The Case for Customer Centricity

A leading global luxury hotel chain uses “it”. A leading UK bank used “it” to modify cheque handling processes with spectacular results.  The oldest Australian bank utilises “it” to better predict customer risks. A top Brazilian bank used “it” to reduce credit losses while doubling in size.  And Coca-Cola applies “it” with 5 million of its US customers and partners including NASCAR, InterContinental Hotels Group and Blockbuster. 

“It” is the practice of  Customer Centricity, a concept that extends and simplifies Customer Relationship Management into a more meaningful focus. 

Customer Centricity Defined

Customer Centricity is an enterprise strategy that is re-defining industry leaders in sectors as disparate as hospitality, financial services, retailing and consumer goods marketing.  Customer Centric enterprises are ones which:

1. Choose the customers on which to focus, targeting a portfolio of the most defensible, profitable customers with high growth potential.
2. Develop and maintain clear, insightful customer segmentation, identifying strategically distinct customer groups that require different sales, marketing or service models.
3. Define a Winning Value Proposition for each segment, delivering a superior total customer experience for every one.
4. Achieve deep alignment across the enterprise, so that all the functions understand how to work together to deliver and keep improving winning value propositions.
5. Define and track key segment performance metrics, enabling the enterprise to manage each segment to maximize ROIC (return on investment capital).
6. Implement processes for continuous learning and improvement through scientific “test and learn” techniques and by codifying and deploying learnings

And while the guiding principles of customer centricity are easier discussed than implemented, getting started need not entail an elaborate technology rewrite or  wholesale concession of product benefits and profits.  Instead, customer centricity can start with existing investments in data retention, add focused management discipline, and gradually infuse the enterprise using analytic development and rules management capabilities. 

The technology challenge of Customer Centricity

Let’s look at what happened when Raffles International Hotels and Resorts, which owned and operated world-class luxury and business class properties on a global basis. Raffles sought to create a service-focused culture to build guest loyalty and provide a competitive advantage for each Raffles property in the wake of September 11, 2001 disruptions to the travel industry.  After consulting with Fair Isaac, Raffles realised that while it already had data measuring the customer experience, it needed to better align the use of the data across the enterprise. 

“Before, the capture of data was compartmentalised,“ said Raffles International human resources development manager Elvis Chong.  “Every department kept its own data, from housekeeping to the front desk staff.  Now we can share this information to better serve guests.”

Sharing data across its operations was a part of a Raffles staff development initiative it called Enculturation.  Through Enculturation, Raffles is experiencing reduced costs, increased guest satisfaction, and worldwide competitive differentiation. 

Or consider what Coca-Cola has done in simply imprinting codes for rewards inside bottle caps and cartons.  As reported by Duane D. Stanford in the Atlanta Journal-Constitution, by establishing www.MyCokeRewards.com, Coke has enticed over 5 million US customers to create an online account and redeem the unique codes for points awarded depending on the product size. Customers can then redeem accrued points to purchase prizes or enter sweepstakes, and continue to supply demographic and psychographic details with each visit to the site.

Jeff Zabin, director of precision marketing for Fair Isaac, which created the database technology behind MyCokeRewards, told Stanford that consumer companies can now target offers to individuals who are likely to actually act on them. That saves time and money, and creates a better return on investment.
"You create a very robust, multidimensional profile of who your customer really is," said Zabin, author of Precision Marketing: The New Rules for Attracting, Retaining and Leveraging Profitable Customers (John Wiley & Sons, March 2004). "I think you are able to engender loyalty if you're able to speak to a customer in a way that's likely to resonate with their specific wants and preferences."

Last year, for example, Coke offered MyCokeRewards users digital coupons for free trials of a new diet soda; more than 100,000 redemptions were achieved.  The digital campaign was far less costly than a paper campaign, which would have required higher coverage and would likely have produced inferior results.

If this type of Customer Centricity is achievable for a consumer goods marketer selling drinks for less than £1 per bottle, imagine the power of Customer Centricity for financial service companies and retailers who literally finance and nurture a customer’s dreams and aspirations. 

The risk and profit benefit of Customer Centricity

Customer Centricity is a concept that can be applied with equal vigour and perhaps for demonstrably greater return by financial service companies managing consumer and small business portfolios.  Examples include, but are by no means limited to:

• North American Credit Card companies, who report that on average they can generate a 17% lower coincident loss rate when utilizing a customer-level view. That’s a saving equivalent to £170.000 per each £1 million in receivables. 
• Unibanco, a leading Brazilian bank that sought to control losses while acquiring portfolios of dubious quality, and implemented customer-level behaviour scores and customer management capabilities in response. Not only was Unibanco able to double its client base in one year, it also stabilised delinquency and losses and achieved a 60% reduction in provisioning.
• Barclays Bank sought customer level management to create competitive advantage in an increasingly crowded marketplace.  In addressing Cheque Pay / No Pay processing, they increased overdraft acceptance by 12% and lowered bad rate by 11%.  Simultaneously, they reduced Pay/NoPay operations expenses and staffing requirements by 90%.
• Westpac, Australia’s oldest bank, sought to improve marketing and credit strategies by better recognising the customer’s entire relationship with the firm through customer-level scoring predicting future customer risk.  Just in  using customer scoring to determine Pay No-Pay (shadow) limits to pay or decline cheque transactions that overdraw an account, Westpac has been able to significantly reduce the number of accounts paid into excess that progress to loss, achieving a benefit through improvement to credit quality estimated at $2.7m annually.  Westpac reports other benefits attributable to customer centricity, with significant plans for expanding its focus. 

Learn About Fair Isaac’s Perspective On Customer Centricity

Here, Fair Isaac touches just the tip of the possibilities for Customer Centricity.  To learn more, join us on Wednesday, 7 November for a web seminar and self-diagnostic online exercise hosted by Fair Isaac Customer Centricity experts Jonathan Rotenberg and Matt Guenin.  To register, visit www.fairisaac.com/centricity