Innovation focused on Customer Experience

During my consulting years I had the good fortune of working on many innovative projects. And I would share one such experience to show the impact of customer experience framework on innovation.

This project was with a networking equipment manufacturing company (makes switches, routers etc for businesses). We were engaged to develop the right strategy and business model to take away the market share from the market leader (800 pound gorilla).

I started by analyzing the market and understanding the customer experience delivered by each player. Given that it was a B2B (business to business) market with long sales cycle, I needed to understand the primary drivers of customer experience. So I immediately plugged myself into an inflight sales opportunity and learned that meeting customer requirements and having a good quality record was table stakes. The next best factor was brand value of the company and the relationship that customer executives had with networking equipment vendor sales staff. Without meeting these three factors, networking equipment vendors were not even invited to the table for discussion.

My client scored high on these three factors and hence was invited to bid. The next factor that customers evaluated vendors on was price. Now this factor had many aspects to it like street price, discount%, yearly service fees, financing options, leasing options, terminal value at the end of a lease etc. Using these different components many different versions of the price were presented, reviewed with the customer and iterated upon. And when we were convinced that we had the best price factor we submitted the proposal.

Unfortunately, my client did not win the deal as the market leader had better relationship with the customer and had more financial levers that provided better price related customer experience. It quickly became clear to me that we could not win on any one of the above factors (Requirements, Quality, Price and Brand), and we need to deliver better customer experience on some other factors. My client’s customer experience and that of the competitors is below.

Given that it was a big B2B transaction for networking equipment, availability can be planned and executed on. Service/support is part of service level agreement, so it was not possible to differentiate highly on these factors. Fashion and social responsibility do not have much of an impact on big B2B sales. So only factor that was left was convenience, and we thought hard about ways to deliver better customer experience on the convenience factor.

Then it dawned on me that accounting for expensive networking equipment is a pain, especially when the expense hits the balance sheet. Also, asset tracking is a big pain point which requires tracking and reporting the status of the assets on a quarterly basis. These pain points were created because of US accounting requirements, and big customers were facing lot of costs/risk due to these requirements. Also adoption of international FASB accounting rules was going to elevate the pain further.

To address these pain points we designed a “Networking Equipment Subscription Program” that would allow customers to get equipment on a monthly basis without any contracts or penalties. In this program the equipment is not owned by the customer, so it does not show up on the balance sheet and they do not have to track and report it. They just have to make sure that they keep making monthly payments for the time period they use the product and return the product when they do not need it anymore. This was designed to make it convenient for customers to procure and use networking equipment, customer experience graph is show below.

Given that this program delivered better customer experience by making it convenient for customer to account for and manage the assets, this program was successful on launch and we were able to beat initial sales estimates by 100x.

Since our goal was to make it convenient for customers to procure and use networking equipment, we learned about some issues with the business model that would make it less convenient for certain segment of customers. Having learned about those issues we were able to proactively fix the issues and win big business deals within those segments as well. For example, hosting providers found it very inconvenient to rip the equipment of the network and ship it back when it is not being used. Given the variations in their network usage, they wanted the convenience of having the spare capacity. But they did not want to pay for spare capacity or return the equipment. To solve this problem, the business model was further adjusted to make sure that demand and supply were tightly matched and the risk of unused capacity was minimized.

By focusing on a differentiating factor of customer experience, we were able to build a strong business that was successful at launch.