1. IBM Global Business Services
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Manufacturers are under intense pressures to increase market share, improve
margins and differentiate their products in the marketplace. The typical levers for
gaining competitive advantage such as price, product innovation and traditional
marketing are easily copied by competitors and eventually become “me too”
in the marketplace. Firms spend anywhere from 5%-15% of product sales on
marketing, yet brand loyalty remains low.
In a recent survey conducted by IBM, we found that buyer segments have
unique service needs throughout the purchase process. In addition, we found
that purchasers who have a positive service experience are much more likely to
be loyal and refer others to the brand. We believe that a well designed service
program, targeted to the right segments and tightly integrated with the firms’
operations can differentiate a brand, increase loyalty and provide a lasting
competitive advantage.
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Today, almost all manufacturers provide after sales support services. But these
services are usually the same across all of a company’s product segments, and
warranty terms and product support services are typically the same across the
industry. Executives believe that if they invest in upgrading services, competitors
would follow and eventually customers would no longer see differentiation or
value, while the firm is left with higher costs. As for pre-sales support services,
they often are not even offered. But viewing services in this traditional way leaves
an opportunity on the table.
Service Enabled Customer Experience (SECE) is a strategy for leveraging
services throughout the customer’s purchase and ownership lifecycle to offer a
unique and differentiated experience. It consists of:
Targeting services to unique customer needs across the ownership lifecycle,
such as providing information that makes the buying process easier,
enhancing the value of the product or reducing ownership hassles
Integrating these services into the fabric of the firm’s operations, so that
customers consistently see value at every touchpoint and throughout their
ownership experience
Positioning services in the center of the firm’s marketing messages so that
customers are aware of the value manufacturers are providing through the
service program
Increasing the customer’s perceived value of the combined product and
service offerings
Building a direct relationship with customers while still balancing the firm’s
current business sold through channel partners
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Manufacturers are under intense pressure to differentiate their products in
the marketplace. Yet competing products are usually available with similar
features, pricing and marketing. Services can help products stand out from the
competition.
Services Can Differentiate the Brand
Even product innovation isn’t enough to differentiate a brand. Product lifecycles
continue to get shorter, and because global, flexible supply chains are now
available to any competitor, new products ideas can be copied quickly. One
recent example is that of Vizio, the upstart LCD TV manufacturer, which in the
span of three years has grown from a low single-digit market share to the point
where it now is competing for the largest share in North America. Vizio handles
design and marketing, but outsources assembly to contract manufacturers,
taking advantage of the supply of increasingly commoditized LCD panel
technology and capacity. Because it can use many of the same components
that are in high-end brands while keeping its overhead low, Vizio is able to sell its
LCD TVs for much less than competitors, and many consumers don’t see enough
of a difference in picture quality to justify paying more for a premium brand.
To help differentiate their brands against threats like Vizio, both Panasonic with
its “Concierge” program and Sharp with its “AQUOS Advantage” program
are offering a portfolio of services to their customers designed to enhance the
ownership experience. While both companies to continue to make significant
investments in RD, services are an integral part of their strategies for acquiring
and retaining customers.
More Effective Channel Marketing
Most consumer products companies are under intense pressure to reduce their
expenses, especially marketing expenses. Often, they are forced to spend large
sums in collaborative marketing with the retailer who distributes their products.
But, benefits from such marketing spend are not easy to measure, and that
product manufacturers don’t have much control over development of marketing
campaigns conducted by channel partners utilizing their funds. By proactively
developing marketing programs that are mutually benefit to both the channel
partner as well as product manufacturer and targeted at premium customers,
firms will be able to measure and utilize marketing dollars more effectively.
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Provides Unique Value to Channel Partners
Some channel partners are also looking for increased differentiation from their
suppliers. “A” channels or premium distribution partners typically carry a
manufacturer’s high-end product and provide superior margins. Before the
emergence of “big box” and discount merchants, they could maintain their niche
because manufacturers would first ship new products to the A channel, then as
the product matured B Channels such as mass-merchandisers would receive
the product. This provided the A channel with a time advantage during which
they exclusively carried certain high-end products. Now that product lifecycles
are more compressed, manufacturers typically distribute their products to all
channels in a more simultaneous roll-out. Thus, A channel partners have lost
their traditional advantage. As a result, they are asking manufacturers to provide
something unique that a mass merchandiser would not have access to. In many
cases, services could be the answer.
Given this competitive landscape, how can firms differentiate their brand in a way
that is meaningful to customers, affordable and sustainable?
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While all manufacturers offer support services for their products (such as product
warranties, installation and repair), they do not usually leverage them to create
competitive advantage. Existing service offerings are typically viewed as a cost
of doing business, and while they are seen as necessary, they are not often seen
as a potential source of competitive advantage.
The difference between typical product-related service offerings and a Service
Enabled Customer Experience is that a SECE program:
Spans the entire ownership lifecycle across all customer touchpoints, from pre-
sale to post-sale and repurchase
Addresses unique needs of targeted customer segments
Is bundled with the product or is closely integrated with product features
Leverages convergence of the product and connectivity to provide enhanced
service levels including customized content.
Is integrated with marketing campaigns to differentiate the product and drive
customers back to repurchase
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Our research shows that customers have unmet needs across the purchasing
process. A critical step in undertaking an SECE strategy is to understand what
those needs are, not just for your industry, but for your specific products and
customers. While looking at what competitors are doing, or consulting analyst
reports can provide a starting point, getting a firsthand perspective is important.
First, your products may have unique design characteristics, content needs,
strengths or weaknesses that can be addressed with unique services. For
example, convergence with connectivity may provide an opportunity for content
or monitoring services. Second, having this original voice of the customer can
be a powerful catalyst for change within the organization. It is much easier to
overcome the objections of naysayers who don’t see the advantages of an SECE
strategy, or who may feel threatened by it, by showing them the evidence from
their own customers.
Figure 1
By grouping these needs together, it is possible to identify the value propositions
customers are seeking. The service program should be designed to deliver
these value propositions.
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Figure 2
A key role of a manufacturer’s service organization is to “keep the customer” and
then “give them back” to the sales organization when the customer is ready to
buy again. The manufacturer’s sales and marketing organization may be leaving
to chance whether customers will return to buy the company’s products in the
future. Even satisfied customers will defect if they have no loyalty to their current
brand.
A key part of an SECE strategy is providing a mechanism for customers to remain
engaged with the brand, so that customers maintain awareness and a connection
to the firm. Examples of these methods are loyalty programs, forums, blogs, and
newsletters.
Our research has found that customers that have positive service experiences
are much more likely to establish a positive emotional attachment to the brand,
and therefore become truly loyal. This means that even if a competitor makes an
attractive offer, the customer is more likely to remain with their original supplier
because of the trust and confidence that has been built up.
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Finally, firms can use their existing customers to acquire new ones, by encouraging Learned
Lessons them
to become advocates of the brand. The same customer experiences that contribute to
loyalty also contribute to advocacy. The difference is that advocates derive additional
satisfaction from telling others about their positive experiences with the brand. Recent
research has shown that buyers find the recommendations of others much more credible
than those of the manufacturer, or even professional reviewers. Manufacturers should
make it easy for customers to refer others to the brand, and reward them when they do so.
Figure 3
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Adopting a SECE strategy can deliver significant benefits in three areas: Direct
Customer Relationship, Product Repurchase and Customer Advocacy.
Direct Customer Relationship
In today’s environment where channel partners can have considerable influence
over customers, the SECE approach gives firms a platform for building a direct
relationship with customers. Successful firms can leverage this platform to
increase knowledge of who their customers are and develop insights into their
unique needs, which in turn can be used to continuously improve products and
services.
Product Repurchase
Once the relationship foundation is in place, firms can leverage this platform
to announce new products, execute event driven marketing strategies and
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strengthen their distribution channels by referring customers to preferred
partners. Together, these capabilities can lower customer acquisition and
retention costs by making more effective use of the firm’s marketing budget.
Customer Advocacy
Ultimately, customers that have a superior end-to-end product and service
experience are more likely to remain loyal to the brand and become advocates.
Firms that have adopted an SECE approach have increased repurchase rate,
reduced time to second purchase and increased advocacy rate, resulting in
sales increase.
Figure 4
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A high tech manufacturer was facing high customer dissatisfaction with their
warranty returns and reverse logistics programs. Their program was ranked the
lowest amongst the six major HDD manufacturers. Within the firm, it was difficult
to get various groups to agree on what was causing the problem and prioritize an
action plan. This was directly impacting the company’s overall value proposition
to its enterprise customers and the quarterly business reviews were dominated
by services related issues instead of focusing on sales.
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IBM worked with this company to develop a voice of customer program,
interviewing procurement managers of the firm’s twenty-five largest customers
to understand what the customer’s services after sales needs were, how the
firm was meeting those needs and how competitors were serving them. Working
collaboratively with Customer Operations, Logistics, Planning, Transportation and
Finance teams, IBM developed a new warranty returns program supported by a
solid business case. This was presented to senior management for approval and
after the approval managed successful launch of the program.
The result was that the entire firm is now aligned to a common view of customers’
pain points and needs. The new warranty program has resulted in:
A 16% increase in customer satisfaction
Potential to increase volume-mix
Differentiation from competitors
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To implement an SECE strategy requires developing a comprehensive service
program that targets a specific set of customer service needs. The steps
involved are:
Understand customers’ unique service needs across the purchase and
ownership lifecycle using a combination of focus groups, quantitative surveys,
and mining of customer data, such as call records and service history – what
problems, challenges and opportunities do customers face when selecting,
buying or using your product?
Describe how services could benefit each customer segment – what
services does each segment value, when do they need them, how much (if
anything) are they willing to pay, and how should the services be delivered?
Develop a business case for implementing the service program – what are
the costs and impact on revenue?
Develop and operationalize a service program that meet customer’s service
needs, but also increase customer satisfaction, loyalty and advocacy – what
new process, skill or information technology capabilities need to be created?
Create a marketing program that communicates the value of the service to
targeted customer segments
Launch the SECE program and measure the results
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Figure 5
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A consumer electronics manufacturer sought to improve the consumer
experience to differentiate its brand and gain competitive advantage. In this
industry, where customer loyalty is the manufacturer’s ultimate goal, service
satisfaction has a greater impact on repeat purchase intent than product
satisfaction. The company knew it needed to understand its customers better, to
provide the right services at the right time. The client decided to provide services
targeted to specific customer needs across its product line, and provide the
desired experience to the customer across multiple delivery channels.
IBM worked with the manufacturer to help it develop a unique, multi-channel
post-sales service program. Based on in-depth consumer research conducted
by IBM, the program goes beyond competitors’ post-sales service and support,
offering a unique VIP customer service experience, providing extensive support
and service through the channels demanded by consumers – call center, Web
self-service and authorized servicers.
The result has been:
Over 100,000 new customer registrations in 6 months
Increased Net Promoter® score to by 30%
65% of customers reported they would be more likely to repurchase the brand
86% customer satisfaction with the service program
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Firms pursing an SECE strategy can learn from the challenges others have
encountered in adopting these types of programs.
Misalignment of Product, Marketing and Service Strategies
For most manufacturers, looking at services as a source of strategic advantage
requires a shift not only in thinking, but in the way decisions are made and
resources are allocated. Firms that choose an SECE strategy without making
the necessary governance changes can lose the benefits. For example,
manufacturers are often “product-led”, with the result that the marketing
organization creates messages that describe only the advantages of the
products’ features, and the services organization provides only “break/fix”
support.
An SECE organization views service as an integral part of product development,
marketing and service delivery. For example, customer feedback on product
requirements derived from service calls should be fed back and acted on by the
product development organization. The marketing organization should launch
event-driven marketing campaigns based on customer information gathered from
the program.
Insufficient Understanding of Customer Service Needs
Without conducting primary research, including focus groups, quantitative
surveys and in-depth analysis of contacts with its own customers, manufacturers
cannot be assured of accurately understanding the service opportunities that are
unique to their customers. Secondary research provides a good starting point for
developing hypotheses, but they cannot be tested without talking to customers.
Giving Away Unaffordable Levels of Service
There is often a temptation to give away high service levels in an attempt to
gain favor with customers. While this can appear to work in the short term, in
the long run it is a losing strategy. First, it can devalue services that customers
would otherwise be willing to pay for, cutting already thin margins even further.
Second, if the increased service is not connected to the desired behavior, it may
not have the desired effect. For example, providing exclusive service benefits to
customers who are loyal or brand advocates encourages repurchase.
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Not Leveraging Customer Insights
If the SECE program is designed properly, after launching the program,
manufacturers will be able to collect information about customer behavior that
they may never have had before. This can be a gold mine of actionable data
that should be fed back to the Product, Marketing and Services organization.
Relatively simple analytics can provide answers to questions such as “Who are
our most profitable customers?”, “What are the characteristics of our most loyal
customers?”, “What products and services are typically purchased together?”,
“”What offers should be targeted to customers who buy certain products, and
when is the best time to target them?”, “What unmet needs to our customers have
that could be satisfied by a new product or service?”
Channel conflict
While a key benefit of SECE is the ability to build a direct relationship with
customers, this can be seen as a threat by channel partners who could think
the manufacturer is trying to steal “their” customers. There is no simple answer
to channel conflict, but manufacturers can mitigate it by including channel
partners in the design of the program. For example, manufacturers can offer
incentives to channel partners who participate in the program, ensuring that
marketing promotions direct customers back to the partner for product or service
opportunities.
Focusing on only part of the buy chain purchase process
Manufacturers often make the mistake of looking only at post-sale and repair
services when designing a Service Enabled Customer Experience program. But
customers have service needs that start when they first consider purchasing
a product and continue past product disposal into repurchase. By offering
services across the total lifecycle, firms can better demonstrate their complete
commitment to standing behind customers.
Not Delivering on the Service Promise
It’s one thing to promise a great customer experience, but quite another to
deliver it. Nothing has a more negative impact on customer loyalty than a
service experience that doesn’t meet elevated expectations. So before the
SECE program is launched, make sure the delivery capabilities are in place.
Start with a broad vision, but execute in small steps, learning and adjusting from
experience.
![IBM Global Business Services
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