Today’s consumer lives in a highly connected world, where information and knowledge are quickly shared over always-on devices and social networks. The knowledge economy empowers the consumer to make intelligent choices and broadcast her preferences to ever wider audiences.

The knowledge economy is governed by rules starkly different from the economy of scarcity that marked the agrarian, industrial and post-industrial economies. Whereas land, labour and capital were the differentiators in the economy of scarcity, in a knowledge economy everything is in abundance, making differentiation a tough prospect.

For organisations, the knowledge economy is characterised by low margins, stiff competition, and rapid technological changes, where customer service – leveraged by customer intelligence and technological innovation – becomes a significant differentiator. In an environment of perceived parity between competing products and services, one where businesses are chasing the same customers, providing differentiated customer service becomes the only lever to gain customer loyalty and build competitive advantage.

In a world of perceived parity between competing products and services, differentiated customer service provides the only sustainable competitive edge for organisations.

Differentiating customer service Customers today employ many channels of contact, such as social media, Web chat, text messaging and video chats, apart from the traditional ones of telephone, email and fax. They are tech-savvy, socially networked, and want instant answers and resolution of their problems. Adding to the complexity, customers tend to have varied and strong preferences on how they interact with businesses: while some would prefer a live Customer Service Associate (CSA), others would prefer Web chat or a mobile browser.

The challenge for companies is to reach out to customers where they are, through the channels they prefer to use. A recent survey found that 74 per cent of dissatisfied customers cited customer service as a major cause of their discontent. By implementing multi-channel CRM, organisations can provide personalised service to customers and move them from the zone of indifference to the zone of affection, thereby gaining customer confidence and loyalty.

To enable multi-channel CRM, organisations need to properly segment their customers. Segmentation is important in building high-value relationships with customers. Data from the various customer interaction channels can be mined to sharply define customer profiles and target them with segmented offerings. Such offerings give preferential treatment and personalised support to high-priority customers – identified according to their needs and value to the firm – enabling better resource allocation, cost savings and better revenue capture.

The most valuable customer, for instance, can be given one-to-one customer service, even the service of the same CSA, whereas those at the bottom of the ladder can be offered automated service or Web-based service. Segments that fall in between can be serviced with a mix of both. The more an organisation understands its customers, the better it can push the appropriate levers for the specific customer.

While automation is a key enabler in customer service, it is the human touch that improves the customer experience. So deciding which services to automate and where to offer the services of a CSA is a crucial step in providing differentiated customer service, with strong implications for businesses. In the telecom industry, customer calls on billing queries are serviced by CSAs whereas customer issues that generate a high volume of calls, such as for confirmation of service, are fully automated.

Segmenting customers and automating selected customer service operations enable organisations in a competitive environment to offer differentiated customer service, which affects customer loyalty positively and serves the goal of driving profitability.

Customer retention key to profitability Research by the Gallup Organization shows that the key to winning customers is emotion – not price or product. Strong, differentiated customer service builds confidence in the brand and strengthens the emotional connect with the customer.

In a hyper-connected, highly mobile world, it’s a challenge to build long-term customer loyalty but the fruits of the effort make it worthwhile: repeat customers refer more people and bring in more business. A Bain & Co study shows that after 10 purchases, a customer refers up to seven people; it can increase sales by up to 50 per cent without increases to the budget. On the other hand, acquiring a customer costs five to 10 times more than retaining one. It costs six times more to sell something to a prospect than to sell it to a customer.

Customer retention, then, is the key to driving profitability and retaining the most loyal customers becomes very important from a business perspective. Depending on customer behaviour, they can be divided into three zones: the zone of defection where customers are extremely hostile and have low levels of satisfaction, the zone of indifference where they have a medium level of satisfaction and loyalty, and the zone of affection where they are highly satisfied. It is the last category that is of most value to a business: Customer evangelism in a socially networked, mobile world can prove more effective than any sales promotion.

A mere 5 per cent increase in customer loyalty can bring a 25 per cent to 40 per cent increase in profitability (see graph below). Customer relationship management focuses on moving customers from the first category to the last, converting them from hostiles to apostles.

The writer is an alumnus of Welingkar Institute of Management, Mumbai, and founder-CEO of Stupa IT Services Pvt Ltd

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