V2T2™: Model and Method to Reduce Relationship Risk
The Lifetime Value (LTV) of Enterprise Relationships is at Risk
Two factors increase the risk to the expected LTV of your enterprise relationships:
1. Before many Enterprise Relationship Management (ERM) lifecycles even begin, customers find themselves at odds with the “channel agents” they will and may encounter during their experiences, making it less likely for them to continue any relationships they do establish.
2. Because more resources and substitutes are available, customers are now less tolerant of any tradeoffs between the ERM behavior they expect and any enterprise-driven requirements for efficiency, making it more likely that they will find—and will act upon—a better deal down the block or across the ocean.
The reality of doing business in the 21st Century highlights the interest in and goal of ERM: Acquire and retain repeat customers and influence individuals in the customers’ networks to be the same.
The KGain V2T2 ™ Model and Methodology Reduce Risk
V2T2 links Value (product and service), Volume (discrete or periodic), Touch (human interaction), and Technology (enabling) to help you (1) describe the influence of these dynamic forces on your business relationships, and (2) prescribe how these same forces can be harnessed to help you to achieve and sustain a new level of ERM capability. Linking Value and Volume from Low to High gives a matrix of four ERM contextual zones. Similarly, linking Touch and Tech(nology) gives a matrix of four ERM behavioral “tones.” Subordinating ERM behavior to context and aligning both matrices gives the Knowledge Frame ™ below.
V2T2 Example: Buying a New Car
The ERM scenario of buying a car shows how the V2T2 model describes why participants’ expectations for Touch-Tech behaviors may be out of “tune” during any phase of a relationship lifecycle for a given Value-Volume context. By identifying the primary causes of potential discord in enterprise relationships, the V2T2 model can prescribe how the enterprise can “harmonize” ERM behavior with expectations. (Although the context of this example is Business-to-Consumer, V2T2 is applicable to ERM in general.)
Customer point of view (POV): Buying a car is a High Value, Low Volume transaction. It’s a significant expenditure made infrequently. Customers expect High Touch as the primary mode of ERM behavior when they physically visit a dealership. The use of Technology such as videotapes, computer kiosks, and websites during the visit is neither necessary nor sufficient for the customer. Customers expect a High(er) Touch, Low(er) Tech mode of ERM, placing them in Q1 of the V2T2 Knowledge Frame.
Salesperson POV: High Value, High Volume. The commission on selling a car is significant and the salesperson must sell multiple cars per month. (The salesperson sees the transaction in a larger context than customers do.) The salesperson expects that High Touch will be the primary mode of ERM during the visit too, but the salesperson’s preference for High Touch is lower than the customers’—because of Volume. The salesperson would prefer High(er) Tech to help manage more customer visits, per unit of time, placing the salesperson in Q2 of the frame.
Sales manager POV: Low Value, High Volume. The sales manager is responsible for selling tens or hundreds of cars per month (another step-up in context). Each of these relationships must be “closed” successfully, requiring the coordination and integration of several people and subsystems that interact with customers. If the sales manager expects to interact during a visit, the mode will be Low Touch (indirectly through the salesperson), High Tech (credit check, financing, insurance), placing the sales manager in Q3 of the frame.
Manufacturer POV: Low Value, Low Volume. The manufacturer is responsible for selling thousands if not millions of new cars and a visit to a dealership by a single customer is inconsequential (global context eclipses local transaction). If a manufacturer does engage a customer during a visit, the mode will be Low Touch, Low Tech, placing the manufacturer in Q4.
Inferences and Implications
Volume-based business models dilute ERM lifecycle responsibilities: Volume-based business models have spread out everyone (Touch) and everything (Tech) over long supply chains. The diffusion of people and technology and the differentiation of roles and responsibilities have made the ERM lifecycle for individual customers the responsibility of everyone and no one at the same time. The supply chain is spread so wide and the POVs so narrow that customers are subjected to choppy relationship management as they interact with each channel agent, who may or may not know their lifecycle histories and current situations. In our example, before the sales phase of the relationship lifecycle has even begun, the customer is at odds with every channel agent they might encounter during their visit to the car dealership. The customer’s overall relationship lifecycle experience, based on the accumulated effect of the behavior of everyone in the new-car supply chain, makes it less likely for the same customer to buy another new car from the same sales person, sales manager, and manufacturer again.
Disconnect and paradox of 20th Century business: Ironically, the primary source of Value in our example, the manufacturer—who has the most to gain from a long-term relationship—is literally and figuratively the farthest away from the customer. This is a major disconnect between customers and the new-car supply chain and a paradox of 20th Century business. The crux of the paradox is this: The customer operates from Q1 of the V2T2 model, High Value, Low Volume, but the manufacturer operates from Q2: High Value, High Volume. But wait—in the example we placed the manufacturer in Q4: Low Value, Low Volume. Yes, because the subject of the manufacturer’s POV in the example was a single customer and one car. The subject of the manufacturer’s real POV is a single market and millions of cars. The manufacturer’s focus is on an aggregate market and High Tech rather than on an individual customer and High Touch.
Constrained by Volume, corporations compensated in two ways: The preference and expectation for High-Value long-term relationship management is High Touch (human interaction). The corporation, constrained by Volume, compensated with High Tech in two ways: (1) Organizational functions and a supporting infrastructure emerged to help the enterprise stay in “touch” with customers through a wide variety of activities and behaviors collectively called branding. In effect, the enterprise compensated for the impracticality of performing two-way High-Touch mass communication with one-way High-Tech mass marketing. (2) As the primary anchor in the customer’s experience, the product became the focus of major investments in research and development (R&D) to make products like new cars superior “High-Touch” and High-Tech experiences. Corporations succeeded, but (1) and (2) are no longer sufficient to remain competitive with the emergence of the “new economy,” punctuated by the Internet and World Wide Web.
Attempting High Touch with High Tech gives mixed results: The original focus of technology in Volume-based business models was to support mass production. Technology played an ever-increasing role for the enterprise, internally at first, and then externally, culminating in 20th Century mass marketing and mass consumption. Now, existing customer “touch points” are being converted to High-Tech interfaces, replacing or augmenting High-Touch interaction. While posing as “user friendly” and “intuitive,” many are, in fact, something less. Additionally, many enterprises have tried to create brand new portals in “cyberspace” with questionable results. A major factor in these errors is the perpetuation of the primarily one-way flow of traditional marketing and R&D. We are used to making assumptions about what customers want and need. This 20th Century mindset of “realspace” has crossed over as a pseudo constraint of 21st Century cyberspace. By definition, Touch, at any level of Value, is ultimately effected by human interaction and requires dialog.
Recommendations
Transform the supply chain into a Value Network: Volume has spread people and technology over supply chains where roles and responsibilities are differentiated and diffused. It’s incumbent upon the primary source of value in the supply chain, like a car manufacturer, to take the lead and reverse the process. This does not mean eliminating channel agents but eliminating the effect—the fragmentation of knowledge about relationships across many people (Touch) and systems (Technology). An example of this prescription is extranets. Leading enterprises are well on their way to creating seamless High-Touch interfaces that can be used by all channel agents when interacting with each other, with customers, or by the customers themselves. At this level of sophistication an extranet can be described more appropriately as a Value Network.
Transform High-Tech interfaces into High-Touch interaction: Technology has slowly eclipsed Touch in many Value-Volume contexts with questionable results. Review every interface having direct ERM responsibilities and, if necessary, reengineer them to facilitate Touch-sensitive interaction with customers and context-sensitive intervention by channel agents. An example of this prescription is the Customer Relationship Management software that enables customers to initiate direct multi-modal contact with channel agents during actual ERM activities. This type of on-demand High-Touch interaction should be the rule rather than the exception.
Transform one-way mass marketing into two-way mass communication: The traditional mediums of television, radio, and print do not compare to the high-context, touch-sensitive, and two-way dialogs that customers are now learning to demand. The traditional organizational functions associated with branding are adopting “new media” and need to be fully integrated with modern ERM practice. An example of this prescription is the emergence of permission-based marketing, which, in a characteristic High-Touch manner, asks permission to interact.
The prescriptions above highlight the emergence of the 21st Century Value Network, enabled by the continuing advances made in Technology to process even more Volume. These same advances are enabling customers to be better informed and more demanding. They can change their business relationships easily from the comfort of their own homes by moving a cursor on a computer screen to select or deselect you or your competitor. It will only get easier for them and harder for you. To reduce risk you must reduce uncertainty. KGain’s V2T2 model and methodology reduce uncertainty by enabling you to clearly see the interaction of the essential dynamic forces influencing your business relationships; thereby, helping you decide on the right mix of Touch and Technology to manage a desired level of Value and Volume.
KGain ™ is pleased to introduce the V2T2 ™ General Business Model and Methodology with this article’s publication as the latest addition to KGain’s inventory of enterprise-enabling assets. KGain enables its customers to achieve their goals more rapidly with less error through “fast and light” Enterprise Engineering consulting engagements and self-service digital content. Please visit us at KGain and V2T2.