Chapter 4: Control - The Customer Ecosystem

Overview

Every business has customers. So the relationships companies create with their customers are critical to success. Customers come in many forms, from individuals to large corporations, but they are all similar in one way ”customers want . No matter what the industry, today s customers have more control and expect to have more input. These new sophisticated customers look for a relationship that exceeds their expectations. A company will no longer be compared only against the best in its particular industry. Standards aren t industry-specific anymore. A company will be compared against the best in class in every industry with which their customers deal. To create the right relationship has become that much more challenging.

Gartner Inc.

Scott Nelson, a leading industry analyst at Gartner Inc., says that one of the main barriers to successful customer relationships is an unwillingness to commit to the five prerequisites of success:

• a forward-looking strategy

• the right technology

• an implementation process

• development of the appropriate skill sets

• ongoing competitive tactics

  This lack of commitment, Nelson says, may be partially attributed to a general failure to have one person ultimately in charge of the issue, a Chief Customer Officer. Ideally, this role should be synonymous with being the CEO, but it isn t. Without specific commitment to the issue, making the necessary changes is slow to happen. Consulting companies like Accenture and PriceWaterhouseCoopers are beginning to step into the breach. They understand that to have a successful relationship with its customers, a company must first commit to its employees ”training, preparing and empowering them to handle the relationship.

 

Most large companies are still structured to be product-centric , not customer-centric, but that s changing fast. As companies become more aware of the value inherent in the customer relationship, they are refocusing the business to place more emphasis on the long- term profit potential in their customer connections. To do that, companies need to better understand their customers and deliver what customers want, when and how they want it. It s simple in concept, but requires commitment throughout an organization to execute.

Peppers and Rogers Group

Don Peppers and Martha Rogers, founders of Peppers and Rogers Group, are credited with building general understanding of one-to-one strategies. They say that to build learning relationships with customers, a company must be able to:

• Identify each customer at every touchpoint, and link all interaction and transaction data about each customer over time, product divisions, and geographies

• Differentiate each customer from every other by actual and potential value to the firm, and by the needs each customer has from the firm

• Interact with each customer and remember feedback to learn which customers are more valuable and what customers needs are

• Customize some aspect of treatment by the company to capitalize on the feedback, and to provide a level of service no competitor can who doesn t have this customer s information

  Peppers and Rogers emphasize that the difficult part for a company that uses its customer information is not so much the vision or the capabilities as the implementation ”aligning a firm s processes, organization, culture, metrics, and compensation to focus on growing the value of the customer base.

 

Knowing what a customer wants and creating the right relationship is the bottom line. Every customer wants:

• quality and value

• to have their specific, immediate needs met

• to have their future needs anticipated

• personalized service

• to be appreciated for their business

Once the company commits itself to serving those customer wants, the relationship must be consistently sustained in every channel through which the company deals with them. Not only does a company need to have a single internal version of the truth, customers need to see one consistent company, too, in every channel, division or branch.

Achieving this kind of relationship is only possible if a company and its employees have access to all the information they need to deal effectively with each customer at the moment that customer orders, calls, logs on, walks into a store or in any way connects with the company through an available channel. Without this consistency, no meaningful relationship can exist.

Patricia Seybold Group

Patricia Seybold, President of Patricia Seybold Group, says that global competition is about customer experience, not price wars. Every good company is asking how it can move from being product-centric to customer-centric. Globalization means companies need to focus on every stage of the relationship with a customer, from proposal to maintenance and follow-up. A company can t get a proposal half-right and keep coming back with revisions. Companies need to move away from P&Ls, incentive schemes and metrics that measure and reward based only on production and sales volumes .

Seybold says the 360-degree view is only the starting point for a company. The hard part is organizational. Companies need to put in place systems structured around types of customers, accounts and customer scenarios ”to adapt its business processes to dynamically interact with customers. A company must understand what the customer needs to do their job better. This means building feedback loops to identify the right metrics to measure success. Customer experience metrics need to be integrated with customer profitability metrics.

 

Globalization, the Internet and the sheer volume of product choice mean that customers can change allegiances with ease. Because product differentiation is often nonexistent, customers are nomads. We need to proactively create a reason why a customer should stay with us, why a customer s loyalty will be good for the customer, not just for our bottom line.

Customer relationships are achieved one transaction at a time. Information is indispensable to shaping a satisfactory transaction. It all sounds intuitively good in theory, but putting it into practice is harder. For most companies it requires a deep cultural change.

We need to consciously add customer impact to all our internal decisionmaking processes. For example, if a company has an overburdened server and is weighing the benefits of a new one, it analyzes a list of traditional factors ”cost, downtime, staff and other allocations . But the company should also analyze a variety of non-traditional factors, like the morale and efficiency of the employees in the customer service call center and the impact on them of the overburdened server. A company could, for example, develop a customer satisfaction score system, which can be used to assess the impact of the overburdened server on customer service. In short, add a customer focus to its whole decision-making process. Instead of guessing the value of the new server to its end users (the customers) the company would truly know its value.

Similarly, if a company designs new features for its Web site, it should conduct user experience testing. Although this initially drives costs up and increases the development time, in the long run, with its eye on the customer, a company that makes this commitment is more likely to satisfy the customers they serve.

These types of focus adjustments are examples of how a company moves the customer relationship to the center of its decision-making process. It needs to be a closed loop system of constant adjustment and assessment. In the long run, having access to a wealth of information and using that information to better understand the customer will only create sustainable value if the circle is closed. A company needs to understand its customers better, not only so it can market to them more effectively, but also so it can learn from the information in an iterative feedback process. By closing the loop on understanding its customers, companies can design products and services that anticipate customers needs, enhance contact and predict the next best interaction. The connection with customers is not just about selling; it is a relationship in which mutual benefit is always the goal.

Dell

Dell s model ” be direct ”moves the customer relationship front and center. Dell s direct model is particularly efficient because it enables the company to work one-on-one with its customers. Whether their customer is a Fortune 100 company or a small family, Dell s goal is the same, to provide the best customer experience that it can. Leveraging information is at the core of how Dell implements its vision. As Randy Mott, senior vice president and CIO of Dell, says, no matter how good your information is, it s worthless if it provides multiple answers to every question. A closed loop of consistent, complete information is the heart of the direct model. As a result, Dell can connect with what the company knows its customers want, not what the company guesses its customers want. Of course, the business impact of leveraged information extends beyond the customer relationship. Dell drives efficiencies throughout its business ” reducing inventories in its supply chain and reducing its overall operating costs.

 

As we ll see in the next chapter, Dell s business model shows us where we need to be if we want to stay competitive.

The cultural shift to a customer focus is naturally harder in some industries than others, but it is essential in every industry. In the financial industry, for example, banks tend to be product focused. Customer relationships are often separated by checking and deposits, mortgages, investments and credit cards. Instead of consolidating their view of the customer across all these products, financial institutions have tended to stay line-of-business focused.

A classic indicator of product line silos is different divisions competing for marketing resources. A company should be working as a team. It is working for the same customers after all. When marketing budgets are allocated by business line it means companies are still offering products and not offering what they should know their individual customers want.

Of course there are some financial companies who have been leaders in implementing customer relationship protocols, instituting the profound, organization-wide changes that need to happen. Here are two financial institutions that have made customer- facing culture and deeper relationships a priority.

Barclays

In October 1999, Barclays CEO Matt Barrett made the decision that from then on everything in the business was to start with the customer and work backward from there. He wanted Barclays to be a customer-facing company, not an organization-facing company. Now business units are optimized around Barclays knowledge of its customers and not around profit maximization by product line. What does this mean in practice?

A traditional product-focused direct mail campaign might get a 2 percent response rate, but the more important and generally ignored statistic is the 80 percent hostility rate. Inadequately targeted marketing can actually damage customer relationships. Focusing the business on customers means marketing is more personal and precise. Offers are based on customers real needs, not what is convenient for Barclays to offer. Barclays is experimenting with connecting attitudinal data like risk appetite with behavioral data to come up with a detailed understanding of its customers.

Barclays tested , for example, a new product they called Openplan. Instead of customers seeing their finances on a profit and loss basis, it offered customers the option to view their finances as a balance sheet. The effect of this was to place the mortgage, generally the largest single financial obligation, front and center and allow the customers to see how they needed to structure their savings and investments to account for the mortgage obligation. From national launch in April 2002 to February 2003, the result was two million new Openplan accounts. In many cases, the new account represented the conversion of an existing customer from a single product relationship to a multiple product relationship. Using the enormous amount of customer data at its disposal, Barclays was able to identify what the customers needed and deliver it.

In some cases Barclays uses specific event triggers to make more precise contacts with its customers. Sales staff gets action prompts in near real-time to their desks, with the particular offers they should be making to individual customers at that time. For example, a small business stops the direct debit for its insurance payments. Is the customer thinking of changing its insurance? Barclays calls them, finds out why and offers them insurance products better suited to their needs.

The goal is always to optimize the customer experience. The result is more business for Barclays.

 

In the United States, Bank of America, though the third largest bank in the country, is determined to succeed with a small-bank approach to relationships.

Bank of America

Bank of America often gets letters from satisfied customers. But that s not enough for the bank. Not content to rest on its laurels, the company wants to become even more relevant to its customers. Bank of America s goal is to become the financial advisor to its customers. To do this, it needs to deepen its relationships. The company believes that it has only begun to scratch the surface of the opportunity.

Already the company has sharpened its marketing skills, analyzing its centralized information resources to enable the bank to fully understand a customer s needs, while equipping customer service representatives to present personalized, relevant solutions to meet specific needs. Where it used to take 60 days to see results of a marketing campaign, the bank can now track results on a weekly, even daily, basis and recalibrate quickly based on responses. And almost more importantly, the company can be sure that the same marketing campaign is focused and not inconsistently touching the same customer at different times.

Deepening the customer relationship means showing customers, through targeted marketing efforts, that the company knows them and is responsive to their needs.

 

In every industry, what s preventing many of us from making the investment necessary to achieve a single view of the business and shift focus to the customer relationship is the size and scope of the undertaking. Fortunately, it s not an all or nothing proposition. Establishing the vision and setting the new strategy occurs over time. Where we start ”what the catalyst is for change ”can happen in any number of places in the company.

Gartner Inc.

Kim Collins, a leading industry analyst with Gartner Inc., talks about an array of customer metrics a company needs to be tracking to measure the benefits of implementing a customer-centric business focus. At minimum a company should be looking at the following:

Customer Satisfaction

1. Ratings

2. Complaints

3. Time to resolve issues

4. Response times

Economics

5. Cost per sale

6. Cost to service

7. Marketing expenditures

Market Share

8. Market penetration

9. Breadth of wallet

10. Value of products sold

Customer Loyalty

11. Attrition

12. Length of relationship

Customer Profitability

13. Percentage of profitable customers

14. Percentage of high-value customers

15. Lifetime value of customer base

Marketing Campaigns

16. Response rates

17. Closed sales

18. Percentage of profitable sales

Market Metrics

19. Market value and earning per share

 

Tracking metrics is essential to success. Only then can a company really see what s working and what s not on a timely basis and adjust its strategy accordingly . A company that tracks its metrics is better managed.

Most companies are doing enough. They get by. Margins may flatten year to year, but the status quo is maintained . Why change? Past performance is no guarantee of future success. A self-satisfied company doesn t evolve . A commitment to continuous improvement is the only way to succeed in the long run. The job of changing will never be done. Successful change is necessarily an ongoing project of fine-tuning ” measuring existing initiatives, discarding unprofitable strategies and testing new projects. That s what keeps our jobs interesting as leaders in today s market.

Long-term success comes from picking key initiatives, pushing them through specific channels, building on that momentum and spreading the word outward. There is no end point.

Where can we start with the seemingly overwhelming task of shifting focus to the relationship with the customer? It starts with looking at these four key aspects of the relationship. The emphasis depends on the industry, but each is ultimately critical to success:

• Acquisition ”identifying and attracting new customers

• Communication ”communicating effectively with prospective and existing customers

• Retention ”identifying and retaining the best customers

• Profitability ”increasing wallet share, customer profitability and lifetime value

The ultimate measure of success is retaining profitable customers. We ll look at each of the four components to that success in turn .