Tag Archives: Loyalty

Is being customer centric bad for business?

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As part of my research for Connected!, I came across an interesting research study titled Effects of Customer-Centric Structure on Firm Performance (1). The study shows that being customer centric can actually decrease financial performance by almost 23%. Wow! This research definitely got my attention. Especially in an age where everyone is singing how wonderful customer centricity is.

As I dug deeper, I found that the study brought out 3 key aspects:

  1. First, customer satisfaction positively increased due to better and more focused attention by firms on their customers
  2. Financial performance increased by 8% in cases where competitive activity was weak, and where competitors were not already customer centric
  3. Financial performance degraded by 23% where competitors were already customer centric and where competition was strong

The first result was sort of expected. But result 3 above was surprising. So I dug deeper.

Apparently, there were 2 core drivers of the above results. First, organizational overhead or coordination increased significantly in a customer centric organization. This wasn’t too much of a surprise. Second, in cases where there were high levels of competitive activity, very little was typically gained by way of uncovering innovative approaches and meeting unaddressed customer needs. Given that being customer centric is actually supposed to drive this very result, the study brought out a very interesting anomaly.

There is no arguing with data. Ready to abandon being customer centric?

Not quite because I do have good news for you! Here goes.

  1. First, how customer centric you are probably cannot be determined solely by top level organizational structures and business divisions. Empirical data is always collected “after” such studies bring out these dramatic revelations. The catch-22 is that existing data does not always tell the whole story.
  2. Second, even in an organization structured by customer segments, there is lots of coordination and alignment of incentives against a largely standard product portfolio that doesn’t actually change much by customer segment. The results of the study may have been skewed by this fact. Many organizations hence are never really customer centric to begin with. They are just organized like that.
  3. Finally, organizations may indeed have specific and tailored product offerings aligned by customer segments. The claims of being ineffective in a strong competitive field are true only if we factor in the dominance of uniform and similar offerings from one organization to the next. Such product portfolios hence are actually also commoditized.

Clearly the right kind of innovation and how we meet customer needs is a critical factor. Brand plays an important role in being distinctive and preferred but it must be supported by the underlying differentiated value propositions. Innovation is much needed, not only to rejuvenate existing product lines, but also to introduce new products that will fuel the future and protect against competitive advances.

However, innovation today must be different given the increasingly connected nature of businesses. A central premise of my upcoming book is that the world is getting connected (of course) across industry boundaries. Hence our traditional go-to-market by product lines is slowly being rendered inadequate. Instead, we need to define our go-to-market by cross-industry customer experiences. These  experiences in turn must be defined by the overall purpose of our customers. Consequently, that focus on the customer’s purpose will extend beyond our products alone.

Everywhere we look, the market is evolving slowly towards this new model. But many of us are still looking inside-out, not outside-in. Hence our customer centric structures don’t yield results. Think of the following industry examples which show how the world is getting connected: Google Home, banks connecting with fitness centers,  Apple Siri connecting with Uber, Amazon Alexa connecting with banks, chabots on popular chat platforms such as Facebook and WeChat, student education programs like uPromise connecting all kinds of spending and occasions, wells Fargo connecting with accounting programs, Blue Cross Blue Shield connecting with Lifetime Fitness, and the list goes on. These examples serve as good indicators of the oncoming trend.

So what can we do to meet this challenge of being customer centric? In my book I outline how we must think of executing and organizing for a connected world. The chapter is very innovatively named as “Execution”! Execution is the fifth and final element of the Connected Company framework I lay out in “Connected!”. The other elements being cross-industry customer journeys, 3-tier loyalty program, a new equation for customer engagement, and a model to integrate our products and focus them on customer purpose.

The 3 methods outlined in “Execution” are below:

1. Connected Communities

One of the biggest issues with innovation is execution. Either we can’t seem to channel the right ideas through, or good ideas don’t seem to get executed well. Innovation and research groups are often misaligned or unable to tangibly meet the constant ROI demands made of them.

This problem was summed up very well in Innovators Dilemma (Clayton Christensen) which recommended that breakthrough innovation be set up as a separate business unit to be successful at delivering. Various other approaches have been recommended including the concept of ambidextrous organizations which studied various org designs and recommended an approach  similar to that in the Innovators Dilemma.

However, the challenges for innovation today are different from what these concepts outlined. In fact, business innovation today is more than about core products and business alone. The connected nature of businesses can render an innovative product obsolete rapidly. Innovation has to be thought about in an ecosystem, and for that reason, the traditional approach of setting up separate business units is insufficient. The design must be created consciously with a focus on customer purpose, with the aim of rejuvenating not only the product lines, but also how we go to market. The “connected communities” as I call them are almost like industry consortiums but only much broader – operating across industries. They are formal creations and have a simpler charter – to span connected customer experiences. They need to operate much like an industry consortium and cut across industry and product lines. The communities include partners from multiple industries to bring cross-company customer journeys to life. And then, looking outside in, create and pilot new CX programs within their organizations and their partners to stitch various product portfolios together. These connected communities must have the budget and resources to execute the entire lifecycle of innovation, before mainstreaming the pilot.

The important message is to create and gain momentum on a CX program from the outside in, and then use it to enhance and evolve the core. The next big hurdle is to operationalize these CX programs. CX Focused Org design explains this. 

2. CX Focused Org Design

We are all customer centric. Or at least we claim to be. We put the customer at the center of everything we do. But then, we turn around and divide our organization by products, businesses, and geographies. Next, we valiantly strive to realize the power of all our capabilities to serve the customer through layers of integration and coordination. This gives rise to the dismal results revealed by the research I referenced in the beginning. Obviously, this approach is missing an essential ingredient that causes us to fall short of realizing the full potential.

Let’s consider the top level org structures to be superfluous (for reporting purposes only). Then there really are 2 basic go-to-market models. 1) brands or products going straight to customers, or 2) through an account or customer group often segmented by customer types. Both these models need to be augmented to compete for the connected future. In a CX focused design, this is done by including an overarching CX program layer which is essentially the connected community. Designing for the future is about thinking very clearly about customer experiences in an ecosystem, not just in an independent corporate context. Hence, our top level products should be a combination of value propositions from the entire ecosystem that supports the customer experience. These value propositions will be an output of the Connected Communities. The Nike+ program, and the new Plenti loyalty program could be considered broad examples of this approach. They signify an overall program, but also allow for individual products. Our challenge is to make this CX focused org design standard, not optional. One of the primary hurdles is explicit measurement and accountability. The next section addresses that.

Connected Scorecard

We all know about the Balanced Scorecard and the associated tool called the Strategy Map, originally made famous by Dr. Robert Kaplan. Regardless of how extensively you use these tools, the concept is important to apply and understand, even at a high level. The strategy map alone gives tremendous food for thought. People and how they are motivated along the desired path are critical for a good org design. No amount of coaxing can accomplish what we don’t or can’t measure.

The effectiveness of any methodology depends on what we feed into it. In this case, the primary input is the strategy or the way to play. I’ve introduced a simple, easy-to-use Connected Scorecard as an input to existent management methodologies. This scorecard brings the outside-in perspective to the top of the food chain. It provides a simple way to measure how we are achieving the goals of meeting the needs of our customers in a connected world.  There are only 2 measurement groups  – ecosystem, and customer journeys. The first one measures how well we are including players in a cross industry fashion (coverage, relationship strength, competitive parity) . The second one measures the breadth (how many) and depth (how well, financial contribution) of the customer journeys we are enabling. The Connected Scorecard will hopefully mitigate the problems of isolated innovation, competitive inertia, and the issue of balancing the future with the present. It gives us a practical framework for driving and measuring our effectiveness in a connected world.

In summary, measuring the effectiveness of being customer centric can be viewed in one way through the lens of finding unmet needs to leapfrog the competition. In order to do that, it is critical to actively address customer journeys in a world where industry boundaries are crumbling. The concept of connected communities, CX focused org design, and the scorecard are possible techniques to help us accomplish that.

(1) The research study referenced can be found here.

(2) Image credit

Thanks for reading! Please do share your feedback and thoughts. This blog is based on my upcoming book Connected! – How #platforms of today will be apps of tomorrow. The book outlines how the platform story of today will evolve in the near future, and presents a “Connected Company” framework. One of the pillars of the framework is Execution (which we read about today). Read about the book here, and sign up to receive updates and launch discounts. Also visit my first book Dancing The Digital Tune which brings out 5 principles of customer engagement and creating a strategy for the digital world. It was of course, also the foundation for Connected!

 

Connected Company

The Connected Company Framework

Preparing for the connected future will have a far reaching and profound impact on our organizations. We cannot not change how we work, and how we think, and still expect to be creating magic with our customers.

Connected CompanyThe framework that I detail in the book “Connected!” provides a simple and immediately actionable blueprint. It consists of defining what a connected company is, and 5 important capabilities to support the vision.

What is a connected company?

The philosophy of being a connected company relates to an expansion of what we consider as boundaries or limits of our products and resulting customer experiences. Physical boundaries between industries are falling. Measuring ourselves on digital capabilities for distribution and access to our products alone is an approach that is strikingly inadequate for the future. We must instead look at the entire customer engagement ecosystem. We must think of our own products portfolio as an extension of the ecosystem.  That is not an easy evolution. But its becoming easier today with technology. Think of  voice activated devices or chatbots that can connect with your bank and book your flights for you. Or cars fitted with advanced technology that can drive themselves too. Or how Apple is bringing the power of loyalty programs right at the point of sale. These are just the beginnings of this exciting trend.

As a result, the entire concept of digital maturity assessment must change. While individual portfolios and channels can still apply the traditional definition of digital maturity, those parameters are no longer very useful in defining overall competitiveness. To summarize, digital strategy is not about our digital capabilities, but instead it’s about defining how to compete in a digital world.

The 5 capabilities necessary to be a “connected company” are:

  1. Block 1: The concept of Ecosystem based CX shows us how we should be building customer journeys that span not only our channels and products, but instead focus on the customer and leverage the power of our ecosystem. This means that an inside-out customer journey that shows customers interactions and touchpoints with our channels and products across the purchase lifecycle are no longer adequate. We must look outside-in.
  2. Block 2: The 3 Tier Connected Loyalty model will outline how the concept of loyalty has to tap into customer aspirations and motivations and how to extend the loyalty and rewards model to span the connected ecosystem. This approach also helps reduce the “cost of loyalty” while adding greater value to our customers.
  3. Block 3: The connected model of Customer Engagement shows us how emotional and physical engagement touchpoints should and can complement each other. It also shows how to reinforce customer confidence in our brand so we can become a reference anchor in our customers’ minds by being an advice engine. And it shows how to do that the ecosystem we define and evolve for ourselves.
  4. Block 4: The connected model of Integration is about how we present ourselves to our customers to build lasting and meaningful customer relationships. It will show us how we need to unify the combined appeal of all our products and services. In addition, this capability will show us how to extend the value of our portfolio by bringing the power of our ecosystem to our customers.
  5. Block 5: The Execution capability will perhaps clarify the biggest challenge facing leaders today – how to execute and thrive in a new connected world. This block combines various techniques and outlines practical methods to get going and build on the momentum, We will explore the concept of creating and leveraging Connected Communities, what a CX focused organizational design looks like, and how the traditional concept of the balanced scorecard model should be adapted to turn our companies into connected powerhouses.

Now that we have a blueprint of what it means to be a connected company, explore these in more detail.  Get your own copy of Connected! here.

 

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Loyalty is more than just rewards

Every business needs loyal customers. We need customers to buy from us rather than our competition. Promotions and discounts are universally followed to secure this attention and loyalty – incentivizing customers to buy from us by way of cash value rather than creating any long term differentiation. Sometimes, and much more effective, these offers are a means to get customers to try out or test the long term differentiation claimed.

In “Free: the Future of Radical Price”, Chris Anderson provides several examples of how discounts have generated opportunities to better engage customers.

Is “Free” or discounted prices really the right way? What do customers want? Do discounts really generate loyalty or do they just train customers to expect more for less? In a connected, digital world, as your business models are being transformed every day in unexpected ways, how should we even think of loyalty?

Useful Nonetheless
A promotional or cash value based campaign strategy has great uses. Some of them are:

  1. Low hurdles to adoption – initially free with a paid upgrade (e.g. LinkedIn, PayPal, software Products, etc.)
  2. Providing a trial period for customers to experience the product or service (ISPs, fitness centers, etc)
  3. Spurring demand through promotions and often pre-empting competition (CPG)
  4. Cross sell subsidies or loss leader strategies (Google, Facebook, CPG etc.)
  5. Others

The basic premise of loyalty:
Our question is: How do we get customers to be loyal “despite” price premiums, and especially when it comes to a long term & profitable relationship? Years ago, working with some of the best in the loyalty field, I got introduced to these basic elements. Much has evolved since then of course and here are some foundational elements:

  1. Aspirational value: Can we set goals that our customers would aspire or journey towards as they engage with us? (e.g. the coveted platinum gold club membership, the trip to the Bahamas, status on the web community as “The Social Citizen” etc. – I made the last one up but I’m sure it’s coming)
  2. Experiential value: Do our customers feel differentiated and can they brag about it to their peers? (e.g. the free valet parking, the reserved corner table for dinner, early access to concert tickets, the red carpet to board the flight)
  3. Gratification value: This is the most commonly understood definition of loyalty programs many of us and refers to the two% universal cash back on my Citi card, the weekly grocery coupon, the Buy One Get One Free promotion etc.Gratification can help with regular redemptions to keep customers motivated towards a longer term goal as well.

As we can observe all around us, the current market trends for loyalty seem to be all about immediate cash discounts – gratification value – which is manifesting itself as the tendency of customers to perceive a lower price to value tradeoff.

The evolving definition of loyalty

Competition comes from unexpected sources. MasterCard and Visa are threatened by mobile P2P payments and private label cards. The recent two hour shipping and delivery phenomenon is affecting major players like FedEx and UPS. Bitcoin is poised to transform the very definition of currency. And the block-chain architecture it is based on is questioning the very notion of a stock exchange as we know it today.

In times like these, it is natural for us to hunker down and adopt the push and sell model. This is vital no doubt. There is little doubt that factors such as quality, being first to market, user adoption and customer perception are really important. Amazon, Google, Apple and Facebook are great examples of how these have allowed them to surge ahead. But advances in digital now almost mandate that we strategically think of what else we can do to generate stickiness with customers, and in turn generate “loyalty”. Digital disruption is a term not to be taken lightly, because we have seen – in the past several years alone – several established and well respected players fall from grace due to inertia and inaction.

Here are some imperative as we analyze the question of customer intimacy, differentiation and loyalty.

  • Identify the weak links: What relates us to the customer? How are we connected to the customer today? Are we taking these links for granted? For example, banks relied on consumer pulling out their credit cards for payments. Now consumers pull out Apple Pay. Are banks invisible? Has their relationship taken a back seat? Dis-intermediation is the technical term for this broad phenomenon.
  • Fill the white spaces: Is there a gap in how we meet our customer’s needs? Do we understand their identity? Customers always have to look to multiple players to meet the spectrum of their needs – through another product, service or channel. As a business we will never be able to fill every white space but can we ensure that we can build out a friendly chain of links with other industry players – in other words a partnership ecosystem. For example, when customers look to see if a product meets their needs, do they ask you or a third party? When customers walk into a retail store, what triggered that need?
  • Evolve the loyalty concept: We must move towards aspirational or experiential rewards. They are much stickier. The Giant Eagle Fuel Perks programs in PA was a smashing success because people saved for their weekly fill-up, linked various types of purchases to this program and saw the savings climbing up at the gas pump. Apparently there’s something about indirect gratification, and people actually spread the word by linking status to it as well – “We get good fuel for less because we’re a member”. Same is true of airline miles programs – folks have been known to fly to earn points, even when not needed.
  • Strive for early redemption: Redemption – or exchanging points for goods or services – is an expense and also a liability. But if redemptions happen early and more frequently, they drive earnings which gets a great cycle going. Redemptions also serve as rewards and reinforcement for pursuing a long term goal (aspirational).
  • Connect brand promises to physical experiences: In a world which is flooded with information, it is difficult to weed through to the true value behind a product or offer. How do we give weight to our claims – prove that they are true. As community banks tell us they are closer to the community, do we see the proof points? Are they easily accessible? How about reinforcing a customer choices after the transaction is done – service + marketing combined.

Conclusion:

The means to achieve loyalty and differentiation are easier and at the same time more complicated in today’s digital and connected world. We can reach customers quickly and universally. The question to ask is: are we starting this encounter with a discount offer or are we engaging with customers in a slow dance for a longer term ecosystem?

Photo credit: 24oranges.nl / Foter / CC BY-SA

This post is obviously based on the 5 principles outlined in my book Dancing The Digital Tune: The 5 Principles of Competing in a Digital World.