4 Proftiable Growth, Service Enabled Cust Exp

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4 Proftiable Growth, Service Enabled Cust Exp

  1. 1. IBM Global Business Services :[YH[LN` *OHUNL (JOPL]PUN 7YVMP[HISL .YV^[O! 3L]LYHNPUN :LY]PJL ,UHISLK *Z[VTLY ,_WLYPLUJL [V *YLH[L *VTWL[P[P]L (K]HU[HNL ,_LJ[P]L )YPLM
  2. 2. 0)4 .SVIHS )ZPULZZ :LY]PJLZ 0U[YVKJ[PVU Manufacturers are under intense pressures to increase market share, improve margins and differentiate their products in the marketplace. The typical levers for gaining competitive advantage such as price, product innovation and traditional marketing are easily copied by competitors and eventually become “me too” in the marketplace. Firms spend anywhere from 5%-15% of product sales on marketing, yet brand loyalty remains low. In a recent survey conducted by IBM, we found that buyer segments have unique service needs throughout the purchase process. In addition, we found that purchasers who have a positive service experience are much more likely to be loyal and refer others to the brand. We believe that a well designed service program, targeted to the right segments and tightly integrated with the firms’ operations can differentiate a brand, increase loyalty and provide a lasting competitive advantage. >OH[ PZ H :LY]PJL ,UHISLK *Z[VTLY ,_WLYPLUJL& Today, almost all manufacturers provide after sales support services. But these services are usually the same across all of a company’s product segments, and warranty terms and product support services are typically the same across the industry. Executives believe that if they invest in upgrading services, competitors would follow and eventually customers would no longer see differentiation or value, while the firm is left with higher costs. As for pre-sales support services, they often are not even offered. But viewing services in this traditional way leaves an opportunity on the table. Service Enabled Customer Experience (SECE) is a strategy for leveraging services throughout the customer’s purchase and ownership lifecycle to offer a unique and differentiated experience. It consists of: ฀ Targeting services to unique customer needs across the ownership lifecycle, such as providing information that makes the buying process easier, enhancing the value of the product or reducing ownership hassles ฀ Integrating these services into the fabric of the firm’s operations, so that customers consistently see value at every touchpoint and throughout their ownership experience ฀ Positioning services in the center of the firm’s marketing messages so that customers are aware of the value manufacturers are providing through the service program ฀ Increasing the customer’s perceived value of the combined product and service offerings ฀ Building a direct relationship with customers while still balancing the firm’s current business sold through channel partners
  3. 3. 0)4 .SVIHS )ZPULZZ :LY]PJLZ O` HKVW[ HU :,*, Z[YH[LN` Manufacturers are under intense pressure to differentiate their products in the marketplace. Yet competing products are usually available with similar features, pricing and marketing. Services can help products stand out from the competition. Services Can Differentiate the Brand Even product innovation isn’t enough to differentiate a brand. Product lifecycles continue to get shorter, and because global, flexible supply chains are now available to any competitor, new products ideas can be copied quickly. One recent example is that of Vizio, the upstart LCD TV manufacturer, which in the span of three years has grown from a low single-digit market share to the point where it now is competing for the largest share in North America. Vizio handles design and marketing, but outsources assembly to contract manufacturers, taking advantage of the supply of increasingly commoditized LCD panel technology and capacity. Because it can use many of the same components that are in high-end brands while keeping its overhead low, Vizio is able to sell its LCD TVs for much less than competitors, and many consumers don’t see enough of a difference in picture quality to justify paying more for a premium brand. To help differentiate their brands against threats like Vizio, both Panasonic with its “Concierge” program and Sharp with its “AQUOS Advantage” program are offering a portfolio of services to their customers designed to enhance the ownership experience. While both companies to continue to make significant investments in RD, services are an integral part of their strategies for acquiring and retaining customers. More Effective Channel Marketing Most consumer products companies are under intense pressure to reduce their expenses, especially marketing expenses. Often, they are forced to spend large sums in collaborative marketing with the retailer who distributes their products. But, benefits from such marketing spend are not easy to measure, and that product manufacturers don’t have much control over development of marketing campaigns conducted by channel partners utilizing their funds. By proactively developing marketing programs that are mutually benefit to both the channel partner as well as product manufacturer and targeted at premium customers, firms will be able to measure and utilize marketing dollars more effectively.
  4. 4. 0)4 .SVIHS )ZPULZZ :LY]PJLZ Provides Unique Value to Channel Partners Some channel partners are also looking for increased differentiation from their suppliers. “A” channels or premium distribution partners typically carry a manufacturer’s high-end product and provide superior margins. Before the emergence of “big box” and discount merchants, they could maintain their niche because manufacturers would first ship new products to the A channel, then as the product matured B Channels such as mass-merchandisers would receive the product. This provided the A channel with a time advantage during which they exclusively carried certain high-end products. Now that product lifecycles are more compressed, manufacturers typically distribute their products to all channels in a more simultaneous roll-out. Thus, A channel partners have lost their traditional advantage. As a result, they are asking manufacturers to provide something unique that a mass merchandiser would not have access to. In many cases, services could be the answer. Given this competitive landscape, how can firms differentiate their brand in a way that is meaningful to customers, affordable and sustainable? /V^ *HU -PYTZ 3L]LYHNL :LY]PJLZ MVY *VTWL[P[P]L (K]HU[HNL While all manufacturers offer support services for their products (such as product warranties, installation and repair), they do not usually leverage them to create competitive advantage. Existing service offerings are typically viewed as a cost of doing business, and while they are seen as necessary, they are not often seen as a potential source of competitive advantage. The difference between typical product-related service offerings and a Service Enabled Customer Experience is that a SECE program: ฀ Spans the entire ownership lifecycle across all customer touchpoints, from pre- sale to post-sale and repurchase ฀ Addresses unique needs of targeted customer segments ฀ Is bundled with the product or is closely integrated with product features ฀ Leverages convergence of the product and connectivity to provide enhanced service levels including customized content. ฀ Is integrated with marketing campaigns to differentiate the product and drive customers back to repurchase
  5. 5. 0)4 .SVIHS )ZPULZZ :LY]PJLZ :LY]PJLZ *HU )L ZLK [V *YLH[L HUK /HY]LZ[ 3V`HS *Z[VTLYZ Our research shows that customers have unmet needs across the purchasing process. A critical step in undertaking an SECE strategy is to understand what those needs are, not just for your industry, but for your specific products and customers. While looking at what competitors are doing, or consulting analyst reports can provide a starting point, getting a firsthand perspective is important. First, your products may have unique design characteristics, content needs, strengths or weaknesses that can be addressed with unique services. For example, convergence with connectivity may provide an opportunity for content or monitoring services. Second, having this original voice of the customer can be a powerful catalyst for change within the organization. It is much easier to overcome the objections of naysayers who don’t see the advantages of an SECE strategy, or who may feel threatened by it, by showing them the evidence from their own customers. Figure 1 By grouping these needs together, it is possible to identify the value propositions customers are seeking. The service program should be designed to deliver these value propositions.
  6. 6. 0)4 .SVIHS )ZPULZZ :LY]PJLZ Figure 2 A key role of a manufacturer’s service organization is to “keep the customer” and then “give them back” to the sales organization when the customer is ready to buy again. The manufacturer’s sales and marketing organization may be leaving to chance whether customers will return to buy the company’s products in the future. Even satisfied customers will defect if they have no loyalty to their current brand. A key part of an SECE strategy is providing a mechanism for customers to remain engaged with the brand, so that customers maintain awareness and a connection to the firm. Examples of these methods are loyalty programs, forums, blogs, and newsletters. Our research has found that customers that have positive service experiences are much more likely to establish a positive emotional attachment to the brand, and therefore become truly loyal. This means that even if a competitor makes an attractive offer, the customer is more likely to remain with their original supplier because of the trust and confidence that has been built up.
  7. 7. 0)4 .SVIHS )ZPULZZ :LY]PJLZ Finally, firms can use their existing customers to acquire new ones, by encouraging Learned Lessons them to become advocates of the brand. The same customer experiences that contribute to loyalty also contribute to advocacy. The difference is that advocates derive additional satisfaction from telling others about their positive experiences with the brand. Recent research has shown that buyers find the recommendations of others much more credible than those of the manufacturer, or even professional reviewers. Manufacturers should make it easy for customers to refer others to the brand, and reward them when they do so. Figure 3 )LULMP[Z MYVT :,*, Adopting a SECE strategy can deliver significant benefits in three areas: Direct Customer Relationship, Product Repurchase and Customer Advocacy. Direct Customer Relationship In today’s environment where channel partners can have considerable influence over customers, the SECE approach gives firms a platform for building a direct relationship with customers. Successful firms can leverage this platform to increase knowledge of who their customers are and develop insights into their unique needs, which in turn can be used to continuously improve products and services. Product Repurchase Once the relationship foundation is in place, firms can leverage this platform to announce new products, execute event driven marketing strategies and
  8. 8. 0)4 .SVIHS )ZPULZZ :LY]PJLZ strengthen their distribution channels by referring customers to preferred partners. Together, these capabilities can lower customer acquisition and retention costs by making more effective use of the firm’s marketing budget. Customer Advocacy Ultimately, customers that have a superior end-to-end product and service experience are more likely to remain loyal to the brand and become advocates. Firms that have adopted an SECE approach have increased repurchase rate, reduced time to second purchase and increased advocacy rate, resulting in sales increase. Figure 4 *HZL :[K` A high tech manufacturer was facing high customer dissatisfaction with their warranty returns and reverse logistics programs. Their program was ranked the lowest amongst the six major HDD manufacturers. Within the firm, it was difficult to get various groups to agree on what was causing the problem and prioritize an action plan. This was directly impacting the company’s overall value proposition to its enterprise customers and the quarterly business reviews were dominated by services related issues instead of focusing on sales.
  9. 9. 0)4 .SVIHS )ZPULZZ :LY]PJLZ IBM worked with this company to develop a voice of customer program, interviewing procurement managers of the firm’s twenty-five largest customers to understand what the customer’s services after sales needs were, how the firm was meeting those needs and how competitors were serving them. Working collaboratively with Customer Operations, Logistics, Planning, Transportation and Finance teams, IBM developed a new warranty returns program supported by a solid business case. This was presented to senior management for approval and after the approval managed successful launch of the program. The result was that the entire firm is now aligned to a common view of customers’ pain points and needs. The new warranty program has resulted in: ฀ A 16% increase in customer satisfaction ฀ Potential to increase volume-mix ฀ Differentiation from competitors /V^ [V 0TWSLTLU[ HU :,*, :[YH[LN` To implement an SECE strategy requires developing a comprehensive service program that targets a specific set of customer service needs. The steps involved are: ฀ Understand customers’ unique service needs across the purchase and ownership lifecycle using a combination of focus groups, quantitative surveys, and mining of customer data, such as call records and service history – what problems, challenges and opportunities do customers face when selecting, buying or using your product? ฀ Describe how services could benefit each customer segment – what services does each segment value, when do they need them, how much (if anything) are they willing to pay, and how should the services be delivered? ฀ Develop a business case for implementing the service program – what are the costs and impact on revenue? ฀ Develop and operationalize a service program that meet customer’s service needs, but also increase customer satisfaction, loyalty and advocacy – what new process, skill or information technology capabilities need to be created? ฀ Create a marketing program that communicates the value of the service to targeted customer segments ฀ Launch the SECE program and measure the results
  10. 10. 0)4 .SVIHS )ZPULZZ :LY]PJLZ Figure 5 *HZL :[K` A consumer electronics manufacturer sought to improve the consumer experience to differentiate its brand and gain competitive advantage. In this industry, where customer loyalty is the manufacturer’s ultimate goal, service satisfaction has a greater impact on repeat purchase intent than product satisfaction. The company knew it needed to understand its customers better, to provide the right services at the right time. The client decided to provide services targeted to specific customer needs across its product line, and provide the desired experience to the customer across multiple delivery channels. IBM worked with the manufacturer to help it develop a unique, multi-channel post-sales service program. Based on in-depth consumer research conducted by IBM, the program goes beyond competitors’ post-sales service and support, offering a unique VIP customer service experience, providing extensive support and service through the channels demanded by consumers – call center, Web self-service and authorized servicers. The result has been: ฀ Over 100,000 new customer registrations in 6 months ฀ Increased Net Promoter® score to by 30% ฀ 65% of customers reported they would be more likely to repurchase the brand ฀ 86% customer satisfaction with the service program
  11. 11. 0)4 .SVIHS )ZPULZZ :LY]PJLZ 7P[MHSSZ HUK 3LZZVUZ 3LHYULK MYVT 0TWSLTLU[PUN :,*, Firms pursing an SECE strategy can learn from the challenges others have encountered in adopting these types of programs. Misalignment of Product, Marketing and Service Strategies For most manufacturers, looking at services as a source of strategic advantage requires a shift not only in thinking, but in the way decisions are made and resources are allocated. Firms that choose an SECE strategy without making the necessary governance changes can lose the benefits. For example, manufacturers are often “product-led”, with the result that the marketing organization creates messages that describe only the advantages of the products’ features, and the services organization provides only “break/fix” support. An SECE organization views service as an integral part of product development, marketing and service delivery. For example, customer feedback on product requirements derived from service calls should be fed back and acted on by the product development organization. The marketing organization should launch event-driven marketing campaigns based on customer information gathered from the program. Insufficient Understanding of Customer Service Needs Without conducting primary research, including focus groups, quantitative surveys and in-depth analysis of contacts with its own customers, manufacturers cannot be assured of accurately understanding the service opportunities that are unique to their customers. Secondary research provides a good starting point for developing hypotheses, but they cannot be tested without talking to customers. Giving Away Unaffordable Levels of Service There is often a temptation to give away high service levels in an attempt to gain favor with customers. While this can appear to work in the short term, in the long run it is a losing strategy. First, it can devalue services that customers would otherwise be willing to pay for, cutting already thin margins even further. Second, if the increased service is not connected to the desired behavior, it may not have the desired effect. For example, providing exclusive service benefits to customers who are loyal or brand advocates encourages repurchase.
  12. 12. 0)4 .SVIHS )ZPULZZ :LY]PJLZ Not Leveraging Customer Insights If the SECE program is designed properly, after launching the program, manufacturers will be able to collect information about customer behavior that they may never have had before. This can be a gold mine of actionable data that should be fed back to the Product, Marketing and Services organization. Relatively simple analytics can provide answers to questions such as “Who are our most profitable customers?”, “What are the characteristics of our most loyal customers?”, “What products and services are typically purchased together?”, “”What offers should be targeted to customers who buy certain products, and when is the best time to target them?”, “What unmet needs to our customers have that could be satisfied by a new product or service?” Channel conflict While a key benefit of SECE is the ability to build a direct relationship with customers, this can be seen as a threat by channel partners who could think the manufacturer is trying to steal “their” customers. There is no simple answer to channel conflict, but manufacturers can mitigate it by including channel partners in the design of the program. For example, manufacturers can offer incentives to channel partners who participate in the program, ensuring that marketing promotions direct customers back to the partner for product or service opportunities. Focusing on only part of the buy chain purchase process Manufacturers often make the mistake of looking only at post-sale and repair services when designing a Service Enabled Customer Experience program. But customers have service needs that start when they first consider purchasing a product and continue past product disposal into repurchase. By offering services across the total lifecycle, firms can better demonstrate their complete commitment to standing behind customers. Not Delivering on the Service Promise It’s one thing to promise a great customer experience, but quite another to deliver it. Nothing has a more negative impact on customer loyalty than a service experience that doesn’t meet elevated expectations. So before the SECE program is launched, make sure the delivery capabilities are in place. Start with a broad vision, but execute in small steps, learning and adjusting from experience.
  13. 13. © Copyright IBM Corporation 2009 *VUJSZPVU IBM Global Services Route 100 Manufacturers have an opportunity to break free of the cycle of low Somers, NY 10589 customer loyalty and low margins by pursuing a Service Enabled U.S.A. Customer Experience strategy. This approach has been shown Produced in the United States of America April 2009 to increase customer loyalty and advocacy, ultimately increasing All Rights Reserved market share. IBM, the IBM logo and ibm.com are trademarks or registered trademarks of International Implementing an SECE strategy requires a shift in how services Business Machines Corporation in the United States, other countries, or both. If these and are viewed by the organization. But for those willing to make the other IBM trademarked terms are marked on their first occurrence in this information commitment, the rewards are significant. with a trademark symbol (® or ™), these symbols indicate U.S. registered or common law trademarks owned by IBM at the time this information was published. Such trademarks may also be registered or common law trademarks in About the Authors other countries. A current list of IBM trademarks is available on the Web at “Copyright and Anees Gopalani, an IBM Global Business Services Associate Partner, trademark information” at ibm.com/legal/ copytrade.shtml. is the Services and Solutions Leader for the Strategy Change Net Promoter, NPS, and Net Promoter Score are practice. He consults to Fortune 500 companies in the electronics and trademarks of Satmetrix Systems, Inc., Bain Company, and Fred Reichheld. general manufacturing industries on growth strategies and business References in this publication to IBM products or transformation. Anees can be reached at anees@us.ibm.com services do not imply that IBM intends to make them available in all countries in which IBM operates. Kevin Shick, an IBM Global Business Services Senior Managing Consultant, is in the Strategy Change practice. He consults to Fortune 500 companies in the operations and technology transformation. Kevin can be reached at kshick@us.ibm.com .),:,5

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