In 1999 Buy.com had a whale of a problem. The online retailer had based its business model on two tactics: sell products under cost, and generate revenues through advertising sales. For a number of e-tailers, the strategy had already proven fatal. Now it wasn't working for Buy.com either.
The company needed to raise prices--a move that potentially could prove more disastrous than it might for other companies. Why? Because far too many chat boards reverberated with statements like "I don't like Buy.com, but I buy from them anyway since they charge less than anyone else." Such comments weren't surprising, given that Buy.com's service and support were practically nonexistent, but they were indicative of the fact that something needed to change, and fast.
"To remain viable, we needed to create raving-fan clients who'd stay loyal as prices climbed," says Tom Silvell, vice president of customer support at Buy.com. Silvell and his team tackled the challenge head on, first scrutinizing every aspect of the customer experience and then laying out a step-by-step program for building client loyalty. The plan encompassed tactics on numerous fronts: implementing tools and technologies, building a dedicated call center, beefing up information available at the site and building in various cost-savings initiatives.
The results were impressive. The company substantially cut contacts per order, representing significant financial savings. The return process shortened from 10 days to the click of a button. Price-checks--previously handled by four people--were automated completely. Several leading-edge technologies were implemented that went far toward improving the quality of the customer experience.
Most importantly, service ratings skyrocketed. In 2001, Buy.com became the first e-tailer ever to receive 4.5 stars on the BizRate scale (BizRate collects feedback from millions of online customers and converts this feedback into store ratings). Both Forrester Research and Gomez.com ranked the e-tailer No. 1 for the quality of its support, and PC World magazine listed the company as the top Internet retailer for 2000.
While improving service, Buy.com also managed to raise prices, increasing its margins and helping it become the second largest multicategory Internet retailer in the industry. "[The] key to our success," Silvell says "is that we built our programs and technologies around what customers wanted and needed instead of letting our programs and technologies drive their behavior. This tactic helped transition us from a price-sensitive shop to one focused on the customer experience, on offering value to clients and on providing quality merchandise at reasonable prices."
Three strikes Against the Customer
Buy.com's experience paints a telling picture of what can happen when companies adopt a customer-centric focus. But in a recent study of 665 companies worldwide, Gartner found that less than 5 percent of businesses have successfully implemented such approaches. According to Michael Maoz, vice president and research director of CRM strategies at Gartner, several factors have hindered companies from better focusing on customers, chief of which is that executives still struggle to perceive the financial benefits of doing so. Sure, the talk is there--everyone likes to say their companies are customer-centric--but when the day is done, businesses continue to pay greatest heed to initiatives translating into bottom-line revenue and ROI.
In light of current economic conditions, another obstacle now pitting companies against their clients is the overriding concern for short-term profitability. Indeed, the ailing economy creates a double-edged sword on the customer front. "Revenues are down, so businesses need to focus on their clients more than ever. But they've also had to rein in costs. They're cutting inventories and people, and that percolates down to the customer in terms of poorer performance," says Craig Cunningham, CEO of Customer Integrated Solutions, a consultancy that helps companies sustain growth through client-driven initiatives. The net effect, he concludes, is that customer-focused efforts have declined during the past year.
A third strike against the customer is the age-old problem of inter-departmental politics. In companies that have traditionally based their sales, marketing and service efforts on product offerings, realigning around the customer represents a radical change--one that many employees won't take sitting down. For larger, older organizations especially, the politics alone can be sufficient to stymie a client-centered turnaround (See sidebar "Case study: Cable & Wireless Conquers Politics".)
The Quest Begins
Though only a handful of businesses have succeeded in becoming customer-focused, the good news, Maoz says, is that more than half of those surveyed are making progress, with one or more initiatives now underway. As executives at these companies have learned, creating a client-centric organization isn't something that happens overnight. Rather, it's a quest, one in which loyal, revenue-generating customers are akin to the Holy Grail.
What's involved? Think of the quest as a series of steps that begin with basic information gathering and culminate in the execution of various strategies. Following is a template that, while not all-inclusive, can put your company well on its way towards becoming more customer-centric.
The First step: Locate your starting point. You begin any journey by plotting two points: your starting point and your final destination. In this case, the starting point is represented by one of five stages, depending on how you relate to clients. Craig Cunningham describes these as:
stage 1--Customer awareness. If your company finds it difficult acknowledging that its customers are even out there, you're likely a stage 1 company. Such organizations tend to be product-centric and are challenged with identifying who their clients are. Think of Microsoft, which basically pushed product on the market for quite some time.
stage 2--Customer focus. Companies here have begun acknowledging customers and seeking ways to determine which ones are most profitable.
stage 3--Customer satisfaction. You're measuring satisfaction and attempting to meet or beat competitors. Frequently, companies at this stage tie satisfaction levels to internal compensation models.
stage 4--Customer value. These organizations have begun looking at how they deliver value to particular customers. They ask, "What benefits are we really providing, and can we extract a price or a margin for that value?" They know why their customers buy, and they differentiate how they treat clients based on specific needs that drive satisfaction and competitive advantage for each segment.
stage 5--Customer loyalty. These companies enjoy repeat business, heightened customer demand and improvements pertaining to margin--they can reduce costs for things deemed unimportant by customers and can demand premium prices for products and services perceived as vital. If your organization falls in this category, you've deployed robust methodologies and a variety of tools. You don't just gather data, you actually use it, and you have a strong understanding of where you should invest to see the most return. You know what drives clients' behaviors, as evidenced by the checks they write and the prices they pay.
According to Cunningham, most companies today are in stage 2 or 3, but stage 5 is where the payoff lies. "stage 5 organizations," he says, "are able to build in predictive measures. Beyond knowing how customers perceive them, they can use their tools and data to spot early warning signals and, subsequently, take precautionary measures."
The Second step: Determine if your focus is where it should be. Over the last decade, many management trends have had a distinctly internal flair to them--remember "re-engineering," "rightsizing" and treating employees as "internal customers?" Each had its place in terms of driving change, but after a point, executives need to turn their focus outward. Those failing to do so run the risk of losing touch with their client base.
Such was the case for Randstad, the Netherlands-based staffing company that grew rapidly via a series of acquisitions. By 1998, Randstad had become a $6 billion organization. It also had become a veritable maze of operational models and business practices, housing 35 brand names under 17 companies, with 147 job titles spread across 500 locations, and utilizing no less than 37 disparate compensation models. To say the least, this piecemeal structure was not a bastion of efficiency. Executives knew that to remain successful, they needed to focus their attention inward and streamline the organization to a point where Randstad operated more holistically.
"My job was to roll everything together," says Virginia Means, managing director of HR at Randstad. "We succeeded, but by the time we were done, we'd lost contact with many of our clients. Sales weren't as strong as they should have been, and we suddenly realized that if we didn't refocus our energies back on the customer, all our efforts would be for naught."
Last year, Randstad launched a series of broad-scale initiatives aimed at fostering client relationships and building customer loyalty. The strategy worked (See "Case study: Randstad Reaches out to Customers," this article). "Today, I would absolutely say that we are customer-centric," Means says. "We learned a lot along the way, and we're using that knowledge to benefit clients."
The Third step: Establish a baseline. Quick, answer these two questions: What are my competitors doing to build customer loyalty, and what's the very minimum my company can do to keep customers satisfied? Your responses provide the baseline for your customer-focused efforts. If you didn't know the answers, your next step is to track them down. Once you've done so, ask if your company is at least (a) matching competitors' efforts, and (b) providing the bare bones in terms of keeping clients satisfied.
An integral part of keeping customers happy is knowing which factors drive satisfaction, and these can be determined in part by executing a survey program. Though many companies already have such programs, they often fail to do anything with the information. "That's a common scenario," Cunningham says. "A few key employees review the feedback. Perhaps a PR person takes some of the more positive quotes and spreads them around. But many organizations have no formal mechanism for turning that feedback into results, or for deploying it into strategic planning processes and using it to allocate resources."
If your organization lacks such a mechanism, the final part of the third step is to instigate one. At minimum, you could accomplish this by giving key employees or executives responsibility for turning client feedback into actionable items. For this to happen consistently, you'll also need to build in processes that ensure those items will be incorporated into the planning cycle.