TeAM YYePG Digitally signed by TeAM YYePG DN: cn=TeAM YYePG, c=US, o=TeAM YYePG, ou=TeAM YYePG, email=yyepg@msn.com Reason: I attest to the accuracy and integrity of this document Date: 2005.06.18 17:24:38 +08'00' PASSIONATE AND PROFITABLE PASSIONATE AND PROFITABLE WHY CUSTOMER STRATEGIES FAIL AND TEN STEPS TO DO THEM RIGHT LIOR ARUSSY JOHN WILEY & SONS, INC This book is printed on acid-free paper ϱ ⅜ Copyright © 2005 by Lior Arussy All rights reserved Published by John Wiley & Sons, Inc., Hoboken, New Jersey Published simultaneously in Canada No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, 978-750-8400, fax 978-646-8600, or on the web at www.copyright.com Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, 201-748-6011, fax 201-748-6008 Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose No warranty may be created or extended by sales representatives or written sales materials The advice and strategies contained herein may not be suitable for your situation You should consult with a professional where appropriate Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages For general information on our other products and services, or technical support, please contact our Customer Care Department within the United States at 800-762-2974, outside the United States at 317-572-3993 or fax 317-572-4002 Wiley also publishes its books in a variety of electronic formats Some content that appears in print may not be available in electronic books For more information about Wiley products, visit our Web site at www.wiley.com Library of Congress Cataloging-in-Publication Data: Arussy, Lior Passionate and profitable : why customer strategies fail and ten steps to them right / Lior Arussy p cm Includes bibliographical references and index ISBN 0-471-71392-9 (cloth) Customer services — Management Customer relations Strategic planning Consumer satisfaction I Title HF5415.5.A784 2005 658.8'02 — dc22 2004022230 Printed in the United States of America 10 To All My Clients for Being My Best Teachers ACKNOWLEDGMENTS Throughout my work experience, I came across many cases of both success and failure It is to the hundreds of clients who had the courage and willingness to share their experiences that we owe gratitude and appreciation They are too many to name, but their contribution, nevertheless, was significant And as such it is to them that this book is dedicated Special thanks to Bill Wear for being a trusted advisor, an honest editor, and simply a friend Thanks to the team at Wiley, Jackie Smith, Sheck Cho, Colleen Scollans, Rose Sullivan, Natasha Andrews, Petrina Kulek, and Diana Hawthorne, for bringing this book to life — I could not have done that without you To my family who keeps on accepting and supporting my passion, there are no words to describe my gratitude to you I love you Thank God vii 190 THE ULTIMATE CHOICE: CUSTOMER STRATEGIES Design and implement an amazing experience that makes your employees want to give you their best and more How would you know if you got there? Look at the ratio of applicants to each job you post The stronger your employee experiences, the larger the number of applicants per job posting The word will travel fast and you will be able to attract the type of talent you have been seeking The basis of an amazing employee experience is not money It is a mission It is a commitment to make a difference If all companies would live up to their marketing slogans, the world would look completely different The problem is that most of the inspiring slogans, describing inspirational commitments, face a crushing reality internally, so they are quickly destroyed by the well-oiled machine of corporate cynicism Change these machines Change the crushing reality and you have the key to success To achieve this change you will have to make a tough choice that puts people above technology or efficiency You will have to recognize and design your business to reflect this conviction and utilize your most important assets, your people The key to success is not declarations It is operational planning and execution Your employees will judge you by what you do, not what you say At the end of the day, the path to profitability, revenues, and effectiveness goes through the customer experience The path to customer experience excellence goes through the employee experience THE NEVER-ENDING DATE The key to success in personal relationships is never to take the other person for granted — never to settle, but to keep on surprising them and demonstrating your renewed commitment Most relationships go through their ups and downs, but those that survive are the ones built on the understanding that the dating game is never over Marriage does not represent the end, but the beginning Commitment does not imply that the courting is over If anything, the courting must move into higher gear Partners need reassurances that they made the right choice They need to be reminded that despite what is out there, they are in the right relationship with the right partner Stronger commitments and relationships usually require greater efforts to retain them The same line of thinking applies in business The sale should never be over Companies should never assume that the customer is “acquired” or in their pocket The mentality of customers as a destination must be replaced with one that sees the customer as a journey This requires planning and an THE NEVER-ENDING DATE 191 understanding of what we want this relationship to produce for each partner two to three years from now It requires a road map beyond the first sale When companies restrict their warranties and guarantees to short periods, they usually behave as if the sale is over and they are moving on to the next customer They act as if marriage is the endgame, not the beginning They clearly send a message to the customer regarding their expectations from the relationship: short, quick, and profitable, and then you are on your own Smart companies design a mechanism in which the sale is never over They not abandon their products the moment the customer signs the credit card slip Their products are not orphans in the hands of unfamiliar parents They retain ownership and responsibility for their products, and they make sure the customer is taken care of They so because it makes sense financially If their products are in the hands of the right customers, meaning they made the right choice of customers, then most likely any support they provide will lead to additional business This is something that they already planned as part of a longer relationship with the customer By taking responsibility beyond the sale and assuming responsibility when things go wrong, companies are extending their experiences with customers By extending the experience beyond the moment of the sale, they extend their relationships and potential business Smart companies view sales not as an event to be recorded for the next quarterly results, but as a starting point of the relationship Their actions after the sale is complete are even more critical, as the customers will need assurances that they made the right choice The initial commitment they provided during the purchase is in contrast to all the other options they have considered but did not purchase The post-sales experience and customer dialogue are all geared to provide reassurances and make customers comfortable with their choices When they feel this comfort, they are more ready to act on the role you have designed for them, such as recommending, providing referrals, upgrading, or providing insight Customer-centric companies realize that the courtship period is never over In fact, it is intensified after the first sale You now need to make good on all those promises you made, in order to establish a relationship that lasts beyond the casual one-night stand Many such companies have recognized that focusing on the customer is not matter of degree but a matter of survival You cannot be 55% pregnant or 34% in love You are either in love or not This is a 100% commitment This is not just a commitment of one person or department, and this is where many failed It is not a one-time program It is a lifestyle It is about your DNA, which guides your everyday operations 192 THE ULTIMATE CHOICE: CUSTOMER STRATEGIES and execution It is the guidance for the thousands of everyday decisions your sales, service, and accounting people (among others) are making every day Daily, through those decisions, they choose for customers or against them The choice is yours Endnote Steve Hamm, “Who Says CEOs Can’t Find Inner Peace?” (New York: BusinessWeek, September 1, 2003), p 77 APPENDIX AN OPEN LETTER TO THE SMART CUSTOMER Dear Customer, It is time to take stock of your situation You hate the way you are treated by your suppliers You cannot remember the last time you had to wait less than 15 minutes on the phone in pursuit of a decent response to your problem Product quality is declining and you feel trapped, without many options Everyone is pretty much the same “Where did all the good products and services go?” you ask yourself What has happened to great service and exciting products? Why they all seem like a pale version of the original? It seems as if quality and service are no longer in vogue Come to think of it, they have been out of fashion for quite some time There is a lot of truth in these feelings — but the bad news is that you have done much to exacerbate the situation Like any other relationship, it takes two to tango And you, the customer, stopped dancing Fascinated by everyday low prices, you kept on chasing the last discount dollar and left your suppliers stranded You pursued the endlessly lower price phenomenon with zeal and excitement, and now you’re wondering why the service and quality are not there You made a choice to implement a price strategy, and now you wonder why your partner in the relationship, that is, the company, did not continue to deliver high quality and amazing service In many ways, it was you who forced the company to lower quality, because they needed to adhere to your ever lower price expectations It was a survival mode for them They had to it to stay in business Your discount addiction came with a price You didn’t think you could get a discount without paying a price, did you? The price was delivered to you in lower quality, smaller quantity, nonexistent caring, and ignorant service These are all prices that companies have to pay to adapt to your newly found low prices In your endless pursuit and support of low prices, you also abandoned your partner You switched partners on the basis of the lowest common denominator only, price In such a case, your partner, the company, is paying higher costs just to get your attention each time, again and again When you were loyal, the company could have lowered their customer attraction costs 193 194 APPENDIX and applied them to providing more value to you Now, in the absence of any loyalty, they have to catch your attention every day This effort has a price You are, in a sense, paying for your lack of loyalty in lesser value Although not all the illnesses of your company – customer relationships are your fault, it is important for you to realize that you own part of the responsibility The decline in value and quality is destined to continue as long as you take all value for granted and refuse to pay more than the absolute bare minimum for it For the absolute bare minimum price, you will receive the absolute bare minimum value It is a simple, natural law of relationships It is called reciprocity, or as the old adage goes, “You get what you pay for.” You really did not think you could cheat the system, did you? So now what? You have a choice to make Just like your partner faces some tough choices To survive and thrive, companies will have to select their customers carefully and weed out the discount addicts The discount addicts are destined to receive ever-declining value to match their unstoppable appetite for lower prices They will continue to believe that they cheat the system, but in fact, they will continue to receive lesser value Your choice is this: what kind of customer you want to be? You may shop for value or for price But you cannot both at the same time (And I not care what all these discount stores are promising you.) You cannot continue dancing on all possible stages if you seek value and excellence from your suppliers If you want innovation, quality, exciting products, great, committed service, and amazing experiences, you will have to pay the price If you are willing to give up these factors, then go for the price and keep on shopping for the cheapest products regardless of the brands When you so, not forget to lower your expectations and not get upset when you are on hold for 25 minutes and then answered by an ignorant person It is what you chose Smart customers will make a serious choice They will choose which products and services are important to them and which are not, which products are high value and which ones are of no value For the high-value products, they will kick their discount addiction (I know it is hard, like kicking any other addiction — and for some it is a sin to buy retail) They will forge a real, lasting bond with the supplying company They will stay on board long enough to build lasting relationships with the company and justify the company’s investment in them Despite the temptations, they will fight the urge and they will not defect the first time they see a lower advertised price in the local outlet and closeouts store They will save the trips to those stores for the no-value products they not care about; the products and services APPENDIX 195 for which they are willing to accept lower value and quality; and the products for which they are willing to lower their expectations For each customer, the balance between the high-value and no-value products may be different But the choice needs to be made One cannot continue to apply high expectations, high-value thinking to no-value pricing This is the cause of many of your frustrations today For customers who are seeking high value, and are willing to pay for it, this will be a time to start taking a stronger stance Coming from a position of strength, paying higher prices, staying longer, repeating business, these customers will have a stronger claim to their partnering company They will have to begin to take a more active role in the products and services future They will not be able to ignore every request for insight, but rather will become active participants in the product’s destiny Needless to say, strong, lasting relationships will not be justified if the companies are not willing to reciprocate So customers will have to select their partners carefully But companies, for their part, are tired of the neverending discount game They are seeking true partners whom they can service with value-adding, innovative products and not just paler versions of the originals The time has come to form a different relationship It is time to shed the wishful thinking and be realistic Either adapt your expectations or your price point Every relationship must be profitable to the providing company or it will go out of business No one but you will pay for your products’ value So you ought to make the choice — either you are ready for a real relationship or you want to continue the discount addiction You, too, have a choice to make P.S Relationships are all about reciprocity If you care for service with a smile, think about smiling first Spread a smile, and you will significantly increase your chances of getting one in return It is a business of people Do your share and, miraculously, others will reciprocate INDEX 1-800-Flowers, 132 depth of customer relationships and, 67–70 effects on customer experience, 50–51 escaping (chart), 51 mass market appeal, 70–71 of products and services, accelerated, rut of, 176 versus innovation, 178–181 versus segmentation, 91–92 Complaints, customer: misunderstood, 142 resolution techniques, 143–144 Concorde (airliner), 173–174 Continental Airlines, 158, 169–170 Conversational element of relationships, 90 CoOp Bank, 86 Cost(s): effects of commoditization on, factors leading to valid measurement of, 166 of misunderstood customers, 71 reduction, real costs of, 3– 4, 16–18 you get what you pay for, 4–5 Costco, 62 Critical choices: changing from silos to complete ownership, 103–116 A Abbey National, 63–64 Acquire and churn sales model, 30 ADP (company), 96 Air France, 173 American Express, 99 Apple iTune, 89 Aveda, 156 B British Airways, 173 C Café Nero, 88 Change: driven by compensation, 136–137 fear of, management of, mistakes in managing, Choice(s): critical (see Critical choices) in relationships, 88 Commoditization: complacency and, 175–176 consistency and, 174–175 197 198 Critical choices (continued): choosing customers to neglect, 67–80 customer pleasers versus efficiency crunchers, 11–23 customer strategies as a lifetime commitment, 183–192 defining customer total experience, 39–66 functional robots versus passionate evangelists, 117–138 length of product life-cycle, 173–181 measurements and messages they send, 163–172 post-sales dialogue and service, 139–162 role of the customer, 25–38 type of customer relationships sought, 81–102 Customer(s): and complacency, 175–176 budget, portion dedicated to your products, 36 complaints, resolution of, 142–145 consistency of products and, 174–175 emotions of, 49–50 frustrations, 1, 146–147 innovation and, 178–179 insight management, 145–146 job description of, 75–77 listening to, loyalty, 1, 9, 39– 40, 67–70, 122 need to neglect some, new versus existing, 28–31 organization-focused, 109–110 ownership of, 32 pleasing, 11–23 INDEX reinvention of products and, 176–178 retention of, fatal mistakes in, 1–10 rewarding, 146–148 criteria for, 147–148 role of, in the enterprise, 8, 25–38, 74–75 segmentation, 91–96 candidates, 95 criteria exercise, 93 lost souls, 95–96 misunderstood, 94 moneymakers, 94 taken for granted, 140–141 “wow me now,” 178–179 Customer experience(s): analysis, exercise, 52–55 aptitude test, 19–20 building blocks of market leadership, 188–189 checkpoints for post-sales maintenance, 141–151 complaint resolution, 142–143 customer experience index, 148–151 insight management, 145–146 rewarding customers, 146–148 compensating employees for best results with, 136–137 demystifying, 46– 49 developing, 50–52 dynamics of, 48– 49 enhanced by changing rules, 187 –188 management of (CEM) (see Customer Experience Management) mapping, 55–58 APPENDIX reengineering, 58–61 reinvention of, process, 176–177 role in customer relationship, 40– 42 silo-based versus holistic, 8, 103–116 tailoring, 97–98 tied to employee experiences, 121 Customer Experience Index (CE), 148–151 Customer Experience Management (CEM): common misconceptions about, 42– 43, 46– 49 components of, 45– 46 definition of, 42, 46– 49 process, 44– 46 reinvention process, 176–178 study results, 69 Customer focus: benefits of in the organization, 110–114 clear assignment of responsibility, 111–112 complete view of customer, 111 improved education process, 112–113 improved tools, 112 ownership of value proposition, 110 upending of the pyramid, 111 compensation model supporting, 136–137 critical choices regarding, 8–9 implications of choosing, 183 investment versus results, 1, 11 misperceptions about, value proposition and, 114–115 versus functional job perspective, 120 199 versus product focus, 13 Customer insight management, 145–146 Customer relationship(s): assembly of value proposition and, 114–115 building blocks of, 40 characteristics of desirable, 83–91 choice, 88 conversational, 90 exchanges, 90–91 generosity, 84–85 genuine caring, 87 interactivity, 88–89 mutuality, 86 passion, 86 privilege, 86–87 selectivity, 83–84 trustworthiness, 85 complacency in, 175–176 criteria for, 13 customer selection and, 67–68 desirable versus undesirable, 72–73, 81–102 differences based on people, 91–92 effects of consistency on, 174–175 emotional nature of, 49–50 impact of indecision about, inherent conflicts in traditional approaches to, 25–28 lack of definition of, 13 maintenance of, post-sales, 140 managing, across touch points, 103–104 new versus existing, 28–31 not formula driven, 183–184 ownership of, 103–116 permanence of, 35–37 relationships account, 153–157 200 structured versus unstructured, 6, 12–13, 80 study results regarding, 12–13 symbiotic versus competitive, 82 weakened by product focus, 13 Customer Relationship Management (CRM): as a panacea, 16–17 database tools for, 152 flaws in, 39– 40 investments versus results, 1, 11 study results regarding, 12–16 Customer selection, 8, 12–14, 33–34 differentiation and, 70 efficiency and, 32 guidelines for, 70–71 length of relationships and, 67–68 satisfaction and, 70–71 Customer strategy(ies): a mutual lifetime commitment, 183–192 assembly of value proposition and, 114–115 customer experiences and, 42– 46 effects on compensation, 136–137 intention to execution gap, 14–15 need to operationalize, product-based versus experiencebased, 184 stages of development of, 41 successful, complete view of, 186 superficial changes to, 2–3, 7, 16–17 D David Shield, 168 Disney Corporation, 176–177 Doubletree Hotels, 30–31 INDEX E Ecosystem, customer versus company, 25–27 Efficiency, flaws in, 16–19, 22 call center measurements lead to, 163–164 highlighting productivity as a poor compensation measure, 4–5 organizational effects of, 105–107 silo-based touch points and, 104–105 what gets compensated gets done, 136–137 Efficient relationship paradox, 28–31 call center example, 136–137 Employee(s): compensation methods and results, 136–137, 168–172 considered as true assets, 169–170 as customer experience enablers, 189–190 treated as human beings, 135–136 creating a culture of excellence, 159–162 education, characteristics of good, 133–134 experiences, 119–121 hierarchy of needs, 122–125 calling people, 124 career people, 123–124 job seekers, 123 link to customer experiences, 121 reengineering, 125–127 guidelines, 127–137 flaws in empowerment philosophy, 130 hiring basis, 118 INDEX interchangeability and customer experience, 118 loyalty, versus customer loyalty, 122 nurturing instead of managing, 170–171 skills versus attitude, 118–119 traditional criteria for perfection, 117 training versus education of, 132–134 Enterprise Rent-a-Car, 168 Exchanges, in relationships, 90–91 Exercises, reader: characteristics of desirable and undesirable customers, 72–73 company’s job description, 77–80 customer experience analysis, 52–55 customer experience, aptitude survey, 19–21 customer experience mapping, 55–58 customer job description, 77–80 customer segmentation criteria, 93 identifying business drivers, 167 touch points analysis mapping, 104–105 201 Real Cost of Cost Reduction, The, 3– Technology Shortcut, The, 7–8 Unstructured Relationships, 6–7 why they recur, 27 You Get What You Pay For, 4–5 First Direct Bank, 118 Focus, customer See Customer focus Four Ps: new, 35–38 permanence of relationship, 36 – 37 portion of customer budget, 36 preference, 36 premium price, 36 traditional, 34–35 G General Electric, 84–85 Generosity, in relationships, 84–85 Genuine caring, in relationships, 87 H Heart attack zone, 21 Hilton Corporation, 30–31 HP, 174 F I FAO Schwartz, 87 Fatal Mistakes, 1–10: Culture of New, The, Failure to Operationalize, importance to success, Lack of Leadership, Lipstick on the Pig, 2–3 Management of Change, Passion Loss, IBM, 17–18 Interactivity, in relationships, 88–89 K Keebler, 21 Kelleher, Herb, 170 Kellogg Corporation, 21–22 Kirkland from Costco, 62 202 INDEX Kotler, Philip, 143 Kraft Foods, 18 Krispy Kreme, 155, 178 Kutagari, Ken, 169 L Leadership: lack of, inadequate perspectives on, M Manchester United, 37 Measurements: basing them on actions, 164–165 cost-based factors, 166 flawed, examples of, 163–164 guidelines for customer-centric, 167 of success, customer-based, 165–166 revenue-based factors, 166 true assets and, 169 Mecca Cola, 155–156 Mistakes, fatal See Fatal Mistakes Money Mailers Corporation, 148 Montblanc, 120 Mutuality, in relationships, 86 N NatWest, 64 New, culture of, effect on post-sales service, 140 O Organization(s): changes to (see Touch points) commitment to change, 186–187 compensation methods and, 136–137 culture of excellence, 160–161 customer-centric, 113–114 customer-focused, 110–114 issues with typical, 105–107 principles versus procedures for, 134–135 value proposition and, 114–115 Organizational changes See Touch points Organizational Experience Index, 150 P Paradox, efficient relationship See Efficient relationship paradox Passion: characteristic of desirable customer relationship, 86 critical choices about, compensating, 136–137 customer-focused versus functional viewpoint, 120 employee experiences and, 119–121 employee loyalty and, 122 loss of, of employees, 117–138 Paychex, 96 Perceptions, customer versus company, 25–27 satisfaction versus service level, 165 versus actions, 164–165 PlayStation 2, 169 Post-sales service See Service, postsales Preference, for company or product, 35–36 tracking, 154 INDEX Price, premium, 35–36 Privilege, in relationships, 86–87 Process (mis)alignment, 105–106 assessments of, as a post-sales tool, 153 Product(s): consistency and customer loyalty, 174–175 customer passion for, 173–174 innovation, 178–181 innovation compass, 179–180 life-cycle, 173–181 reinvention process, 176–177 Progressive Auto Insurance, 73–74 203 Qualification of customers See Customer selection biased toward new customers, compensation, correct, 136–137 compensation mistakes, 4–5 relationship focus of, 75 Salesforce.com, 189 Samsung, 71 SAP, 89–90 Seattle Coffee, 88 Selectivity, in relationships, 83 Service, post-sales, 139–162 staffing issues related to, 139 Sony Corporation, 169 Southwest Airlines, 169–170, 184, 189 Starbucks, 63, 184 Stella D’Oro, 18 Strategy, customer See Customer strategy(ies) Strativity Group, 122 R T Reinvention process, 176 Relationship(s): accounts, 40, 153–157 characteristics of, 67–68 conflicts in definition of, 81–82 critical rule of, 67 loyalty and depth of, 68–69 Relationships, customer See Customer relationship(s) Renaissance Mumbai Hotel, 85 Ritz-Carlton Hotels, 131–132, 184 Royal Bank of Scotland (RBS), 96–97 Thomas Pink, Purveyor, 51 Tools and Technology: not a shortcut, 7–8 obsession with, 107–109 required, 151–153 business analytics, 152 coaching and self-learning tools, 153 CRM database, 152 financial data, 153 monitoring and evaluation, 152 process measurements, 153 surveys, 153 Touch points: analysis mapping, 104–105 changing attitudes about, 107 of the customer-focused organization, 110–114 Q S Sales force: acquire and churn model, 30 204 INDEX Touch points (continued): of the organization-focused customer, 109–110 managing across, 103–104 mistakes with, 104 organizational problems due to poor allocation of: credibility challenges, 106 misalignment of processes, 105–106 organizational conflict, 106 permission to ignore customers at, 107 processes and, 105–106 Trustworthiness, in relationships, 85 U United Airlines, 169–170 V Value proposition: assembly of, 114–115 visualization of, 157–159 Verizon, 157 Virgin Atlantic, 135, 174 Virgin Wireless, 98–99 W Walker Loyalty Report, 165