Boosting Customer Loyalty and Return on Relationship Through Clicks, Conversation, and the Supply Web
The Internet revolution has just begun, and already many of the e-business winners and losers have been decided. The question now to be answered: Who will be tomorrow's e-business leaders?
It is too early to identify precisely who those leaders will be, but it is possible to distinguish e-business leadership attributes from those companies left standing. Tomorrow's market leaders will be those that migrate to highly interconnected supply webs and e-business solutions that are not merely an adjunct to the business but are the very foundation of the business. These e-business solutions will deliver high-performance customer service and transform the relationships between businesses, their customers, and suppliers. Clear winners will deliver the highest returns on their customer relationships by unifying the worlds of clicks and conversations in a single, customer-facing portal. They will successfully apply powerful technology to build and develop customer relationships. Getting to that point requires sound, thoughtful decisions about information technology as it applies to your business and your customers. It may require rethinking your service delivery platform and strategy. Making those tough technology choices begins by understanding where e-business started — and where it's going.
The Evolution of E-Business
E-business — defined broadly as business assisted by Internet technology — began about five years ago with the widespread adoption of the Internet as a business tool. Many organizations' first experience with e-business involved posting a passive website that contained general information about the company. Using the Internet for "brochureware" was an important first step. Nonetheless, it was a static application that provided no support for transactional information. New ground had been broken, but these applications barely scratched the Internet's powerful potential.
A few pioneers embraced e-business in a fuller sense, but they did so independently of their core business strategy and of the core business itself. Most applications were transaction-based, empowering customers to place orders online but to do little else. Principle measures of success included number of page views and "click-throughs." Businesses focused on measuring interaction with the website or application rather than with the business itself.
These early days of e-business are comparable in many ways to the first years of the networks that carry electricity. With the advent of electricity, tremendous attention was focused initially on a single application: creating light by switching on a light bulb. This development was an important breakthrough on its own. Then an incredible wave of applications — not even dreamed of when electrical networks were first conceived — came into being, and the world changed dramatically.
Today, we're experiencing an equally fundamental shift in the way we learn, work, and communicate. For the first time, the Internet has given us a powerful information utility, a virtually unlimited resource for exchanging and applying information. In research labs around the world, breakthrough applications for the Internet are being developed that will markedly change the way we operate — again. This incredibly powerful information utility is as important for business today as the electrical utility was at the turn of the 19th century. It won't be long before the information utility is as integral a part of everyday life in the 21st century as electricity is today.
From Supply Chains to Supply Webs
The first wave of e-business is rapidly making way for the second as the Internet is embedded in key business processes rather than treated as a separate channel or discrete technology. Supply chains are being replaced by Internet-based supply webs that connect the customer, company and multitude of suppliers in a seamless and interactive relationship. We believe that e-business will achieve dramatic developments equal in magnitude to those achieved via the application of integrated circuits. These circuits today are being molded into literally billions of different combinations of applications that enable tremendous breakthroughs in technology.
Thanks to these developments, the next wave of e-business is delivering an entirely new customer experience, one that brings together the high-performance Internet and customer interactions of all kinds — Web, phone, fax, mail, email, and face-to-face communications. Customers will conduct business by any means, moving fluidly among communication channels. And they will demand consistent, high levels of service across all channels, on their own terms, whenever and however they need it.
As the new high-performance Internet enables the second wave of e-business, market-driving enterprises must shift from isolated transaction-oriented customer interactions to relationships that lead to customer loyalty.
From Clicks, to Clicks and Conversations
Serving customers well across multiple channels of communication dictates moving from one-dimensional to multi-dimensional relationships with customers. To achieve this, companies must:
o Treat each customer interaction not as a stand-alone event but as one in a series of interactions in an ongoing relationship — one that is not just "hyperlinked" to previous transactions but also interconnected to other events in the supply chain.
o Unify channels to enable effective interactions with customers through their medium of choice, whether through the Web and clicks — email and electronic communications — or conversations via phone or in person.
o Personalize interactions with customers to meet unique needs.
o Deliver proactive solutions by anticipating customers' continuously changing needs.
o Empower customers to sell and serve themselves — while providing the option of immediate live support that's available 24x7. For example, www.nortelnetworks.com includes an Internet Voice Button that connects website visitors to a Nortel Networks* agent immediately — either via Webchat or telephone — with one click of a button. It enables account representatives to participate in interactive information exchanges with customers, using capabilities that include follow-me browsing, Web page push, screen capture, and live text chat in place of (or in addition to) the voice interaction. This new way of doing business requires a powerful infrastructure, integrated customer interaction centers, a unifying customer relationship strategy, and a rich customer data warehouse that consolidates all customer information and enables a single view of the customer.
As part of its Customer Relationship Management (CRM) effort, FedEx has developed FedEx OneCallSM, a premier customer service program that provides enhanced service through the use of dedicated and specially trained customer service representatives. OneCall uses CRM software that captures information about customer transactions, building a database of customer needs that enables root-cause analysis of customer trends and problems.
FedEx has also implemented a technology tool that enables its sales teams to access relevant customer information, allowing them to access customer relationship details over the Web using standard browsers or, in the future, through wireless handheld devices including phones and palm devices.
Another example: a high-tech manufacturer monitors the customer experience on a per-customer and per-region basis across 14 North American call centers. Data is captured across all touch points, including phone calls, emails from technical support, and customer-generated cases. This information is captured in a central database, providing access to complete customer information to sales, marketing, customer service, and technical support.
In addition to enabling improved service, the information enables the company to identify which of its customers are generating the most calls and to measure the cost to serve. This enables the high-tech company to focus on its most valuable customers, building customer loyalty and profits at the same time.
A New Model for the Customer Economy
The Internet is truly revolutionizing the world of business, changing the rules of engagement with customers, removing barriers to commerce and empowering communications and transactions through standard Web browsers and applications. It has also changed the balance of power between customers and companies. Customers today have access to more purchasing information, channels, and choices. They can easily find and defect to competitors who, just a click away, promise better offerings, lower prices, and better service. Customers are more knowledgeable, more empowered — and more demanding. Acquiring and keeping them requires a new approach.
The business model used during the industrial economy — and still used by many companies today — targets customer satisfaction as its ultimate goal (see Figure 1). Companies using this model strive to satisfy customers by delivering what has been promised and, where possible, exceeding their expectations. They measure success by analyzing what has already happened between a company and its customers.
Figure 1 — Industrial Economy Business Model. Many companies are still operating
under this model, which targets customer satisfaction as its ultimate goal.
This approach has worked well for many companies for years — but it will not be enough to achieve competitive advantage in the Customer Economy. Companies using this model seek a greater share of the customer's wallet through repeat transactions for the same products or through incremental sales and service fees. This leads to transaction-based, or market-share, returns.
With transaction-based returns linked to customer satisfaction, the investment made in customers can be lost if customers defect when a company's product offerings change (or don't change enough) or if those offerings are outclassed by the competition. To protect their substantial investments in customers, companies are turning to a new business model, the Return on Relationship1 (ROR) model (see Figure 2). Managing customer relationships and understanding — then delivering — what their customers are likely to want over time enables companies to build customer loyalty.
Figure 2 — The Return on Relationship Model
Customer satisfaction, the ultimate goal of the traditional business model, is merely the foundation of the new ROR model. During the initial stage, customers' lowest expectations have been met, and they are satisfied that they have gotten what was promised. During the second stage — bonding — customers come to feel that your company is acting in their best interests. Relationships transition from transaction-based to relationship-based during the personalization stage. Empowerment is the stage when the customer realizes that the relationship is on their terms and under their control. When a customer relationship reaches the highest stage, where customer loyalty is established, both the customer and the company derive high levels of value from the relationship, and customers are less likely to defect.
Knowing the customer is the first step. Anticipating what customers will want in the future, and meeting those needs, pays off in increased customer retention and more profitable customer relationships.
Customers are more likely to stick with a company through product discontinuities and move with the company into new product lines and new lines of business when they feel connected or loyal to that company. These customers become more profitable over time. And they're more likely to refer new customers, thus significantly lowering the cost of customer acquisition.
In fact, a study by the Gartner Group, Inc., indicates that "enterprises rate customer retention and expansion of business with current customers as more important than expanding market share by identifying and acquiring new customers" — by a ratio of three to one.2
Implementing ROR requires that companies achieve new levels of customer loyalty by focusing on the customer relationship — not just on the sale or a transaction. This requires a new group of business behaviors across the organization. These business behaviors not only help companies get to know their customers — they also help them gather information about their customers' life cycles, regardless of the interaction channel or method of communication. By leveraging information from all interactions, businesses can more effectively foster customer relationships, personalizing them so that customers feel valued as individuals rather than treated as numbers or email addresses.
Such comprehensive customer data enables companies to develop customer-focused offers and levels of service that are tailored for different classifications of customers. By increasing customer retention, the investment in a company's customer relationships can provide a very specific return that can be measured by the ROR performance metric. The flexible ROR metric incorporates values that make sense for a particular business — so it varies from company to company. In general, however, the metric is an index that tracks the lifetime value of a customer, including repeat business, good will, referrals, and the potential for purchasing new products and services. It also takes into account the cost to serve the customer.
Calculating ROR for customers can enable businesses to segment customers, classifying them based on their value to the company. It also enables them to calculate the return they can expect from investing in a specific customer relationship and develop targeted service offerings for their most valuable customers.
| Behaviors that Support the Return on Relationship Business Model |
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The goal of the ROR model is to dazzle cus-tomers by creating personal customer profiles, developing customer intimacy by personalizing interactions with customers however and wher-ever they touch the company and proactively up-selling and cross-selling a broad range of services wherever appropriate. Achieving this goal requires certain basic behaviors: Centralizing customer information across sales channels and organizations
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Intimate, Integrated Customer Relationships
Today, as many as 90% of customer interactions can occur through a combination of phone, email, and Web interactions. In this dynamic and fluid environment, CRM processes and technology are required to enable companies to successfully empower their personnel to maximize ROR strategies. These strategies depend heavily on gathering, analyzing, and applying customer data in a way that builds loyalty. Developing and implementing an integrated CRM strategy and supporting systems are critical components of the ROR model. CRM integrates sales, marketing, and customer service strategies into a coordinated, organization-wide approach.
A CRM system facilitates the capture, consolidation, analysis, and enterprise-wide dissemination of customer and prospect data. Using an extensive set of decision support tools and data warehouses, a CRM system enables the company to more effectively identify, contact, and acquire new customers and to leverage existing customer relationships through post-sale service and cross-selling opportunities.
In effect, a CRM system provides the central nervous system that unifies customer information wherever it exists across the organization, allowing companies to build an extensive knowledge base about each customer, interaction by interaction. Today's CRM architecture is customer and solution-oriented rather than internal and transaction-oriented. It integrates all customer touch points and is channel-independent, capturing customer information from any and all customer contacts, regardless of the communication medium that is used.
Analyzing and applying this customer intelligence enables companies to develop personalized business strategies and targeted service offerings that meet — even anticipate — customer needs. In a world where competitors are just a click away, customer intimacy and a company's ability to integrate with the customer are powerful forces for customer retention.
The New Supply Web
Managing customer relationships well is critical — but it's not enough. To be successful in the Customer Economy, companies must integrate all of the operations of the business, linking the front-end (CRM) with the back-end (supply chain management, or SCM). This creates a powerful supply web-focused, not just on sales, but on all aspects of service and relationship development. The supply web recognizes that the success of the business will be marked by the ability of every element of the supply web to interconnect and deliver on its promise.
"Organizations can no longer afford to view Customer Relationship Management, Enterprise Resource Management, and supply chain management initiatives as separate," observed Steven Bonadio, an analyst with META Group, Inc. "Synchronizing front-office, back-office, and supply chain activities is critical to attracting/retaining customers, fulfilling demand and improving cycle times."3
Here's how the supply web works. Say, for example, that a manufacturer draws on its knowledge of each customer's life cycle, preferences, needs, and history to design a service offering for its most valuable customers. Depending on the customer, the offering may include Internet-based self-service capability plus a dedicated team of customer representatives, collaborative planning and scheduling activities, and a customized portal that uses the customer's unique part numbers and provides complete track and trace capability and real-time inventory visibility around the world.
Add to that portal a database that the customer can use to access technical information on the products they use, the ability for the customer to send email or leave voice messages for the account rep and for the supplier to proactively notify the customer of new products and services. The result is a "sticky" relationship because of its high value to the customer. In the not-too-distant future, technology will enable suppliers to become even more integrated with their customers' operations. Take that customized portal and automate the ordering relationship between the customer and the supplier by establishing a business-to-business services link that triggers orders when inventory hits a certain level.
All of this will be done automatically, and electronically, unless an exception occurs. Then, the system will deliver an exceptions alert via a combination Internet device, alerting the customer to the exception — such as a shortage of a certain part — plus alternative solutions that the customer can then accept or modify in real time. This scenario demonstrates the power of linking CRM and SCM. However, for many companies it may be wishful thinking, as only a few companies excel at managing and linking both customer relationships and the supply chain. For these few, the payoff can be substantial. According to a study from Deloitte Consulting, "Companies that leverage their collaborative supply chains with a deep understanding of their loyal customers ... are nearly 70% more profitable [than those] companies that perform below average on both supply chain collaboration and customer loyalty."4
Companies with strong, linked CRM and SCM activities — what Deloitte calls "Loyalty Networkers" — are more than 50 times more profitable than "companies that have strong supply chain collaboration but lackluster customer loyalty," according to the study. And they're nearly 20% more profitable than companies "that have excelled in building customer loyalty but are not yet collaborating effectively with supply chain partners." Loyalty Networkers enjoy exceptional performance in other areas, such as customer satisfaction, inventory reduction, shareholder value, sales growth, market share, and return on assets. These manufacturers — which excel at both the front-end (CRM) and the back-end (SCM) — are in the distinct minority today, Deloitte says.
Developing the right strategy and investing in the right e-business tools should be a high priority for the majority of companies that have not yet reached this level of performance. According to the study, the next steps include:
o Developing differentiated service levels in place of "the traditional, one-size-fits-all supply chain that yields similar lead-time and service levels for all customers"
o Prioritizing resources and orders, focusing "on the most profitable orders
from the most loyal customers." The payoff: increases in market share and a
stronger base of loyal, profitable customers.
| Nine Imperatives for High Performance E-Business |
| 1. Take action. Resist the temptation to postpone taking action until
it becomes clear which of the emerging technologies will become the standard.
It's risky to wait. You may find yourself so far behind the curve that you'll
never catch up.
2. Focus on the customer. Establish initiatives to explore how technology tools can make you more responsive to customers. Make sure the technology solutions you implement contribute to customer intimacy rather than act as a barrier to it.
3. Align your organization. Take a hard look at your organization's CRM and SCM strategy and plans. Do they support a customer-centric business model? Are they well integrated across the organization? Cross-cutting initiatives such as CRM and SCM often require new ways of working.
4. Align your processes. Examine your organization's processes and re-engineer as necessary before implementing new CRM/SCM solutions. Analyze how well your organization has synchronized all customer touch points — including distributors, resellers, and other marketing channels.
5. Make the effort enterprise-wide. While technology is a powerful enabler, approach it as just one piece of what must be an enterprise-wide effort. Consider appointing a senior-level executive who is responsible for customer relationship strategy across the organization and who will champion the effort.
6. Choose best-in-class. When implementing technology, think integration, such as using Internet Protocol (IP) to interconnect call centers and websites. Make sure technological tools will work well together. Select solutions that cut across channels.
7. Anticipate and embrace change. Constantly look over the technology horizon for the next trend that will affect your business. Anticipating changes will help you avoid making shortsighted decisions. For example, consider how to leverage emerging wireless and high-band-width technologies to enhance your customers' experiences.
8. Establish new metrics. Measure components of customer loyalty in terms of Return on Relationship.
9. Have business owners lead the effort. Include your information technology team as a key part of strategic discussions — but have the business owners lead the effort. And find a strategic technology ally who is innovative and forward-thinking, who can help you make the right technology decisions during the second wave of e-business and on into the third.
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Tomorrow's Winners
Tomorrow's market winners will be those that exploit powerful communication technologies and innovative applications that build the strongest ties to profitable customers, establish the most efficient links to suppliers and distributors and enable the fastest response to market. We predict that Customer Relationship Management systems, supply chain management systems, industry trading exchange portals, and e-commerce websites will merge into larger, more closely linked networks of customers, manufacturers, distributors, and suppliers.
Competition in the next decade will be based on fully integrating value chains consisting of strategic alliances, channels to market and just-in-time suppliers all acting as a single entity focused on serving the customer. The need for a company to share customer information across all functions and with external partners will drive a shift to a networked economy where integration of the value chain will determine a company's ultimate success.
To be successful in the next wave of e-business, companies will need to empower their business to empower their customers. In addition to modeling, measuring and maximizing ROR, this requires three critical elements:
The ability to deliver a seamless customer experience across all channels of communication. This means enabling customers to conduct business by multiple communications channels — via clicks and conversations — and seamlessly receive service on their own terms.
The ability to link customers, distributors, and suppliers. Internet marketplaces today enable seamless integration between supply web collaborators, increase flexibility, reduce costs, improve delivery and service and enhance customer satisfaction. They also offer a unified, value-added front to customers.
The ability to leverage a high-performance network infrastructure. A fully
integrated, optimized network adds significant value by strengthening bonds
with the most profitable customers. Realizing the full potential of e-business
requires an optimized, high-performance network that connects enterprise applications,
locations and communities of interest, providing high speed, reliability, security,
and guaranteed service quality. No wonder CEOs are turning to their CIOs and
information technology teams to deliver new services and integration tools that
enable their customer-focused value chain to create new business models and
revenue streams while increasing customer service and satisfaction.
The Right Technology Decisions for Today — and Tomorrow
Making the right technology decisions begins with developing an IT direction that supports your organization's overall strategy. This means taking an integrated approach rather than building islands of technology throughout the organization. It's tempting to deploy independent solutions throughout the company such as separate e-commerce solutions, call center systems, and sales and marketing decision support solutions. But we believe strongly that it's a mistake to do so. The biggest breakthroughs come from considering how technology — hardware, software, and infrastructure — can converge in a unified network that supports the company's corporate strategy. Today's CEOs and CIOs should be thinking about the thread that ties all of these solutions together while tearing down technology stovepipes. When developing your IT strategy and plan, consider the dramatic change taking place in the technology life cycle. Just 20 years ago we saw technology curves of 5, 10, and 15 years. The typical life cycle now is often measured in months instead of years. For example:
o Web-response technology has a life cycle of less than 18 months.
o Voice and speech recognition technology has 18-month to 24-month life cycles
o Call center technology — which may have had an eight-year life cycle in the past — now has a life cycle of three years — or less.
Because of the accelerating technology life cycle, some companies are actually developing technology plans measured in weeks and months instead of years. The swift rate of technological breakthroughs makes it impossible to make technology decisions that are guaranteed to be correct. While you can't be absolutely correct, however, you can be directionally correct. You can take steps to ensure that your technology decisions take your company in the right direction.
As the beta-VHS video cassette recorder debate of the 1980s proved, it's very difficult in the early stages of a new application to know for certain that it will be the standard of the future. That's the case with today's wireless Internet devices. So make flexibility and adaptability a high priority, and avoid getting locked into one type of protocol or technology. Position your company for success by under-standing a broad variety of the protocols and devices entering the marketplace. Establish a technology research environment in which your IT team can experiment with different tools and understand how they might work in your company. And, if information technology is not your organization's core competency, find a provider for whom it is. In the world of e-business, companies will be defined more by the services they provide than by the products they offer.
References
1 The Return on Relationship Model presented here was developed by Nortel Networks.
2 Wallace, Carol (2000, June 20). "Gartner on Customer Relationship Management: Call Centers and E-Commerce Drive Customer Loyalty" Gartner Group, Inc., Stamford, CT.
3 Bonadio, Steven (1999, December 29), "Exposing the CRM/ERM/SCM Intersection," Application Delivery Strategies. META Group, Inc., Stamford, CT.
4 Deloitte Consulting and Deloitte&Touche (2000). Digital Loyalty Networks: e-Management. Deloitte Research, New York, NY.
