Channel Strategy: Framework for Succes


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The number and type of channels that customers are using has rapidly grown to include the Internet, smartphones and a host of social media options. The result is an increase in possible customer touch points, which presents new opportunities for organizations to interact with their customers.

With the increasing sophistication and empowerment of customers, this trend is driving the need for organizations to use new channels in new ways. However, many organizations have not been successful, experiencing disappointing results due to mismanagement of a new channel or misjudgement of overall channel requirements. This mismanagement can detrimentally affect company results.

Capgemini Consulting advises that a channel strategy designed for customer needs is imperative to ensure channel success.

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Channel Strategy: Framework for Succes

  1. 1. the way we see itChannel Strategy: Framework for SuccessHow to Maximize Internal and Customer Benefits Through EffectiveChannel Management
  2. 2. Table of Contents Abstract 3 Introduction 4 Channel Failures 6 Understanding the Needs of the Customer 7 Channel Management Strategic Framework 10 Recommendations 13
  3. 3. AbstractThe number and type of channels that customers are usinghas rapidly grown to include the Internet, smartphonesand a host of social media options.The result is an increase in possible Capgemini Consulting advisescustomer touchpoints presenting that a channel strategy designedmore and different opportunities for the customer needs of thatfor organizations to interact with organization is imperative to ensuretheir customers. This, along with channel success. Understanding thethe increasing sophistication and customer’s channel requirements forempowerment of customers, is their different possible interactionsdriving a need for organizations with the organization is a crucialto use new channels and use them strategy input. The customer maydifferently. And though great use multiple channel touchpointsopportunities can be delivered to complete a single transaction,by entering new channels, many and organizations need to beorganizations have not had cognizant of this in their channelsuccessful experiences. Examples strategy. Customer centricity hasexist from disappointing results become a strategic imperative,due to mismanagement of a new and organizations need to create achannel to complete misjudgment channel mix capable of delivering aof the overall channel requirements, valued and differentiated experiencedetrimentally affecting the at each key consumer company results. Capgemini recommends that an organization uses a framework to develop its channel strategy such as Capgemini Consulting’s Channel Management Strategic Framework. It firstly develops an understanding of the customer needs to build up channel business requirements. It then takes the organization through five steps, which introduce, optimize, migrate, rationalize and integrate channels. Using such a framework means that a company can capitalize on the channel opportunities available, delivering the required customer experience and ultimately increased sales or reduced cost to serve. Channel Strategy: Framework for Success 3
  4. 4. IntroductionThe number, type and reach of possible channels through which a customer can interactwith an organization has increased rapidly over the last decade.Between 2000 and 2010 global and information channels are Global ElectronicsInternet usage grew 444%1 shaping changing the landscape of how Manufacturer: Launching amany aspects of a consumer’s the consumer buys, browses and Successful Online Channellifestyle including the way goods socially connects. Social networkingand services are selected. particularly means that an organization has less direct control.Mobile telephony too has This global consumer productssignificantly penetrated the global The social channels are changing manufacturer wanted to developpopulation. Access to mobile the dimension of marketing from an innovative online channel, which would provide information,networks is now available to 90% a “push” to a “pull” environment products and customizationof the world2 and penetration of the as customers reach out through and community opportunitiesmobile market by the smartphone multiple social channels to get the for its customers. Capgeminiis particularly increasing. U.S. information they need. This is in Consulting was chosen assmartphone penetration of the contrast to the “push” marketing its strategy, design andmobile phone market is predicted messages delivered by traditional implementation partner for theby Nielsen to reach 49% by the channels. Customers increasingly venture, which included:end of 2011,3 and the uptake of expect to be able to engage with ƒƒDevelopment of an online salesthe biggest selling smartphone, companies through community- business planthe iPhone, was far more dramatic based interactions, and bestthan other previous technological practices to do this have emerged.5 ƒƒDesign of the online saleslaunches (see Figure 1). Crowdsourcing is one such example, organization and processes where customers can collectively ƒƒDefinition of website featuresThe continuing growth of social influence new product and service and functionsmedia is also having a significant ideas. Unilever moved from its ƒƒLaunch of the new e-shopchannel impact, splitting the online costly traditional marketing agencychannel into a series of additional to an online ideas forum open to Three months after launchpotential customer touchpoints. all to submit advertising ideas for the online shop had alreadyNew channels that have gained its consumer products, awarding a generated €300 million of qualified referrals to thetraction in the last decade include prize to the winning idea.6 Giffgaff traditional channels.blogs, online communities and is a community-driven mobilesocial networking. Facebook, the network. Members get rewardedmost visited social networking with mobile services for helpingsite, became the most popular site to run the company through theiron the entire World Wide Web in ideas and generating new customers,2010.4 These new transactional thereby reducing fixed overhead.71 “Internet Usage Statistics,” Internet World Stats, December 20102 “The World in 2010,” ITU, October 20103 “Industry dynamics, Telco Services,” Royal Bank of Scotland Broker Report, April 20104 “Facebook Tops Google; Social Networking Passes Search As Web Users’ Top Activity At End Of Year,” Mercury News, January 20115 “Forrester’s Top 10 Trends for Customer Service in 2011,” Kate Leggett, Forrester Research Inc., January 3, 20116 “Unilever Goes Crowdsourcing to Spice Up Peperami’s TV ads,” The Guardian, August 20097 www.giffgaff.com4
  5. 5. In light of the growing and the right channel strategy and changing channel options and how understanding the customer the sales opportunity they can channel expectations is a crucial provide, there is a compelling need input to this. We conclude by for organizations to capitalize on stressing the importance of a channel mix to drive increased strategy and introduce Capgemini business for their products and Consulting’s proprietary Channel services. In this paper, we explore Management Strategic Framework how the lack of a strategic approach and how it can be used to maximize to channels can jeopardize overall results from an optimized, high- organization performance. We performing channel mix. highlight the importance of having Figure 1: Number of iPhone Users in the Quarters Since Launch Compared to Other Technologies 120 ~120MM+ 100 Mobile Internet iPhone + iTouch + iPad Launched 6/07 80 SUBSCRIBERS (MM) Desktop Internet 60 Netscape* Launched 12/94 ~32MM 40 Mobile Internet NTT docomo i-mode Launched 6/99 20 ~27MM Desktop Internet AOL ~9MM v 2.0 Launched 9/94 Q1 Q3 Q5 Q7 Q9 Q11 Q13 Q15 Q17 Q19 QUARTERS SINCE LAUNCH iPhone + iTouch NTT docomo i-mode AOL NetscapeSource: “Ten Questions Internet Execs Should Ask and Answer,” Morgan Stanley, November 2010*Note: Netscape users limited to U.S. only. Channel Strategy: Framework for Success 5
  6. 6. Channel FailuresGreat opportunities can be delivered through expanding Understanding the company’s ownor switching channels to reach the customer, but many key strategic strengths in developingorganizations have made costly channel mistakes that channels is also crucial. When betting firm William Hill decidednegatively affect the overall business. to move into the online market it failed to recognize its strengths and core business and tried to develop its own custom-built online IT solution. The initiative wastedNot adjusting the channel mix to control user comments and an estimated £26 million.11to meet the changing needs of use of its logo on the site. Thisthe customer can mean company produced an online community An inappropriate application of adisaster. Blockbuster video failed to dialogue criticizing the Nestlé new channel can cause significantreact quickly as its customers and brand and its online behavior.9 customer discontent. Pepsi triedpure-play rivals moved online. Its to reach out to the target maleprime real estate policy for its bricks- Failure to understand a new audience for its AMP energy drinkand-mortar stores worked well in channel and applying a traditional with a “guide to women” iPhonethe ’80s and ’90s but needed to be strategy was the mistake made by app. The application received suchswitched to more direct shopping Walmart in its Facebook marketing negative social media publicitychannels post-2000. Blockbuster’s campaign. Walmart did not adjust about its derogatory nature itmovie stores, DVD vending kiosks its marketing techniques to the had to be withdrawn and Pepsiand digital downloads were brought social network environment. It issued an online apology.12in too late to offset the physical stores’ limited feedback and interactionlosses, and the company declared from its community members and In summary, understanding howbankruptcy in November 2010.8 tried to push a repeated marketing customers are changing and how message in the way of a traditional they want to use the channelsOrganizations need to understand offline marketing campaign. Its rival of their choice to communicatethat they are not necessarily in Target, on the other hand, created with an organization is control of how the consumer a “pull” marketing situation, taking Companies also need to time theirinteracts with their brands in some time to understand how customers entry into a channel appropriately.channels. Consequently, they wanted to act on Facebook and These factors should be built intoneed to engage the consumer in a setting up a more interactive site an organization’s channel strategy.different way. Nestlé has received with customer dialogue. Targetnegative PR as a result of its actions attracted over three times theon Facebook, due to its attempt number of users that Walmart did.108 “Online rivals bring brutal end to Blockbuster story,” The Independent, August 20109 “Nestlé’s Facebook Page: How a Company Can Really Screw Up Social Media,” BNET, March 19, 201010 “Walmart Failed Facebook Social Internet Marketing Campaign,” Articlesbase, October 200911 “Gaming machines help William Hill hurdle online woes,” Reuters News, February 200812 “Pepsi goes down with AMP on failed iPhone app,” Econsultancy, October 20096
  7. 7. Understanding the Needs of the Customer First and foremost to manage their channels effectively, organizations need a channel strategy. Good channel management is not necessarily operating in all channels. ASOS, the online fashion retailer, To select the optimum channel started the first half of financial strategy these companies year 2010-2011 with a continuation understood their customer of many years of double-digit needs for their products, which sales growth with profits rising is a crucial strategy input. 59% over the previous year, all from operating purely online.13 Amazon has also focused only on 13 “ASOS uses international sales to drive Understanding the the online channel and its revenue 59% profit boost,” Computer Weekly, remained strong in 2010 with 39% November 2010 needs of the customer growth from its base of 121 million 14 “Ten Questions Internet Execs Should Ask & Answer,” Morgan Stanley at Web 2.0 Summit, is the single most active customers worldwide.14 November 2010 important input to channel strategy. UK Retailer: Creating a More Integrated Customer Experience This UK-based clothing, food and homeware retailer had a series of channels that had been added to its core offering over time rather than being designed together. This resulted in different experiences across different channels. Capgemini Consulting used its Channel Management Strategic Framework to analyze how well the channels were delivering the experience required by the company’s customers. Benchmarking against leading practitioners and mapping customer journeys were key input into designing the required channel strategy. We worked with the retailer to create a roadmap with action plans across all channels to provide a more integrated customer experience. Channel Strategy: Framework for Success 7
  8. 8. The Customer Journey In the multi-channel world customer Some typical multi-channel journeys journeys have become much more for a telecoms provider are shownThe starting point of understanding complex with a customer using in Figure 2. This channel-hoppingthe customer is to think of his or her several channels throughout the behavior presents the need forpossible interactions with the organi- journey’s course; customers are not organizations to understand thezation as a set of journeys that are loyal to a particular channel. This can multi-channel requirements of theirtriggered by a need or want. Selecting negatively impact customer experience customer and the complexity of howa product or service is more than a if the transition between channels one channel can influence another.simple transaction; the customer is not seamless. In 2010, more than For example, many retailers havejourney encompasses everything a 75% of shoppers in the U.S. were found that a small percentage ofcustomer thinks, feels and perceives using at least two channels to browse, sales are directly attributable to theirwhile interacting with a business. research and conclude purchases.15 catalog. Customers are, however, Figure 2: Example Cross-Channel Journeys for a Telecoms Provider Ongoing Use and Become Aware Join First Use Upgrade, Renew, Exit Payment Select Provider Buy and First Usage Manage Account Key: Possible Channels to Use = Store Upgrade Phone = Online and Service = Mobile = Call CenterSource: Capgemini Consulting15 “Cross-Channel Commerce: The Consumer View,” A consumer research study commissioned by ATG, March 20108
  9. 9. browsing the catalog to decide on the higher the likelihood that a The DVLA, the UK governmenttheir purchase and then going online more tailored or personal service is organization responsible for vehicleto complete the transaction. Retailer needed. Banks, for example, may licensing, added an online andJC Penney eliminated its traditional service low-complexity customers automated telephone service tocatalog and switched to “look with simple requirements online, its traditional postal channel tobooks,” more frequent, customer supplemented with the offer of increase efficiency and reducetargeted catalogs that line up with online chat for more complex queries costs. Customer feedback was verythe company’s online offering.16 before customers need to pick up the positive as many customers found phone for highly complex issues. that the new channels were moreThe Joined-up Customer convenient and quicker to useExperience If managed well channel migration than the previous channels.17 can mean that the customer actuallyAs customers channel hop they gains an improvement from the switch Once an organization has a detailedexpect consistency in their to a cheaper channel. In the U.S. understanding of the channel ex-experience. This harmonization banking example shown in Figure 3 pectations of its particular customerof the brand across channels is a customers saw a variety of benefits then it is ready to use a frameworkchannel management basic that from switching to online banking. to build its channel strategy.customers expect no matter whichchannel they are using. They expectthe organization to remembertheir interactions and channelpreferences and adjust the service Figure 3: Typical Relative Transactional Costs for Checking Bank Balances andaccordingly. Centralized customer Recent Transactionsinformation that is accessibleby the entire organization is anessential enabler to deliver the Channel Transaction Costsjoined-up channel experience. Online $0.17 Mail Statements $0.75Maintaining the Experience ATM (Automated Teller Machine) $0.85Through Channel Migration Interactive Voice Response System $1.25It is well known that some channels Contact Center $3.75are cheaper to operate than others Bank Teller in Branch $4.00and by encouraging customersthrough these lower-cost-to-serve channels organizations canreap operational cost savings. Benefit Customers Perceive From Using the Online ChannelFor example, online transactioncosts can be a fraction of those of Speed of Receiving/ 46% Sending Informationtelephoning a contact centre. Relativecosts for checking bank balances Receive Messages 46% Anytime Anywhereand account transactions in differentchannels are shown in Figure 3. Faster Analysis of My 31% Financial InformationHowever, customers will have Better Time 30%different journey and shopping needs Sensitivityand should not be channeled into the 0% 10% 20% 30% 40% 50% 60%cheapest option to the detriment oftheir expected experience. The more % of All Respondentscomplex the customer’s requirements Source: “Mobile Banking Survey,” Syniverse, 2009 “JC Penney to shut down catalog outlets,” DMNews, January 201116 “Electronic service delivery in the Deliver, Vehicle and Operator Agencies in Great Britain,” National Audit Office (NAO), January 16, 200817 Channel Strategy: Framework for Success 9
  10. 10. Channel Management Strategic FrameworkCapgemini Consulting has developed a Channel Management understood. A channel that is usedStrategic Framework from which a channel strategy appro- to build awareness of a service topriate to driving results for a particular organization’s cus- a customer but not to sell it, for example, still forms an importanttomer and products or services can be developed. part of the channel strategy. In the U.S. in 2011 it is estimated that 39% of sales will be influenced byDefining the Channel Business with up-to-the-minute knowledge the online channel in addition toRequirements of how to engage customers with the 9% actually transacted online.18 different channels. The customer This strategic definition of customerThe framework (see Figure 4) begins insights need to extend to knowing and channel requirements for thewith describing what an organization which channels an organization’s business should ensure that eachshould achieve from its channels targeted customers want to use channel will form part of a cohesive,in business terms. Core to this is and how they will use them. combined company strategy. Itan understanding of the customer’s also forms the basis for the five-channel requirements. The classic The complexity of the customer step key channel decisions to beor standard marketing approach of channel interactions throughout made that lead to an appropriate,gaining a deep understanding of the the sales journey needs to be optimized, integrated channel mix.customer’s needs must be coupled Figure 4: Channel Management Strategic Framework CHANNEL MANAGEMENT CHANNEL STRATEGY CUSTOMER CHANNEL CONTACT CHANNEL CONTACT CHANNEL MANAGE CHANNEL SEGMENTATION MODEL MODEL POSITIONING FUNCTIONALITIES CONFLICT Channel Introduction Channel Optimization Channel Migration Channel Rationalization Channel Integration CHANNEL CHANNEL CHANNEL CHANNEL CHANNEL CUSTOMER CUSTOMER CUSTOMER CUSTOMER CUSTOMERSource: Capgemini Consulting “US Online Retail Forecast, 2009 to 2014,” Forrester Research Inc., November 20101810
  11. 11. Channel Introduction Channel Optimization sales channel. We helped advise on a promotional awarenessEach channel should represent a Channel optimization ensures campaign and the enhanced onlinekey interaction point between an that each channel is performing and mobile features such as seatorganization and its customers. against its strategic business selection, which made customersThere are many channel options, objectives. There should be prefer and stick to the channel.from stores, phones and contact both specific sales and customercenters to the Internet, mobile interaction targets, as a particular Disney’s online wedding Wish Bookdevices and social media tools. channel’s strategic intent may be enables users to configure a weddingA company needs to determine to drive sales to other channels. package and then click a button towhich new channels will meet its Performance against the targets share and discuss it with a customerstrategic objectives and help increase should be monitored continually service representative.22 Withoutthe customer base, grow revenues and used to drive the processes this application, customers wouldand reduce costs. Domino’s Pizza and system changes needed to meet likely be on the phone much longerintroduced an iPhone ordering app the channel objectives. Online running through possible September 2010 and within three retailer, for example,months the app had driven £1million found that products with reviews Channel Rationalizationof sales in the UK and accounted have return rates that are 20%for one-third of its online orders.19 lower than for those without. By In a world of increasing channels,Banks are developing creative adding this feature to its website eliminating a channel maychannel solutions for servicing it saved on shipping, restocking feel counterintuitive to someemerging market economies. and customer service costs.21 organizations but strategically thisM-Pesa is a Kenyan company that may be the right course of action.offers a mobile money transfer Channel Migration In using the framework a companyservice. Since the introduction of will have identified its strategic Once the right channels are inthe service in 2007, 38% of Kenyan channel goals and understand place and working effectively, anhouseholds have at least one M-Pesa the costs to serve for its channels. organization can begin to match theuser while only 22% of the adult Terminating under-performing profitability of different customerspopulation have bank accounts.20 channels reduces complexity and with their cost to serve. This requires cost, freeing up resources to allow an organization to understand each the organization to focus on the channel’s operational efficiencies Using the Channel Management core, profit-driving channels and and costs. Customers can then be Strategic Framework (see Figure improving the overall experience. “steered” to the appropriate channel 4) a strategy can be developed by answering five key questions: through incentives, promotions, Capgemini Consulting worked with additional services and awareness a major UK retailer to rationalize generation. This migration its channels. The retailer had two should not come with a perceived 1. Channel Introduction: store brands in the marketplace each degradation of service by the Which channels should serviced by individual online and customer, rather as an enhancement, be present? call center operations. We helped for example being quicker or more combine the individual channels 2. Channel Optimization: convenient for the customer. into one that could still meet the How are these channels performing? brand needs of both store chains. Capgemini Consulting worked The more efficient, rationalized 3. Channel Migration: Which with an Asian airline to migrate channel delivered significant cost customers should be using its customers to its lower-cost and savings for the retailer without which channel for what? more efficient online and mobile compromising customer experience. 4. Channel Rationalization: Which channels do we not need to meet our business goals? 19 “Domino’s Defies Snowfall as iPhones Boost Festive Sales,” The Daily Telegraph, January 2011 5. Channel Integration: 20 “Benefits of Mobile Money Transfer Trickle Down to Rural Folk,” All Africa, October 2010 How should the channels 21 “Leading Pet Retailer Finds That Returns Plummet When a Product Has Reviews,” BazaarVoice, June 2007 be integrated? 22 Channel Strategy: Framework for Success 11
  12. 12. Channel Integration European Bank: Finding theWith the optimized channel mix in Right Channel Strategyplace companies can then maximizetheir gains by ensuring channelintegration. This is from both a This major European bank wascustomer journey and brand experi- questioning the effectiveness ofence and operational perspective. its new branch opening strategyChannel integration can eliminate as it was merely replicating itsthe silos of individually run channels current channel mix and costand manage the customer experience model. Capgemini Consultingwith optimum efficiency through: worked with the bank to assess which of the new available••Continuity – Providing seamless technology channels would be channel transitions to reduce the the right strategy in serving its customer and helping risk of losing contact with the it operationally drive down customer during channel hopping. costs. A joint program office was established to manage••Controlled choice – Aligning the change to the new branch activity within each channel and concept, which included more promoting the use of the most self-service options such as efficient channels. kiosks. The transformation program carried out resulted in:••Consistency – Managing the ƒƒIncreased gross operating customer experience across all incomes through maximizing marketing, sales, service, finance, customer potential IT and supply chain interactions. ƒƒStreamlined customer relations across all channelsAn organization that effectivelyfollows the Channel Management ƒƒReduced distribution costsStrategic Framework will havethe right channels that areperforming and aligned to drivecustomer interactions and profits.12
  13. 13. Recommendations The interaction with the Capgemini Consulting customer is changing recommends the following rapidly, as both the channel strategy approach: channels to the customer 1. The strategic channel plan should as well as the possible begin with an understanding of customer touchpoints which channels an organization’s are proliferating. customers are using and how they are using them. Organizations need to keep pace with change and adjust to meet their 2. The operational differences changing customer requirements. required of the new channel need However, acting without a plan and to be understood and built into an understanding of new channels the channel introduction strategy. can result in sub-optimal results adversely affecting overall company 3. Customers expect a harmonized performance. Multi-channel experience across channels and across all channels is not the right the strategy needs to ensure approach for every organization. enough cohesion among the Strategic choices are required. channels to deliver this. 4. By understanding its internal efficiencies an organization can use its channel strategy to encourage customers through a reduced cost-to-serve channel. 5. An organization’s channel strategy should be created and managed in a framework such as the Channel Management Strategic Framework. Effective use of such a tool will ensure that enhanced results are delivered through the channels that fit an organization’s customers and products or services. Channel Strategy: Framework for Success 13
  14. 14. About Capgemini Consulting Capgemini Consulting is the Global Strategy and Transformation Consulting brand of the Capgemini Group, specializing in advising and supporting organizations in transforming their business, from the development of innovative strategy through to execution, with a consistent focus on sustainable results. Capgemini Consulting proposes to leading companies and governments a fresh approach which uses innovative methods, technology and the talents of over 3,600 consultants worldwide. For more information: solutions/consulting/marketing-sales-services/overview/ About Capgemini Capgemini, one of the world’s foremost providers of consulting, technology and outsourcing services, enables its clients to transform and perform through technologies. Capgemini provides its clients with insights and capabilities that boost their freedom to achieve superior results through a unique way of working, the Collaborative Business Experience™. The Group relies on its global delivery model called Rightshore®, which aims to get the right balance of the best talent from multiple locations, working as one team to create and deliver the optimum solution for clients. Present in 40 countries, Capgemini reported 2010 global revenues of EUR 8.7 billion and employs around 110,000 people worldwide. www.capgemini.com14
  15. 15. For more more information please contact:Global/UK Central EuropePatrick James Steffen ElsaesserTel: +44 870 366 0262 Tel: +41 44 560 steffen.elsaesser@capgemini.comFrance SwedenFrédéric Burtz Håkan EranderTel: +33 149 002 039 Tel: +46 8 5368 hakan.erander@capgemini.comNorth America ItalyScott Clarke Lorenzo SterziTel: +1 415 691 1504 Tel: +39 335 600 lorenzo.sterzi@capgemini.comNetherlandsFrank EijssenTel: +31 30 689 0199frank.eijssen@capgemini.comGet the latest studies from CapgeminiView and customize all of Capgemini’s latest content on My©2011 Capgemini. All Rights Reserved. Rightshore® is a trademark belonging to Capgemini.
  16. 16. Consulting is the strategy and transformation consulting brand of Capgemini Group