best face forward: improving customer experience for competitive advantage winning customers with...

Best Face Forward: Improving Customer Experience

for Competitive AdvantageWinning Customers with People & Technology

Harvard Business School Publishing Conference

In collaboration with Nuance and Cisco Systems

University Club of Chicago

Chicago, Illinois

© marketspace®, a member of monitor group – confidential

Jeffrey F. RayportMarketspace LLCA Monitor Group CompanySeptember 20, 2005

http://www.marketspaceglobal.com/index.asp

© marketspace®, a member of monitor group — confidential 2

Transact…Make Purchase Decisions…

Spend Their Time…

Business opportunities have emerged as new interface technologies combined with ubiquitous networks are fundamentally changing how consumers…

• Online travel now represents ~30% of the current U.S. travel market (with total revenues of $225B)

• The “no frills” air carriers have lowered costs by selling high volumes online: the UK’s easyJet books over 90% of sales on its website

• In-store kiosks at Borders now handle over 1.5 million title searches per week

• Customers who use the kiosks spend 50% more during each store visit and generate 20% more special order sales

Use / Manage Accounts and Services

• Financial services customers interact with firms five to six times more often via self-service channels (ATM, kiosk, online) than via people-mediated channels (branch, call center)

Television +2%

Radio -5%

Magazines -5%

Internet +60%

Newspapers -4%

Phone +4%

Changes in daily use of advertising media from 1999 to 2004:

We have already seen how the evolution and diffusion of interface

technologies has changed customer behavior in recent years


Product commoditization is decreasing offering-based advantages, while technology is creating opportunities to enhance differentiation of interfaces at lower cost

Economic Drivers

Margin Compression Overcapacity

Commoditization

Product Lifecycle

Acceleration

“3-6-1” product lifecycle Margins are disappearing Demand is the scarce resource, not supply

Technology Drivers

Intelligence & Interactivity

Increasing Affective Appeal

Devices and Networks

Near Ubiquitous

Connectivity

Near Ubiquitous

Connectivity

Device Proliferation

Mass proliferation of intelligent interfaces Persistent connections between customers

and companies Increasing intelligence and interactivity

enables companies to interact with customers in powerfully affective ways

Trends in product/service offerings and technology have shifted the

source of competitive advantage to a new frontier


Britons spend nearly a third of their waking hours – 32 hours a week – on communications and entertainment

Sources: Henry J. Kaiser Family Foundation (2003), Business Week , Ofcom, Telewest Communications, Centris, Forrester Research

Trend 1 – Proliferation of Interfaces and Devices

0

20

40

60

80

100

1998 1999 2000 2001 2002 2003 2004 2005E

Device Proliferation in the U.S.1998 - 2005E

HHsDVD Player

PC

VCR

Mobile Phone

Digital Camera

1.5 billion mobile phone subscribers worldwide in 2004

820 million PCs worldwide in 2004

230 million households with DVD players worldwide in 2004

36.8 million MP3 players worldwide in 2004


Trend 2 – Rising Intelligence and Interactivity

iRobot Roomba FloorVac

University of Hong Kong Cleanbot skyscraper window cleaning robot

From the (functionally) mundane … … to the (technologically) sublime

Blackberry Nokia Communicator

Symbol Handheld Data Collection Devices

Navitech Handheld PDA for Postal Deliveries

TiVo


Apple has sold more over 22 million iPods and 500-plus million songs on iTunes

It now accounts for 65% of the hard drive-based portable music player market

Apple generated 38% of total revenues from its music businesses in 1Q 2005

Source: http://www.apple.com/pr/library/2005/jan/12results.html

Trend 3 – Increasingly Affective Nature of Devices

Apple iPod Device Evolution

iPod iPod NanoiPod Photo iPod Shuffle


AI-enhanced machines learn and adapt behaviors based on interactions with users, creating a basis for affective bonds or emotional, if virtual, relationships


Sony Aibo ERS-7M2 MIT Media Lab Affective Tigger

Current MIT Media Lab research seeks to model affective human behavior for applications in

technology devices

Sad Tigger

Happy Tigger

Honda Asimo

Sony QRIO


Sony QRIO conducts the Tokyo Philharmonic

Honda ASIMO greets a visitor at headquarters

Hitachi’s EMIEW


MIT Media Lab’s Leonardo (Sample of facial expressions using only the upper

face)



Emily – Bell Canada’s speech-enabled agent

Ruby – Virgin Atlantic’s virtual check-in agent

Julie – Amtrak’s automated voice-activated agent

1-800-555-TELL – nationwide toll-free

directory assistance


26 345717

28

66

38

55

137

1

1

2

3

4

6

634318

50

78

41

10

53

169

78

24

105

320

267

213

5382

119

166

0

50

100

150

200

250

300

350

400

2002 2003 2004 2005E 2006E 2007E 2008E

Worldwide Broadband Users2002-2008 (millions of users)

North America: CAGR 23%

Europe: CAGR 40%

Asia: CAGR 39%

Total Worldwide: CAGR 35%

Latin America: CAGR 64%

Source: PricewaterhouseCoopers (PwC), Wilkofsky Gruen Associates, June 2004

Trend 4 – Increasingly Ubiquitous Networks


Technology substitution in front-office services creates opportunities to

improve both effectiveness and efficiency of customer interactions

Channel Average Best-in-class

Telephone $4.50 $3.50

Chat / IM $5.25 $3.40

Basic e-mail $4.50 $2.00

Automated e-mail $2.50 $1.50

IVR $1.85 $0.85

Web self-service $0.50 $0.25

Significant opportunities to reduce operating costs by shifting customer interactions to channels and interfaces with lower costs

While many view this as cost / quality trade-off, when done properly firms can cut costs and increase customer satisfaction

Customer-support costs per interaction

Source: Gartner, Forrester Research

Telephone: Rep assisted interaction via call center

Chat / IM: Rep assisted interaction via online chat or instant messaging service

Basic e-mail: Rep assisted interaction via e-mail

Automated e-mail: Interactions leveraging pre-packaged automated responses

IVR: Interactive Voice Response (i.e., self-service via the phone)

Web self-service: Self-service via the web


Kiosks and ATMs

Call Center and Reps

Email

Website

Store / Branches and Reps

Voice Response

TV

Sales Reps

More intermediaries at critical touch points with customers, some enabled by machines, some not

More automated interfaces at critical touch points with customers and channels

But, as interfaces have proliferated, the complexity – and associated

costs – of managing customer relationships have increased

Managerial challenges: Deploying the right interfaces Allocating budgets correctly Applying systems thinking

Organizational challenges: Overcoming silo structures New governance models Creation of new C-suite role

Captivate Network Elevator Screen


20

25

30

31

34

62

0 10 20 30 40 50 60 70

24

26

28

29

34

36

0 10 20 30 40

In fact, a recent Economist survey of Global 1,000 senior executives

indicates that managing customer interactions is a leading strategic concern

What will change most about the way your company does business over the next 5 years?

Source: Economist Intelligence Unit Survey, 2005

How your company interacts

with customers

How your company innovates

Which product / service lines revenue

will come from

How your company is managed

Which geographic regions revenue will

come from

Skills-sets you need in your employees

% respondents

In which of the following areas of your business will IT be most critical in 2010?

Distribution channels

Finance

Supply chain management

New product/service development

Sales and marketing

Customer service/ relationships

% respondents


The building blocks of interface systems consist of three interface archetypes

HumansHumans HybridsHybrids TechnologyTechnology

Best suited

for:

Interaction & affect

Problem-solving

Physical services (mostly)

Transaction

Speed & accuracy

Information services (mostly)

Customization

Productivity

Physical & info services

Maitre d’Hotel

Hotel front desk (human supported

by technology)

Call center (human supported by technology)

Fast food ordering (technology supported

by humans)

ATM

Kiosk Professor

Phone


Failure to manage customer interfaces as a system destroys value as

customers drop out of the purchase/repurchase process

Their website is so confusing. I couldn’t find information on

the types of accounts they offer or their fees

Their phone reps were no help because they couldn’t even see the

Web screens I was using

Neither the website nor phone reps

helped me find a branch location

Information Gathering (84%)

Information Gathering (84%)

Awareness of Need (100%)

Awareness of Need (100%)

Consideration of Investment (91%)

Consideration of Investment (91%)

Investment Decision (63%)

Investment Decision (63%)

Purchase (48%)

Purchase (48%)

Post-Purchase Usage / Evaluation

Post-Purchase Usage / Evaluation

9%

Customer Drop-off

7%

21%

15%

Note: Data disguised

I need to repeat myself to another

rep…again!


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Separate… Relate… Integrate…

Optimize customer experience at the right anchor interfaces

Align interfaces for consistent messaging and experience

Optimize flows along pathways where there are significant returns

A rigorous approach to optimizing flows increases customer

satisfaction, retention, and loyalty, driving profitable growth


Understand and map the critical paths along the buying process

50% conduct the majority of their product research and evaluation via online channels, but prefer to make final purchase decisions in a physical location

10% prefer to use online channels for product research, eventual purchase, and account management

Buying Process Steps

Customer Interfaces

Company Website

Call Center

Other Retailers

Company Stores

Family / Friends

Mass Media

2) Information Gathering

3) Evaluation of Alternatives

5) Usage / Account

Management

4) Purchase Decision

1) Origination

20% of customers prefer to interact in face-to-face channels, but could be convinced to switch to self-service channels if given the right incentives

3rd-party sites

Illustrative ExampleIllustrative Example


Identify hand-off and drop-off points that provide the greatest

opportunities for improvement and financial impact

Pain points can occur as customers interact with individual channels and / or at hand-off points between channels or interfaces

450

600

0 10,000 20,000 30,000

Follow through to offline channel to apply for loan

Close loan in offline channel

25%

75%

120

240

2,400

4,000

5,000

25,000 In the market for a

lending product

Find the appropriate area of the website

Find compelling offers

Decide to apply online

Complete online application successfully

20%

80%

60%

10%

50%

Current Online Loan Originations

Daily unique visitors




5) Usage / Evaluation


1) Origination

Customer Interactions

Brand Website Branch Mass

media

3rd-party sites

Retail Banking ExampleRetail Banking Example

Annual # of closed loans (offline): 162,000 307,800Average Margin: $200 $200Total Value: $41.0M $77.0M

Annual # of closed loans (online): 43,200 77,040

Increase to 90%

Increase to 75%

Increase to 40%


ING Direct’s “click-call-face” represents the world’s leading retail direct

banking interface system – with best rates, lowest costs

Source: www.kiomag.com/ entertainmentnov03

ING Direct Café des Finances in Lyon, France

ING Direct Café in New York

ING Direct Café in Philadelphia

ING Direct call centre, Thames Valley Park, Earley, UK


Catalog

J.C. Penney has successfully promoted the “creation” of multi-channel

customers – with measurable returns

Any time a customer comes into the store because of the catalog or the Internet, there is a higher incidence of that customer buying something in the store. This is the fastest growing change in customer behavior.

– John Irvin, EVP, J.C. Penney

The number of customers using all three shopping channels grew 30% in 2003, while the number using at least two jumped 46%

Internet

Source: Source: JOP Figures: DFWIMA presentation, 2003, WSJ

$195 $201

$446 $485

$887

$608

$157$0

$200

$400

$600

$800

$1,000

Internet Store Catalog Internet +Catalog

Internet +Store

Catalog +Store

All

Analysis of J.C. Penney’s customer spend by channels (2003)

StoreTri-channel: Spend > 4 x single channelBi-channel: Spend > 2 x single channel


QVC, the leading TV-home shopping network, has developed an integrated

interface system that builds retailing’s most loyal customer relationships

Locally discovered brands

QVC Proprietary Brands

National Brands

Soft-sell Programming Televised Broadcast

Website IVRU Call Center

Outlet

Cookbook

Studio Park

Mall-of-America

UK Host Tim Goodwin Fan Club

Carefully selected products…are available in multiple channels…with relationships extended offline


While QVC and HSN have deployed nearly identical interfaces, there are

key differences in how their systems are deployed



Broad-cast

VRU CSR WebsiteLive Chat




1) Origination

5) Usage, Evaluation,

Service

A

B C

D

Broadcast driven segment – primarily impulse purchase

Web driven segment – primarily considered purchase

A

B

C

D

CSRs cross-sell to no more than 15% of callers per month; never to any individual more than once a month

CSRs work actively to reduce transaction times

Live CSRs engage in aggressive cross-selling, keep callers on phone longer to sell more

CSRs are compensated by sales commissions

Dedicated phone numbers for a live CSR vs. IVR

All calls to human CSRs are answered within two rings

Offers 24 / 7 live chat help online, as well as 24 / 7 Website support by phone

One phone number for all customer calls

Long wait times, sometimes up to five minutes, 65% of calls answered in 20 seconds

No live chat online with limited phone-based customer service for Web users

D

Rotating hosts and diverse programming offers unique, new shows and products

Offerings are seldom repeated in any given month

Programming is celebrity oriented, leading to lack of variety in offerings and schedules (Suzanne Sommers for an entire weekend…!)


This has enabled QVC to overtake HSN on a worldwide revenue basis in

1993 and has since grown to double HSN’s size in ten years

Source: Companies Annual Reports, Morgan Stanley Research, Hoover’s Online

1.1 1.1 1.1 1.0 1.0 1.01.2

1.3

1.8 1.82.0

2.22.4

1.21.4

1.61.8

2.1

2.4

2.9

3.5

3.9

4.4

4.9

5.7

1.11.10.9

0

1

2

3

4

5

6

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

HSNQVC

HSN vs. QVC: A Historical View - Total Worldwide Revenue 1991–2004

$Billions

2004 Operating MarginQVC: 13.4%HSN: 7.5%


Creating competitive advantage through superior interactions with

customers by reengineering the front office

Live Chat

WebsiteCSRVRUBroad-

cast



3) Evaluation of

Alternatives


1) Origination

5) Usage, Evaluation,

Service

Affluent Men , Aged 25-39

3. Optimize customer experience (both efficiency and effectiveness) at individual interfaces within the system

3

11. Identify the customer segments and usage

occasions that disproportionately drive growth

X2 2. Select best interfaces to deploy and determine

their buying process roles

44. Ensure alignment and consistent brand

expression across interfaces and eliminate friction points at critical “hand-offs”

5. Integrate interfaces within the system to ensure best yields on key customer flows

5

6

6. Build organizational capabilities to better support the reengineered front office


Best Face Forward: Why Companies Must Improve Their Service

Interfaces with Customers (HBS Press) – An Overview

Summary of Key Themes:

Now more than ever, competitive advantage is based on how well firms orchestrate interactions and relationships with customers and intermediaries

Technology is increasingly viable in "front office" relationship management roles – driving a revolution in how firms interact with customers and channels

Sustaining competitive advantage will depend increasingly on deploying the right combination of interfaces – people, machines, and hybrids – to achieve new frontiers of efficiency and effectiveness

URL: www.bestfaceforward.info

Blog: www.marketspaceadvisory.net

best face forward: improving customer experience for competitive advantage winning customers with...

Documents

monitor group company

week customers

proliferation of interfaces

illinois marketspace

business week

devices device proliferation

rayport marketspace

new frontier slide