Fault Lines in CRM: New E-Commerce Business Models and Channel Integration Challenges
The forces of change are creating dramatic "fault lines" in customer management. One obvious crevasse, for example, separates longtime players from start-up challengers. The Internet is a new channel, and in some industries and instances it can be the sole or primary channel (with some telephone backup). In such situations, new entrants have the advantage over "brick-and-mortar" incumbents. Able to build their information infrastructure from the ground up, new entrants have less costly infrastructures and do not face the incumbents' problem of integrating data across legacy systems to address customer needs.
In this rapidly evolving landscape, many financial services organizations are challenged to locate fault lines and mobilize rapidly to deliver dependable service across multiple channels. This article examines the emergence of e-commerce business models, the fault lines that develop, and the need to build bridges to improve Customer Relationship Management.
Emergence of E-Commerce Business Models
Access to information has become easier in an increasingly competitive marketplace
and consumers are feeling increasingly empowered. As they sort through an ever-increasing
array of product and service offerings, many consumers have started to move
away from traditional companies that push standard products with static features.
Click Fig. 1 To Enlarge
Consequently, customer-driven business models are on the rise. Accenture has identified four such business models auction (bargain-finding engine), product configurators, solution providers, and intentions value networks that appeal to consumers in the age of the Internet. These business models offer consumers flexible solutions that more closely meet their current needs and interests.
A serious rift exists between traditional seller-driven companies and the new business models with a more customer-driven focus. Companies that take the latter approach and acknowledge the increasing power of consumers will have a clear advantage over those that lack knowledge of customer needs, continue to offer the same old products, fail to integrate their view of the customer across products and channels, and fail to interact with customers where and when they desire. The new business models are more effective at acquiring and maintaining customer relationships.
Communities vs. Product Providers
The fault lines between traditional companies that have been very customer focused
and new businesses that employ the emerging e-commerce business models are less
obvious than the rift dividing seller-driven from customer-driven organizations.
One conflict may pit Solutions Providers and Intentions Networks against traditional
providers of products and services. The aggregators of many intentions-based
communities will face the challenges of establishing a trusted brand for providing
useful information, sound advice, and access to the best products and services.
Those that manage to attain a position of power could step between providers
and their customers with the goal of extracting more from each transaction.
The aggregator's ability to "control" customer knowledge increases its power
relative to providers and may allow firms using these types of business models
to dictate, more than just coordinate, the activities of providers participating
in these networks. In this scenario, the providers may lose their connection
with their customers and, as a result, may have to rely heavily on the aggregator.
To mitigate this risk, providers need to think critically about their mutually beneficial relationships with aggregators. Product providers contribute a great deal to the value created by Intentions Network, and they need to determine how to participate in the value of the partnership. One way is to take an equity stake in the aggregator, especially when the aggregator has a good prospect to establish a real position of market influence.
Auctions vs. Communities
While community-based business models may be able to take advantage of the aforementioned
fault line, there exists another potential fault line stemming from these emerging
business models not being as discrete as the descriptions above might suggest.
These models overlap and can occupy the same space as customers looking for
products and services. Specifically, once consumers use communities to gain
understanding about products and services, they can use auction-based business
models to conduct a transaction.
These business models should be viewed on a continuum of how much assistance is needed by customers and, correspondingly, how much customer knowledge is required by companies for successful marketing and selling.
As Figure 2.0 illustrates, auction-based models such as Bargain Finding Engines appeal to customers who are more self-directed and, therefore, in need of less assistance. As a consequence, these types of companies require less knowledge about individual customers. Moving to the right of the continuum, some customers need relatively more assistance and interaction in finding the products and services. Companies toward the right of the continuum require more knowledge about individual customers to have the capability to help. Notice, however, that each business model can participate as customers need more assistance and interaction (i.e., Bargain Finding Engines do not disappear as one moves to the right of the continuum). Customers usually have the option of using any of the business models if at any time they decide they have enough information to conduct a transaction.
Click Fig. 2 To Enlarge
The tension between auction services and communities creates the potential for a dangerous fault line. Bargain Finding Engines or other types of auctions always lurk in the background of the more customer information-intensive business models such as Intentions Value Networks (IVNs). For example, IVNs aim to provide the "space" for communities to interact around a common interest. They invest significantly to build their brand as the community of choice and may provide entertainment and decision-assistance information and tools. They also are responsible for coordinating the network of product and service providers, and for maintaining and analyzing the database of members used to predict which products and services are most appropriate for the membership.
A problem arises when both business models try to flourish in the same space. Self-directed customers who know what they want gravitate toward the left end of the continuum to Bargain Finding Engines and Product Configurators because of the savings they offer. Customers who may be starved for time or overwhelmed by variety may value the services offered by Solutions Providers and Intentions Networks. However, these customers also have the opportunity to switch to Bargain Finding Engines at the time of transaction, thus stealing potential revenue from Intentions Networks. In fact, Bargain Finding Engines and Product Configurators can pick off these customers by trying to replicate the offers that were created with so much effort by Intentions Networks.
The implication of this potential fault line for community-based business models is that they may not be able to obtain an acceptable return on their investment in community building, network coordination and Web site content. The implication for Bargain Finding Engines is an opportunity to serve all customers. This situation is similar to the problem that has occurred frequently in personal computer sales. A customer walks into a full-service computer store and asks a highly trained salesperson for advice. The customer learns a lot, then thanks the salesperson and walks down the street to a discount store, or orders a similar model by phone or over the Internet from Dell or Gateway.
As Bargain Finding Engines and the like take advantage of this fault line, Intentions Networks and similar companies will look to mitigate the impact. One strategy is to reinforce the attributes that community-based business models need to succeed in the first place development of a strong brand; dependability and trust, which are particularly important in financial services; access to valuable information and decision-making tools; and a variety of personalized offerings that are difficult to replicate. Some form of loyalty program discounts or the accumulation of points may diminish the risk of member defection. Tying ongoing service and warranty programs to products may also help as customers may receive only minimal follow-up service from providers narrowly focused on providing the lowest cost.
Building Bridges to Customers Through Channel
Integration
The advent of these new business models, and the fault lines that are emerging,
increase the need for channel integration. One of the capabilities required
to develop strong one-to-one relationships with customers is for companies to
allow customers to choose how they want to interact with the company. Depending
on whether customers desire to interact through one or multiple channels, new
companies have to choose which channel(s) to offer while incumbents will need
to integrate the collection of data and their responses to customers across
their legacy organizations.
In financial services, an Internet-only approach (with telephone backup) conceivably can work both for credit (e.g., NextCard, E-Loan) and discount brokerage (e.g., E*Trade) products. These are essentially information-based commodity products with little need to physically move paper. It is unlikely that an Internet-only approach will work, however, for store and transfer products (i.e., checking and savings accounts). The Internet is becoming a useful tool for managing checking accounts and bill payment, but until the exchange of electronic value is more prevalent, bank branches, ATMs and "snail mail" will remain with us. Full-service brokerage and financial planning services are also unlikely candidates for Internet-only access because of the need for personal relationships. Companies offering these services will need to integrate information across the various channels to obtain the complete picture of each customer's behavior.
Since many customers desire multiple channels, companies need to determine the best way to integrate their information. At many companies, channels are organized and managed separately, and customer information has traditionally resided in the channel in which it was originally captured. This structure inhibits an organization from having a full view of the customer relationship, and also prevents giving customers a consistent experience across channels. Another effect of data residing in numerous channel silos is that companies are unable to identify key cross-selling opportunities and find warning signs that a relationship is in jeopardy.
Integrating a company's responses to customers across channels is made possible by integrated data warehouses and web telephony. Web telephony allows companies to interact with a customer simultaneously over the Web and telephone. With Lands' End "Live," for example, customers can receive real-time help locating items, navigating through the site even get fashion advice. The retailer allows customers to choose when they want to talk to a customer service representative by clicking on a particular icon and providing their phone number. A Lands' End representative will call the customer and answer questions or help with navigating through the Web site. For customers without a second telephone line, Lands' End provides the ability to have a live, text-based "chat" with the sales representative.
Another example of responding to customers across channels is the availability of checking account balances and investment portfolio information via personal digital assistants such as the Palm Pilot. Making this and other kinds of information available makes some tech-savvy customers more likely to use a specific company's services.
Organizations with rigid silos and legacy technology investments face the greatest barriers to integrating data across multiple channels and providing employees and customers access to it. To integrate data across channels, companies need to access the data on various platforms throughout the organization and bring it together in a common database. This challenge is difficult in and of itself, yet it is just the beginning. Companies must then allow each of the disparate groups and technologies to access the data and present it to employees as well as customers. Complicating the process are technology issues such as data integrity, data synchronization and multiple access to the same data at the same time.
It may not be simple to address this issue, but it is very essential for companies to take notice and build Internet capabilities with an awareness of how they will coordinate data collection and customer responses. One solution is to develop one system shared across the entire organization referred to as "synchronous customer management" by the Forrester Group:
Building sales, service, and marketing strategies around Web-based systems is the only way to steer companies away from the unsolvable integration nightmare of multi-channel, multi-function Customer Relationship Management.1
The system accomplishing this feat would need to be based on the Internet. All customer information no matter where it comes from, who uses it, or how it is used to respond to individual customers would be maintained on one Web-based technology platform. The statement also implies that other technology platforms within a company (e.g., for the retail branch or call center) also would need to use Web-based technology.
Those organizations that can successfully integrate their data will be more effective at customer management because of their ability to see the customer's entire relationship across the company. The question these companies face is not whether to integrate legacy data but how to do it. They may turn to software vendors that help companies analyze integrated data throughout the organization. Those that find it necessary to maintain multiple channels because of customer desires should weigh the costs of integrating legacy systems versus developing everything from scratch on a Web-based platform, relying on companies which offer multi-channel automated marketing solutions.
Customer Management Success Factors
The Internet has created a great deal of complex terrain to navigate. Both incumbents
and new companies need to understand where the fault lines are emerging. For
those considering a community-based business model approach, there is an opportunity
to profit from stepping between traditional providers and customers, although
this is a difficult path and only a few will ultimately succeed. One must also
remain aware of the threats from auction-based competitors, who seem well positioned
throughout the continuum of customer needs and interests.
The challenges of incumbents to integrate data across the organization creates clear opportunities for new companies to use lower-cost, e-commerce avenues to interact with customers. The infrastructure of an Internet-only company costs less and there are few, if any, data-integration challenges. New companies have the opportunity to build their information databases from the ground up, thereby leaping ahead of their older competitors. However, newer companies do not have the level of trust and in-person service opportunities that are so important for many financial services relationships.
To tap the potential of the Internet for customer management, companies need to reassess their ability to:
Create Interactions
Companies need to build Web sites that are well structured, easy to use, and
integrated with the rest of the organization (e.g., other interaction channels
and back office processes). Even more challenging, they must decide which intentions
networks and virtual communities are of greatest value to join, and whether
it is advantageous to be the creator of a community rather than just a participant.
Operate at Internet Speed
The Internet has increased customer's expectations about the ease and speed
with which business activities should be handled. Real-time data gathering,
analysis and response will soon be the standard. Companies that learn to perform
at this speed can break away from competitors.
Analyze Data
Companies must be able to turn massive amounts of data into insights that can
be used to better acquire, develop, and retain customers. This specialized skill
must be either developed in-house or sourced outside.
Integrate Customer Information
Across Systems
For most companies, the Internet will not be the sole channel by which they
gather information on customers and meet customer needs. Their challenge will
be to integrate data collection and customer response across legacy systems.
The current upheaval will result in winners who are able to harness the energy of e-commerce and ride the change to greater heights in terms of strengthening their relationships with customers. Other less agile organizations will be unable to reorganize and rebuild before their customer base has moved to the higher virtual ground.
1. Gormley, J. Thomas III, "Web-Centric Customer Service," The Forrester Report, February 1999.
