Principles of E-Commerce

Organizations must systematically capture and use customer information. The first step in this process involves collecting information on them. This information can be obtained directly from the customer, or by using the transaction data that has been captured and stored, or by collecting information from third parties like data syndicates, credit bureaus, etc. The type of data that needs to be collected varies from industry to industry, depending on the products or services that they offer. Generally, data on customers includes demographic information, purchasing history, and the industry in which the customer is operating (if the customer is a business customer). The data collected must be analyzed to derive meaningful results.

Earlier, the collection and storage of customer information was not possible for most organizations. Now, emerging e business technologies have made it possible for them to effectively collect and manage customer data. E business technologies not only help in the collection and management of data, they also enable the updating of customer information. Changes in customer preference or buying behavior can be assessed using these e business technologies. Without thorough customer knowledge, it would be impossible to offer personalized services to customers, providing value addition in products and services and ensuring 100% customer satisfaction.

Develop a Customer Profile

Developing a customer profile is another important step. A customer profile should include the basic factors that were mentioned earlier and also an analysis of the customer life cycle. This profile should give the organization insights into:

The product/service feature that is most valued by the customer
Customer spending in the past and the likely future spending
Effective segmentation and predictive modeling

Segment Customers on the basis of Effective Criteria

An analysis of the customer life cycle will reveal the similarities and differences in different customer segments. The important aspect here is focusing on the most significant similarities or differences and the relevant customer segment. E business technologies enable timely and effective customer segmentation. They also help organizations correlate information on different customers. Prior to the use of these technologies, companies were unable to capture and use huge volumes of data. Hence, they used to segment customers on the basis of geography, income group, etc. But now companies are able to segment customers on the basis of on complex factors like channel preference, profitability, buying patterns, etc. For example, IBM has identified twelve different customer segments. Initially, it segmented customers in the following categories: government, education, mid size and large companies. Now, the large companies segment is divided into global and large companies. The government segment is divided into three segments; federal, state and local. The education segment is split into K 12 and higher education. This type of segmentation helps the company effectively handle the demands of different customer groups.

Customer segmentation helps companies target their advertising and sales promotion at specific customers. The Internet has also made collaborative segmentation possible. This type of segmentation allows customers to choose from a flexible menu of offerings, configure them to suit their preferences and select the segment that they fit in. This is in contrast to the traditional segmentation process in which firms determine what offerings should be made to which segment. Collaborative segmentation is more accurate and efficient because it enables customers who know their actual needs to participate actively in the segmentation process. The customers of GM and Dell can configure products according to their convenience and place an order for them. Customers do not have to wait for the company to prepare a model, show it to them, seek suggestions, incorporate the suggested changes, seek their approval again, and then make the final delivery. Therefore, collaborative segmentation saves time for customers as well as companies.

Avoid the 'Silo' Effect

Although a huge amount of information is available in organizations, it is difficult to use the information since it is scattered across different files, in different formats and at different locations. This is referred to as 'Silo Effect.' E business technologies help organizations integrate these islands of information and overcome silo effect. The silo effect occurs when an organization's customer and prospect information is spread across different business units, divisions, departments, and product lines. A few years back, CompUSA suffered from the 'Silo Effect.' The customer service agents were not able to access full information about the customers as it was scattered across the departments. When a customer called, they had to spend considerable time locating the required information. After deploying Siebel call center software, it was able to help customer service agents resolve problems quickly. This software ensures that service persons have access to all information about customers, thus helping them provide quality service. Use of this software has reduced costs and improved customer service.

Predictive Modeling and Customer Profitability

Few organizations undertake in depth customer analysis to estimate the purchasing power and spending patterns of their existing customers. Strategies for retaining customers and attracting new ones are based on customer analysis. On the basis of existing information on customer behavior, organizations correlate customer attributes and build models for the future. Predictive modeling can be used by companies to identify customers who are likely to discontinue business with the company. It can also be used to identify the cause for customer dissatisfaction and take appropriate steps to retain the customer.

Use Multiple Channels to Interact with Customers

The emergence of new communication channels (such as the Internet and mobile devices) is having a significant impact on the way in which organizations interact with their customers. The number of organizations, that use the Internet to do business or communicate with customers, has increased significantly in the last few years. The increase in communication channels has given rise to some problems. One of these problems is the synchronization of the customer interaction that takes place at different times and through different channels. Customers do not always confine themselves to a particular channel; they use the channel that is most convenient for a given situation. The implementation of effective e business architecture will help organizations overcome channel conflict. It will also help organizations track orders in real time.

An effective multi channel strategy can help organizations improve the sales efficiency and help reach out to more customers. Studies have revealed that no single channel can service more than 50% of the total market volume. This suggests that the use of more than one channel is essential for reaching customers. Secondly, the use of multi channel can bring about channel synergies. The benefits of using a combination of channels are more than those that can be gained from using a single channel.

The multi channel strategy has been especially effective in Internet brokerage. A study conducted by McKinsey revealed that Charles Schwab is one of the most successful online brokerage firms. According to the study, the success of Charles Schwab can be attributed to its multi channel strategy. Charles Schwab services customers through the Internet, telephone and call centers. McKinsey also found that there was a high correlation between high value customers and the multi channel strategy. This suggested that some high value customers gave importance to the availability of multiple channels.

All organizations, irrespective of type, size or scale of operations, require a multichannel strategy. Such a strategy can be effective only if the different channels are synchronized to allow customers seamless interaction with the organization, irrespective of the channel they use. Identify Customer Channel Preference

Customers use only a few channels consistently when they are given a choice. So organizations should analyze the channel usage of their high value customers. To make the use of multiple channels economically viable, incentives should be given to customers for the use of the most cost effective channel. Organizations can also provide customers self service channels through the web or through telephones, using IVR technology.

Offering self service capabilities will enhance customer satisfaction and productivity. Honeywell has implemented a web based self service system that contains answers to about 50,000 queries. These are stored in a common database so that they are available to customers. The system not only offers self services, it also improves productivity of field personnel. If customers are unable to find a solution using the company's knowledge base, they can forward their queries through the company's website to the concerned person.

Organizations must ensure that they are communicating with customers using the customers' most preferred channel. For example, some customers may respond well to e mails but not to telemarketing. By using appropriate e marketing software, the effectiveness of each marketing channel for each customer segment can be determined.

Synchronize Channels so that Customers have Continuous Seamless Integration

Regardless of the channel used by a customer for interaction, every interaction should be tracked and recorded. An e business system will maintain a universal queue that will support queries from various channels. All queries pass through a single channel and the queries are prioritized based on standard rules that govern the routing of queries. Organizations should be equipped with powerful online tools for coordinating multi channel interactions.

Understand the Cost Structure of EachChannel

Channel optimization is important irrespective of the function for which the channel is used. Channel optimization involves balancing the cost of the channel against factors like value to the customers, customer preferences and profit potential. Though transaction costs are low on the web, it may not be the right medium for all transactions.

Optimize the Channel Strategy

A costfbenefit analysis can be conducted to find out returns that the multi channel strategy is yielding. The web, e mail and call centers are some of the cost effective channels available. But cost is not the sole criterion driving the multi channel strategy. Migrating to a web based channel does not mean that other channels should be abandoned. For example, at IBM, mundane queries are answered through call centers while complicated queries are handled by the sales force.

Personalize the Customer Experience

Prior to mass communication and mass marketing, business was restricted to local markets. The degree of personalization was also high, with one to one interaction between merchants and customers. But with the growth in business, one to one interactions disappeared. The e business technologies now available help revive oneto one relationships between the enterprise and customers. Such interactions help organizations build personal relationships with customers. These relationships enable organizations to offer a high level of customer service. E business technologies allow organizations to continuously update information on customers and prospects and customize their offering for each customer segment. For example, Yahoo! and Excite enable users to customize their web page. By customizing the web page, users can have all their preferred features on the web page.

Individualize Content

Customizing content to suit specific customer preferences is a basic principle of personalization. The information made available to the customer through the Internet should be driven by the company's knowledge of the customer's needs and preferences. This is why it is so important to gather information on the customer. Amazon.com recommends books to customers using the registration information provided by them. The site uses collaborative filtering to make a list of recommendations. This technique uses the purchase data of a customer to determine the customer's preference for a specific category of books. Using this technique, Amazon.com is able to offer books that might interest a particular customer.

Enable Customers to Customize the Environment

The medium and channel of customer interaction determines the extent to which the customer environment can be customized. The dynamic nature of the Internet makes the environment highly custornizable. For example, users can create personalized web pages in a web site. In the 13213 business environment, the exchange environment can be customized to suit the requirements of specific trading partners, For example, bliquid.com, an auction site for construction equipment, uses Siebel's eAction software to cater to the needs of a particular market. It uses specialized software that allows customers to carry out one to one negotiations. The software also provides real time information on finance and shipping costs.

Personalize Interaction through all Channels

Regardless of the channel of interaction, organizations should use e business technology to personalize customer contact. Marriott (A US based hospitality company) uses e business software to maintain detailed customer profiles. When it comes across a repeat customer, it makes an individualized itinerary for that person. Personalized service is also offered when the guest arrives at the hotel. Such personalized service is offered to business customers. This ability to extend personalized service not only saves the customer9s time but also enhances customer loyalty and satisfaction.

Optimize the Value of Every Customer

Optimizing value for a customer operates at two levels macro and micro level, At the macro level, it involves the strategic use of resources to extend maximum value to customers. And at the micro level, it involves the maximization of the value of individual customer interactions.

Micro Level Optimize every Level of Customer Interaction

Every interaction with customers or prospective customers creates an opportunity to add value. Value can be generated for the customer by offering the most suitable product or service; and value can be generated for the organization in terms of increase in revenue and enhanced customer loyalty. Customer interaction with the organization should be designed to achieve the following: Basics of E Business 7

To make customers happy by providing excellent customer service
To create opportunities to generate revenues cross selling, up selling and reselling
To capture useful customer information

Murphy Brewery, an Irish beer manufacturer, implemented an e business solution to optimize customer interaction. An internal survey carried out by the company revealed that customer service should be improved. The company had multiple channels of interaction and no single person was responsible for handling specific orders, queries, etc. As a result, most of the customer queries remained unanswered. To address this,problem, the company implemented an e business solution through a dedicated call center. This call center streamlined the process of handling customer requests and queries.

Organizations seldom optimize customer value. This means that organizations are not able to make customers spend to their maximum potential on any product/service. This happens because organizations do not have complete information on the customer. Therefore, businesses are not able to fully exploit cross selling, up selling and re selling opportunities. Obtaining comprehensive customer information is essential for even non profit organizations. For example, American Heart Association (AHA) is facing problems matching heart donors with volunteers. AHA is making an effort to solve the issue by building a consolidated information system of donors and volunteers.

To gain a greater share of the customers' wallet, organizations can offer them a wider choice of products. Sharp Image's online auction initiative uses Siebel's e auction software to use customer bidding information for cross selling. Use of this technology brought about an increase in revenue and the sale of excess goods.

Macro Level Optimize Lifetime Customer Value

Optimizing lifetime customer value means spending the right amount on acquiring and retaining customers. To do so, organizations have to estimate present and future customer value. This would require organizations to think in terms of customer relationship and resource allocation to achieve maximum at minimum cost. Customers generate value not only through present transactions but also through future transactions.

E business systems help in the capture and analysis of customer information. A robust model of customer behavior is built on the basis of customer information. This model can then be applied to specific customer segments. The long term value of customers is arrived at by using internal cost data and a detailed analysis of customer purchases to calculate:

Average time period for which customer has been with the company
Average transactions per year
Average profit per transaction Understanding the Key Elements that build Customer Loyalty.

Customer loyalty varies from market to market, segment to segment and customer to customers. Some of the factors that build customer loyalty are discussed below.

• Basic value: Every product or service that an organization sells should generate value and must adhere to organization's quality standards.

• Trust: Organization should be able to deliver on the promises it makes to its customers. This will help them gain the trust of customers. Commitment: It is not sufficient if the company delivers the promises and wins customer trust. Organizations should convince customers that they are committed to serving them. If customers feel that an organization is committed, they will reciprocate by being loyal.

Enhance Value: Having convinced customers of their commitment, companies should offer customers something more than just quality products and services. They should provide value to customers in terms of personalized service and additional amenities.

Anticipation of customer needs: To provide value to customers, organizations should correctly identify the customer needs. To do so, organizations should be familiar with their customers' needs. They should also establish standards to measure the level of customer satisfaction. The level of customer satisfaction can be enhanced with the help of an e business system. For example, Honeywell Aerospace has developed a scorecard for measuring customer satisfaction, which is tracked and stored by its e business system.

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