Customer Centricity: Embracing the New Paradigm

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If there is one thing that all businesses can agree upon, it’s that today’s customers are different. Their behaviors, their needs and their expectations represent a major shift in customer engagement.

Gone are traditional ways of interacting with brands—now consumers want to engage on social media, online, on a mobile device and in hyper-personalized way. They are demanding a seamless experience where the sales cycle is extended across all channels and companies engage with them when, how and where they desire. And with an always-on connection through mobile and social, they can provide reviews (negative and positive) with the entire world in just seconds. Therefore, your customer can be your biggest fan or your worst nightmare.

So what changed? Well, these changes did not happen overnight, they are a result of a convergence of long-term trends that reached a dramatic tipping point. These trends include:

•A shift in demographics. The rising Millennial generation will make up the most powerful market force in the next five years and they are actively shaping the future of business.

•The emergence of mobility. There are more connected devices than people on earth. Your customers are always connected, always on and they expect real-time satisfaction.

•The power of networks. The Network Economy, an era of unparalleled connectivity and interaction, has shifted the power from the hands of the provider to the consumer. And it’s not just consumers who are networked, it is companies and even machines as well.

•A meteoric rise in expectations. With the power in their hands, customers have unprecedented expectations for service. They want personalized experiences tailored to their unique needs, to share their values with the business and be valued and to co-create.

The challenge for businesses is this: embrace the new customer-centric paradigm—or step aside as your customers race to competitors. Those forward-thinking enterprises that do will be rewarded with greater mindshare, wallet share, wealth and much more.

Learn more about the trends and challenges businesses are facing today and how to achieve customer centricity by exploring this deep dive.

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Customer Centricity: Embracing the New Paradigm

  1. 1. Conversations on the Future of Business Deep Dive: Customer Centricity Embracing the New Paradigm futureofbusiness.sap.com
  2. 2. Conversations on the Future of Business Customer Centricity There are more connected devices than people on earth. Challenges Source: Cisco 2
  3. 3. Conversations on the Future of Business The transformation seems to have happened overnight. Yet like all market revolutions, it was driven not by a single event, but through the convergence of long-term trends that reached a dramatic tipping point. Today’s customers are different. They exhibit different behaviors, different needs, different expectations. Customers interact with brands in novel ways. They want customized products and personalized service. They extend the sales cycle across channels. They demand that the companies they do business with respond when they want, where they want, and how they want. They desire to share their values with you, and their opinions with other customers. They can be your absolute dream—or your worst nightmare. What happened? A shift in demographics. The emer- gence of mobility. The power of networks. A meteoric rise in expectations. The customer has changed. Now it’s your turn. It all adds up to a single imperative: Embrace the new customer-centric paradigm—or step aside as your customers race to competitors. Demographics Around the world, a new generation is coming of age. The so-called millennials—those born in the two de- cades before 2000—will make up the most powerful market force in half a century. At 80 million strong in the United States alone, the millennials outstrip the boomers by millions. U.S. millennials already spend more than $170 billion a year, a number that will only rise with their influence. Don Tapscott, Best-Selling Author and Business Consultant, on Digital Consumers 3
  4. 4. Conversations on the Future of Business Millennials are digital natives. They’ve never known a world that doesn’t run on IT. Their lives transition seamlessly between real and virtual. And they ex- pect companies to do the same—from storefront to web front, from mobile to social. Mobility Millennials are relentlessly mobile. But so are the rest of your customers—including those who never used a computer before their 50th birthday. Today there are nearly 6.8 billion mobile subscrip- tions worldwide. Some 1.5 billion smartphones. At least 1.73 billion consumers on social media. Your customers are now always connected, always on—and increasingly accustomed to anywhere, any- time satisfaction. If they don’t get it from you, they can quickly find it somewhere else. If you’re not de- signing for mobile, you’re already losing customers. Networks Welcome to the Network Economy, an era of unprecedented connectivity and interaction. New connections and social platforms shift the balance of power from provider to consumer. Social media disrupts the way companies interact with customers and places a new premium on any- time, anywhere contact. Customer passivity is long past. Consumers now actively share their likes and 7 Strategies for Customer Centricity Focus on high value. Understand what your customers want to achieve. A bank branch, for instance, may need fewer tellers but more financial advisors to serve high-value customers. Let customers choose the channel. Consumers who shop both online and in stores spend more. Make it easy for customers to do business when, how, and where they want. Embrace mobile. Consumers across industries conduct more and more mobile business. Mobile customers can cost less in the long run, so understand what they want and create incentives for mobile channels. Help customers use your products. Home-improvement stores offer do-it-yourself classes and installation services. Car dealers let customers know when it’s time for a tune-up. How can your company take a similar approach? Let customers benefit from loyalty. Merchants provide frequent shoppers with perks, from discounts to partner promotions to better service. Many industries can leverage similar tactics. Make customers your cocreators. Engage customers so they feel they have a stake in your brand. Open an ongoing dialogue so customers not only offer feedback but actually help you meet their needs. Tailor offerings to individuals. Collect customer information—and analyze it for better insights. Seventy percent of bank customers would provide more personal data if it drove better service, says Ernst & Young. 1 2 3 4 5 6 7 4
  5. 5. Conversations on the Future of Business dislikes with fellow shoppers across the street and across the globe—all in an instant. Companies, too, are increasingly networked, re-or- dering the way they’re organized and how they go to market. New paradigms in manufacturing, distri- bution, and transactions mean costs are falling and capabilities emerging. Old competitors surge to the lead, while new competitors appear overnight. Even machines are networked, with machine-to-machine (M2M) connectivity linking 15 billion devices today and 50 billion by 2020. The result is a world that never sleeps, with multiplying intelligence—and escalating customer demands. Expectations With greater market force, mobility, and connectivity, customers have ever-higher expectations for service. They seek personalized experiences tailored to their unique needs. And they expect experiential consistency across every channel and touch point. Today’s customers want to be valued, and they want you to share their values. They need to feel they’re collaborators in designing your products and meet- ing their own demands. When they’re pleased, they can become your strongest allies. Disappointed, they can rapidly damage your brand. “Marketing needs to become a champion for the customer expe- rience across all channels.…Marketing can’t own all the customer experience channels but it can make the experience consistent through counsel rather than direct management.” Jonathan Becher, CMO, SAP No longer limited by geography or even time, customers know they’re in the driver’s seat. Fail to respond, and they’ll abandon you in an instant—to your loss, and your competitor’s gain. Over half of consumers would consider ending their relationship with a retailer if they are not given tailor-made, relevant content and offers. 54% Source: CMO Council 5
  6. 6. Customer Centricity Opportunities 3 out of 4 consumers rely on social networks to guide purchase decisions. Conversations on the Future of Business Source: ODMGroup 6
  7. 7. Conversations on the Future of Business There’s something peculiar about market transformation. The same forces that leave behind last week’s losers simultaneously shape the champions of tomorrow. For the closed-minded companies that resist change, the consequence can be lost customers, dwindling profits, and shrinking market share. For the forward-thinking enterprises that embrace the new paradigm, the rewards are greater mindshare, wallet share, and wealth. Demographics As the largest demographic since the boomers, millennials represent tremendous opportunities for companies to win new business and grow market share. The digital natives have the potential to be more engaged and responsive, welcoming new in- novations and market entrants. They’re open to new Mindshare, Wallet Share, and Wealth ways of doing business—models you could create that your competitors haven’t even thought of yet. Mobility With proliferating mobile technologies, you have ac- cess to customers wherever they happen to be. You can find new markets Millennials are 3x as likely to follow brands rather than a family member on social networks. and extend your reach far beyond what was feasible even a few years ago. You can leverage new technol- ogies for first-mover advantage, outflanking your competitors before they even know what hit them. Source: Brian Solis 7
  8. 8. Conversations on the Future of Business Be the voice of the market. Most employees see no tangible benefit to listening to the market. But Marketing should. Marketing must be the cultural catalyst to get the company tuned in to the customer. Champion the customer experience. Most customer/brand interactions are still fragmented, from in-store to website, from mobile to social. But that last channel, social media, means customers can broadcast inconsistencies far and wide. Tend the brand. Companies no longer control their brand. Instead, marketers should take a more subtle approach, working with internal departments to humanize the brand and with external constituencies to influence brand perception. Capitalize on insights. Customer, market, and social data analytics can give marketers a macro and micro view of the customer in real time. Use this unprecedented knowledge to your advantage. That means personalized content, instant offers, on-the-fly account planning, and more. Be an integrator and force multiplier. Large organizations tend to be siloed by function, product, and geography. Marketing needs to bridge these divides. Understand your company’s overall value proposition, and communicate that message enterprisewide. Marketing’s New Mandate: 5 Business Drivers Networks Social platforms offer opportunities for engaging customers like never before. Companies that use social media to their advantage can recruit countless ambassadors to carry the brand forward. They can take the pulse of customer sentiment in real time, respond in kind, and instantly understand whether new strategies are successful. A more networked organization means you can bet- ter capture customer and market information. Share those insights across the enterprise. And continually push that knowledge out to customer-facing func- tions. M2M will allow your physical assets to do 1 2 3 4 5 What’s the role of marketing departments in today’s hyper-connected, highly competitive marketplace? Going forward, marketers must to embrace five core responsibilities: Josh Linkner, Best-Selling Author and Entrepreneur, on Becoming Customer-Centric Read more about modern consumers and companies’ business models in What Every CEO Should Expect From Their CMO. 8
  9. 9. Conversations on the Future of Business “Two words define the pathway to customer experience improvement: engagement enhancement. This can be physical (activating more of their senses), mental (soliciting their ideas and influence), or emotional (providing peace of mind, laughter, or some other positive feeling), and often a combination of the three. Viewed through this lens, there’s no end to what we can do.” Steve McKee, President, McKee Wallwork & Co., Author, When Growth Stalls and Power Branding some of that work for you, becoming a self-learn- ing infrastructure that can continuously sense and respond. Expectations Meeting new customer demands across location, channel, and touch point offers tremendous oppor- tunity to strengthen your brand. Companies that grasp market-of-one thinking and crack the code on personalization will be far more effective at delight- ing current customers and attracting new prospects. 9
  10. 10. Conversations on the Future of Business Customer Centricity Acquiring a new customer is 6x to 7x more expensive than keeping a current one. Imperatives $ $ $ $ $ $ Source: White House Office of Consumer Affairs 10
  11. 11. Conversations on the Future of Business A famous hockey player once said, “I skate to where the puck is going to be, not to where it was.” Customer centricity is all about anticipating where customers are heading tomorrow, not where they happen to be today. Customer centricity can give you first-mover advan- tage. It can also position you to energize the custom- er experience by delivering products and services that meet customer needs—before customers are even aware of those desires. But to realize those objectives, you need to take proactive, transformative steps. These are the im- peratives to achieving customer centricity. Among other strategies, you need to target each customer as a market of one. Engage customers as codesign- ers of your products, services, and brand value. And leverage emerging technologies, including Big Data, mobile, and social. Skate to Where the Puck Will Be Understand Aspirations As part of the creative process, artists sometimes ask, “What does this piece want to become?” Com- panies can take a valuable lesson from this practice as they engage with customers. What are your customers trying to achieve? What are their aspirations? Meeting needs today is important, but competitors can beat you at that game. Under- standing desires tomorrow is much more compel- ling—and far more likely to deliver value, both to your customer and to your organization. Understanding customer aspirations starts with insights gained through Big Data. Fine-grained customer knowledge and predictive analytics can give you powerful tools in understanding and fore- shadowing customer behaviors and needs. But meeting customer aspirations also requires innovation and risk taking. What models will sustain your business going forward? Can you deliver better customer experience through unique products? Personalized service during the sale? Additional services after the sale? 11
  12. 12. Read more in How to Make Consumers Love Their Banks. Conversations on the Future of Business Some of your experiments will fail. But for any of your bets to pay off, you’ll need to keep innovating and taking risks—with rapid prototyping and im- plementation so that you can quickly identify what succeeds. Target a Market of One The concept of one-to-one marketing was established nearly two decades ago when Don Peppers and Martha Rogers released their best-selling One-to-One Future. That vision has at last become reality through advances in Big Data and cloud solutions. But now, mobile and social technologies are shifting the locus of marketing. In the past, marketers had the “four Ps”: product, place, promotion, and price. Today, that’s no longer sufficient. What companies require today are what management guru Don Tapscott calls the ABCDE of Marketing: anyplace, brand, collaboration, discovery, and experience. What’s more, targeting a market of one goes be- yond mere one-to-one marketing. Customers want not just a personalized channel but also a person- alized product and a personalized experience. That requires continual feedback loops to ensure you’re capturing customer sentiments and using them to drive your value proposition. Industry Focus: Banking for the Love of Customers For some industries, the customer cen- tricity tenets are a natural fit. For others they might not seem so obvious. Banks, for example, tend to lack the emotional connection with consumers that drives trust and loyalty. So how can they fight back against powerful new competitors like PayPal and Google? The same way organizations in any industry can: by focusing on customer experience. Too many banks are run for bankers, with a focus on processing transactions and containing risk. To consumers, a bank is little more than a place for storing and transferring money. Now, Internet-only banks, mobile pay- ment services, and nonbank transaction providers like Google Wallet and PayPal are eating into banks’ core business. But banks, with their mix of branch, online, mobile, and ATM services, have a strong foundation for becoming one-stop shops—and more important, trusted advisors—for all financial needs. The way to capitalize on these channels is to optimize the customer experience across touch points. But for many indus- tries, such customer centricity requires a transformation, one that reimagines channels and processes to enable fast response to new market possibilities. Banks, like many companies, are at a crossroads. They know they need to transform to remain competitive. And a transformation that makes companies more customer centric offers them the best opportunity to thrive. 12
  13. 13. Conversations on the Future of Business Engage Customers as Codesigners In the past, companies churned out products, and customers either bought them, or they didn’t. Organizations that hit on the right product mix suc- ceeded, and, all things being equal, those that didn’t, failed. But customers are no longer satisfied to be passive recipients of a corporation’s conception of what they want. Instead, they expect to be partners in the of- ferings you bring to market and the value your brand represents. That starts with their ability to broadcast opinions through social media—on a real-time, global basis. For companies that ignore this reality, the conse- quences can be dire. For those that embrace it, there’s an opportunity to better engage customers and glean valuable customer insights. Some companies are taking this a step further—like Starbucks with its My Starbucks Idea—creating their own social platforms to collaborate with customers. Such strategies reflect the emergence of the “prosumer”—consumers who are engaged to the point of creating content and even intellectual capital in a symbiotic relationship with your brand. Leverage Untapped Technologies Mobile and social technologies have revolutionized the way consumers interact with their friends and families, their governments and societies. Those innovations are having the same transformative effects on consumers’ connections to brands. And as customers rove from channel to channel, they leave an invaluable digital trail. Companies that gather, analyze, and act on these omni-channel activities can better understand customer desires and better fulfill their needs. Yet most companies still view customer data from the wrong end of the telescope. They track past behavior—only to create yesterday’s customer expe- rience. Instead, companies must capture emerging customer sentiment to truly understand customer motivations. That will enable them to craft a cus- tomer experience that’s unique to the individual— and a differentiator in the marketplace. Doing so requires careful investment in technology capabilities. The fact is, many organizations are overwhelmed with the sheer volume of data avail- able to them. To realize the promise of Big Data, they need to avail themselves of in-memory databases and state-of-the-art analytics to turn information into actionable insights. Energize Customer Experience Ultimately, the objective is for your organization to provide a unique value proposition to customers that makes your brand and offerings irresistible to them. To achieve that goal, you need to offer a superior customer experience. And you need to do it again and again, for every customer across every channel and touch point. Several trends raise the bar on such customer experience. First, consumer technologies increasingly blur the line between the real and the digital. From gaming and video environments like Xbox Kinect, to personal fitness devices like Fitbit, to Internet-enabled home-management solutions like the Nest line, products and services integrate the physical with the virtual at every turn. What’s more, the legions of mobile consumers expect instant gratification, from connectivity to content, from productivity to products. The expanding universe of mobile solutions—from productivity apps like Evernote, to reality-bending games like Ingress, to mobile/event integrators like DoubleDutch—drives higher and higher customer expectations. 13
  14. 14. Conversations on the Future of Business The good news is that innovative companies can leverage these technologies to their advantage. They can better engage prospects, offer personal- ized content and promotions, complete frictionless transactions, and fine-tune their offerings based on real-time insights. Organizations that wield these tools effectively can gain a customer-experience edge. Today’s customers have choice. They want what they want, when, where, and how they want it. And they flock to the companies that give it to them. It is, in fact, a new paradigm. But for those savvy enough to embrace it, the rewards will be rich indeed. T-Mobile, on Engaging Customers Like Never Before “The best companies are always a little bit ahead of their customers. You have to simultaneously be in touch with your customer and know them in the present, while always trying to understand where they’re going to go in the future.” Bill Foulkes, Professor of Business, Rhode Island School of Design 14
  15. 15. Conversations on the Future of Business The secret could be its loyal customers. But LEGO didn’t attract legions of avid fans simply by chance. Instead, the Danish company has carefully cultivated relationships with each customer type. The company segments customers based on brand affinity. At the top of the pyramid are “lead users” who engage with LEGO to the point of helping to create new products. Next are “one-to-ones” with whom LEGO maintains an ongoing dialogue. Third are a “connec- tive community” who spend time on LEGO’s collaborative online platform. And finally are “active households” that have purchased a LEGO product. Moving up the Pyramid LEGO’s goal is to move customers up the pyr- amid. It achieves that by engaging consumers and optimizing their experience in as many ways as possible. For starters, the company runs a robust loyalty program, both online and in stores in 24 coun- tries, that lets customers earn rewards. It also encourages the development of LEGO-themed communities. There are now more than 50 such groups, including the LEGO Club, which boasts more than 4 million users. LEGO wasn’t always so customer-centric. But after suffering a $191 million loss in 2004, the company began to reorganize with greater cus- tomer focus. Today, all departments that have direct contact with customers are centralized to ensure an optimum customer experience. The company also invested in enterprise soft- ware to support its customer centricity, includ- ing SAP ERP, SAP CRM, and tightly integrated loyalty-management software. Such integration is key: Companies that closely integrate their applications achieve a 20 percent improve- ment in customer experience, according to Bloomberg Businessweek Research Update. Ultimately, the technology helps LEGO respond to customer desires—and drive customer loy- alty and value.“By involving consumers in the things they are really passionate about, they will become ambassadors for the brand,” concludes Conny Kalcher, LEGO’s vice president of con- sumer experiences.“That is really powerful.” Read more about LEGO’s success in Through Engagement and Interaction, The LEGO Group Nurtures Loyalty Among Consumers. LEGO Group must be doing something right. The world’s fourth-largest toymaker earned $1 billion on $4.2 billion in revenues in 2012. Revenues were up 25 percent that year, and another 13 percent in the first half of 2013. LEGO Group: Building a Bridge to the Customer 15
  16. 16. Learn More • Conversations on the Future of Business • Conversations on Customer Centricity • SAP Center for Business Insight • SAP Business Innovation Blog: Customer Centricity © 2014 SAP AG or an SAP affiliate company. All rights reserved. No part of this publication may be reproduced or transmitted in any form or for any purpose without the express permission of SAP AG. The information contained herein may be changed without prior notice. Some software products marketed by SAP AG and its distributors contain proprietary software components of other software vendors. National product specifications may vary. These materials are provided by SAP AG and its affiliated companies (“SAP Group”) for informational purposes only, without representation or warranty of any kind, and SAP Group shall not be liable for errors or omissions with respect to the materials. The only warranties for SAP Group products and services are those that are set forth in the express warranty statements accompanying such products and services, if any. Nothing herein should be construed as constituting an additional warranty. SAP and other SAP products and services mentioned herein as well as their respective logos are trademarks or registered trademarks of SAP AG in Germany and other countries. Please see http://www.sap.com/corporate-en/legal/copyright/index.epx#trademark for additional trademark information and notices. Conversations on the Future of Business

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