Profits soar for those with digital loyalty networks

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By: Wise Marketer Staff |

Posted on May 30, 2002

Consumer businesses that create 'Digital Loyalty Networks' to link their customer management and supply operations are twice as profitable as competitors that do not, according to a new study from Deloitte Research.

Deloitte's research suggests that profits soar for organisations that have 'digital loyalty networks', yet only 17% of consumer companies use the internet efficiently. The global study surveyed executives at nearly 250 major consumer businesses in 28 countries throughout North America, Europe, Asia-Pacific, Latin America and South Africa.

While a handful of consumer companies (including Colgate-Palmolive, Herman Miller, Dell, Heineken and Avon Products) are reaping considerable rewards using internet connections, the survey found that these leaders represent a distinct minority, with only 17% of consumer companies using the web effectively. Some 41% scored badly on both supply chain collaboration and customer loyalty.

Digital loyalty networks
Deloitte defines a 'digital loyalty network' as well developed links between a company's supply chain and customer management operations. It is 'digital' because it hinges on the use of the internet and other digital technologies to collaborate. The word 'loyalty' refers to the network's goal: boosting the satisfaction and retention of the most profitable customers and, in turn, driving that efficiency throughout the entire supply chain. It is a 'network' because the information is shared seamlessly with customers, suppliers and other business partners.

"Companies with fragmented operations are going nowhere fast," said Jim Duffy, principal in Deloitte Consulting's Global Consumer Business Practice. "The smart money is on those companies that aggressively integrate with their customers and vendors by building tight bonds that engender loyalty. Digital loyalty networks are the way to do that." Duffy explains that loyalty networkers outperform their competitors because they are able to identify their most valuable customers and adjust their service based on customer requirements, lifetime potential, and an intimate understanding of supply chain cost on a customer or segment basis.

The report, Consumer Business Digital Loyalty Networks, reveals that consumer companies that have digital loyalty networks are two to five times more likely to achieve better performance than those that don't - in sales, market share, customer service and other key measures. They are also more likely to generate higher shareholder returns.

The challenge
Establishing a digital loyalty network requires companies to rethink their approach to both customers and suppliers, presenting three key challenges:

  1. Bridging the divide between supply chain and customer service operations. SCM and CRM initiatives usually operate independently of each other. This divide is amplified by different working styles: Supply chain managers tend to be more process-oriented, and thus more receptive to diving into operation details to root out inefficiencies. Marketing and sales teams, while managing even more information about things like customer segments and trade promotion, thrive in a less predictable world of changing customer demands, creativity and experimentation.
  2. Incompatible information, measure and rewards. Marketing, sales and service tend to keep their own records on customers in different systems and formats that can't be integrated easily with the data that supply chain managers possess. Measurement and reward systems can also be so contradictory that both sides find it difficult to define mutual benefits.
  3. Continually rising customer expectations. Despite improving customer service and delivery, customer satisfaction may deteriorate because the expectations for service have risen - what was once seen as "great service" is now viewed as simply "doing what was promised".

"These challenges are significant but they are not insurmountable," says Duffy. "At the same time, we've found that no companies are fully leveraging their digital loyalty networks. That means the untapped opportunities for business improvement are immense, even for the leaders."

Making it work
Overcoming these challenges doesn't begin with a bureaucratic overhaul of an organisation but by creating links between existing systems and processes on the demand and supply sides. Three key elements play a part in establishing and maintaining the necessary connections:

  1. Consumer/customer-centric vision. Digital loyalty networks begin with a clear, shared vision about how to differentiate product and service offerings for different customer segments. A company must develop and institutionalise a mindset that puts customer needs first, and it must determine which customers and customer needs can be served profitably.
  2. Network partnership strategy. To get every critical party - from the raw material supplier, to the retail outlet, to the consumer - to play a role in the digital loyalty network, companies must create strategies that consider all the players and provide winning situations for them all.
  3. Open business and technology architecture. Because participating in a digital loyalty network requires a significant investment of time and money for every player, staging small, incremental initiatives can help recruit players because it enables them to see the benefits before jumping in with both feet. As pilot initiatives progress, successful companies will standardise their policies, business processes, software applications and data architecture to create a open platform that is scalable and secure.

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