Empathy in Action: Sustaining Success with Customers

“The purpose of business is to create and keep a customer.”

“The aim of marketing is to know and understand the customer so well the product or service fits him and sells itself.

Peter Drucker

Its not difficult to find support for what appears to be an ultimate truth; customer-centricity is THE central element of business success.  Since virtually every business leader espouses this truth, it must be great to be a customer!

Unfortunately, in practice, fragmented roles and accountabilities for the wide range of activities associated with “being in business” tend to create issues.  Surprisingly few organizations actually behave in a way that’s customer-centric and, as you know, being a “customer” is often frustrating.    According the national reporting body for the American Customer Satisfaction Index (ACSI), customer satisfaction “continues on the path it has been for quite some time now: in the aggregate, it is going nowhere.”


Issue:  Customer – Object versus Person

After having the chance to work with the leaders of many dozens of companies, I’ve noticed a distinguishing feature of organizations that engage with customers in a way that fuels continued innovation and economic success.   It starts with how leaders and people throughout with organization think about and talk about their customers.

According to dictionary.com, customer means…

  1. A person who purchases goods or services from another; buyer; patron.
  2. Informal.  A person one has to deal with: a tough customer; a cool customer.

The foundation of this definition is “person.”   A customer is a person or, in the case of business-to-business, often a network of people.   A distinguishing characteristic of organizations that sustain success with customers is their ability to engage with customers as people.   This seems like it should be easy.   However, even casual conversations with leaders in many businesses reveal that the organization is focused on customers not as people but as objects.

According to dictionary.com, “objectify” means…

  1. To present or regard as an object
  2. To make objective, external, or concrete.

Objectifying people generally involves intentionally or unintentionally treating them as a means to an end, without any deep, visceral understanding of their lives, feelings, priorities or preferences.    As a result, organizational behavior tends to be at best – reactive, and at worst, self-serving and manipulative.

There are several indicators of businesses that objectify customers.  People in leadership positions don’t spend much time in open dialogue with customers about what they need and what’s working and not working about their experience.   Insights about customers tend to be surface-level descriptions.  Conversations about customers tend to be abstract and removed rather than concrete and personal.   People on the front line may be following the process but, at best, “pretending to care.”  The company might measure customer satisfaction with the company’s touch points but doesn’t really know what customers do end-to-end, how they make choices, and how the overall experience makes them feel.

These characteristics stand in stark contrast to businesses that appear immersed in their customers’ lives and, as a result, deliver a very personal, human experience.   As consumers, we recognize these businesses.  They range from the small and local (e.g., your favorite restaurant or local retail establishment) to the larger scale businesses of which my favorites include Chick-fil-A, Zappos, Nordstrom, Umpqua Bank, and Apple.

Personifying Customers:  Empathy in Action

In order to create real loyalty and sustain customer-focused innovation, organizations need to adopt a discipline for personifying customers.   This is even more critical as organizational transparency increases.  Personifying customers includes structured ways to embed empathy in the core processes of customer discovery, design and delivery.   Empathy is the identification with or vicarious experiencing of the situations, feelings, thoughts, or attitudes of another.   The core processes include:

  • Empathic Discovery.  Most of what companies know about their customers tends to be descriptive and data driven:  who they are, where they live, what they’ve purchased, how long they’ve been a customer, etc… There may be a segmentation analysis that groups customers by attitudes, etc… However, in most cases, there is no rigorous framework for personifying customers in a way that builds empathic understanding.  This includes structured ways to answer:  who are these people, what are the situations they’re in, what’s important to them and what are they trying to accomplish, how do they evaluate alternatives and make choices, what do they do outside of the limited set of contacts with our business, and what emotional states influence behavior?  
  • Empathic Design.  Empathic design leverages empathic discovery in order to create products that allow customers to more easily accomplish the goals that are important to them.  This includes designing products and services that customers love because they’re meaningful and make them feel good.  This often includes the design of products, services, or modes of interaction that customers don’t even know they desire or, in some cases, solutions that customers have difficulty envisioning due to lack of familiarity with the possibilities offered by new technologies or because locked in a old mindset.
  • Empathic Delivery.  Customer service is a monologue; it’s about technical delivery, standards, and execution.  The company decides what to do and how to do it.  Well-designed and executed customer service usually does a good job of meeting customers’ baseline needs and expectations.  On the other hand, empathic delivery is a dialogue.    It’s about watching a customer’s experience with every sense and following up with a thoughtful and appropriate response that demonstrates that you really care and are on their side.   It enables the organization to surround products and programmatic services with personal touch.

Unfortunately (and fortunately for competitors), empathic delivery is rare in the business world.  Processes, policies, metrics, resource constraints, as well as more deeply entrenched unwritten rules often get in the way.  Since empathic delivery cannot be fully scripted, it leads to significant implications for the employee experience.  Employees must have enough “elbow room” to do the right thing for customers.  This requires a deliberately designed pattern of interventions in the employee experience including recruiting, incorporating, training, communicating, measurements, and rewards.  It also involves surfacing the unwritten rules that may be driving employee behavior inconsistent with the desired customer experience.

Integrating Customer and Employee Experience

Not surprisingly, putting empathy into action requires a tightly integrated perspective on customers and employees.   You can’t treat customers with empathy without doing the same for employees.   This is one of the reasons that many of the companies that appear on Fortune’s list of best places to work are businesses that deliver a very effective customer experience.   However, as covered in several previous posts, a highly engaged workforce is necessary but not sufficient.  (See:  A Break in the Service Profit Chain:  Why Increases in Employee Engagement Don’t Improve the Customer Experience).  In addition, if you’re interested, please feel free to check out the white paper titled:   “Getting the Employee Experience Right:  Creating Employee Experiences that Drive Business Growth.”

Customer Innovations works with leading brands to “embed empathy” into the design and delivery of experiences that are both positive for customers and profitable as well as strategically relevant for the business.

Moving From Service to Signature Experience

The Limitations of  Service

Service has always been and probably will always be critically important.    Every viable company must provide for an acceptable and effective level of service in order to retain customers, avoid the cost associated with repeated service interactions, and lost revenue associated with negative word of mouth.

While providing the finest levels of service may be a virtuous objective, we’ve found that it is extraordinarily easy to make ineffective and uneconomic service investments.   In situation after situation we’ve seen companies simultaneously under-deliver on service elements that are important to customers and over-deliver on service levels customers may not care about or even notice.  For example, many companies attempt to optimize speed to answer or satisfaction with service rep interactions rather than dealing effectively with issue avoidance or measuring and minimizing overall customer effort.  Unless your organization is unlike any other we’ve worked with, I can say with near certainty that you’re currently making uneconomic investments in both service delivery and service improvement.

There are several factors that contribute to the problem, including:

  • Service is an inherently introverted activity.   Service is something a company provides.    Since there are clearly costs associated with service delivery, most companies understand and carefully manage these costs.   However, in most cases, the real economic value of service is directly connected to customer behavior.   Does the service you provide actually influence customers and prospects in a way that builds and sustains profitable revenue streams?
  • Service often reinforces fragmentation.   In most organizations, providing service is assigned to specific front-line functions, including field representatives, call centers, etc…    In many cases, these front-line functions are stuck with the difficult job of making up for systemic issues created at the core of the enterprise.   As a result, the front-line can end up caught in the middle between a broken system and a frustrated customer with little ability to address any of the deeper systemic issues.
  • Service quality is usually a poor differentiator.  Every company provides some level of service.  Differences in service quality can be described as a difference in degree.   A difference in degree is something every one does but some do better than others.   The unfortunate fact is people on the receiving end have a very hard time perceiving differences in degree.  Not only that, but since differences in degree often correspond with literally hundreds of service levels, they tend to be very expensive to improve. Efforts to enhancing differences in degree are often investments in better sameness.  However, not all differences are created equal.   People have a very easy time perceiving a difference in kind.   A difference in kind is something I get from one that I don’t get from another; it’s fundamentally different and may even catch me by surprise.  Virtually every example of companies that have differentiated based on service (e.g., Amazon, Zappos, Container Store, Starbucks, Chick-fil-A etc…), do so with a relatively small number of differences in kind not just a large number of differences in degree.  The good news is that creating a small number of differences in kind doesn’t necessary cost as much as ramping up a large number of differences in degree.

From Service to Signature Experience

So, what’s the solution?  We need a fundamental shift from focusing on delivering service to focusing on and finding ways to improve experiences.  What do we mean by experience?

  • Experiences are something that people have.  A company may influence that experience but, in the end, the experience only resides with the person.   Experiences exist within the context of the goals and desired states a person is trying to achieve, as well as the end-to-end set of activities they engage in to accomplish those objectives.  The only way to understand the experience is to understand how people are having the experience.
  • Experiences do not just happen at service touch-points.   Experiences can certainly be influenced by how an organization provides service, but it’s critical to pay attention to the broader context. Most opportunities to improve experiences do not just happen at the service touch points.  The greatest opportunities to create differentiated experiences come from understanding what happens at the non-touch-points.  How do we help them create new possibilities?  How do we minimize the effort associated with what customers are really trying to accomplish?  How do we eliminate points of confusion or frustration?
  • Experiences influence how people feel.  Not surprisingly, companies tend to focus a lot on how customers feel about their products and services.   However, experiences influence how people feel about themselves.  For example, does the experience make people feel smart, powerful, understood, cared for, or in control?   Of does the experience make people feel stupid, confused, marginalized, manipulated or frustrated?  If a company creates an experience helps people feel good about themselves, these customers will end up feeling great about the company and its products or services.
  • Experiences are social.  Most experiences involve things that people do together or engage in as a means of social expression.   The most powerful and influential experiences change the way people relate to each other.   For example, leading grocery retailer HEB’s experience design is orchestrated around the family experience of mealtime.   The most effective way to think about customer relationship management might be… what are the relationships are customer care most about and how can we create an experience that positively transforms those relationships.
  • Experiences create distinctions that influence behavior.   Experiences exist in what people remember, the stories they tell, the conclusions they draw, the decisions and resolutions they make, and the meaning they derive from it all.   The most powerful and influential experiences are designed around a differentiated commitment and a series of high-contrast “signature elements” that catch people by surprise and represent a difference in kind.

For example, the Starbucks experience represents a comfortable, inviting, predictable and highly social “third place” to go (beyond home and office).  The experience design incorporates a set of “signature differences” including the products (unique drinks and serving sizes), baristas, ordering interactions, service flow, store design, music and other peripheral products, and commitment relevant causes.

As another example, ZipCar creates an experience that addresses the non-touch-point opportunities in the traditional car rental experience.   ZipCar enables people to easily access a shared interest they have in cars located throughout their community.

What Does This Mean for B2B?

Moving from service to experience is also critically important for business-to-business providers.    First of all the stakes are often higher.  For example, the quality and the nature of the experience a business has with any product and/or service provider can influence significant revenue decisions as well as influence the businesses focus on price versus differentiated value.   Secondly, designing and managing the experience is more complex.  Most business-to-business relationships involve a network of personal relationships surrounded by a level of rational, economic decision-making.

Getting the Employee Experience Right: Creating Employee Experiences that Drive Business Growth

As many businesses are beginning to look towards economic recovery, we’ve seen a growing recognition of the importance of the employee experience.   I suspect this may be a recognition of the vast amount of stress in the workforce.   For many companies, significant portions of the employee base are facing deep economic hardships.  Employees have been working harder than ever in an effort to keep their jobs and pick up the slack as their companies have cut positions and reduced spending.   As the economy and the job market improves, these employers may be facing latent turnover of some of their best people.

At the same time, companies interested in making more strategic investments to accelerate growth will need to have a highly engaged and aligned workforce.   Over the past several years, we’ve been working with a diverse set of of clients on a rigorous integration of customer and employee experience design.

Here is a summary of what we’ve observed and what to do about it:


  • The experience customers have with any organization is the product of behavior that emerges from a complex organizational system.
  • Every organization is strongly predisposed to deliver the current customer experience based on deeply entrenched legacy effects, beliefs, values and unwritten rules. These legacy effects are reinforced by employee experiences at every level of the organization.
  • Most customer experience efforts significantly underestimate the difficulty of shifting legacy effects. In some cases, organizations create a vision for the desired customer experience that is fundamentally at odds with the character and culture of the organization. As a result, their initiatives fail to produce a noticeable shift in the customers’ actual experience.
  • Any effort to fundamentally improve the customer experience must first decode how and why the organizational system produces the current experience. This understanding allows executives to identify what changes are feasible and what specific interventions are necessary. Without this understanding, efforts to change the behavior of the organizational system are likely to be naïve.
  • Delivering a substantially different customer experience requires a holistic, end-to-end perspective on the employee experience. Within that holistic perspective, targeted employee experience interventions must address and rewrite any “unwritten rules” that produce behavior inconsistent with the intended customer experience.
  • By creating a strong linkage between the customer experience required to drive profitable growth and the employee experience required to generate this customer experience, a company can justify and prioritize investments in the employee experience.


  • Describe the experience you intend to deliver to customers. Describe what customers are trying to accomplish and map the end-to-end activities customers follow to accomplish those things. Then detail the experience you want them to have. What do you want customers to feel after their interactions with you? What are the company’s ultimate goals for delivering a powerful customer experience beyond the transaction itself – for example, additional sales, word-of-mouth marketing?
  • Identify the organizational and individual behaviors required to generate that customer experience. What do people and the organization need to do consistently to create the intended customer experience? What specific changes in behavior are needed? What must front-line employees do differently, and what decisions should front-line employees be empowered to make to solve customers’ problems? How do the work and behaviors of behind-the-scenes employees, plus their interactions with the front line, affect customer experience?
  • Identify the business processes, practices and unwritten rules that have to change to produce the required behaviors. Diagnose how and why your company generates the current customer experience. This must be based on rigorous examination of the experience from your customers’ perspective. Identify where bottlenecks in service occur, where the smooth flow of customer interaction is interrupted. Measure alignment of customer-facing processes, roles, measurements and rewards, and surface the unwritten rules that drive individual and group behavior related to the customer experience. What exactly do the unwritten rules encourage people to do, and how do the resulting behaviors facilitate or interfere with the intended customer experience?
  • Design specific employee experience interventions that remove the barriers and rewrite the unwritten rules. Map the end-to-end employee lifecycle and identify what your employees experience along the way. Model and segment employee populations, measure their fit with “ideal employee profiles” for different roles and correlate with customer experience and business performance. The appropriate interventions may be in how you attract, incorporate, engage, retain or enrich employees’ work. Because useful interventions can be made anywhere in the employee lifecycle, you must be rigorous in determining where to intervene and where to invest in employee programs. The goal is not just to design a compelling customer experience, but to enable employees to understand their connections with the customer experience and feel empowered to deliver the designed experience.
These observations and recommendations are described in more detail in the following white paper:   CI – Getting the Employee Experience Right 2011
You can also check out the following related blog posts:

Outcomes-Based Experience Design

Chris O'Leary

Bridging the Gap Between Customer Experience and Business Outcomes

by Chris O’Leary, COO, Customer Innovations, Inc.

In the 25 years we’ve been helping companies design customer experiences, one of the consistent challenges has been to estimate the business impact of specific experiential improvements.  The fact is that many customer experience (CE) programs simply fail to make a compelling argument about the business value that will be generated by specific CE innovations. In the absence of a compelling business justification, executive support and sponsorship may be weak or even absent, orphaning the CE program and robbing it of the executive leadership it needs.

In their efforts to generate a business justification, Customer Experience (CE) managers frequently try two approaches.  Neither approach has been consistently effective in earning senior management support and sponsorship.

First, they may choose to rely on generally held beliefs about the value of customer satisfaction, engagement or Net Promoter Scores (NPS).  Often, this reliance highlights a correlation between these indices and some business outcome (e.g., revenue growth or market share), but treats it as though it was a causal relationship. (see: Keiningham et al., “A Longitudinal Examination of Net Promoter and Firm Revenue Growth,” J. Marketing, Vol. 71  July, 2007, pp. 39-51)

In addition to the confusion of correlation and causation, we’ve also seen many cases in which high satisfaction or NPS scores actually co-exist with declining revenues, market share, and profitability.  These measures reflect how customers feel about the company and not how the company may make customers feel about themselves.  As a result, they are poor predictors of how customers will actually behave.

The second approach, of course, focuses on generating cost savings and efficiencies, most often at the service touch points.  Unfortunately, service efficiency is almost always more important to the company than to the customer, and efforts to streamline or automate the touch points typically end up working against the quality of the overall customer experience.  (See:  The Customers’ Experience Does Not Happen at Your Touchpoints).

What is needed is a fundamentally new approach to focusing and justifying investments in customer experience innovation, one which directly addresses the core challenge of connecting specific experiential innovations with measurable business objectives.

For some time, we have been using a new approach to CE business justification called Outcomes-Based Experience Design, which represents a 180-degree change from common practices:

  • Rather than trying to justify potential CE innovations by predicting or projecting hoped-for business outcomes, this approach starts by clearly defining the desired measurable business outcomes and working backward to identify the innovations required to generate those outcomes.
  • Rather than relying on self-reported satisfaction, loyalty and NPS scores, this approach targets concrete business and customer behavior outcomes, both of which are measurable at the individual and the aggregate level.  Satisfaction, loyalty and NPS are interesting, but should NEVER be used to justify investment in experience innovation!

Rather than competing for attention, funding and time with other business initiatives, this approach anchors CE to the existing strategic priorities, which is where CE should have been all along.

Figure 1: Outcomes-Based Experience Design

As illustrated in Figure 1, the Outcomes-Based Experience Design approach introduces a new measurable outcome, Behavioral Outcomes that connects Experiential Outcomes and Business Outcomes.  Linking Experiential Outcomes and Business Outcomes in this manner enables CE program leaders to define and measure the specific business value that is being created, and this provide a rigorous business justification.

The model works in two directions.  The first direction, going right to left, illustrates the design relationship. When designing the experience innovation, one starts with the business outcome of interest, then determines the specific customer behavior that needs to be influenced, and then designs the specific experiential interventions that are required.

Second, the model illustrates the causal relationship going left to right.  The only way that CE innovation can create a business benefit is by influencing a specific change in customer behavior and choice-making.  The difficulty in business justification discussed earlier arises from the fact that it is so difficult to predict how customers in general will respond to different CE innovations, and even more so for specific groups of customers,

Outcomes-based Experience Design generates a host of critical benefits.  First and foremost, it positions CE innovation as a tool for achieving the priorities of executives and senior managers, NOT competing with those requirements.  Second, it provides metrics and measurability at each stage of the causal relationship.

Third, it allows companies to invest only in those innovations that will influence the target customer behavior, and stop investing in potentially expensive initiatives which may not matter to customers or for which they are not willing to pay.  Identifying (and terminating) uneconomic CE investments will often fund new investments that are far more impactful and that generate meaningful business benefits.

One final note:  This model is effective only if we understand how and why customers behave as they do.  Without the ability to link individual characteristics to the decisions and choices a customer makes, there is no way to design experiential interventions that will be effective in influencing the target behavior.  More important, there is no way to assure that  an experiential intervention targeting undesired customer behavior (e.g., attrition), will not adversely affect desirable customer behavior (e.g., retention, growth).

The necessary foundation of Outcomes-Based Innovation, therefore, is the ability to understand how and why customers make the choices that they do, and to use that information to influence those choices.  The scientific and methodological basis for this understanding has been previously discussed here (Getting Beneath the Voice of the Customer) and here (Customer Experience:  Beyond Better Sameness); practical challenges and applications will be discussed in the future.

Customer Experience: Beyond Better Sameness

So… we’re ten years into the Experience Economy and, over that time, there’s been an explosion of attention and investment in creating and improving customer experiences.  Even in this midst of very challenging economic environment, it’s hard to find a company that isn’t either actively involved in or planning customer experience investments.   As the economy now starts to show signs of turning around, we’ve observed an increasing level of interest in getting closer to customers.

Despite the attention paid to customer experience, with a few exceptions, people are no happier with their experiences as customers today then they were 10 years ago.  It’s as if the majority of customer experience efforts have produced little more than “better sameness.”   Better sameness is doing what you’ve always done… and what pretty much all your competitors do… a little bit better and faster; providing friendlier customer service, incrementally faster response times,  a more appealing retail environment, a more streamlined web catalog and ordering processes, etc…

The problem is, customers don’t perceive these incremental differences.  If you’re looking for a competitively relevant improvement, you need to do something that actually grabs the customer’s attention and positively influences how they feel and what they do.  These are the only things that actually improve your competitive differentiation.  Moving beyond better sameness demands doing something that isn’t just a difference in degree; it demands doing something that’s a difference in kind.

For examples:

Southwest and JetBlue represent a difference in kind experience compared to the other major US-based airlines;

Umpqua Bank represents a difference in kind financial experience is a sea of highly undifferentiated consumer banks;


Wegmans, and Nugget Market is a difference in kind experience compared to most other major grocery retailers.

wegmans_food_markets nugget_markets

Unless what you’re after is better sameness…

…the most common tools for improving customers’ experiences are insufficient ! !

This includes:

Customer Satisfaction Measurement: Most companies ask customers for subjective evaluations of the company’s or product’s performance on the assumption that these expressed attitudes drive behavior, such as repeat purchases or positive word of mouth.  Unfortunately, decades of research into the correlation between evaluations and subsequent behavior show, although the link exists, it tends to be relatively weak.  Most customers who switch said they were satisfied.  Satisfaction is not an emotional state that powerfully drives behavior.  In order to get beyond better sameness, companies need to surface how the the experience influences customers’ perceptions and feelings about themselves not the company.

Voice of the Customer Insight: Listening to customers is critical for gaining insight into their lives, their goals, their needs, as well as, their frustrations, feelings, and behaviors.  However, as Henry Ford said, “If I asked customers what they wanted, we’d just have ended up with faster horses.”  In addition, what customers say they want is not often well-correlated with the deeper goals and subconscious factors that influence their behavior.  In many cases, what customers say they want is inconsistent with what ultimately drives their behavior… leading companies to invest in the wrong things.   Getting beyond better sameness involves engaging customers in fundamentally different kinds of conversations and getting beneath the surface of what they say to understand their deeper goals and the experiences they’re having.

Touchpoint Mapping and Service Level Improvements:  Touch point mapping is a highly company-centric activity.  Customers’ experiences do not just happen at your company’s touch points.  Customers follow an end-to-end set of activities that make sense to them given the goals and needs they’re trying to address.  You can’t understand and meaningfully improve the customers’ experience by just looking at and incrementally improving service levels at your touch points.  As customers go about their busy lives, they rarely pay attention to or act on any of the incremental service improvements at the existing touch points.  Getting beyond better sameness involves creating high contrast, signature experiences that get customers’ attention, influence how they feel, and shape the story about what you stand for.

Training and Motivating Front-line Service Employees:  Having engaged, well-trained, and motivated service employees is important.  However, a lack of training and motivation is rarely the real issue behind a poor experience.  The experience customers’ have with any organization is the product of behavior that emerges from a complex organizational system. The root of that behavior is a leadership, management, measurement, and cultural environment that reinforce “unwritten rules” inconsistent with employees doing the right thing for customers.  Focusing on training and motivating employees without surfacing and addressing the unwritten rules is like hacking at the leaves rather than striking at the root of the problem.  Getting beyond better sameness involves surfacing the unwritten rules and leadership and management beliefs and behavior that constrain the experience.

Creating positively and profitably influential experiences, that go beyond better sameness, requires a more fundamental shift in perspective.  You have to focus first on how customers HAVE experiences… not on how your organization or product DELIVERS experiences.  This includes being very clear on:   What are customers really trying to accomplish?  What influences the pathway they follow in pursuing those goals?  How do they actually construct preferences and make choices along that pathway?  How does the process make them feel about themselves?  How does the experience influence the relationships they care about?  In most cases, understanding how customers HAVE experiences, leads to a completely different set of strategies for creating experiences that really make a difference for customers and the business.

Customer Innovations follows a unique Cognitive-Affective-Behavioral Engineering approach that enables companies to design products, services, and experiences from the mental model of the experiencer… not just the mental model of the company.  Over the course of 25 years track we’ve helped leading organizations realize bottom line results of 10-25% in the form of increased retention, incremental sales, reduced acquisition costs, positive word of mouth, higher price realization, and improved productivity of customer-facing operations.

The Customer Innovations approach is driven by three toolsets deliberately structured to push companies beyond better sameness:

  • Behavioral Portraits – Generates deep insight that enables you to understand why customers behave as they do and identifies the most important behavioral drivers for specific groups of customers.
  • Trigger Analysis – Surfaces how people perceive, interpret and evaluate their experience and identifies the specific customer interactions that elicit positive or negative behavioral responses.
  • Influence Strategies – Designs the product, service, and experience interventions needed to influence customer behavior and creates the mechanism for consistent delivery of those changes.

Channel 1.0: Foundational Capabilities for Optimizing B-to-B-to-C Performance

As I mentioned in my previous post (Optimizing B-to-B-to-C Performance: From Channel 1.0 to Channel 2.0), the foundational, Channel 1.0, capabilities required to optimize B-to-B-to-C performance include carefully selecting, cultivating, collaborating with, and deliberately managing the lifecycle and performance of channel relationships.   Unfortunately, many companies struggle with issues or symptoms of issues that result from not having these foundational capabilities in place.  These Channel 1.0 capability gaps often show up in the form of the following issues and symptoms:

Common Channel 1.0 Issues / Symptoms

  • Not proactively identifying and selecting the right channel partners. This results from either inadequate attention to profiling the ideal partner (the “Ideal Partner Profile”) or a superficial search that doesn’t acquire the best partners (the ”Warm Body Syndrome”).  The business impact is that there are a significant number of under-performing channel partners and / or channel partners where the support costs outweigh the benefits derived from working with them.
  • Focus on “selling to” rather than “selling through” the channel. Often the channel is considered the “customer” rather than the ultimate consumer.  This limits the business’ ability to anticipate changing consumer needs and priorities.  As a result, the business misses opportunities to innovate services that help partners win by selling more of their products.
  • Listening to what the channel asks for rather than what the channel needs. Changes in consumer expectations and alternatives are having a significant impact on what it takes for channel partners to be successful.  Most of what channel partners ask for is a reflection of the past rather than a proactive view on how their needs are changing.  Responding to what the channel is asking for misses opportunities to “lead the channel” to a better solution.
  • Channel partners undermining the quality of the brand. Very often channel relationships are formed without putting the principles, education, support, and controls in place to manage the quality and the consistency of the experience that channel partners create for consumers.  In many cases, this problem occurs when the traditional agreement with channel partners is no longer relevant in the current business situation.
  • Being locked into a legacy experience model that can’t change. Because the B-to-B-to-C system has a lot of moving pieces, the system often becomes difficult to change as market conditions, consumer expectations, and competitive forces shift.  The experience that consumers have ends up being driven by a loosely coupled network of independent service providers that may not be able or willing to deliver the experience that keeps the system competitive.
  • Not effectively supporting channel partners across the lifecycle of the relationship. Most businesses do a good job of initiating channel relationships, but miss opportunities to actively measure and manage the evolution and productivity of these relationships.  As a result, there may be a large number of relatively unproductive channel partner relationships.

When we encounter companies with these issues, we start by assessing and identifying specific gaps using our Channel 1.0 Capability Model.  Generally issues with channel performance can be traced to a set of specific capabilities that must be addressed.  The following Channel 1.0 Capability Model represents a comprehensive best practices perspective.  Some of these capabilities are more or less important based on the fundamental nature of the channel relationships.  For example, these things show up very differently with tightly, coupled franchise and captive agent models versus loosely coupled retail and distributor relationships.

Channel 1.0 Capability Model

Capability Elements
Lifecycle Management
  • Ideal Channel Partner Personae
  • Channel Partner Attraction  / Brand Management
  • Identification and Targeting Channel Partners
  • Recruitment
  • Registration and Approval
  • Assignment of Entitlements
  • Agreements and Contracts
  • Partner Assessments
  • Partner Database
  • Partner Retirement and Continuity Planning
Training and Readiness
  • Orientation and On-boarding
  • First 90 day Training
  • Mentor Assignments and Coaching
  • Refresher and Reinforcement Training
  • New Product and Process Training
  • Partner Alerts and Newsletters
Collaborative Marketing
  • Supplier Brand Management
  • Marketing Communications to Partners
  • Integration of Partners into Multi-channel Campaigns
  • Collateral Catalog and Fulfillment
  • Auto Presentation Generator
  • Joint Marketing Planning and Execution
  • Joint Business Development Programs
  • Event Management
Collaborative Selling
  • Shared Visibility to Sales Process
  • Team Selling with Partners
  • Partner Sales Forecasting
  • Compensation and Commissions
  • Activity Management
  • Contact Management
  • Product, Pricing, Quote administration
Collaborative Servicing
  • Experience Specification and Management
  • Partner Portals
  • Contact and Case Management
  • Multi-channel Partner Services
  • Partner Self-Service Tools
  • Partner Value-added Business Services
Performance Management
  • Partner Performance Profiles
  • Partner Performance Tracking and Reporting
  • Early Warning Systems for Changes in Partner Behavior
  • Performance Improvement Interventions
  • Performance Issue Escalation
  • Partner Termination

In the course of addressing specific capability gaps, we’ve learned that most effective approach to optimizing the performance of B-to-B-to-C relationships is to work Consumer Back.  In other words, to look past what your business customers are asking for to find innovative ways help them be more successful with their customers. In fact, we’ve found that many organizations that consider themselves pure business-to-business (B-to-B) providers would benefit from adopting a B-to-B-to-C “Consumer-Back” Approach… such as the following:

The B-to-B-to-C “Consumer-Back” Approach

  1. Understand how expectations and alternatives are changing for the end-consumer. In most cases the end-consumer has a rapidly advancing set of expectations being driven by the best experiences they have with other providers. In addition, these consumers frequently have an expanding array of options for meeting the same set of needs.
  2. Understand how these changes affect the nature of the relationship that exists between your business customer and the end-consumer. Very often the changes identified in Step 1 create tension in the relationship your business customer has with the end consumer.
  3. Understand how these changes affect what it takes for your business customer to be successful. This includes changes in what it takes for your business customers to acquire consumers, serve and retain them, manage them profitably, etc… In a large portion of the situations we’ve seen, changes in end-consumer expectations lead to a fundamental shift in the dynamics of your channel customers’ operations. In some cases, these are shifts that your channel customers may have not fully recognized.
  4. Ensure that you have a solid “economic model” of your channel customers’ business. This should include understanding the basic processes and costs associated with acquiring, serving, retaining, and managing their relationships with consumers. This provides a foundation for focusing on the elements of the experience that have the highest impact on your channel customers’ business (very often not the “table stakes” requests they make of you). It also provides the foundation for knowing how to communicate with your business customers about the innovation you develop in a way that reinforces the business value to them.
  5. Brainstorm any and all opportunities to help make your channel customers be more successful meeting the changing needs of the end-consumer. Generally these opportunities have a direct impact on your channel customers’ effectiveness in acquiring, serving, retaining, and managing their relationships with consumers. We’ve found that it helps to surface the explicit or implicit “rules” that constrain your traditional relationship with the channel customer. Very often the greatest opportunities to innovate come from uncovering the opportunities and implications of breaking these rules.
  6. Analyze the impact that each of these potential innovations have on the economics of the channel customers’ business and prioritize them based on business value, complexity of implementation, and your credibility with customers on delivering that innovation.
  7. Present these innovation opportunities in terms of their economic value to the channel customer. In some cases, there may be a considerable sales cycle to helping your channel customers get their head around these innovations… particularly if they have not been directly involved in the above process with you.

B-to-B-to-C Consumer Back Examples

One of our first experiences with this approach was about 15 years ago.  At the time, we were working with a leading tire manufacturer that sells replacement tires through independent dealers.  Our client had already spent a lot of time listening and responding to what these business customers asked for… typically improvements in ordering processes and turnaround times, payment terms, and advertising support.  These requests really represented “table stakes” improvements in the basic service levels that define the traditional relationship the tire manufacturer had with these dealers.  Responding to these requests generally involved investments that were difficult to justify; they just added to the manufacturers’ cost to serve without driving additional revenue growth.  They clearly needed to do something different.

Over the course of 2-3 months, we studied the factors that influenced consumers’ experiences associated with their tires and observed how consumers shopped for and decided about replacement tires.  This was done in 5 different European markets.  It turns out that there several innovative ways the tire manufacturer could help their dealers be more successful with the consumer.  For example:

  • In the Scandinavian countries, consumers generally have two sets of tires for summer and winter. In addition, these consumers typically did not have room to store the tires in the off season. If the tire manufacturer helped the dealers set up and run a tire storage service, the dealer would be able to get the consumer back into the store on a semi-annual basis. This would generate stickiness for the dealer and also provide an opportunity to inspect the condition of the tires and make more optimal recommendations about when they needed to be replaced. This created a clear economic benefit for both the dealer and the manufacturer.
  • In the German market, time was more of an issue. In this situation, we determined that the opportunity for the tire manufacturer was to help their dealers provide mobile mounting services that would replace the tires while the car was parked at the customers’ home or workplace.

In each of the markets there were things the manufacturer could do to optimize or improve the relationship between their customer and their customers’ customer.  (See Most Efforts to Improve Customer Experiences are Misdirected!).  Like most of the situations we’ve seen since that time, these innovations are the kinds of things that business customers would never ask for.

After that experience, we started to (semi-jokingly) tell our other clients that they needed to stop listening to their “channel” customers so much.  We’ve observed that these channel customers typically ask for things that drive up your costs rather than increase your revenues.  Of course they need to pay attention to what customers are asking for (or at least look in their general direction when they’re talking)… but the trick is to look past what they’re asking for to find more innovative ways to help them be more successful with the end-consumer.

Since that time, we’ve worked with very many companies to create similar opportunities, for example:

  • Several financial broker-dealers that now provide innovative services to help their independent financial adviser customers be more successful acquiring, serving, and managing relationships with individual investors.
  • A leading food processor that now provides innovative and collaborative concept development, meal design, kitchen layout, and education services to their restaurant customers… all aimed at helping their restaurant customers stay ahead of changes in consumer expectations for dining experiences.
  • An automotive financial services company that provides dealer financing, pre-paid maintenance, extended warrantee services, etc…  Beyond these basic products, this company’s entire positioning is now focused on collaborating with automotive dealers to improve the profitability and performance of their customers’ finance and insurance function. In addition, the company is now getting paid based on increases in their customers’ profitability not just the sale of their basic products.
  • A leading small group health insurance company that has significantly improved their performance by focusing on how they can help independent agents provide value-added services and advice to small businesses on the management of health benefits costs and employee wellness/productivity.

In this post, I’ve dealth with the foundational capabilities associated with the Channel 1.0 model.  In an upcoming post, I’ll share some of what we’ve been learning as we’ve helped companies build on these foundational capabilities in order to move to an inherently more agile, collaborative, and open, “next generation” Channel 2.0 model

Optimizing B-to-B-to-C Performance: From Channel 1.0 to Channel 2.0

How do we keep up with changing consumer expectations when we only have limited direct contact with the ultimate consumers of our products?

How do we align agents, brokers, retailers, or franchisees in order to deliver a consistent brand experience that drives growth?

How do we overcome complex, legacy distribution channels in order to reinvent the customer experience in a way that allows us to stay competitive?

How do we balance attention or investment in channel “customers” versus end-consumers?

How do we collaborate across an increasing array of diverse distribution network participants in a way that helps us accelerate growth?

The majority of companies we’ve worked with operate in some form of intermediated business model that fits a Business-to-Business-to-Consumer (B-to-B-to-C) structure.  This includes:

  • Product companies that sell through retailers, distributors, or sales reps
  • Financial services companies that sell through agents, brokers, or financial planners
  • Technology companies that sell to and through integrators
  • Food products companies that sell to restaurants and food service companies
  • Franchise operations that maintain and manage a network of franchisees

It also includes many companies that haven’t traditionally thought of themselves as operating in this model, but would benefit from doing so, including:

  • Pharmaceuticals or medical devices that focus on providers as well as patients
  • Placement agencies that manage employer, as well as candidate relationships

Although the B-to-B-to-C structure is an efficient way to go to market, there are a common and predictable set of challenges that not only make it difficult for the model to work effectively but to change as market and competitive conditions shift.  As downstream consumer expectations change and competitive alternatives arise, upstream product companies often find themselves locked in to a set of channel relationships that are difficult to influence.   Most of the B-to-B-to-C companies we’ve worked with experience a lot of angst and conflict about how to integrate:  1) what they do for their channel, 2) what they try to encourage the channel to do for the downstream consumer, and 3) what they do for the downstream consumer themselves (often very uncomfortably by-passing their channel.

This angst is now being amplified by a dramatic shift in the way business is done.  In most industries, the emerging model for the market is a much more open and collaborative network rather than a closed and controlled firm-centric model.   This shift has been well documented by my colleague Don Tapscott in his bestselling book Wikinomics.  Don is the head of nGenera Insights (a Customer Innovations partner).

The traditional concept of channel management is a product of the older closed, controlled, and firm-centric market model.  We call this “Channel 1.0.”    The basic capabilities associated with Channel 1.0 include carefully selecting, cultivating, collaborating with, and deliberately managing the lifecycle and performance of channel relationships.

In the more open, collaborative network model for business, these capabilities are still critical but they must be exercised in a fundamentally different way.   In this new world, there are two problems with the traditional Channel 1.0 concept of “channel management:”

  1. The first problem is the “channel” part. In a network view of the world, a channel is an outdated, linear way of viewing the market.  It locks you into thinking that you move your products and services forward through the channel to reach end-consumers.  This doesn’t work in the presence of media-savvy and networked consumers.  These next-generation consumers can easily find better deals with more agile providers and, in the process, are more likely to either by-pass intermediaries all together or deal with newer intermediaries (e.g. Amazon, etc…) that consolidate products and services in a way that makes it easier for them to get what they want.
  2. The second problem is the “management” part. In a more agile, networked view of the world, channel participants are more difficult to manage or control.  They tend to either have or believe they have more alternatives.  They also have to deal with a rapidly changing set of consumer demands that change what it takes for them to be successful.  If I’m an insurance agent, retailer, distributor, etc… struggling to keep up with changing consumer demands, preferences, and alternatives, I’ll challenge anything that product providers do that gets in the way of my responding to and serving my customers.

This leads me to Channel 2.0, which for the lack of a better description can be called Collaborative Ecosystem Management. In a more networked business environment the fundamental shifts include moving…

From: To:

Linear, feed-forward value delivery system

Complex, shifting network of participants

Static and known list of channel relationships

Evolving and emerging channel participants

Product and service fulfillment model

Demand creators and accelerators

Inflexible channel structures and systems

Adaptive collaboration processes and technology

In my next two posts, I’ll share some of what we’ve learned in helping companies improve performance by establishing the foundational performance capabilities associated with Channel 1.0 and building on those foundational capabilities in order to move to a more agile, next generation Channel 2.0 model.

Addendum… here are the next two posts: