A customer pain point, a forgone revenue opportunity, or a waste of firm resources
A change along any of the five dimensions of information flow at any of the steps in the customer experience or from one experience to another
Let us first focus on the willingness-to-pay drivers and pain points that you identified in step 2 and the information flows that you analyzed in step 3. To generate ideas, we find it helpful to go in both directions:
Start with the willingness-to-pay drivers and pain points you identified and ask, “What could we do to relieve this pain point or to better address this willingness-to-pay driver?” And then ask yourself, “What information would we need that would allow us to implement our solution?”
Or start with the information that you could potentially gather, and then ask yourself, “What pain point could we relieve with this additional information? Which willingness-to-pay drivers would we be able to address with this information?” To identify valuable information, it can also be helpful to ask yourself, “For what data would we be happy to spend a lot of money (and exactly how much?) because it would help us to increase our customers’ willingness-to-pay or improve our efficiency?”
To generate ideas, it is sometimes also evocative to ask, using the different connected customer experiences we introduced in chapter 4:
What could we do to create a better respond-to-desire customer experience?
How can we build a better curated offering?
For what aspects would our customers potentially value a coach behavior experience?
Could we create an automatic execution experience for some of our services?
Recall that these different customer experiences affect different stages of the customer journey, as we illustrate in worksheet 6-5. Use this worksheet to keep track of your ideas and the required information. It is useful to draw arrows between the responses to pain points (or willingness-to-pay drivers) and the boxes containing the required information.
Once you have identified the required information for your various ideas, you can go back to your work of step 3 and fill in the bottom row of the corresponding worksheet: What changes do you have to make to your information-gathering activities in order to acquire the information you need?
At this point, we want you to come up with as many opportunities as you can.
An example for an opportunity that could come out of this step would look like this:
Customers are often late when it comes to retirement planning. By tracking their spending patterns and their current assets and debts, our bank could engage earlier in the customer journey when the need is still latent, as opposed to waiting until the customer comes to us. A personalized video chat could be initiated by us and be used to engage the customer in this process by comparing her or his account with those of a peer group.
WORKSHEET 6-5
Responses to pain points and required information
But it is not all about pain points and willingness-to-pay. The information flows in a connected relationship can also improve your efficiency, thus driving down fulfillment costs. This can happen in one of two ways. First, the information flow might already be happening, but it is happening manually. A dispatcher uses radio communication to organize a passenger pickup; a Disney waiter gets a food order from a customer by handing out a menu, coming back, and then taking the order; or a patient goes through registration in the hospital before receiving care. As important as this information might be, it is definitely not adding value in the eyes of the customer and it unnecessarily drives up fulfillment costs. Specific questions to be asked include the following:
Where is transactional information exchanged in person, via phone, or via fax?
Where do you still use manual data entry?
Consider the following example of an opportunity that reflects the automation of an existing information flow:
Patients coming to the clinic spend a long time checking in and dealing with paperwork. By tracking the patient’s phone through geolocation and using facial recognition technology, check-in becomes effortless, which is more convenient for the patient and cost efficient for the clinic.
Beyond streamlining or even automating your existing information flows, there might be opportunities for efficiency enhancements by connecting previously unconnected parties. We saw examples of this in our discussion of grocery shopping and ride hailing in chapter 2. Such new connections can help to balance workloads across resources and thereby further reduce fulfillment costs. How might the opportunities you identified earlier be improved further by adding new information flows between previously unconnected parties?
How about connecting patients with care providers just in time, as opposed to only when the appointment was made?
Often, patients don’t show up for their appointments, leaving the provider or the equipment unused. Whether a patient will show up on time, late, or not at all is only known at the last minute. By tracking the patient’s phone through geolocation and using local traffic information, an expected arrival time can be calculated. If the patient is not within five miles of the hospital thirty minutes before the appointment, a reminder message is sent or the appointment slot is released.
Step 7: Find Ways to Utilize Information Gathered from Repeated Interactions to Improve the Recognize-Request-Respond Cycle
A key concept behind the repeat dimension of a connected relationship is that you learn from one customer experience to another. In step 5, you analyzed what you are currently doing for each of the four levels of customization that relate to the repeat dimension. In this step, we ask the natural follow-up question: How can you improve on each of these stages?
Questions you can ask yourself include the following:
How can we improve our ability to keep track of an individual customer and to aggregate information across any touch point we have with this customer?
How can we improve the internal incentives, or what changes to the organizational structure do we have to make in order for information sharing to happen?
What have we learned about this customer and the customer’s associated needs that would allow us to play a more active role in offering solutions to those needs? How could we use this information to better customize the product or service in the future?
What have we learned from serving similar customers that would allow us to change the kinds of products and services that we will include in our lineup in the future?
What have we learned about our customers that might give us insights that even our suppliers do not have about what future features or services are valuable to our customers?
What efficiency improvements can be identified based on learning from the experiences of one customer and from the experiences of the population as a whole?
Resulting from these adjustments, what deeper needs of our customers are we able to address (coming back to the deeper needs that you identified in step 4)?
On worksheet 6-6, write down a concrete example of a customer and a sequence of experiences that this customer has with you, then identify how you could use the information that you gather to improve customization, optimize your product and service offerings, create new products and services, improve efficiency, and eventually climb up the hierarchy of needs.
The output of this should take the form of an opportunity such as the following:
Many students in MBA finance courses struggle when learning to compute net present values or discounted cash flows. By tracking the ability of a student to handle such questions across multiple homework assignments and potentially even multiple courses, a smart textbook can determine whether the student does not understand the definition of these concepts or whether he or she is struggling with more foundational content such as computing compound interest rates. If needed, the student is shown a tutorial for compound interest rate calculations.
WORKSHEET 6-6
Learning from repeated customer experiences
This opportunity mi
ght be further expanded to capture population-level learning:
By tracking the homework submissions for an assignment, the teaching team can adjust the lecture plan to spend more time on content on which the general student population tests poorly.
Step 8: Assess Your Data-Protection Policies to Maintain Trust with Your Customers
To create a sustainable competitive advantage using a connected strategy, it is important for firms to create and maintain a trustworthy relationship with customers. Only if you safeguard your customers’ data and use it in transparent ways will the customers continue to allow you to move up their hierarchy of needs. You need to make sure that you monetize your customer data in accordance with the relevant law, in agreement with your customer, and in a way that it is protected from criminal abuse. Some of the key questions you need to ask yourself include:
What procedures do we have in place to stay informed about data protection and privacy regulations in all the areas in which we are active?
How do we keep up with how public opinion is changing with respect to these issues?
How do we currently obtain customer consent? How transparent is it to our customers what happens to their data?
What do we do to keep the data current and accurate?
What do we do to keep the data safe, and under what conditions do we notify customers of any breaches?
PART THREE
CREATING CONNECTED DELIVERY MODELS
7
Designing Connection Architectures
For a successful connected strategy, a firm not only needs to create connected customer relationships but also has to create these relationships in a cost-effective way. To succeed, a firm needs a connected delivery model, which consist of three elements:
The connection architecture (equivalent to a series of pipes connecting the firm, its customers, and its suppliers)
A revenue model (how the firm can benefit from what flows through their pipes)
A technology infrastructure (how well these pipes are lubricated)
In this chapter, we focus on the connection architecture—a design aspect for which options have been proliferating.
Here’s how the question of connecting the firm, suppliers, and customers can play out in the realm of finances. Consider Jane, a filmmaker seeking to create a documentary about polar bears. Today was an exciting day in Jane’s life: she finally drafted an initial budget. To celebrate having created a budget, and to solicit some advice on how to find financing, she went out with her two best friends to a local bar. As usual, she wanted to split the tab at the end of the evening, but she realized that she accidentally left her wallet at home. Her friends paid for her, and she naturally promised to repay them. That interaction started the group talking about money and how they all need to save for retirement. As Jane walked home, many numbers were swirling in her head: the $25,000 funding for her film project, the $40 she owed her friends for the drinks, and the $300,000 she realized she might be short in retirement savings.
As this little vignette shows, customers have a wide variety of financial needs. Customers sometimes need to borrow money (to buy a house or create a new venture). Customers need to manage transactions (moving money from A to B, be it from the customer’s bank account to a friend or to a restaurant), and customers need to save for retirement. Historically, customers relied on their bank to help with most financial needs. A customer opens a checking account and gets a credit card issued by the bank; the customer talks to a loan officer to get financing for projects; and the customer talks to a financial adviser of the bank, who recommends a mix of mutual funds for retirement, including funds managed by the bank itself. But the banking industry is currently going through a major transformation created by a movement known as fintech (financial technology).
Different connection architectures lie at the heart of some of the most profound disruptions.
Connected Producers
All connection architectures start with information flowing from customers to firms. These customers might be individuals or businesses. Thus every connection architecture works in both a business-to-consumer (B2C) setting and a business-to-business (B2B) setting.
Connection architectures differ in how the firm connects back to the customer. In the most straightforward connection architecture, it is the firm itself that produces the product or service that fulfills the customer demand. We call this type of business a connected producer. This is summarized in figure 7-1, which captures the key connections or pipes between organizational entities in the value chain.
FIGURE 7-1
Connection architecture for a connected producer
In the financial services sector, for example, traditional banks that create connected customer relationships would be considered connected producers. The key connection is between customers and the bank, with the bank itself creating all the key services. Connected producers can focus on one connected customer experience or offer multiple experiences. For instance, a bank may try to make the loan application and approval process as fast as possible (respond-to-desire), make suggestions to the customer regarding how to invest based on the customer’s income and future needs (curated offering), send the customer reminders to rebalance the portfolio (coach behavior), and automatically transfer funds between the customer’s savings and checking accounts to avoid overdrafts (automatic execution).
Connected producers face competition from other connected producers. But some competitors of big banks do not look like big banks at all. Consider the loan process. Firms such as OnDeck and Earnest have focused on a respond-to-desire user experience. In addition to using traditional credit scores, they draw on over one hundred external data sources to determine creditworthiness, including social data, public records, and transactional data. This results in over two thousand data points per loan application and frequently allows the companies to provide a decision almost instantaneously, beating traditional bank application and approval processes, which are usually lengthy. In this space, OnDeck has focused on small business loans, while Earnest is a provider of personal loans, with a focus on refinancing student loans.
Notice, however, that at the thirty-thousand-foot level, they are operating exactly as big banks. The main connection is between the customer and the firm, in which information flows from the customer to the firm, and products and services flow back from the firm to the customer.
The architecture of connected producers appears old-fashioned. However, two recent connectivity trends are helping connected producers to innovate in how they serve their customers. First, today’s connected producers increase the interaction frequency substantially, transforming big, episodic transactions into many smaller customer experiences. Second, the interaction’s overall richness, in terms of information exchange and product customization, has intensified. For some examples of these developments, let’s look beyond financial services.
Connected producers of transportation now provide user experiences far beyond selling cars. The world’s largest car-sharing service is called car2go. It was created by a traditional producer, Daimler, and offers Daimler vehicles exclusively. Members have access to more than fourteen thousand vehicles in twenty-six cities in eight countries. Many of these vehicles are small, two-passenger Smart Fortwo vehicles (Smart is owned by Daimler). Users pick up cars wherever they are parked in a city, check them out using a smartphone app, do not have to refuel, return the car to any approved parking spot on the streets, and pay based on rental time.
Daimler’s car2go is an example of a connected producer that is operating mainly in the respond-to-desire mode. Customers send their requests to the firm, and the firm responds immediately via an app that helps locate the nearest car that most closely fulfills the customer’s needs. Better connectivity made this possible: GPS devices track a car’s location; mobile apps tell customers where the cars are and eliminate the need for face-to-face payment. This makes using an expensive vehicle more efficient. What sounds like a
cool application of the sharing economy corresponds to our definition of a connected producer architecture.
Competitors such as General Motors, Volkswagen, and BMW have followed suit and created their own car-sharing services. As we’ve noted before, just creating connected experiences will not be enough to create a long-term competitive advantage. Others will inevitably copy you, and the question remains whether you are able to drive a bigger wedge between customer willingness-to-pay and cost than your competitors. To achieve larger scale, BMW and Daimler decided to merge their mobility platforms in 2018 to create one car-sharing service.
Similar to the financial services industry, the insurance industry is seeing firms that are creating connected strategies. While there are many new entrants into what has been dubbed insurtech (insurance technology), some of the existing connected producers have been very innovative as well. Consider Progressive, one of the largest American automobile insurance companies. Buying auto insurance has historically been a very episodic customer experience. A driver calls the insurance or goes to an agent; an underwriter analyzes the driver’s risk profile based on age, zip code, vehicle type, and past accidents; and the company then provides a quote for an insurance premium. In contrast, Progressive customers can agree to use an app or plug in a small monitoring device in their vehicle. The app or device monitors the length and time of day of travel, as well as the driving behavior including hard braking, fast acceleration, or aggressive lane changes. Once the data-collection period is complete, Progressive uses the data to deliver a tailored car insurance quote to the driver. But the customer experience doesn’t end there. Progressive is also creating a coach behavior experience by providing customers with feedback about their own (or their children’s) driving behavior. This allows customers to improve their driving, which could further lower their rates. Moreover, this allows Progressive to climb up the hierarchy of needs of its customers: it addresses the deeper need that drivers really have for safety and security, rather than for having car insurance.
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