Brian A. Johnson is a partner in Andersen Consulting’s Financial Services practice.
In addition to his client responsibilities, Mr. Johnson is the managing partner for strategy, research and thought leadership in the Cross Financial Services Solutions group, which deals with issues common to clients in banking, insurance and health services. He is also
a member of the firm’s Global Thought Leadership Council. Mr. Johnson has more than 12 years of strategic consulting
experience in the financial services industry, mainly in banking and insurance. His experience includes helping a major financial services firm launch a virtual bank; developing a change strategy for a major mutual fund/annuity firm with career agents; developing a corporate strategy for two major multi-line insurers; helping a major super-regional bank develop an investment management
401(k) and mutual fund business; and developing a
bank distribution strategy for a major annuity company.
He holds a BS from Stanford University and a JD from Harvard University.
Andersen Consulting http://johnson.CRMproject.com
Fault Lines in CRM: New E-Commerce Business
Models and Channel Integration Challenges
The Internet offers immense potential to improve customer relationships.
The emergence of the Internet and e-commerce, along with advances in data
mining and management, make it possible for companies to gather and track
data on individual customers, gain greater insight into what they need and
want, and offer personalized solutions. These same forces also open up ”fault
lines” – breaks in the customer relationship value chain – that allow some
incumbent players to pull away from current competitors while creating
possibilities for new entrants to emerge and lure customers away from
incumbents. How can companies take advantage of ”fault lines”? How can
they mitigate the inherent risks involved?
The Internet is producing changes of seismic propor-tion, and the tremors touch every industry. Along with the threat to the status quo, the change brings opportunity. In terms of CRM, e-commerce offers immense potential. The emergence of the Internet and e-commerce, along with advances in data min-ing and management, make it possible for companies to gather and track data on individual customers, gain greater insight into what they need and want, and offer personalized solutions.
The forces of change are creating dramatic ”fault lines” in customer management. One obvious crevasse, for example, separates longtime players from start-up challengers. The Internet is a new channel, and in some industries and instances it can be the sole or primary channel (with some telephone backup). In such situations, new entrants have the advantage over ”brick-and-mortar” incumbents. Able to build their information infrastructure from the ground up, new entrants have less costly infrastruc-tures and do not face the incumbents’ problem of integrating data across legacy systems to address customer needs.
In this rapidly evolving landscape, many
finan-cial services organizations are challenged to locate fault lines and mobilize rapidly to deliver dependable service across multiple channels. This article examines the emergence of e-commerce business models, the fault lines that develop, and the need to build bridges to improve Customer Relationship Management.
Emergence of E-Commerce
Access to information has become easier in an increasingly competitive marketplace and consumers are feeling increasingly empowered. As they sort through an ever-increasing array of product and ser-vice offerings, many consumers have started to move away from traditional companies that push standard products with static features.
Consequently, customer-driven business models are on the rise. Andersen Consulting has identified four such business models – auction (bargain-finding engine), product configurators, solution providers, and intentions value networks – that appeal to con-sumers in the age of the Internet. These business models offer consumers flexible solutions that more closely meet their current needs and interests.
W h i t e Pa p e rConnect 5.0 Interact 4.0 Personalize 3.0 Discover 2.0 Envision 1.0
A serious rift exists between tradition-al seller-driven companies and the new business models with a more customer-dri-ven focus. Companies that take the latter approach and acknowledge the increasing power of consumers will have a clear advan-tage over those that lack knowledge of cus-tomer needs, continue to offer the same old products, fail to integrate their view of the customer across products and channels, and fail to interact with customers where and when they desire. The new business models are more effective at acquiring and main-taining customer relationships.
Communities vs. Product Providers The fault lines between traditional compa-nies that have been very customer focused and new businesses that employ the emerg-ing e-commerce business models are less obvious than the rift dividing seller-driven from customer-driven organizations. One conflict may pit Solutions Providers and Intentions Networks against traditional providers of products and services. The aggregators of many intentions-based com-munities will face the challenges of estab-lishing a trusted brand for providing useful information, sound advice, and access to the best products and services. Those that manage to attain a position of power could step between providers and their customers with the goal of extracting more from each transaction. The aggregator’s ability to ”control” customer knowledge increases its power relative to providers and may allow firms using these types of business models to dictate, more than just coordinate, the activities of providers participating in these networks. In this scenario, the providers may lose their connection with their customers and, as a result, may have
to rely heavily on the aggregator. To mitigate this risk, providers need to think critically about their mutually benefi-cial relationships with aggregators. Product providers contribute a great deal to the value created by Intentions Network, and they need to determine how to participate in the value of the partnership. One way is to take an equity stake in the aggregator, especially when the aggregator has a good prospect to establish a real position of mar-ket influence.
Auctions vs. Communities
While community-based business models may be able to take advantage of the afore-mentioned fault line, there exists another potential fault line stemming from these emerging business models not being as dis-crete as the descriptions above might sug-gest. These models overlap and can occupy the same space as customers looking for products and services. Specifically, once consumers use communities to gain
under-standing about products and services, they can use auction-based business models to conduct a transaction.
These business models should be viewed on a continuum of how much assis-tance is needed by customers and, corre-spondingly, how much customer knowledge is required by companies for successful marketing and selling.
As Figure 2.0 illustrates, auction-based models such as Bargain Finding Enginesappeal to customers who are more self-directed and, therefore, in need of less assistance. As a consequence, these types of companies require less knowledge about individual customers. Moving to the right of the continuum, some customers need rela-tively more assistance and interaction in finding the products and services. Companies toward the right of the continu-um require more knowledge about individ-ual customers to have the capability to help. Notice, however, that each business model can participate as customers need
New Business Model Description Auction
(Bargain Finding Engines)
Intentions Value Network (IVN)
Numerous types of auction mechanisms exist on the Internet. There are the more traditional types of auctions, such as at eBay.com, where sellers try to obtain the highest price for their products. There are also ”reverse” auctions, such as those at priceline.com, where buyers express their needs and price requirements for the products and services. Bargain Finding Engines, another auction type, are high-volume, fee-based intermediaries that match buyers with sellers where customers search for the lowest price from alternatives presented. An example is Lending Tree, which provides consumers easy access to multiple providers of financial services products. For example, it answers the question, where can consumers obtain the best CD or mortgage rate? A Product Configurator offers products personalized to the specific needs of a customer (e.g., configured features on demand). NextCard, for example, provides a credit card that offers flexible terms depending on a customer’s credit situation. It also allows customers to personalize the card with photos of their children.
A Solutions Provider aggregates a comprehensive set of financial products and services (i.e., bundles products, information, advice, consolidated view of holdings) for customers with complex financial needs. A good example is Microsoft’s MSN Money Central, which offers checking, savings, loans, and investments from various providers, and includes other tools and other assistance.
Intentions Value Networks (IVN) consist of multiple companies that offer cross-industry solutions that are meant to satisfy the individual’s aggregate life needs such as finding a home or providing for a child’s educational needs. For example, when relocating to a new city, consumers will want help finding a new house, home financing, information about the neighborhood and schools, moving services, etc. The networks coordinate the infrastructure required for a group of companies to meet these larger consumer needs.
F IG U R E 1 . 0 E-commerce business models
Auctions (bargain finding engines) are discussed at the following links: appell.CRMproject.com
ima.CRMproject.com moai.CRMproject.com subbloie.CRMproject.com
more assistance and interaction (i.e., Bargain Finding Engines do not disappear as one moves to the right of the continu-um). Customers usually have the option of using any of the business models if at any time they decide they have enough infor-mation to conduct a transaction.
The tension between auction services and communities creates the potential for a dangerous fault line. Bargain Finding Engines or other types of auctions always lurk in the background of the more cus-tomer information-intensive business mod-els such as Intentions Value Networks (IVNs). For example, IVNs aim to provide the ”space” for communities to interact around a common interest. They invest sig-nificantly to build their brand as the com-munity of choice and may provide enter-tainment and decision-assistance informa-tion and tools. They also are responsible for coordinating the network of product and service providers, and for maintaining and analyzing the database of members used to predict which products and services are most appropriate for the membership.
A problem arises when both business models try to flourish in the same space. Self-directed customers who know what they want gravitate toward the left end of the continuum – to Bargain Finding Engines and Product Configurators because of the savings they offer. Customers who may be starved for time or overwhelmed by variety may value the services offered by Solutions
Providers and Intentions Networks. However, these customers also have the opportunity to switch to Bargain Finding Engines at the time of transaction, thus stealing potential revenue from Intentions Networks. In fact, Bargain Finding Engines and Product Configurators can pick off these customers by trying to replicate the offers that were created with so much effort by Intentions Networks.
The implication of this potential fault line for community-based business models is that they may not be able to obtain an acceptable return on their investment in community building, network coordination and Web site content. The implication for Bargain Finding Engines is an opportunity to serve all customers. This situation is similar to the problem that has occurred frequently in personal computer sales. A customer walks into a full-service comput-er store and asks a highly trained salespcomput-er- salesper-son for advice. The customer learns a lot, then thanks the salesperson and walks down the street to a discount store, or orders a similar model by phone or over the Internet from Dell or Gateway.
As Bargain Finding Engines and the like take advantage of this fault line, Intentions Networks and similar companies will look to mitigate the impact. One strat-egy is to reinforce the attributes that com-munity-based business models need to suc-ceed in the first place – development of a strong brand; dependability and trust,
which are particularly important in finan-cial services; access to valuable informa-tion and decision-making tools; and a vari-ety of personalized offerings that are diffi-cult to replicate. Some form of loyalty pro-gram – discounts or the accumulation of points – may diminish the risk of member defection. Tying ongoing service and war-ranty programs to products may also help as customers may receive only minimal follow-up service from providers narrowly focused on providing the lowest cost.
Building Bridges to Customers
Through Channel Integration
The advent of these new business models, and the fault lines that are emerging, increase the need for channel integration.
One of the capabilities required to develop strong one-to-one relationships with cus-tomers is for companies to allow cuscus-tomers to choose how they want to interact with the company. Depending on whether cus-tomers desire to interact through one or
Customers more self-directed, in need of less assistance, and
have more time
Companies require less customer knowledge
Customers still self-directed, but looking for more personalization (specific
solutions) Companies leverage customer knowledge of
Customers looking more for information and advice
in single industry
Companies need to build more customer knowledge
Customers depending on community for information and advice for
larger "life" needs Companies need to coordinate customer knowledge and network of
providers F IG U R E 2 . 0 The continuum of assistance
Read more about channel integration at the following links:
channelwave.CRMproject.com lucent.CRMproject.com recsys.CRMproject.com welch.CRMproject.com
W h i t e Pa p e rConnect 5.0 Interact 4.0 Personalize 3.0 Discover 2.0 Envision 1.0
multiple channels, new companies have to choose which channel(s) to offer while incumbents will need to integrate the col-lection of data and their responses to cus-tomers across their legacy organizations.
In financial services, an Internet-only approach (with telephone backup) conceiv-ably can work both for credit (e.g., NextCard, E-Loan) and discount brokerage (e.g., E*Trade) products. These are essen-tially information-based commodity prod-ucts with little need to physically move paper. It is unlikely that an Internet-only approach will work, however, for store and transfer products (i.e., checking and sav-ings accounts). The Internet is becoming a useful tool for managing checking accounts and bill payment, but until the exchange of electronic value is more prevalent, bank branches, ATMs and ”snail mail” will remain with us. Full-service brokerage and finan-cial planning services are also unlikely can-didates for Internet-only access because of the need for personal relationships. Companies offering these services will need to integrate information across the various channels to obtain the complete picture of each customer’s behavior.
Since many customers desire multiple channels, companies need to determine the best way to integrate their information. At many companies, channels are organized and managed separately, and customer
information has traditionally resided in the channel in which it was originally captured. This structure inhibits an organization from having a full view of the customer relation-ship, and also prevents giving customers a consistent experience across channels. Another effect of data residing in numerous channel silos is that companies are unable to identify key cross-selling opportunities and find warning signs that a relationship is in jeopardy.
Integrating a company’s responses to customers across channels is made possible by integrated data warehouses and web telephony. Web telephony allows compa-nies to interact with a customer simultane-ously over the Web and telephone. With Lands’ End ”Live,” for example, customers can receive real-time help locating items, navigating through the site – even get fashion advice. The retailer allows cus-tomers to choose when they want to talk to a customer service representative by click-ing on a particular icon and providclick-ing their phone number. A Lands’ End representative will call the customer and answer questions or help with navigating through the Web site. For customers without a second tele-phone line, Lands’ End provides the ability to have a live, text-based ”chat” with the sales representative.
Another example of responding to cus-tomers across channels is the availability of checking account balances and investment
portfolio information via personal digital assistants such as the Palm Pilot. Making this and other kinds of information avail-able makes some tech-savvy customers more likely to use a specific company’s services.
Organizations with rigid silos and
legacy technology investments face the greatest barriers to integrating data across multiple channels and providing employees and customers access to it. To integrate data across channels, companies need to access the data on various platforms throughout the organization and bring it together in a common database. This chal-lenge is difficult in and of itself, yet it is just the beginning. Companies must then allow each of the disparate groups and technologies to access the data and pre-sent it to employees as well as customers. Complicating the process are technology issues such as data integrity, data synchro-nization and multiple access to the same data at the same time.
It may not be simple to address this issue, but it is very essential for companies to take notice and build Internet capabili-ties with an awareness of how they will coordinate data collection and customer responses. One solution is to develop one system shared across the entire organization – referred to as ”synchronous customer man-agement” by the Forrester Group:
Building sales, service, and marketing strategies around Web-based systems is the only way to steer companies away from the unsolvable integration night-mare of multi-channel, multi-function
Customer Relationship Management.1
The system accomplishing this feat would need to be based on the Internet. All cus-tomer information – no matter where it comes from, who uses it, or how it is used to respond to individual customers – would be maintained on one Web-based technolo-gy platform. The statement also implies that other technology platforms within a company (e.g., for the retail branch or call center) also would need to use Web-based technology.
Those organizations that can success-fully integrate their data will be more
Legacy systems are discussed in further detail at the following links: clientsoft.CRMproject.com delahoz.CRMproject.com feinberg.CRMproject.com friedman.CRMproject.com golkar.CRMproject.com W3
Companies that acknowledge the increasing power of
consumers will have a clear advantage over those that
lack knowledge of customer needs, continue to offer the
same old products, fail to integrate their view of the
customer across products and channels, and fail to
interact with customers where and when they desire.
but how to do it. They may turn to soft-ware vendors that help companies analyze integrated data throughout the organiza-tion. Those that find it necessary to main-tain multiple channels because of cus-tomer desires should weigh the costs of integrating legacy systems versus develop-ing everythdevelop-ing from scratch on a Web-based platform, relying on companies which offer multi-channel automated marketing solutions.
The Internet has created a great deal of complex terrain to navigate. Both incum-bents and new companies need to under-stand where the fault lines are emerging. For those considering a community-based business model approach, there is an opportunity to profit from stepping between traditional providers and cus-tomers, although this is a difficult path and only a few will ultimately succeed. One must also remain aware of the threats from auction-based competitors, who seem well positioned throughout the continuum of customer needs and interests.
The challenges of incumbents to inte-grate data across the organization creates clear opportunities for new companies to use lower-cost, e-commerce avenues to interact with customers. The infrastructure of an Internet-only company costs less and there are few, if any, data-integration chal-lenges. New companies have the opportu-nity to build their information databases from the ground up, thereby leaping ahead of their older competitors. However, newer
customer management, companies need to reassess their ability to:
Companies need to build Web sites that are well structured, easy to use, and integrated with the rest of the organization (e.g., other interaction channels and back office processes). Even more challenging, they must decide which intentions networks and virtual communities are of greatest value to join, and whether it is advantageous to be the creator of a community rather than just a participant.
Operate at Internet Speed
The Internet has increased customer’s expectations about the ease and speed with which business activities should be handled. Real-time data gathering, analysis and response will soon be the standard. Companies that learn to perform at this speed can break away from competitors.
either developed in-house or sourced outside.
Integrate Customer Information Across Systems
For most companies, the Internet will not be the sole channel by which they gather information on customers and meet cus-tomer needs. Their challenge will be to integrate data collection and customer response across legacy systems.
The current upheaval will result in winners who are able to harness the energy of e-commerce and ride the change to greater heights in terms of strengthening their rela-tionships with customers. Other less agile organizations will be unable to reorganize and rebuild before their customer base has moved to the higher virtual ground.
Gormley, J. Thomas III, ”Web-Centric Customer Service,” The Forrester Report, February 1999.