The customer is king

The Customer is King Value creation in the service economy

Hans P Brandt | TOTAL IDENTITY Annemiek van Moorst | TOTE-M

About the authors Hans P Brandt (1959) studied Visual Communication at the Berlin University of the Arts. He was appointed as lecturer whilst he was still studying there. In 1984 he became an employee at the Berlin Institute of Visual Communication and Design. Following posts which included a visiting lecturership at the Kunstgewerbe Schule Zürich, he joined Total Design (the former name of Total Identity), where he is currently DGA, in 1988. Under his leadership, Total Identity has undergone a change of course from being an agency which used to mainly handle design into an agency that works on corporate brands. At the core of Total Identity’s activities, are strategic explorations in the field of identity, image and positioning and the associated visual-communication implications.

Annemiek van Moorst (1953) is an entrepreneur, author, publicist, designer, inspirer, implementor and opinion leader. Annemiek is the founder and partner of TOTE-M (1994 until the present day) an independent management consultancy specialised in customer management (www.tote-m.com). TOTE-M’s customer base includes leading companies in the financial services, telecommunications, electronics/technology, retail and energy sectors. Annemiek was involved in the foundation of the Dutch CRM Association, she was a member of the jury at the 2005-2008 CRM Award, she is a visiting lecturer for the Multichannel Management master class at Nyenrode Business University and for the Customer Relationship Management Course at Erasmus University’s School of Management , Rotterdam. Previously, she was a senior consultant at Berenschot, partner at Da Vinci Group and spent eight years working as Head of Management Information Systems and HR and Work and Technology consultant at Postbank N.V. Annemiek graduated in Experimental Psychology, specialising in neuropsychology.

The Customer is King Value creation in the service economy Hans P Brandt | TOTAL IDENTITY Annemiek van Moorst | TOTE-M

2010 TOTAL IDENTITY Amsterdam

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Dear reader, Within the context of TOTE-M’s corporate identity development, intensive talks were held between Annemiek van Moorst, Lody Offenburg of TOTE-M and Kees Kerkvliet and Hans P Brandt of Total Identity. The following text describes the ideas that were formed during this process. Still food for thought on several points. Stimulating in other areas. Some statements are firm; they could be more nuanced. We are satisfied with other insights.

We would like to share our discourse with you. Towards the end of 2009 we would like to organise some round table discussions and, if you think it would help, we would like to put our further developed insights before you.

We hope you enjoy reading this and find it inspiring.

Hans P Brandt Annemiek van Moorst

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Value creation in the service economy The relationship the organisation has with its customers is becoming more and more central to operational management. Companies and organisations have increasingly become service providers; products barely represent any differential value. However, service providers mustn’t focus even more on serving the customer but should in fact exert more influence, according to where the customer is in their self-actualisation process. Sometimes they will be gentle and supporting, and at other times decisive and corrective. Besides a strategic choice with regard to Treacy and Wiersema’s well-known value disciplines, it requires a strategic choice with regard to customer management discipline.

A quarter of a century of value creation Organisations exist in competition with each other. They have traditionally wondered where the best chance of creating value lies: with a better product, more intelligent processes or more loyal customers. Improving performance cannot happen in all parts of the organisation at the same time. A choice needs to be made: creation of value at a primary product, process or customer level, as outlined in Michael Treacy and Fred Wiersema’s model for value creation.

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Product leadership Product leadership

S lea

Cu in Operational excellence Operational excellence

Customer intimacy

Cu man Sourcing

In ‘The Discipline of Market Leaders’ , Treacy and Wiersema explain that there are four rules which competing companies have to obey.

1. Offer the best proposition in the marketplace, by excelling in one specific value discipline. Market leaders develop a value proposition which is irresistible and unsurpassed.

2. Maintain industry standards in the other disciplines. You cannot allow the performance in other disciplines to be so poor that it damages the appeal of the unsurpassed value of your company.

3. Dominate your market by adding value year after year. It is impossible for a company to be the best in all three disciplines, but if a company concentrates in delivering and improving a single type of customer value, it will almost always perform better in that discipline than another company which spreads its attention over more disciplines.

4. Make sure you have an well-tuned operating model that concentrates on delivering unsurpassed value. A market leader in a competitive market must continue to focus on improving customer value. Improving the operating model will enable you to generate the right expectations among customers and reset them so that the competitors’ propositions appear less attractive or even obsolete.

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The model consists of three generic value disciplines. For each organisation, one of these value disciplines is dominant: it is from this discipline that strategic choices are made and acted upon. The two other value disciplines need to be properly organised. Concentrating, for instance, on operational excellence leads to more streamlined processes within the company and a clearer offering to the outside world. Performance in this value discipline makes greater improvements and brings with it more customer value.

Operational excellence The process takes centre stage: – Superior operations and implementation, continually meeting or surpassing customer expectations.

– Reasonable quality for a relatively low price.

– Focus on efficiency, streamlined operation, supply chain management and delivering on time, no frills; volume is important.

– Major role for measurement systems.

– Limited variation in product range.

Most international companies operate using this discipline.

Product Leadership The product (or the service) takes centre stage: – Extremely good at innovation and brand marketing.

– Active in dynamic markets.

– Focus on development, innovation, design, time-to-market, high profit margins in a a short period of time.

– Increasingly focused on brand experience.

Many companies in the fashion, multi-media and technology industries use this discipline.

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Customer Intimacy The customer takes centre stage: – Superior in providing the customer with attention and service.

– Adapting products and services to an (almost) individual level or customer segment: tailor made.

– The range makes way for fulfilment.

– The variation in customer segmentation leads to an immense variation in operational processes.

– Focus on knowing, managing and surpassing customer expectations, lifetime value concepts.

– Decision-making authority for employees who are close to the customer. Types of companies include professional service providers and manufacturers of high value custom-made solutions make this discipline central to their strategy.

Should more companies in one industry follow the same value strategy, this leads involuntarily to differentiation of product and/or service.

Freedom of Choice choice for entrepreneurs - or not?

Using the concept of value creation, the Treacy and Wiersema model is initially well suited for setting out principles on which an organisation can establish a framework for selecting a business strategy. However, its current definitions make the model inadequate for many organisations.

Product leadership, i.e. supplying the best product or service, is literally reserved for a single organisation within an industry. But does ‘the best product’ actually exist? Hewlett-Packard claims theirs is best. In reality, however, according to public opinion, it’s Apple that has stolen the glory. Thanks to its brand strategy, Apple has succeeded in surrounding

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itself with a design-sensitive community which is happy with the products and acts as the company’s fervent ambassadors. Perhaps if we look at it objectively, Apple is no longer the best product, yet it is cool and you make a statement if you own an Apple computer. Seen in this light, brands battle on a daily basis for the customer’s attention and perception and the Treacy and Wiersema model isn’t capable of detailing today’s reality.

A similar thing is happening to operational excellence. Only a limited number of companies can excel in any particular industry. The product made so well and offered in such enormous volumes, backed by such powerful marketing, that it only allows a limited number of players. Think of McDonald’s or IKEA. Here too it is the case that the game is, in reality, contested on other playing fields. Using an operational excellence proposition, these companies are capable of offering millions of customers an experience for the whole family, each and every day.

The playing field is mainly a favour from the customer, and it’s been that way for a long time.

We have become a perception culture in which serving the customer takes centre stage. Nevertheless, it’s still the case that organisations are only able to concentrate on the customer if their processes and products conform with industry standards.

Excelling in service These observations mean we have to reconsider the Treacy and Wiersema triangle. In a world in which the focus is increasingly placed on service, and in which customers - young and old, rich and poor - expect suppliers to meet their individual needs, the customer must be fought for. In short, the accent is largely on the customer.

Focusing on the customer is in fact something every organisation wants

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to do, providing the product quality and relevant operation are in place.

The choice the customer makes is based on softer issues such as emotion, perception and relationship. The service that the customer perceives is the only argument or weapon that is available.

Effects per strategy Besides the difference in quantity and market relevance, there is a clear difference in earnings outlook between the three value creation strategies.

Product leadership and operational excellence develop an intrinsic appeal through the status they have created and dominant presence. The product is clearly positioned and the instrumental and emotional added value in terms of customer identity can be powerfully profiled resulting in the product being more or less unavoidable for the customer.

Customer intimacy on the other hand, is only successful if a reaction, emotional or otherwise, is obtained from the customer based on customer knowledge; the moment of recognition and acknowledgement. What is aimed for is mainly an affective reaction. Trust follows the structural relationship that has been developed and, from this cultivated trust, the desired transaction follows: use or repeated use of the service. In the long term, loyalty emerges. The customer is loyal because they can identify with the service and, through this, with the organisation.

The majority of organisations must and can distinguish themselves in terms of quality of service rather than product (in the ‘old’ sense of the word) quality or processes. The key is to make the connection with the customer Neatly meeting expectations - and then only offering your own product - is no longer enough. The customer expects development; a con-

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Working on the product

tribution toward their self-actualisation (their struggle to actually reach their own potential).

Prestige Product leadership

Self-realisation Customer intimacy

Presence Operational excellence Working on the process

Customer management, including the contribution to self-actualisation requires other qualities than making sure the traditional product and well-known processes are under control. It requires no less than primordial involvement in the customer’s deepest desires. The customer themself has become the product - the ‘me’ brand. The 21st century customer is self aware, knows what’s for sale, is critical - and it’s that particular attitude that creates distance rather than engagement. Moreover, in the present individualised society, the customer is changeable and unpredictable, and feels at home in different surroundings. When deciding what to purchase, they listen to other customers more than to the company.

The product or service transaction moment is too fleeting and too narrow a basis upon which to develop a proper relationship. The operation then has a much broader, long-lasting aim: it concentrates on creating

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customer context. Thanks to this the operation forms part of the primary customer environment.

By letting service, sales and marketing processes advance into the heart of the organisation, a structured, high-value customer relationship comes about. Traditional back-office processes move to the front-office and what used to be the core business is outsourced.

The fact is that almost all of the current market leaders do not, or cannot know their customers individually, and normally, customer intimacy requires at least customer recognition in order to progress from customer contact to customer relationship (customer relationship management). In 2009, self-actualisation was forced to become a fact thanks to balanced brand experience strategies whereby the band acted as a kind of grindstone for the ego. As we can see with Hyves, this is already seeing some success: Hyvers express who they are by indicating which brands they are.

The branded experience The Chinese branded experience expert, Sampson Lee states: ‘You don’t always want to listen to the customer. You have to dare to hurt your customers too.’ Lee’s approach to branded experience is: focus on what’s important for the brand and the customer, place your resources there; pain is essential in order to be able to experience quality.

Sampson Lee creatively applies Nobel Prize winner, Daniel Kahneman’s ‘peakend rule’ to the customer experience. This rule states that the peak moment (positive or negative) ultimately determine how the experience is remembered. The other information scarcely plays a part. More pain moments that last longer could lead to a more positive experience looking back (in treating

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a patient with throat cancer). Based on his customer experience research, Lee states that an effective experience - one that is memorable and therefore not forgotten - can be characterised by a Pleasure-Pain Gap that is as large as possible, positive peak moments that are important to the brand and the customer, pain moments that can even lead to more sales (forced round tour at IKEA) and a happy ending.

Customer Experience Management expert Shaun Smith says that companies must quickly follow the movement of products (functional) with services (valuable) and services (emotional) in order for the customer to make a lasting connection with them.

Significance needs new entrepreneurs People more often want to experience meaning. Product and service transactions have to be more meaningful in order to get the customer to connect. This requires a new form of entrepreneurship, an entrepreneurship that dares to shift the accent from a transaction-oriented approach to a long-lasting approach, or customer lifetime value. This means that a structural form has to be applied to customer-centricity based on the following three dimensions: 1. Realise service leadership.

2. Be active on social networking: connect with each other internally and externally through social networks.

3. Achieve supply Chain integration and strategic sourcing: act as director in the value chain.

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Effort must therefore not be on service but on influencing, that is to say customer management. In order to describe this further, an extension of the Treacy and Wiersema model is necessary.

Traditional definition Internal definition

In the current service economy New Paradigm

Product leadership

oduct dership

Service leadership

Customer intimacy Operational excellence Customer intimacy

Customer management Sourcing

Social networking

Neither a limited product, a smaller operation nor a broad knowledge of the customer determines the contemporary organisation; it’s being aware of the current paradigm shift where the focus on value creation (large margin per single transaction) has made room for customer lifetime value strategies.

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Serving the customer’s self-actualisation means: – Customer relationship management = knowing the customer.

– Customer experience management Customer = getting the customer interested. management – Customer life cycle management = connecting with the customer.

In the light of self-actualisation we make the distinction between three dimensions of customer management as the answer to the question: how do you serve the customer in their search for themself?

It is no longer value creation that is the central issue; it is connecting with the customer whose reaction is being elicited - their perception, their emotion and finally the effect on their self-actualisation.

The organisation’s identity and involvement, and the community’s expression of trust in the organisation is reflected in the (organisation’s) brand.

Customer management – the effect on the customer The organisation serves its customers by concentrating wholly on what the brand and the organisation stand for (and so, strictly speaking, not managing its customers itself).

The strategic choices that the Treacy and Wiersema model offers need, in our view, to be complemented with a strategic choice in terms of the new customer management dimensions: sourcing, social networking and service leadership. Strategy is being distinctive by making choices, applying focus and implementing the strategy.

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Supply chain integration and strategic sourcing For the purpose of the customer, qualities from any source imaginable can be used. The operation serves the customer by continually generating the most effective and efficient production chain of people and resources at the right moment while consistently anticipating the customer’s wishes in a surprising way.

Effect on the customer: the organisation is able to inspire me, they target their energy properly and they are self-assured. It instils trust in me and gives me a wider repertoire for me to organise myself.

Social networking The organisation actively takes part in its customers’ social networking and communicates with them through these networks - the brand itself is also a social network. The organisation knows how people and organisations are to be connected through social networks.

Effect on the customer: the organisation gets me to make choices, it is completely at home in my social context, literally and figuratively. It behaves authentically and credibly and doesn’t force itself upon me. The community is the lifestyle perspective.

Service leadership The customer themself is the product. Quality is no longer defined by the supplier, but by the consumer. The organisation is a supplier of happiness and is capable of supporting self-actualisation like no other. The organisation continually pursues new standards and perspectives and is able to lead the customer before they realise it.

Effect on the customer: the organisation knows what moves me, it offers answers and it offers a beckoning perspective.

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Creating the right total perception Customer satisfaction is no longer enough: customers also go elsewhere when they are satisfied. You must create endorsers. You will only succeed in this if you recognise that most of the decisions that people take are intuitive, stemming from the subconscious, and are justified in hindsight. Psychology then becomes increasingly important when determining how you respond to the primitive parts of our brain which still call the shots as brain scans have shown.

Customer management is all about awareness of the customer’s reality, or at least how they see it. As a commodity, the product disappears into the background and service quality and the customer’s process of selfrealisation takes its place on centre stage. Core competence or capability becomes customer relationship, customer Experience and customer lifecycle management. All of the organisation’s traditional areas that can be done better by other parties stand in the way of ultimate customer focus and must therefore be outsourced. Each obstacle between the organisation and its customer must be broken down.

It is more important than ever to establish who the core target group, the secondary target groups and the stakeholders are upon which the organisation will concentrate. An organisation cannot be everything to everyone. Focus must be applied: which (potential) customers do you want to serve, who are the top customers, who might become top customers and which psychological profiles are behind each customer or customer group? Only this way can you capitalise on the perception each individual customer that you wish to bind to the organisation.

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The new mentality is: we admit you, the customer with your desires, into the core of our processes. You are our network, you determine our way of working and our processes and experience how how services shape you.

Organisations that bring this about are characterised by affective values: influencing, learning, inquisitive and connected. Adaptive capability summarises these qualities, the open meeting is the form and co-creation is the result. Where there is value creation, them it doesn’t really take place within organisation, but within customer interaction itself and using this orientation, organisations search for the most authentic connection to whatever determines quality and success.

Customer relevancy model © 2001, Crawford & Mathews Attributes If an organisation­

Access

Experience

Price

Product

dominates provides a on this solution attribute, it...

provides individual intimacy

is the pricing authority

seek generates provides customisation the inspiration business for customers of products & services

differentiates provides on this convenience attribute, it...

engenders care for the customer

is consistent in its pricing

generates provides prefer reliability education the for customers for customers business

operates at provides industry ‘par’ ease on this attribute, it...

engenders is honest respect for in its the customer pricing

generates credibility with customers

Service

provides accommo­ dation to ­customer needs

and customers

accept the business

The Crawford & Mathews customer relevancy model is based on extensive market research among consumers and gives five attributes with which organisations can connect with their customers: access, experience, price, product and service.

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An organisation can only be the best at one of these (dominator), be one of the best at another (differentiator) and it has to conform with industry standards in the other three (par) Performing below par is a disqualifier. The score is ultimately determined by customer satisfaction results.

Focus is necessary and acceptable because customers understand that an organisation cannot excel at everything. If they try to do so anyway, financial, human and social capital will be wasted.

Apple must deliver service too A product leader like Apple has drastically outsourced all its processes and, as its products offer inspiration, it not only joins its customers’ social networks, it even leads to them starting up. This enables Apple to shape co-creation.

The flagship stores are currently form the example of how experience can be designed in retail business. But is this enough? Won’t Apple too be finally forced by the consumer to deliver more service during the customer life cycle - i.e. after purchase? Under pressure from the consumer - a special website for dissatisfied customers - iPod batteries have since become replaceable.

Inside = outside - outside = inside In short, these developments mean that organisations must become even more customer-oriented. The way in which an organisation is organised determines the quality of its external performance. Moreover, the way a company performs externally places demands on the quality with which it needs to be organised internally. Put another way: inside becomes outside, outside becomes inside.

Nowadays, many companies’ motto is: become the ultimate customeroriented company; the Customer is King. The ultimate customer-oriented organisation develops by internalising the principles of customer inter-

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action, emphasising them in its positioning and, for that purpose, creating valuable meetings.

The customer is no longer interested in receiving a product or service (product push). Instead, they are increasingly looking for interaction and perception (market pull) for the purpose of the development of their identity and self-actualisation. Instead of acting from a position of supplying products, organisations will have to act far more from within their own capabilities which offer the customer relevant transformation for their self expression. The customers will then experience each customer interaction as one company’s service.

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Koning Klant (The Customer is King) is a publication that emerged from a close collaboration between TOTE-M and TOTAL IDENTITY. It is our great pleasure to introduce TOTE-M to you.

TOTE-M is an independent management consultancy in the field of customer management, founded in 1994, with offices in the Netherlands and Belgium.

TOTE-M helps its clients attract, develop and hold onto its customers. We do this on the basis of brand values at the following levels: - Personal, from customer contact to customer relation - Memorable, from customer need to customer experience - Long lasting, from customer moment to customer life cycle Our mission is to create, facilitate and guarantee valuable meetings. Our customers’ success is central to our service.

TOTE-M makes organisations more successful by measurably improving interaction with their customers. The future belongs to organisations that create valuable and authentic meetings. The secret is in the ‘click’. Binding the customer to you is essential.

TOTE-M has a great deal of professional knowledge at its disposal and is familiar with its clients’ operations. This means that TOTEM is able to develop a customer management strategy and help with its implementation.

TOTE-M’s customer base includes leading, mainly multinational, companies in the financial services, telecommunications, electronics/technology, retail and energy sectors. Our clients recommend us because our consultants are visionary, goal seeking, driven and involved.