4 proftiable growth, service enabled cust exp

AchievingÊProfitableÊGrowth:Ê

LeveragingÊServiceÊEnabledÊ

CustomerÊExperienceÊtoÊCreateÊ

CompetitiveÊAdvantage

IBM Global Business Services

StrategyÊ&ÊChange

ExecutiveÊBrief

IBMÊGlobalÊBusinessÊServices

1

Introduction

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.

WhatÊisÊaÊServiceÊEnabledÊCustomerÊExperience?

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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WhyÊadoptÊanÊSECEÊstrategy?

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 R&D, 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?

HowÊCanÊFirmsÊLeverageÊServicesÊforÊCompetitiveÊAdvantage?

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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ServicesÊCanÊBeÊUsedÊtoÊCreateÊandÊHarvestÊLoyalÊCustomers

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.

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.

Figure 1


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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.

Figure 2


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Lessons LearnedFinally, firms can use their existing customers to acquire new ones, by encouraging 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

BenefitsÊfromÊSECE

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

CaseÊStudy

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

HowÊtoÊImplementÊanÊSECEÊStrategy

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

CaseÊStudy

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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PitfallsÊandÊLessonsÊLearnedÊfromÊImplementingÊSECE

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.

© Copyright IBM Corporation 2009

IBM Global Services

Route 100

Somers, NY 10589

U.S.A.

Produced in the United States of America

April 2009

All Rights Reserved

IBM, the IBM logo and ibm.com are trademarks

or registered trademarks of International

Business Machines Corporation in the United

States, other countries, or both. If these and

other IBM trademarked terms are marked

on their first occurrence in this information

with a trademark symbol (® or ™), these

symbols indicate U.S. registered or common

law trademarks owned by IBM at the time this

information was published. Such trademarks may

also be registered or common law trademarks in

other countries. A current list of IBM trademarks

is available on the Web at “Copyright and

trademark information” at ibm.com/legal/

copytrade.shtml.

Net Promoter, NPS, and Net Promoter Score are

trademarks of Satmetrix Systems, Inc., Bain &

Company, and Fred Reichheld.

References in this publication to IBM products or

services do not imply that IBM intends to make

them available in all countries in which IBM

operates.

Conclusion

Manufacturers have an opportunity to break free of the cycle of low

customer loyalty and low margins by pursuing a Service Enabled

Customer Experience strategy. This approach has been shown

to increase customer loyalty and advocacy, ultimately increasing

market share.

Implementing an SECE strategy requires a shift in how services

are viewed by the organization. But for those willing to make the

commitment, the rewards are significant.

About the Authors

Anees Gopalani, an IBM Global Business Services Associate Partner,

is the Services and Solutions Leader for the Strategy & Change

practice. He consults to Fortune 500 companies in the electronics and

general manufacturing industries on growth strategies and business

transformation. Anees can be reached at [email protected]

Kevin Shick, an IBM Global Business Services Senior Managing

Consultant, is in the Strategy & Change practice. He consults to Fortune

500 companies in the operations and technology transformation. Kevin

can be reached at [email protected]

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4 proftiable growth, service enabled cust exp

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