Channel Migration Strategies – Matching Customers to the Optimum Channels

As the number of channels which a company can service its customers through has proliferated over the years and will likely continue to, strategies need to be developed that turn into actions aimed at shifting certain customers to certain channels, in order to best optimize the cost of servicing customers vs. the level of service they receive through different channels…

It used to be that when the client of a given company wanted to receive service from that company, he or she had to interact through two or three channels – generally through a contact center, face-to-face via at a shop or dealer, or via mail (and in the case of banks, ATMs). In terms of channel strategies, companies had little to worry themselves about, aside from ensuring employee capacity was sufficient to meet demands, and that the service provided was of an acceptable quality, and to some degree, consistent across the channels.

Over the past two decades, the number of channels through which customers can receive service through has exploded. On top of the traditional channels, new ones have emerged – from Twitter to SMS, e-mail to self-care websites, customers can get in touch with their service providers in nearly a dozen different ways.

This proliferation has brought with it several issues that companies are having a difficult time of dealing with – namely that:

  • They are unable to provide a consistent level of service across all channels (in terms of quality, speed to service, speed to respond, the offering of all types of services, etc.)
  • They have failed to provide a differentiated level of service in each channel (i.e. to high value customers)
  • They are unable to control the channels customers choose to use (in terms of different customer segments using different channels)

The above issues, taken as a whole, lead to two common, undesirable situations that service providers need to address:

  • That low-value customers are being serviced through high-cost channels, leading to situations wherein some customers end up costing more to serve than the revenue they generate.
  • That high-value customers are being serviced through low-quality / non-differentiating channels, leading to situations wherein the relationship is damaged through the poor service provided.

Insofar that the ideal solution would be to “fix” the level of service provided through each channel so that it is consistent and differentiated, such an effort is rather burdensome, takes a significant amount of time, and requires substantial investments.

At a minimum, companies need to take steps to match various customer segments to their optimum channels, then work to migrate them accordingly. To do so, we recommend companies follow the below five steps:

1. Define Cost Per Transaction Per Channel

Based on type of service-related transaction, the cost to service customers needs to be defined as the first step. This needs to be done by channel (i.e. in shops, over the phone, via IVR, via Facebook, etc.) and by type of transaction (i.e. handling complaint, processing an order, enabling a service, general inquiry, etc.), taking into account all possible costs that can be calculated and attributed to the transaction (cost of employee resources, physical resources, system costs, etc.).

This is a practice that has been completed by most companies; however, many have not gone so far as to define costs by type of transaction. Such an effort is a critical first step that is needed in order to be able to determine what types of transactions should be pushed via which channels to which customer segments.

2. Define Existing Service Levels by Type of Transaction Per Channel

Based again on the type of service-related transaction, the next step is to understand the current level of service provided to customers via different channels. The key aspects to examine here are related to efficiency (how quickly the customer can be serviced via the given channel), to quality (the error rates related to processing the customer’s requested transaction), and to satisfaction (the overall impact – tangible and intangible – that receiving service via the given channel has on the customer related to their satisfaction of working with the service provider).

3. Define Customer Segments Based on Their Value / Cost to Serve

Now that the cost and service level aspects of each channel have been defined, the next step is to understand the customer base. When examining customers, there are several different factors that can be examined in regards to them – the purpose here is to understand at a minimum:

  • Each customer’s existing value
  • Each customer’s potential value
  • Each customer’s volume of service-related interactions, by channel
  • Each customer’s cost to serve around their service-related interactions

The objective is to define customer segments for the purpose of taking migration-related actions on. Once this is complete, the next step is to determine where to migrate customers towards, if any.

The goal is to find which customers to leave alone (in that they cost little to serve or are high value customers that should have the “right” to choose which channels to interact through), which ones to migrate (for the purpose of decreasing the cost to serve or for driving up the quality of service they receive by shifting to higher quality channels), and which ones to “fire” (customers that cost more to serve than the revenue they generate, those that even if migrated would barely be made break-even customers).

The output of such an effort would look as follows:

 

The above is a simplified version of the segmentation that needs to be completed here. Additional factors can and should be taken into account (i.e. demographic data), such that determining the migration paths to be considered may be affected through such an effort.

For example, the above could take into consideration the age of the customer, which could be a factor into determining whether to push customers toward e-channels such as Twitter or Self-Care or not (with younger customers directed towards these channels, those who would show some resistance – elder clients – not).

4. Define Migration Paths

Once the high-level migration-related strategy is determined, the next step is to examine the channel behaviors of each segment, to identify specifically which types of transactions to push towards which channels, taking into consideration the cost to serve via that channel, the service level of that channel, etc.

An analysis of a segment that is to be shifted towards lower cost channels could look something like this:

 

5. Design Migration-Driving Initiatives

With the above steps complete, the next step is to design initiatives that can be used below or above the line to motivate the customer segments to use the desired channel.

There are several different ways of doing this – the important thing here is to test different behavior-changing incentives with different customer segments, in order to use the right mix of benefits to convince the customer to make the switch. In some cases, simply providing information to customers can be enough to get them to switch channels (insofar that many customers are unaware of the benefits of different channels, or even that certain transactions can be handled via different channels – i.e. sending an SMS to customers heavily using the Call Center for Service Activation, notifying them that such transactions can be completed faster through the Self-Care portal).

In others, incentives need to be offered to convince customers to make a switch. Some examples of benefits that can be provided to convince customers to change their transactional behavior:

  • Providing double loyalty points for bill payments made via the Self-Care portal.
  • Providing discounts on products purchased via IVR or via the Self-Care portal.
  • Providing a free month of service for annual service activations made via the Self-Care portal.
  • Providing higher speed of service guarantees for transactions processed through certain channels (i.e. products ordered via Twitter are shipped out immediately).
  • Providing better rates, lower prices, etc., across the board, for customers choosing to interact only via self-care type low-cost channels.
  • Providing random additional perks for transactions processed via desired channels.

The important thing regarding the above is that there should be a business case built around the effort – the cost of benefits provided to customers should not exceed the savings obtained from migrating them to alternate channels. If the numbers seem right, pilots should be conducted to assess the impact on the bottom line by examining the overall effect of the efforts on migrating customers to the desired channels. If the desired results are obtained, the tactics should be scaled out across the entire target segment of customers.

We believe there exists great opportunity in shifting customers to optimum channels – not only benefits that can be realized from reducing costs, but also from increasing high-value customer satisfaction. To learn more about migrating customers to optimum channels, please contact us at info@forteconsultancy.com.

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