Interview With Michael Ruckman for the 2018 Customer Day Conference

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Author:Michael Ruckman
Source: Future Business

For the second year, Michael has agreed to deliver the keynote presentation for the 2018 Customer Day conference to be held on September 27th in Moscow.
In preparation, Michael has recently interviewed on topics such as key trends in customer experience and business model evolution.

What are the 3 major trends that you feel are creating significant influence on Customer Experiences in the next 3-5 years?

Data is the future

Many companies have recognized that there is extreme value hidden in the data that they are able to capture from customer behavior, purchase and usage patterns, etc. I love the term Big Data as if the data itself is new – when, really, the data has always been there! However, only in recent years companies have discovered the ability to capture, process, and use that data at a reasonable cost with a beneficial outcome. As a result, new roles and functions have emerged to tackle data management, which includes things like mining and/or acquisition (from both internal and external sources), quality, storage, architecture, analysis, governance, security, integration, and presentation.

More interesting, however, is the ongoing use of data to influence behavior (again, both internally and externally). Companies are moving beyond using the data only for push marketing and cross-sell / up-sell activities, and are now using data in more sophisticated ways to influence the behavior of customers as well as staff. Well-honed rules together with behavioral triggers create a catalogue of automated activities that can increase usage (and revenue), decrease cost, build loyalty, lower risk, motivate staff, reduce fraud, etc.

The benefits to the business are huge (as well as the potential) but the task is daunting as the big data becomes bigger and bigger. What was once just data on fairly static customer characteristics, then spread to purchase and usage data inside of an organization, then outside of the organization, then more granular and wider spread behavioral data such as social networks, browsing history, etc. The breadth of this data has become such that humans cannot make sense of the patterns, clusters, and anomalies in reasonable amounts of time, which has spurred waves of development in machine learning and artificial intelligence to enhance the efficiency (timeliness and relevance) of predictive analytics and decision making.

All-in-all, a very exciting time of unlocking the potential of knowledge hidden in behavioral customer data.

Behavioral segmentation

Without getting into much detail on the science and economics of customer behavior, there is still a very interesting trend that emerges from the access to insight from the behavioral data that I just mentioned.

With access to more rich and valuable insight from behavioral data, businesses cannot ignore the new behavioral segments that emerge – in many cases aggressively challenging old, rigid segmentation principles based on demographics, income segments, geographies, etc. In some cases, the change even effects entire business lines and organizational structures. It seems, expanding customer segmentation from simple purchase patterns and usage patterns to life stages, life styles, and life events allows organizations to better structure their offering, pricing, distribution, positioning, and communications, and the benefits seem to be forcing organizational change at an increasing rate.

The increase in segmentation parameters (ways to slice the pie) and the number and size of segments is guiding organizations to a matrix-based segment management model, in which customers can exist in many different segments at once and segment managers work as a community to improve segment economics across multiple segments. Also a very exciting evolution of how businesses structure themselves in a more customer-centric management model.

From Customer Experiences to Customer Relationships

Another trend, and probably the most exciting, is the emergence of a new set of processes designed to enhance the quality of relationships outside of the purchase and usage of individual goods and services. While most organizations have very structured processes for sales and service, they often have no structured, standardized, measurable processes to manage the relationship with customers outside of the goods and/or services they own. This leads to a very limited view of customer behavior and also confines behavioral analysis to what is visible only from inside each product journey.

That’s right ! I said product journey, which is the name it should have considering the way most people are mapping what they call “customer journeys” today. You see, most customer journeys today are mapped only from within the product category to which they belong. This is not actually a true customer journey. It is a map (in most cases a linear progression) of the collection of contacts between the provider and the customer from the provider’s point of view. If we look at the journey from a customer’s point of view it is already an extremely different journey. Take buying a car, for example. If a bank offering an auto loan is mapping a customer journey only from application to closure (the product journey), they are missing huge opportunities to add value in the actual customer journey, which will include all kinds of counterparties, interactions, information exchanges, consultations, and activities (not to mention emotions) that are not currently captured in the product journey from the bank’s point of view. The same if the auto dealer only maps from its point of view – or the insurance company, or any others involved in the end-to-end journey that the customer will complete.

A true customer journey must be mapped from outside of the product journey to include all components. Then, analysis of customer behavior becomes insanely more rich and deep with insight. For example, looking at customer behavior for a customer journey mapped completely outside of product journeys, we may even capture cyclical purchasing patterns – customers who purchased a new car today, are likely to purchase new cars with some cyclical pattern in the future. With this information, I may design a customer journey to include not one purchase, but, rather, all purchases of cars in my customer’s life. If I can consistently add value, I am likely to maintain a very unique and loyal relationship with that customer.

If I was then able to map multiple customer journeys for different life events into a life journey, I would have an excellent view of how I can add value in that relationship. The new set of Relationship Management processes that has emerged in the past couple of years are designed to capture and utilize various behavioral patterns and triggers for more effective relationship management – specifically outside of the product journeys that may or may not be part of that relationship. They are also designed to engage customers in an ongoing dialogue that allows us to better understand the needs, desires, and even aspirations of customers.

What are your thoughts on the success of customer-centric business models?

I view customer-centricity as a failed developmental stage in the evolution of business models over the past few decades. In the end of the 1990s, product-centric companies were already feeling the pain from a lack of understanding of customer needs, behavior, etc. At that point, the promise of CRM systems was to use data to trigger offers of the right products to the right customers at the right time for a price that the customer was willing to pay. That’s it ! The technology solution was going to solve all of the problems of the product-centric organization and make them customer-centric. But it didn’t work so well in real life.

There are many reasons why most organizations did not see the huge and sustainable success that was envisioned, but mainly there are two key moments of failure:

  1. The assumption that past behavior is always a strong indicator of current interest or future behavior, and
  2. The assumption that implementing a technology solution would change the organization.

These two assumptions greatly reduced the effectiveness of CRM systems and also the customer-centric wave of development in business. Organizations that remained largely product-centric, armed with a thin layer of customer intelligence from data, began waves of push marketing, cross-sell, and up-sell activities that were the beginning of the end. Yes, these efforts brought short term successes for the organizations that were first to bombard their customers with attempts to sell more and more and more. But, as more organizations began the same activities, customers became less responsive and effectiveness declined (costs increased, results declined, customers became angry).

Today, business leaders are beginning to understand that technology will not change the organization. Rather, the technological components are fantastic enablers for an organization that has already become focused on managing mutually beneficial customer relationships. In this new model, contact and dialogue with customers become key business drivers, and competitive advantage is derived from the quality of relationships. Through this ongoing dialogue, we are able to gain a deeper understanding of customer aspirations, which, together with the wealth of data on customer behavior, provides a much more accurate predictor of current interest and future behavior. And, perhaps most importantly, we begin to measure our success not based on our effectiveness with sales, but based on the value from the customer relationship over a lifetime.

All of this truly changes business. Some business leaders still do not “see” all of this, but those that do are already enjoying the rewards of this Relationship-centric model.

What are the major differences between a relationship-centric business model and those that remain product-centric businesses or customer-centric? Can you give an example?

A relationship-centric business model implies that the ongoing relationship between customer and company is healthy. In order to be healthy, the relationship must contain basic attributes such as trust, communication and a desire to be happy together, but the key is that the relationship must be mutually beneficial. That is, both parties feel that they are better in / with the current relationship than they would be without or with some other. For companies to effectively initiate and maintain such relationships with customers, there are many business components that must evolve. To use just one for an example, we could take pricing strategy and look at the evolution in the music industry.

Not long ago, people bought CDs with music on them (or cassettes or even records depending on how old you are!). This product-centric bundle forced us to buy the entire CD of music when sometimes we only wanted or liked one song on the CD. With the rise of digital music, Apple was able to offer a more customizable selection of music and the ability to preview and purchase only those songs that we liked – definitely in the direction of being customer-centric but still linked to a concrete purchase and the need to consistently “entice” the customer to buy more. Now, however, we are able to pay a monthly fee for “access” to an almost unbelievable library of music, which is much more sticky from a relationship standpoint. In essence, we are purchasing a membership and not the product. Access is the key component of economic value and not ownership – which is key to relationsip-centric business models.

Was this successful for Apple ? Absolutely !! Apple, which had an average monthly spend of roughly 3.50 USD amongst American users on iTunes, has been able to charge 9.95 USD per month for the Apple Music membership – almost three times more revenue from essentially the same music library. Also, of the roughly 500 million iTunes users accumulated over the last 17 years, about 40 million have migrated to Apple Music in the last two years.

As I said, pricing is just one component in the overall evolution of business models, but this is a pretty convincing example in my humble opinion.

Where should Customer Experience Management exist in an organization (centralized or decentralized) and what compentencies should be included in this department? What influence should this department have over other parts of the organization?

Tough Question! I think CEM should stop having a management function altogether.

If we can define a customer experience as an individual contact that is pleasing, engaging, and fulfilling, then businesses should be designed in a way that ALL contacts are pleasing, engaging, and fulfilling. If we take that a step further and design a business so that the collection of contacts that happen over the course of a customer relationship have some interconnection, logical progression, and consistently add value for the customer, then we will be well on the way to a happy and loyal customer. Therefore, customer experience (and relationship quality) cannot be discussed in a separate department somewhere with measures that no one really understands; it must be at the core of every business strategy, development effort, and management imperative.

Businesses must see beyond simple sales and service-driven business models and redesign themselves to be efficient in managing mutually beneficial relationships with customers. This requires an evolution of the business model which includes the evolution of the organization itself. It cannot be achieved by simply adding a department that measures NPS and tries to convince business line leaders to change something or be more friendly to customers.

I have seen many businesses that are incapable of this evolution on their own. That is, the current business lines are so attached to their current models that they are unable to see, understand, and embrace the change that is needed in this new era of relationship-centricity. In these situations, there may be a centralized role for some person or team to “guide” the evolution. Someone who acts as an educator, motivator, problem solver, etc., but this is not a permanent function. This role, would be a catalyst of sorts to “push” the evolution in a faster, more efficient manner. However, the key principles of a new, relationship-centric business model must be very tightly integrated into each business line if sustainable success is desired. Once achieved, this role will no longer be needed as a permanent part of a management team or organizational structure. In this scenario, managing quality customer experiences and quality customer relationships will simply be business as usual.

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