The Customer Is King
16 Jul 2007
by Rob Lloyd, Cisco Systems, Inc.The Customer Experience Will Rule the Future of Business
From Issue five of synnovation Magazine, the EDS Agility Alliance Quarterly Publication
Companies have long touted the importance of “the customer,” but one look at today's business climate makes it clear why the customer – and specifically the customer experience – must be the focus of even greater attention. Most industries today have already squeezed as much revenue as possible from efficient production and transaction processes. Products and services can become commodities in a matter of months. Competition comes from anywhere around the globe. And margins generally tend to grow thinner as markets mature.
Against this competitive landscape, it's clear that companies must look beyond faster, better, and cheaper products and transactions for sustainability. Our research shows that future profits will come from providing customers with rich, rewarding experiences that keep them coming back. 1
An enhanced customer experience doesn't simply mean better customer service; it means a major shift in the way organizations engage with customers. We're entering the interaction age, and it's a change that will transform companies from product or service providers to experience providers.
Total Customer Experience
The total customer experience is the sum of every interaction the customer has with an organization, from first contact through after-sales support. Simply put, the customer experience equation looks like this:
Total customer experience = customer's product experience + customer's transaction experience + customer's interaction experience
Of these factors, the product experience is the most fundamental. Is the product or service excellent? Does it meet or exceed customer needs? Consider the experience of buying a cup of coffee: Is the coffee hot? Is it strong enough? Does the brew taste great with every sip? The product experience is the sum of all of the experiences with the product.
The transaction experience covers the routine exchange of information, goods, and services for money. For example, when you're making an online purchase, one of the first things you notice is whether the Web site is easy to use. Is the shopping process intuitive? Do you feel secure using your credit card? Have all reasonable transaction expectations been met?
Companies have become well versed in product and transaction quality. The new frontier in the battle for customer supremacy is the final piece of the equation: the interaction experience. Like transactions, interactions involve an exchange of information, goods, and services for money, but with interactions, the exchanges are qualitative rather than quantitative. They're driven and enhanced by a company's knowledge of the customer's personal preferences and the company's ability to adapt as preferences change.
Let's say you go to the same coffee bar every morning and order the same low-fat cappuccino. The barista may begin to recognize you and anticipate your order. Perhaps one day, she'll see you coming in the door and begin to prepare your cappuccino so that it's ready to pick up when you reach the cashier. The barista has anticipated your needs and modified her behavior to improve your customer experience. That's an interaction. Why do interactions matter? Because customers have many choices. If all products are good and all transactions easy, what's left to help them decide where to shop and what to buy?
Customers prefer to do business with companies that understand their unique needs and preferences. The company that can provide a product or service and the total experience that wraps around the offering will be able to increase revenue and remain competitive.
Forward-thinking companies understand this. Consider the results of a comprehensive Economist Intelligence Unit survey sponsored by Cisco. Called “Foresight 2020,” the survey asked executives of major companies to identify the top business challenges and opportunities between now and the year 2020. According to 88 percent of respondents, complex interpersonal interactions are critically important to the performance of customer service. And 85 percent say these interactions are important to the performance of marketing and sales activities. 2
Well-treated customers become loyal customers, and loyal customers remain every company's best bet for greater revenue and profits. Loyal customers give a larger share of wallet to their favorite brand, are less sensitive to price, tend to increase spending as they move through the company lifecycle, and provide a great source of customer referrals.
The Experience in Action
Companies of the future will focus on a combination of people, processes, and technology to achieve success and stay competitive in the new interactive economy. They'll make this possible by using communication and collaboration technologies for workforce interaction. They'll invest in networking and knowledge technologies to help create more personalized customer experiences. And they'll alter the corporate mindset to deliver a rich customer experience, one customer at a time.
Apple 's ubiquitous iPod is a great example of the importance of customer experience. There are plenty of handheld music players available, but no company has matched Apple in creating such a satisfying customer experience, from the “coolness” of the product itself to the iTunes store and the many Web-based communities that have developed around the iPod brand.
Road Runner Sports, a marketer of sports footwear, takes note of which races its customers intend to run. After a shoe purchase, it helps them train and then congratulates them via e-mail on completing the race.
Mitsukoshi, a Japanese department store, uses radio frequency identification (RFID) tags to help improve customer interactions and sales responsiveness. In the ladies' shoe department, for example, every pair carries an RFID tag. A scan at a nearby kiosk instantly displays information about available sizes and colors as well as detailed shoe descriptions. If the desired shoes are in stock, an associate places a phone call to a colleague stationed in the stockroom, who brings the shoes to the customer. With this innovative use of technology and a slight change in associate roles, Mitsukoshi has experienced a 20 percent increase in shoe sales at the test store.
ING Direct, the financial services company, provides another compelling example of the results of focusing on customer experience. ING has dramatically improved its cross-selling and upselling ratios by providing agents with real-time customer profiles and information on past customer behavior. This interaction strategy has helped ING Direct reduce the number of ineffective sales calls by 40 percent, increase the number of sales from 2 percent to 10 percent, and pump up customer balances by more than US$17 billion, according to Forrester Research.3
Even companies in commodity-driven industries, such as logistics, now see the customer experience as a potential differentiator. In its attempt to gain significant ground on UPS and FedEx in the U.S. market, DHL has initiated a strategy – and an advertising campaign – based on customer service, arguing that its customer experience is far superior to that offered by its competitors.
The Building Blocks
If customer loyalty is a competitive necessity, how do you ensure that your organization has adopted the mindset and deployed the necessary tools to shift from customer transactions to customer interactions – that is, from order fulfillment to customer experience?
The goal for companies is to get to know each customer by name, behavior, product preference, and communication preference. Companies can help to meet the challenge by adopting the following fundamental and broad changes.
Change the Paradigm. Organizations need to become “flatter,” giving employees more autonomy to make substantive decisions. That's because the customer experience will increasingly depend not on routine, easy-to-automate processes, but on unpredictable, hard-to-automate knowledge workers. Rules and policies should be replaced by options and exceptions. We're already seeing a shift in company IT spending, human resources strategies, and organizational structures to make interactions more flexible and knowledge workers more interactive.
Utilize the Network. The network is no longer just infrastructure or bandwidth; it provides the secure platform for delivering the customized customer experiences so critical for success in the 21st Century. The network can deliver a consistent, connected customer experience across all potential sales channels. It integrates data, voice, and video. And it provides companies with the ability to capture, store, analyze, and act on customer information more quickly and effectively.
Employees are increasingly spread across the globe and need to be able to collaborate and communicate as if the barriers of distance didn't exist. Tools such as Cisco Unified Communications, which integrate landlines, cell phones, and e-mail messaging with advanced communications applications and rich conferencing capabilities, allow employees to communicate more easily with each other and with customers.
With minimal additional investment and a serious bit of internal process reengineering, organizations can create tremendous value by building customer databases that provide a single view of the customer, deploy end-to-end networks that manage data from capture to action, and design communications systems that integrate all the channels and touch points – including Web sites, call centers, and stores – that define the customer experience.
Update Business Processes. Most personalized solutions require a core database of customer profile, preference, and usage information. But often this information is retained in department databases or resides with third parties, such as Internet service providers. Companies must integrate data that not only helps them understand the customer, but also helps the customer understand the company.
But that's just the start. Organizations must then put into play high-level intelligent rules of governance that dictate how and when this information will be used and by whom. The catchphrase known to most CIOs is CASA: capture, analyze, store, and act on information.
A majority of business leaders believe that complex knowledge-based roles will be their most valuable source of competitive advantage in the future, according to the “Foresight 2020” study. By contrast, production and simple knowledge-based roles will have a relatively low impact on competitive advantage.4
Forward-thinking companies already have many of the networks and technologies in place to create a rich customer experience, but many are still developing the business processes that foster organizational change. With investments in advanced technologies, coupled with internal process reengineering, companies will have nearly all the tools necessary to deliver the total customer experience.
Educate the Workforce. Management skills, interpersonal skills, and problem-solving skills will be the most important qualities for employees over the next 15 years. Those skills will be particularly important in customer service – a function where personal chemistry and creative insight matter more than rules and processes – and they'll be a considerable boardroom preoccupation as well.5
Develop Multiple Channels of Communication. A large part of creating positive experiences is allowing customers to communicate with you when, where, and how they desire. Just as the network provided the platform for more efficient transactions, so is it the undisputed platform for orchestrating any number of customer interactions. The network can deliver data, voice, and video with ease. And it can do so wirelessly. This mighty foursome, or quad play, of technologies enables seamless customer interactions over any number of communications channels. The Cleveland Clinic, one of the top hospitals in the United States, has greatly improved patient care and satisfaction with a tool called MyChart. The Web-based tool enables patients to review previous appointments and physician instructions, receive laboratory and other test results released by their physician, request new appointments and prescription renewals, and access reliable health information about a broad range of topics of personal interest.
Communications in healthcare can extend to caregiving as well. Many healthcare organizations today remotely collect data from heart monitors, for example, and they allow patients to confer via real-time video conferencing with a medical specialist located down the hall or hundreds of miles away.
Tens of thousands of blogs and a host of new social interaction sites and wikis – such as MySpace, YouTube, and Wikipedia – provide new ways for people to express themselves. Companies can develop their own social interaction network or tap into the myriad available sites.
But the great new enabler of interaction is video. Retailers are installing in-store video kiosks so that customers can video conference with remote sales specialists or watch product demonstrations. Several hotels now offer video chats with remote concierges. And as we're seeing with the phenomenal rise of YouTube, video can be delivered over the Web cheaply and quickly to a marketplace with a ready appetite.
Monitor and Reward Loyalty. You can't reward loyalty if you can't measure it. Every modern company claims to track customer satisfaction, but our experience suggests not many companies systematically convert those findings into organizational change. Companies interested in moving from a transaction model to an interaction model must think of ways to create procedures and policies that identify and reward repeat purchases and customer loyalty – and not just at another time, with a coupon, but at the moment of purchase.
Collaborate Internally. The customer's experience is cobbled together with the actions of any number of corporate and third-party functions, from design and manufacturing to sales, delivery, and service. Businesses have long invested heavily in optimizing operations within organizational divisions – for example, enterprise resource planning and supply chain management on the back end and customer relationship management on the front end.
Today, the biggest opportunity for creating a satisfying customer experience is through collaboration among departments. In the “Foresight 2020” report, 92 percent of respondents say they'll provide incentives to their employees to collaborate more effectively across functions within the organization.6
Collaborate Externally. According to PricewaterhouseCoopers, 46 percent of new business ideas come from customers, suppliers, or market intelligence. Only 9 percent of those ideas come from internal R&D organizations. With innovation, it's not surprising that 85 percent to 90 percent of companies in the “Foresight 2020” survey say they'll work to involve their suppliers more closely in new product and service development and share more information with them.7
Pharmaceutical companies are way ahead of the curve. Many major firms are using collaboration software to share documents, discussion threads, and virtual workspaces. Engineering firms, meanwhile, are adopting product lifecycle management software, an outgrowth of computer-aided design systems, which makes it possible for thousands of suppliers to collaborate efficiently on the design and construction of large, complex systems such as aircraft.
Collaborating with your partners and customers is a great way to learn about and improve the customer experience. And the rewards are worth it. Companies with which employees spend most of their time interacting turn out to be among the top value creators, according to research from The Boston Consulting Group.8
The first and easiest step for most companies is to ensure that the enterprise network connects as many people, in as many places, to as much information as possible.
The Experience Rules
Without question, the customer experience is the next frontier for driving revenues and profitability. The customer experience is so important that many successful business leaders are now making customer preferences the fundamental unit of analysis, rather than the account, the purchase, the product, or the location. And the network is clearly the platform for delivering enhanced customer communications, collaboration, and experiences.
Businesses will need to make significant changes to stay competitive. This time around it's all about the customer experience, and those companies that create the most satisfying experience will reap the greatest rewards.
About the Author
Rob Lloyd is senior vice president of U.S. and Canada field operations for Cisco Systems, Inc.
FOOTNOTES
1 ECONOMIST INTELLIGENCE UNIT (SPONSORED BY CISCO), “FORESIGHT 2020: ECONOMIC, INDUSTRY, AND CORPORATE TRENDS,” 2006. THE FULL REPORT IS AVAILABLE AT WWW.CISCO.COM.
2 IBID.
3 FORRESTER, “HOW ING DIRECT LURED AWAY $17 BILLION IN BANK DEPOSITS,” MARCH 9, 2004.
4 ECONOMIST INTELLIGENCE UNIT (SPONSORED BY CISCO), “FORESIGHT 2020: ECONOMIC, INDUSTRY, AND CORPORATE TRENDS,” 2006. THE FULL REPORT IS AVAILABLE AT WWW.CISCO.COM.
5 IBID.
6 IBID.
7 IBID.
8 THE BOSTON CONSULTING GROUP, “THE ROLE OF GROWTH IN ACHIEVING VALUE CREATION,” 2006.