Last month, Mint published an analysis of financial statements of consumer Internet start-ups which indicated that on revenues of Rs23,000 crore, these highly visible start-ups had incurred losses of Rs16,000 crore. The article rightly pointed out that several of these companies were currently facing a downward revaluation and further attributed the unexpected support for protectionism from some of these entities to these financial stresses.
The losses that some of these companies have made should not lead us to the erroneous conclusion that the underlying digital business models have little value. These companies have raised the productivity bar for more conventional off-line players and forced them to re-engineer their processes. Although some of the companies mentioned in the article have made significant losses, they and many of their offline peers, have begun to rethink what their digital journey looks like. Over the next two years, these are likely to pay off handsomely.
As the financial costs of digital sink in, companies are now reacting by rethinking previously held truths on issues such as the need for consistent experience, the value of continuous real-time engagement and the manner of use of analytics. Doing this, requires companies to spend more time making an assessment of the consumer journey, namely the entire pathway of thoughts and actions through which a customer interacts with the organization. This article is about how this important recalibration will drive a new and more profitable wave of digital use.
Companies are beginning to focus more on those value chain elements that are important to the customer. Hitherto a lot of the executive thinking has been informed by the e-commerce and e-information space as many organizations attempted to replicate the customer experiences in these areas. In these sectors, the customer retains control of the electronic process and utilizes an electronic mechanism to undertake exactly what he or she would have done offline. The relationship between the customer and the company is frequent, transactional and relatively simple. Recent experience shows that not all customer journeys are as straightforward. At Tata Capital, we dissect customer journeys along three dimensions, namely whether the customer journeys are transactional or relationship based, occasional or frequent and straightforward or complex and tailor our use of digital tools to the relevant situation. In situations, such as while buying insurance, or purchasing a car, the relationship between the customer and the company is not entirely transactional, nor is it likely to repeat every few months. Carmakers have realised that while it is very possible to purchase a car through an online platform, there is still a strong “touch and feel” element to the sale which seems unlikely to go away. In these circumstances, as opposed to seeking to disintermediate the market as is usually attempted, consumers would benefit much more if the company’s interface with its intermediary were more efficient, thereby indirectly helping the customer. There is a move away from providing information or marketing oneself, and towards spending technology dollars to enable dealers to offer customers faster service, or to use scorecards to give car loans, both of which serve a more meaningful purpose in that industry.
Another area where companies are fine tuning their spending is by questioning the so-called omni channel approach. This refers to the belief that customers want an identical, consistent and seamless experience across every channel through which they interact with the company. In practice, it is not clear that this experience is actually the most important factor in a customer’s buying decision. Detailed focus group discussions with customers find that the need for consistency or a desire for seamless channel experiences is not always very important. Published Research by TCS thought leaders, Lisa Fairbanks and Priscilla Walter, has identified that in some business contexts there is a fair degree of channel inertia and that each customer has a preferred channel. When customers use multiple-channels, it is frequently because they could not satisfactorily work with the one channel that they like. Customers have different expectations when they speak to a call centre attendant, versus when they deal with a maintenance person in a store. It is common for people to expect to wait for half an hour in a store for something, but extremely rare to expect similar wait times online. The focus of our technology spending needs to be to make each distinct journey efficient rather than to make all journeys identical. This change in focus is now taking place.
Perhaps most importantly, companies are now beginning to resist the temptation to overanalyze the customer, as they realise the costs of doing this mindlessly can outweigh its benefits. As is imagined today, the presence of digital technology enables the organization to electronically engage upon virtually every element of the customer experience . It becomes possible for say, a retailer to understand what a person is buying , identify his preferred payment mechanism, help him find discounts and so on. Since it is possible to engage the customer in multifarious ways, the challenge that companies must face is not so much one of finding interesting ideas, but instead, one of filtering these to find those that make most sense to the customer.
For some years several organizations, rather than using these powerful technologies to target in the most precise manner, were exhorted to achieve a 360° view of the customer and to absorb every possible piece of data that could be available about the customer. There is now a growing recognition that greater digital returns can be achieved by using information that has already been captured (often 90% within the last 2 years) or simply by capturing information in the right manner. A McKinsey study recently suggested that in some industries, companies use as little as 1 to 5% of the data that they are already in possession of, and that much could be gained by making sense of what people already have. One of the first lessons that we are all learning, namely that there is much to be gained by trying to obtain low hanging consumer insights from the large amount of data that we already own rather than trying to find ever more complicated ways of satisfying customers.
The increase in computing power in the late eighties resulted in productivity gains in the US and many other countries 5 to 7 years later. Similarly in examining how unicorns have fared, and indeed how the technologies that they pioneer are changing our lives, we need to measure not just the profitability of individual companies (undoubtedly important for their investors), but by all changes these companies have effectively influenced across the entire industrial landscape. In financial services, we have used digital to short-circuit know your customer processes, prevent frauds, reduce turnaround times by as much as 70%, and reduce certain repetitive elements which would otherwise frustrate customers. These kinds of changes are not always the stories that unicorns are made of, but they actually impact several thousands of customers.
Making these digital choices is not easy and requires extra effort from leadership. At this stage in the life-cycle technologies, leaders should work towards obtaining two or three key insights about a customer or customer segment, which can be meaningfully monetized, while balancing the need to provide resources to their existing off-line businesses. How leaders are managing this balance is the subject of another article.
Govind Sankaranarayanan is the chief operating officer of retail business and housing finance, Tata Capital Financial Services Ltd.