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Creating the Future of Customer Relationships

Ross Dawson


In the heyday of the dot-com era, many believed that the old laws of business and relationships had been revoked. In their highly influential book Blown to Bits, Evans and Wurster proclaimed that there was no longer a trade-off between “richness” and “reach,” and that henceforth companies could reach as many customers as they wished without sacrificing richness of interaction.

Indeed, this is one of the best ways to understand the power of communications technologies on customer relationships. However the reality is that critical trade-offs remain in customer communication. In the case of high-value customer relationships, expensive customer service representatives can be supplemented but not replaced by sophisticated websites. Managing the trade-offs between different customer communication channels well is at the heart of effective customer relationship management.

People still have a role in building lasting, profitable customer relationships. There is much power in doing automated interaction, data capture, and marketing analysis well. However the most valuable customer relationships must be nurtured by a mix of human and digital channels that draws on and integrates the strengths of each. Those that achieve this balance as both technology advances and their customers attitudes shift, will reap the rewards as we move into the future of customer relationships.

The trade-off between efficiency and relationship strength

Not so long ago it was pretty straightforward: you could interact with your customers in shops, by telephone, or by mail. There weren’t any other options available. Any communication from customers had to be responded to by a person who had the capabilities and training to provide effective service. Today, we still have those same choices available. In addition, a plethora of new ways of communicating with customers have sprung up.

Efficiency in customer communication is a critical driver today. Companies want to achieve low costs and to have systems that can be scaled to work effectively for as many customers as they wish. With increasing competition and price pressures, this is fundamental to doing business profitably. On the other hand, companies also need to nurture the strongest possible relationships with their customers, which means keeping them loyal, having rich personal interaction, learning more about them all the time, and closing transactions. Connectivity and relationship technologies are helping to make these two aims more compatible, but there remains a trade-off between them.

As illustrated in Figure 1, there are three key domains for customer communication:

Presence. There is no substitute for people being physically present in the same place, which allows them to sit down together, converse, relate as humans, and discover more about each other. Shopfronts and meetings will always have their place in customer interaction, however increasingly physical venues will also incorporate other media for accessing customer service.

Human connectivity. The majority of customer service is provided by people, connected to customers via telecommunications. Until recently this has been done solely by voice over the public telephone system, however this is now supplemented by email, chat, video, and other emerging channels that allow richer interaction.

Automated. Since the introduction of Interactive Voice Response (IVR) systems, customers are growing steadily more accustomed to interacting with computers. Technology is continually enabling broader and more effective systems to provide automated customer service.

Graph depicting the trade-off between efficiency and relationship strength for customer communication

Figure 1: The spectrum of customer communication channels

Developing knowledge-based customer relationships

There is currently a major emphasis in customer relationship management on performing sophisticated analytics on customer data in order to target offers and service delivery. The power of this is rapidly becoming apparent as “data mining” applications grow in sophistication, and allow patterns in customer information to be applied to more effective interaction.

However the usefulness of these approaches appears to be blinding many to the distinction between what people can do, and technology can do. It is valuable to consider the distinction between information and knowledge. Information is anything that can be digitized, and stored in a database or attached to an email. Knowledge is quite different. It is the ability to act effectively and make good decisions in complex and uncertain situations. This is-for the meantime-the domain of humans, and computers are only very slowly making ground in this field.

Companies have been desperately seeking to capture information on their customers, in many cases accumulating terabytes of data, and are now in the process of trying to work out what to do with it. The data that they have captured is almost purely transactional. As such, while it may provide useful and actionable perspectives on a small section of customers’ behaviours, it usually gives very poor insight into the customer as a person, which is generally how people want to be perceived and treated.

Certainly, it is meaningless to know more about your customer, unless that is applied to communicating to customers in a way that they perceive as more useful, helpful and valuable. The central issue-which many customer service companies seem to have missed-is to gather customer knowledge that specifically enables that kind of enhanced interaction. The reality is that acquiring this kind of knowledge is often beyond what computers are capable of. This needs highly skilled and perceptive people to interact with customers, and to capture their insights in a way that can be applied to providing customized service.

Pictorial representation of the virtuous circle of knowledge-based customer relationships

Figure 2: The virtuous circle of knowledge-based customer relationships

The heart of the matter is engaging in the virtuous circle of knowledge-based customer relationships, shown in Figure 2. If you are not engaged in continuously enhancing your customer knowledge and ability to customize your service and interaction more effectively, you are losing ground to competitors, and probably losing customers.

Effective customization must be based on gaining customer knowledge that can be applied specifically to modifying how service is delivered. This kind of in-depth knowledge can usually only be gleaned in human conversations and interactions. However even when it is, customer relationship management and other internal systems are very rarely designed to be able to capture and apply these insights, too often being centred on reporting rather than enhancing service. Information systems must be designed from the ground up to incorporate and enact the kinds of customization of service and information that customers value.

Building customer feedback loops

One of the biggest problems in the ways many companies have designed their customer relationship initiatives is in separating customer service from the rest of the functions of the organization, such as fulfilment, product development, finance and so on. Even when this is not intended, the realities of poor internal communication mean that this is often what customers experience.

It is absolutely critical that insights into customers’ response to the organization’s products and service flow back to where they can make a difference. In the last few years cost-cutting initiatives have taken precedence over establishing innovation processes, meaning that valuable information and signals are often ignored. The first step is to ensure that information and insights gathered from customer interaction is provided in an appropriate format to those that can make a difference in product development, enhancing processes, and customer service. The absolutely critical follow-through-which so many companies fail on-is delivering service back to their customers in a way in which they can see that their input was taken seriously and acted upon. As shown in Figure 3, this creates a complete feedback loop between an organization and its customers. Communication technologies and increasingly flexible business processes mean that this loop can be completed ever-faster. Those companies that can do this effectively will win lasting customer loyalty, and outperform their competitors.

Pictorial representation on building customer feedback loops

Figure 3: Building customer feedback loops

Creating the future of customer relationships

There are five key drivers at play as we shift into the future of customer relationships:

Need for greater efficiency. The global free flow of information is driving ever-increasing levels of competition and commoditization, meaning that firms must continually lower their costs to be competitive and profitable, however good their products and services.

Enhanced automated interaction. Automated email response systems and the first generation of commercial intelligent agents are already providing useful answers to customer questions. Within the next decade we will have early implementations of automated unstructured voice conversations, which will begin to supplant call center staff. Over time an increasing proportion of the service and customer interaction currently provided by people will be performed by technology.

Richer human connectivity. Customer service representatives already supplement their voice interaction with customers with chat and email, with web video-conferencing just beginning to be deployed in this context. The next generation of technologies such as “tele-immersion” will allow increasingly personal human interaction to take place at a distance, both to spread specialist advice across many locations, and build rich customer interaction without shopfronts.

Much, much more data. Gigabytes of customer data are becoming terabytes and soon petabytes. Much of this will be customer transaction information, though increasingly profiles and preferences will be captured. There are many technological challenges in maintaining this amount of data, let alone analysing it effectively. Customer data analysis will become increasingly important, yet be limited by the narrow scope of information usually captured.

Rising privacy concerns. One of the key uncertainties moving forward is how customers respond to the growing detail of information that is kept about them. This will flow through both to customer attitudes and to legislation. Companies must demonstrate to their customers that they are using the information they gather to create a substantially higher level of service and value. If they fail to do that, customers will demand stringent privacy measures.

Action steps for customer relationship professionals

1. Acquire customer knowledge that allows valued customization

The focus of customer relationship technology has been weighted far too heavily to capturing data on customer activities. Certainly many valuable insights can be extracted from this data and applied to enhancing customer interactions. However this covers only one domain of what useful can be learned about customers. Companies must identify and acquire information that allows highly customized service and interaction, in a way that individual customers recognize it, value it, and want to continue to experience it.

2. Shift customers to higher value and richer interaction

There are two directions your customers can go. Towards more commoditized interactions and a drive to lower costs, or towards higher-value interactions enabled by deeper customer knowledge and customization. For those customers that have the potential to shift to higher-value relationships, you must develop and tap richer human interactions in order to build powerful knowledge-based relationships.

3. Close the customer feedback loop

Too often customer service is isolated from the rest of the organization. You have to seek to create a complete customer feedback loop, that actively draws on the input of customers to feed innovation, process improvement, and customization. However the real impact comes when customers directly experience the results of their input.

4. Encourage human interaction!

As technology progresses, an increasing proportion of customer communication will be automated. Yet there will always be limitations on building relationship strength by forcing people to interact with machines. High-value customers must be nurtured by meaningful interactions with highly skilled people, who can understand their concerns, relate to them, discover more about what they want, and provide real value. Business constraints will mean these resources must be allocated intelligently, but providing the highest possible level of human interaction will be what maximizes the life-long value of your best customers.

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