customer expectation management

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CUSTOMER EXPECTATIOM MANAGEMENT

Simply working harder at existing approaches - even

excellent ones - may not be enough to retain demanding

customers. As price differentials narrow and product

features are quickly copied, business survival requires an

unrelenting focus upon identifying and delivering

additional and differentiating value for customers. Terry

Schurter provides a manifesto for all those who are

seeking to inspire a greater focus upon the experience of

customers.

-- Colin Coulson, Thomas, Professor of Direction and

Leadership, University of Lincoln. Author, Winning

Companies, Winning People

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OUR GOAL – THE TRIPLE CROWN

REDUCEDCOST

INCREASEDREVENUE

ENHANCEDSERVICE

Triple Crown

One Action that results in:

1) Reduced Cost

2) Increased Revenue

3) Enhanced Customer Service

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We’ve been taught that MARGIN is the game. Most of us THINK about business the way it is presented in Michael Porter’s Value Chain.

• This is a COST based approach to Business Success based on Margin

• the strategic assumption being that MARGIN is the #1 controllable variable in the organization that produces PROFIT

• hence, Business Success is a MARGIN-based measure…

WHAT WE THOUGHT WE KNEW…

Porter’s

Value

Chain

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…IS WRONG!

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Business Success is affected by margin, but it is driven by the Customer!

IN FACT, the CUSTOMER holds the KEY to Business Success!

BECAUSE IT IS MISSING THE CUSTOMER!

Can we doubt this?

Isn’t it obvious that CUSTOMERS are the KEY

to our SUCCESS?

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Margin has become a ZERO SUM

game, due to Price and

Cost Contraction…

…with each cost/price iteration, returning

ever smaller business

value

VALUE CHAIN REALITIES

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CUSTOMERS determine the POTENTIAL of the Business by…

…determining the size of the pipeline - how many NEW customers seek to engage with the business

…and by the CUSTOMER LIFECYCLE – i.e. how LONG the customer stays in the customer-business relationship.

VALUE CHAIN REALITIES

Business Growth =

New Customers x Customer Lifecycle…

…where real revenue

occurs AFTER Profit per Customer

EXCEEDS Acquisition

Cost (Loss to Profit

Transition)

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With the insight that the Success Domain of the business occurs when we:- manage Customer Expectations (Customer Value) and

- meet those Expectations Without Exception (Customer Experience)

THE 21st CENTURY VALUE CHAIN

The 21st Century Value chain is:

Expectations (Customer Value)…

…delivered without Exception (Customer Experience)…

…maximized through Margin Optimization. Which is then MAXIMIZED (Profit) through Margin Optimization

(Porter)

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US CELLULAR SERVICE

Market Expectations:1) Service will be ok most of the time.

2) The quality of service is generally the same no matter who I have service with

3) If I want competitive rates, I must purchase cellular service under a contract

4) I will need to wait in line and I should expect that getting my service setup will take an hour or more.

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Established competitors use classical marketing techniques to push contract sales…

…while their processes – the ones that touch the customer – remain stagnant.

US CELLULAR SERVICE

Examples:

1 - Reps get higher comps for New Customers…

…often leaving existing customers in long wait lines.

2 – Until mid-2008, average in-store time to open an account was 40 minutes

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US CELLULAR SERVICE

Market opportunity rests with customers, not with technology or marketing…

…so by focusing on the processes that touch the customer we can drive a new – market leading – value proposition.

Sir Richard Branson is adept at finding market

opportunities in margin-

centric industries.

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How does Virgin Mobile employ the dynamics of the 21st Century Value chain to produce Business Success through Process Innovation?

1) No contracts (value proposition)

2) Delivery of value proposition without exception

3) Success Without Exception (all customer interactions)

Purchase of service from Sprint PCS (buy infrastructure and primary margin-driver activities/resources)

VIRGIN MOBILE USA VALUE CHAIN EXAMPLE

Virgin Mobile USA

Flipping the “tables” with a core Value Proposition

focused solely on…

Customer Expectations

and Customer

Experience

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The results of the strategy are compelling:

• Launched in 2002

• By November 2003 Virgin Mobile USA touted 1 million customers

• By March 2004, growth had exploded to 1.75 million customers (just 4 months after reaching the 1 million customer mark)

• By February 2005 Virgin Mobile USA’s customer base had grown to 3 million customers.

• January 2007 – Virgin rings in at more than 4.6 million customers

VIRGIN MOBILE USA RESULTS

5 million customers in 5 years

Doesn’t own a single Cell Tower

More profitable than entrenched players (including Sprint!)

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ZARA – THE WORLD’S #1 FASHION RETAILER

Inditex (Zara) opened 448 stores and franchises last year…

everywhere from Shanghai to Serbia…

and said it planned to open a further 410 to 490 outlets in 2007-2008.

Zara to keep up expansionNow the worlds largest and Europe's fastest-growing fashion retailer have reported strong profit growth and outlined further expansion plans. Spain's Inditex, owner of the Zara chain, has posted a 26% rise in annual net profits to 803m euros ($964m; £555m) for the year to 31 January.

Zara started as a local Spanish Fashion Retailer…

and has grown to be the undisputed leader in High Street Fashion GLOBALLY!

How did they accomplish this?

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ZARA – Changing Customer Expectations

1 – In Store and On Street Sales Trends are fed through handheld devices directly to HQ.

2 – HQ Designers and Product Managers receive trend info directly and make product decisions

3 – Designers send new styles/patterns directly to local Zara factories for immediate production

4 – Clothes move thru Zara distribution and reach stores within 48 hours.Traditional

Fashion Retailer:

12 – 18 month new product to store

Zara:

Trend Spot to Store in days (as little as 10)

Customer:

Gets Hottest Trends Now!

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Customer Expectation Management:

1) People on the “front line” capture trends in real time

2) Real time connection from front line to design

3) Simplistic Supply Chain executes in days

4) 48 Hour Logistics turn

Porter’s Value Chain:

5) Much higher product costs than industry average

6) ERP is home-grown

Technology

7) PDA’s, Cellular, Chats, et al create “front line family”

8) Point of Sale (POS) system running on DOS 3.01

9) Homegrown ERP – Support system don’t grow it

THE ZARA DIFFERENCE

The Zara Difference

Product to Store in days…

Customers get what they want…

Higher supply chain cost…

Easily offset by premium pricing and sales volume!

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Customer Expectation Management:

1) Market Leaders make their customers’ lives Simpler, Easier and More Successful

2) They Align everything they do to the Customer and eradicate the things that don’t

3) They use Porter’s Value Chain (Margin) to maximize profit, not as a business strategy

4) They apply technology where technology adds CUSTOMER value!

Common Characteristics include:

5) Reduction in complexity – people’s work, processes and technology

6) Organizational alignment and empowerment

7) A behavior of challenge and continual refinement

LESSONS LEARNED

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TO LEARN MORE…

http://www.amazon.com/Insiders-Guide-BPM-Process-Mastery/dp/0929652096

Would you like to learn more about Mastering BPM?

http://acuitystudio.com/human-centric-process-analysis-and-improvement/

http://www.amazon.com/Customer-Expectation-Management-Success-Exception/dp/092965207X

http://www.amazon.com/Insiders-Guide-BPM-Process-Mastery/dp/0929652096

http://acuitystudio.com/human-centric-process-analysis-and-improvement/

