7 Ways to Wrap Your Business Model Around Your Customer

The era of digital transformation has given rise to a number of established businesses and start-ups that combine digital technologies with unconventional business models to disrupt competitors and even entire industries. The convergence of cloud, mobile, social, cognitive, big data/ analytics, and IoT is providing a platform for a variety of important transformations, including a shift from traditional product-centric to customer-value-centric business models.

Many organizations are structured around business models that assume that all the value is generated through a product transaction. This results in a customer environment that may be product rich, but experience poor. In a digital economy, value is generated through the cultivation of successful client relationships. Here are seven steps that organizations can take to better position themselves to build successful customer relationships through the delivery of digital products and services.

1. GIVE YOUR CUSTOMER A SINGLE DIGITAL IDENTITY

Your customer record should provide a centralized digital representation of each customer. Most customers, especially larger ones, will engage with you in multiple ways, but you need to view their journey holistically. Customers see themselves as a single entity, and they don't want to receive eight invoices, for example, or find that accessing customer support or determining the best way to buy new services requires an archeological dig.

Mitigating customer data sprawl typically requires a series of process and technology changes in order to aggregate information going forward. Organizations must also address existing systems of customer numbering and identification, as well as work to line up renewals to enable co-termination.

2. MAKE IT EASY FOR CUSTOMERS TO START SEEING VALUE, QUICKLY

If your customers aren't using your product or service, they aren't seeing value. Providers of digital products and services should remove any friction that can make it challenging for customers to understand:

• What they need

• How to get it

• How to start using it in a productive way

Whatever your pricing and packing model, it should be transparent and easy to understand. This means putting things together for customers in a logical way so that they can see what they need today and throughout their journey.

Once the prospect becomes a customer, self-service tools, community resources, and processes that support your goal of helping customers see value quickly and cost-effectively become critical success enablers.

3. ALIGN YOUR PRICING AND PACKAGING WITH CUSTOMER EXPERIENCE

Aligning your pricing and packaging strategy with customer experience starts with a shift to subscription-based financial structures to support a relationship that changes over time. With a subscription foundation in place, you can start to look at the different measurements used to calculate value. Companies often begin with an access-based measurement, where customers have the ability to change the amount and type of access over time. The next step is to develop a model that reflects product or service consumption. To do this, the organization must:

• Determine what consumption means (i.e. is it transactions, reports, or scans?)

• Implement systems that track consumption

• Implement systems that report on, bill for, and recognize revenue on consumption

A further step is to consider outcome-based pricing models. To do so, the organization must define a successful customer outcome in clear-cut terms and have a way to accurately measure it.

Even if you do not price based on consumption or outcomes, you should define and track customer usage and success and then report this to your customers. This helps you understand which customers are seeing the most value, as well as those that are likely to churn.

4. DON'T STRAY TOO FAR INTO SCIENCE FICTION

Because we can track and measure so many different types of customer interactions, there is sometimes the temptation to price and package it all. It's one thing to track and report on these elements, it's another to consider whether they make good business model sense. To wrap your business model around your customers, you should settle on a pricing and packaging model that will be familiar to your customers and that reflects the way that they want to buy.

There are several examples in industries such as software where organizations have tried to align price and value with metrics that were unfamiliar, intractable, or unmanageable from a customer perspective. These approaches created FUD for customers and gave competitors an opportunity to take market share. While you may want to price differently than your competitors, you should also consider customer needs for predictability, simplicity, and ways to buy that align with how they budget.

5. SUPPORT YOUR BUSINESS MODEL WITH MODERN SYSTEMS

The operational systems that support your business model should wrap around your customer, as well. "Front office" experiences will be determined by your back-office capabilities. Companies that build subscription businesses on a backbone designed to support one-time orders and purchases will run into scalability and agility issues that impact customer experience.

A number of key technologies are essential enablers to successful execution, including billing systems, revenue management, entitlement management, telephony, financials, and customer sales and support. A cloud architecture that underlies connected devices, as well as analytics to help curate valuable data to support decision making and create market opportunities, are also essential.

Systems must also support multiple payment gateways, including credit/debit cards and region-specific payment methods. They should allow custom policies, such as the cadence at which the organization chooses to automatically retry payment failures.

A dashboard view is required across all key business metrics, including bookings, billings, recognized revenue, revenue backlog, and deferred revenue. The dashboard should also include customer usage data to help manage the customer lifecycle and predict when a customer is ready to move to the next stage. Usage reporting should be presented to customers to demonstrate value and keep them engaged.

The company's entire portfolio of offerings should be integrated from a policy and systems perspective, making it possible for customers to transition back and forth, as well as mix and match offerings with a unified experience.

6. BALANCE FLEXIBILITY WITH SIMPLICITY

Business models for digital products and services are becoming more flexible, resulting in additional options for customers and the ability to better align value with experience. However, it is likely that complexity will result. Over the years, the simplicity/flexibility pendulum swings back and forth and initiatives to simplify are often followed by efforts to offer more flexibility. To successfully tackle the simplicity/flexibility conundrum, your organization will need the kinds of systems technologies discussed in the previous section. However, technology will only be successful in removing some of the complexity associated with business model transition and/or flexibility. Process and cultural change will also be required. For example, consider how to make the customer experience across different models as uniform as possible by unifying sales, support, and financial objectives. If your organization has a top down culture that views each approach as meeting a specific customer need, it will be easier for the organization to design a holistic experience rather than betting one model against another.

Companies that build subscription businesses on a backbone designed to support onetime orders and purchases will run into scalability and agility issues that impact customer experience.

7. STRUCTURE A FINANCIALLY HEALTHY BUSINESS

While it is important to provide products and services that delight customers, organizations should not lose sight of the need for an underlying financial model that enables the organization to provide products and services to customers in an economically sustainable way. Organizations that are focused on products and up-front sales measure success based on units sold, billed, and revenue generated. However, organizations that wrap their business models around customers measure success based on recurring revenue, retention, churn, and customer lifetime value.

In the early stages of digital business model maturity, companies are focused on signing up new subscribers. However, it is dangerous to focus on doing so at the expense of efforts to create satisfied, longterm customers. It also takes discipline to keep the wrong customers out while bringing the right customers in.

For companies with hybrid business models (i.e., subscription and one-time fees or professional services), subscription may initially represent a minority portion of total revenue. However, it is important to implement processes and systems that will provide agility and scale in the future.

Business model success requires a new way of looking at customers. The ability to analyze the depths of a customer record and effectively manage the customer lifecycle is a critical capability. To achieve financial success, automation must underpin your customer lifecycle strategy. It won't be financially feasible to handhold every customer throughout their journey, so your systems and processes should support a strategy where you know which customers to reach out to, when, why, how, and to what end.

It has been said that the first step in reinventing your business model is not to think about business models at all. Instead, companies should think about the opportunity to satisfy a real customer that needs a job done. The secret to wrapping your business model around your customers isn't at all about pricing, packages, or profits. It's about real customers, with real problems that you can help solve.

by Amy Konary, Program Vice President at IDC