I’ve been trying to analyze modern rewards programs and customer loyalty recently for a project. It’s a complex issue and so it is tricky to tease apart; nothing like trying to defuse a bomb but intellectually challenging for sure.
At the heart of the issue is a body of research that says rewards, as currently configured, don’t work in the ways we want. It’s complicated by the fact that rewarding customers for making purchases, for instance, does produce what looks like loyal purchasing behavior though further analysis exposes a flaw. If a customer continues to receive rewards for just being a customer then the vendor is effectively selling at a discount, which could roil the customer base, which might be paying full fare. And if everyone is receiving rewards just for being customers, then the notion of list price becomes problematic.
It’s appropriate to offer a token of appreciation to customers for positive behaviors but drawing the line between what’s appropriate and what’s too much is difficult. Rewards started as a way to recruit the marginal customer, the person who might need a product but who nonetheless did not see value at the regular price point. Offering a small discount did good things in such cases. The approach got new people to try products and, at an appropriate discount level, it still made profits. But at some point all that discipline went out the window and discounting in one form or another became a major point of competition. Today, we simply advertise savings opportunities, for example.
Customers have responded in kind, which is to say, not well if you study loyalty. Rewards tend to support today’s transactions and not much more. I’ve read a number of papers in business school reviews lately that basically say that even though customers exhibit loyal behavior, like making a subsequent purchase, they’d be happy to change brands or vendors in a second if they got a better deal elsewhere. That’s not loyalty, though we like to pretend it is by rewarding present behavior.
Other papers describe a vendor community that is frustrated with its loyalty efforts and their lack of results. But as an analyst I have to say that everyone is behaving rationally, or another way to put it, if you offer a customer a form of discount, don’t be surprised that they take it. Moreover, if you set up a game in which the well-understood rules are meeting one transaction with another (which is what current rewards approaches do) then don’t be frustrated when people follow those rules.
But if you want real loyalty in which customers preferentially seek out your brands and products, and in which they pay a slight premium for your products because they believe the products are worth it, you’ll need a different game with different rules. Instead of rewarding purchase behavior as if it was a demonstration of loyalty, we need to go upstream a bit to earlier forms of engagement. Many papers rightly point out that engagement is a predictor of loyalty but unfortunately in many studies, the percentage of vendors that reward engagement hovers in the mid-teens.
Simply put we need to raise our sights and rather than rewarding purchases, we should be rewarding engagement activities. A vendor gets a lot from engagement if you define it as a customer’s willingness to respond to a survey, advocate for a brand or even a solution to a problem that includes a brand or a product. This customer input can identify issues as well as unmet customer needs that could drive better processes and new products.
Other papers I’ve read lately point to vendors actually not wanting to engage with customers in this way. Why? Their lawyers told them not to. They’re afraid that if they get a product idea from a customer that ownership could be compromised by claims and litigation from the customer. Consequently, there’s a tall wall between the vendor and its customers and the most popular form of communication between them is the reward or discount, which gets us right back to frustration that loyalty isn’t any better than it is.
It doesn’t have to be that way. I’ve worked with large corporations that, at the end of the day, had to admit that their lawyers were simply trying to protect their corporate customer when they made anti-engagement recommendations. But interestingly, when the corporate attorneys were informed that their real customer is that same customer that the rest of the organization serves, things loosened up, at least in some cases.
Changes in lawyering won’t solve every company’s engagement challenges because there are many more. But if we take an approach that rewards should be focused on engagement and not on transactions at least some of the time, we might be able to present an engaging face to customers, one that drives loyalty.
Nearly every generation sees the birth of what for it will define modern life as going forward. As uncertain as the twenty-teens have been so far, some day in retrospect economists may pinpoint this decade as important as the tipping points of 1870’s and the 1920’s. If that turns out to be the case there may be no better event to symbolize the beginning of the era than the Salesforce fiscal year kick-off in San Francisco this week.
It has been an eventful year so far for the company, its city (with the Super Bowl festivities taking over much of downtown), and even the nation. On the day after polling began in the presidential primaries (which were eventful in their own right) Salesforce CEO Marc Benioff laid out an annual plan and announced a reshaped product line that will contribute much to the story of what will be the new modern in enterprise software.
Just back from the annual confab of the rich and the forward looking at Davos, Switzerland, Benioff gave revenue guidance to the financial analysts pegging his company’s work product at $8.1 billion for the fiscal year that was only a few hours old. As a subscription company Salesforce can be reasonably sure of its guidance because most of those revenues are already under contract as unbilled deferred revenues thus making climbing the $8.1 billion mountain much easier.
Benioff mentioned the Fourth Industrial Revolution as a topic of discussion in Davos, which might correspond to the launch of a new long economic wave (aka a K-wave). Long waves are often associated with the late Russian economist Nicolai Kondratiev and I correlate K-wave formation with what I see as the inflection points around us today.
The product line received the lion’s share of visibility, but in one way, it seemed to me under reported. While the technology was impressive, its impact on business is the real story and that will take years to write.
The Salesforce product line has been renamed using a Lightning moniker attached to nearly every cloud, so for instance Sales Cloud Lightning is now how we reference what was once simple SFA.
Lightning-izing the product line brings a great deal of complexity to the technology but this is largely hidden from the user so that we can more truthfully refer to the product line as sophisticated rather than complex. This is important because it directly affects the perception of new modernity.
For a very long time, CRM product sets have been on a ramp up to complexity as vendors, including Salesforce, layered subsystems on top of subsystems. These included collaboration, community, analytics, journey mapping, wireless and mobile accessibility, and more.
The evolution of the multi-tenant, metadata driven cloud platform was a key piece of the puzzle. Under this umbrella, all complexity can be consolidated and managed so that users can construct business processes on the platform without necessarily getting hip deep in code. But that’s not sophistication. Sophistication happens when one can achieve Arthur C. Clark’s vision that new technology should be indistinguishable from magic. I think that’s where we’re going.
Salesforce didn’t get all the way to magic with its Lightning announcement but it certainly put down a marker, which I believe will serve as a reference point for the birth of the modern.
Fundamentally, the technology is easily accessible by those who need it but it has been abstracted. A new layer that supports the user as if it was an assistant in a business process hides the complexity with a sophistication that begins to border on magic. So users are reminded, they are presented with data and information to enlighten their activities, and data that surfaces within a business process directly or through inference, is captured and teed up for future analysis that will again inform users in their processes. This is cool stuff.
Let’s have a look at the announcement’s big parts.
Everything starts with the platform now known as Salesforce Lightning. Co-founder Parker Harris has, over several years, guided his developers to build a platform and stack that makes the magic possible. The Lightning-ization of Salesforce is largely the story of building the new platform full of services and of enabling all the apps to access these services and deliver them to the customer and employee facing applications.
Sales Cloud Lightning
SFA has been reimagined and added to so that it is a very different species than the one we started writing about in the 1990’s. Then SFA was a system of record, a tool for tracking basic contact information and the size of an order or a deal. The latest incarnation includes:
CPQ from recently acquired SteelBrick, which will accelerate, and for many companies standardize, the configuration, pricing, and quoting process.
Lightning Voice, an embedded telephony service that will see use in sales as well as service. Lightning Voice will enable reps to connect with prospects within the Salesforce application with all of its suggestions and prompts. Its functions include click-to-call, auto-logging of calls, and call forwarding.
SalesforceIQ Inbox, which brings the email inbox into the CRM suite through a suite of iOS, Android and Chrome apps that weave together Sales Cloud data with email and calendar apps of one’s choice.
Sales Wave App is just what you’d expect, analytics for the sales process. It is one of the sources of the information and suggestions that will change selling. New dashboards for things like pipeline trending were things that early SFA users could only imagine.
Salesforce1 Mobile. The big news here is full offline capabilities for iOS and Android devices. There are also 20 new Lightning Sales Components but I am getting tired and I recommend looking over the press release for even more detail. Check out Sales Path and Kanban.
Service Cloud Lightning
The Service Cloud got the same treatment in that service processes have been re-imagined but I’d say that this process of enhancement has been more evolutionary than revolutionary over several years. Nonetheless there were some big announcements including Field Service Lightning, which provisions CRM tools to dispatchers who will receive suggestions for service assignments based on location, technician training and skills, and availability. An Omni-Channel Supervisor gives call center managers more insights to better manage agents’ workloads.
Salesforce is also noting its 49th and 50th product releases in the coming year. These milestones will also bring to market further enhancements in virtually every part of the product line. For instance, the company will release Heroku for the Enterprise aimed primarily at developers of highly scalable customer-facing apps. There will also be Marketing Cloud announcements later in line with enhanced uses for Journey Builder, which in my estimate may be the most important part of any CRM going forward.
Briefly, journey mapping enables vendors to bring scientific management to what have always been chaotic customer-facing processes. When used appropriately journey mapping will significantly enhance the customer experience and drive better engagement. It’s going to be a big deal.
Pricing and packaging
Salesforce continues to use a gold, silver, bronze approach to product packaging and pricing and it has taken this opportunity to reset the packaging to reflect the bulging product line. It would be a sales nightmare to sell this product line a la carte and it would also be counter-productive to the user who needs all the pieces and parts to fulfill the vision of modern sophistication. So Benioff told me that the company will continue with three levels of pricing, albeit at somewhat higher rates, and it will pack more technology into each level. See the company for details.
The Lightning-ization of Salesforce completes the solution set transition from a system of record to a system of intelligent engagement. Using all of the capabilities together makes it difficult to do business as we have always done it, which is a good thing. I don’t think it’s possible to sandbag deals any more or generally hide things from the boss. CRM is no longer a chore to be performed on Friday afternoons. It is an assistant that will enable many people to work better, smarter, and maybe more productively.
But long as customers are still involved, nothing I have seen will truly accelerate business processes beyond the acceleration on the vendor side. Customers will still think and deliberate about offers thus presenting us with a kind of speed limit much as the speed of light is the ultimate speed limitation in the universe. But these re-imagined tools do something as important as speeding up customer-facing processes, which I have discussed here before. They open the door to managing many more customer situations per employee. This will of course raise productivity but even more important from a sales process standpoint, they make it possible to expand skinny pipelines, to make them fat and thus enable revenue acceleration if not exactly shortening individual deal times.
He’s at it again. Steve Gilmor master of ceremonies for “The Gilmor Gang” last week launched a new streaming service, the “Enterprise Gang” to explore the ins and outs of enterprise IT. For the inaugural Steve’s guests were Paul Greenberg, Esteban Kolsky, and me. It was a fast moving hour of discussion ranging from the uses and future of social to vertical market CRM and lots more. Have a look and tell us what you think!
Last year uber-analyst Esteban Kolsky and I did a research project to better understand cloud computing’s uptake and related issues and last week Financial Force, our sponsor, made the results public. The findings are interesting to me because they reveal a more or less typical adoption cycle for cloud by which I mean that some of the downstream effects are only gradually becoming apparent.
One of the appealing parts of cloud computing, aside from its favorable cost model, is its consumerized packaging—people have the expectation (and rightly so) that they can get up and running with little fanfare and not much input from IT. Cloud has been a liberating force throughout business for this very reason. Back in the day, words that rolled off the tongue a little too easily were, “Our system won’t let us do that,” but that’s a thing of the past and cloud computing is responsible in large part for the shift.
What’s less obvious though, in a world where lunch is not free, is that the cloud comes with its own baggage too. We found that the vast majority of companies surveyed had many cloud apps and nearly half (46.3 percent) were using 4 or more. With this come some subtle issues. For instance, usually a cloud app doesn’t exist in a vacuum, it needs to be integrated and with lots of them it becomes something of a logistical challenge getting data to where it can do the most good. Also, each distinctly different app can come with a different cloud and tool set or at least user interface for maintenance.
This didn’t surprise me. For a long time, I’ve been articulating that the platform is the new competitive software battleground because it determines what works easiest with what. Platforms provide a degree of standardization for app builders in the same way that a motherboard imposes a set of standards on what can be plugged into it. To be clear, there are many ways to get apps to communicate but in many situations, when two apps have been built to the same platform standard, life is quite good.
Through this research I developed new empathy for the folks in IT for many reasons. Old IT was a reflection of the technology it supported. In the mainframe era it was bureaucratic, rigid, and limited and many people associated these attributes with the people of IT rather than their jobs. But in new IT, the people responsible for making cloud computing work are quite the opposite. IT has learned to team with line of business units, to be supportive of business initiatives, and to do what it takes to make the business successful. But therein lies a new issue.
It seemed to me that, at least in some cases, IT has been left to clean up after departments that go ahead with an implementation without necessarily accounting for the downstream eventualities that can cripple a project like integration and performance. Somehow this all comes back to platform too. One of the reasons for the proliferation of disparate clouds in some organizations is that no one considers the implication of having three clouds for three separate apps rather than one cloud in common among them. It’s no one’s job at the line of business level where many decisions are made and in these cases some businesses were slow to promote platform standards.
The result is that at the front end, the lines of business run well with their cloud systems but often that’s because the people in the engine room are working hard, or harder than necessary, to keep all the cloud balls in the air. So add a new job to IT’s growing list. The information technology department has developed some good partnerships with the lines of business and now it’s time to use some of that good will to help set up standards and to show the departments some best practices.
Other issues worth considering—there are more but you’ll need to download the report—include cost considerations and performance and to a great degree, they come down to platform too.
Briefly, you’d think the arrival of cloud computing would have banished concerns about cost but that’s not true any longer—if it ever was. Many organizations have capped IT spending, or nearly so, making it difficult to find thousands of dollars in a budget for new systems in order to save millions by replacing old systems. It’s crazy but true. So speed of implementation is one of those areas you don’t see advertised or even written about very often, but it is becoming a real concern, at least for cloud vendors looking to generate initial revenue from a customer. So, of course, platform is a big factor in deployment, especially for the time to deploy the next app on the platform.
Performance is right up there as a customer concern too and platform is important here as well but so is the speed of the Internet connection and the number of integrations running. While most of our study population had “more than four” cloud apps, it’s not unreasonable today to see companies with a dozen or two cloud systems running the business.
At some point every business will have to face the need to rationalize or refactor its cloud deployments—it’s a natural part of cloud’s success. This reconsideration should happen around your business’s platform strategy. If you don’t have a strategy it’s a good time to develop one.
General Electric Corporation’s announcement that it was moving its headquarters to Boston is big news for Boston and the region. Long known as a center for technology innovation in computers, health and life sciences, communications (Internet got going here as well as elsewhere, that’s the nature of a network) oh, and robotics, with world-class research institutions like Harvard and MIT, the decision has given Boston a new life reversing a trend of corporate departures many through acquisition. Dell is buying EMC, Digital, DG, and the other mini-computer companies are gone.
The Boston area last bloomed in the 1970’s and 1980’s as the center of the mini-computer revolution but all of these companies are gone as is the mini-computer but the infrastructure of technology innovation goes back at least to Alexander Graham Bell and the telephone, Samuel Morse an inventor of the telegraph and Morse code (a decent painter too) and many others. The first surgery with ether happened here too.
GE is coming to Boston because it wants to be a major player in the Internet of Things or what this New York Times article referred to as the industrial Internet. Good for them. Having GE here will re-energize the local economy and tap into some very bright minds, not just in engineering but in many other fields like medicine. As is typical, I’d expect a large community of spin-off companies to emerge and to need venture funding which will tap into another one of the area’s natural strengths. I also expect many Silicon Valley companies to start or beef up their presences here just because.
GE’s presence will also change Boston in unpredictable ways. Will the industrial Internet overtake biotech? Will the local software industry thrive or will it be supplanted by another wave of hardware builders? Where will people live and what will the influx of more talent and capital do to real estate prices? Will Cambridge, a hip enclave in the metro region come to resemble Palo Alto more? Who knows?
Last summer the voters put their collective foot down over hosting an upcoming summer Olympics. It was mostly due to the high projected costs and the IOC’s demand that the city and state backstop any cost overruns. When it was over Boston was a bit bruised and the Boston Globe putting what seemed like a brave face on the disaster at the time said, that’s Okay, we’re Boston, we cure cancer, we don’t host track meets. At the time it was cold comfort, today not so much.