Engagement Value Chain Strategy- Valutrics
Recent marketing research reveals that the concepts and models used by most companies are not customer centered. In an expanding and very accessible global economy, the familiar methods for gaining and sustaining competitive advantage, such as product innovation, brand awareness, rebates and reduced pricing, and competitive differentiation, can no longer guarantee customer loyalty.
Engagement Value Chain Drivers
In the past, customers were willing to accept tradeoffs when dealing with their supply chains. For example, when quality was the locus of value, customers acquiesced in the inevitability of high prices and limited selection. On the other hand, inexpensive commodities were expected to be available on demand, but at a lower quality. Stated simply, yesterday’s customer was willing to compromise critical values, such as customization and timeliness of service, in exchange for product/service availability.
Today’s customer is most unwilling to accept such tradeoffs. A marketplace characterized by increasing product commoditization and web-driven global reach that sinks prices, expands the availability of sourcing alternatives, and enables businesses and consumers to quickly and easily switch to competitors, customers are demanding not only dazzling products and superior service, but also innovative experiences that are expanding the meaning of product and service value.
What customers are expecting is to receive superlative products and ease of transaction plus all aspects surrounding the search, decision, purchase, and receipt process—the depth of service, the advertising, packaging, ease of product configurability, after-sales service, ease of use, reliability, and the sense of being treated as a special individual.
Companies today simply must refocus their traditional marketing campaigns and performance metrics to respond to what can be described as the real truth about the customer (who is really you and me).
• They want to be treated as unique, very special individuals; on every occa sion that they shop at your site they want to feel that the products, service, and ambience surrounding the experience have been created just for them.
• They simply do not care about your problems or your process policies, espe cially when they pose a hindrance to their purchasing experience.
• They want complete solutions to their wants and needs, attainable with as little cost, time, and effort on their part as possible.
• They want solutions to be available when they want them and where they expect to find them.
• They have choices and they are ready to use them!
The bottom line is that companies must wear their game face each day, as if they were playing the last inning for the championship and there is no tomorrow—the scary truth is that they really are!
The engagement value chain is based on the premise that companies can no longer hope to remain competitive in the long run by focusing their strategies on cost/efficiencycentered tactics that emphasize commoditization, low prices, and incentives to achieve short-term gains.
Instead, companies need to shift their attention to expanding their relationships with their customers—in short to be “engagement” with what customers really want, with increasing the customer experience, which in turn can lead to enhanced loyalty and commitment. All too often, companies have tried to become more customer focused by installing CRM systems, implementing customer care programs, and promoting campaigns to build customer engagement that merely mask traditional marketing efforts to simply sell more products to customers. Moving to the next level requires companies to focus as intently on involving customers in emotionally and psychologically fulfilling experiences as they do in ensuring operational effectiveness and cost management.
Customer experience management principles can not only support, but actually lead the way in translating customer engagement strategies into higher lifetime value by leveraging the tremendous capabilities found in the supply chain. companies cannot hope to provide the levels of value necessary to continuously build customer equity without the enabling power of their supply network partners. The challenge is to build channel strategies that enable managers to navigate through the difficulties of developing an effective engagement supply channel. The goal is to transform supply chains from a loose collection of self-serving entities into a unified, integrated business engine focused on creating superior customer experiences and cementing long-term relationships that benefit the entire network.
The driving force behind constructing such a channel system rests on two components. The first involves the rise of a channel steward capable of concurrently building engaging customer experiences and driving profitability for all channel partners. This is a tall order. Whether by coercion or persuasion, the channel steward must be capable of shaping the channel’s evolution and ensuring it is advancing simultaneously the interests of its customers, suppliers, and intermediaries. The second component involves the pursuit of three key drivers: choosing the channel design, aligning value propositions with customer needs, and aligning process value and delivery networks. The channel steward must continuously provide the mechanisms as well as the direction necessary for customers to build trust in the channel touchpoints they deal with, to affirm customers’ feelings that they are receiving reciprocal value for the loyalty they keep and the sacrifices in price or service they sometimes must bear.
Economics of Engagement Value Chains
There can be little doubt that today’s business enterprise is under extreme pressure to provide differentiating value to a customer who is increasingly seizing control of the buying process. The source of this uneasiness has been described as being driven by several key trends:
• radically declining product life cycles
• proliferation of product and service choices available on demand on a global basis
• accelerating commoditization of products
• demand for lower prices, high efficiencies, and fast service velocities
• growing customer impatience toward dysfunctional experiences and lack of personalization
• declining loyalties enabled by diminishing barriers to supplier switching
• reducing the gap between customer desires and gratification
• expectation of faster return on investment (ROI) by companies and their shareholders
Up to now, companies and their supply chains have tried to counter these centripetal forces by applying strategies that more effectively manage productive and distributive resources. One method of increasing competitiveness is to apply lean concepts and principles that eliminate all forms of waste in the supply chain, while increasing supply channel velocities. Another method seeks to counter risk by building adaptive supply chains nimble enough to sense marketplace direction and then to communicate change through synchronized information sharing to network partners that enable rapid decision making and optimal execution. Yet a third strategy, demand-driven supply networks, focuses on identifying, broadcasting, and aligning supply chain resources with customers’ true demand occurring at any point in the supply chain.
Although these strategies have enabled many of today’s top performing companies to steal a competitive advantage, such leadership is doomed to be short lived. The problem is that these strategies are fundamentally driven from the perspective of how products, services, and delivery processes can be engineered to increase value to the company. Despite declarations that they are customer centric, most businesses are, in reality, focused on selling product features and benefits that bring values to them. Marketing campaigns seek to unearth statistics about what customer segments are most likely to buy what product/service bundle. Often these campaigns are accompanied by discounts and incentives designed to undersell the competition and highlight differentiation—that is, until the competition counters with a more aggressive campaign.
In contrast, companies focused on customer engagement seek to build long-term customer value by centering their efforts on building sustainable and enriching relationships with their customers. While the product/service bundle remains the basis of exchange and growth, and profitability is still the ultimate target, these companies perceive their path to competitive leadership as providing customers with a positive buying experience that compels them to want to repeat the activity, despite the fact that competitors can offer a lower price or greater convenience in the transaction. By understanding what provides customers with not only a great product/service, but also a gratifying experience, companies can move beyond marketing based just on features and pricing and offer customers unique, personalized solutions that build what can be called customer equity, or the wealth-creating potential a firm can expect from the long-term relationships it has built with its customers.
Shifting Economic Paradigms
The basis of the modern market economy rests on the principle of value exchange.
Simply put, buyers and sellers come together for the purpose of exchanging what each perceives to be a desired object of value. The conditions of the value exchanged depend on two factors: (1) the value content of the objects themselves, and (2) the experience that surrounds and permeates the process of exchange. The first factor is easy to understand and is normally considered as the basis for all value exchange. In this instance a good or service that is desired or needed by a buyer is acquired by surrendering to the seller another good or service of equally desired value (barter) or a financial instrument with an agreed upon abstract value (money). The exchange is purely a calculative affair, with each party to the transaction receiving fair value. The likelihood of such a transaction occurring in the future is based solely on the opportunity of each party to again enter into a fair value agreement; the buyer seeks the lowest price and the seller is intent on receiving a fair profit.
In contrast, while the second factor of value exchange is more difficult to calculate, the experience that permeates a purchasing occasion is a necessary part of every transaction. Actually, instead of being the most concrete, the first element of value exchange is purely an abstraction. Human beings never buy a product or service without the presence of some form of emotional or judgmental driver.
Even as a product moves toward undifferentiated commoditization, the decision to purchase is never dispassionate, but always contains some form of psychological content that triggers a predilection for one brand or product over another. Whether based on a conscious selection or performed out of simple habit, emotional triggers, such as company logos, store layouts, or product advertising, can predetermine a buying selection despite the presence of competitors offering lower prices and higher convenience. Simply put, what customers value and will continue to reward with loyalty is autochthonous, not to the product, but to the experience they have associated with the product.
Abstract Concept of Exchange Value
Historically, marketing efforts have focused not on the experiential content of the exchange process, but rather on the product/revenue/market share perspective. In essence they assume that the purchasing process is undertaken by a buyer who is motivated purely by the exchange of value. This traditional marketing approach consists of the following points:
• Instead of the customer, the focus is narrowly centered on product functional features and benefits. The value of the experiences customers will receive through the use of products is rarely taken into consideration.
• The content of target markets, pricing, and the threats posed by competitors are narrowly determined by comparing similarities in features and benefits. The goal is to present products/services not currently offered by other market players.
• Customers are perceived fundamentally as rational decision makers who carefully weigh features, benefits, and convenience against price. The exchange process is purely a calculative affair with customers choosing the highest value for the lowest cost.
• Understanding of the marketplace is based purely on analytical data that reveals detailed buying patterns and customer clusters that can be used to drive future product, pricing, promotion, and delivery objectives.
• Although the marketing approach does indeed assemble a rich repository of data about customers, it is transactional only and reveals nothing about what value the customer is really seeking during the buying process and after-sales usage.
The above principles have considerable weight in a market economy marked by scarcity and lack of differentiation in goods and services. In such an environment the seller has the power to determine the conditions of value exchange. Marketing has two objectives. The first is to build a high level of brand and company recognition that locks in customers and profits and isolates them from the narrow range of existing competitors. The second objective is to construct metrics that enable marketers to effectively target new customers and retain existing ones. For the customer, value is received in the exchange process. Issues such as unearthing what solutions the customer really wants, opportunities to explore new experiences with the product, or just looking at things from the customer’s perspective are not considered. There is not much room for customer engagement and involvement when the only product available is a Model T and it is always black.
Experiential Basis of Exchange Value
In today’s supercharged global economy, the concept of the marketplace as driven purely by the abstract exchange of value has been largely exploded. The key is the shift from an economy of scarcity to one of abundance, inexhaustible choice, and rapid change. Simply, companies can no longer count on managing the customer’s sense of value by concentrating solely on the product/service bundle. As Todor has so aptly put it, companies competing only through product value
use price, convenience, and incentives to win customers from their competitors—in essence, bidding for customers’ business. Customers, in turn see abundance and choice for virtually all products. When competing businesses vie to win customers, they encourage prospective customers to shop around and to do so every time they need that type of product. There is a mismatch between this strategy and the expectation of loyalty.”
The bottom line is that winning in today’s marketplace through product-price value exchange only is not sustainable in the long run. As companies lower prices (and profit) and increase incentives to keep customers who have been conditioned to treat the products they buy simply as undifferentiated commodities, they begin a death spiral of head-to-head competition with global suppliers as to who can offer the lowest price to attract an increasingly fickle customer. The death knell quickly approaches as they are submerged in an unwinnable war in Wal-Mart World.
The impact of an economy of abundance has been to place the customer squarely in the driver’s seat. Regardless of how intently companies focus on building brand recognition and functional and operational differentiation, success is always short lived as customers gravitate to emerging competitors who can offer a lower price and greater convenience. To hold market positions, companies are forced into ongoing sales (Macy’s and Target seem to have one going every week), rebates, interest-free loans, and discounts (Ford and GM), which provide disincentives for customer loyalty. Increasingly customers’ perception of what provides value begins to be clouded as products and services slip, one by one, into the status of commodities available from the next lowest price seller.
As some of the best companies, such as Dell, Starbucks, and Target have shown, the path to competitive success is not through continuously leaning-out costs, endless product proliferation, and short-term strategies based on low prices and incentives, but rather through their ability to provide new sources of marketplace value by building engagement customer relationships and loyalty through the creation of unique, emotionally satisfying experiences that, along with their goods and services, allows them to differentiate themselves from the competition. Instead of competing on products and prices, these companies seek to cultivate special relationships that reinforce the attitude on the part of their customers that they are providing special value as well as meaningful experiences unattainable from another supplier. This view of experiential value as the basis of exchange fulfills customers’ desperate need to find a way out of today’s often bewildering world of massive product proliferation, the chaos of guerrilla marketers, and the frustrating feeling of anonymity when dealing with companies that have surrendered customer engagement and loyalty to strategies centered on cost reduction and short-term profits.
Building Customer engagement
The critical challenge before today’s business is to understand the need to build internal organizations and supply chains centered on value exchange based on enhancing the customer’s experience. Whether buying products and services to fulfill utilitarian needs or attain a personal sense of gratification, every buying occasion, even in the business-to-business environment, is charged with emotion and personal choice.
The goal is to enhance customers’ intrinsic desire to see the products and servicesthey buy as a gateway to expand a person’s knowledge and ability to tackle achievement of their own goals and aspirations as well as fulfill basic needs.
Emotions Make Experiences Meaningful
Each time we engage in the process of buying a product or contracting a service we are consciously or subliminally influenced by the repository of positive or negative experiences stored in our memories. No transaction is really ever truly emotionneutral: even the purchase of the most mundane commodity is prompted by at least long-standing habit and inherent resistance to change, even if the outcome promises to be better. In fact, most customers feel stress, even anxiety about deviating from the buying habits they have grown accustomed to, the confidence and trust associated with the companies and brands they prefer, and the sense of satisfaction and accomplishment possession of the goods and services continuously brings them over time. People do not go to their favorite restaurant simply to eat or go to an upscale store just to buy products—they go because they receive a particular experience surrounding the exchange that they value higher than the goods and service received.
The power of emotion and sense of relationship customers have with their suppliers can be astounding. As a non-coffee drinker, I have been dumbfounded at the success of Starbucks. Coffee is a commodity pure and simple. It is available from a host of sources, often at a much lower price. Yet people across the globe cannot wait each day (often several times a day!) to pay a premium for a product that is just hot water, a little ground coffee, and some milk and sugar. The same people who will search for bargains on utility products will allocate a disproportionately high percentage of their daily allowance for the magic brew. The answer is obvious when you visit a store (we have two in our town, amazingly two blocks away from each other!): Starbucks has succeeded in establishing brand superiority not by advertising, but by building an experience that is part of the normal life of the community and customers’ daily lives. The stores have become virtual oases where people can escape from the stress of the day and socialize with friends in a familiar neighborhood environment.
Successful companies like Starbucks, Amazon.com, Dell, and Apple understand that a memorable experience is the gateway to customer loyalty. For example, in a survey conducted by CRMGuru it was shown that memorable experiences build loyalty. For highly loyal customers, almost 90 percent of respondents said a memorable experience left them with positive emotions such as “pleased,” “comfortable,” and “appreciated.” On the other hand, customers with minimal loyalties felt “frustrated,” “let down,” and “angry.” Such positive emotions and a sense of loyalty arise probably more from a supplier’s ability to consistently deliver on the expectations set with the customer than executing an isolated “WOW!” experience. Finally, positive experiences occur when not just the product and the delivery mechanisms work, but also when employees treat customers with courtesy and attention to detail. Once on a United Airlines flight I did not receive a hoped-for upgrade. However, right before takeoff a first class seat became vacant. I was very pleasantly asked if I wanted to upgrade from my coach seat, which I quickly agreed to. I was thrilled to see (in an industry marked by significant complaints and hassles) that United recognized my frequent flyer status versus just giving the seat to a stand-by passenger.
Steps to Build Customer Engagement
The basics of building customer engagement involve shifting focus from instinctively turning to product and service design to improve customer satisfaction to strategies that enhance long-term customer relationships by providing individualized, value generating experiences. Customer engagement requires companies to design the right portfolio of products and services for specific customer segments that convert them from passive buyers to engaged promoters. Once designed, businesses must ensure that the internal organization as well as the entire supply chain can deliver their value propositions across the entire customer experience. And finally, engagement supply chains and the companies that populate them must perceive their value propositions and delivery mechanisms as dynamic, where sources of positive customer experience are improved and reinvented as marketplace needs change.
Define an Engagement Customer Strategy
An effective Engagement customer strategy consists of three primary components: designing supply and delivery portfolios that provide consistent, relationship generating value, eliminating sources of negative experiences, and consistently delivering “WOW!” experiences. Building strategies that respond to these three components requires a clear understanding of what the customer values and the relationships required to realize this value.
Define Customer Engagement Plans
• Mapping customer values
• Identifying positive and negative touchpoints
• Charting economics of long-term relationships
• Charting economics of the customer experience
Align Organizations and Objectives
• Flexible organizationsfocused on customer value
• Customer-centered corporate culture
• Use of experiential marketing
• Effective employee recruitment andmanagement
• Deployment of proper technology toolsets
Determine Drivers of Loyalty and Defection
• Determining customers’attitudes toward brands and experiences
• Use of analyticaltools
• Isolatingcauses of negative experiences
• Building new ways to gain customer loyalty
Deliver Experiences
• Drawing the customer into the targeted experience
• Involving the customer with a company and its brands
• Providing each customer with a level of personal attention and rewards
Setting Goals and Defining Measurements
• Creating metricsthat reveal customer loyalty
• Three critical components:
– brand experience
– customer interface
– customer lifetime value(CLV)
Improve and Re-Invent
• Engineering innovations thatdeepen customer experiences
• Increase value customer receive
• Increase the intensity of customers’emotional triggers
• Project image of ongoing relevancy
• Involve the customer in experiential improvement projects
According to the Strativity Group, customer engagement strategies are driven by two financial components: economics of long-term relationships and economics of the customer experience. Long-term relationships focus on the long-term profitability of the customer relationship and are concerned with such metrics as attrition rate, annual and lifetime customer value, portion of customer’s budget captured, and cost of unprofitable customers. Questions to be resolved center on the company’s ability to execute strategies using research about what drives customer loyalty, differentiate valuable from unprofitable customers, benchmark customers’ experiences versus those provided by competitors, and map what value customers feel they are receiving.
The second financial component, economics of the customer experience, is focused on metrics relating to short-term customer behavior and profitability. The goal is to measure not only the profitability of each customer’s transactional interaction, but also the cost of failures in product and delivery that resulted in a negative impact on the customer. Among key operations measurements can be found the cost of help and service desk complaints and resolution management, returns and reshipment management, financial adjustment, and customer triage. Operations questions to be resolved center around value of order management personalization, capability of the customer to customize the transaction experience, capability of manufacturing, delivery, and associated services to meet the needs of each customer segment, and ability to meet customer expectations and requirements to execute the perfect order.
Determine Drivers of Loyalty and Defection
Loyal customers are the vehicle that delivers company profitability. Loyal customers tend to buy more, cost less to serve, complain less often, and act as a vocal promoter of companies and their products. Studies have shown that customer loyalty is primarily driven by three broad factors. The first is concerned with determining customers’ attitudes about a company’s product and service offerings, delivery record, level of quality, and extent of customer focus. The second factor deploys analytical tools and statistical techniques to uncover the image of the company’s brand projects: are they best in class, innovative, and trustworthy? The final component driving customer loyalty is driven by the depth of the experiences customers have relating to the quality of the emotion they receive from the product and the buying process, how effectively the supplier engages the customer through personalization and participation, and the opportunities for satisfaction the product/service provides.
As important as determining the factors driving positive customer experiences and loyalty, is identifying the causes of why customers defect to the competition.
The goal is to pinpoint within the organization and outside in the supply chain, processes that produce negative experiences, frustrating moments, and lack of expected performance. At bottom, customers defect, not simply because they can shop around and get a cup of coffee cheaper at a mini-mart than at Starbucks, but because they feel that they are not treated well, that the buying experience is not customized to their individual tastes, or that the expected engagement between themselves and the product/service envelope has been replaced by standardization and anonymity.
Maintaining current and identifying new ways to build customer loyalty depend on the execution of the following key drivers:
1. Communicate with customers. The best way to prevent defection is to open direct communications channels, which permit monitoring of the effect of engagement customer strategies on loyalty. Human contact can more effectively unearth customers’ feelings about the experiences received versus what they expect to receive, shifts in their wants and needs, and the perceptions of what provides value to them much more effectively than impersonal database analytics. This driver will assist in strengthening existing loyalties while identifying potential defectors.
2. Eliminate sources of defection. Diagnostics performed on customers’ attitudes will provide an excellent repository for the identification of processes and policies that are diminishing the value of the customer experience. This driver will illuminate sources of disaffection arising from brand quality issues, erosion of trust in a company’s leadership, policies, and innovative capabilities, and gaps in service and customer care that spawn negative feelings that motivate a customer to switch to a competitor.
3. Provide quality and timely information. The application of information technologies that provide detailed, timely information about the customer help reduce defection by ensuring continuous contact and delivery of experiences that meet customer expectations. Technology tools such as chat rooms, web submission, e-mail, and web collaboration provide methods for customers to interact with supplier organizations. Customers familiar with company brands and processes are more likely to remain loyal.
4. Cultivate a culture of corporate customer engagement. Well-trained employees capable of identifying and delivering a personalized, value-added experience are the torchbearers of an effective engagement customer strategy. Those with frontline exposure to the customer must possess the tools and be empowered to handle exceptions and make decisions that enable the execution of superior customer experiences and sources of recurring value.
5. Improve exit barriers. A host of processes designed to strengthen exit barriers can be deployed. Among these tools are using customer information to customize the buying experience, enabling customers to personalize product offerings, reducing risk and increasing trust, deploying loyalty programs, enhancing a brand’s “psychic” value through positive affinity, and maintaining a customer’s attention through continuous value-added dialogue to retard customer defection by enhancing the customer’s experience and overall relationship.
Setting Goals and Defining Measurements
The fundamental purpose of engagement supply chain metrics is to ensure that companies are providing valuable experiences to their customers and in turn their customers are providing profitable value in return. Product-centered organizations measure marketplace performance by how much value customers create for the business in the short term and how much share of the marketplace they hold. In contrast, customer-centered metrics are quite different from standard metrics, which focus on costs, shareholder value, sales revenues, and return on assets (ROA). Experiential metrics measure how effectively a company is delivering desirable customer experiences and consist of four critical components.
The first, brand experience, calculates how effectively company products and services are meeting customer expectations regarding quality, features, availability, aesthetics, and innovation. These measurement attributes can be ascertained only through mechanisms that provide direct contact with the customer. Detailed assessments can be made using communications mediums, such as the Internet, e-mail, and phone, and firsthand contact between the customer and product designers, marketing professionals, and survey teams. Non-personal forms, such as surveys and questionnaires, can also yield additional information. Finally, benchmark information from competitors and other industries about their brand experiences can be used to chart critical gaps.
The second metric, customer interface, is concerned with tracking how customers’ interaction with the firm impacts the depth of their buying experiences. This metric can be defined as the totality of the experiences customers receive based on all transactions and interactions arising at each supply touchpoint, whether performed in person, over the phone, or online. The interface acts as the vehicle for the dynamic, interactive exchange of experiential communication and value between the supplier’s product and the emotional benefits customers anticipate. Whether it is proactive and convenient service, the friendly greeter at Wal-Mart, the luxury of the look and feel of a Macy’s store layout, or loyalty programs, the attractiveness of interface exchanges and interactions is a critical determinant of continuing customer loyalty.
The third metric, customer lifetime value (CLV), is normally expressed as the present value of all current and future profits from a customer over the life of his or her business with a company. Companies pursuing engagement customer strategies view CLV as detailing not only the value of a customer to the firm but also the value of the firm to the customer. Instead of focusing on metrics that reveal traditional concerns with sales/share, product profitability, and satisfaction, customer-oriented metrics require marketing teams to concentrate on customer profitability, rate and cost of customer acquisition, profit and growth in customer margins, and cost and success in customer retention.
Goals and measurements driving customer engagement will need to provide information on the long-term success of relationships and the ability to provide superior value and experiences to customers. Among the questions that must be answered are:
• What are the specific goals, measurements, and objectives necessary to execute superior experience for each customer or customer segment?
• How are these goals to be communicated to every part of the organization and each supply chain partner that impacts the quality of each customer experience?
• How are actual performance measurements to be fed back up the delivery and supply chains to the correct channel partner, company division, and individual company?
• What are the criteria to be used to ascertain the level of positive and negative emotions customers have received during their interactions with marketing, sales, and service?
• How are individual employees and supply chain partners to be rewarded for delivering exemplary experiences, and how can new performance metrics be established that drive new sources of customer value and engagement?
Aligning Organizations and Objectives
Consistently responding to customer demands for more value-centered experiences requires the existence of flexible, focused organizations capable of continually crafting innovative ways to plan and execute products and services, and deliver exciting new sources of marketplace value. Since the true value a company brings to customers resides in the range of engaging experiences it offers, successful organizations must be constructed around experience management attributes. Organizing for the engagement supply chain includes four tasks :
1. Corporate culture. All levels of management, as well as those with frontline exposure to the customer, must believe that the continuous creation of differentiated experiences that delight the customer is their primary task. This task is perhaps the most difficult because it entails integrating the experience management strategies of each channel network node so there is a consistent message to intermediate as well as to end-customers. In many cases fulfilling the customer experience will span organizational units and supply chain companies.
2. Experiential marketing. Traditional marketing is narrowly focused on product features and benefits, and perceives the marketplace as a battle for customer share. Although marketers understand that image and emotion are part of some high-ticket items (automobiles, apparel, and jewelry), for the most part, customers are considered price-sensitive, rational purchasers.
In contrast, experiential marketing requires a complete transvaluation of past methodologies. In place of brand stewardship, marketers must perceive themselves as engineers of brand experiences. The goal is to promote positive, relationship-building situations and integrate the experiences customers receive at all touchpoints each time they contact a supplier, enter a store, or log in to a website.
3. Employee recruitment and management. The focal point of effective engagement customer management occurs where customers encounter the support staff of their suppliers. Unfortunately, the presence of well-trained, genuinely helpful employees has often been forgotten as the prime activating catalyst in the customer encounter. In a study conducted by CRMGuru it was found that a company’s employees were the number one attribute customers felt provided a consistently excellent experience, followed by customer service, and quality of goods and services.9 Building an effective organization requires recruiting, training, motivating, providing meaningful incentives, and measuring employees’ behavior so they can be creatively involved in discovering opportunities to deliver a memorable experience for each customer.
4. Technology support. Fundamental to assembling winning customer experiences is the deployment of the proper technology tools. To begin with, technology tools enable companies to provide flexible customer order and service interfaces, which enable customers to personalize the buying experience and assume control of the process. Another way technology can assist is to build and make available database repositories that can be used to customize customer contact as well as provide a kind of “memory” about the condition of the customer relationship. Finally, databases also permit the storage of special customer information, such as birthdays, anniversaries, level of loyalty, and special incentives and bonuses, which can be experience focused to provide opportunities to differentiate customers.
Deliver Experiences
State-of-the-art CRM systems and insightful customer offerings will be stillborn if they are not supported by outstanding execution. Succeeding in engagement customer management means that all parts of the supply chain must have their processes and their information streams synchronized and focused on providing the experiences customers want and value. Lasting customer relationships, the kind that produce sustainable profits, can occur only when customers have a compelling reason to remain loyal to a company and its brand, and these reasons must extend beyond current products, prices, discounts, services, and the newest “thing.”
Deepening the customer experience requires the effective execution of the following critical principles. First, companies must design sales and marketing approaches that draw the customer into the experiences devised for the individual customer or customer segment. This process Schmitt calls the experiential platform and it consists of a dynamic, multisensory, multidimensional depiction of the desired experience (referred to as “experiential positioning”). It also specifies the value that the customer can expect from the product (the “experiential value promise” or EVP). The platform culminates in an overall implementation theme for coordinating subsequent marketing and communications efforts and future innovation.
The goal is to turn passive buyers of undifferentiated commodities into active promoters who are engaged with a company and its brands and excited about telling others of their experiences.
Second, since customer loyalty is really a function of the customer’s positive emotional experiences, rather than the mere possession of the product, businesses need to focus their effort on involving the customer with the company and its brand. Locking in today’s customer means building gratifying experiences that fulfill their expectations and expand the value context from the physical goods and services they receive. Techniques include such things as:
• Personalizing the exchange process. Personalization permits the customer to use order customization processes to express their uniqueness through the goods and services they purchase by permitting them a voice in their design and creation.
• Mapping the customer experience on an end-to-end basis to identify the “moment of truth” at each touchpoint throughout the supply chain, so that interactions impacting customer loyalty can be continuously improved.
• Detailing what service elements are supportive of fostering customer involvement with the product.
• Enhancing the brand’s differentiation and capability to stimulate customer interest to increase the total customer experience.
• Utilizing qualitative input from customers gained through personal contact, surveys, focus groups, etc. that communicate a company’s leadership in providing unmatched sources of customer value.
Finally, companies need to provide each customer, whether corporate or consumer, with a level of personal attention and reward for loyalty commensurate with the depth of the relationship and contribution to company profitability. This step begins by truly understanding how customers perceive a firm’s brands and the experiences they have come to associate with them. By walking a mile in the shoes of the typical customer, businesses can train and motivate employees and shape sales and service interactions that provide each customer with the human touch, respect, helpfulness, and friendliness that binds them emotionally to the company and its brands. Additionally, customers can be rewarded for their loyalty through bonuses and incentives that make them feel like a special, recognized individual with a unique connection to the companies they do business with.
Companies that are organized around an engagement customer strategy know that the experiences provided by their brands and interactive mechanisms are never static. What delights customers today can be assured to be irrelevant tomorrow.
In addition, the competition is always waiting in the wings to replicate what may seem to be uncopyable product attributes, services, and engaging environments.
Maintaining leadership requires companies to be involved in a continuous cycle of change management and innovation that generates new experiences and opportunities to engage in deeper customer relationships. Firms that fail to evolve or focus too closely on a program of cost efficiencies risk turning once customer-winning experiences into commodities and downward-spiraling irrelevances.
Innovations that enhance customer experience can essentially be divided into three classes. The most radical, but difficult to execute, are “breakthrough” innovations, such as Apple’s i-Pod and Sony’s Blue-Ray DVD, which dramatically changed everyday lives and spawned whole new industries. Much more commonplace are enhancements to existing brands and services that enrich the customer experience.
For example, the addition of wireless service at Starbucks provided patrons with further reason to see the store as an oasis for relaxation and community. Finally, companies may deploy marketing innovations, such as promotions, pricing, and special events, that provide additional dimensions to the customer experience. In any case, it is essential that companies incorporate customer opinions about the experiences they want in any innovation project.
Innovation can contribute to expanding customer experiences in several ways. First, it is essential to note that it is not synonymous with lean continuous improvement. Lean concepts are focused squarely on removing costs and wastes from the process of producing products. engagement customer improvement, on the other hand, is centered on continuously deepening the experiences the customer receives. Second, experiential innovation increases the value customers feel they get when buying a brand or interacting with a company. Third, experiential innovation is focused on intensifying the emotional triggers that draw customers even closer into the buying experience. The goal is to move them from passive buyers to engaged, committed, vocal proponents of the company’s offerings. Finally, a commitment to experiential innovation projects the image that the company and its brands are relevant to customers’ current and future needs and desires. For example, Sony has had to change its value to customers several times as entertainment technology has migrated from VCR to DVD, video games, Internet services, and now Blue-Ray DVD.
Engagement Supply Chain Strategies
Succeeding in the twenty-first century requires companies to think beyond the boundaries of their own organizations to the supporting competencies of their supply chain partners if they are to build the kinds of experiences that enhance customer value. Leveraging customer engagement strategies necessitates supply chain communities collectively providing for the very best customer experience at the moment of truth, wherever it occurs in the supply channel. By aligning capabilities to realize superior value for the customer, supply networks can ensure a superior experience that cements loyalties and keeps customers coming back for more. In the end, the goal is to create supply communities that continuously provide the right products, services, and interfaces that addict customers to a brand and its associated experiences while driving profitability both to channel partners as well as to the customerfacing company.
engagement supply chain strategy is a detailed planning process that assists companies to transform their supply chains from a loose collection of business partners whose primary focus is on parochial objectives and performance targets to intimate supply chains where creating superior customer experiences and cementing long-term relationships is collectively the critical driving force. Creating an effective engagement supply chain strategy requires two major components. The first is a channel leader capable of continuously focusing and driving the strategy. The second component is the activation of several key drivers that will assist managers in identifying the attributes of effective experiential-based supply chains as well as reveal the barriers that block channel transformation.
First Component: engagement Supply Chain Leadership
Building supply chains that are capable of collectively executing the six elements of customer engagement described above is an enormous task. While today’s information technologies and strategies, such as outsourcing and collaborative planning, have increased integration and mutual dependencies, many supply chains are decentralized and dominated by the channel dyad model where communication and collaboration rarely extend beyond immediate trading relationships. In other cases, supply chains are centralized and held hostage by powerful players, such as a WalMart, that routinely impose their will on weaker members who have no escape. In either case, these channel arrangements poorly serve and reward all participants
and are incapable of providing the competencies necessary to generate the valueadding experiences that bind customers to companies and their brands. Left to themselves, such centripetal forces simply serve to further splinter supply communities and institutionalize local customer management decisions at the expense of overall channel capabilities to bring an integrated approach to customer engagement.
Activating the power of supply chain engagement requires a single supplier or a tightly integrated alliance of a small group of channel players to act as the driving force to engineer a supply network strategy that simultaneously builds engaging customer experiences while driving profitability for all channel partners. Such leadership could be driven from any vantage point in the supply chain: a manufacturer (Sony), a distributor (W. W. Granger), or a retailer (Home Depot). Rangan calls such leaders channel stewards. Rather than demanding compliance from channel members for insular programs focused on cost reduction and efficiencies, the goal of the channel steward is to merge individual company goals into a unified strategy that views the entire supply chain from the perspective of the customer.
Practically speaking it is the role of the channel steward to unearth the different components of customer engagement found in the supply network, devise a comprehensive strategy, and then to advocate change among all participants. When a channel steward can develop such a common purpose, Rangan believes, all participants along the way to the end customer understand, perhaps for the first time, the levers that motivate their partners up and down the line. As a result, all participants are better primed for the give-and-take required to create a value proposition that is as attractive as possible to customers and to the various channel participants.
Stewardship involves carefully building supply chain synergies supportive of high levels of customer engagement and deepening long-term relationships based on promoting those activities that enhance the customer experience, eliminate weak channel members, and reward channel partners providing discernable value to all supply chain customers.
While fusing each network member into a seamless value channel capable of generating winning customer experiences found anywhere in the supply chain may seem a logical and profitable management step, it must overcome a very strong natural inertia.
Getting companies to collaborate on product, price, and service strategies is difficult even for channel masters who can enforce compliance, much less for channels to undertake on a voluntary basis. Even if integrating products and plans is in everyone’s best interests and drives profits for all, the risk involved in undertaking a channel transformation may exceed the alternative of simply leaving current working relationships as is.
Still, the advantages of a virtually integrated supply chain are enormous. Whether by coercing or convincing supply network members, the role of the channel steward is to provide the focus necessary to effectively shape a channel’s evolution to ensure it is simultaneously advancing the interests of its customers, suppliers, and intermediaries.
During the process of aligning and shaping the supply chain to meet the twin challenges of increased customer engagement and total channel profitability, the channel steward must continuously evaluate the role of each channel touchpoint and possibly require alteration of behavior or even make the decision to eliminate the network node altogether. Success occurs when channel players perceive they are actually part of a single community capable of collectively addressing the needs and desires of all customers.
Second Component: engagement Supply Chain Drivers
The ultimate goal of the engagement supply chain is the capability of each channel member to leverage the competencies and resources of one another to build virtual communities providing customers with engaging, unique experiences that cannot be copied by the competition. Whether directed by a single channel steward or a channel focus group, the four critical strategic drivers must be planned and executed.
Choice of Channel Design
Architecting an engagement supply chain requires understanding the forces, objectives, and structures that drive a supply channel. Overall, the goal of channel design
analysis is to reveal gaps and threats and expose opportunities for customer engagement that often are beyond the horizon of individual companies acting on their own. From the perspective of a channel steward, changes to customer buying habits, efficacy of branding, and challenges posed by competition, technologies, or even regulation that are unforeseen in the immediate marketplace are made plainly visible when viewed from a channel perspective. For example, questions such as “What products are customers buying?” “What channels are they buying from and what types of experiences are they gravitating to?” and “What are the capabilities of existing channels and how adaptive to change are they?” must be analyzed and effective answers formulated. The channel steward then has the ability to communicate or even enforce changes that will enable the entire supply chain to remain customer focused.
The complexity of engagement supply chain management is dependent on the nature of channel design. In a transactional channel system where the producer sells directly to the end-customer, the producer is fully responsible for crafting the customer value proposition and intensity of the customer experience. On the other hand, in a limited channel system where the producer sells through intermediaries, distributors and retailers are normally responsible for drafting experiential relationships and brand identity with the customer, with the producer performing a strong supporting role. Engagement customer management becomes more difficult, however, as the number of channel intermediaries grows and the end-customer recedes to the far end of the supply chain. This is the case in a federated network system where several businesses with equal channel power pool their competencies together and compete as an integrated network. In such channels, members must be sensitive to the experiences and value demanded by both customers and downstream intermediaries.
Choosing a channel configuration depends greatly on the nature of the product (custom or commodity), channel capabilities and costs, distribution of power in the channel, and actions of channel competitors. As the position of the channel steward moves closer to the customer, emphasis will be on superior service and deeply engaging the customer in the buying experience. In contrast, a steward positioned at intermediate or even producer levels will view customer engagement as facilitating trading partner needs for efficiencies first, and end-customer requirements second. Stewardship in such arrangements can become more difficult with the arrival of a product/service breakthrough or entrance of a new competitor that pushes the need for greater involvement with end-customer experience management further up the delivery and supply networks.
Aligning Network Value Propositions
The concept of customer value propositions has become a fashionable term in business literature over the past half-decade. A value proposition can be defined simply as the portfolio of utility-creating products and services a company offers to its customers.
Unfortunately, value proposition creation has often fallen short because it has been narrowly focused on determining the value of a customer to the company rather than the value the company’s brands and services provide to the customer.
The bottom line is that companies often devise value propositions without seriously taking the customers’ perspective and are unaware of the field of complex motivations that drive a customer to choose one product over another. In contrast, customer engagement demands that companies become more responsive to customers and incorporate customer insight into their propositions. According to Schmitt, “They need to use customer input when they design the brand experience, customer interface, and when they launch new products. They need to use customer feedback to improve experiences.” engagement supply chains require channel stewards to construct value propositions on two levels: one that identifies value propositions from a local perspective as the complete experience a company delivers to its customers and the second from a supply chain perspective that is focused around shaping a supply network’s total capability to address the needs of the demand channel. The engagement supply chain framework acknowledges that a value proposition platform developed in isolation from the channel community is much too narrow to deliver the total value customers now expect from their suppliers. The richness of the experience a company can offer is in reality closely dependent on the ability of each customer touchpoint (whether an intermediate or an end-customer) found along the supply chain continuum.
Building effective customer experience–oriented value propositions on the local level requires the following activities.
• Customer identification. Synthesizing customer segment knowledge is the beginning point in value proposition generation. The objective of this step is to identify exactly who the customer is (consumer versus business, new versus established) and the intensity, richness, and variety of experiences expected. Other criteria consider profitability, behavior, attitudes, demographics, and impact of competitors’ value propositions.
• Proposal creation. This step is concerned with two aspects: identification of the products and services to be offered, and the impact the proposition will have on what Schmitt calls the “experiential world” of the customer. The former is focused on features and benefits and attempts to hypothesize to what extent the proposition will bring in and retain more profitable customers and grow the share of customers’ total spending. The latter is concerned with mapping how customer experiences relating to brand, product category, experiences provided by increased usage or consumption of the brand, and engagement with the company, reinforce customers’ perceptions of the overall experiential value of the company.
• Proposition testing and verification. Before implementation, the value proposition must be verified using concrete tests. One key measurement is substantiating the proposed benefits by demonstrating and documenting findings. Value word equations, which assess the differences in functionality/performance between a supplier’s offering and the next best alternative, can be used. Another tool is the value case history, which documents the cost savings or added value current customers have received from a supplier’s offering. The proposition must track the customer experience along each proposed touchpoint. This step attempts to answer questions such as: What are customers doing at each point of the decision process? and How are customers’ experiences addressed at each touchpoint? Finally, the value proposition needs to be matched against the value experiences being offered by competitors to ensure value-based differentiation.
• Value proposition rollout. After confirmation, the new value proposition can be presented to the customer community. Critical components consist of the anticipated brand experience (the product experience, look and feel, advertising and presentation), customer interface types (Internet, retail, catalog), and level of innovation (new solutions, new experiences, transformed image). In the end the value proposition provides the experiential position (proposition deliverables), the experiential value promise (specific values available), and experiential message (communication of the new proposition experience). • Intelligence accumulation and analysis. After rollout, the impact of the value proposition and possible modification must be tracked. The repository of accumulated customer intelligence provides an effective knowledge base that can be used for the next round of value proposition generation.
As important as local value proposition generation is, it is incomplete without the second level: supply chain value proposition integration. The critical steps at this level consist of the following:
Viewing the Value Stream from the Customer’s Perspective
Engagement supply chain value propositions must begin by understanding customers’ demand chain requirements and their perception of the existing value network.
Four powerful value propositions come to mind:
1. Intensity of experience—exciting products and experiential environments will draw customers into an active mode, deepen their level of engagement, and foster emotional connections and a sense of anticipation that expands the context of what is perceived as providing value.
2. World-class service—customer service that provides personalization of contact and recognition for loyalty, along with rapid and reliable product delivery that differentiates companies from the competition.
3. Convenient solutions—processes that enable the customer to solve problems, cost-effectively, completely, and in a timely fashion with minimum expenditure of time and effort.
4. Customization—enhance product and service value by providing customers with easily configurable choices that permit personalization of the buying process and the composition of the goods and services desired.
The goal of the channel steward is to explore how each channel node can facilitate these general value propositions to drive engagement at every level in the supply chain.
Value Chain Mapping
Engagement supply chain management is about extending the anticipated value propositions of each channel member to all customers served by the supply network. The goal is to assemble a supply chain that possesses the competencies and resources capable of serving the demand chain needs of a customer segment. A good example is Dell, which has constructed a unique supply chain capable of delivering the company’s proposed experiential value proposition. As anyone who is familiar with the Dell story knows, the supply chain changed as Dell’s value proposition shifted from a small PC upgrade business to today’s giant provider of customer-configured PC and server equipment. At each transformation, the supply chain was reconfigured to accommodate new forms of marketplace demand and increase its value to the customer.
Scope of Channel Integration
There are three categories of channel systems that channel stewards can leverage to build the type of supply chain that will optimize their product and service offerings with the necessary value customers desire. In the first type of channel system, vertically integrated, the supplier assumes the responsibility for all customer value–creating functions, from demand generation to fulfillment. Examples include Spanish retail giant Zara and Dell. In contrast, in the second type of channel system, thirdparty delegated, the supplier depends on channel members to identify and provide for the portfolio of customer winning experiences and engagement with the firm’s brands. Examples include Cisco Systems, Ford, and General Motors. Here outsourcing, partnering, and collaboration are critical mechanisms for success. In the final type of channel system, composite, the supplier performs some of the most critical customer value–generating functions and engages network partners to perform the remainder. Examples include Sony and Ralph Lauren Polo.
Guiding Channel Evolution
If one thing can be said about managing supply chains around optimizing the customer experience and value perception it is that they will change continuously.
Effectively stewarding engagement supply chains requires channel strategists to effectively guide channel evolution by focusing on three critical principles.
1. All individual channel member value propositions must be integrated to ensure the maximum value is generated for the customer and that everything from products, availability, and presentation to interfaces and delivery directly increases customers’ positive experiences and sense of engagement.
2. Customer loyalty is often gained and retained by a company’s ability to offer consistently innovative products, services, and experiences that differentiate it from competitors. Such value propositions require constant analysis of the value offered at each touchpoint to ensure the channel is focused on providing the right combinations of products and services. For example, Sony recently decided to open its own upscale retail outlet as well as sell through the traditional electronics retail channel.
3. Finally, channel stewards need to ensure that value propositions targeted at deepening customer experiences or new innovations are supported by channel capabilities. In addition, it is often the case that superlative channel capabilities can create new dimensions of customer value before the customer actually requires them. A good example is the seemingly neverending evolution of the cell phone from a communications device to a handheld media center.
Aligning Process Value and Delivery Network Channels
The final driver needed to construct effective engagement supply chains is to ensure each participant in the channel community possesses a lean, agile, demand-driven organization flexible enough to enable them to continuously identify new sources of value and exciting experiences that attract and nurture customers into engaging, long-term relationships. Integrating these agile attributes into a single supply chain engine can be a difficult affair. The counterbalance of local versus channel performance targets, channel power struggles, engagement of players outside of the channel community, disruption caused by competitors, and differences in channel player capabilities act as centripetal forces rendering channel stewardship difficult and distract the supply community from their essential objective: creating the highest value for the customer.
There are four critical steps channel stewards must take in effectively aligning the supply channel community to achieve customer engagement. The first step is to map existing and alternative channel configurations. The goal is to gain insight into individual channel partner capabilities and the associated costs of adapting organizations to meet new patterns of customer demand. This step will require realistic assessment of the type and volume of demand, the financial capability of the partner to invest in customer engagement programs, and the type of pressure to be expected from competitors. Channel stewards can use the results to plan sustainable change based on how the supply chain is actually performing, the level of commitment in the channel to common goals, and what barriers they can expect to encounter.
Once the channel arrangement has been determined, the channel master can embark on the second step: organizing the supply network for customer engagement. The goal of this step is to grow total customer equity. This means that individual companies must allocate adequate resources in the form of organization and employee skills to provide the right blend of the goods, services, level of experiences, and innovation customers want. The goal is to demonstrate a direct correlation between how improving customer engagement directly contributes to increased loyalty and, by extension, to individual and supply chain growth and profitability. Saturn, for example, has attempted to provide car buyers with a system that enables them to pick the options they want while using the same information to reduce stocked inventories at the showroom, thereby enabling a make-to-order system at the factory.
The third step is concerned with assigning roles and responsibilities to channel players supportive of the engagement channel strategy. Based on the discovery processes found in the first two steps, this activity is centered on devising the individual functions each channel member must perform for the initiative to be successful. Important considerations must be given to trust and power sharing.
Since supply chains are marked by an inherent divergence in goals and objectives, channel stewards must be prepared to enforce or persuade constituents to accept
Channel-centric strategies.
A determining factor is the locus of channel power. For example, an organization like Menards can leverage its access to the market and detailed customer intelligence to command channel power, while a Sony can command compliance centered on its superlative and innovative products. In the end, alignment should provide for the benefit of all by enhancing channel value and total performance.
The final step in the channel alignment process is providing effective measurements that chart the success of efforts to align channel constituents with engagement supply chain needs. Perhaps the most critical function of the channel steward is to collect, evaluate, and report on aggregate channel metrics. Some of the indicators are obvious: gross sales, costs, market share, margins, order volumes, service levels, and so forth. Of greater importance, however, are other metrics relating to growth in customer equity that directly relate to customer engagement management. In this category can be found growth in retention rates, increased share of existing customer spending, new customer acquisition, satisfaction rates, and identification of which experiences are likely to increase customer equity.
Engagement Supply Chain Strategies
The creation of an engagement supply chain requires the development of strategies that move companies past a traditional concern with product life cycles, managing brands and market share, and rating performance based on short-term goals to fresh perspectives that seek to construct buying experiences that are truly customer centric. The goal of the engagement supply chain is the ongoing enhancement of customer equity. Nurturing a loyal army of addicted customers, however, is no small task. In today’s global economy no brand is safe, no customer is locked in, no relationship is inviolate. In fact, as products and services increasingly move toward commoditization, customers more and more consider themselves as free agents, bargaining for the best price with a variety of channel format players. This is a game that high-cost producers living in a “lowest price, always” world simply cannot win.
The solution is increased engagement with the customer: an engagement that allows vigilant, customer-centered organizations to provide a range of value propositions that commodity-type vendors simply cannot offer. The goal is to convert initial advantages in products and services (that can always be copied) to more personal, emotional, more lasting attitudes about a company and its brands that dramatically exceed the raw calculus of price. Todor has summed the journey toward engagement by basing it on four processes:
• ATTRACTING customers
• CONNECTING with customers
• ENGAGING customers
• CONVERTING the nature of the relationship
The role of the channel steward is to ensure their supply chains promote building customer relationships and accompanying customer equity. The steward must continuously provide the mechanisms as well as the direction necessary for customers to build trust in the channel touchpoints they deal with, to affirm customers’ feelings that they are receiving reciprocal value for the money they spend and the recommendations they give, that buying a cup of Starbucks coffee or trans-fat-free pastries from Dunkin’ Donuts is more than a transaction and is actually a conscious decision based on a series of past and anticipated future interactions.
In the real world of channel management, where the stresses and strains of blending often divergent network players is primary, customer focus can be lost.
In tightly integrated channels dominated by a single channel master, such as a Wal-Mart, supply chain partners are highly focused on providing customers with optimum experiences and tailored processes that consistently deliver on Wal-Mart’s value proposition. However, as channels become more segmented, even competitive, the focus on attracting customers and sustaining lifelong loyalties becomes more difficult and requires greater coordination. Regardless of the channel composition, successful strategies will be about how individual companies and their channel supporting partners can search for the right supply community mechanisms that will permit them to leverage their competencies to present their customers with unique experiences and emotional connections that will shield them from the competition.
The creation of an engagement value chain requires the development of strategies that move companies past a traditional concern with product life cycles, managing brands and market share, and rating performance based on short-term goals to fresh perspectives that seek to construct buying experiences that are truly customer centric. Building an effective engagement value chain is a multidimensional affair that requires diligent management, supply chain supervision, and effective management tools. The proposition is simple: the prime source of value for the firm is building customer equity and this value in turn provides a detailed window into assessing the overall value of the business.