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Emerald Group Publishing Limited
Copyright © 2000, MCB UP Limited
"Quick takes" presents the key points and action steps contained in each of the feature articles. Catherine Gorrell prepares these summaries.
Page 4The new consumer emergesKatherine Kress, Nancy Ozawa and Gregory Schmid
New consumers have emerged in North America and Europe. These consumers have higher expectations and are more demanding than yesterday's consumers. Businesses must meet these requirements if they are to hold a competitive place in today's marketplace.
The new consumers are distinguished by three characteristics:
Education creates sophistication. The number of people with at least some college education is growing. College education is a good benchmark for measuring consumers' sophistication as well as their ability to gather and analyze information.
Discretionary spending power offers more choices. As income rises, consumers enjoy more choices in discretionary spending. By 2010, nearly 50 percent of the population is projected to have an annual income of $50,000 or more.
Experience with information technology. Owning a home computer and using the Internet are indicators of experience with technology. Nearly three-quarters of new consumer households have computers.
The new consumers will act differently in the marketplace. Six traits typify their behavior:
Prefer choice. New consumers are skilled information seekers and want to avoid biased facts and obtain answers to all their questions.
Demand tailored information and communications. Information quality, not quantity, is desired.
Skeptical of brands. They are more likely to question the value attached to brands and will switch if other goods meet their requirements.
Willing to experiment. New consumers want to test-drive new products and services and are open to trying new shopping venues.
Value convenience. The constant struggle to balance work and family life leaves consumers rushed and willing to pay for convenience.
Expect superior service. Enough said. This is imperative!
Organizations that want to build relationships with new consumers will need to experiment with many models. The key is to provide solutions, not just products and services. Employees who interact with customers on the front lines must be service-driven and able to provide the high levels of customer service these consumers demand.
Note: This article also includes a lengthy sidebar that examines the factors that drive attitude change over time.
Page 10Measuring customer capitalJan Duffy
Commerce today presents a different competitive space than anything we have experienced. Customers have become the economic engines of growth, and establishing lifetime relationships with customers has become the focus of all smart, twenty-first century businesses. Measuring customer capital is fundamental to assessing how successful an organization is, and will continue to be, in turning customer relationships into sustainable competitive advantage.
"Customer capital" is defined as the contribution to current and future revenues that result from an enterprise's relationship with customers. A customer franchise has been estimated to be worth three or four times a company's book value.
Customer relationships and brand equity. The ultimate benefit of a brand is that it delivers the promised value to the customer. Brand recognition and customer relationship value are, therefore, the two aspects of customer capital. As relationships are nurtured, the customer's attachment and loyalty to the brand increase, and customer capital grows. Ideally, attention will be paid to brand and relationship at the same time.
Measuring customer capital. Putting a value on customer capital begins with understanding some basic facts:
The average company loses half its customers over a five-year period.
Ninety-eight percent of customers never complain; they go to a competitor and tell their friends.
"Totally satisfied" customers are six times more likely to repurchase than "satisfied" customers.
If the value of customer capital were better understood, perhaps more attention would be paid to the link between customer loyalty and market value.
Launching an initiative. There are four keys to launching a successful initiative to understand the contribution of customer capital.
Affirm a clear business strategy; secure senior management support; identify core processes.
Select an approach that suits the organization and that considers all aspects of value.
Develop and communicate the agenda and the importance of the initiative.
Develop meaningful internal and external indicators of value.
The ultimate goal is to figure out how to leverage customer relationship to guide strategy. Customer value is nurtured and developed over a lifetime. Although it may appear to be a difficult path to follow, monitoring indicators of customer capital value is critical to sustaining a competitive advantage.
Page 15Buying and selling in a digital worldRandy Harris
Innovation in the B2B realm is essential for survival in the digital economy. Technology and creativity are empowering solutions that have much greater implications than the incremental improvements we have seen in the past. Most industries are reporting a tip in the scales of power. Legacy approaches were based on a seller-controlled environment; now it is all about customers. Customers' processes, choices, purchase efficiencies, and infrastructures will dictate the future of many selling strategies.
The B2B marketplace is huge. Using the new technologies offers potential savings to both buyers and sellers. An analysis of B2B buy-cycles reveals:
The existing procurement process is time-consuming and laborious.
Current sell-driven strategies create significant buyer inefficiencies.
Pervasive options for online collaboration diminish the value of biased vendor-driven information and sales pitches.
Supplier reps are appreciated but not regarded as an exclusive or preferred way to purchase.
The message is clear: a seller-based environment no longer serves the customer well, and enough saving potential is on the table to support radical shifts in the way business is conducted. Tried and true solutions are based on the common sense of the old economy; and may prove fatal or at best risky in a time when technology supports "winner-take-all." Sales forces must shift from being value communicators to becoming value creators.
Several new business models may emerge in the future, each one powered by the innovative application of technology and creative rethinking about value generation. One model is the buyer-controlled marketplace. Another is the extended enterprise value chain (EEVC). This model locks out competitors by aggregating a selling community that shares a common value-based thread with best-of-breed suppliers to a B2B-buyer profile.
It is time to rethink each of the building blocks that form the foundation for prosperity in the digital economy: products, customers, value creation, channels, technology, business objectives, marketing, business strategy, and competition.
Rebuilding your value proposition, delivery strategies, and revenue models will depend on your ability and willingness to accept diversity, experiment with untried technology, and attempt radical change as an opportunity to build wealth and establish new standards for generations to come.
Page 21Where has all the service gone?Horst Schulze
Old-fashioned service – with a human face and a helping hand – has all but disappeared from most US companies. The author, a senior executive with the Ritz-Carlton Hotel Company, comments on current practices in the virtual world that have turned most customer service into self-service. Drawing on the service and quality successes of his company, he suggests corrective actions that can advance your business's competitive position.
Big Brother is not the answer. The ubiquitous "this call may be recorded to ensure quality" sends the wrong message to customers and employees alike. Too many companies are using technology as a proxy for real service because it is so much easier to invest in systems, which can be programmed and paid for once, than in people, who need to be trained and retrained, incentivized, energized, refreshed, and promoted.
Customer management is anti-customer. Employees – especially those in "customer-facing" positions requiring human contact – underperform because the basic dynamic of a customer relationship has been taken away from them. Have you entrusted your employees to use their independent judgment when correcting problems?
Service lessons from the front. The secrets of great customer service are not mysterious; they just require a real commitment to corporate standards.
The clock is always running. Anything that hinders "face-to-face" contact (e.g. a 12-step voice menu, reams of Web clicks, lines at counters) lowers your grade of service in the eyes of the customer. Do whatever it takes to cut back response time; get to customers fast, with minimal fanfare.
Eliminate hand-offs through employee empowerment. Make your employees accountable in ways you never dreamed by empowering them to make decisions about how they do their jobs.
Do Murphy's Law math. Take stock of your shortcomings before others notice that you have them. Know your mistakes, and quantify and benchmark them so they can be anticipated and eliminated.
Competitors can replicate most products you may offer, but how you treat your customers becomes your unique signature. The modern chief executive would do well to take up the waiter's apron, don the headset at a call center, or sit on a teller's stool to see what kind of signature is being left with customers. You may not like what you see.
Page 25Understanding strategyWarnock Davies
This article provides executives with a better understanding of the nature and purpose of strategy. It draws on examples of GE and other companies to show how strategy-related terms, concepts, and principles apply in practice.
The benefit of knowing the usage of terms is a clarity that enables better development and use of powerful concepts. Understanding "what strategy is" has been complicated by the proliferation in the number of schools of strategic thought and by undisciplined, even reckless, use of the term. Compounding this is the popularization of management fads (techniques du jour) that have taken the place of strategy.
The elements of the PSR Troika. Strategy should be viewed as part of a troika made up of policy, strategy, and resources. These three equally weighted elements are linked in a causal relationship.
Policy defines a company's reason for being and sets the parameters within which it intends to achieve its purpose. Policy defines what is to be achieved.
Strategy is a design or plan that defines how the company's goals and objectives (policy) are to be achieved, and it determines what resources will be needed, acquired, and used.
Resources are the matériel and methods that make the formulation of strategies possible and give effect to strategy implementation. Without resources, strategy can achieve nothing.
Causation relationships. Resources provide the with-what means for achieving strategy; strategy is the how means for achieving policy. These direct relationships result in an indirect means-end relationship between resources and policy. The causality model serves as a practical tool to delineate the what, how, and with-what aspects; a diagnostic template for strategy analysis; and a design template for strategy formulation. The elements are equally weighted because they act in unison.
Plurality of inputs, options, and outputs. Multiple-option, multi-path, and multi-outcome aspects characterize formulation of effective strategy. These aspects allow business decisions to surmount obstacles, avoid unacceptable consequences, and tolerate changing conditions with greater flexibility.