The True Price of Channel Optimization

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Your customers most likely have very definite preferences in communication channels, but their choices might not be the most profitable for you. What if you could maximize customer profitability by encouraging customers to use the optimal channel(s) based on your cost to serve them? Sound enticing? It should. Channel optimization is the most important area affecting an organization's profitability.

There are two parts to channel optimization. The first concerns achieving a balance between fulfilling customer preferences and lowering the cost to serve each customer.

Do you know which channel(s) your customers prefer to use to engage with your organization? To find out, look at their current preferences and do market research to discover what they may prefer in the future.

Do you know the cost of serving customers via each preferred channel? Can you afford it? Determining cost-to-serve information requires careful analysis of all relevant channel financials for existing and planned channels. While this can be challenging, channel optimization cannot be achieved without it.

The hard part is finding a balance between delivering desired customer channel preferences and driving customers to the lowest cost-to-serve channel acceptable to them. This can be complicated further by even more challenges:

Single or multichannel? While many customers and organizations work in a few channels today, this will not be true in the future. All organizations wishing to survive will have to establish a multichannel strategy, whereby a customer or prospect begins his journey in one channel, travels to another to get answers he could not find on the previous one, and finally moves to a third to make a purchase.

Will preferences change? Consider how customers' preferences have changed as far as purchasing books, music, and travel, and in the retail sector as a whole, over the past decade. If your customers' preferences change within your industry, how will this affect your ability to serve them?

Ease of moving customers to other channels? Years ago I worked with a global footwear and apparel company that sought to put into place a "lowest cost-to-serve" strategy. To accomplish this, they encouraged certain customer segments to move from full-service to digital channels. Customers were not ready for the change and needed considerably more training than initially anticipated.

Learning curve = lower costs? While certain channels may seem expensive to work in today, as customers continue to utilize them, the cost will likely decrease. To understand this learning curve, think about the cost of starting up a social media community five years ago versus how much that cost would be today.

The second part of channel optimization deals with optimizing each selected channel through integrated processes and technology.

I recently researched 10 best-in-class global companies that have successfully integrated distribution channels. The majority have focused on implementing business processes supported by CRM technology in sales pipeline/opportunity management, partner relationship management, marketing initiatives, and/or social media community building. Each had meaningful challenges doing this and then configuring CRM software to drive efficiency into these processes. Yet those companies that have put the right processes and technology into place are running far ahead of the pack.

Any organization wishing to be around in 10 years will need a sound channel optimization strategy that answers at least these questions: Are you optimizing channel partner integration, the channels that customers use, or are you optimizing both? How are you accommodating multichannel optimization? And if you have good answers to these questions, here's your bonus question: Where does the emerging "Internet of Everything" channel fit into your strategy?

Barton Goldenberg (bgoldenberg@ismguide.com) is president and founder of ISM, Inc., a strategic consulting firm that creates and implements customer-centric business strategies for CRM/social CRM, big data analytics and insight, knowledge management communities, customer experience, and channel optimization initiatives. He is the publisher of CRM in Real Time, CRM Automation, and The eGuide to Mobile and Social CRM.

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