct commu-
nications from a firm. Borrowing from the rich theories of network sci-
ence (which date back to eighteenth-century mathematics and have been 
applied to model the spread of language and disease and the structures of 
railroads and nervous systems), we can see customers as nodes in a net-
work, linked together digitally by various tools and platforms and interact-
ing dynamically.
In a market defined by customer networks, the roles of companies are 
dramatically different as well. Yes, the firm is still the greatest single engine 
for innovation of products and services, and still the steward of its brand 
and reputation. But while delivering value outward to customers and com-
municating to them, the firm also needs to engage with its customer net-
work. It needs to listen in, observe the customers’ networked interactions, 
and understand their perceptions, responses, and unmet needs. It needs to 
identify and nurture those customers who may become brand champions, 
evangelists, marketing partners, or cocreators of value with the firm.
Customer
Customer
Blogs
Company
Customer
Customer
Comments
Forums
Customer
Figure 2.2 
Customer Network Model.

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One of the main points in the model of customer networks is that a 
“customer” can be any key constituency that the organization serves and 
relies on. Customers may be end consumers purchasing a product or 
businesses purchasing professional services. For a nonprofit, they may be 
donors or grassroots volunteers. In many cases, it is important to look at a 
range of interconnected constituencies that are all within an organization’s 
customer network: end consumers, business partners, investors, press, gov-
ernment regulators, even employees. All of these types of customers are 
critical to the business of a firm, and all of them now exhibit dynamic, 
networked behaviors in relating to the firm and to each other.
A Different Take on Brands
The broad shift in the balance of power between companies and networked cus-
tomers is redefining brand relationships. A brand is no longer something that a 
business alone creates, defines, and projects outward; it is something that custom-
ers shape, too, and the business needs their help to fully create it. Many customers 
want to do more than just buy products and brands; they want to co-create them.
PepsiCo is one of many brand-focused traditional enterprises that has 
rethought the role of its customers in its brands. Brand communications used 
to come solely from the business, but now some of its best communications are 
created by the customers themselves. By eschewing professional ad agencies and 
inviting customers to compete to make the funniest thirty-second ads them-
selves, PepsiCo’s Doritos brand has consistently won awards for the most liked, 
talked about, and effective ads during the Super Bowl. PepsiCo’s Lay’s brand of 
potato chips has even let customers help reinvent the product. Millions of them 
have nominated or voted on new potato chip flavors as part of the brand’s Do Us 
A Flavor social media contests.
Brands taking this approach are responding to a broad shift in customer 
expectations. A global study of 15,000 consumers by Edelman, in 2014, found 
that most customers want more than a “transactional” relationship; they expect 
brands to “take a stand” on issues and invite consumer participation. When they 
see a brand reaching out to them, they are more willing to advocate for that 
brand, defend it from criticism, share personal information, and purchase from 
the brand.
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Clearly, a strong brand today is much more than a business’s crisp logo and 
a powerful positioning statement; it is a shared creation, bolstered by customer 
networks.

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The Marketing Funnel and the Path to Purchase
The marketing funnel (sometimes called the purchase funnel) is one frame-
work for understanding how customer networks have such great impact on 
businesses’ relationships to customers. This classic strategic model is based 
on “hierarchy of effects” psychological research dating to the 1920s.
6
It 
maps out the progression of a potential customer from awareness (knowl-
edge that a product or company exists) to consideration (recognition of 
potential value) to preference (intent to purchase or choice of a preferred 
company) to action (purchase of a product, subscription to a service, vot-
ing for a political candidate, etc.). At each stage, the number of potential 
customers inevitably diminishes (more will be aware than consider, etc.)—
hence the tapering shape of the funnel. In recent years, a further stage, 
loyalty, was added. It is almost always more efficient to invest in retaining 
customers than in attempting to acquire new ones.
The enduring utility of the marketing funnel stems from the fact that 
it is a psychological model, based on a progression of psychological states 
(awareness, etc.). As a result, the funnel can still be applied even as cus-
tomer behaviors change dramatically—for example, due to the rise of cus-
tomer networks.
In the mass-market era, businesses developed an array of “broadcast” 
marketing tools to reach and influence customers at different stages of the 
funnel (see figure 2.3). Television advertising, for example, is extremely 
effective at driving awareness, with some impact at later stages. Direct mail 
coupons and promotions help drive customers from choice of a brand 
(preference) to sale (action). Reward programs—offering incentives for 
everything from collecting a product’s box tops to having a card punched 
at a local diner—help nudge customers from initial sale (action) to repeat 
business (loyalty).
Today, all of these broadcast tools are still in play, and each can be quite 
useful in a given instance. If a business needs to rapidly boost awareness of 
a new product across a very broad mass audience, television advertising is 
still the most powerful tool (although expensive). Out-of-home billboards, 
direct mail, newspaper advertising—all of these still have a potential role 
for reaching customers. But depending on whom you are trying to reach, 
you may find these broadcast tools becoming less effective over time (espe-
cially given the changing media habits of younger consumers) and there-
fore less cost effective. (The price per thousand viewers of a U.S. television 

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ad continues to rise each year, despite the increasing fragmentation of that 
audience outside of a few huge live events like the Super Bowl.)
At the same time, however, at each stage of the marketing funnel, 
today’s customers are also influenced by customer networks (also shown in 
figure 2.3). Search engine results are now one of the biggest drivers of cus-
tomer awareness for any new brand or business. Customer reviews, posted 
on sites such as Amazon or TripAdvisor, are hugely influential in the con-
sideration stage as consumers evaluate different brands. These third-party 
reviews are influential even when customers are purchasing offline, in a 
physical store. With the Internet at their fingertips via smartphones, custom-
ers are engaging in online research for products that were once “impulse” 
buys—purchases driven solely by shelf placement and packaging. As cus-
tomers progress to brand preference, they often turn to social networks like 
Facebook, asking if any friends have visited this vacation destination or pur-
chased that brand of refrigerator. At the action stage, they may purchase 
from a retail business on its website, in its store, on a mobile device, or even 
on a mobile device while standing in its store. After purchase, companies 
now have many more ways—from e-mail marketing to social media—to 
maintain a relationship with these customers and drive them to loyalty.
Awareness
Consideration
Preference
Action
Loyalty
Advocacy
Search, buzz, blogs
Online research,
user reviews
Social networks,
YouTube,
local search
Group discounts,
purchase
online/in-store/mobile
“Friending”
(FB, Twitter, e-mail),
customized up-selling
Reviews, links, “likes,”
social buzz