Can You Profit as Customers Get Smarter?

By Allan Alter  |  Posted 07-05-2005 Print Email
Customer strategies.
  • 88% of companies reach customers through their Web sites
  • 19% of IT budgets go to customer-focused activities
  • 43% of CIOs have regular contact with top customers
  • 43% say billing or account problems have hurt customer satisfaction
  • 42% of customer data is used to better understand customers

    Some truisms get truer with time, and "the customer is king" is one of them. Customers are more sophisticated and demanding than at any time in history, say 84 percent of nearly 300 respondents to this month's CIO Insight survey, and the Internet, by providing customers new sources of information and services, is one major reason why.

    "Customers have become very powerful," says Atefeh Riazi, senior partner and CIO of Ogilvy & Mather Worldwide, the New York City–based advertising and marketing company. "Before, the customer didn't have a voice. Today, with chat rooms and blogs, customers are talking back, and they can destroy any company in a matter of a week if it is not truthful about its products. Before, companies controlled content. Today, if I want to buy a washer and dryer, I do some online research, and then I decide what to buy after talking to people like me."

    But CIOs aren't powerless: Tech-nol-ogies that provide customer service over the Internet, along with CRM and analytics, can help them better understand customers and cater to their needs. And companies are adopting them. A recent report from AMR Research Inc. finds spending on so-called customer management technologies such as Web self-service and lead management will increase 8.2 percent in 2006, up from 2.3 percent in 2005. Our own surveys show the number of companies using CRM has increased from 34 percent in August 2004 to 42 percent in July 2005. And companies using CRM systems are able to exploit more of their customer data and are more likely to turn it into useful analysis than firms without them.

    To download the survey results, click here.

    In an environment where customers and competitors are well-armed with information, companies need a customer strategy that matches technology initiatives to customer desires and business goals, and gives purpose and cohesion to the use of customer data. That's why this month's survey focuses on customer strategies, rather than customer service.

    Certainly, the Web belongs at the center of any company's customer strategy. More companies use the Web to reach customers than the telephone, their sales force, or any other point of contact. That would also explain the rapid growth of e-commerce; online retail sales in the U.S. alone reached $141 billion in 2004, and are expected to hit $172 billion this year, according to a joint survey by Forrester Research Inc. and Shop.org.

    Could online sales be even higher? Our study suggests companies are underinvesting in Web technologies, such as personalization and search, that could make their sites more helpful. That's a missed opportunity; shoppers at five retailers whose Web sites had the highest customer satisfaction ratings—Netflix Inc., Amazon.com Inc., QVC Inc., Newegg.com and L.L. Bean Inc.—were 36 percent more likely to buy than shoppers at Kmart Corp., Costco Wholesale Corp., CompUSA Inc., Buy.com Inc. and Chadwick's of Boston Inc., the five online retailers with the lowest scores, according to a survey of 40 retail Web sites conducted by ForeSee Results Inc., an Ann Arbor, Mich., research firm.

    The Web is also the main technology platform for self-service. For many companies, lowering costs has long been the reason for letting customers gather product information, make purchases and check their accounts on their own. But improving service is now the main reason for investing in self-service technologies. Ft. Lauderdale-based cigar-maker Altadis USA Inc., known for brands such as Dutch Masters and Montecristo, recently began to take orders from traditional mom-and-pop tobacconists through a Web portal. The investment is expected to pay for itself, says David Mikelson, vice president of information technology. "But more important, if the buyer clicks on the product rather than -typing a SKU number, there is less chance of error. And there is nothing that makes customers more unhappy than getting something they didn't order."

    Still, self-service technologies have not met with universal acclaim; four out of ten CIOs say they haven't met expectations. But remarkably, only one in five companies reports a customer backlash from its use of self-service technologies. As Ogilvy's Riazi points out, even if it takes a while to get used to them, customers eventually get hooked on the convenience.

    The greater difficulty in customer service generally may not be satisfying customers, but making technology investments pay off. We found that on average, companies are happier with the ability of their customer service technologies to satisfy their customers than to meet their own business goals. An October 2004 McKinsey Quarterly article, "Steering Customers to the Right Channels," provides an explanation: unintended consequences. ATMs and the Internet have reduced average transaction costs for banks by nearly 15 percent, for example, but because customers check their balances and make withdrawals more often, the overall cost of serving customers has increased. Our survey suggests another reason: The metrics used to measure success, such as return on investment, aren't always aligned with business goals.

    Several CIOs we spoke to use ROI to measure these customer-service investments. But it might be even more helpful to use metrics that indicate whether companies are meeting their goals, be it acquiring new customers, reducing the cost of service, or something else.

    It might also help both causes—business value and customer satisfaction—if more CIOs regularly met with their top customers, something just 43 percent do, according to our survey. The current focus on infrastructure is probably keeping CIOs from doing this, says Riazi, but that's a mistake. "If you start making your job easier, rather than the customer's job easier, you are investing in the wrong place." Finding 1
    The Web is now the main point of contact between companies and their customers.

    Finding 2
    Using IT for customer service is benefiting customers more than companies.

    Finding 3
    For most users, CRM systems are delivering on the promise of helping companies analyze and use customer data.

    Finding 4
    Customer goals and customer metrics are out of alignment.

    Finding 5
    Improving service, not cost cutting, is driving the adoption of self-service technologies.

    Finding 6
    Nearly half of CIOs help or lead the creation of their company's customer strategies.

    To download the survey results, click here.



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