Even though it’s been 50 years since the first mass-produced computer appeared on the market, as an industry we're only just now beginning to investigate what it means to get involved in driving the success of our customers. In my webinar “Customer Success: Organization or Set of Offers?” we explored who within your organization should be facilitating customer outcomes. Here’s a brief recap of some of the points we talked about.
The Need for a New Business Model
The way customers pay for technology is going through a major transformation. In my book Complexity Avalanche, I explain how for many years, customers mostly paid for products and services up front, and the responsibility for achieving the desired outcomes from those products fell on the customers’ shoulders. While this is the business model many suppliers still use today, we are seeing the need for a new type of business model that will increase our value to our customers, which is how new business models such as XaaS (infrastructure as a service, software as a service, etc.) are starting to emerge, and with them, a completely different revenue stream.
For XaaS models, upon signing the agreement, the customer might be paying nothing up front for the product, and in some cases, aren’t even paying for the services. In the old CapEx models, by the time the customer goes live, 70 percent of the spend for the solution has already moved from the customer to the supplier, but in these new OpEx models, it might be 10 percent, and whether or not the company ever receives that full amount is an unknown. The effect of this is an alignment of risk where the economic value of the company ties in with the economic value of the customer.
More customers are also being permitted to “test drive” technology to determine if they will receive their desired outcome before fully committing. Customers will not sign up for a long-term contract if they don’t receive value, and if they find a better offer or a lower price, they can choose to discontinue that service. In order to retain these customers through subscription and renewal, it is now up to suppliers to find out what business outcomes their customers hope to accomplish with their products, and how they can help them succeed.
Customer Success and Engagement Strategies
Customer success and engagement activities are not free, so how much money are you willing to put behind these motions, and what is the ROI for their implementation? There is a spectrum of objectives to help you answer this question:
- Achieve acceptable renewal rates. Attaining the minimal acceptable renewal rate is essential to the growth and profitability of your company.
- Have high customer satisfaction and referenceability. Drive more adoption and consumption in order to get the high customer satisfaction and the stickiness that comes with that level of engagement.
- Improve upsell and cross-sell results. Increasing customer consumption of the existing technology and moving them to the next level, whether it’s by adding more users, modules, or by including cross-sell and upsell results.
- Achieve 100 percent customer wallet share. Our ability to increase our market share with customers within our technology category is a very important concept as we move into these new OpEx models.
In the results of our first baseline survey on customer success practices, we learned that the ways companies approach this primary engagement activity falls into three very distinct categories:
- Renewers. Activities designed to optimize renewal.
- Adopters. Activities designed to drive more consumption of the product.
- Expanders. Activities designed to increase the spending of the customer (upsell and cross-sell) or improving wallet share.
Depending on what your objective is, your cost structure may vary, as there are various levels of engagement activities you can implement as necessary. At TSIA, we believe that a winning strategy is a matrix approach where you are able to identify the specific market segment of your customer base as well as your specific objective for each segment. This will allow you to align the cost of your customer success activities to the return that you need to get from those segments.
Ideally, this matrix strategy would leave no customer behind and would include all of the major customer segments, but depending on the different revenue returns you’ll get per customer, your numbers may vary. It really is about modeling your whole customer base, the correct segment, linking the specific business objectives you have and quantifying it.
The PIMO Plan
Another thing we have to think about is what portfolio of service activities we need to provide and apply these different segments in order for them to reach their objectives. In the book B4B, we laid out two kinds of service portfolios: one is traditional for Level 1 and Level 2 suppliers, where services revolved around installation, integration, and customer education. The second is for Level 3 and Level 4 suppliers, which focuses on a set of services we call “optimized services.” There are three major categories of optimized service: operational, adoption, and information.
These are the kinds of service activities that companies have available to them to help them achieve the customer success objectives. The best way to refine a strategy to implement customer success is to zero in on adoption services and, to a certain degree, information services through what we call “PIMO.”
In order to successfully develop a customer success strategy, you need to apply these four principles to every layer of your customer segmentation model, as well as align these activities with the objectives that they have. By developing anywhere from one to many strategies that can be delivered remotely to highly customized and on-site activities for your largest accounts, you will be able to align the cost in your customer success strategy to the return that you’re likely to get.
Watch the full webinar to learn more about these customer success strategies, pricing the new services in your portfolio, and how your business can move toward becoming a thriving customer success organization. I will also be hosting a keynote session at the 2014 TSW Service Transformations conference in Las Vegas, called "Growing Corporate Top Lines in the B4B Era" where I will uncover the top revenue mistakes that tech companies are making in the B4B era and how you can reinvent your thinking to recapture growth.
About the Author
J.B. Wood is president and CEO of TSIA. He is a frequent industry speaker and author of the popular books Complexity Avalanche (2009), Consumption Economics (2011), and B4B (2013), and has appeared in leading publications, such as Fortune, The New York Times, and The Wall Street Journal. He works with the world's largest technology companies on strategies to extend their innovation platform beyond the lab and into the customer experience, particularly in the age of cloud and managed services.