In June, we published an interesting interview with Jeb Dasteel from Oracle who shared his tips for effective customer experience strategy. This time, we have something even more interesting, the first chapter of the book, “Competing for Customers: Why Delivering Business Outcomes is Critical in the Customer First Revolution.” that Jeb shared exclusively with our readers, as one of the coauthors. It’s an extensive read, but most enjoyable and useful for all CX professionals who are trying to keep up with the relevant trends in the business.
Competing for Customers
“A business absolutely devoted to service will have only one worry about profits. They will be embarrassingly large.”
Though it may seem like an old-school truism, it has taken businesses quite a long time to realize the importance of “putting customers first.” But they are starting to finally get it. Indeed, as we’ll explain shortly, they may have no other choice if they expect to survive the onslaught of two “meta trends” we describe in this chapter. Over the years a lot of companies have spent significant sums in their effort to understand their customers.
Many were inspired by the ideas of Don Peppers and Martha Rogers, whose groundbreaking book, The One to One Future, introduced the world to the concept of customer relationship management. Peppers and Rogers were followed by authors like Frederick Reichheld of Bain & Company, whose seminal works The Loyalty Effect and The Ultimate Question introduced now-standard concepts such as customer loyalty, and promoted creative strategies for retaining customers. Although these pioneering works provided motivation for a generation of business leaders to turn their attention squarely on the customer, we propose that companies today will need to do even more—indeed, to think about customers in an entirely new way—if they expect to reap Henry Ford’s supersized profits.
That new way of thinking about the customer is embodied in a set of principles and techniques we call customer success delivery. Specifically, we define customer success delivery as the ability to quantify and communicate the value of your product or service consistently and continuously, from before the sale to long after, while measuring and delivering on the promise of enabling business outcomes. Why is mastering the art of customer success delivery so important and so urgent? Simply speaking, it’s because we believe it will be an indispensable capability for thriving in the face of two meta trends of the next decade: the Customer First Revolution and the Subscription Economy.
In this chapter, we will explore both of these uber-trends—along with a handful of derivative movements—that are rapidly defining the competitive landscape for the near- to midterm future.
|The gap between today’s business activities and reaching the goals of customer success remains large. According to recent research from Peppers & Rogers ,
- 48% of respondents (out of more than 100 enterprise business decision makers, 2012) stated they had not made any attempts to correlate customer experience (success) with business performance outcomes.
- 41% stated they are currently examining correlations between customer experience and business performance outcomes (e.g., shareholder value, revenue generation, customer acquisition).
- Less than 10% carefully monitor and act on customer experience information gathered across all touch points.
To better serve their customers, more companies are forming teams specifically focused on driving customer success. Signaling the strategic importance of the effort, companies are now placing these teams under the direction of top-level company leadership. A great example is Oracle’s customer success program guided by our coauthor Jeb Dasteel, Oracle chief customer officer.
Meta Trend #1: The Customer First Revolution
As the title of this book suggests, we’re in the midst of a revolution—one that is shaping up to be one of the biggest forces influencing how you compete for customers—indeed, how you run your whole business—over the next decade. We call it the Customer First Revolution.
If you’re an earlier-generation business, the Customer First Revolution changes the rules of the game completely. Sure, you’ve always wanted to nurture great relationships with customers, but at the end of the day, you’ve always been the one who sets the terms of the sale and the direction of the relationship. What the revolution decrees is the opposite: Now (for reasons we’ll explain below), it’s the customer who sets the rules of engagement. In other words, after decades of subservience to the seller, the customer has finally become the proverbial king!
- Only 39% of respondents said that they are achieving the kind of progress they expected due to issues such as siloed data across functions and channels.
Customer First Companies Perform Better
Business-to-consumer (B2C) companies were the first to see the tables turning when social media and other digital channels burst onto the scene a decade ago. These new tools and tactics, which customers eagerly adopted as a means to level the playing field against sellers, forced B2C companies to radically rethink their marketing and sales strategies. Market analyst Forrester Research, which coined the term “the Age of the Customer” to describe our revolutionary era, discovered an interesting fact about this trend: B2C companies that learned to embrace these next-generation tactics—and used them to improve the customer experience—gained a dramatic performance edge over those that didn’t. Indeed, they outperformed the average company by a considerable margin and outperformed laggards by more than a factor of three (see Figure 1.1 ).
Figure 1.1 Customer First companies outperform the rest.
Mastering Your Digital Identity Is Critical
The Customer First Revolution puts a premium on all things digital, and for good reason: Increasingly, your customers are digital animals, and they increasingly relate to your business and brand on a digital terrain. It’s no exaggeration to say that your customer to a large extent defines your brand through digital vehicles and channels such as Facebook, Foursquare, Twitter, LinkedIn—the list grows longer every day.
It is now estimated that some 15 million consumers engage with their brands through social media before making a buying decision. And that number is fast-growing, with B2B customers trending similarly
In the digital- and social-powered Customer First Revolution, consumers will interact with your digital identity even before visiting your brick-and-mortar location. It is also a world where relevance and authenticity trump prepackaged, one-size-fits-all content. Companies that master the art of creating and managing a compelling digital identity will have the upper hand in the Customer First Revolution.
Local Beats Corporate
Delivering relevance and authenticity will mean that it’s not enough to have a slick corporate website. In the Customer First Revolution, your local digital identity matters more. That refers to all the social media activities and chatter tied to your neighborhood stores, franchises, and branches—the places where your customers shop, eat, and hang out. This is where opinions about your brand are formed, and then shared far and wide over the digital airwaves. Nowadays, before you dine out—or sign up for a health club—chances are you’ll check the customer reviews on social media and get directions while you’re at it.
So crucial is this local angle that we’re seeing a new discipline emerging around managing a company’s local digital presence, or “digital place identity.” And it is serious business.
We recently talked to a national restaurant chain that initially failed to pay attention to the Facebook pages of its local eateries. As a result, it left a digital brand vacuum that was filled by “rogue” pages filled with a hodgepodge of negative and even false reviews cooked up anonymously. Its digital brand had been hijacked, and sales suffered for months.
Going Local Pays
|In a pilot program, a national restaurant chain recently compared the performance of locally targeted Facebook content against a control group without any managed local social presence and found significant improvements, including the following:
- 650,000 unique local customers reached
- 7,200 net gain in transactions
- 7.1% net increase in revenue
- 30x higher return on investment
B2B Customers Are Seizing Power
Although consumer-focused companies were the first to be swept up in the Customer First Revolution, we’re now seeing this same shift in power spreading into the business-to-business (B2B) universe. And we are seeing the same advantages accrue to B2B companies that embrace the shift to customers’ digital experiences—for example, by launching social channels targeting key customer segments. Parallels to the consumer sector abound, though with some subtle differences. Instead of Facebook or Yelp, for example, business buyers prefer B2B-oriented channels such as LinkedIn and IT Central Station.
Buying Happens Even Before the First Phone Call
The revolution is leading more B2B buyers to shun vendor sales reps in favor of company and independent websites. In a recent survey by Forrester Research, B2B buyers said by a margin of three to one that gathering information online is actually superior to interacting with a sales rep. Furthermore, these same buyers said by a margin of 59% to 19% they did not want to interact with sales reps as their primary source of information. Three quarters of B2B buyers in another Forrester survey said they researched half or more of their work purchases online, with the top source of this research being vendor websites.
With the lion’s share of research being done online, it’s estimated that 70% or more of the buying decision happens before the company is contacted directly.
Armed with intelligence and candid insights gleaned from social media, the Internet, and analyst research, business decision makers are more likely to home in on one or two providers that can meet their needs. This makes it even more important for sellers to develop a compelling value proposition and disseminate it strategically across digital and social media networks.
Meta Trend #2: The Subscription
Why own when you can rent? That’s the sentiment of more and more businesses these days when it comes to acquiring everything from the software that runs your company to the boost in power you need from your wind farm. We believe this shift in mind-set and buying habits represents nothing short of a sea change in the structure of the modern economy, and we rank it alongside the Customer First Revolution as one of the two meta trends that businesses must come to grips with in the coming decade.
We define the Subscription Economy as the fundamental transformation from an economy based on high capital-intensive sales of products into an economy based on services that you pay for as you use them, or as specific outcomes are realized.
The Subscription Economy, as a pervasive phenomenon, is still in the early innings, but its growth is visible all around us and massive disruptions are sweeping through key industries from high tech to transportation to manufacturing.
One of the best-known examples is the software industry, which is currently witnessing a major shift from packaged software to “cloud subscriptions.” If you intend to win the competition for customers, you would be smart to understand why businesses are flocking to the subscription model of doing business, and begin to think creatively about how you can make your own business “subscription friendly.”
The “Cloudification” of Business
A key driver of the Subscription Economy is a critical new business capability we call the “cloudification” of business—a term coined in the book, Ruthless Execution, Second Edition. What does it mean to “cloudify” your business? It means digitizing your products and services and transforming them into an offering—or platform—that is accessed over the Internet. In some cases companies establish a marketplace by “opening up” their product, turning it into a broad platform on which others can add value and new offerings. Cloudifying your business provides a new way to stay closer to your customer. It has clearly become the third wave of the Internet revolution, in which products and services are put on the cloud for customers to use as needed.
Investment Equations Will Be Radically Realigned
The significance of the cloudification of business is far-reaching and anything but trivial, since many established business models and partnerships will be rendered obsolete. First, it radically changes the investment equation for customers by lowering up-front capital requirements. This has the advantage of better aligning the customer’s investment with the returns . Instead of paying for most of the investment up-front in the hope that it will pay off down the road, now your customer’s investment costs are spread over the life of the solution and are more in line with the incremental benefits they see from your solution year to year.
Switching Costs Don’t Matter Anymore
One of the strongest attractions of the Subscription Economy is this: If you ever find you’re not seeing enough benefit compared to what you’re paying, it’s relatively easy to “unsubscribe” and shop for a new service. What this means is that across many industries a longstanding strategic force and pillar of protection—switching costs— is being marginalized. We’re not suggesting that switching costs are dead. In industries where large and expensive physical assets are involved, switching costs will still be relevant; however, the influence to shape vendor performance and expected business outcomes will significantly increase for customers. Increasingly, industry leaders will need to design new incentives for staying—such as providing a clearly superior customer experience—but the cost or hassle of switching won’t be one of them. Instead, companies will need to develop an ongoing stream of new capabilities to deliver value.
Barriers to Entry Will Crumble
Just as the barriers to customer defection are eroding, so too are the traditional obstacles to competitors invading your turf or creating a whole new market seemingly out of nowhere. A great example is Amazon. The Seattle-based behemoth started off as a bookseller before extending its web platform to include just about anything you wanted to buy on the planet. Then in 2003, while retooling its data centers to improve its Web application, Amazon discovered it could take some of the computing power in the revamped centers and “rent it out” through the cloud.
Practically overnight, Amazon Web Services (AWS) was born, and it swiftly skyrocketed to become one of the biggest forces in cloud services. Netflix, to take one example, now runs its streaming video services over bandwidth it rents from AWS. Forbes magazine recently declared AWS the “largest pubic cloud vendor on earth,” leaving entrenched computing giants like IBM, Oracle, and Microsoft scrambling to catch up. In the Subscription Economy, traditional barriers that incumbents depended on to fend off upstarts have melted away.
Products Will Morph into Services
The spreading Subscription Economy will see more products being refashioned as services. Just “taking delivery” of equipment is no longer good enough for customers who increasingly prefer to shift the headache and risk of maintenance and breakdowns to the vendor. That’s why companies like Rockwell Automation—profiled in Chapter 9 , “How Rockwell Automation Measures Success”—are reinventing their factory automation products, incorporating Internet of Things technologies so that assembly-line machines can monitor themselves, self-install new software, and preempt breakdowns without ever bothering the customer. It is a far more servicelike experience, saves time and money, and also manages to create a new kind of “stickiness” that dissuades customers from straying to the competition.
A different example is Cisco, which has been the dominant player in the computer networking industry for the past two decades. For years the company’s primary source of revenue had been physical gear like routers and switches that companies install in their data centers.
But with more customers preferring to rent computing power, Cisco has begun offering the equivalent of “networking as a service” in which Cisco owns the networking infrastructure, monitors its performance, upgrades it, and adds bandwidth as needed—all from a remote command center. Cisco expects this portion of its revenue stream to continue to grow over the next decade, perhaps soon rivaling its traditional hardware sales.
Delivering Outcomes Will Be Critical
The Subscription Economy, with its “what have you done for me lately” culture, will shine a harsh light on business outcomes. Is your customer able to reduce costs as promised? Get more output out of your machines? Cut downtime as expected? Drive new revenue? The new “as a service” economy puts less emphasis on the particular product you’re pedaling and more on what it can do for your customers. Increasingly, your customers don’t care about your products, but about the business outcomes that matter most to them. That’s why the most innovative enterprises on the planet are focusing on selling and delivering business outcomes. We’ll profile several of these outcomes-centric companies in the pages ahead.
Why Customers Love to Subscribe
|The Subscription Economy gives customers key advantages over traditional investment scenarios:
- Minimal upfront capital requirements. Companies typically treat subscription costs as an ongoing operating expense, and often pay only for as much as they use.
- Hold vendors’ feet to the fire. Since customers pay as they go and can switch with relative ease, they’re in a strong position to demand the most from vendors.
- One throat to choke. Subscriptions typically come with all the supporting services bundled in a turnkey package provided by a single company. That means just one vendor to hold accountable.
- Focus on what matters. Subscribing to a service frequently allows companies to offload the burden of managing a complex operation, letting them specialize in their areas of competitive advantage.
- New features continuously delivered. Cloud providers have universally adopted a strategy of continuously delivering new features, or capabilities, throughout the life of the subscription.
The emerging Subscription Economy and Customer First Revolution will force businesses to take a hard look at how they are currently doing sales, marketing, product development, services, and support. In many cases, long-standing processes will need to be reorganized and transformed. For example:
- Sales teams will need to shift some of their focus from inking a deal to proving business value to customers. Doing this early on will open up opportunities for additional sales. Teams will need to remain vigilant year-round, especially as renewals loom, and be prepared to show continuing value delivery to minimize churn.
- In a similar fashion, marketing groups will need to reorient their campaigns around longer-term relationships that require constant nurturing to avoid defections. So marketing becomes less about nurturing leads and more about nurturing relationships. And companies will need to market the advantages of “maturing” with their solutions.
- Professional services and product development teams will see dramatic changes as well, with a new emphasis on collaboration with customers and business results.
- Operations and support teams will need to be more proactive than ever before, constantly monitoring key performance data and using predictive analytics and possibly embedded sensors to ensure that the solution is meeting expectations. Is your business ready to take on the Customer First Revolution? To thrive in the Subscription Economy? In the next chapter, we’ll share with you three key capabilities that we believe are essential to succeeding in the new customer-centric, outcomes-focused, subscription- powered world. These include new skills and processes for listening to your customers to uncover what matters to them; engaging them creatively and authentically to build credibility and loyalty; and finally ensuring that the outcomes you promise are fulfilled—perhaps the most critical but also the most difficult skill to master. Across each of these areas, we will also stress the importance of measuring to accurately define your customer’s challenges and the value you’re delivering.
Overcoming Barriers to Success
As the two significant waves of change described in this chapter— the Customer First Revolution and the rise of subscription business models—continue to make their way through the economy, some companies will flourish and others will struggle. To succeed, companies must overcome the following challenges:
Challenge #1: Breaking Down Information Silos
Many B2B firms are still too compartmentalized and lack efficient systems for sharing information across departments and with outside partners. This frequently leads to embarrassing knowledge gaps and crossed wires, with customer relationships invariably suffering. Customer executives complain about mixed sales messages; internal disagreements; frustrated channel partners; and even internal competition surfacing in front of the customer. As you take stock of your business communications infrastructure, consider looking at technology solutions that compile multiple streams of customer data and can serve as an early warning system to spot customer attrition as well as sales opportunities.
Challenge #2: Bucking Old Marketing Habits
Marketing and sales teams still focus too much on hyping features and functions of products, and not enough on what customers want the products to deliver in terms of business outcomes. Common bad habits include producing too much marketing fluff, creating content that is too technical, and failing to paint the bigger picture for customers. For example, a university looking to build a “classroom of the future” isn’t interested just in purchasing video equipment but in linking video to other classroom technologies such as digital whiteboards, learning management systems, and desktop apps in the cloud. Make a conscious effort to position your company not merely as a practical tool but as a strategic enabler in a larger world.
Challenge #3: Thinking Beyond the Transaction
Companies continue to remain too focused on closing the deal instead of helping customers realize the business value promised.
To make the sale, companies will often marshal a parade of experts from engineers to executives, only to move them over to the next deal after the contract is signed. Such transitory deal focus is myopic and can lead to poor results, including higher service costs, greater churn rates, and a tarnished brand. Few companies realize the full potential value of technology investments. Increase the odds of better results by structuring sales engagements to ensure that teams stay connected to the customer well after the ink dries on the contract.
Challenge #4: Building an Effective Ecosystem
You might say it takes a village to ensure customer success. The reality is that the ability to assemble an efficient and motivated network of go-to-market partners is key to providing a complete array of auxiliary products and services that customers need in order to cover all the bases in a growing global marketplace. New automated third-party management platforms can streamline your partner ecosystem and reduce common compliance and performance risks.
Challenge #5: Delving Deeper Than Customer Surveys
Most customer experience and success programs focus on assessing the happiness or satisfaction level of a customer. That’s a necessary first step, but surveys rarely provide a complete picture of the customer experience, a gap that can come back to bite you. The fact is, most surveys only reveal overall customer sentiment and technical problems with your product, and they generally miss deeper issues like a faulty licensing model or poor ROI. This shortcoming could be corrected—and customer leakage prevented—by a more sophisticated customer feedback program and investing in business case and benefits realization capabilities. Furthermore, it’s to your advantage to build systems now that can collect, analyze, and react to the growing flow of customer service and product performance data that will become available as the Internet of Things continues to gain traction.