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Increased opportunities for customer interaction create new operational challenges for Sales, Marketing and Service — the Demand Chain. Organizations aiming for the same efficiency they previously achieved in the supply chain must look beyond technology to the true foundation of creating and managing demand: knowing the customer, and making operational choices and adjustments that balance the needs of the customer and the business.

The power of the customer is growing. Thanks in large part to the Internet, customers are smarter — or at least better informed — than ever before, dramatically shifting the balance of power. Increasingly, they are intolerant of poor service, constrained choices and inflexible pricing.

But information exists on a two-way street. Organizations are gathering more data about their customers than ever before, and some are learning to use it to assess customer value, change the offer and differentiate service.

The context for this evolving power struggle is the increased complexity of reaching the market. Interactions involve more channels than in the past, from stores and catalogues and the telephone to the Web, online B2C marketplaces, and wireless devices. Loyalty is harder to capture, and retain: In some segments, there is no issue more critical than customer churn.

Achieving customer intimacy and profiting from it presents major challenges. Key among them: turning data into actionable information; creating a unified customer profile; integrating processes across functional departments while simplifying those processes; and speaking with a consistent and informed voice across all sales, marketing and customer care channels.

Let's be realistic: A truly reversed marketplace — where customer preferences directly drive manufacturing, and the customer makes decisions based on perfect information — is a long way off. Economic value can be captured quickly, however, by companies that commit themselves to better understanding of customer needs and preferences, and tightly integrate that insight with corporate goals. Linking those two agendas — those of the customer and the enterprise — to improve the customer experience and expand customer value is a core task of effective demand chain management.

A Growing Focus on Demand

The value chain, a concept described almost 20 years ago by Harvard Business School's Michael Porter, is the network of interlinked activities that a business engages in to make and sell its goods and services. Some of those activities — the supply chain and operations — have been closely studied and re-engineered over the past 10 years. Dell Computer and Coca-Cola, among others, have used their supply chains as a strategic differentiator despite the commoditized nature of their products.