In the 1940s Thomas Watson, the then chairman of IBM, predicted that the world market for computers would add up to no more than five; he simply could not foresee any commercial possibilities. History is littered with such foolish predictions about technology. Since Watson's pronouncement, global computing power has increased a billionfold. Number-crunching tasks that once took a week now take seconds. Today any hip member of the digerati could tell you that the S-class Mercedes-Benz contains more computing power than the multi-million dollar mainframes that sent the Apollo missions into flight. In 1985, it cost Ford $60,000 every time it crashed a car into a wall to find out what would happen to the bodywork in an accident. Now a collision can be mocked up by a computer for $100. Similarly, BP Amoco uses 3D seismic-exploration technology to prospect for oil, cutting the cost of finding oil from $10 a barrel to only $1.
So far, so good. Information technology (IT) seems to be adding value. IT (and the internet in particular) is revolutionising the way we communicate, work, shop and play. E-marketplaces cut costs for business buyers through increased choice and price competition, while giving sellers a new and potentially lucrative channel for unloading inventory. But there's a growing consensus that e-marketplaces need to do more than simply bring buyers and sellers together. In essence, most marketplaces act as an intermediary - basically a service that brings traders together, collects a transaction fee or tax, and then bows out of the process. More and more, however, are beginning to act as a “metamediary”, a term coined by Professor Mohanbir Sawhney of Northwestern University to describe a marketplace that not only brings buyers and sellers together, but also provides value-added services that reduce marketplace inefficiencies and create happy, repeat customers - not to mention profits for the provider.
Net markets are going to be a huge part of the corporate purchasing landscape, but increasingly e-marketmakers sense that in order to prosper, or even survive, they have to move beyond the transactional-fee model and begin to offer additional services, such as research, financing, order fulfilment, business process alignment, integration across multiple supply chains and direct procurement. That is good news for the army of trading platform builders, makers of community and collaboration tools, network services providers, content management providers and other infrastructure makers. It's just like the California gold rush: some e-marketmakers will strike it rich, others will not. The only companies guaranteed to make money are those supplying the mules, the pickaxes and the work clothes.
Importance of the e-customer
So how are successful companies creating and maintaining their success? Inevitably, by becoming more attractive and increasing their “competitive advantage”. However, the competitive advantage is now about the customer and how to maximise lifetime value for both the customer and the organisation. In the case of the insurance industry, it has recognised it must be more customer-centric and less product-centric. One of the main drivers for this is the recognition of the large variance between the cost of acquiring a customer and the cost of developing a customer to purchase a number of products. Increasingly, financial services in general, and insurance and pensions in particular, are about being a farmer not a hunter.
Distribution channels for financial products have changed from traditional bricks and mortar branches populated with tellers, brokers and agents to more virtual distribution channels like point of sale devices, call centres, PC banking and the internet. Increasingly, the internet is being adopted by both financial and non-financial corporations such as supermarkets to exploit new opportunities and gain new customers in the current explosion of on-line investment and insurance purchasing. It is imperative that insurance companies adopt a strategy to interface with customers on-line so as to lower costs, improve service, increase margins, compete with new rivals and retain existing customers.
Customer portals can now be specifically designed for each customer to provide a real-time interface for transaction handling, enabling consistent customer information to be delivered securely and rapidly. Customer Relationship Management (CRM) is a crucial requirement in today's efficient marketplace, since the internet exponentially increases the amount of information that is available to the customer, speeding up the adoption and evaluation processes and ultimately the purchase decision. It facilitates quote comparison and erodes traditional loyalties.
Knowledge about and understanding of a customer's profile and needs are fundamental. All aspirations to meet customer needs over an extended period of time are dependent upon acquiring and analysing this knowledge base effectively. The management of data is key to the success of the relationship and IT is the conduit for achieving this.
CRM has therefore become an essential concept for successful financial services companies in the new way of working. What is becoming rapidly apparent is that organisations already store vast amounts of under-utilised information on their customers in their existing IT systems. To maintain competitive advantage, they need to “slice and dice” this information for business advantage and ask the following questions: What are we adding that's worthwhile to the customer? What's different? Can we sell the same products? To the same customers? At the same prices? Can we match quality and service standards? Are we facing different competitors? Do we need a different image and brand identity? Do we need to change the sales, delivery and customer service infrastructure?
For many insurance companies, their website is their shop window, possibly the initial interface between customer and provider. It's not just a matter of the number of hits on the site that counts; the key is “stickiness”, or the ability to ensure time on-line and repeat visits and orders. From the customer's point of view, e-commerce is just one other face of the company.
E-business can create enormous new opportunities for business, but unless it is properly executed, you can expect a big backlash from customers; Halifax's “Intelligent Finance” and Prudential's “Egg” still have some way to go...
One of the biggest fallacies of the e-revolution is that the internet means the “death of distance”. Yes, the internet destroys distance - except when you have to deliver, support, return, service, store, repair, replace, collect, refrigerate, conserve, and so on.
The reality is that the fulfilment system is the same whether an order is made in person, on the phone or on-line. The customer does not care how he or she got to you. The processes governing customer delivery must therefore be the same for internet orders as for any other orders, and fully integrated into the business. An example is PC World Business Direct, where website, telephone and in-store sales are completely integrated and customers don't need to worry about the service they will get if they order on-line.
The rules of business have not been completely rewritten in the e-revolution, as is frequently asserted. Instead, the rules have been extended to include vast new opportunities for reaching customers, but these must be complemented by more old-fashioned disciplines to ensure success.
I do not believe that on-line customer service, or cyberservice as we term it now, will ever go out of fashion; like good manners, it's often the simple personalisation of an exchange that sticks in the memory and encourages a repeat purchase.
Ross Gow read commercial law before spending eight years with Marsh as a broker. He is currently Head of European Marketing for Sherwood International, the insurance solutions provider.