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WRITTEN BY
Brian A. Johnson
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
Brian A. Johnson is a partner
in Andersen Consulting’s
Financial Services practice.
In addition to his client
want, and offer personalized solutions. These same forces also open up ”fault
responsibilities, Mr. Johnson is
lines” – breaks in the customer relationship value chain – that allow some
strategy, research and thought
incumbent players to pull away from current competitors while creating
the managing partner for
leadership in the Cross Financial
Services Solutions group, which
possibilities for new entrants to emerge and lure customers away from
deals with issues common to
incumbents. How can companies take advantage of ”fault lines”? How can
and health services. He is also
clients in banking, insurance
a member of the firm’s Global
they mitigate the inherent risks involved?
Thought Leadership Council.
Mr. Johnson has more than
The Internet is producing changes of seismic proportion, 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 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.
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 infrastructures 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.
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;
Emergence of E-Commerce
Business Models
developing a change strategy for
a major mutual fund/annuity
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 service 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 consumers in the age of the Internet. These business
models offer consumers flexible solutions that more
closely meet their current needs and interests.
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.
http://johnson.CRMproject.com
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A serious rift exists between traditional seller-driven companies and the new
business models with a more customer-driven focus. Companies that take the latter
approach and 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. The new business models
are more effective at acquiring and maintaining customer relationships.
Communities vs. Product Providers
The fault lines between traditional companies that have been very customer focused
and new businesses that employ the emerging 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 communities will face the challenges of establishing 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
WEB LINK
W
Auctions (bargain finding engines)
are discussed at the following links:
appell.CRMproject.com
ima.CRMproject.com
moai.CRMproject.com
subbloie.CRMproject.com
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Description
Auction
(Bargain Finding Engines)
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, feebased 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?
Product Configurator
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.
Solutions Provider
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 Network
(IVN)
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.
FIGURE 1.0
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E-commerce business models
to rely heavily on the aggregator.
To mitigate this risk, providers need to
think critically about their mutually beneficial 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 market influence.
Auctions vs. Communities
While community-based business models
may be able to take advantage of the aforementioned fault line, there exists another
potential fault line stemming from these
emerging business models not being as discrete as the descriptions above might suggest. These models overlap and can occupy
the same space as customers looking for
products and services. Specifically, once
consumers use communities to gain under-
Defying the Limits: Reaching New Heights in Customer Relationship Management
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 assistance is needed by customers and, correspondingly, how much customer knowledge
is required by companies for successful
marketing and selling.
As Figure 2.0 illustrates, auctionbased models such as Bargain Finding
Engines appeal 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 relatively more assistance and interaction in
finding the products and services.
Companies toward the right of the continuum require more knowledge about individual customers to have the capability to
help. Notice, however, that each business
model can participate as customers need
Intentions Value Network
Solutions Provider
Product Configurator
Auctions (Bargain Finding Engines)
FIGURE 2.0
Customers more self-directed,
in need of less assistance, and
have more time
Customers still self-directed,
but looking for more
personalization (specific
solutions)
Customers looking more
for information and advice
in single industry
Customers depending on
community for
information and advice for
larger "life" needs
Companies require less
customer knowledge
Companies leverage
customer knowledge of
partners
Companies need to build
more customer knowledge
Companies need to
coordinate customer
knowledge and network of
providers
The continuum of assistance
more assistance and interaction (i.e.,
Bargain Finding Engines do not disappear
as one moves to the right of the continuum). Customers usually have the option of
using any of the business models if at any
time they decide they have enough information 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 customer information-intensive business models such as Intentions Value Networks
(IVNs). For example, IVNs aim to provide
the ”space” for communities to interact
around a common interest. They invest significantly to build their brand as the community of choice and may provide entertainment and decision-assistance information 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 computer store and asks a highly trained salesperson 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 strategy is to reinforce the attributes that community-based business models need to succeed in the first place – development of a
strong brand; dependability and trust,
which are particularly important in financial services; access to valuable information and decision-making tools; and a variety of personalized offerings that are difficult to replicate. Some form of loyalty program – discounts or the accumulation of
points – may diminish the risk of member
defection. Tying ongoing service and warranty programs to products may also help as
customers may receive only minimal followup 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 customers is for companies to allow customers
to choose how they want to interact with
the company. Depending on whether customers desire to interact through one or
WEB LINK
W3
Read more about channel integration
at the following links:
channelwave.CRMproject.com
lucent.CRMproject.com
recsys.CRMproject.com
welch.CRMproject.com
http://johnson.CRMproject.com
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multiple channels, new companies have to
choose which channel(s) to offer while
incumbents will need to integrate the collection of data and their responses to customers across their legacy organizations.
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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
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.
In financial services, an Internet-only
approach (with telephone backup) conceivably can work both for credit (e.g.,
NextCard, E-Loan) and discount brokerage
(e.g., E*Trade) products. These are essentially information-based commodity products 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 savings 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 financial planning services are also unlikely candidates 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.
WEB LINK
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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
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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 relationship, 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 companies to interact with a customer simultaneously 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 customers to choose when they want to talk to
a customer service representative by clicking on a particular icon and providing 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 telephone line, Lands’ End provides the ability
to have a live, text-based ”chat” with the
sales representative.
Another example of responding to customers across channels is the availability of
checking account balances and investment
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portfolio information via personal digital
assistants such as the Palm Pilot. Making
this and other kinds of information available 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 challenge 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 present it to employees as well as customers.
Complicating the process are technology
issues such as data integrity, data synchronization 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 capabilities 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 management” 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 nightmare of multi-channel, multi-function
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Customer Relationship Management.
The system accomplishing this feat would
need to be based on the Internet. All customer 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 technology 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 successfully integrate their data will be more
effective at customer management
because of their ability to see the customer’s entire relationship across the company. The question these companies face
is not whether to integrate legacy data
but how to do it. They may turn to software vendors that help companies analyze
integrated data throughout the organization. Those that find it necessary to maintain multiple channels because of customer desires should weigh the costs of
integrating legacy systems versus developing everything from scratch on a Webbased platform, relying on companies
which offer multi-channel automated
marketing solutions.
Customer Management
Success Factors
The Internet has created a great deal of
complex terrain to navigate. Both incumbents and new companies need to understand 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 customers, 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 integrate 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 challenges. New companies have the opportunity to build their information databases
from the ground up, thereby leaping ahead
of their older competitors. However, newer
companies do not have the level of trust
and in-person service opportunities that
are so important for many financial services relationships.
To tap the potential of the Internet for
customer management, companies need to
reassess their ability to:
Analyze Data
Companies must be able to turn massive
amounts of data into insights that can be
used to better acquire, develop, and retain
customers. This specialized skill must be
either developed in-house or sourced outside.
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.
Create Interactions
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.
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 customer 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 ecommerce and ride the change to greater
heights in terms of strengthening their relationships with customers. Other less agile
organizations will be unable to reorganize
and rebuild before their customer base has
moved to the higher virtual ground.
Footnote
1
Gormley, J. Thomas III, ”Web-Centric Customer
Service,” The Forrester Report, February 1999.
http://johnson.CRMproject.com
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