The E-Business Software Weekly is a series profiling trends and developments in software and applications that support e-business, the Internet, and other electronic communication channels. Look for a new story each week in this space.
The Customer Revolution
"Fasten your seatbelts! The turbulence you've been experiencing in the stock market isn't over yet. In fact, it's probably going to get worse. Why? Because we're in the midst of a profound revolution. And it's bigger than an Internet revolution or a mobile wireless revolution. It's a customer revolution."
If this were the breathless proclamation of yet another technology company brochure or startup investment prospectus, one could read it with mild interest and pass it by. But it's no mere Silicon Valley marketing spin. Rather, it's a vision of the future borne of years of experience probing the inner workings of mainstream companies' customer relationships. And coming as it does from Patricia B. Seybold, CEO of the Boston-based e-business consultancy Patricia Seybold Group whose book "Customers.com" helped pave the way for the first Internet revolution, it's a prediction that deserves to be taken seriously.
"Customers," she writes in her new book, "The Customer Revolution," "have taken control of our companies' destinies. Customers are transforming our industries. And customers' loyalty-or the lack thereof-has become increasingly important to executives and investors." The implication? "If you try to understand the ups and downs of the current economy by focusing on technology trends and investment fads, you're going to miss the true underlying shift that's underway." Customers, quite simply, "are in control."
And the stakes couldn't be higher, especially for companies accustomed to thinking more about markets and margins than managing their customers. Now, warns Seybold, these companies' value lies in their customers' hands. "Your customer franchise," she warns, "has suddenly become the scarcest and most crucial resource for your business." What's more, "your company is probably at risk. Unless you act now to focus on the quality and consistency of the customer experience you offer, your firm will be hopelessly lost in the turbulence."
Customers Take Control
That's hardly the kind of message most business executives like to read with their morning toast and coffee. But it is one with a hopeful side. As Seybold points out, many companies, including the baker's dozen profiled in her book, have quietly reorganized themselves to manage "by and for customer value," measuring and monitoring what matters most to customers." The result? They have been able to profit in a treacherous marketplace when other, often better-known or better-heeled companies are not.
The secret to their success, says Seybold, is that these firms have rebuilt their entire corporate management cultures around a new, aggressively customer-centric mindset. Other companies can do the same, she believes, but they first must come to terms with the three major trends underpinning the customer revolution. The most far-reaching of these trends, as already alluded to, is that customers truly are in control-and are using this power to reshape businesses, even to transform whole industries.
Why are customers controlling business now more than ever before? "Blame the Internet and the Web!" Seybold proclaims. "Today's customers know they can go online and find out about our companies and our offerings. They expect to be able to do research, buy our products, and get service via the Net." Not only that, but because customers can now interact with businesses and other organizations electronically, they are "making demands and suggesting improvements twenty-four hours a day."
Customers are exerting this influence in part through a series of what Seybold refers to as a "dozen digital demands" that would have been impractical, even unheard of, prior to the emergence of the Internet. These include demands for:
Real-time information
Convenient, multiple-channel access
Information portability from vendor to vendor
Fair, global pricing
The ability, at least in certain circumstances, to set prices themselves
The ability to control information that companies possess about them
Seybold points to the music business as one industry that is being revolutionized by customer power. Napster, the online music trading community, at least temporarily broke the major recording companies' stranglehold on customers' access to recorded music. Although Napster's own future remains in doubt, music companies have seen that they can continue to ignore their customers' wishes only at their own peril. And music buyers themselves realize the power they hold: even if Napster ultimately disappears, other alternatives almost surely will spring up in its place.
The travel business is another industry undergoing profound change in the wake of customer demands. Traditional travel agencies lost a significant share of their business in the 1990s not just to Internet aggregators, but to airlines, cruise lines, and hotel chains that allowed customers to book travel and accommodations themselves, easily and in real-time. Even now, increased attention to customer demands is continuing to reshape the industry. Travelocity, Expedia, and other online travel services, which dominated online travel in the late 1990s by offering nearly instant access to more than 10,000 airline flights, in recent weeks have fallen behind a new multi-airline venture called Orbitz, which provides online access to more than 2 million airline flights.
The bottom line, says Seybold, is that customers will increasingly "vote with their loyalty." They will "no longer tolerate being treated as if they weren't important. They now know how much clout they have." In particular, they will refuse to do business with companies that don't listen to them, that don't offer them what they need, and that don't respect their time.
Making Customer Relationships Count
In their previous book, "Customers.com," Seybold and her colleagues appealed to companies to "make it easy for customers to do business with you." That phrase, she reports, has become a "rallying cry" for businesses and organizations around the globe. "Forward-thinking companies have been harnessing the Internet and other customer-convenient technologies, like mobile phones and wireless handheld electronic gadgets, to make it easier for their customers to do business with them." As a consequence, these companies "are poised to thrive in the customer economy, not just because they've implemented customer self-service strategies but, more fundamentally, because their corporate strategies are now being driven by customers."
Moving beyond the arguments in "Customers.com," the new Seybold book takes as a main premise the second of the major trends underlying the customer revolution-that "customer relationships count." She and her colleagues predict that customer relationships are going to begin mattering to businesses in ways they never have before: "Investors are going to start asking you to divulge your customer numbers such as how many customers you have, how long you've been in an active relationship with each one, how you have grown earnings per customer, how much it costs you to acquire a new customer, and how well you're able to retain customers. In short, they're going to want to know how well you're growing the value of your customer franchise."
In fact, many historically product-centric companies have already shifted their focus in this way. According to a recent Harte-Hanks survey, one-third of American companies either have a customer relationship management program of some sort in place or are planning to implement one within the next 12 months. Among those firms that have not yet launched such an initiative, 47% expect to do so within the next year. Other, traditionally research and growth focused companies, like IBM, General Electric, 3M, Royal Dutch Shell, Merck & Co., & Intel, "are now also wrapping their arms around their end customers, finding out who they are, and building relationships with them," according to Seybold. And still others, including such well-known retailers as The Gap and Great Britain's Tesco, which previously concentrated on increasing sales and profits per square foot, "are now focused on increasing profits per customer."
As the retailers' example indicates, a cornerstone of the "customer relationships count" philosophy is the development of metrics that continually and directly assess the strength of a company's customer relationships. To this end, says Seybold, customer-centric companies are devoting increasing effort o:
Monitoring customer satisfaction on an ongoing, in-depth basis
Measuring the cost of customer acquisition across different customer channels
Documenting customer retention rates, share of customers' wallets, and customer loyalty indicators
Gathering and analyzing data on customer behavior to understand which customers will be most profitable over the long run
In the end, Seybold says, the entire exercise comes down to the quality of the customer relationship. "Since customers now have more choice and control, building deep relationships with customers," she contends, "is really the only guarantee of future earningsÖ" She therefore advocates including a new financial measure in corporate annual reports right alongside "return on equity" and "return on assets": a "customer value index." Specifically, "companies' earning statements should provide investors with an average profit per customer as well as reporting the growth rate in the number of active customers, the current retention rate for customers, and the profits per customer from year to year."
The Customer Experience
It has often been noted that, on the Internet, the competition-no matter how distant it is physically-is only "a click away." This proximity has left firms using the Internet as a sales channel little choice but to become customer-centric-and fast. In fact, there is an entire discipline, typically referred to as "e-customer relationship management," or eCRM, devoted to helping Web-focused companies to improve relationships with their "e-customers." eCRM's premise: by better managing its touchpoints with customers who use electronic transaction channels, a company can solidify the loyalty of these e-customers and increase the "share of wallet" that the company holds.
While there is much that can be learned from this discipline, the focus on "e-customer relationships" sometimes obscures a key aspect of the customer relationships involved. Simply put, says Patricia Seybold, "there are no e-customers, only customers." At some point in time, she explains, "every business or customer may need to interact in different ways-by talking to knowledgeable people, interacting with retailers, sending an email, picking up the phone, transacting via a hand-held device, or doing business online." Just because some of these channels are electronic doesn't change the nature of the customers whom the companies are serving.
For this reason, Seybold emphasizes that customer-centric companies need to view customers not through the lens of the sales channels through which they interact with the company, but through the eyes of the customers themselves, for whom each contact with a company is but one element of the entire relationship. For instance, if a customer is put on "terminal hold" or otherwise treated poorly by a company's customer service department, then the overall customer relationship suffers, no matter how well the company's retail store is designed or how low its prices are.
Over time, these individual interactions work to determine a customer's emotional perception of a company-and the extent to which a customer desires to do business with a company in the future. "Customer loyalty," says Seybold, "is rooted in experiences-the experiences that each customer has in learning about, acquiring, using, and sharing your products and services with others. Customer experience is the essence of any brand." Contrary to conventional wisdom, there is a lot more to branding than a logo or a consistent graphical treatment. "Your customer's experience with your brand," says Seybold, "includes how that customer feels when he is in your brand's presence, whether he's on the phone with you, in your physical storefront, on your Web site, reading an email you sent, or using your product."
Hence, the third trend underlying the customer revolution: customer experience matters.
Driven by the indisputable importance of customer's experiences across all channels of contact, Seybold recounts that, whenever she or her colleagues interact with a new client, they ask: "Who in this company owns the customer experience?" She confesses that she and her colleagues usually receive nothing but baffled looks-reflective of the fact that, in most companies, no one owns the total customer experience. For a firm seeking to become customer-centric, that's a dangerous omission-on par, say, with trying to manage a company's finances without a chief financial officer or to set the company's vision without a chief executive officer.
To remedy this deficiency, Seybold urges companies to take the quality of the customer experience seriously by appointing a high-level executive, at the EVP or GM level, who "owns the total customer experience for your company across all interaction touchpoints, all distribution channels, all functions, and all products and services." She recommends that these customer executives report directly to the presidents of their respective company divisions: "This isn't a marketing or a customer service job; it's a rubber-meets-the-road customer metrics and continuous improvement job." Only with this kind of single-minded, high-level commitment, she says, can true customer focus become ingrained into day-to-day corporate operations.
Customers and Common Sense
The steps that Seybold outlines for becoming a customer-centric company and creating great customer relationships are admittedly challenging and complex, and require a great deal of corporate dedication. But the underlying concepts are really quite simple. Manage your company to improve customer value. Measure and monitor what matters most to customers. And treat your customers' time, attention, and loyalty as the precious resources they are.
Stated this plainly, such ideas hardly sound profound. They seem almost too simple, even pedestrian. Just good old-fashioned common sense.
When you think about it, that's not a bad way to run a business.
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