The View from the Glass House
By Ajit Kambil, Patrick Conroy and Ryan Alvanos
Photography By David Clugston

Creating customer trust

Rock-throwing is a very real danger inside a glass house. Major retailers and CPGs will have to take the high road of exemplary behavior with customers and other key stakeholders in a transparent marketplace. When the goods and services that a company offers are easily duplicated by competitors, real differentiation and competitive advantage will only occur when a company improves its relationship and builds trust with its customer base.⁵ Trusted reputations and positive relationships are built through repeated high-integrity interactions with customers and the careful cultivation of a corporate image. To this end, retailers and CPGs will need to ensure that they have clear processes and internal controls to support high behavioral standards.

Not all transparency is bad. Retailers and CPG companies with exemplary supply chains should harness new information technologies to make their processes more transparent as a means of strategic differentiation. For example, food retailers resisting even basic country-of-origin labeling will likely have better results if they embrace an even higher standard that reassures customers about food quality and safety. For companies with repeated customer interactions, creating trust will be critical to prolonged profitability in otherwise crowded markets.

Involving customers to co-create trust and value

The Internet enables new ways to create referential trust. Amazon was one of the first to seize the inherent opportunities of co-creation by encouraging customers to create and post book reviews on their website. Customers can rate these reviews, allowing users to identify what was most useful to others. Amazon also makes it easy to filter reviews coming from trusted sources. This simple system of co-created reviews and references is indispensable to book buyers and allows Amazon to provide distinctive and differentiated value to its customers.

As customers publish on MySpace and other venues, they become referents for other customers. If companies permit them, customers are also empowered to “virtually touch” nearly all parts of the company value chain, from insights for product design to co-creating ad copy in the marketing and sales cycles.

 Any Suggestions?  
Companies as diverse as technology, car and toy manufacturers have set up areas on their websites that seek out suggestions from consumers and suppliers. BMW, for example, has received some 10,000 suggestions from its suppliers, of which about a third have been put into practice. Often, these co-creation efforts save the company time and money since the innovation is being driven by those with intimate knowledge of the product, which helps to improve acceptance and improves speed-to-market.⁶

Companies are harnessing the collaborative power of their customer bases to create word-of-mouth marketing and collect consumer input on their product offerings. Procter & Gamble launched Tremor, a word-of-mouth marketing network of unpaid consumers (agents) who share the company’s products with their friends and relatives.⁷ These efforts give P&G a more insightful picture of customer perceptions of their products and other trends.

Competing on responsiveness

The third platform for competing in the transparent world is responsiveness. This is the ability to truly sense the behaviors of customers and other stakeholders and respond to their needs in real time. To become more responsive, companies need to be able to sense needs and issues, interpret requirements, frame responses, act to deliver on the responses, and learn from the reactions of customers and others to improve future responses.

The first step toward becoming responsive is building the capacity to sense the needs that merit response. All too often, retailers and consumer packaged goods companies primarily rely on point-of-sale data to sense trends. In the future, they will have to consider expanding this capability beyond the checkout line, to encompass the full lifecycle of the customer relationship. The vast repositories of information about consumers are also allowing companies to replace mass marketing with plans that focus on each individual customer. Companies like Google have a window on consumer interests far in advance of a purchase as customers seek information on product categories. Some retailers already tap into this information by serving up ads related to the users’ search keywords. Many do not. Other retailers have the capacity to track the browsing behavior of customers in online stores. In the future, companies will be able to expand their observations and analyses of customer behavior in both the real and the virtual world. They will increasingly be able to examine consumers’ moods and feelings in a locale and how they translate into willingness to purchase. They will be able to observe and model individual behaviors in stores as video monitoring technologies mature, creating new challenges and competitive opportunities.

It isn’t enough to merely sense consumer behaviors. The ability to respond effectively to stakeholder needs is predicated on the ability to correctly interpret information and convert it into insights. As companies collect and store vast amounts of customer data, the capacity for data mining becomes more salient to generating useful and actionable insights. For example, catalog company Lillian Vernon Corp. in Rye, New York, realized that it was only attracting female customers. Analyzing its web usage data, the company discovered that men — who might not flip through a paper catalog — were happy to shop at Lillian Vernon’s website. Using this insight, the company has increased the amount of male-oriented product placements on its website.⁸ The takeaway point from this illustration resides in the simple fact that retailers and CPGs should develop an ability to discover patterns — to sense consumer behavior and then turn it into actionable ideas.

Responsive companies need to be able to frame their actions in near real time. Consider 7-11 Japan. This very profitable retailer has a proprietary information system that tracks variables like the weather forecast. Based on previous experiences, these variables are used to change the mix of goods shipped to the stores and stocked on the shelves multiple times a day. The ability to frame and synchronize supply responses to almost real-time demand makes 7-11 a consistently highly profitable retailer in Japan.

Being responsive requires effectively acting on framed decisions and learning from the outcomes. Some firms learn and execute better than others. Even before Hurricane Katrina made land, Wal-Mart was using its systems to prepare for expected demands after a storm. They used foresight and advanced operations based on prior post-storm experiences to supply provisions for relief faster than the federal government. The franchise did not become heroic for its ability to see storms developing in the Gulf of Mexico before anyone else, but for its ability to sense customer needs and respond with fresh water, food and toiletries in an area where these commodities were at a premium.⁹

The technologies of transparency can also enable companies to customize offerings and experiences to customers and be more responsive at scale. Harrah’s, for example, uses these technologies extensively to customize company-customer interactions. Patrons having a bad day at the slot machines will receive text messages with time-sensitive buffet coupons to cultivate repeat customers. Similar technologies are used to monitor traffic in its casinos. Customers congregated in a single area will receive invitations and coupons to other parts of the casino, which promote even distribution of crowds.¹⁰ 

Third-party technology vendors and services also help companies become more responsive. As cell phones become more prevalent and capable, mobile coupon services will emerge, like those offered by Cellfire, that send discounts to customers on behalf of companies ranging from car rental companies to entertainment providers and restaurants.¹¹ Other technology-based services like Lucky magazine’s “Live Buy It” place advertisements for Sephora and Target and allow readers to buy merchandise through PayPal Mobile’s Text2Buy service. Similarly, Web sites like NearbyNow allow shoppers to check prices and availability of products in local shopping centers online. Such technologies challenge retailers’ ability to maintain inventory and prices. At the same time, they benefit retailers because customers who decide which product to buy and which retailer to buy it from, ahead of visiting the store, are more likely to make a purchase when they enter the store. As transparency expands, new companies and tools will evolve to help sellers become more responsive to buyers.

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