Customer-Centricity

Customer-Centricity:

The New Path to Product

Innovation and Profitability

By

Josep F. Valls Giménez

Customer-Centricity:
The New Path to Product Innovation and Profitability

By Josep F. Valls Giménez

This book first published 2018

Cambridge Scholars Publishing

Lady Stephenson Library, Newcastle upon Tyne, NE6 2PA, UK

British Library Cataloguing in Publication Data

A catalogue record for this book is available from the British Library

Copyright © 2018 by Josep F. Valls Giménez

All rights for this book reserved. No part of this book may be reproduced,
stored in a retrieval system, or transmitted, in any form or by any means,
electronic, mechanical, photocopying, recording or otherwise, without
the prior permission of the copyright owner.

ISBN (10): 1-5275-1587-7

ISBN (13): 978-1-5275-1587-1
 TABLE OF CONTENTS

Acknowledgements ................................................................................... vii

Introduction ................................................................................................. 1

Part I

Chapter One ............................................................................................... 11

Needs and Aspirations

Chapter Two .............................................................................................. 15

The Customer Journey: Mercadona and NH Hotels Group Case Studies

Chapter Three ............................................................................................ 33

Data, Metrics and Algorithms

Chapter Four .............................................................................................. 47

Lifestyles

Part II

Chapter Five .............................................................................................. 57

Customer Touchpoints

Part III

Chapter Six ................................................................................................ 75

Value Proposition Creation

Chapter Seven............................................................................................ 85
Personalised Products, Multi-pricing, Multi-channel

Part IV

Chapter Eight ........................................................................................... 117

People and Talent Management
vi Table of Contents

Part V

Chapter Nine............................................................................................ 133

Profit and Business Sustainability

Bibliography ............................................................................................ 145

 ACKNOWLEDGEMENTS

This book would not exist without the unwavering enthusiasm and
encouragement of my son, Robert Valls Tuñon. He was not only an
invaluable sounding board for numerous ideas but also helped in the
writing and editing of the final version.

I would like to thank Adam Rummens, Commissioning Assistant of

Cambridge Scholars Publishing, for enabling me to publish this book in
English. I must also acknowledge my Spanish publisher, Alexandre Amat,
CEO of Profit, for his ideas and involvement throughout the book. I am
deeply grateful to Joan Sureda, in memoriam, for his insightful
collaboration over the last few years in the research on innovation.

My sincere thanks are due to Susan Ruiz for her many ideas and
translation of the Spanish text. Thanks also to Itziar Labairu for organising
the text and graphics.

I must stress the significant contribution of two people: Isidoro

Martínez de la Escalera, Chief Marketing Officer at NH Hotel Group, who
allowed me to carry out the case study on the purchase journey of the
group; and Bernat Morales, External Relations Manager of Mercadona in
Catalonia, for taking time to explain how the company functions and in
particular about the relationship with customers.

Finally, to the many students of ESADE, the University of Madeira,

the University of Pacific in Lima, among others: Thank you! You gave me
the opportunity to explore ideas and garner invaluable knowledge on the
major changes brought about by digitalisation.
 INTRODUCTION

The digital revolution—fuelled by Big Data tools, robotics, the Internet of

Things (IoT) and increasingly more sophisticated algorithms—has shaken
almost every industry to its foundations, disrupting the traditional buyer–
seller relationship based on the product-centric model, as described by
Kotler. We have entered a customer-centric universe, where the customer
is no longer king but dictator. Aided by digital technology, the new
consumer is more knowledgeable and actively participating in every step
of the journey, from pre-purchase to post-purchase. As customer
expectations heighten, companies are being forced to rethink their business
models in order to respond to these new hyper-connected and vociferous
customers, with a wealth of resources at their fingertips to research,
compare and share.
Consequently, customer-centricity has gone from being a buzzword to
a strategic business imperative if companies wish to attract, retain and
evangelise customers—in short, be competitive and achieve sustainable
profitability. This requires adjusting the value proposition and marketing
mix. Becoming truly customer-focused is not a quick and easy endeavour
as it needs to be woven into the fabric of the organisation: the people,
structure and corporate culture (E&Y, 2017). It is not just a matter of
empowering the frontline staff; it requires a company-wide adoption of the
customer-centric mentality, starting with the C-suite and filtering down to
all operational and support departments (Procurement, HR, IT, Finance
etc.). It is a proactive approach that harnesses the power of analytics to
understand the customer profile and journey in order to design the
experience based on anticipated needs; it then encourages the right
behaviour among staff to ensure customer satisfaction; and finally, uses
customer feedback to drive real-time improvements (Deloitte, 2014).

Organisations now have access to an unprecedented number of analytic

tools to gain valuable insights about the needs and aspirations of potential
customers in real time—from the initial interest in a product/service to the
closure of the sale and post-purchase experience. They can interact
permanently with them, influence their decisions and even accompany
them through their vital processes, beyond consumption. The Internet and
2 Introduction

social media provide the perfect platform for consumer engagement and
are embedded in the basic operations of organisations and in the everyday
lives of billions of people. In only a few years, this has become the natural
medium to share data, information, confidences, emotions, needs, opinions
and interests.

To compete in this consumer-led economy it is no longer enough to

offer a good product or service. Companies need to become customer-
centric and work from the customer back, by using the latest technologies
and data analytics tools to track, understand and anticipate customer needs
and desires in terms of product type, price and channel; however, the
customer journey does not end with the purchase; nurturing the post-
purchase phase is vital for promoting customer loyalty and brand advocacy
on the web.

We are now in the post-demographic consumerism era where the

conventional segmentation of age, sex, income, education, ethnicity or
religion is no longer enough to define consumption patterns. Today’s
chameleon consumers are challenging stereotypes as they construct their
own identities, with new trends constantly emerging, such as the “agnostic
shopper” (Euromonitor, 2016). There is a growing ambivalence about
labels and more concern about health & fitness, sports, active leisure,
healthy food, mental well-being and happiness. Consumers are putting
greater importance on the experience and the emotional connection with
the brand to fulfil their needs and aspirations; as a result, customer
engagement is now the Holy Grail that brands seek. Gamification is
gaining momentum as a marketing strategy for achieving deeper consumer
engagement, with a simple and compelling narrative necessary for success.
Consumers are now motivated by diversity in food, clothes, travel, social
relationships and work. They place less emphasis on ownership and are
happier to share, rent, reutilise or exchange (accommodation, transport,
food and clothes). They are thriftier, as disposable incomes shrink, and
seek value for money, regardless of whether the price is high or low; and
they also place importance on sustainability, at affordable prices. Although
financial incentives are no longer the main motivation, consumers still
appreciate discounts and gifts. Digital consumption is now widespread
among native and non-native digitals alike. As consumers increasingly
channel-hop between offline and online, they now expect seamless omni-
channel options that make it easy to buy what they want, when they want,
and how they want to buy it.
 Customer-Centricity 3

These shifts in consumer trends are dramatically reshaping the retail

scenario. The limited universe of luxury brands is now coming up against
more nimble competitors offering low-cost, fast fashion, basics, instant
delivery and other less glamorous competitive advantages. Classic
marketing tactics, such as point-of-sale recommendation or advertising are
on the decline, forcing brands to urgently reformulate their marketing
strategies in the light of the growing trend of co-creation, word of mouth
and digital influencers. Here are the highlights of consumer trends forecast
2020 (Fig. 1):

x More demanding, better informed, more agnostic in shopping

x Concerned about health, fitness and mental well-being
x More interested in experience, storytelling and games
x Motivated by diversity in food, clothes, travel, relationships and
work
x More collaborative, prefer to share, reuse, swap
x A shift to value for money and thrifty lifestyle
x Digitally-savvy, but demand cross-channel options
x Rise in number of big-name brands, including low-cost chains
x Shorter delivery time
x Direct-to-consumer channels is the most efficient

Fig. 1: Consumer Trends 2020

In the forthcoming decade 2020–2030, these new consumers, defined

by lifestyle, will be the target tribes of contemporary manufacturers,
distributors, service providers, ideas and messages. The whole process of
identifying them, influencing them, offering them goods, selling to them
and retaining them for future purchases moves vast sums of money around
the globe (East, West, North and South) and involves governments, large
enterprises, SMEs, businessmen, employees, entrepreneurs, freelancers
and even the unemployed; and also sectors such as banking, ICT,
Innovation Centres, business schools and universities.

While they may share common features, there are generational

nuances; and although age is now a fluid concept, we have examined the
shopping habits and preferences of Spanish consumers across four age
segments: Silent Generation, Baby Boomers, Gen X and Millennials. The
main takeaway is that the Silents and Boomers still gravitate toward brick
and mortar stores; however, surprisingly Gen Xers and Millennials, despite
4 Introduction

their digital fluency, are heavily skewed towards in-store shopping, with
only around 15% preferring online. The reason can probably be attributed
to the social and instant gratification aspect that real-world stores provide
and also to the fact that many Millennials do not have credit or debit cards.
As opposed to the Silents, who are influenced by brand reputation,
Millennials are influenced by price. Millennials steer towards low-cost
shopping, while the other 3 segments still prefer value for money.
Specialty and neighbourhood stores are not as popular with the younger
generations as with the Silents (Fig. 2).

We are seeing massive growth in platform technology following the

slowdown in 2008 due to the global recession. Industries such as banking,
manufacturing, distribution, public sector, the media as well as social
media are all racing to jump on the DX bandwagon. Digital technology is
providing unparalleled opportunities for value creation and growth, but it
is a double-edged sword. It is indeed positive as big data, analytics,
algorithms, robotics, automation and artificial intelligence facilitate instant
access to just about everything, broaden the mind, reduce work time and
physical effort, minimise errors, and waiting time. However, just as in
other major upheavals in civilisation, it threatens to widen the gap not only
between rich and poor countries with different levels of education and
access, but also among various socio-economic groups within countries
themselves. Although many are being left behind, the process is inevitable
and is an unstoppable tide. A survey of 500 chief marketing officers
(CMOs) of large companies worldwide revealed that the marketing
channels they expect to be using in the near future were Social Media
(63%), Web (53%), Mobile apps (47%), Email (36%), while Television,
Print and Radio came at the bottom of the list with less than 15% (The
Economist Intelligence Unit, 2016).

Developing this new business model with the customer at its

centrepiece is not without its challenges, but those that resist, will do so at
their own peril. According to Desmet, Loffler and Weinberg (2016) the
benefits of this type of management are obvious. IT modernisation can
significantly improve operations and productivity by eliminating
bureaucracies, reducing defects, machine downtime, maintenance costs
and time to market. It also increases employee motivation.
 Customer-Centricity 5

Fig. 2: Spanish Shopping Habits by Generation

Source: J.F. Valls
6 Introduction

Enterprises are undergoing digital transformation (DX) at a fast pace,

with 30% planning to invest in DX technologies. In 2019, worldwide
revenue for big data and business analytics is expected to reach $200
million, double that of 2015 (IDC, 2016). A critical success factor is the
adoption of an enterprise-wide approach to the DX vision, aligning
business functions and culture with IT, developing a common language for
defining and understanding business processes and policies (Popkin,
2015).

This new structure obviously requires new business models, new

sources of income, costs, relationships with the community and
environment in order to achieve profit and sustainability. In sum, to
remain competitive and relevant in the market over the next decades,
organisations have no choice but to modify their strategies, infrastructure,
architecture, way of conducting business and type of business.

Satisfying customer needs and solving their key pain points should be
the cornerstone of any DX agenda. Developing a Digital Business
Transformation strategy requires a 360 degree view of what to transform
in the company. Enabled by Big Data Analytics & AI, it should be clearly
aligned with five core areas, which will form the building blocks of the
DX process: gaining customer insight, ongoing customer relationship,
value proposition creation, talent management and business sustainability.
Getting this right is critical for success (Fig. 3).

Throughout the book we will seek to give some insight into the various
new scenarios revolutionising and reshaping the social and economic
dynamics of today’s world, in addition to the way of doing business.

Part I looks at customer needs and aspirations, both from the traditional
angle as well as the emerging, more dynamic, bidirectional and segmented
aspect. We will also analyse the different paths of the customer journey:
awareness of a need or aspiration right up to the positive reviews on the
web and social media. Finally, as the enabler of this new scenario, we
analyse data management, metrics and algorithms, and how effective they
are at measuring changing needs and lifestyles of consumers.

Part II deals with the new relationship that companies currently have,
and will increasingly have with customers, as well as the most effective
way to conceive the mission of their enterprise and the structures that will
guarantee success and profitability.
 Customer-C
Centricity 7

Fig. 3: Digitaal Transformaation Snake Frramework

Source: J.F
F. Valls
8 Introduction

Part III focuses on the creation of strong and impactful value

propositions and practical competitive advantages, as well as the
reinvention of the value chain, in order to offer robust and innovative
products. Here we examine the need to offer greater variety and
customisation in product offerings, to account for multiple pricing and
omni-channel options.

Part IV analyses the future talent that will be impacted by all these
changes. We pay special attention to the growing automation of jobs (both
routine and sophisticated tasks), which will force HR departments to
revisit their talent strategies. Large-scale job destruction is obliging people
to create their own jobs, whether the work is carried out in the company or
on their own premises.

Finally, Part V examines the new models for the profit and
sustainability that are expected from the digital transformation, based on
customer interaction. Firms will become the interface (a centre for
innovation, data analysis, manufacture and alliances for innovation)
between customer and talent. We also look at the distribution of power,
revenue and profits among the various players.

In this scenario, all stakeholders are looking not only for a way to
survive but a new role that would enable them to thrive and be relevant:
customers, who now have the lead role, in order to continue satisfying
their needs and aspirations at lower prices; executives, employees and
workers, to use their skills under new conditions, which increasingly will
be on an outsourcing basis; and companies, as the interface between
customers and talent.
PART I
 CHAPTER ONE

NEEDS AND ASPIRATIONS

Throughout history, human actions—whether individual, group or as a

society—have always been governed by needs and aspirations. Need in the
sense of a lack and the compelling urge to be fulfilled for living or
survival. We can classify primary and secondary needs as follows:

- Basic survival (food, health, work, clothes, housing, transport, rest,

migration or sex);
- Relationships (family, friends, meeting places or private
associations);
- Protection (prevention, security systems, police, work safety or
social structure);
- Culture and creativity (education, languages, roots, demonstrations,
social interaction, technological level, media, skills);
- Participation (freedom, equality, identity, information, privacy,
citizenship, rights and obligations);
- Recreation (leisure, arts, shows or group events).

Most needs are economic in nature, especially basic needs. Consequently,

depending on the moment in history, level of development of society, the
prevailing economic model and the individual’s social class, this set of
needs varies. For instance, ten years ago, very few people included mobile
phones and free internet access in their list of basic necessities. The social
changes wrought by technology and globalisation have had a twofold
effect on the concept of need: the list of necessities have expanded not
only for individuals but for the population as a whole and the checklist of
“must haves” is becoming more creative; resulting in greater demands on
governments to expand the welfare state.

This rise in necessities has also impacted aspirations, which are now
higher. Nowadays, people are looking for bigger and better. Aspirations
here are defined as the goals we set in comparison to others, and are much
more subjective than needs. Aspirations are linked to happiness, experience,
12 Chapter One

emotions, well-being, pleasure, innovation, exclusivity, fun, playfulness,

prestige, self-actualisation, freedom of choice, independence, higher social
status or belonging to a different tribe.

The act of shopping and consumption has been glorified and associated
with pleasure—albeit fleeting—and is highly experiential (sometimes
leading to mindless consumption and overspending), in an exaltation of
the acquired position, in a transformation or a reflection of the purchased
item. An individual or group sees how others enjoy certain items and try to
emulate them. They want to buy what others buy (Aparicio, 2009).

The advent of the low-cost era in 2000 has opened up enormous

opportunities for satisfying needs and aspirations, due mainly to four
factors. First, the reinvention of business models based on low production
costs has given many consumers access to products and services hitherto
unaffordable to them. In less than 15 years airfares have fallen by 80%,
leading to the democratisation of travel. Secondly, general overproduction
has spawned secondary and tertiary markets, giving each aspirational
group access to their dream products at affordable prices. Certain outlet
channels sell Ralph Lauren polo shirts 30% cheaper. Thirdly, advertising
has shifted its pitch that was targeted to different consumer groups who
quickly identify with class codes to a more all-inclusive approach, catering
to people almost everywhere on the economic and social spectrum. Thus,
emerging trends such as agelessness, beauty, being feminine, status,
sports, physical fitness, etc. have gone mainstream. Finally, life cycles of
products and services have shortened for two reasons: manufacturers and
distributors are churning out goods that are becoming more ephemeral;
and the consumer, caught up in a shopping spree of cheap, useless goods,
is sucked into a spiral of even higher aspirations. The 2008 financial crisis,
far from stemming the effects, has fostered the proliferation of this low-
cost business model.

This wide array of shopping options, which adapts perfectly to the

needs of the different groups, have democratised aspirations and the ability
to achieve them. Standard of living is no longer a barrier to aspirations, as
technology and globalisation have allowed people to dream of unattainable
opportunities. A high-end brand car can be acquired for less if it is a
Demo, second-hand or third-hand car, and the new owner derives the same
pleasure behind the wheel as the first. A home can be purchased for a
certain price or for half the price depending on the area; rental options give
consumers access to the use of products or services at reasonable prices. A
 Needs and Aspirations 13

loaf of bread in one shop costs a third of the regular market price; certain
online platforms offer luxury massage deals at a third of the going rate.
Revenue management techniques allow companies to offer heavily
discounted travel rates.

The food blog El Comidista periodically publishes a list of generic

products. The supermarket that sells them claims that—whilst they might
not appeal to the finer palates of gourmets who prefer name brands—they
are excellent quality and quite inexpensive. Greek yoghurt, chilled tomato
juice, soy milk, bacon pizza, chocolate chip cookies; or the private-label
furniture produced and sold by large chains such as Carrefour, Mercadona,
Ikea or Walmart are challenging traditional name brands.

The line between needs and wants is becoming blurred, so much so

that the act of shopping and consumption of any product or service tends
to be linked to aspirations and, by extension, is now something
experiential, fun, playful and cheaper (El Comidista, 2016).
 CHAPTER TWO

THE CUSTOMER JOURNEY AND EXPERIENCE

ACROSS DIFFERENT TOUCHPOINTS

Human behaviour is 93 percent predictable, according to a study published

in 2010 by Northeastern University scientists. Based on location data from
mobile phones of 50,000 anonymous users (randomly selected from 10
million users), the study concluded that regardless of the different
distances travelled, time or actions, their movement patterns are highly
predictable and regular. This ability to predict people’s movements can
have a positive impact on addressing urban development and public health
issues (Tendencias, 21, 2010).

Through statistical deductions, simulations and futurology, requiring

billions of linear equations, it is possible to anticipate future consumer
behaviour, and predictive analytics is increasingly used in a number of
industries. Trend forecasting in the fashion industry delivers fairly
accurate results. Insurance companies use driving style as a reliable
guideline for offering a higher or lower premium. Supermarkets use
continuous promotions to boost sales. The automobile industry predicts
sale prices and the times of highest sales throughout the year. Price
comparison websites usually show the best deals. Bearing in mind that
there are other determining factors, Big Data and algorithms predictions of
behaviour are not always one hundred percent accurate, but they do
normally show the patterns of behaviour of the subjects analysed.

Each consumer group shares common features, within a marked

tendency towards personalisation and individualisation of needs and
aspirations. In this new era of the savvy and empowered consumer, the
need to understand present and future behaviour has become even more
critical, and customer journey mapping can give powerful insights into the
end-to-end customer experience. It tracks the different steps: from pre-
purchase, through the process of engagement and post-purchase into a
long-term relationship.
16 Chapter Two

Until recently, the traditional purchase journey was fairly

straightforward: short and static. Consumers usually started off with a
small set of potential brands, to which they gradually incorporated others
for consideration. Communication was through traditional advertising, a
few direct promotional efforts on the part of manufacturers and
distributors, and word of mouth. The new brands for consideration were
added to this journey, on a very exceptional basis; after evaluating their
features they were included in the group of reference brands. This whole
process culminated in the purchase act, which ended in the gratification,
representation and true reflection of personality and of the value itself. The
contact took place in stores that maintained prices during the traditional
seasons, with end-of-season sale or other exceptional discounts. The
purchase act (moment of truth) was virtually the sole touchpoint within the
production and distribution process. Loyalty endorsed a job well done. It
was enough for organisations and distributors to create a bond in the pre-
purchase and purchase stages to successfully close the virtuous circle,
which subsequently generated repeat business from the customers
themselves or from members of their tribe. Consumers would use a
number of brands they felt comfortable with and trusted unwaveringly.

Today, the shopping journey has lengthened significantly, with the pre-
purchase and post-purchase stages (initial consideration; comparison of
price, options and brand; opinion sharing and product review) gaining
more importance and less emphasis on the purchase act. The path is no
longer linear and is influenced by emotional urges from different sources,
closely linked to aspirations.

In this new world of empowered consumers, organisations have now

placed customers at the heart of their business decision making.
Consumers accept varying degrees of pressure, but react freely, taking the
initiative. With riches of information at their fingertips, they become
experts on the product or service and are sometimes more knowledgeable
than the very employees of the organisation or distribution channels. In
their quest for information, the customer moves in-store, online and across
social media. The new customer journey map takes into consideration the
following:

- More time to think what, why, where and when to buy. The sheer
amount of research information available to compare and analyse
product features, price and channel is overwhelming consumers,
causing a sort of paralysis in the decision-making process.
 The Customer Journey 17

- Less emphasis on the purchase act. The conventional customer–

seller relationship is no longer relevant in the decision making. The
physical or virtual contact with the producer or distributor is now a
minor procedure, due to two major advances: omni-channel, which
facilitates the choice of point of sale (online or offline), and the
ease and security of online payments.
- The journey has lengthened indefinitely during the post-purchase
and post-consumption phases. In the past, this phase was somewhat
residual (limited to nurturing loyalty) but it now encompasses other
areas, some already explored and others still unexplored:
x To retain customers, generating new forms of loyalty;
x To encourage them to become vocal advocates on social media,
via sms, tweets or photos;
x To encourage brand referral and brand ambassadorship to
friends, friends of friends and virtual friends.

These new consumer behaviours lead to the “loyalty loop”, which

reduces the impact of the satisfaction obtained, the trust gained and the
loyalty forged based on the purchase act (Edelman & Singer, 2015). In this
manner, loyalty (hitherto dependent exclusively on the purchase act) is
now influenced by the end-to-end customer experience (Fig. 2-4). As a
result, the purchase act has been expanded to the following three stages:

- Pre-purchase: The idea is to know the steps of the customer to

obtain information in each of his acts, either through friends,
family, influencers, recommenders; opinions on social media,
comparison sites; Google or other search engines, blogs and chats;
destinations, corporate advertising, direct recommendation, or
other sources. The pre-purchase stage includes the following acts:
x Discover a need or aspiration from value codes and the
moment;
x Compare the different existing value propositions, pushed
or pulled;
x Consider all of them and evaluate purchasing capacity
according to budget and time.
18 Chapter Two

Fig. 2-4: The Customer Purchase Journey

Source: J.F. Valls
 The Customer Journey 19

- Purchase and Consumption: This is the touchpoint between

producer/distributor and the customer (purchase), and the
customer and product/service (use/enjoyment), and includes the
following acts:
x Order: At the customer’s convenience. Price, channel,
service, payment method and possibility of abandonment
all influence this phase.
x Pay: Depending on the relationship between payment and
use, the customer decides on one of the many options
(instalments, immediate payment, in cash, bitcoin etc.). In
the period between order and payment: access to real-time
order tracking, the possibility of amending the order, etc.
x Shop & Plan: Adding or removing different items of the
product or service until the time of consumption.
x Consume: With the expectation of additional activities,
novelties, instant geolocation of friends and contact with
them, lending a social dimension to this phase.
- Post-purchase: This is the phase with highest expectations, since it
affords the opportunity to increase satisfaction with use of the
product, for three reasons. First, mobile app tools make it easy to
instantly share the experience on social media. Secondly,
enthusiastic customers who share their positive experience are the
best brand ambassadors. Finally, it is the best weapon to retain—
with varying degrees of loyalty—a satisfied customer, who
already has a bond. These include the following actions:
x Broadcast on social media and, in a certain way, through
word of mouth. It has become a reflex act and can be
expressed through photos, videos on private webs or
YouTube.
x Recommend to friends privately or openly. It forms part of
the consumption experience: it lengthens and complements
it.
x Retain the customer. Since traditional loyalty programmes
have lost their effectiveness, positive post-purchase
experience has the potential to deepen the relationship and
drive customers into the loyalty phase.

From a business perspective, the change in the purchase process

seriously challenges organisations, forcing them to redesign their
production processes, but at the same time offers new and big business
opportunities. In each of the mentioned phases, there are four key actions:
20 Chapter Two

- Information Capture: Customer tracking along each touchpoint

through any of the channels.
- Customer Experience: This is the impact the customer receives
along the purchase journey, from perceiving a good service
(instant presence, the right response at the right time, speed,
required time, personalised touch) to feeling emotions in all or
some touchpoints (pampering, a little gift, a surprise, a game or
impressive hospitality programme).
- Improvement Goals: Detection of opportunities from the analysis
and investigating and identification of ways to leverage them;
- Changes Needed: Automation of the consumer decision journey
helps to improve and control the formulation of corporate
strategies and policies (Court, Elzinga, Mulder and Vetvik, 2015).

One of the first benefits of the consumer journey mapping is that it

facilitates segmentation, generates consumer complicity and involvement
in the design of the products; provides accurate information in specific
moments; creates advertising campaigns focused on the most sensitive
points; optimises production processes, or satisfies demand in real time.

Tracking the consumer journey and capturing the motives for choice at
each moment (basic or luxury products, cheaper or more expensive, one
distribution or communication channel or another: offline or online) is
indissolubly linked with big data analytics. Identifying touchpoints makes
it easier to establish a strategy to strengthen each one of them; it uses the
most appropriate sources of impact and information; adjusts the
price/value; and provides ongoing data on customer needs and aspirations,
thereby reducing all types of risks. Thanks to the insights revealed, the
value proposition can be improved and the key competencies strengthened
to facilitate the direct contact with customer on an ongoing basis. This will
all result in greater price transparency and the simplification of
transactions. In the specific case of financial institutions, it facilitates the
opening of new accounts, gives greater knowledge of individual needs and
services required and faster delivery of debit cards (Dias, Oinutiu, Lher
and van Ouwerkerks, 2016).

Mapping the purchase journey entails identifying the customer’s steps

toward the selection and consumption of the product/service, as well as the
ability to interact across the touchpoints. This gives experience, speed,
referral, personalisation and convenience (McKinsey Quarterly, 2016).
Through the analysis of these touchpoints, Lidl Switzerland stores have
 The Customer Journey 21

implemented paperless transactions (printing receipts only upon special

request from the customer) in a bid to reduce paper costs; to protect the
environment; and to eliminate unproductive tasks that add no customer
value.

We have prepared two case studies on models of customer purchase

journeys in two Spanish chains, Mercadona supermarkets and NH Hotels.
The data obtained allows us to answer the first two points on the above
table: how the customer moves to capture information on the company,
and their experience in each of the 10 stages of the journey. We have also
included the touchpoints used by the companies to interact with customers
and some considerations of improvement goals and changes to implement
once a gap has been detected.

Designing the customer experience is the process to improve

company—customer interaction, by inspiring euphoria and enthusiasm,
which boosts satisfaction and loyalty, reduces monotony, and clarifies the
competitive edge and differentiation of the product, service, brand or
company. This is one of the most advanced innovative approaches that
create insurmountable barriers vis-à-vis competitors, especially when big
data opportunities are leveraged (Maynes & Rawson, 2016). The
experience should be seamless across all the stages of the customer
journey. Together with impacts that provide information, familiarisation,
problem resolution or incentivisation of the positive aspects, the
touchpoints should give the customer a superior experience causing
emotions, maintaining a state of heightened engagement to continue the
relationship and to advocate positively on social media.

It is a sociocultural asset that impacts on different levels, rational,

emotional, sensory, physical and spiritual (Ng I.C.L & Wakenshaw, 2017)
that enhances the exchange. It is a question of correctly identifying what
makes the customer excited, that is, using a customer lens approach. This
is achieved by first defining and understanding the customer persona. The
next step is to create an emotional connection, interpret the customer’s
emotional state in each moment and commit the organisation to this by
motivating employees. The final step is to measure the ROI of the
application of this strategy (SuperOffice, 2017). Any functional customer-
experience programme should measure the results of sales, customer care,
service, billing and payment and the change carried out in customer
management (Ducan, Fanderl, Maffei, 2016).
22 Chapter Two

The customer purchase journey in Mercadona

Mercadona is Spain’s leading food distribution chain in the grocery
segment, with a 14.7% market share of total retail space in the organised
distribution sector. The group and its production chain CASPOPDONA
(acronym in Spanish for Sustainable Food Chain) accounts for 1.8% of
Spain’s GDP (€19.5 billion) and provides 3.8% of total jobs in the country
(640,000 direct, indirect and induced jobs) (IVIE 2015). In 2016, the
company reported a 3.9% increase in sales, a turnover of €21.623 billion
and net profit of €636 million. In 2015, it invested €685 million, which is
expected to increase to €1,000 million in 2016. It works with 126
integrated supplier/manufacturers for its own-branded products including
Hacendado (food & beverage), Bosque Verde (household products),
Deliplus (cosmetics) and Compy (pet food & complements), with over
2,000 external suppliers and 20,000 SMEs and manufacturers of raw
materials, to supply the over 1,600 groceries across Spain where over 5
million households shop. The company created 4,000 new jobs in 2016
bringing the total workforce to 79,000 employees, considered among the
best paid in the industry. It has over 8,000 SKUs in its product line,
including 400 new products in 2016. The company has started its
international expansion plans with the acquisition of land in Portugal for
one of the 4 stores it plans to open in 2019.

It all began in 1981 when Juan Roig and his wife Hortensia Herrero,
together with his siblings Fernando, Trinidad and Amparo, bought
Mercadona from their father. The chain had 8 groceries with an
approximate size of 300 square metres. In 1990, Juan Roig and Hortensia
Herrero became the major shareholders of the company and in 1993
deployed the Every Day Low Price (EDLP) strategy, which offers
shoppers quality products at consistently low prices without the need to
wait for special discount or promotions. To be able to do this, they
constantly revise the internal production processes, together with their
integrated suppliers, in order to reduce costs and innovate. The “Boss” (the
company’s nickname for the customer) comes first.
 The Customer Journey 23

Fig. 2-4a: “The Boss” of Mercadona

Source: Mercadona 2015

“Facing up to these challenges on a collaborative basis, recognising

and learning from our mistakes, must lead us, all together, to develop an
efficient and productive ecosystem that will make Mercadona the kind of
company society wants” (Roig, 2015) (Fig. 2-4a). You have to get near the
“Bosses”—in the store, at their home, in their kitchen, in their surroundings,
examining their lifestyle and their entire shopping journey—in order to
learn from them, and at their side, with simplicity and a critical spirit, to
constantly improve. This nearness allows them to get the product
assortment right and reduce costs (that add no value to the customer) in
order to maintain the highest quality and the lowest price possible.

Pre-purchase stage: The company endeavours from the very first

moment to make a connection with customers. The different phases of
discovery, comparison and consideration of those shoppers are focused on
word-of-mouth communication about the product value proposition. In
this regard, Mercadona has an “Apron Strategy” which it carries out in
their Co-innovation centres designed for ideation and customer
engagement, where they share experiences, household cleaning, personal
hygiene and pet care tips with customers, enabling them to continuously
innovate with them, make improvements and develop new products.

Mercadona does not invest in media advertising or marketing

campaigns, and relies instead on their value proposition, underpinned by
three elements. The first is the product itself—EDLP, a wide assortment
but simplifying the selection process, friendly and attentive staff. The
24 Chapter Two

second is the point of sale—convenient location, being a neighbourhood

grocery, accessible, spacious and comfortable. The third is the ongoing
innovation that enables them to continuously introduce new products. The
company is also very committed to providing shoppers a speedy, hassle-
free experience; and their efforts start with not offering a baffling array of
products but a carefully curated selection of high-quality products at
affordable prices targeted to the real needs of households. For instance, in
2009 it responded to the challenging economic crisis by rationalising their
assortment with a 10% reduction in their 9,000 SKUs; and in 2016, they
gradually increased it to offer an ample but not overwhelming range.

In addition to monitoring competitor and market trends, in order to

implement their “Boss-driven” strategy, they carry out the following
activities along the various stages of the customer journey:

- Analysis of how customers shop in-store; and when they leave,

where they shop and what products they buy.
- Analysis of the purchase experiences of friends and family;
observing and listening to the customer is the best way of learning
and improving, they state.
- A commitment to co-innovation (Customer–Mercadona–Integrated
Suppliers) through their 12 co-innovation centres. In these
facilities, located in some of the supermarkets, they cook,
experiment and innovate with customers. The objective is to pick
up on customer preferences and suggestions to better address their
needs. This is accomplished through their “prescription departments”
that use field employees called “prescription instructors” to find
out exactly how customers use their products, in order to introduce
improvements or create new products. In short, innovating
together. Once tested, the products are included in the portfolio
and released to the supermarket shelves, such as the very popular
cane sugar yoghurt and sesame bars launched in 2016.
- Customer service for suggestions, enquiries, complaints that are
handled through a toll free number, email or social media (Twitter
and Facebook).

Purchase stage: The objective is to provide a wide assortment of safe,

high quality, affordable products combined with excellent service and a
fast shopping experience. Therefore, they try to ensure an efficient layout
of the different sections and distribution of products and a fast checkout.
They also have a Quality Management & Food Safety system that spans
 The Customer Journey 25

the entire production chain all the way to the end-consumer. The shopping
frequency ratio for Mercadona is 0.78 (2.8 times that of the industry
average).

To meet these objectives the company offers:

- Urban proximity and free onsite parking.

- Ease of payment. Half of shoppers pay by credit card.
- Friendly staff.
- Well stocked shelves of products ranging from fresh, chilled,
frozen, ready meals, packaged and a variety of sizes and portions
to cater to all household types.
- Transparency in product information. Their R21 shelf life
management system guarantees that the “best before date” is
complied with. The date coding on the packaging is the last
recommended date to ensure peak quality; this of course is without
prejudice to compliance with legal food safety requirements for
shelf life of highly perishable products such as fruit, vegetables,
meat, fish and other foodstuff. Mercadona boasts one of the lowest
waste levels in the industry, which helps to keep inventory costs
down.

Post-purchase: Fully aware of the power of word-of-mouth

recommendations both offline and online, Mercadona focuses primarily on
this type of brand promotion. It interacts with customers via social media,
where it shares photos and videos with thousands of followers (500,000 on
Facebook, 110,000 on Twitter and 3,000 views on YouTube).

Regarding customer retention, an estimated 5 million Spanish

households fill their grocery baskets at Mercadona, which is a high ratio.
The average grocery bill is €19.72, almost 20% higher than the average for
Spanish distribution, and the number of items per basket is 11.9
(Mercadona, 2016). After analysing Mercadona’s customer purchase
journey, we can conclude that their success is attributable to the carefully
selected assortment of value-for-money products, tailored to the prevailing
economic climate. Their product offerings are customer-focused;
Mercadona is responsive to customer feedback, a source of inspiration for
innovation and improvement.

The company has started to move forward in its digital transformation

project. It has implemented a faster real-time information analysis system
26 Chapter Two

(big data), and has installed more intuitive touchscreen weighing scales. In
several stores, they have tested POS terminals fitted with real-time stock
control systems. Furthermore, it plans to revamp its website to make it
more seamless, agile and visually appealing.

NH Hotels Case Study

The NH Hotel Group, with a turnover of over €1.3 billion, is the sixth
largest European chain, ranks among the world’s top 25 hotels and has
been listed on the Stock Exchange since 1999. The group operates close to
400 hotels—owned (21%), leased (56%) and managed (23%)—with
almost 60,000 rooms in 30 countries. Their portfolio is structured into
different brands 3-star midscale, 4-star upscale, upscale and upper upscale
(NH hotels, 2016).

NH Hotels opened their first urban hotel in 1978 in Navarra, Spain.

Initially, they concentrated on the Spanish market and then rapidly
expanded into the international market. Under the slogan “NH cuestión de
detalle” (NH, it's the little things that count), the chain took the urban
segment by storm, offering modern accommodation tailored to the
business, holiday and sports travel markets. The incorporation in 1988 of
the financial group COFIR as a major shareholder enabled the group to
continue expanding its footprint in Spain and to venture into the major
European cities and Latin America.

Their European presence came through the acquisition of the Italian

chain, Jolly Hotels; the Dutch Krasnapolsky chain; and the German chain
Astron Hotels. In 1998, it formed a strategic alliance in MERCOSUR with
the creation of the Equity International Properties fund, in 2011 it acquired
the Mexican hotel Chartwell, and in 2015 the Hoteles Royal chain in
Columbia. It has launched a number of pioneering initiatives such a
corporate training centre for its staff known as the NH University; a
platform called Cooperama designed to additionally service other chains to
improve competitiveness; the NH Sustainability Club, an in-house think
tank for creative eco-conscious product and service development; and the
implementation of customer touchpoints across the purchase journey.

In 2013, the group carried out a restructuring of the governing body as

well as assets and started plans to spread its wings into China. The new
strategic five-year business plan energised the company by means of a
new value proposition based on urban hotels and a portfolio of quality
 The Customer Journey 27

hotels under the NH Hotel Group umbrella that includes: NH Collection

(premium), NH Hotels (3 or 4 star urban hotels in prime locations), nhow
(unconventional design in international capitals) and Hesperia Resort
(holiday in exceptional surroundings). The hotels were updated with
customer experience at the heart of the refurbishment. An example of this
was the launch of “High Tech Made Easy” in the meetings & events
segment, which not only includes lightning-fast Wi-Fi connection, state-
of-the-art meeting rooms and new generation interactive collaboration
systems, but also live 3D holographic telepresence for an almost life-like
meeting.

In 2016, total equity was over €1 billion and total revenue €1.475
billion, with the following breakdown by country: Spain 24%, Italy 19%,
Benelux 21%, Central Europe 26% and America 10%. The company
expects an EBITDA of €220 million in 2017, occupancy of 68% and
Revenue Per Available Room of €95. In 2016, the group refinanced its
debt.

NH differentiates between the two segments, MICE (Meetings,

Incentives, Conferences and Events) and leisure. In both it takes into
account each stage of the guest life cycle before, during and after: the
aspects of each booking, guest experience from arrival to departure;
meeting rooms and everything related to meeting; catering, bedrooms; and
other services.

A hotel guest engagement lifecycle would consist of the following

stages: awareness of need and discovery of information, conversion,
satisfactory stay, departure and repeat stay. Based on this life cycle, NH
has designed seamless processes to accompany the customer throughout
the journey, with several touchpoints to engage customers and influence
purchase behaviour. The outcomes of this interaction and the reactions of
the customer are processed in order to improve and establish the changes
to be made.

Pre-purchase stage: This is the stage of brand awareness and

comparison with competitors and other guests’ reviews. It is when the
company deploys a wide range of initiatives, through advertising,
promotions, sponsorship, PR, website information, social media and
digital media in general, hotel reviews, and news across all possible
channels, agencies, partner companies, or direct communication from their
own database. The idea is to first convey the strong equity of the NH
28 Chapter Two

Group umbrella brand, while highlighting the defining features and

benefits of the 4 sub-brands and how they might suit the business or
leisure needs and aspirations of the customer; and secondly to
communicate their presence in the major cities around the world.
Therefore, the brand must have presence and visibility in places of
relevance.

At this stage, conversion is not linear. Brand awareness is through

word of mouth, social media, channels, devices, recommendation,
payment information sources, opinion-givers, search engines, etc. NH uses
analytics tools to know the demands and aspirations of customers and
establish touchpoints to aid in the decision making.

Purchase stage: The purchase zones and consumption are unique in

the hotel industry, with multiple payment options: pre-payment or partial
payment on booking, payment on arrival or on checkout; depending on
whether it is a direct booking or via an intermediary, payment to the hotel
can take many forms and over several periods.

The purchase channels for a room at NH are:

Booking phase
- Own website.
- Central Reservations Office (CRO) that handle inbound calls or
real-time online chats. Their job is to increase conversion rates.
- Online Travel Agencies (OTAs).
- Conventional Travel Agencies, implants.
- Attractive prices that encourage purchase, regardless of channel.
- Promotional interaction, such as highlighting the product’s appeal,
cross-selling, offer of personalised services, or others in certain
hotels.

Confirmation phase
- Email, in the case of direct sales;
- Customer identification, for loyalty members;
- Invoice sent to the company;
- Booking agent confirmation.

Consumption phase: A hotel stay is somewhat experiential, even in

the most functional and utilitarian ones, which is why from pre-arrival to
departure, the guest should be aware of the values of the 4 brands.
 The Customer Journey 29

Pre-arrival phase
- The group has increased the number of digital devices to monitor
customer service in three directions. The first is to accompany
guests throughout their stay at the hotel from arrival to departure.
The second to minimise check-in waiting time, despite the legal
requirement to show ID (advances in facial or fingerprint
recognition might solve this problem). Finally, to try to attract
reservations to their own website.
- Send useful information about the booking.
- Possibility for online check-in, process and confirmation.
- Hotel information for loyalty programmes.
- Confirmation of special requirements. In the case of indirect sales
where NH does not have details of the guest, check-in should be
done on the NH website.

Arrival Phase
- First impact is the Lobby: light, atmosphere, fragrance, music,
digital and physical signage, communication in the entire hotel.

At the Reception
- Greeting, protocol for VIP guests to reduce wait time and more
personalised touch. NH is planning to replace the traditional front-
desk reception concept, by giving the receptionist more of a PR role
instead of just filling out forms.

Going to the room

- Lifts and corridors will reflect the right music and fragrance and
corporative communication.

In the Room
- Welcome items, decoration, space, cleanliness, quiet, fragrance,
lighting, temperature; for the bed: mattress and choice of pillows;
TV screen; work space; bathrooms: amenity set, towels, shower,
hairdryer; minibar with products and price list; free Wi-Fi; general
comfort, which includes no noise (second reason for complaints)
and which can be minimised with sleep aid items such as earplugs,
eyeshades, scented pillows oils, herbal tea.
x Some brands offer in-room tablets devices in 7 languages so
that guest can easily communicate with reception, request
room service, browse hotel amenities, check timetables and
local attractions.
30 Chapter Two

x NH is running trials in pilot rooms in Spain and Germany for

an ambient controller enabling guests to create a suitable
atmosphere to their moods (sleeping, working or relaxing) by
adjusting the temperature, lighting and music.
- Guest directory

The Lobby
- NH is transforming their lobbies to appeal to current social habits
so that guests and non-guests can hang out. The project includes
three elements. The first is a change in layout with the reception
and offices moved to the back, to open up the space at the street
entrance to invite people in: common areas and private work spaces
with free Wi-Fi, space for families with TV, etc. The second
element is the bar, cafe & restaurants and other services. The third
space plays host to activities such as events, exhibitions,
presentations, etc. All spaces will boast digital signage with
information on local attractions, etc.

Food
- Restaurant—treatment of diners, quality of products and local
produce, opening and closing times, seasonal menu;
- Breakfast—times, waiting time, seating capacity;
- Room service—menu, serving times, presentation;
- Bar—variety of drinks, prices.

Other Activities
- Sports, gym, ad hoc services, amenities, timetable, staff.
- MICE: Accommodation, food and general services are adapted to
the needs of each meeting, regarding technology and staff.

Post-purchase and Post-consumption: The actions of communicating,

recommending and retaining in this phase are carried out in the following
manner:

- Payment: although payment is usually included in the pre-purchase

phase, in the hotel industry the usual payment method is post-
purchase and post-consumption. Payment of the invoice, or
signature for direct debit, is the first step.
- Goodbye and thanks.
- Offer of information on the group and its value proposition.
 The Customeer Journey 31

- Incluusion of detaiils in CRM system

s and usse of data fro om guest
compplaint. The grroup has a lo ow rate of guuest dissatisfacction and
compplaints—1 in every 10,000 stays, usuallyy related to no oise from
otherr guests and poor
p Wi-Fi quality,
q causedd by slow speed from
internnet providers.
- Loyaalty creation foor both guest and
a booking aagent.
- Recoommendation on social media and revview websitess such as
TripAAdvisor. 85% % of travellers consult this site for hotell reviews.
As too social media, NH is acttive in all off them and ex xpects to
further increase acctivity. They have
h a team mmonitoring rev views and
have them centrallised by coun ntry, and by bbrand in each h country,
especcially for the premium
p grouup.
- All innformation frrom reviews, internal surveeys or social media is
collected in a dataabase for the customer
c expeerience team to design
experriences or corrrective actionns for ongoing improvementt.
- NH R Rewards (blue, silver, gold d and platinumm) loyalty programme
(Fig. 2-4b) offerss discounts in n subsequent stays, pointss for free
nightts, exclusive member
m rates, additional bennefits and guaarantee of
best pprice. The aimm of the progrramme is to ddeepen the rellationship
with the customer and for them m to book direcctly from the company
webssite.

Fig. 2-4b: NH Rewards Loyalty Proggramme

Source: NH
H Hotels

As the Group expannded their neetwork, they were faced with the
challenge off culling the necessary
n insig
ght from the uunstructured data,
d such
as customeer reviews on TripAdviso or or social media. Thee key to
leveraging tthe power of customer infformation is tto bring the structured
s
private dataa (from internnal databases)) and the unnstructured pu ublic data
together. Thhe Group needded a system to link these datasets togetther to be
visualised, aanalysed and acted upon. The problem m of public data
d is its
sheer volumme and its consstant refreshmment at a rate oof tens of thou
usands of
new review ws in several languages per p week, froom multiple and ever
changing weebsites.
32 Chapter Two

The Group uses the “Quality Focus Online” tool, which can listen to
tens of thousands of customer reviews of NH Hoteles and their
competitors per week and produce basic metrics. The tool processes,
interprets, rates, reports and monitors the reputation and performance of
the 400 hotels of the network, individually, turning a lot of unstructured
information into meaningful and actionable analysis. Thanks to the Quality
Focus Online tool, the company has turned social media into a powerful
Business Intelligence resource.

- Guests’ reviews and NH Hotels financial data feed the key strategic
decisions of the business.
- The company turned noise into fuel for the business.
- Social signals are no longer wasted.
- Investment decisions now have an immediate and measurable
impact (Paradigma, 2013).
 CHAPTER THREE

DATA, METRICS AND ALGORITHMS

Selected and integrated data plus advanced analytics give managers deeper
customer intelligence to be able anticipate their needs and aspirations.
Today’s disruptive technology is profoundly transforming the nature of
competition and driving innovation, increasing radical personalisation,
improving strategic decision making and works in real time. All of this has
necessitated a new and more sophisticated approach to customer
relationship management (McKinsey Global Institute, 2016).

In this sense, those global companies that were the early-adopters of

advanced big data analytics and algorithms are the ones now enjoying
stronger economic growth. This is the case of technology stalwarts such
Google, Alibaba, Amazon, Microsoft, Facebook, etc.

Our daily digital activities generate a path of digital data, which is like
a data gold mine for today’s marketers. For instance, 89% of Spaniards
admit to using their mobile phones for texting, emailing, WhatsApp or
Skype calls/chats, social media, or to comment on what they see on TV
(IAB Spain, 2016). This digital trail is tracked, analysed and interpreted to
provide insight about what we want, what we do and what we might need
in the future, and is the main raw material of today’s businesses.

In our digitised information age, data has become the new business
currency and the main driver of revenue. In the early days of mankind, the
basic elements were fire, water, wind, stone, nature or labour, and then
came gold, oil, electricity and jet propulsion. Nowadays, every time we
move, our digital devices leave trails like the contrails jets leave in the sky.
This data is collected, analysed, packaged and sold by data brokers to third
parties, who in turn use the information to bombard us with their products
and services, designed from the very information we gave away. In this
respect, we are the most valuable raw material and we are giving it to them
for nothing. If we minutely examine what each trail is really worth, maybe
34 Chapter Three

consumers should have more of a stake in their data and get some
compensation from these so-called data brokers.

There is a low level of trust regarding the use of personal data. Digital
natives have no concept of privacy and no qualms in letting others follow
their trail, in exchange for all types of information. In contrast, baby
boomers and the silent generation (the bulk of Europe’s population today,
but not in 2030) are not prepared to give up one iota of their privacy. With
varying degrees of reticence in internet and social media, only 29% of
Spaniards say they willingly accept the use of their data by companies and
governments. This is a fairly low percentage but slightly higher than the
European average. This willingness to share personal details increases
only if it is for a collective cause; for example, 69% of Spaniards surveyed
are in favour if it would help them and others improve their health; 68%
were also happy about data on their movements in the car being
transferred to navigation system service providers for personalised traffic
report; 63% if it helps them save money, and 54% if it helps in the fight
against terrorism.

Nonetheless, all generations including digital natives or those who

have privacy issues, despite their wish for simpler language and more
transparency, end up giving in. Why do they do so? In exchange for free
services. So what is the price of “free”? In this low-cost era the online
business models of the major players offer free access to basic services but
require registration, which allows inter-session tracking to collect useful
data for targeted marketing.

Many describe the Internet as “a big farce”, “a web of lies”, and

sometimes they are not wrong. Millions of people use fake identities on
social media, engaging in fantasy online relationships; or indiscriminately
“like” everything; or express opinions contrary to their beliefs or actions.
They lie about key aspects of their life such as socio-economic status,
gender, age, education, etc. in order to get answers or make contacts (often
illicit or potentially fraudulent). Increased usage of the Internet has given
rise to cyber infidelity whether written, spoken or “emojified”. Opinion
polls are increasingly missing the mark, with the recent events being a
good case in point: the election of Donald Trump, the failure to predict
Brexit, the rejection of the peace deal with the FARC in Colombia; the
dismissal of Dilma Rousseff following her impeachment; Renzi’s
referendum defeat in Italy. It is very probable that if the pollsters that were
 Data, Metrics and Algorithms 35

off target had supplemented their information with big data analytics, the
discrepancy would have been much less.

So, it turns out that most people want to maintain their privacy, but
tacitly accept that their digital footprint is used for data mining. Regarding
other offline data, who can prevent the use of data from a grocery or petrol
station bill? Or, be geolocated at a certain time? Or have your imaged
captured by a street camera? Or have your personal details on file because
you belong to a club or listen to a TV programme or donate to charity?

In the light of this paradox, there are two aspects to be considered. The
first is the distinction between the container of the digital trail and the
content of the messages. The privacy boundary would be protected if
digital trackers limited themselves to managing the first aspect (something
most market researchers promise) and left the content secure. The second,
the emergence of abuses, violence, piracy, espionage or cyberattacks leave
users’ personal data exposed. Moreover, cybercrime laws are difficult to
enforce and slow to bring the perpetrators to justice.

The digital jungle absorbs everything that comes its way. Data
brokering is a multibillion dollar industry at the expense of the consumer.
There is now a legal debate on data privacy and use, from an ethical point
of view. The European Court of Justice ruled in favour of the “Right to be
Forgotten” whereby search engines must remove information deemed
"inaccurate, inadequate, irrelevant or excessive" for the purposes of data
processing; however, this is not the case in other parts of the world. The
Robinson list is an opt-out list of people who do not wish to receive
unsolicited advertising including online transmission. To date, there is no
universal convention on data protection and regulation of data brokerage.
There is only a privacy framework for national and international data,
developed by OECD member countries, with guidelines on the following
principles: collection limitation, data quality, purpose specification,
security safeguards and accountability. There is a great deal users can do
to ensure their personal security and data privacy such as installing
firewalls, antivirus and antispyware software, keeping software updated,
or avoiding infected websites. Nevertheless, it is not easy to harmonise
cyberspace as a free territory to express ideas and sell products and
services, with cyber rights, which entail restrictions.

In the midst of this pandemonium, huge strides are being made in big
data management since it has the potential to deliver a treasure trove of
36 Chapter Three

customer intelligence; facilitates the radical transformation of businesses

and is driving organisational changes. The top big data challenges facing
businesses are extracting actual business value; integrating information
sources; determining strategies, infrastructure and IT architecture to adopt;
acquiring the necessary capabilities to succeed; and establishing the new
model of governance and leadership (BBVA, 2014).

Big data is reconfiguring businesses, transforming the internal

organisation and architecture of firms and deconstructing the value chain
(Evans, 2014). The use of mathematics, statistics, descriptive and
predictive techniques, computer engineering and language, combined with
social sciences, economics and business integrates sophisticated processes,
which have paved the way for a new generation of technologies. The
exploration, tracking and frequencies analysed through metadata (chats,
books purchased, stores and restaurants frequented, journeys, depth of the
relationships established, etc.) give insight into current consumers and
predict future behaviour.

By following the data trail, consumer profiles can be formed with

explicit or implicit needs, aspiration, emotions, untapped needs to be
filled, etc. The volume, complexity and variety of data are increasing and
are analysed via unconventional methods to derive valuable customer
intelligence in order to gain a competitive advantage.

The difference between the traditional data warehouse approach and

that of big data is in the velocity of processing and cost reductions.
Conventional techniques have limitations in tackling complex searches,
whereas big data can swiftly and effectively perform fast, complex and
exhaustive searches to mine relevant data, store, link and combine across
datasets, classify, analyse and share results. All this to enable companies
to:

- Gain knowledge about consumers’ value perception of products,

services, ideas and marketing message in order to refine their
segmentation and personalisation;
- Unearth new needs and aspirations of their customers/prospects and
their propensity to spend and right time for each of them;
- Improve organisational design and decision making, so as to
optimise performance, reduce operational inefficiencies, maintain
competitive advantages and create new business models, innovating
 Data, Metrics and Algorithms 37

in customer touchpoints, processes, talent management, cost

management and in the new business models.

In the light of the above, it is imperative that business cases are

designed coordinating cultural, organisational and technological aspects,
underpinned by emerging technologies. This is how big data has redefined
the consumer landscape and business functions across sectors, driving
innovation, competition, and productivity, in both traditional and
disruptive business models (Manyika et al., 2011). Data monetisation is
one of the most desired businesses nowadays, and is being developed in
sectors such as banking, insurance, retail, manufacturing, professional
services. It also provides the opportunity to enter new types of businesses,
especially because of the ability to create more affordable automated
algorithms.

A Forbes survey of 573 global companies (Forbes, 2016) found that

only 13% of respondents have integrated digital technologies—and they
have reaped impressive benefits. The increase in revenue was 64%,
improved efficiency 51%, improved customer experience 40%. These
results coincide with another survey carried out by IBM Institute for
Business Value of over 1,000 business executives from 100 countries
across 26 industries. The report revealed that the most spectacular results
were with customer relationship, operational optimisation, financial risk
management and the new business model (IBM, 2013). Improving
customer relationship is the top priority. In this regard, 25% of companies
have made a successful business case for big data; 40% are exploring with
the intention of developing a business case, and the remaining 35% have
not yet explored how big data could benefit their organisation (Interxion,
2013).

Big data can be defined as scalable and extensible high-volume, high-

velocity and high-variety information assets that demand cost-effective,
innovative forms of information processing for enhanced insight and
decision making (Beyer & Laney, 2012). Big data is often described using
five Vs: Volume, Velocity, Variety, Veracity and Value:

- Volume: Growth in data has been exponential. We are no longer

measuring in gigabytes or terabytes or petabytes or exabytes but in
zettabytes and yottabytes (1,000 ZB).
- Velocity: Speed of streaming, processing and decision making is
critical. Automation is enabling real-time processing.
38 Chapter Three

- Variety: Data sources are increasingly larger, unstructured and

more diverse.
- Veracity: Data analytic tools are refining the system and values to
meet data integrity and quality through automation.
- Value: Big data has become the value of change, in its ability to
predict what to produce, at what price, when, how, where and why.

But, which data needs to be analysed? All data that is useful for the
established goal. Online Travel Agencies use customer search when they
prepare a trip: ticket, accommodation, ground transport, visits to
monuments, length of stay in each location, moment of purchase, etc. This
information enables them to create irresistible offers. Normally, it is a
combination of traditional minor or current data obtained through CRM,
for example. They analyse the information to better understand where
customers are more comfortable, what they value and when they are
prepared to pay more; enabling them to build more effective loyalty
programmes. The future of big data is not in the firms that can handle
more data but in those able to collect and extract sufficient relevant data to
achieve specific business goals. As a result, big data analytics (BDA) is no
longer the preserve of large corporations; more SMEs across various
industries are rapidly embracing it. Sports clubs use BDA to help
outperform their competitors; pharmaceutical companies to find the right
elixir; cities of any dimension to solve traffic problems, brick and mortar
stores for better customer management, e-tailers to manage Black Friday
campaigns; banks to open new accounts, or head hunters to find the
perfect candidate.

Data has a relatively short shelf life; anything older than five years is
not very useful (Marr, 2016). The revolution in BDA is already underway
and is transforming how businesses organise, operate, manage talent, and
create value, and is now at the centre of every core process. This way data
and analytics should flow through the whole organisation to become useful
and transformative information (Henke, Libarikian y Wiseman, 2016).

The coding phase of data requires a well-managed plan with clearly

defined objectives of innovation; the selection of the right tools, the
common language and teams; payment of costs; timescale for
implementation, taking into account the capacity of the company to
execute the plan and the value it will contribute to the business culture.
Big data cannot be treated in a conventional way if it is to be successfully
processed.
 Data, Metrics and Algorithms 39

Companies must analyse data according to their type, which can be

categorised as follows:

- Structured data: Information stored in well-defined schemas with a

consistent order such as traditional databases, spreadsheets, tables,
templates, log files, CRM, ERP, or machine generated sensors. It is
easily processed by data mining tools.
- Unstructured data: Is raw and unruly, with no fixed pattern, such
as: emails, text files, PDFs, social media posts, digital images,
videos, audios, mobile data, satellite images, radar or sonar data,
traffic signals, website content.
- Semi-structured data: This type lies somewhere between the two.
While it does not conform neatly into a database, it displays some
organisational properties and is more amenable to processing than
the unstructured form. Some types of semi-structured data include:
web pages, blogs, word processor documents, property listings,
legal notices, account holder names, employment applications.

A staggering amount of data, mostly unstructured, is generated by all

our daily digital interactions. The EU produces trillions of bytes of data a
minute, the equivalent of 400,000 DVDs; there are around 1 billion daily
Google searches; every day 300 billion emails are sent, 400 Tweets flood
the Internet, 100,000 hours of footage is uploaded to YouTube; 60 million
TripAdvisor members assiduously post reviews on 200 million hotels,
restaurants and establishments; 33 million photos are uploaded to
Snapchat, WhatsApp, Facebook or Instagram; and 17 million online credit
card transactions are conducted daily.

We could add to the list telephone calls, Wikipedia updates, signals

and content from sensors, servers, security cameras and other public and
private digital security devices; biometric data such as fingerprints, retinal
scan, facial recognition, DNA, responses of emergency services, geolocation
signals, electricity meters, audience meters; telecommunication files, tax
details; Social Security transactions; education centre registrations; bank
account analysis, policies; traffic flow; traffic light; toll roads; pollution
detectors, the volume of rubbish; Uber and Airbnb bookings and reviews;
CRM, ERP and conventional databases of private and public entities, fed
from their own sources, surveys, invoices, followers or lovers, as in the
case of Inditex, Amazon, Coca Cola, Nestle or Mercedes, among others.
More and better information can be captured if we add information from
the IoT or large data management corporations—Oracle, Google and
40 Chapter Three

Apple—or mobile technology, smart RFID microchip implants, electronic

tattoos for the throat and eyes, password pills, or brain chip implants.

The first set of big data is obtained from own conventional sources and
then a more sophisticated search is conducted: transactions (88%), log
files (73%), events (59%), emails (57%), social media (43%), sensors
(42%), RFID scanners or POS terminals, free-form text (41%), audio
(38%), geospatial data (40%) digital images or videos (34%) (IBM, 2013).
In the analysis of structured data, the Malayan telecommunication
company Celcom, belonging to the Axiata Group, used analytics to obtain
deeper customer insights and preferences in real time. The immediate
result was a reduction in new campaign launch time by over 80% and
improved campaign performance by more than 70%, which, in turn,
increased campaign return on investment (Ballboni, Finch, Rodenbeck y
Shockley, 2013).

The use of online data and its subsequent exploitation for other
purposes require the deployment of a combination of operational and
analytical technologies that work hand in hand. The most popular BDA
and storage platforms today are Hadoo—an open-source framework for
distributed storage plus the related software packages of HBase and
Cassandra; Neo4j a graph database; and IBM Netezza a data warehousing
platform.

In the analytical phase, interrelating and cross-referencing data

provides an important insight. It is pointless to have a great deal of data if
they are not interrelated. (Valencoso, 2016). Hardware and software
platforms have evolved into sophisticated flexible structures of Business
Intelligence that can intake, process and manage the increasing volume,
velocity and variety of today’s data (Ballboni, Finch, Rodenbeck &
Shockley, 2013). The process for exploiting data is conducted in the
following manner:

- Identification of what the business needs to know in order to

achieve the specified goal.
- Prediction, which is clarifying the intention.
- Association, understood as the combination of different variables.
This is developed in three stages: introductory analysis (visualise
the available indicators), in-depth analysis (drill down into a few
select indicators), and the global analysis (expansion of the mining
to all accessible datasets, regardless of source and format).
 Data, Metrics and Algorithms 41

- Clustering, to identify similarities across a set of specified

characteristics.
- Decision trees, to develop diagrams of logical constructs.
- Algorithms, to predict magnitude values.
- Neural networks, to solve classification and regression problems to
predict a continuous magnitude (López, 2012).

Multivariate data analysis, cluster analysis, classification, regressions

and other systems help find relationship between values, consumer
attitudes and behaviour, in order to create segments and build predictive
consumer behaviour models. There is a range of excellent online resources
to create powerful visual intelligence, some of the popular ones being Data
Analytics, Data Visualisation, CartoDB, Google Fusion Tables, iCharts
that extracts data from Excel and Google Drive, and Tableau public. They
offer multiple visualisation options: graphs, tables, maps, images,
diagrams (interactive or animated).

The end result of the analysis is to generate quantifiable knowledge to

solve the problems identified, synthesising the data into a comprehensive
snapshot of customer preferences and demands, to better understand
customer interaction both present and future.

Key to the analytical phase is the algorithm that simultaneously uses

algebra, astronomy, mathematics, logic, computer science. From the
simplest (recommendation algorithms identify a shopper’s interest in a
type of book based on music purchase history) to more complex ones such
as figuring out the type of car and features a customer wants; to a simple
operation—the instruction manual of an interactive navigation app, such as
Waze—to more complex solutions as real estate valuation. In the past, you
needed to hire a qualified real estate appraiser to get an estimate of the
price and corresponding expenses, now companies, such as BBVA Valora,
offer free instant online valuation. BBVA acquired the start-up created by
Madiva Soluciones, headed by Juan José Divasson.

This new business model, like many others that are proliferating, is
possible thanks to algorithms. It takes into account all the big data related
to the property (size, floor level, date of construction or renovation,
technical specifications, neighbourhood), the general state of the economy
and any other factor that could affect the estimated price and the building
plot. Along the same lines, several companies are exploring the possibility
of a digital travel ticket that will combine flights, accommodation,
42 Chapter Three

restaurants, shops, tickets for museums, urban transport; validated by

biometric recognition, like fingerprint, allowing cash-free and crime-free
travel.

Recruiters are increasingly using algorithms in the screening process.

The type of algorithm used here is called a greedy algorithm, which makes
the best optimal choice at each stage. The selection of a candidate is based
on a sequence of steps combining certain factors, to create a shortlist of the
top candidates for the next stage. By contrast, it is not so easy to find an
algorithm that can identify the profiles of potential consumers of a specific
product or service based on the analysis of millions of data.

The algorithm is the most sought-after formula today since it is what

transforms data into actions. It has become a key piece in enabling new
business opportunities or consolidating existing businesses. It is able to
reproduce human behaviour and consumption patterns, and even able to
uncover inconceivable and unexpected behaviour. Additionally, machines
can expand their human capabilities by being trained. The Google
algorithm—the algorithm par excellence—gives us relevant and
instantaneous results based on keywords by sorting through the data on
billions of websites.

Google uses a series of algorithms to rank web pages based on

trustworthiness, credibility and authentication of the data used. It first
analyses the words in the query to interpret spelling mistakes, synonyms
or antonyms, translates language, selects images, icons or videos, executes
routes and indicates the fastest route of access. Google are constantly fine-
tuning their algorithms and evolving their ranking systems to deliver better
results for more queries.

But, there is a dark side to algorithms, as exemplified in the 2010

“flash crash”, when the Dow Jones Industrial Average nosedived nearly
1,000 points in a matter of minutes, triggered by an automated algorithm,
specially modified by a rogue trader to issue a gargantuan false sell order
in a short space of time. We are also now seeing algorithms being used in
the film industry to predict box-office success, as in the case of the eagerly
awaited superhero film Batman vs Superman in 2016. Weeks before its
release, researchers at the University of Iowa predicted a 32% probability
of turning a profit. The predictive model took into account various key
success factors such as the cast, director, plot, genre, and release date, all
of which were then plugged into a machine-learning, data-based algorithm
 Data, Metrics and Algorithms 43

for analysis, and used on every film released in the United States from
2000–2010. Maybe the prediction was not that far off the target, as while
the film did make money, it was a bit of a commercial disappointment
considering the tepid reviews and mixed audience response it received.

As a method or technique for making decisions, algorithms are not

new. In fact, they have been around for 3 millennia; but it is only recently
that they have emerged into the limelight and attracting substantial interest
as a strategic and valuable business tool for predicting opportunities and
challenges. Conventional market research has up to now been based on
two methods: qualitative (focus groups and the Delphi Technique) and
quantitative (opinion or market surveys). The Delphi Technique is an
expert survey, in two or more rounds, on a specific subject to estimate the
likelihood and outcome of future events. So, together with the qualitative
and quantitative impacts, the algorithm has added veracity to the target
data analysed, following rigorous processes in addition to methods of
calculation, problem solving and decision making, to which new elements
can be added infinitely either manually or automatically.

The result is obtained by performing a finite group of organised

operations, using data as raw material (numbers and non-numeric addends,
extracted from different sources). It is important first to understand what
the problem is. The next step is to declare the chosen data in the notation;
then the formula to be used is specified, the process follows a logical
order. Mathematical rules are established in the form of variables and a
series of sequential steps of logical exploration are followed.

Two commonly used notations to express algorithms are: pseudo code

(an informal language using sentences and key words denoting the inputs
and outputs of the algorithm) and flow charts (to show the sequence of
actions to be executed). All algorithms have a series of assignment
instructions, i.e. variables with specific values: reading (information to
memory); and written (information from memory to output device).

In summary, an algorithm is an explicit step-by-step sequence of

actions based on a problem or goal set out (input) to achieve a result
(output). Most algorithms today are computer algorithms that require a
programming language; an instruction manual and sequences; and coding
and decoding. The computer programme contains the structure, sequence
and layout of the integrated data. The process requires 4 elements:
memory for storage; a processor to execute the instructions; a control unit
44 Chapter Three

that directs operations within the processor; and input and output devices.
Algorithms must be unambiguous and precise in order to execute the tasks
assigned, determinist (depending on the data used, the instructions and the
sequence); and finite (guaranteed to terminate and produce a result, always
stopping after a finite time) and can have zero or more input elements to
produce an output. It is also important that they are efficient to ensure they
run as fast as possible and use minimal system resources; in addition to
being scalable (able to maintain the same efficiency when the workload
grows). HABBDE is a fingerprint credit card that lets you pay with a touch
of your finger (print). The algorithm developed for this biometric
verification reads and matches a fingerprint in 4 seconds from among 1
billion people. This is a project of a team of biomedical computer
scientists from the Autonomous University of Madrid, led by Carlos
Asensio.

The two important issues concerning algorithms are related to machine

learning and the incorporation of Sentiment Analysis (SA) in big data.
Algorithms drive search engines, airline routes, stock market transactions,
credit cards and traffic control in many cities. By predicting for instance
the type of book we will read based on our taste in music, it is anticipating
the products we will buy during Black Friday or Christmas. These
operations are totally automated without human intervention, and in
addition to following logical sequences programmed by humans, they are
increasingly creating self-programmed sequences, maximising their
mathematical functions to write their own code. They mimic the process of
learning in humans but without setbacks, limitations or prejudices.

AI scientists are designing safeguard mechanisms that, should a robot

go rogue and start a sequence of actions harmful for the human race or
deviate from the objectives for which it was programmed, it can
automatically shut down. However, the relationship between man and
machine is getting more complex; since, on the one hand, algorithms can
learn by themselves and move on their own impulses; and, on the other
humans are changing the way they think about the world as they adapt to
AI. The most important thing about big data is that it enables the
development of new things without the need for teaching the machines the
functions; however, automatic learning challenges human supremacy as
masters of the universe (Cukier, 2014). In other words, algorithms are
gaining traction and are changing the mental structure of humans and this
is generating greater dependence.
 Data, Metrics and Algorithms 45

Are humans giving excessive power of decision to algorithms? It turns

out that for subjective decisions humans prefer to rely on the advice of
their own kind, but tend to rely more on algorithmic advice when it comes
to objective decisions (Logg, 2016). Susan Leigh refers to a promise of
ethical machines in the sense that a set of ethics for the machines
themselves needs to be developed if they are to be allowed to act
independently (Leigh, 2016).

Algorithms are dependent on data, which are their base and method.
But they include two types of data: objective and analytical from data
mining; and objective representation of emotions—biochemical algorithms
that are vital for the survival and reproduction of all mammals (Noah,
2016)—from feelings and attitudes, on a semantic level. Today programmes
and algorithms are used to track media and social media and are able to
identify individual and group emotions regarding certain policies,
countries and situations, within the field of affective computing. If we
want to understand our life and our future, says Noah, we should make
every effort to understand algorithms, and how they are connected with
emotions. The algorithm is the most important concept of the twenty-first
century. For the time being, these algorithms are scarce and expensive.
Few experts teach them and most of them work for large corporations.
 CHAPTER FOUR

LIFESTYLES

As we have already seen, the customer journey map (from initial

consideration for a product or service to sharing the experience online)
provides deep insight into behaviours, emotions and motivations. From a
business point of view, the actions to develop along the different paths
should be personalised as much as possible to suit the specific customer
persona. Rather than just limiting segmentation to the conventional
demographic-based criteria of gender, socio-economic status, education,
religion, race, etc., it should encompass lifestyle and psychographic
characteristics. That is grouping people by affinities—attitude to life, daily
routines, relationships, products and services used, food or leisure
preferences; in other words, segmenting by behaviours, values, attitudes,
interests, emotions and lifestyles.

A good example of lifestyle segmentation is the Amadeus Future

Traveller Tribes Survey that projects present lifestyle trends for 2030. For
the study, four important demographic segments of tribes identified for
2020 were used: active seniors, global clans (global migration has spurred
an increase in VFR travel), cosmopolitan commuters (top executives living
and working in different regions in search of a better quality of life), and
global executives (the bleisure traveller who blends business trips with
leisure). As is evident, these groups combine mainly status, purchasing
power and demographics. For the following decade (2030), these four
tribes have been reclassified and broadened to six (Amadeus, 2016).

- Obligation Meeters usually travel for personal, family, religious or

work reasons, around which all other activities revolve.
- Simplicity Searchers just want to switch off from their busy,
stressful lives. They may be money-rich but are time-poor, and may
either outsource the hassle of planning the trip to a third party or
use systems to simplify their choices.
- Ethical Travellers have high ideals and their travel decisions are
shaped by environmental, ecological or geopolitical concerns.
48 Chapter Four

- Reward Hunters are high-achievers, who see travel as a well-

deserved indulgence in compensation for their hard work. They
seek unique, life-affirming, luxurious experiences that transcend
the ordinary. They are into wellness experiences and unplanned
trips.
- Cultural Purists seek to interact in a genuine way with other people
and cultures and to live like a local. They choose off-the-beaten-
path cultural routes especially based on mythological themes.
- Social Capital Seekers. These digital natives understand that being
well travelled is an enviable quality and consider travel to be a
valuable social currency, something to be shared with their online
audiences.

The low-cost phenomenon, compounded by the 2008 financial crisis,

has increased price sensitivity among Spanish consumers, with the
resulting emergence of 4 segments of consumer who are more price-
conscious (Fig. 4-5):

- High-end consumers, who associate their purchases with luxury

brands, although they are increasingly incorporating less expensive
brands. Share for this segment remained steady at 25% during
2009–2013, at the height of the recession, and plunged to 19% in
2017. Although these shoppers are still loyal to their brands, they
now have a wider choice of very good cheaper brands.
- Hybrid consumers, who shop at both ends of the spectrum
(premium and budget). This segment fell sharply from 26.6% to
19.0% in 2013 but climbed back up to 24% in 2017.
- Rational consumers, whose shopping decisions are strictly driven
by “value for money”; this group has steadily risen from 24% in
2009 to 29% in 2017.
- Price-conscious, who are bargain hunters buying only the cheapest
in the market and are prepared to change channels or moment of
purchase. This segment saw a hike in growth from 24.4% to 29%
(Valls Et Al, 2017).
 Lifesty
yles 49

F
Fig. 4-5: Custtomer Type Baased on Price Sensitivity
S
Source: Valls,, Montanera, Labairu
L and P
Parera, 2017
50 Chapter Four

Urban planners are increasingly looking to big data analytics to help

their cities work better. In the specific area of traffic flow, big data
technologies are used to regulate traffic in order to make cities more eco-
friendly. Congestion and air pollution pose significant challenges of
sustainability, health, mobility of people and goods and is determined by
the behaviour of its citizens and public authorities (Vytautas, 2016).
Contemporary cities are now looking at ways to address these issues by
examining a series of considerations, notably: the dialectic between cars
and bicycles or other eco-friendly vehicles; the concentration of tourists in
the city centre visiting buildings and high streets; the location and format
of restaurants, retail, leisure and entertainment venues; the size of
infrastructure; the dialectic between city and outskirts; the expulsion of
local residents from their neighbourhoods due to rising house prices and
speculation. Smart technology and BDA are being used to tackle these
issues, leading to a growing interest in smart city development to make
cities not only green, but also efficient.

A study of European leisure behaviour identified eight leisure types.

The 2011 survey sampled 5,600 citizens from Germany, Belgium, Spain,
France, Italy, the Netherlands and Great Britain. Two factors were used for
the matrix: level of expenditure on leisure or tourism from high to low; and
level of movement from high to low. The latter took into account preferred
activities, allocated budget, average number of vacation days and preference
for travelling alone or in a group (Fig. 4-6) (Valls and Sureda, 2011).

Fig. 4-6: Matrix of European Leisure Types

Source: Valls and Sureda, 2011
 Lifestyles 51

Enthusiast (14.3%)
- Preferred activities: enjoy most activities except sport, recreational
shopping, solidarity and hobbies;
- Characteristics of activities: interested in most things, except
whatever is fashionable and requires commitment;
- Satisfied with leisure activities: high 81.5%;
- Internet usage: high;
- Average annual holidays: 38.5 days;
- Average age: 36.9;
- Male–female ratio: 52:48;
- Professional profile: predominantly middle management and
students;
- Average spend: very low (3.2 out of 7);
- Travel alone or with family, predominantly Spaniards and Italians.

Easy-option (11.5%)
- Preferred activities: hobbies and sports; do not particularly enjoy
shows/events, recreational shopping or social relations;
- Characteristics of activities: anything not relating to social
activities and fashionable;
- Satisfied with leisure activities: 70%;
- Internet usage: low;
- Average annual holidays: 26.9 days, taken in one period;
- Average age: 41;
- Male–female ratio: 35.8:64.2;
- Professional profile: predominantly administrative workers;
- Average spend: 5.25 out of 7;
- Mainly travel alone, predominantly British and Germans.

Restless (11.4%)
- Preferred activities: like events and sports but not tempted by
cultural events, multimedia, have no hobbies;
- Characteristics of activities: like fashion and prefer the process to
be challenging; social relations fall in the medium band;
- Satisfied with leisure activities: 71%;
- Internet usage: low;
- Average annual holidays: 29 days;
- Average age: 46.7;
- Male–female ratio: 46.3:53.7;
- Professional profile: predominantly pensioners/retirees;
- Average spend: 5.01 out of 7;
- Mainly travel alone, predominantly Dutch and French.
52 Chapter Four

Hedonist (11.8%)
- Preferred activities: multimedia, recreational shopping, hobbies, but
little interest in sport. Solidarity–association falls in medium band;
- Characteristics of activities: social relations; like the process to be
challenging;
- Satisfied with leisure activities: 78.3%;
- Internet usage: low;
- Average annual holidays: 30.8 days;
- Average age: 45.3;
- Male–female ratio: 64.5:35.5;
- Professional profile: middle–high education and income bracket;
- Average spend: high 5.47 out of 7;
- Mainly travel alone or with partner, predominantly Belgians and
French.

Sociable (11.2%)
- Preferred activities: culture, recreational shopping, shows and
events, less inclined towards social relations and hedonism;
- Characteristics of activities: personal involvement, less interest in
family activities;
- Satisfied with leisure activities: 69%;
- Internet usage: none;
- Average annual holidays: 16.4 days;
- Average age: 46.8;
- Male–female ratio: 42.7:57.3;
- Professional profile: low education, low–middle income bracket;
- Average spend: low (3.02 out of 7);
- Mainly travel alone, predominantly Dutch and French.

Apathetic 16.6%)
- Preferred activities: hedonism, hate sports;
- Characteristics of activities: not interested in activities and much
less fashion;
- Satisfied with leisure activities: 61.3%;
- Internet usage: average;
- Average annual holidays: 26.5 days;
- Average age: 38.3;
- Male–female ratio: 63.9:36.1;
- Professional profile: low–middle income bracket;
- Average spend: slightly high 5.39 out of 7;
- Mainly travel alone or with family, predominantly English and
Spaniards.
 Lifestyles 53

Individualist (10.2%)
- Preferred activities: action, sports; not inclined to social relations or
solidarity–association;
- Characteristics of activities: not interested if not challenging;
- Satisfied with leisure activities: 66.4%;
- Internet usage: low;
- Average annual holidays: 30.2;
- Average age: 46.21;
- Male–female ratio: 36.3:63.7;
- Professional profile: middle income;
- Average spend: medium–low (4.91 out of 7);
- Mainly travel alone, predominantly Belgians and Germans.

Committed (12.9%)
- Preferred activities: recreational shopping, solidarity–associations,
and multimedia, little interest in cultural and sports activities;
- Characteristics of activities: interested in whatever is in but a with
low level of personal involvement;
- Satisfied with leisure activities: 78.6%;
- Internet usage: low;
- Average annual holidays: 29.4;
- Average age: 51.9;
- Male–female ratio: 42.4:57.6;
- Professional profile: high education, middle–high income bracket.
Pensioners and top executives;
- Average spend: high 5.47 out of 7;
- Mainly travel alone, or with the family, predominantly Italians and
Spaniards.
PART II
 CHAPTER FIVE

CUSTOMER TOUCHPOINTS

Gone are the days of the traditional funnel concept where businesses
pushed their products at a specific price in a physical channel. In today’s
digital, data-driven world customer engagement is the name of the game,
and marketing must embrace the end-to-end customer experience lifecycle
from the initial awareness to the post-purchase relationship. The
marketplace is no longer something isolated offline or online, but involves
a whole spectrum of online and offline channels that has to be permanently
connected to the customer and managed if the transaction is to be
concluded successfully. These multiple channels, although convenient for
the customer, are not always profitable. Tunguz reckons that customer
acquisition costs (CAC) have increased dramatically over the last five
years, by approximately 65% (Tunguz, 2017). The cause is most likely due
to fierce competition and saturation of channels. As a company grows, the
initial customer acquisition channel becomes inefficient and each new
marginal channel has a higher CAC. Maintaining an ongoing, meaningful
relationship is the only way businesses can hope to survive in this
extremely competitive market. The majority of customer journey
abandonments, regardless of whether there has been an incident, has to do
first, with the disconnect between the value proposition and the actual
product/service; and secondly, with the frontline interaction—employees
and offline and online customer service.

Reams have been written about this new reality: Chias entitled his
bestselling book El Mercado son personas (People make up the market)
(Chias, 1991); Sobejano claims the market is “conversations” (Sobejano,
2016). The market is the meeting place of everyone with everyone else, be
it physical or virtual. Anyone can list, search or broker offerings of
products, services, access to use, borrowing & lending, swapping, prices
or platforms, and produce a transaction and the connection. Nowadays,
customer contact requires an ongoing relationship and continued dialogue.
The customer is no longer the subject of the purchase but has become a
partner, an ally—someone who participates in the whole process. A bond
58 Chapter Five

is established during the relationship, and beyond. Whether they like it or

not, companies must accept that they are no longer in the driver’s seat, and
that customers know as much or even more about what interests them,
when historically it was companies that solely interpreted and defined
customer interests.

The moment of truth has become micro-moments of truth. Acquiring

new customers is no longer a matter of luring them in when their guard is
down and selling them a product, but maintaining and nurturing a long-
term, mutually satisfying relationship. Customers do not want problems;
they want excellently processed actions that help them satisfy their needs
or aspirations. Be it physical or virtual, the contact has to be stress-free,
decisive, fast, easy, whether it is via personal contact, signage, or any
other ad hoc form of technology.

Although customers may know the nature of the product or service, it

does not necessarily mean that they are familiar with it. There is no reason
to assume a frequent flyer knows the check-in process, the route through
the airport, bag drop off, seating assignment, security control, the
embarking and disembarking process, on-board food & beverage offering,
the vicissitudes of the journey, transport from the airport or the exceptions
of a change in ticket or seat, or flight delays, lost connections or accident,
etc. Nor should they be expected to understand the language of the
company, which should adapt to customers, providing them with
information and accompanying them.

“Can I have a draught beer please” a customer asks the waiter in a bar.
“You mean a half pint” the waiter answers. “I want a draught beer”, the
customer replies. What does it matter how the waiter or the bar calls a
small draught beer? The customer expresses a desire and it is the waiter
who should interpret the order, not the other way round. The customer can
react in the following ways:

- Indifference: The action leaves no impact.

- Dissatisfaction: Customer expectations not met, causing a loss of
interest in the product or service and a search for an alternative one.
- Satisfaction: Customer expectation similar or slightly higher than
service received, which could possibly lead to some degree of
loyalty.
- Surprise or delight: Customer expectations far exceeded.
Momentarily, the product or service becomes the benchmark but
 Customer Touchpoints 59

there is the danger that the seller cannot guarantee in the medium
term, the high expectation created unless it is highly competitive.

Call centres are notorious for poor customer experience due to long
wait times, unresolved issues, and the number of useless questions, leading
to one of the first two reactions described above. The low level of
technical training and motivation on the part of call centre agents, as well
as the habit of subcontracting, outsourcing in addition to job instability all
serve to convert these moments of truth in barriers in the customer
purchase journey. The same applies to stores, banks, insurance companies,
automobile dealers, etc. where the seller rather than being customer-
centric are oriented to production, the company, operations and business
hours. The brick-and-mortar or online store should create a reliable and
trustworthy post-purchase customer service structure to provide ongoing
support along the entire purchase journey, and available across a range of
communication channels, such as phone, email and social media. The shift
in strategy from reactive to proactive customer support has now become
imperative. This means anticipating and addressing common customer
issues and questions or helping them to troubleshoot existing issues, rather
than explaining the sales pitch, perception, or experience the seller has of
the product. Many FAQs fall into the reactive category. There is too much
tech speak, fine print, cryptic language and unfulfilled promises.

In addition to security, presence and proactivity, moments of truth in both

physical and digital interactions with the customer require:

- Accessibility and interest, never apathy, slights or air of superiority.

- Attention and empathy, never evasive or scripted responses.
- Professionalism and credibility of frontline staff, who we must not
forget are right at the very touchpoints where the brand collides
with its customers and can ultimately make or break the customer
experience.
- The mood created, displayed by posture, gesture, smile, eye
contact, tone and pitch of voice, courtesy and its virtual equivalent.
- The ability to handle very simple to very complex matters. In both
physical and online environments, all questions must be fully
answered.
- Personal commitment. There should always be someone available
to act on behalf of the company.
- Customer experience, in line with the brand promise.
60 Chapter Five

- Accompanying the customer, paying attention to verbal cues and

codes.
- Effectiveness and efficiency of protocols.
- Establishment of a bond that deepens and enhances the relationship.

The content of the physical or online relationship with the customer is

the value proposition, which, apart from the product or service includes:

- Clear and concise information on the product benefits throughout

the journey, on the packaging, in the price, in the touchpoints, point
of sale, in the advertising and other elements of customer interface.
This information should be a direct answer and an easily
interpretable structure.
- The accompanying experience.
- Personalisation to match individual needs.
- The context and explanation of the product or service environment,
trends, answers to FAQs.
- Traceability. With maximum transparency, provide information on
the origin and date of production, suppliers, process, features and
properties, benefits and contraindications, certifications, etc.
- Commitment to ethics and solidarity. For instance, in 2016 the
Russian supermodel and philanthropist, Natalia Vodianova,
launched in the USA and Canada Elbi, a micro-philanthropy app.
The idea is to connect do-gooders, especially Millennials, with
charities around the world, making philanthropy a daily part of
people's digital lifestyle. Every day the app features three new
causes/stories and members can decide if and how they want to get
engaged. Whenever users create content in support of a campaign,
they earn points. If they tap the Love Button on someone else’s
creation or the campaign, a $1 donation is sent. If their creation is
loved, they earn points. These points equate to LoveCoins, which
can be spent in the LoveShop to buy products from their exclusive
brand partners: Fendi, David Yurman, Givenchy etc.

All instruments, supports, and even the communication language

should all be aligned with the organisation’s core culture (mission, vision,
values, etc.). This is forged inside the company via communication
identity activities. First of all, management formulates, interprets and
adapts the organisational culture, which is effectively communicated to all
the internal stakeholders to motivate and commit them. Externally, the
culture interacts with customers and society in general via advertising,
 Customer Touchpoints 61

direct marketing, PR activities, media relations, publicity, sponsorship

events, sales promotions, merchandising and fairs and promotional events.

When it comes to communication instruments either physical or

digital, everything is valid. The channel selection should be based on the
most effective for the communication objectives of each specific moment
of the process. Different channels can be strategically combined to
complement and reinforce the message. The following are some of the
common channels used today:

- Emails, SMS, MMS, WhatsApp, tweets, newsletters;

- Websites, e-commerce, mobile devices, apps;
- Social media, including opinion and comparison websites;
- Video conference, online video (YouTube), contact telephone,
switchboards, telephone support, call centres;
- Snail mail, business cards, physical supports (displays, posters,
billboards);
- Clubs and membership cards, loyalty cards, coupons, prizes;
- Media, advertising (both conventional and online), SEM and SEO,
PR activities, viral marketing;
- Offices and branches;
- Stores, technical assistance, contact points;
- Conferences, congresses, presentations, permanent and occasional
exhibitions and events, point of sale promotions (Fig. 5-7).

Traditional media is still very relevant in advertising, especially TV-

spots (associated with well-known celebrities, programmes and activities),
radio or print media. In all cases, an effective combination of print,
broadcast and online channels reinforces the impact of the message thanks
to the synergistic effect. The same applies to POS promotion activities;
PR, and CRM, which is starting to gain a more important role in B2B
markets.

The supports used for both internal and external communication are
traditional print and broadcast media; newsletters, websites, platforms,
social media and apps; corporate events; mobile devices; billboards,
murals, shop windows, street displays, vehicle signage, watches, fridges
and human billboards.
62 Chapter Five

Fig. 5-7: Geeneral Scenariio for Commuunication

Source: J.F
F. Valls
 Customer Touchpoints 63

Modern-day consumers are no longer passive and want to be listened

to; and to build a successful relationship, a two-way dialogue is needed.
Businesses should also focus on improving two-way communication with
employees and other stakeholders.

A critical touchpoint is the interaction with the company’s website

itself, which evidences the brand and is part of the customer experience.
An aesthetically-pleasing, user-friendly, multi-device compatible website
with clear, relevant content and lightning-fast speed is key to a flawless
and enjoyable online experience. Issues like slow loading pages, difficult
to understand navigation, complicated checkout can lead to poor customer
interactions and loss of conversion. The following chart is a framework for
evaluating the communication effectiveness of websites, social media,
blogs and microblogs, forums, aggregators, opinion websites, networks,
video and photo sharing sites, podcasts, and wikis. The criteria used are
key areas that drive effectiveness of sites: Design (usability, aesthetics),
Functionality (search, personalisation and security), and Value for the
Customer (content, product information, support, accessibility, customer
service and corporate information) (Fig. 5-8).

SITE 1
GENERAL TOTAL 0%
1 Design 0%
1.1 Usability 0%
Navigation Easy, intuitive, complete, coherent
Look & Feel Graphic design
Breadth of coverage of the website and topic
Depth of coverage of the website and topic
1.2 Aesthetics 0%
Aesthetic appeal Visual quality
Clear and intuitive Aesthetic functionality
Consistent look & feel in all pages Consistent layout, colour, style
Brand consistency in brand voice (topic, tone)
2. Functionality 0%
2.1 Search 0%
E-commerce Does it have transaction capabilities?
Advance search Offers multiple levels of criteria
Relevant search results Good match of results to the query
Robustness Reliability, interruptions, blocked sites
Speed How fast is the response and load time
64 Chapter Five

2.2 Personalisation 0%
Level of tailoring to individual users’
Personalisation needs and preferences
Oriented to make customer feel valued
Relationship marketing
and special to become preferred brand
2.3 Privacy & Security Policy 0%
Accessibility Visible and easily accessible
Transparency Easily understandable
3. Value for Customer 0%
3.1 Content 0%
How relevant or important content is
Relevant to target audience
to target
Credibility Does the site come across as credible
Product orientation How detailed is product information?
Virality How shareable is content
3.2 Product/service information 0%
Product assortment Breadth and depth of product offerings
Availability and transparency of price Are prices shown, clear, itemised
How often are new products, services
Novelties of product/service
or features added
To help purchasing decision:
Decision-making tools Mashups, geo referencing, comparison
tools
Two-way communication User input, web 2.0 tools
3.3 Support, accessibility &
customer service 0%
Manuals and instructions available Level of tech support
Is there a FAQs page and level of
FAQs
detail
Is there access to a Call Centre,
CRM
contact form, “Call Me Back” button
To serve a global audience (language,
Internationalisation
currency, offering)
3.4 Corporate information 0%
Information on the company/
Corporate information businessman, management team,
annual report
News section for the media with press
Media
releases

Fig. 5-8: Framework for Assessing the Value of Websites & Social Media
Source: Valls, Ouro, Freund & Andrade, 2012
 Customer Touchpoints 65

In addition to asserting the brand identity and detailing products and

services, the website should operate as a continuing user-friendly customer
service tool and a self-service resource to help answer questions and gain
deeper information on the product/service, while enabling them to contact
the company directly. Every aspect of the website should either educate or
engage (or both) and be tailored to the customer’s language and codes.

In the moments of truth, we are seeing innovative marketing strategies

to promote customer engagement; one such strategy being the shift to an
informal tone of communication incorporating emotional icons. Spawned
in the early days of mobile phones, pictograms have become part of the
digital lexicon and are revolutionising language and how we relate to and
understand each other. The humble emoticon has given way to its more
sophisticated siblings, emojis, stickers and GIFs, which are ubiquitous in
the social and message apps of Facebook, WhatsApp, Twitter, Instagram
and Snapchat. These eye-catching images are handy as they are a fun and
fast way of nuancing and enlivening digital communication and creating
mood. Emoji use has escalated across communication channels including
social media, email and mobile push notifications. Brands are leveraging
emojis to create a sort of digital intimacy to encourage higher engagement,
and big names, like IKEA and Pepsi have created their own custom emojis
that can be shared, tweeted, hashtagged and even clicked for a Call to
Action. Social listening and social proof have also become firmly
entrenched in the entire customer lifecycle, with invitations to “Like”,
“React” “Share”, “Comment”, “Recommend”, “Tweet”, “Google+1”,
“Pin”, and today you will find social share and follow buttons integrated
into most websites and blogs.

Gamification is another innovative trend in CX, where companies

employ game-like tactics to drive engagement. The conceptual
development of gamification both online and offline is understood as a
meta language, a mechanism to improve the experience, solve problems,
get feedback on the purchase journey, reduce learning time, optimise
product/service efficiency, dilute boredom and conflicts and also change
behaviour. The competition, metaphors and dynamism make the purchase
journey more enjoyable, compelling and social. Incorporating gamification
in customer touchpoints requires a series of elements (Troyano & Diaz,
2013):

- Mechanics of the game: The basic rules, aesthetics, motivation,

learning and problem solving. The most common rewards are
66 Chapter Five

points, coupons, stickers, levels or ranks, gifting, collections,

challenges. Rewards to employees or customers can also take the
form of service: a free play zone or entertainment area for cultural
activities or socialising, flexitime, etc. or small intangible emotional
or physical rewards, in exchange for opinions.
- Dynamics of the game: The idea and connection between the
system and the participants.
- Components of the game: The players (individual or group).

Depending on their motivations and goals, we can classify four distinct

types of players (Gaitan, 2013), based on:

- Reward, specific benefit expected in exchange for a fun activity;

- Status, the desired aspiration;
- Achievement, personal satisfaction;
- Competition, just for the fun of competing.

In our noisy, over-communicated society, the age-old writing adage of

“show, don’t tell” has become even more important to capture the short
attention span of the modern consumer. Marketers have turned to visual
content to make their message more vivid and memorable. Text combined
with compelling visuals connects faster with the audience and leaves a
long-lasting impression; and is more likely to be shared across social
media channels, than those with text alone. Today’s communication
toolkits are filled with powerful, dynamic and creative tools:

- Product demo is an engaging way to familiarise user with product

benefits.
- Infographics make boring data visually appealing.
- Scribed Animation is short, direct and entertaining.
- GIFs have a strong capacity for virality.
- Online simulation tools empower customers to create their own
scenarios, used in real estate, insurance, travel, etc.
- Multi-channelity—leaving all information sources open;
- Metalanguage for the IoT.

Another aspect to take into consideration regarding the change in

language is exception management. While customers belonging to a
particular lifestyle segment share common traits, when it comes to
customer experience, each one is unique. The perception someone forms
during the “moments of truth” is influenced by multiple factors; and can
 Customer Touchpoints 67

range across the satisfaction scale from great, neutral or terrible. For this
reason, a standardised process should be in place to handle predictable and
unpredictable incidents. Regardless of what happens during the purchase
process, customers react differently and run the gamut of behaviours.
From very demanding to very laidback; very indecisive to those who know
exactly what they want; then there is the very talkative, know-it-all; the
opportunist, out to take advantage of the situation; and finally, the
intimidating customer who is rude and aggressive in his interaction.

Exception handling is not a one-size-fits-all and communication should

align with the brand message. Everything influences the customer from the
tone of voice, use of language, non-verbal cues, even silence. Luxury
brands, for example, must consistently deliver the brand’s promise; thus,
the handling of incidents should match the higher expectations of
consumers of this segment. Consumers of budget products, on the other
hand, have a different set of expectation, and communication should be
adapted to suit.

Customer complaint often can be a blessing in disguise and is a good

example of the change in language. They provide some of the most
valuable feedback data for a company; however, very few consumers
bother to voice a complaint and just walk away and have nothing more to
do with the brand. Complaints should be included in the process of co-
creation, encouraged, documented, filed, analysed and solved promptly
and effectively. A generous and proactive handling of complaints, from
both online and offline interactions, fosters positive attitudes and builds
greater loyalty. The initial stage of complaint-handling requires the
following steps:

- Listen actively to the customer to understand the problem at hand.

- Apologise regardless of whether it is the company’s fault or a
misunderstanding on the part of the customer. Delivered sincerely
and effectively, an apology can defuse emotions and help restore
trust and goodwill.
- Rectify the error completely and if it is not possible, ask the
customer what would be an acceptable solution.
- Assess the cost of losing the customer or receiving negative
feedback.
- Analyse what could have prevented the incident.
- Decode how to guide the customer during the negotiations.
68 Chapter Five

In the resolution phase, efficient companies tend to:

- Offer a fast solution without beating about the bush.

- Be flexible and adapt company rules.
- Be supportive and empathise with the customer to maintain the
relationship.
- Thank the customer for bringing the matter to their attention.
- Learn from the complaints and review processes.

Queues for checkout tills, fitting rooms or to enter an establishment

can be handled as an exception. Spanish shoppers hate queues more than
their European counterparts. In fact, 36% immediately abandon the
establishment when faced with a long queue at the till; 30% feel that with
modern technology there is no excuse for long waiting times. The absence
of queues and the presence of staff to assist customers greatly improve the
experience and positive perception of the brand (Coleman Parkes, 2015).
The average person throughout their lifetime spends five years waiting in
lines or queues—which means it is not surprising that people find it such a
frustrating experience.

A queue is a classic case of demand exceeding supply and is one of the

greatest gripes of customers at brick-and-mortar establishments. Online
shopping can be just as aggravating, due to slow load time, session time
out or website freezes/crashes; or sometimes queuing just to get into a
website, for example during Black Friday sales. For consumers, not all
queues are created equal. All sorts of factors influence how people react to
queues. People would willingly queue to buy fresh churros on a
midsummer night in a charming “churreria”, but will stress during long
waits at the emergency clinic. Intolerance wears thin at government
offices, post offices or a restaurant at lunch time to catch a quick bite.

The immediacy of the digital world has reduced waiting times, or at

least that is the theory. A simple click works wonders and is often the
solution to queuing, but is not without its wait time. The time-lag from
order to delivery for Amazon can be 24–48 hours; some brands only
deliver on certain days and it might be several weeks before the order
arrives at the customer’s doorstep. Cyberattacks are on the rise and entail
not only a security breach but also a disruption in service that can last for
days. Plus, numerous network outages, the need for continuous repair,
slow broadband connection and web servers, network congestion all
hinder online services and mobile coverage.
 Customer Touchpoints 69

Another case in point is the traffic overload experienced by online

retailers during holiday shopping season or limited time offers, like airline
or concert tickets. This overwhelming surge of customers can cause
website outages, significant decrease in page load time, error messages or
transaction glitches. E-retailers frequently use the scarcity tactic to evoke a
sense of urgency and excitement. Scarcity creates the illusion of value,
propelling customers to act now before they miss out on the coveted item.
A limited number of products/services are made available during a specific
time with the promotion ending when they are sold out.

At any rate, queues continue to pose challenges in physical and

telephone touchpoints. Excessive wait or hold times in any point of the
purchase journey create a poor impression of the company and can be the
cause of customer churn. In the particular case of the telephone, despite
newer technologies, lines are still overloaded during peak times. The finite
queue capacity plus the random service time each customer requires
causes bottlenecks in the inbound call centres services of hospitals,
government institutions, and general information. “Call centre”, the very
name evokes frustration. Robotised scripted interaction; inadequate
information; linguistic and cultural barriers of offshore call centre reps;
long hold times; and let us not forget the delightful IVR system (that
dreaded recorded voice that guides you through a maze of options) can all
try the patience of a saint and drive customers away.

In physical locations there are different queuing models to control

customer flow, classified in terms of their number of servers and number
of phases. Each parameter can take two values: single or multi. The server
system comprises customers in a single line, who proceed to only one
server; or to the first available of multiple servers. In a single phase
system, the service is completed all at once, while the multiphase system
requires a series of steps for completion. Today, most banks, airline or
railway ticket counters and post offices are multi-channel service systems.
Different combinations of channels and phases give us four distinct types
of queue management:

- Single Server—Single Phase

- Single Server—Multiphase
- Multi-server—Single Phase (multiple servers acting in parallel)
- Multi-server—Multiphase (multiple servers acting in series)
70 Chapter Five

The departure procedure at the Kinshasa Ndjilli Airport in the

Democratic Republic of the Congo is a good example of a multiphase
system, which involves a series of time-consuming steps: pay departure
tax, show proof of payment, check-in, baggage control, passport control,
security check, access departure lounge, boarding queue, hand luggage
check, aircraft boarding. Each step with its corresponding wait time.

In all the above cases the following considerations should be taken into
account:

- Pattern of Arrivals—random or scheduled through a system.

- Queuing capacity—one or multiple—for the required process and
number of servers—single or multiphase.
- Service time and required resources. It is important to have a
precise estimation of real time of service and possible variations
to automatically apply exception procedures and adjust resources
to suit, e.g.: servers (persons or kiosks) and number of queues.
- Queue discipline—FCFS (First Come First Serve) or SIRO
(Service in Random Order) or Priority selection.
- Quality of service rated to measure experience and competiveness.

Most delays—telephone or physical—can be managed and mitigated

with digital tools. Public document processing, hospital appointments,
visits to monuments and museums, entrance to concerts, cinema, theatre,
sports matches can all be programmed to help shorten wait time and avoid
disorderly behaviour. Queuing forms part of the interaction with the
business and is considered a pain point in the customer experience.
Properly managed, it can enhance the customer experience.

Queue management algorithms monitor waiting times and make

adjustment to queues before wait times become a problem, thereby
boosting customer satisfaction and staff productivity. This can be carried
out by ticketless queuing systems, numbered ticket dispensers, apps, or
even by incentivising off-peak use. The objective is to adjust customer
service time to production or distribution during the whole purchase
journey, especially at key touchpoints. There are several tools available
such as self-service kiosks and ticket dispensers. Virtual queuing systems
notify customers of their turn via in-store LCD displays with queue status,
like the Spotlight app; via digital signage, in-store kiosks, SMS or email.
 Customer Touchpoints 71

While the goal of almost any service provider is to eliminate wait from
the customer experience, often queues are just inevitable; but properly
managing queues not only reduces annoying points of friction, it can
uncover opportunities for customers to positively interact with the brand.
Unoccupied time feels longer than occupied time, so the key is to keep
customers engaged, anything to ease queue-rage.

- Make waiting a memorable and shareable experience like that of

Warwik Castle in London and Birmingham, where at the entrance
a fake Robin Hood distracts visitors waiting in line with his
archery skills.
- Queues in theme parks have become attractions in themselves.
Visitors standing in serpentine lines are entertained by musicians,
hero characters and interactive elements.
- Use clever design and technology to make the line itself
entertaining.
- Use passive upsell by offering inexpensive items for sale, to keep
patrons’ minds off the wait.
- Provide comfort—a place to sit, go to the toilets, have a bite to
eat, look at TV or magazines.
- Provide different types of toys and digital gadgets to entertain the
kids.

In today’s digital world, customer experience is the new battleground

in business, where data is power. Tracking each customer interaction
throughout the end-to-end journey and across channels delivers powerful
customer intelligence that helps drive personalisation and efficiency of the
experience, as well as product innovation. Based on these insights, all
value propositions, products and services must meet a clear goal: satisfy
the needs and aspirations of the target audience.
PART III
 CHAPTER SIX

VALUE PROPOSITION CREATION,

COMPETITIVE ADVANTAGE IDENTIFICATION
AND VALUE CHAIN REINVENTION

Consumers today are spoilt for choice with a mind-boggling array of

products and services on the market, and only those offerings with a clear
and compelling Unique Selling Proposition (USP) will stand out and catch
their attention. These propositions contain values. Values are elements or
reasons (perceived as advantages) that meet the needs and aspirations
better than rival products or services; and are delivered consistently and
effectively along the entire purchase journey and across all channels.

Customers are willing to pay an amount they consider reasonable for

that value. Therefore, value is a quality (or conviction that can work
positively or negatively) added to the features of the product or service,
which will stimulate purchase intent and forms the basis of the decision-
making process. For a satisfactory purchase to take place, the brand values
must match the customer values; and when they both converge the sale is
completed. The company values that drive product or service development
must be evident, rectilinear, sustainable, in line with the price the customer
is willing to pay, and able to generate the desired profit margin.
Additionally, values guide the behaviour of the organisation, reflecting its
interests and sentiments; offer strong guidelines for goals and objectives,
processes and activities, and are translated into the customer perceived
benefits added to the product/service (Fig. 6-9).
76 Chapterr Six

Fig 6-9: Com

mpany Valuess and Consum
mer Values
Source: J.F
F. Valls
 Value Proposition Creation 77

Corporate values are based on social, economic and sustainability

considerations on one hand, and their target market on the other. They are
made up of the personal initiatives of business people and entrepreneurs,
teams, accumulated experience and other inputs from competitors, and are
usually reflected through the management of distribution, post-sales
services, direct training, advertising and sales promotion (Pimienta, 2010).
They are conveyed quantitatively through price, volume of supply, speed
in response to demand, promptness of service, customer satisfaction, cost
reduction; and, qualitatively, through design, innovation, customer
experience, perceived quality, prestige, brand, security and status.

The trick is to know what customers value in a product or service and

adapt it to them. The more value elements provided that resonate with the
customer, the greater their loyalty and the higher the possibility of
sustained revenue growth. Consumer values are either inwardly focused or
functional. Almquist has identified 30 elements of value, grouped into four
major categories (Almquist, Et Al, 2016):

- Social impact: Self-transcendence;

- Life changing: Provides hope, self-actualisation, motivation,
heirloom, affiliation/belonging;
- Emotional: Reduces anxiety, rewards me, nostalgia,
design/aesthetics, badge value, wellness, therapeutic value,
fun/entertainment, attractiveness, provides access;
- Functional: Saves time, simplifies, makes money, reduces risk,
organises, integrates, connects, reduces effort, avoids hassles,
reduces cost, quality, variety, sensory appeal, informs.

Value propositions are developed taking into account the target

audience, the competitive scenario, the distinct benefits of the offering,
differentiation vis-à-vis alternatives, and are reflected in all customer
interactions along the purchase path. First of all, it must be supported by a
sound, clear business model, like that of the coffee giant, Starbucks.
Starbucks controls most of its value chain and still retains a large
percentage of company-owned stores to maintain its culture and brand
value. Their locations offer an inviting and comfortable coffee house
atmosphere with free Wi-Fi, and they have a highly personalised service
with active customer involvement. Secondly, it must be bolstered by a
well-defined positioning strategy. Let us take Airbnb for example; their
business model is based on connecting travellers (guests) with local hosts,
through its online collaborative platform. This value proposition is very
78 Chapter Six

different to that of a hotel, which rents rooms and provides additional

services. Finally, it must be anchored by an evident competitive advantage
and efficient value chain. IKEA’s competitive advantage lies in its ability
to offer a vast range of thousands of products comprising flat-pack
furniture and accessories for home and office. Customers can do their own
pickup and assembly or get it delivered and assembled for a fee. They are
able to attain and maintain these competitive advantages by tightly
managing their value chain to achieve their desired objectives.

The business model, positioning and competitive advantage require the

creation of a business plan with an innovative strategic proposal
(understood as the set of ambitions, goals and objectives of a company);
an analysis of its ability to attain the goals, and finally, the allocation of
available resources to meet those goals. The proposal is developed within
the company—aligning its knowledge, competencies, resources and
potential with the innovation objectives that clearly establish the scope and
timeline. The plan must also address a number of seemingly simple but
tough questions: who is the target audience; what is expected to be gained;
what resources and activities are required for implementation; how can
they be achieved; how can objectives be tracked and measured; what
innovations are needed to offer more value; and how to reduce cost, while
maintaining or increasing value.

All of Porter’s competitive generic strategies promote cost leadership,

although only one of them specifically mentions it. Reducing production
costs to produce cheaper in all product ranges is now the common
denominator of firms, as it has become the main benefit perceived by all
types of customers. The impact of prolonged austerity, combined with ease
of internet price comparison, has changed shoppers’ approach to spending.
Bargain hunting is now the norm and consumers are willing to wait for the
best offer. For two thirds of European consumers, price is no longer just
another variable; it is the ultimate deciding factor. The retail phenomena of
the US-invented Black Friday and “Singles’ Day” started by Alibaba in
China have become important dates in the calendar of hard-core bargain-
seekers and strategic consumers alike, attracted by the opportunity of
massive savings. The discount-driven culture is shaping consumer
behaviour and has become the scourge of retailers across all sectors, and at
both ends of the price spectrum. Today, discounts, deals, sales,
promotions, or coupons (via traditional or online stores or outlets) are the
drivers of sales, which weaken in the absence of discounts. Over the past
fifteen years, the price–quality relationship (high price infers high quality)
 Value Proposition Creation 79

has been eroded and replaced by value-based pricing, which has paved the
way for consumers to attempt to pay less than the reference prices.

Hence, those companies not constantly investing in process innovation

to reduce costs are going to immediately lose competitiveness. Such is the
importance of price-sensitivity in this new age of consumer frugality that
the final sale price—not the asking price—defines most generic strategies.
Cost leadership means producing or selling cheaper than competitors,
including dynamic pricing strategies. Companies that pursue cost
leadership usually standardise their processes through economies of scale;
learn from their experience curve; exploit customer co-creation to adjust to
their needs; leverage their technology, labour and logistics resources; re-
order productive factors; and establish different relationships with external
or integrated suppliers to produce new just-in-time products. In brief, they
shorten the value chain. More importantly, they are constantly reinventing
their business models to deliver value propositions better aligned to
customers’ evolving value perception and the price they are willing to pay
at all times.

Therefore, based on the common denominator of cost reduction,

companies can opt for one of the following generic strategies:

- Price Strategy:
x Low-cost pricing, targeted to the budget or mass market. Supply
highly standardised or no-frills, high-volume products. Costs
are kept to the minimum for budget products; and features are
pared down to the basics, for no-frills versions.
x Premium pricing, targeted to high-end, exclusive and luxury
markets. Will try to keep production costs as low as possible,
using cheap labour, maintaining acceptable standards in raw
materials and processes. The difference with the previous
strategy is that they invest more in brand positioning and
medium- and high-value features for specific target audiences.
Products that command premium prices are usually unique and
have some bonus or exclusive feature, for which the customer is
willing to pay a higher price.
x Mid-range pricing, targeted to the middle band of the consumer
market, applying one of the above strategies.
x Multi-price, applies the previous strategies according to
demand; for own manufacturer brand or for private-label brand
for different distributors. Today the majority of manufacturers
80 Chapter Six

are specialising in different markets and price segments, thereby

leveraging excess production capacity. The same occurs with
retailer brands; depending on their positioning they decide
whether to carry other cheaper or more expensive brands.

Depending on the product, target market, industry, and business, these

strategies all require certain factors, such as innovation, differentiation,
brand management, perceived quality, design, and a wide array of features
currently in demand or being developed. However, each of them will
develop their propositions based on their customer values, according to
their needs or aspirations. As such, they will clearly define the benefits of
the product or service; select the features; design the experience, emotions
and level of exclusivity; choose the type of distribution channel (multi-
channelity) and establish the type of possible customer loyalty. These
strategies will achieve leadership in some aspect (technology, price,
logistics, etc.), which will reinforce the competitive advantage.

- Focus Strategy: This strategy targets a very specific under-served

audience, in a niche market, geographical area, or product line. The
aim is to become the leader in a very narrow segment by producing
offerings that serve those unique needs better than other brands that
compete on price and a large portfolio. The advantage lies in
physical or virtual location, creating very high entry barriers,
keeping abreast of technological advances, and harnessing the
cross-selling synergies of other areas of the business.

Competitive advantage is the factor that enables companies to deliver

products or services that satisfy customer needs better than others. Core
competencies and critical success factors are the features, assets or
capabilities generated by the company to provide value to customers and,
when effectively implemented, can lead to a difficult to imitate strength.
Which is why they must be unique (different to the existing ones), difficult
to emulate (to avoid competitor imitation) and replicable (transferable to
other business areas or patentable).

Competitive advantages are underpinned by distinctive core

competencies that allow companies to outperform others in certain areas
and are difficult to imitate. Customers easily recognise this superior
quality, since they appear spontaneously in favourable and clearly defined
positions. The fashion retailer Zara, the flagship brand of the Inditex
group, has the competitive advantage of offering in all their stores trendy,
 Value Proposition Creation 81

fast-fashion clothes at affordable prices. Amazon’s competitive edge is

being able to deliver online purchases in 24 hours; while Ikea’s is the
ability to keep their massive stores stocked with thousands of SKUs on
display and ready to be picked up or delivered. Google’s strength resides
in its talent management strategy—recruiting and retaining the best talent,
by promoting a relaxed and playful work environment and offering
attractive benefits to boost employee happiness and productivity. These
advantages are developed and maintained by continuously innovating—
with or without technology—in the experience curve, internationalisation,
logistics, pricing, or modification of productive factors; and are reflected
in the combination of resources, processes and competencies to achieve a
competitive edge by having superiority in the following areas:

- Product excellence (in value, sales turnover, brand equity,

the most useful, cheapest, most expensive or with the best
value for money);
- Customer intelligence (having deeper knowledge of needs
and profitability of target segment by maintaining excellent
customer relationship, harnessing BDA for customer journey
insights, developing proprietary algorithms to tap into data);
- Highly skilled team (recruiting top talent, ongoing training,
alliances, own patents, infrastructure, processes and
technology);
- Sustainability (ongoing innovation, adaptation to local
culture and customer demands).

Although core competencies tend to erode over time, they can endure
if they are adapted or transformed to match each stage of the product life
cycle or market. In order to protect their competitive edge, incumbents
need to erect high and defensible entry barriers to retard or inhibit the
arrival of invaders. A competitive advantage does not necessarily mean
providing the best option but delivering benefits perceived and valued by
customers, and can sometimes endure even when said advantage
disappears. Clothes sold under the “Made in Italy” branding still evoke in
the consumer’s mind the quality and cachet associated with Italian design,
although they are made in China.

Sustaining both value proposition and competitive edge requires

refining or reinventing the value chain. Customers form their values
from personal and social maturity. Creating and conveying value requires
the successful alignment of all the people, activities, actions, supports, and
82 Chapter Six

institutions directly or indirectly involved in the production, with the

customer. In this way, each player contributes maximum value for the
least possible cost to the corresponding link, thereby maximising the
operation. To create and convey real value, it is imperative to understand
what the target customer perceives as value, the competitive environment
of the target market, the level of integration of the company’s activities in
the ecosystem, critical production, legal, institutional and social factors.

The value chain analysis is a strategic tool used to maximise efficiency

and profitability by analysing the value created and captured, the cost of
creating that value, and the resulting profit. It examines the cost/value
relationship of each link in the chain to detect cost-saving opportunities by
either improving internal activities or outsourcing jobs; and to address
inefficiencies by substituting or modifying unproductive links. The entire
value chain reflects how value flows along all the steps of the chain, and
serves to uncover possible value leakages, strengths and weaknesses, and
identify sources of competitive advantages.

We have adapted Porter’s generic value chain model to the modern day
digital environment and to the customer purchase journey, as follows:

- People directly or indirectly involved in the whole range of value-

added activities from the supply of raw material and production
right through the end-to-end customer journey (pre-purchase,
purchase, customer relationship management);
- Procurement activities (obtention of raw material, production, etc.)
and those carried out internally or outsourced (assembly, distribution,
logistics, customer relationship);
- Enablers such as innovation, technology, resources, knowledge and
talent or the match with customer values;
- Support activities, such as the company structure and management.
Pre-production process: relationship with suppliers, transformation,
wholesalers and retailers. Production process: operations, marketing
and markets and support services, such as planning, finance,
accounting, HR departments. Post-production process: direct online
or offline distribution, through wholesalers or retailers; loyalty and
customer retention schemes and customer relationship management;
- Institutions within the macro environment of the business, such as
government policies, fiscal system, sectorial associations, purchasing
and services cooperatives, lobbies, accreditations, etc.;
 V
Value Propositiion Creation 83

- Profiit margins takiing into accou

unt the triple bbottom line (eeconomic,
sociaal and environnmental impacct of all the p roduction factors (Fig.
6-10)).

Fig. 6-10: Vaalue Chain

Source: [Link]. Valls
84 Chapter Six

Modern firms these days tend to focus their most valuable resources on
the core business activities and outsource whenever possible the non-core
functions. A very useful way of outsourcing is to form strategic alliances
with leaders (in technology, customer contact, fast response time,
production, or distribution and others), which could add immediate value.
For instance, many large international hotel chains are taking the asset-
light route by divesting their properties to focus on the less capital-
intensive operator activity of guest management. The proceeds from these
divestments will enable them to grow their portfolio of management
contracts and expand the presence of their brand. Tech giants speed up
their market expansion by acquiring start-ups, or forging strategic alliances
for collaborative learning; or, food distribution and manufacturing
companies pool their knowledge resources to co-develop new products.
 CHAPTER SEVEN

PERSONALISED PRODUCTS, MULTI-PRICING,

MULTI-CHANNEL

A customer value proposition (CVP) encompasses the benefits of the

product or service itself, the emotional experience, the hospitality and the
brand image, which enhances the perception of the company and product
portfolio.

A product or service comprises a complex bundle of tangible and

intangible attributes (benefits, features, uses and functions). There are
three separate yet closely related components to every product or service:

- The core product is the most basic level and delivers the core
benefit the customer is seeking. A car for example, be it hybrid or
electric, provides specific functions of transport and is different to
a motorbike or truck.
- The peripheral component is dependent on the core product. For
the car, it would be the steering wheel, the wheels, the online or
offline sales channel, etc.
- Ancillary benefits round off the other components, which—while
not essential—enhance the value. Again with the car, it would be
the leather upholstery, the wheel trims and other features of the
car.

Each manufacturer or distributor tailors the core product with the

appropriate mix of peripheral and ancillary benefits to suit the perceived
value of the target audience. So, we can distinguish between luxury, basic,
or economy products, based on the number and quality of attributes, and
the combination of production factors, experience contents, and brand.
Through innovation, elements are added or removed; new functionalities
or utilities incorporated or hybridised with others to transform them in new
products, which can end up competing with not only other different
products but other businesses as well. The Uber ride-sharing app is
86 Chapter Seven

steadily encroaching on urban taxi businesses and threatening the

livelihood of the traditional taxi industry worldwide; the same can happen
with driverless or autonomous cars and the monetisation of technology for
other uses.

Manufacturing requires natural resources; different types of suppliers;

machine-based transformation processes, techniques and technology;
talent; manual labour; and capital resources. The finished products are
then packaged and distributed to the end consumer via their portfolio
channels. Natural resources (raw materials of plant, animal, mineral, or
chemical origin, and energy) can be unprocessed, semi-processed, and
processed and assembled for the final product. Innovation entails sourcing
alternative, cheaper or substitute raw material that can be more appealing
to customers than conventional ones. Globalisation affords access to
sources of cheap raw material and energy; but it has unfortunately
unleashed a new power struggle for the control of these resources, which
is likely to increase inequalities among nations.

We are seeing a growing trend in collaborative supplier relationship.

Today’s competitive landscape is loosening the arms-length relationship
manufacturers and distributors have traditionally had with their suppliers;
and enlightened companies are adopting a more cooperative approach.
Just-in-time management philosophy became widespread in the 1980s in
the Japanese automotive industry. This lean approach of large automobile
makers of synchronising the delivery of inventory from suppliers to actual
production demand is becoming prevalent in other industries, with the
resulting emergence of strategic partnerships in the form of the exclusive
supplier, or integrated supplier, as Mercadona calls them. This exclusive
supplier works solely for the company and enjoys a deep relationship in all
aspects, including joint innovation. The reason for exclusivity is to
guarantee an uninterrupted flow of raw material, semi-processed,
processed, or final products, as well as to ensure that the predetermined
quality is maintained. Very strict parameters ensure a mutually beneficial
relationship over the long term.

Transformation processes in industrial warehouses are managed by

people using machinery, techniques and technology, and are constantly
evolving to keep up with supply chain innovations. Alliances with
technology companies, consultants, or owners of licences and equipment
offer avenues for cutting high operation costs that many companies are
unable to afford; and outsourcing, offshoring and networking enable
 Personalised Products, Multi-pricing, Multi-channel 87

economies of scale that would be otherwise impossible to achieve in-

house.

Over the past few decades, the quest for ever-cheaper sources of labour
has engendered a stampede on the part of Western countries to offshore
their factories in lower wage countries. The slave wages of Bangladesh’s
or India’s female factory workers, who toil gruelling hours to produce fast
fashion, are reminiscent of the sweatshop wages of the Manchester or
Liverpool textile industry at the end of the 18th century and beginning of
the 19th century.

Multinational garment companies, for example, need places like India,

Bangladesh, China, Malaysia, Mexico, Morocco or Brazil for low-cost
production. It is not only labour that is cheap in these countries but also
transformation costs, natural resources and raw materials. The collapse of
the Rana Plaza factory near Dhaka, Bangladesh, in April 2013 killing over
a thousand workers, once again exposed the dark underbelly of fast
fashion and low-cost apparel; and came as a wake-up call for the fashion
industry. Under intense pressure for greater corporate social responsibility,
the major clothing brands signed an accord to maintain safety standards.
Western fashion firms contract highly qualified global middlemen. These
in turn subcontract numerous regional or national representatives, who
receive orders for designs created in the parent companies, with strict
production targets, shipping deadlines and fixed prices. Fierce price
competitiveness is what is really putting downward pressure on wages for
unskilled labour; any other price would upset the established balance.
There is cutthroat competition from low-cost countries to win these
international contracts, the cornerstone of their economy and a vital source
of foreign currency. The Bangladesh government is proud of their fast-
paced GDP growth—over 5% for the past years, reaching 6% in 2016;
however, the question is whether the best workers, in these conditions, can
break the vicious circle of poverty in which they are trapped. For, despite
registering strong economic growth, it has been unable to generate
sufficient decent work opportunities to lift families above the poverty line,
and Bangladesh still remains one of the poorest countries in the world.
But, the textile multinationals claim that this is a matter for international
policy makers. The vicious circle of poverty, based on the international
division of labour, will be broken only when the ethical demands of
western consumers erradicate neocolonial or modern day slavery practices
in developing nations that allow these subsistence wages, on which ultra
88 Chapter Seven

cheap fast fashion is heavily reliant. On their part, consumers will have to
be willing to pay more to avoid sweatshop-made garments.

Many multinational textile companies are already re-thinking the idea

of producing at such low costs. Morocco, Brazil, some Mexican states, and
Eastern bloc countries produce at a higher cost for the international market
and the quality of their labour force is better regarded; in addition,
outsourced garment production is also spurring the local fashion industry.
Higher quality, together with proximity and lower transport costs, is
reshaping the global production map. The rising implementation of
robotics increases the need for access to highly skilled talent to conceive
and develop value propositions and to create new ones; and this is found
exclusively in the first world. This means the process starts off here, the
goods are produced there and return to the starting point for massive
distribution of a wide array of products; and if a product fails it is
immediately replaced by another. In the case of cheap fast fashion, some
brands develop portfolios with more ephemeral products (Decathlon) and
others more enduring (Inditex).

Nowadays, no sector is immune from heavy competition and the food

retail industry is no exception. In the past, the functions of production,
portfolio management and point of sale were clearly defined; today, they
are intermingled and blurred. Manufacturers would sell their goods
directly through their own channels or through retailers. They knew how
to interpret the needs of consumers, offering them well known brands to
satisfy their refined tastes. But, thanks to the customer insights that
retailers are gaining through their daily contact with them, a new brand
ecosystem has emerged: that of private labels (based on different value
propositions, low prices and shared or exclusive suppliers) that are giving
name brands a run for their money. The dividing line between both are
becoming more blurred, so much so that some manufacturers produce for
others (be it for private label or name brand) and manufacturers of well
known brands, less known or unknown brands become suppliers of part of
the value chain of other brands, or provide turnkey products, for both
manufacturers and retailers. There is a proliferation of generic products
(today any one can produce a food product with a minimum standard of
quality) that can be adapted to the specifications of each brand portfolio.
Not only is this formula advantageous for retailers, but it provides a good
opportunity to manufacturers to optimise excess capacity.
 Personalised Products, Multi-pricing, Multi-channel 89

Bargaining power depends on the different product categories or food

subsectors. Nevertheless, partnership is now the name of the game, and
manufacturers and retailers alike are increasingly establishing alliances to
manufacture and sell products to boost their competitive edge and to
respond to gaps in the market. Nestlé and Mercadona have joined forces to
re-launch the Nutricia condensed milk, popular in Spain in the sixties and
seventies; the el Pozo brand produces deli meats for Dia and Lidl
supermarkets; Lactalis, from the Puleva Group, produces dairy products
for the Dia, Eroski and Corte Ingles supermarkets; Font Salem, from
Damm group, has been supplying Mercadona with beer for years and is
now doing the same for Lidl, Dia and Eroski; finally, Valor produces
chocolate for El Corte Ingles stores (El Confidencial, 2015).

All these brands have one thing in common: constant innovation to

anticipate and respond quickly to identified demand. Direct customer
interaction enables them to predict needs and desires to provide exciting
value propositions with tangible benefits; have flexible value chains; and
shorten shipping times to stores or directly to the consumer.

Experience is an interactive, multidimensional process generated by

the company, which stimulates the physical senses or the emotions,
dreams, involvement, and memorable beliefs of the customer; enhances
the product; and has a significant impact on customer satisfaction and
loyalty. The tangible or functional element of the product or service is just
one side of the story, just as important is the experiential dimension that
surrounds it, and can be a determining factor. Delivering an enjoyable and
frictionless experience across all touchpoints and channels leaves a
positive impression on customers; the opposite happens if the interactions
are negative. The absence of a customer experience management (CEM)
programme also affects negatively as it can leave the customer feeling
undervalued.

Experiences create emotional bonds with the customer. Apart from the
positive contact, it enhances brand recall, builds recognition and notoriety,
modifies behaviour, inspires enthusiasm and brand advocacy. Good CEM
drives revenue growth, reduces churn rate, and captures new customers
through positive buzz or referrals.

Customer experience is shaped by four key dimensions. The first is the

price/quality ratio, that is customers perceive the product or service as
offering good value for the price they are willing to pay; if not, it is
90 Chapter Seven

considered expensive or not up to their expectations and they choose

another. The second is the product itself that, once the desired functional
benefit is delivered, is enhanced by the experience. The third is the service
that supports and amplifies the product. The fourth is the emotional
element, which elevates the experience from satisfaction to delight and
enthusiasm and lasts throughout the relationship (BCG-Dec, 2014).

Customer Experience Management in organisations is a recent

practice, and those companies that have undertaken CEM initiatives have
enjoyed measurable success, in some instances reaching a 70-90%
increase in revenue (BCG-DEC, 2014). In terms of level of adoption,
organisations fall into five categories:

- The beginners & laggards (10%): CEM does not form part of their
culture or current planning, but they are taking timid steps to
capture and analyse these experiences.
- The collectors (33%): Collect but rarely quantify data and circulate
findings within the firm. They are starting to address the matter but
the impact is still modest.
- The analysers (27%): Collect and quantify a great deal of data and
transfer it to the corporate culture. They generate meaningful
insights and promote some improvement initiatives.
- The collaborators (24%): Capture and analyse CX data and carry
out specific actions in response to the customer, and develop
improvement plans.
- The transformers (6%): Carry out the full circuit—capture, analyse,
distribute to the firm, execute the actions and incorporate them into
the corporate culture. Customer experience is at the heart of all the
company’s activities.

Customer Experience Management starts with the connection with

customers throughout the purchase journey: listening to them, and using
touchpoints to influence them. The Maslow’s hierachy of need model is
used as inspiration for developing customer experience programmes. The
more sophisticated and intense the aspiration and experience the higher up
it is in the hierachy. For example, the Planta18 pyramid of experiences
model places at the bottom tier those activities with a low level of
experience but with a broad audience and multiple touchpoints (online and
offline, POS and advertising; street and shopping centre events; B2B or
B2C fairs online and offline). As you move up the pyramid the quality of
the experience increases but reaches a smaller audience: a one-to-one
 Personalised Products, Multi-pricing, Multi-channel 91

experience on home turf or in a unique place, conventions, volunteering,

factory tours, or pop-up or brand stores. What is interesting about this
experiential marketing pyramid is that it correlates the ability to impact
with the number of opportunities to interact with the customer (Planta18,
2016).

McKinsey also uses a pyramid model to measure customer experience.

The first tier is organisational and cultural foundation, which is none other
than change management, putting the customer at the core; the second is
the journey analytics and KPI’s; the third the assesment of the experience;
while at the uppermost echelon is the customer experience metric linked to
the business outcome. Along levels 2, 3 and 4, employees use the
customer experience to identify operational improvements opportunities.
(McKinsey Quarterly, 2016).

Throughout the entire customer engagement life cycle, every

interaction offers an opportunity for the brand to engage with the
customer; it is therefore critical to deliver a consistent, high level of
satisfaction and positive experience across all the online and offline
channels available. The most common channels used (which affect the
experience) are emails (77%), telephone calls to an agent (63%), social
media reviews (52%), websites (43%), interactive voice response (IVR)
(35%), customer focus groups (28%), POS (23%); snail mail (19%), apps
(14%) and SMS (12%). (Deloitte Digital, 2016).

Many factors work together to deliver a powerful and memorable

customer experience that engages all the senses: a pleasant, comfortable,
and hassle-free environment; problem recovery—neutralising negative
aspects and turning them into positive ones; atmosphere created by other
customers (a reasonable number of like-minded customers); and amenable
and helpful support staff. A successful CX programme should:

- Communicate through animation, infographs, symbols, emojis both

online and offline;
- Send product updates, providing preferential information and gifts
or coupons to their mobiles, home or point of sale;
- Complement the information through advertising, website, social
media, apps and sponsorship;
- Use creative advertising that conveys the values of the brand;
- Involve the customer with physical or online guided tours of
production and distribution centres; with participation in circles of
92 Chapter Seven

co-creation and innovation, which includes visits to events: arts,

culture, museum, ethnic, heritage; sports shows/activities, fitness,
gastronomy, incentives, etc.;
- Host events: online or offline trade fairs, internet forums, webinars,
exhibitions, conventions, workshops, meet ups, seminars,
conferences, meetings, fieldwork, etc.;
- Contact the customer through marketing initiatives in the street,
online, show windows, in-store or in the factory, with pop-ups and
displays, exhibitions, dramatisation, music, audiovisuals, promotions,
product sampling, etc.

Depending on the nature of the content, experiences are based on four

perspectives. The first is related to self-discovery, spirituality, roots,
culture, art, literature, shows, music, theatre and entertainment. The
second has to do with well-being, relaxation, balance, self-actualisation,
aesthetics, beauty, gastronomy and sports. The third deals with self-
improvement, information, training, reading, and creation. Finally, the
fourth is in connection with relationships: meeting with friends, social
media chats, congresses, meetings and incentive travels; breaking out of
routine, travel, meeting other people; trying out exotic and unknown
things. These four aspects are closely intertwined, and the most satisfying
experiences usually have a mixture of all four. No two customers are the
same, and people react differently depending on their own personal values
and the moment, hence the growing tendency towards personalisation.

Hospitality has become a deciding factor in customer purchase

decisions, not only at the point of sale but also throughout the entire
purchase journey, and is now an inseparable part of the experience. The
concept of hospitality is associated with the predisposition of the consumer
to seek greater satisfaction derived from the expectations of a better
service, and firms can accomplish this through rigorous quality control and
customer experience management, applying specific business concepts
(Valls, Parera and Labairu, 2016). The attributes usually associated with
the luxury industry in offline purchases have now been integrated as key
elements in business management throughout the whole purchase journey,
namely: delight; quality, service efficiency, aesthetics; loyalty; trust;
commitment with consumers and the creation of close customer bonds;
and the transmission of corporate values. At the entrance of the Clinic of
the University of Navarra, the slogan which defines their business model is
displayed: “Treat, care and accompany the patient”. Hospitality is at the
core of everything. This same philosophy can also be applied to brick-and-
 Personalised Products, Multi-pricing, Multi-channel 93

mortar and online stores, NGOs, consultancy firms, boards of director, etc.
A survey carried out on the La Roca Village (LRV) outlet mall on the
outskirts of Barcelona measured the impact of hospitality on the shopping
experience, using two indicators:

- Soft: level of service received in the stores and the reception area;
atmosphere based on the number of shoppers; and wait time in the
various services, in the reception area, in changing rooms, in
restaurants;
- Light: pleasant shopping atmosphere, sense of security; welcome in
the village; signage; information; exception management;
languages spoken by frontline staff and adaption to culture of each
visitor; state and cleanliness of toilets; quality of internet
connection; and accessibility & car parking facilities.

The hospitality criteria that received the highest ratings were the fact of
finding similar types of shoppers; the absence of crowds in the stores and
queues—meaning shorter wait time; the quality of service; the presence of
some type of surprise element; pleasant surroundings; a sense of welcome;
signage; information; accompaniment; resolution of problems; adaptation
to language and culture of the buyer; and finally, security, cleanliness,
transport, accessibiity and connectivity. Hospitality was positively rated
(3.07), and the global experience exceeded expectations (3.29) and
influenced the choice of this shopping destination over others. The most
important conclusion of the survey was that a better perception of
hospitality generates a higher average spend. Shoppers in LRV spend on
average more than their Barcelona city counterparts: 14.3 times more on
entertainment, 3.7 on shopping, 1.3 on accommodation and 1.2 on food
and beverages (Valls, Parera and Labairu, 2016).

The brand reinforces the product/service, the experience and

hospitality, it is the promise to customers. It encompasses the entire value
proposition, protects and shapes customer perception about the firm and its
product portfolio. The brand is a sign, symbol, design or combination of
all, which through an elaborate structure makes it easier for the buyer to
identify the offering, and transmits value thanks to its recognition and
notoriety. It serves as protection and functional support, copyright, and
differentiation. People have too many choices and too little time—a strong
and trustworthy brand saves the consumer decision making and time, gives
them peace of mind, and reduces the risk of disappointment. Iconic brands
also act as status symbols. There is also an associative side to brands, as
94 Chapter Seven

they form part of a specific combination of products. It is the external

reflection of the features of the product, and the company’s competitive
advantage. It has become a stable support of high added value, which is
etched in the consumer’s mind.

The brand is the semantisation of the product or service, the experience

and hospitality and has become the mental representation for the customer.
It reflects a significant part of the value proposition: the information,
compelling and relevant idea, social image of the firm, source of
credibility, ethical commitment of traceability, and permanence of the
attributes. At the same time, it serves as a guarantee of satisfaction of
expectations, differentiation, positioning, as the basis of internal control,
and driver of repeat business. The brand is not a symbol that belongs to the
company it is a feeling and perception that belongs to the customer.

Four challenges need to be addressed in brand building. The first is

organisational: a brand-nurturing structure is required with clear guidelines
to ensure that all products align with the brand values and corporate
image. The second challenge is the brand architecture that involves
identifying the brands to be supported and clarifying their role and
relationship to each other: sub brands or endorsed brands and umbrella
brands (which encompass the whole portfolio of products generating
synergies among them). Third, the brand identity (its positioning vis-à-vis
competitors and aspirational image) should differentiate the brand and
resonate with customers. The fourth is the development of an efficient and
measurable brand-building programme, which implements and defines the
brand identity using the right communication tools. Properly executed, it
can boost brand relevance and notoriety (Aaker and Joachimsthaler, 2000).

The name, typeface, symbol, sign, colour, voice, music, slogan,

narrative or design are visual or verbal elements of identity, which when
combined, make the brand unique and memorable. There are also
supporting visual elements such as packaging, labels, co-branding and
other alliances that reinforce the attributes of other notorious supports
(people, physical, ideas, etc.). Just as the right combination of these
elements communicates a powerful brand image, the absence or
inappropriate combination detracts from the brand image.

To define a brand portfolio management strategy, it is essential to first

define the role of the corporate brand for the customer and investor;
second to align offerings with the needs of the target market; the third step,
 Personalised Products, Multi-pricing, Multi-channel 95

to clearly distinguish the type of pricing for each one; and finally, to order
the product category and service offerings for each one, which helps to
better understand the positioning (Ellwood, 2010). While strategies tend to
follow strict guidelines to be effective, it does not mean that brand
management should be rigid, since brands themselves are highly dynamic
and exist in a rapidly evolving environment of new customer needs and
aspirations. Moreover, depending on the moment or channel, customers
expect more diversity of features; hence brands must be agile and
responsive if they wish to thrive and not disappear (Smith, 2010). This
constant need for brand innovation is a consequence of a new scenario.

In the traditional scale of status consumption (Goldsmith, Flynn and

Kim, 2010), the values of prestige, authenticity, innovation, exclusivity,
experience, loyalty and involvement were found in the apex—the area
populated by the well-known brands. In the lower echelons were the non-
brands, cheaper and generic brands. In this new age of price sensitivity,
those attributes no longer correspond to the upper reaches of the scale but
are to be found scattered all over. This means offering a value proposition
at a price the customer is willing to pay for. If the customer wants to buy a
high-end car, the price would be €75,000 brand new. However, the same
car can be bought for less at €50,000, €42,000 and €29,000 if it is a demo
car, second hand, third hand or more. The model is the same, the make is
the same but certain aspects become less meaningful and not worth the
high price tag and the customer decides to trade down. In spite of that, the
quest for authenticity, exclusivity, the latest innovation, the most intense
experience or perfection, far from declining, remains unaltered, even in
times of financial crisis. The reason being that luxury appeals to
customers’ highest aspirations, and rests on three pillars:

- the promotion of this relevant value proposition (with the

competitive advantage based on these aspirational needs);
- the establishment of rigorous production processes, which take into
account these values and are able to create clearly defined products/
services, even though they were produced in the same place as
other propositions;
- the development of a relationship with the customer throughout the
shopping journey, which contains clearly differentiated brand
value, experience and intrisic emotions like hospitality—extended
obviously to the point of sale and distributor.
96 Chapter Seven

Although the market for habitual consumers of luxury goods has

shrunk, the market growth for luxury products has seen a surge driven by:
sporadic luxury shoppers as well as luxury tourist shoppers. Both of these
consumer groups are vital for the health and longevity of the luxury
market. The challenge is identifying their purchase journey. It used to be
much easier to manage the purchase journey of traditional luxury
consumers than the erratic shopping patterns of these new consumers.
When and why a shopping decision is made by someone who rarely
consumes luxury? Among certain groups of tourists, it would seem that
the answer would be easier, but it still remains elusive even with big data
analysis. Perhaps the application of an algorithm will be able to shed some
light.

While the aspirational cachet of elitism and exclusivity is still the

raison d’être of the luxury goods sector, the recent years have witnessed
the democratisation of access to luxury, with brands marketing to a
broader spectrum of consumers. Just as years ago, plane travel was
considered exclusive, now everything is accessible at a certain price/value
ratio. Rather than a move towards the banalisation and destruction of
leading brands by reduced pricing, there is a rapid shift towards production
where is it is possible to offer value at varying price points, thanks to the
re-organisation of production, cost reduction in the whole value chain, and
especially the elimination of features not valued by customers. Owning a
luxury car is now within the reach of the average citizen, who can opt for
purchasing a pre-owned or used one at a more palatable price point.
Companies have now become holdings with extensive product portfolios
to broaden their consumer reach; however, excessive brand extension runs
the risk of damaging the brand integrity and contaminating the rest. In any
event, it is crucial to have an iconic brand (luxury) to provide equity to the
rest.

As if branded manufacturers did not have enough problems coping

with this new pricing pressure; they now have to contend with the high
rate of private label penetration. It is becoming increasingly more difficult
for manufacturers to use their entire production capacity for their own
brands, and today the path to growth is through private-label production or
alliances with retailers for the allocation of favourable shelf space. A new
scenario is playing out in this viciously competitive market where
manufacturers are building multi-brand portfolios with multiple price tiers,
through different channels.
 Personalised Products, Multi-pricing, Multi-channel 97

The universe of big-name brands remains strong, judging by the

healthy growth of the luxury market; but, in the past few years we have
seen the proliferation of new brands for both name brands and private-
label budget brands. The emergence of the empowered consumer with new
needs and aspirations has given rise to a much broader price spectrum,
which can be categorised as follows:

- High-end, luxury and premium labels commanding steep prices.

This segment is made up of traditional luxury shoppers who are
frequent consumers of brand-name products.
- Fast-premium, heavily discounted premium labels found in-store or
in outlets. This segment comprises traditional high-end shoppers
who relish a good discount, or rational shoppers.
- Mid-range, the most affected by the recession. This segment is
propped up by hybrid shoppers.
- Basic range, for rational shoppers who can purchase what they need
without frills.
- Budget range, for the price-conscious bargain hunters, who are
prepared to switch channels or the time of purchase (Fig. 7-11).

Apple is a shining example of great customer experience and has

elevated customer service into a science. Their customer journey is based
on a digital product with a high experiential content and hospitality
criteria, prevalent in all their retail locations and totally different to
competitor stores. Stellar customer experience is the driving force behind
their business model and sets them apart from competitors, enabling them
to command much higher prices for their devices. Apple excels at
managing the end-to-end experience that shapes the customer journey
(pre-purchase, purchase, use and post-purchase): easy-to-navigate and
compelling website; conveniently-located and clutter-free stores,
welcoming, patient and knowledgeable staff; in-store demo units for
sampling; minimal checkout times; in-store problem-solving and training
sessions; and intuitive and beautifully designed products. The iconic Ritz
Carlton is another brand synonymous with exceptional customer
experience. All their hotel products and services including the hospitality
experience are backed up by their service excellence culture. All Ritz-
Carlton employees are trained in the use of their worldwide CRM system.
They are also encouraged to observe guest behaviour and input expressed
and unexpressed preferences to enable the company to customise service
to the liking of guests whenever they visit any of their chain hotels.
98 Chapter Seven

Fig. 7-11: New Product and Brand Scenario

Source: J.F. Valls

Despite the spate of discounting to attract business and the growing

preference for online shopping, high-end goods and stores that deliver an
elevated personalised experience are less vulnerable to price-sensitivity
 Personalised Products, Multi-pricing, Multi-channel 99

than others. They offer the value that the customer seeks, surrounding it in
a halo of perceived exclusivity that justify the hefty price tag; nonetheless;
luxury shoppers are as keen on discounts as anyone else. This is where
alternative incentives to price reduction come into play—free upgrades,
extra services, attractive sales or shipping terms, small exclusive gifts,
surprises or little details. Today’s discount-driven shopping culture has led
to the widespread use of confusing and misleading promotional pricing
tactics by retailers, who advertise reference prices that they never charge
in practice. Everything is cheap. Everything seems to be cheap. Reversing
this situation is dependent on the ability of manufacturers and retailers to
clearly set the offering in a specific price/value range and establish the
right conditions for the transaction. Instead of discounting, value can be
added by “giving away” something that does not hurt profit. Done right, it
can also enhance the experience the customer has of the transaction and
the company.

The product or service, the experience, the hospitality and the brand
make up the value proposition, which acquires a positioning in the mind of
the consumer. It should therefore be consistent throughout the end-to-end
customer purchase journey.

We have moved from single to multiple pricing. Before, pricing used

to be linear, and the formula worked. The heftier the price tag, the higher
the perceived value of the product and brand. There was a time when the
retail landscape was populated by only a few big-brand names, and those
who could not afford them resorted to unknown non-brands in other stores,
markets, flea markets. But that all changed when a few nimble upstarts
decided to upset the status quo by producing and distributing copycat
offerings not too dissimilar to those of established brands, with varying
degrees of innovation, delight, surprise and distinction, but at a cheaper or
much cheaper price. They even mixed the attributes of the branded goods,
their stores, channels and tribes. Pressure on household incomes during the
economic downturn in 2008 forced consumers to shop more intelligently,
resulting in a shift in attitude towards more affordable products,
particularly in the consumer goods sector. This retail trend started to be
replicated in other sectors, which resorted to wooing customers with lower
prices. While discounts are useful to bolster sales, they should be deployed
sparingly and strategically. This rampant price slashing we are seeing
today, not only wreaks havoc on the bottom line but conditions customers
to purchase only if they are getting a great deal. It has now reached a point
where consumers no longer want to pay full price for anything anymore.
100 Chapter Seven

The Singles’ Day shopping festival has become not only the biggest online
shopping event in Asia but also the biggest on the planet, eclipsing the
American and European Black Friday. In 2011, the e-commerce giant,
Alibaba, turned an obscure celebration of China’s singletons into a 24-
hour cyber shopping spree, with thousands of international and local
brands offering deep discounts. In just hours, sales surpass the combined
sales of several months.

In Western countries the two major end of season sales periods are
winter and summer; but, promotions and discounts can be found all year
round via off-price stores that are flourishing both online and on the high
street. Consumers’ appetite for discounts shows no sign of waning and
they will go to great lengths to find a good deal. The driver of consumption
ends up being the opportunity to score a good deal. Has the reference price
become meaningless and is just a pipe dream number that exists solely for
the purpose of anchoring? This seems to be the case today in many firms.
The conventional cost-plus technique (adding a mark-up to costs) is no
longer valid for calculating the selling price, which ends up being reduced
in the maelstrom of the distribution system as new and cheaper channels
emerge.

Our world today is plagued by overcapacity and overproduction, as a

result of globalisation and the access to low-cost production centres, which
has added a tremendous amount of manufacturing capacity. Overproduction
in fact increases the cost of the product since excess inventory has to be
ultimately offloaded in secondary and third markets. So, it turns out that
goods are manufactured at one price and end up being sold at a lower
price. The worst part is that it can wind up in the same distribution channel
and cannibalise its full-price counterparts, apart from diluting the brand.
Crafty customers know they can get it cheaper if they wait or go
elsewhere. The proliferation of second, third and umpteenth discount
channels in the last decade has reduced the price for consumers but has
had a twofold adverse effect. First, while production costs go down
channel costs go up. Secondly, it creates confusion in the consumers’ mind
as they try to match their internal price/value reference with the existing
offering. This uncontrollable race to produce willy-nilly, without taking
into account actual customer demand is having devastating effects on
emerging nations, in terms of people and raw materials. It generates
infinite inventory, which ends up driving prices down, through the same or
new channels. This hastens promotions, clearance sales and discounts
throughout the year, creating a scenario of permanent sales. Although sales
 Personalised Products, Multi-pricing, Multi-channel 101

volumes have increased, profit margins have been shrinking. The food
production and retail industry is still on the rise globally; however, global
food prices have been falling over the past five years—1.5% in 2016
(FAO, 2016). The positive side is that some margins that have been
historically excessive have softened, but the price is no longer the result of
the adjustment between buyer and seller, but the element at the service of
retail at each moment.

Price setting is one of the trickiest areas of business, and getting it right
dramatically affects the bottom line. Of the four key profit drivers (price,
volume, variable cost and fixed cost) price is the most effective. Profit is
very sensitive to changes in sales prices. For instance, if we take the P&L
of an S&P 1500 company, a 1% price increase generates an 8% rise in
operating profits (provided sales volume remains constant and assuming a
fixed cost of 19.2% and variable cost of 68.3%); but it works both ways, a
1% drop in price would trigger an 8% decrease in profit, if all factors
remain steady. (Mann, Roegner and Zawada, 2003). Conventional pricing
models, based on costs, competitor benchmarks or demand are yielding to
more contextual dynamic pricing strategies. To be effective, the strategy
should be based on product/product and product/market in relation to the
value of each customer. To implement a pricing strategy in the digital and
global era, organisations should: harness the power of big data and
advanced analytics for real-time information on the price customers are
willing to pay in any given point in time; manage and negotiate the price
lists in the whole value chain; develop greater pricing visibility; automate
the business rules in the entire value chain; and use indicators to improve
the process (Accenture, 2014).

In the old days, there was a more simplistic approach to pricing:

customers were given only one option, and that was full or list price, with
seasonal clearance discounts or the occasional promotion. Although there
are still a few fortunate brands (usually luxury or premium) that command
full price with very rare discounts, the retail sector has been forced to
adapt pricing to a new hostile playing field, in a state of flux and
characterised by highly price-sensitive and demanding shoppers. This has
given rise to a wider range of price options:

- Basic or no frills (strip away non-essential features);

- Markdown (periodic sales during the year);
- Off-price or outlet (permanent discounts);
- Auction (buyer places a bid);
102 Chapter Seven

- Freemium (product or service free of charge, for which someone

else pays) (Fig. 7-12).

Fig. 7-12: Price Options

Source: J.F. Valls

The concept of price based on customer willingness to pay (WTP) has

paved the way to dynamic pricing. Dynamic pricing is closely related to
revenue management (RM), the mission of which is usually to maximise
profit through the optimisation of inventory and matching it to the right
customer at the right time and at the right price. RM is most effective in
those firms with a relatively fixed capacity, perishable inventory, high
fixed costs, low variable costs, predictable and seasonal demand, varying
customer price sensitivity that allows selling the same product at multiple
price points, all this in conjunction with the ability to act fast. Revenue
management began in the airline industry and quickly caught the attention
of the hospitality and car rental industry. Today it is widely applied in
various industries such as online businesses, golf courses, restaurants,
spas, fitness and sports centres. Revenue management requires the
following actions and processes:
 Personalised Products, Multi-pricing, Multi-channel 103

- Data collection, aggregation and analysis: to know customer

shopping habits and price-sensitivity and their value; to track
competitor prices and forecast current and future market behaviour;
- Clear financial goals: evaluate fixed and variables costs and
assumed risk, to quantify the benefits;
- Forecasting methodology: to apply the right price to each segment,
favouring those segments with the highest growth potential;
- Strategy implementation: broken down by hours, days, weeks and
months and by channels;
- Review of the results: updating data to identify new opportunities.

Transparency is key to a successful implementation of dynamic

pricing—the customer must understand and believe in the logic behind the
pricing. Moreover, the profit factor must not be overlooked—careful
management is needed to ensure that margins are not eroded, leading to
the unsustainability of business. Companies therefore need to make
adjustments such as aligning key departments (marketing, finance,
operations and sales); offering appealing promotions at different times of
the year to attract current and potential customers, while still making a
profit. This is the only way organisations can hope to counteract some of
the distrust issues consumers have towards the system, to guarantee its
viability.

The first big change in the retail and distribution industry came
with the advent of big retail chains that started to compete with branded
manufacturers, through their own store brand labels. In traditional value
chains, distributors were the next link in the manufacturing processes.
Manufacturers branded their own products and sold them either through
their own channels or through retailers to reach the end customer. While
large retail chains have been around since a century, it is only in the sixties
that big retail stores gained traction in Europe, with the arrival of the
French big-box stores or hypermarkets. Two decades later, there was a
heavy expansion thanks to the growth in consumption and mergers. With
the arrival of the new millennium, large retail groups and hard discounters
started selling their own private labels, outsourcing production to
traditional branded manufacturers or new competitors. With the struggle
for shelf space and consumers at an all-time high, the war between
retailers and manufacturers is only just heating up. Private-label brands
continue their relentless march towards stealing market share in the
consumer goods sector, where private-label brands first started and is more
prevalent. Amidst ferocious competition, both retailers and manufacturers
104 Chapter Seven

are building a network of alliances to stock shelves with innovative

products. Very few manufacturers, big or small (directly or through
subsidiary companies) refuse to supply private labels.

Retailers operate in an environment where, due to their first-hand

knowledge of consumer demand, they shorten the time between
production and point of sale; create innovative products; and subject
manufacturer suppliers to strict price, process and delivery targets. As a
result, many manufacturers have become exclusive suppliers of certain
retailers. Leading brand manufacturers, on the other hand, develop
products from their innovation systems; use their plant capacity for their
primary brands; with any spare capacity devoted to their secondary brands,
or to private-label production for retailers, who dictate the terms.

The second big change was propelled by suppliers of raw material and
semi-finished goods. In traditional value chains, manufacturers used to
have the upper hand in the negotiation. Now many suppliers of raw
material follow the B2C model, bypassing this link and selling their
products directly under their own brand. This is the case of dairy
cooperatives or groups of farmers, who sell directly to catering companies
or to consumers; or supply their own or other third-party points of sale.
The local food movement or “zero food miles” is gaining momentum
across developed and developing countries. This means that suppliers are
competing in the same market as manufacturers and retailers to reach the
end consumer. The IOU Project is an ethical fashion project created in
2011 under the #whomademyclothes hashtag campaign, in order to raise
awareness of how the clothes were made. Their e-commerce platform
shows the traceability of the clothes along the supply chain. All their items
have a unique QR code that electronically links you to the specific artisans
and craftsman who created the garment. Their slogan is “when you buy
clothes, you buy someone’s time”. Their founder, Kavita Parma, advocates
changing the price/value relationship of consumers. They do not sell cheap
clothes: when buyers see the work and craftsmanship involved in each
piece, their price sensitivity is reduced and they are willing to pay what it
is worth.

Finally, the third disruption in the retail sector is attributed to the

advent of digital commerce. In its infancy stages, there were many
hesitations and concerns with online shopping, and adoption was weak and
limited to big players; but, soon companies the likes of Amazon, E-bay,
Alibaba and Google followed suit. With access to a growing number of
 Personalised Products, Multi-pricing, Multi-channel 105

secure online payment systems that allow for quick, online transactions,
even smaller merchants have joined the e-tailing bandwagon. E-commerce
is gaining momentum and is changing the way traditional stores are doing
business, with major retail chains such as Inditex or Media Markt shifting
towards a clicks & bricks strategy. Of special note is the unstoppable rise
of the sharing or platform economy, which has disrupted old notions about
consumption and ownership. Thanks to big data, algorithms and mobile
apps there is a proliferation of P2P sharing platforms that enable providers
and users of goods and services to connect. While Uber and Airbnb are the
best known examples, there are many other niches where P2P has taken
off, such as fashion, where users can sell used clothes or rent designer
dresses; purchasing groups that negotiate directly with suppliers or brands;
and on-demand professional services where freelancers can connect with
business looking to hire. The rapid growth of zero-mile online stores for
textile, consumer goods and transport companies is indicative of the
inroads this new economic model is making into distribution channels, and
it should not be dismissed as a passing trend. With these new collaborative
consumption formats, users are involved in the creation and functioning
and it can take many guises. For example in Airbnb, the host is at the heart
of the holiday rental service; while in another instance it might be a case of
bartering—painting in exchange for caretaking; or sharing underutilised
assets such as home, vehicles or tools. This new type of collaborative
consumption is expected to account for two to three percent of the global
economy by 2020.

The general changes can be analysed comparing what occurred before

and after digital disruption (Fig. 7-13). Before the digital age, companies
obtained raw materials and resources, manufactured their products and
distributed them through their own stores, big retail chains or small stores.
Digitisation has brought with it profound changes and is upending the
retail world. First of all, the process no longer starts with resources and
raw materials but with the end consumer, thanks to tracking technologies
and BDA, which gives invaluable insights into shopping patterns.
Secondly, omni-shopping is now a reality. Today’s consumer wants to
easily browse for and buy products when and how they want, be it online,
offline or simultaneously. Delivery is also a critical part of the experience;
and shipping costs, convenient delivery and return options can often be a
deal breaker. The most common delivery options are: standard delivery at
a fee or free with a minimum spend; expedited delivery at a fee; and free
click & collect delivery to either a physical store, hub or pick-up point.
Most large offline stores usually offer home delivery at a charge for in-
106 Chapter Seven

store purchases. Thirdly, logistics or fulfilment centres are crucial for both
online and offline businesses, as they are responsible for fulfilment of
customers’ orders in a timely and efficient way. They usually receive,
pick, package and ship customers’ on-demand freight. Fourthly,
manufacturers and retailers are now competing in production. They both
have branded products either through their own production facilities or
through turn-key suppliers. Finally, both groups have access to markets
offering a much wider range of raw materials and resources.

Fig 7-13: The Stages of Product Distribution Pre & Post Digital Era
Source: J.F. Valls

The types of online and offline distribution channels are

- Global brick & click: international retail chain with a global store
footprint, plus e-commerce.
- Local brick & click: operates a few offline stores plus an online
store to serve the local market.
- E-commerce pure players: operates only on internet.
- Pure physical players: geographic footprint depends on target
segment—neighbourhood, city, region, country, and international.
They are more or less exclusive, depending on the number of
 Personalised Products, Multi-pricing, Multi-channel 107

distributors chosen per brand. More or less specialised, depending

on whether it is general or specialist; permanent or pop-up; market
or flea market; within an arcade or mall in the city or outskirts; or
outlet mall.

Though online shopping continues to grow at a fast pace, brick and

mortar—be it malls, high streets, standalone stores or showrooms—is still
very relevant and the cornerstone of retail. For products with an
experiential element, physical stores have the edge over their virtual
counterparts as they lend themselves to an immersive shopping experience
and retailtainment, currently hard to replicate online. There is a wealth of
options available to create an ambience that engages all five senses
(colour, music, soundscapes, scent, visuals, touchscreen kiosks, 3D
holographic displays, virtual reality headsets, interactive storefronts, etc.)
and beckons the customer to feel, taste or interact with the product.
Positive interaction with knowledgeable staff can wow customers and
strengthen the emotional bond with the brand. Furthermore, retail
locations are now seen as destinations—a place of entertainment and
social interaction, or to spot celebrities. While it is true that e-commerce
presents tremendous advantages for both vendors and buyers, it is also true
that e-shoppers are a fickle and impatient bunch that flits from website to
website in the swipe of a finger. In addition to the intense competition
posed by the worldwide web, e-tailers face another threat: distraction. Our
highly digitised lifestyle has shrunk our attention span, which now hovers
around a pitiful 8 seconds. Although potential customers may be interested
in the product, they can be easily distracted by anything (a social media
pop-up, a phone call...), breaking that magic “buy now” moment. So, how
can online businesses grab the attention of consumers with the attention
span of the proverbial goldfish? Engagement and personalisation seem to
hold the key. Gamification, which taps into our competitive instincts, is
increasingly becoming an important part of customer experience in an age
that demands interactivity to capture attention. It is proving to be a subtle
and entertaining way to engage customers along the purchase journey to
keep them coming back for more. In web portals, purchases are
concentrated in a few hours or days after scattering cryptic clues and
signals of the product features across the internet. The customer is also
ensnared by the surprises and emotional or economic rewards attached.

We have classified retail formats into a matrix based on the number of

units stocked and the number of product categories offered.
108 Chapter Seven

- High number of units–low number of categories: resale at

specialised pricing and collective purchasing organisations;
- High number of units–high number of categories: big-box stores,
hypermarkets and virtual stores;
- Low number of units–high number of categories: outlets, general
neighbourhood stores and collective purchasing;
- Low number of units–low number of categories: convenience
stores, big discounters, local stores, market and flea market stalls
and pop-up stores.

Omni-channelity has moved from buzzword to business strategy, and

is now a critical factor in the customer purchase journey. Omni-channel
retailing has its origins in multi-channel, which started in the nineties in
order to interact with shoppers through an assortment of channels. With
the new decade of 2010 came an increasing fluidity and simultaneity of
use of channels and devices, as and when the needs arise—smartphones,
tablets, laptops, desktops, smart TV or physical store. This, coupled with
the growing shift towards customer-centricity, necessitated a more holistic
and unified approach to the customer experience. Unlike those of multi-
channel, which has a siloed approach, omni-channel strategies seek to
build stronger customer relationships by providing channel-agnostic
shoppers consistent and frictionless experiences, as they bob and weave
through channels. Every organisation will have its own set of relevant
channels that make up its unique omni-channel ecosystem. For omni-
channelity to succeed, brands must synchronise and optimise content to
match the customer’s choice of platform or device: emails, WhatsApp,
SMS, Twitter, web chats, social media, mobile and desktops devices,
contact centres, in-store kiosks, portals, wikis, surveys, ticketing,
catalogues, packaging, in-store audiovisuals, apps, traceability prospectus,
RFID clothing tags, billboards and print. It is a question of creating a
univocal, homogenised and silo-less brand vision; however, messages
should be adapted to suit the specific channel, stage of the buyer’s journey,
and type of audience. Uber is a classic example of seamless experience.
The app connects you to the closest driver available, gives you an instant
fare estimate, shows you the driver's picture and vehicle details and allows
you to track their arrival on the map. Payment is automatically charged to
the payment method linked to your Uber account and at the end of the trip
you are asked to rate the driver and give anonymous feedback.

An omni-channel strategy is broad-ranging and complex and should be

deployed prioritising a series of steps. First a brand sentiment analysis
 Personalised Products, Multi-pricing, Multi-channel 109

across all channels and instruments needs to be carried out. This usually
includes feelings, satisfaction ratings, and quality of shares, comments, re-
tweets, replies, ratings or conversations both self-motivated and prompted.
The next step is to prepare how the brand responds to the information, in
keeping with its value proposition. The third is the technological
integration of all channels and instruments to be used. The final stage is
the transparency of the entire process. LEO Pharma has translated their
patient-centric strategy into an action plan through omni-channelity. For
years, the company followed a product-centric and sales-led model. Sales
reps visited physicians, gave them drug samples and the company
provided funding for doctors to attend medical conferences as a form of
training. Today, they focus on the patient environment, through their blog
and increased use of social media to reach and interact with the consumer.
They still maintain their relationship with their prescribers (doctors) by
deploying inbound marketing tactics: content marketing, videos and SEO
optimisation to increase search visibility. The whole organisation is
customer-focused and has seen excellent communication and financial
results (eyeforpharma America Latina, 2016).

The integrated use of channels and communication instruments

presents two major challenges: security and speed. Although advances
have been made in e-commerce security protocols, data breach is always a
looming threat. Moreover, high customer expectation of immediate service
has retailers scrambling to fulfil on-time delivery. This is not always
feasible as supply chain professional are finding it harder to know where
to position inventory, plus the use of multiple shipping points further
complicates demand planning activities. Over time, both these issues will
be addressed as omni-logistics technology adapts to the new scenario.

As we can see, the winding omni-channel path to purchase has an

interesting combination of erratic shopping behaviour and a multitude of
mix-and-match options. A trend that has emerged is Click & Collect or
BOPUS (buy online, pick-up in store). The other variation on click &
collect is webrooming (research online—purchase in-store)—the opposite
of showrooming (browse in-store—purchase online). To put into perspective
the extent of “seamlessness” in the omni-channel shopping experience, we
have classified nine major combinations of shopping behaviour and
fulfilment options:

- Store–store: in-store purchase, customer takes home purchases;

- Store–home: in-store purchase, home delivery;
110 Chapter Seven

- Online–home: online purchase, home delivery;

- Online–drop point: online purchase, free drop-point collection;
- Online–store: online purchase, free store collection;
- Online–home: online research and purchase, home delivery;
- Store–online–store: in-store research, online purchase, store
collection;
- Online–store–online–physical: online research, store trial, online
purchase, store or drop-point collection;
- Online–store–online–home: online research, store trial, online
purchase, home delivery.

3D printing (the creation of real products at remote locations through

the transmission of data) is poised to be the next big disruptor in almost
every industry and will play a prominent role in the supply chain. Apart
from the impact on manufacturing and production processes, it has the
potential to add a whole new dimension to the omni-channel experience
through speed and personalisation. 3DP can give buyers the ability to
personalise products online and send the design to manufacture without
intervention. Further in the future, consumers could actually manufacture
bespoke products on demand, once the printers become affordable, thereby
saving on shipping costs. 3D printing has long been used in the
manufacturing sector to build chairs, aerospace components but is now
being used to create a range of hitherto unlikely objects—from a prosthetic
arm to a gourmet meal—and is transforming the future of construction. An
extraordinary 3D-printed bridge 12 metres long and 1.75 wide has been
created in a park in Alcobendas, Madrid. The Chinese construction
company, HuaShang Tengda, 3D printed a 400-square metre house on-site
in 45 days. Based on a digital 3D design file, 3DP uses an additive
process, which lays down successive layers of material until the object is
created.

Last-mile service is the moment of truth that really matters: when the
package is delivered. It is one of the most powerful legs in the distribution
chain, where customer relationships are made or broken. Get it right and
you have a happy customer and repeat business; but get it wrong and you
not only lose business, but can also receive a backlash of negative online
reviews. The most important last-mile issues occur in home deliveries,
with a high failure rate due to the customer’s absence. It is not surprising
then that retailers are steering customers down the click & collect route,
which is less demanding and avoids repeat deliveries. Today, last-mile
services span a wide range of options for delivery and returns under the
 Personalised Products, Multi-pricing, Multi-channel 111

click & collect umbrella: in-store, drive-through, post-office, temperature-

controlled lockers for groceries and intelligent lockers in tube-station and
other strategic locations. Some companies are tapping into local retail
networks by partnering with convenience stores, bookshops, etc. This type
of partnership is a win-win situation for customer, retailer and partner
alike. For the customer, it avoids the hassle of having to wait at home; for
the retailer, it is an economical way to have a local distribution network;
for the partner, it optimises underutilised space. Even IKEA, whose
business model is not based on home delivery, has introduced strategic
pick-up points in various cities.

Such is the impact of outbound/inbound transportation costs on profit

margins, that it often determines plant location decisions: closeness
centrality to raw material sources, distribution centres and key customers
and markets. Transportation costs take up a significant chunk of overall
logistics spend. The primary drivers of high costs are escalating fuel
prices, which can be nearly 50% of variable costs and the inherent cost of
safety regulations, which has risen to almost 25% over the past years. It is
also compounded by other factors such as delays caused by slow traffic,
deteriorating infrastructure, empty backhaul, border controls or lack of tax
harmonisation. Logistic centres are critical nerve centres that must
interface efficiently with three external groups: upstream with suppliers,
downstream with retailers and customers, and sideways with the wider
organisation. As such, routing & scheduling optimisation is paramount,
whether it uses a straight line, circular, cloverleaf, hopscotch or outer ring
approach. Balancing efficiency and customer service is challenging and
many large companies are turning to advanced web-based software or
algorithms for solutions to route planning.

Four trends are driving the transformation in logistics. The first is the
advances taking place in the development of commercial drones (capable
of making fast and cheap deliveries). Used in tandem with light vehicles,
drones can overcome the last-mile challenges of delivering packages in
congested urban areas or remote districts. E-commerce behemoths like
Amazon are already looking to pave the way with such technology.
Amazon is already testing drone delivery in the UK for payloads under 2
kg and other global corporations such as Google, Walmart and DHL are
developing drone delivery programmes. The urban landscape of the UK is
more favourable to drone delivery than that of Spain as only 14% of UK
residents live in high-rise apartment buildings, as opposed to 66% in
Spain. For delivery to high-rise buildings, solutions being studied range
112 Chapter Seven

from 3-metre-tall mailboxes to rooftop delivery boxes. Combined with

self-driving delivery van drones, like the one launched by Mercedes-Benz,
drones can carry out the last step in the delivery operation land–air.
Anticipating the growth of commercial drone flights, Amazon has
proposed that airspace between 60 and 120 metres above the ground be
reserved for a drone superhighway in the sky to facilitate high-speed
delivery. The second factor is the growing trend in automated parcel
delivery terminals, intended to simplify modern-day logistics operations.
These are standalone units, placed in populous areas such as shopping
malls, grocery outlets and railway stations, which allow customers to
receive and return parcels at their convenience. Thirdly, the widespread
use of mobile devices is fuelling the explosive growth in e-commerce
that—combined with customers’ growing taste for Amazon-style premium
delivery—is putting pressure on retailers to improve efficiency throughout
the supply chain and especially in the last mile. The last is the promotion
of global intermodal connectivity (air, land and sea). A 10% increase in
connectivity equals a 0.5% GDP per capita growth. Implementation of
Intelligent Transport Systems (ITS) enables seamless interconnectivity by
improving the ability to track, trace and monitor goods and their safety
anywhere in the world and along any part of the intermodal chain. We are
already seeing an increasing use of mobile apps for on-board connectivity,
such as the Daily Business Up app by Iveco. Real-time information
provided by ITS systems improves the reliability of the network, reduces
journey times and cost and keeps users informed of the best mode of
transport to use. The overarching goal of intermodal transport is overall
efficiency in the process, in terms of lower costs, speed and higher
security. Freight is transported along different modes under one bill of
lading and the use of intermodal containers eliminates the need to handle
freight when changing modes, thus improving security, reducing damage
and loss and allowing for faster transportation.

Advances in both intermodal and combined transports have been

significant: in the USA between 1996 and 2011 the costs for all modes of
transportation dropped by circa 20%, maritime transportation by
approximately 30%; air 20% and general tariffs 50% (United States
Census Bureau, 2012). However, the presence of numerous national
barriers in addition to those of the sector, have maintained transportation
costs high, impacting competitivity. Digitisation has upended many
business concepts such as books, cds, films or job hunting, transforming
them completely. The physical product has been upstaged by the online
version, reducing costs and the final price. On the other hand, globalisation
 Personalised Products, Multi-pricing, Multi-channel 113

has driven the price of cheaper products up. Shipping and freight costs are
still soaring, surpassing shipping fees billed to customer, as in the case of
Amazon. Faced with spiralling costs, the e-commerce giant is scrambling
to find creative ways to keep them in check as they continue their quest to
deliver goods faster and cheaper. If they are unable to rein in costs in the
medium term, it could spell the end of home delivery, since other bigger
means of transport will cause unsustainable traffic congestion in cities.

Freight transport and logistics is key for European industry

competitiveness and sustainable growth. Research is in progress to develop
a framework for optimal integration of different modes (ships, aircraft,
rail, and big-load trucks) to smooth transhipment operations between
transport modes, modes to warehouses, warehouses to light vehicles and
drones for last mile delivery to stores or customers’ homes. The EU aims
to move towards an integrated transport system, to achieve a 20%
reduction in greenhouse gas emissions by 2030 and 60% by 2050.
Technological advances lower not only environmental costs but also
transport costs in general. Some of the key objectives of the Transport
White Paper are to shift 30% of freight to rail or waterborne transport by
2030 and more than 50% by 2050; triple the length of the existing high-
speed rail network by 2030; and move the majority of medium-distance
passenger transport to rail by 2050. The policy is based on the
harmonisation of regulations by eliminating all remaining barriers between
modes and national systems, easing the process of integration and
facilitating the emergence of multinational and multimodal operators. This
requires substantial resources, diversified sources of funding and
intelligent pricing systems (European Parliament, 2016).
PART IV
 CHAPTER EIGHT

PEOPLE AND TALENT MANAGEMENT

It is clear that the business models we have previously described require a

more diverse and sophisticated skill set to succeed in this turbulent
environment; and enterprises are hard-pressed to find the skills they need
to match their business goals. While that is true, whenever the subject of
talent comes up, the story is much the same: that of the increasing
deterioration of job quality and the difficulty to find companies that truly
value and nurture talent. While each organisation has its own
interpretation of what constitutes talent, broadly speaking, it can be
described as a blend of knowledge (technical and professional); experience
(educational and work achievements); competencies (a set of behavioural
skills); and personal attributes (dispositions and motivations) a person
possesses to competently perform a job or activity within a business
project. Talent is a driving force for business performance and a source of
value creation and, combined with effective training, can contribute to the
success of the project. Unfortunately, it is one of the scarcest, most
uncertain and perishable resources in a company. Just attracting top talent
is not enough. Employers need to fully develop, motivate and nurture key
players to retain them.

Technical competencies cover a wide number of business functions

and activities such as: deployment methodologies, cloud computing,
mobile technology, business processes, data management and analytics,
customer relationship, competitive analysis, to name a few that are
currently in demand. Gone are the days when professionals in any field
could consider their education over. Learning has become a lifelong
endeavour, as technical skill cycles are increasingly shorter and more
demanding. Job functions are now very fluid and can change shape at any
time, and employees who demonstrate flexibility and situational
adaptability plus an ability to innovate and improve methods are highly
prized. Companies, on the other hand, should never stand still regarding
the development of staff. They must regularly reassess competency needs
118 Chapter Eight

for the sustainability of business goals in this competitive environment and

invest in ongoing training to reskill or upskill.

An ever-changing business environment is putting more of a focus on

“soft skills”, as companies realise that, even in the most technical fields,
hard skills are only half the package. Nowadays, jobs require employees
with T-shaped skills (deep technical knowledge and expertise on the
vertical bar of the “T”, complemented by broader soft intellectual and
behavioural skills, and personal attributes on the horizontal bar). Soft skills
can set us apart from robots, and augment robotics and AI, which will
gradually replace manual, routine tasks. The following are some of the
competencies and personal attributes that companies desire, be it for
management, front- or back-office positions:

- Critical and analytical thinking;

- Diagnostic information gathering, problem solving, resourcefulness;
- Creativity, innovation, proactivity;
- Communication and social skills;
- Collaboration: teamwork whether as a leader or participant;
- Judgement and decision making;
- Self-management skills: self-awareness, emotion regulation, self-
confidence, time management, accountability, empathy;
- Customer orientation;
- Negotiation and conflict resolution;
- Cognitive flexibility and adaptability;
- Professional ethics and social commitment, respect;
- Cumulative experience;
- Personal attributes: assertiveness, decisiveness, optimism, positivity,
leadership, initiative.

Among the skills for 2020 identified by the Davos World Economic
Forum, problem solving, critical thinking, creativity and people
management topped the list (WEF, 2016).

During the last two decades of the 20th century, increases in

productivity, the dawn of the digital age and the welfare state coincide
with Adam Smith’s capitalist theory that a nation’s wealth lay not in their
gold and silver deposits but in their level of production and trade. This 18th
century philosopher and other classical economists believed that free
competition and trade would result in the creation of value, which would
lead to self-actualisation and higher social status. This is in stark contrast
 People and Talent Management 119

to Marx’s view of capitalism, which he contended would cause

exploitation of the proletariat by the wealthy bourgeoisie. This way, the
physical and mental labour of workers using production tools—raw
materials, technology and capital—would round off the concept of wealth
in the capitalist era. More work (full employment) meant more wealth.
After two centuries of capitalism, everything indicated that we were
heading towards this ideal. Europeans worked an average of under 42
hours a week (France even attempted a 35-hour week); most enjoyed a
month’s paid holiday (thanks to a social democrat victory in the 1950s);
and after an average of 40 years, retired with a full state pension. At the
beginning of 2000, the outlook was promising—full employment and
shorter work hours, with the ensuing shift from the capitalist work ethic of
industriousness to one of leisure. Other aspects of life started gaining
importance, such as well-being, social and family relationships, work–life
balance, travel, culture, sports and entertainment. Banal activities like
shopping became a form of leisure and entertainment, due to music, gifts,
points, attractions, and cinema in shopping centres. As a result, tourism &
leisure is the world’s largest economic sector.

Unfortunately, the 2008 global financial crisis brought the strong

employment growth enjoyed to a grinding halt and dashed all hopes of
shorter working hours. Was the economic downturn solely responsible for
unemployment and the degradation of job quality? Ortega contends that
perhaps the underlying problem was technological advancement; but,
those developed countries with the highest number of operational robots
deployed in the last years happen to be the ones with the highest job
creation. He backs his argument by the following facts: in the United
States the average wage and full-time employment have both declined
since 1969. Furthermore, from 1975–2013, labour share of GDP slid from
64% to 59% (Ortega, 2016). Many of these negative labour trends pre-date
the financial crisis and the digital era, which only exposed and deepened
existing cracks in the capitalist development system.

Today’s labour market is characterised by a shortage of jobs, and those

that exist are low-paid and precarious, all to the detriment of top talent.
According to the Spanish Office for National Statistics (INE), Spaniards
saw a 10.7% reduction in their purchasing power over the period 2008–
2014, due to the 0.7% drop in the Wage Index and a 10.7% CPI increase.
Those fortunate enough to have full-time employment registered a 2.2%
decrease, while part-time workers suffered a 10.2% decrease. Precarious
work is now the new norm. Many of those who managed to hold on to
120 Chapter Eight

their positions saw their wages decline by 3%. On the other hand, re-
employed displaced workers had to settle for a 34% pay cut in the case of
full-time contracts and 65% for part-time. This translates to an average
loss of purchasing power of 10.4% for stable workers and 25.8% for
temporary employees. Youth and women have fared worst in this job
crisis: youth, because during 2007–2013 they suffered much higher wage
cuts than their older male counterparts; and women, because their growing
participation in the labour market came to a sudden halt. (García
Echagaray, 2015).

According to the International Labour Organisation (ILO), Spain

suffered a 3% decline in their labour share of GDP during the years 2000–
2015. Except for Romania, Ireland, Greece, Portugal and Luxembourg,
other Eurozone countries saw an upward movement in labour share or a
smaller reduction. In this sense, Spain is the country with the highest drop
due to the recession, despite the fact that at the time (2016) Spanish
companies boasted a 13% growth in profits. Spain and the USA had the
highest wage inequality and job loss during the period 2000–2012,
meaning that the inequality gap is widening (ILO, 2016).

Spain has one of the highest unemployment rates in Europe, and at

20%, it stands at double that of the Eurozone. Things are not so rosy either
in the Eurozone labour market, with 10% of the workforce (22m people)
underemployed and another 20% (44m) with part-time employment and
aspiring to full time work, according to Eurostat. A further 10 million or
so are discouraged workers who are actively seeking but unable to find
employment. Spain’s level of education attainment is one of the lowest
among European countries—33% of workers have not achieved an upper
secondary education, one of the highest rates among OECD countries.
Spaniards account for 22% of the EU’s almost 3 million unemployed
youths aged 15–24, according to Eurostat. Moreover, nearly 22.7% of
Spain’s youth population (15–29 year olds) is neither in employment, nor
in education or training (NEET)—the fourth highest NEET rate among
OECD countries, just behind Turkey, Italy and Greece: 40 million youths
are blighted by this difficult employment situation. Additionally, Spain’s
female long-term unemployment shot up from 0.9% in 2008 to 8.2% in
2015, way over the Eurozone 3.1% rate (OECD, 2016).

Far from being a magnet for highly skilled international talent, Spain
and Europe in general, with their immigration rules and attitudes towards
migrants are no longer considered creative and open destinations. On top
 People and Talent Management 121

of that, poor working conditions, inadequate wages and limited

development opportunities make them even less desirable. Germany needs
over a million immigrants for low-paying jobs to maintain its economic
strength. Since 2008, Spain experienced an outflow of some 800,000
workers between the ages of 25 and 35, a much higher number than the
400,000 registered by the Spanish Office for National Statistics (INE).
While job mobility can be positive, as workers gain experience elsewhere,
a prolonged talent emigration can weaken a country. Spain is not alone in
this human capital flight, other Southern and Eastern European countries
such as Italy, Poland, Portugal and Greece have also suffered a forced
brain exodus. This means that there are 5 to 6 million Europeans not
employing their talents in their countries of origin, but improving the
productivity of recipient countries like Germany, France, Finland,
Norway, UK, Brazil, Peru, the Emirates etc., which have not invested in
their education and training but are reaping the benefits. Rather than
progressing towards improved wages, shorter working hours and full
employment, we are heading towards an employment and employability
crisis. Does that signal the death knell of employment, as we know it?
Developing countries are seeing a rise in employment, but often at the cost
of low-paying, very precarious, temporary or informal jobs, in order to
supply developed countries. Developed countries, on the other hand, are
grappling with high jobless rates, shrinking pay cheques, job insecurity,
sub-employment, decreasing full-time and increasing part-time and casual
work, and absence of social benefits. To compound matters, the salary gap
is widening between the upper and lower echelons, who are bearing the
brunt of the recession. Likewise, huge swathes of middle-class families are
struggling to make ends meet. In the near future, a privileged 10 or 20% of
the population will boast top jobs with stability and security, while the rest
live with employment precarity (Ortega, 2016).

Enterprises of the future have two objectives: to replace workers by

different forms of AI and advanced robotics for more mundane tasks and
low-level knowledge jobs, at a much lower cost (when robots become
more affordable); and to reduce salaries to unimaginable levels. One of the
major impacts of this disruption will be an extreme polarisation of the
labour market into an elite class of sought-after talented workers
(continually upgrading their skills), and an underclass of disposable
workers with obsolete or insufficient skills (relegated to the wheel of
fortune of employability). According to Zygmunt Baum, our consumer
culture has eroded the traditional values of society, leading to a morally
and financially unstable world, with growing inequality and a deepening
122 Chapter Eight

sentiment of insecurity. From a work ethic, which consists of the right to

work and the moral commitment of equality and a source of well-being,
there has been a shift to an aesthetic of consumption: unbridled spending,
hedonism, insatiability of needs, opportunism, social stratification, self-
exaltation, and so on. Skills development is an economic imperative;
businesses have a critical role to play in preventing skill gaps and helping
local communities survive. Employers should provide a continuous
program of ongoing skills development and renewal in order to future-
proof workers’ employability. Investing in the development of workers is
not only good for business performance but also improves retention and
makes the firm more attractive for top talent. Bauman claims that those
excluded from the job market become social misfits in need of protection;
and for the aesthetics of consumption, they are considered failed and
frustrated consumers (Bauman, 2005).

Emotional salary: A handsome and competitive pay package, while

the default motivator, is no longer the only one that impacts employee
satisfaction. Today, top talent is driven by much deeper motivations like
work–life balance and great working conditions; in other words, the
emotional salary. Each generation and individual has different job
motivations and expectations. The over 45s are motivated by better pay
packets and cash bonuses. Whereas millennials seek other rewards outside
the monetary pay scale—inspirational leadership, corporate values, strong
management, ongoing skills development, well-defined career plan,
variety, and recognition of their efforts. This does not mean they are not
attracted to high earnings. Income matters a great deal to millennials—
many of whom are financially strapped—and they expect salaries to be
commensurate with performance. The labour market of the recession years
was a difficult one for job seekers, and employers were able to pick and
choose from a plethora of top talent. Today, the tables have turned with
the influence of technological disruption and we are in a talent-driven
economy where organisations are fighting to attract and retain high-calibre
talent. Employers had better pay attention to the aspect of emotional salary
because by 2025 in Europe, millennials, the most educated generation in
history, will make up the largest demographic cohort.

Despite the harsh conditions that persist in the job market (a dearth of
quality permanent jobs with a monthly salary and social benefits),
attracting and retaining key talent is one of the biggest concerns for
employers, who are faced with high staff attrition rates and different
generations with differing expectations and attitudes. Successful
 People and Talent Management 123

companies have effective talent management in place to closely monitor

the performance of their executives and to develop potential leaders and
high-performing employees (72%); and plan the talent needed to achieve
business strategies and upskill their current workforce to meet those needs
and assess talent (71%) (Deloitte, 2012).

Modern-day employees and entrepreneurs want their work to enrich

their lives and seek to combine their personal and professional lives in a
way that allows them to gain more enjoyment and fulfilment from both.
Strongly linked to people’s emotions and the connection they feel with the
company, the emotional salary aims to address the personal, family, and
professional needs not only met by financial compensation. High
employee morale and motivation positively affect productivity and
customer satisfaction. The more satisfied an employee is the less
absenteeism and turnover occur, thereby reducing the concomitant cost of
recruitment and training. Thus, in addition to traditional tangible perks
(health insurance, pension plans, company car, telephone, computers,
tuition assistance for children, transport), there are other intangible
benefits that help the work–life balance. The emotional salary covers the
following four dimensions:

- Career path: personal and professional development, training,

education, coaching, mentoring, quality of life, well-being, family
life balance, challenging goals, internationalisation, incentive
schemes, and performance-based rewards;
- Psychological motivators: feeling of belonging, sense of ownership
in the company, pride, integration, job recognition, commitment,
responsibility irrespective of the management style, autonomy,
corporate social responsibility, convivial working conditions;
- Job conditions and corporate culture: learning-centred culture;
organisational conversation that encourages top-down, bottom-up
and lateral communication; flexitime; teleworking, work and
environmental health; childcare; maternity or parental leave, unpaid
days off, time off to care for family; recreation & leisure;
relationships, gender equality;
- Social aspects: corporate and community activities, as well as
collaborative and environmental activities.

The fourth industrial revolution: There are conflicting opinions on

the number of jobs potentially under threat from automation enabled by
technologies, including robotics and artificial intelligence. According to an
124 Chapter Eight

analysis published in Davos, by 2020, five million jobs will be lost in the
world’s leading economies, and a decade later half of those left will
disappear. While others believe that, since human evolution is based on
action–reaction, these job losses will be offset by the gain of new
positions. Ortega belongs to this second group and thinks that automation
can create as many jobs as they eliminate (Ortega, 2016). In the same vein,
Morron suggests that advancing technology does not necessarily spell the
end of jobs, since human skills and traits will still be needed to re-direct
the nature of jobs, create new professions and, above all, harness the many
advantages humans have over robots (Morron, 2016). The battle of man
versus machine is not new. For centuries, it has been feared that machines
would make workers obsolete. So far, history has shown that when one
avenue closes in the job market, others open. When doomsayers predicted
that industrialisation would eliminate manufacturing jobs, a thriving
service sector emerged, creating more jobs than those destroyed. There are
still many untapped business activities in service areas such as AI, R&D,
customer service, health, education & training, business & team
management, etc. Not to mention, more specialised tech-related fields like
big data, mobile development, robotics, and algorithm design.

Naturally, not all jobs are created equal and some are more susceptible
to computerisation than others. Not only blue-collar jobs are vulnerable;
automation is slowly creeping into white-collar jobs in sectors like retail,
administrative and support services, finance, insurance, real estate, legal,
hospitality... Those occupations with a high component of rote, predictable
tasks are more at risk, as are many cognitive functions such as data
collection and processing. Telemarketers, for example, can easily be
replaced by robocalls. Tax return preparation is a good candidate for
automation as it has a high element of predictable data. The legal industry
is also being disrupted by AI platforms, which are able to do the drudge
work performed by paralegals and legal assistants. These platforms are
able to mine documents for evidence or judgements that will be useful for
a case for example. Even investment banking has fallen prey to
automation. Goldman Sachs has found a way to automate deal-making
tasks usually managed by investment bankers, eliminating thousands of
human work hours; and UBS is looking to implement AI solutions in
front-office roles, with robots to perform tasks related to trading strategy
optimisation. The fast food industry is increasingly using apps and kiosks
with touchscreens that allow customers to order their food without
interacting with any employees. Other jobs on the riskier end of the
automation spectrum are call centre agents, bookkeepers, loan officers,
 People and Talent Management 125

actuaries, supervisors, cashiers, receptionists, translators, to name a few.

This does not mean that they will disappear altogether, but may be
radically re-defined and made more efficient, and will certainly require
new skillsets. Those workers lacking in technical, teamwork or customer
interaction skills have their days numbered; while those that are
innovative, creative, flexible, able to reinvent their jobs, and stay on top of
the skills game are less likely to be threatened by technology. Occupations
requiring empathy and a high degree of complex social interaction (health
care workers, customer services, etc.) cannot be matched by machines.
LinkedIn released a list of the top skills that got candidates hired in 2013
and, not surprisingly, it included technology, programming and data
analysis, with social media marketing topping the list. The other skills
include mobile development, cloud and distributed computing, knowledge
of Perl, Python and Ruby programming languages; statistical analysis and
data mining; user interface design; digital and online marketing; recruiting,
business development/relationship management; retail payment and
information systems, business intelligence, data engineering and
warehousing, algorithm design (BBVA, 2014).

At any rate, many companies are still weighing up the long-term ROI
of robotic automation (initial cost design, tooling, programming,
installation, maintenance, service life, training, re-design of processes,
increase in productivity, quality and security) relative to human labour and
associated costs. Moreover, the cost of the algorithms that enable
automation technology is still exorbitant. Nonetheless, with huge strides
being made in programming, algorithms, and machine learning,
automation is gradually encroaching on tasks that hitherto needed subtle
human judgments, such as driverless vehicles or the IBM supercomputer,
Watson, which won the clash against two Jeopardy champions back in
2011. Despite its long-term economic and performance benefits, the high
cost of R&D and deployment is still a barrier to robotics adoption for
many companies—at least in the near to medium term; furthermore, labour
costs are getting cheaper. What seems to be a futile discussion is whether
robots should be given a special legal status, referred to as “electronic
person” and be liable to tax like human workers. The European parliament
seems to think so. In May 2016 they put forward a draft motion, which
included the proposal that owners pay social security on their robot
workers’ behalf in an effort to address concerns about the future of
employment and the viability of social security systems. It is as if factories
should pay more in tax because they use machines. Since robots are not
going to get healthcare or pensions, many feel that a call for robot tax is
126 Chapter Eight

really just an excuse for more corporation tax. The proposal failed to win
backing and was overwhelmingly rejected in February 2017. However, the
issue is not going away and there are still plenty of high-profile robot tax
supporters, who feel that the funds accrued through tax can be used to
remedy inequalities and finance re-training programmes for displaced
workers in areas where human labour is needed. Regardless of how we
feel about automation, it is unstoppable. If the machine-breaking Luddite
uprising in the 19th century was unable to stop the march of technological
progress, it is hardly likely that potential robot taxes are going to solve the
economic future of countries.

In 1976, Alaska constitutionally established a Permanent Fund Dividend,

which pools money from the state's oil revenue and returns it to eligible
residents at the end of the year. With the spectre of wide-scale decimation
of jobs through labour-saving technologies looming overhead, we are
seeing a groundswell of interest in the underlying concept of universal
basic income (UBI). Finland has recently initiated a two-year basic income
pilot whereby 2,000 long-term benefit claimants are given an unconditional
cash grant. UBI will help reduce inequalities resulting from job shortages,
by sharing out the wealth produced by those fortunate to have jobs, so that
citizens can cover their basic living expenses. Relieved of the immediate
pressure to pay bills, unemployed workers could re-train for careers in an
automated world. Unskilled and low-income workers are likely to be the
first to be displaced by robots; therefore, it is only fair that the basic
income should start with this disadvantaged segment.

So what is the outlook for talent? Independently of the quality of the

job, remuneration package, initial or ongoing training, turnover ratio, we
have identified the following career paths and employment situation of
workers:

- Dynamic & brilliant: Continuous stellar performance to reach the

pinnacle of professional success.
- Linear: School or university graduates take a job in their field of
studies and start the merit-based climb to success in the same
company or a different one.
- Stagnant: No growth or there is nothing to achieve in the
workplace.
- Declining: Increasing job quality degradation.
- Critical: Spiralling downhill with extreme job degradation.
 People and Talent Management 127

- Non-existent: Unable to get a job in educational/professional field,

even unable to get any type of job.
- Unemployed with social benefits: Temporary or permanent.
- Long-term unemployed: Without social benefits or just receives
minimum subsidy.
- NEET: Young person Not in Education, Employment, or Training;
- Expatriate: Shortage of suitable jobs drive them to seek opportunities
abroad.

Self-employment can take the following form:

- Proprietor, entrepreneur or shareholder of a company with full

management responsibility;
- Proprietor, entrepreneur or minority shareholder of a company
without management responsibility;
- Proprietor, entrepreneur or shareholder of a company in difficulties;
- Proprietor, entrepreneur or shareholder of a failed business;
- Self-employed professional (with or without staff) working in
partnership with other professionals and serving multiple customers;
- Freelancer going it solo and serving multiple customers on a
contingent project basis.

Forging a career path in a company naturally depends on the ability to

survive in the company. In this highly competitive and disruptive market,
established businesses are increasingly being forced to adopt an agile,
almost start-up approach, and consequently, require a “liquid workforce”
of chameleon workers, able to adapt quickly to changing conditions. Thus,
employees who possess these attributes, together with a good array of hard
and soft skills, have a better chance of surviving in their present job or
moving laterally to another position in the company. Nonetheless, in such
a volatile landscape, even highly skilled top talent is not immune to
redundancy or job quality deterioration and many are turning to self-
employment or entrepreneurship as an attractive and viable career option.
Entrepreneurship can take two forms: create a business venture with full
accountability for its success or failure; innovate within a company which
can later turn into a spin-off; or remain in the company, this latter version
is known as entrepreneurial employee activity (EEA) or intrapreneurship.
Both cases are common in Europe, especially intrapreneurship (due to the
high level of innovation) and are more widespread in the UK, Estonia,
Sweden, Denmark, Belgium and Finland. Spain, on the other hand, is at
the bottom of the ranking for entrepreneurship of any form (WEF, 2016).
128 Chapter Eight

Regardless of the form it takes (start-up or spin-off), what is changing is

the profile of the entrepreneur. A study on innovation in the tourism &
leisure industry revealed that job loss is no longer the prime motivation to
start a business and that the main factors that lead to entrepreneurship are
contribution to society (74.3%); autonomy—being your own boss
(57.4%); previous job experience (47.1%); desire to achieve something
bigger (46.3%); and personal experience (45.5%) (AIIT, 2016). These
results can be extrapolated to entrepreneurship in general.

The outsourcing and subcontracting of certain services is an appealing

solution for businesses in times of recession; and with automation, self-
employment has become the norm. For the employee, the situation can be
involuntary (due to redundancy) or voluntary (exchange full-time work for
independence). Certain activities currently carried out by employees could
be better done by users, independent experts or enthusiasts, often one’s
own customer (Evans, 2014). Numerous jobs can be carried out by ex-
employees in offline and online networks. National labour laws have
become more lax, although some workers’ rights are still protected. The
World Economic Forum is calling for the creation of a more flexible and
inclusive workforce model for full-time, part-time jobs either inside or
outside companies (WEF, 2017). We are witnessing an increasing
casualisation of working arrangements. The typical employer/employee
relationship has shifted to more unconventional work patterns and places
of work:

- Teleworking or telecommuting: Armed with laptops and mobile

devices, most professionals can do their jobs from anywhere.
- Virtual teams: Talent dispersed around the globe work together to
make decisions and share ideas via video conferencing systems.
- Flexitime allows employees to fit their working hours around their
individual needs.
- Job sharing: Two employees cooperatively share the same job.
- Employee sharing: A group of employers hires workers jointly and
is jointly responsible for them.
- Casual work: The employee is only hired on demand and
compensated for time actually worked.
- Interim management: Highly skilled experts are hired temporarily
to manage an organisation through a period of change or
transformation.
- Portfolio work: Self-employed individual works for a cluster of
different clients, doing small-scale jobs for each of them.
 People and Talent Management 129

- Crowd employment: A form of outsourcing, where larger tasks

normally performed by employees are distributed to a large pool of
virtual talent “the crowd” via an online platform which matches
talent and companies.

In a certain way, talent has been liberalised, owing to the expansion of

transactions and, as a result, opportunities. In the future, we will see rigid
hierarchical organisational structures (where engagement suffers) yield to
more flexible and smarter work patterns. This new approach will shift the
control from employers to the employees, who will have more autonomy
to organise their work. Appraisal and reward will be based on results, not
on the number of hours worked (Thomson, 2016).

Three major workforce imbalances are emerging. The first is

generational, with an excessively high ratio of young to older workers.
Staff composition should tend towards a bell curve with a majority of
middle-aged workers and a low number of younger workers entering and a
low number of seasoned older workers exiting. Unfortunately, the trend
today is towards younger workers, with the result being that companies are
being drained of key intelligence and know-how when tenured employees
walk out the door. The reason is that baby boomers, who entered the
workplace when talent was well paid, have much higher compensation
packages and are being nudged out by millennials with much lower wages
and social benefits. The World Economic Forum claims that this is a good
opportunity for boomers to transfer their expertise to younger colleagues
to prevent a knowledge vacuum. To help transition talent in and out of
companies, intergenerational partnership and mentoring programmes are
gaining traction (WEF, 2017).

The second is the gap between senior positions and middle to lower
level positions, regarding wage and career development. Most talent-
management efforts are usually aimed at the upper echelons instead of
being widely implemented throughout the workforce. In the top rungs of
the talent ladder, we have highly educated and skilled employees with
huge pay checks, who are nurtured and developed. And then, we have the
rest on the lower rungs, who are often overlooked and ignored. Companies
need talent development programmes that address all employees not just
the top talent. As the economy has become more customer-oriented,
lower-skilled frontline workers now play a mission-critical role. They are
the face of the company and the customer’s first point of interaction with a
130 Chapter Eight

brand—often a make-or-break moment for delivering the brand promise

and developing positive relationships.

The third imbalance is the low level of diversity with regard to

international talent. The anti-foreigner sentiment in Europe over the past
years has given rise to excessive protectionism to local talent, which has
curbed competitiveness and innovation. Although grants have been
dwindling, the Erasmus exchange programme has helped to foster social
and intercultural skills and openness towards diversity.

Those firms that survive will become virtual and physical points of
contact, innovation and technology transfer centres, centres for data
analysis and production of services/products and basically an interface
between customers (along their purchase journey) and employees. As the
workplace becomes more fluid and complex (with contract employees,
independent contractors/freelancers, intergenerational employees, cross-
cultural virtual workers), teambuilding becomes challenging, and strong
leadership is required to navigate this diversity minefield.

Emotional Intelligence (EI) has become the sine qua non of leadership,
be it the CEO, middle manager or group leader. A healthy dose of EI goes
a long way in boosting employee engagement and their overall
performance. When there are power differences in a group, the group takes
its emotional cues from the most powerful person, the leader (Goleman,
2013). If the team leader is in a positive mood, the group picks up on that
feeling and their performance is enhanced and vice versa.
PART V
 CHAPTER NINE

PROFIT AND BUSINESS SUSTAINABILITY

Once again, it is obvious that the business models we have previously

described require a different approach to profit and sustainability from
those of the pre-digital and industrial era. Digitalisation, globalisation and
connectivity have revolutionised how businesses interact with customers,
giving them unprecedented insight to be able to deliver relevant value
offerings. Understanding how the target audience navigates the path to
purchase makes it easier to guide and shape customer interactions during
and after the purchase, as well as provide cheaper value propositions, at a
lower cost, through better platforms and online/offline channels, and with
shorter lead times.

BCG has identified seven business models companies are using to

compete in the new global era:

x Cross-border servitisation
x Asset-light market entry
x Adding value through software
x Global digital ecosystems
x Global personalisation
x Multilocal manufacturing
x Developing multiple national identities

Six developments have encouraged the rise of these new business

models: connectivity; data analytics and AI; digital platforms; industry
4.0; protectionism and state capitalism; and connected and mobile
consumers (Bhattacharya Et Al, 2017).

The traditional firm-centric business model, which used to be the

origin of everything (ideation, innovation, production processes to satisfy
the needs and aspirations of customers and employees) has given way to
an outside-in approach, whereby value is co-created with the customer. In
the past, companies had the bargaining power vis-à-vis employees,
134 Chapter Nine

distributors and above all customers. They

T would rreceive all thee revenue
and allocatee the contribuutions as theyy saw fit. In tthis new scen nario, the
company caaptures less reevenue and is not always thhe one in charrge of the
distribution.. The companny of the tom morrow will bbecome an on nline and
offline conntact centre of innovatio on, technologgy transfer, research,
selection, aanalysis, codding, data storage, cre ation of prroprietary
algorithms, production off products and d services thaat can easily be
b totally
or partially outsourced forf their own brand, third party brands or other
manufactureers, and sold directly or through
t otherrs. It will deevelop an
ecosystem oof technologyy, financial an nd HR partnerrs to serve cu ustomers’
needs and aspirations andd shorten deliv will act as an interface
very time. It w
between thee customer annd talent (Fig. 9-14). As thhe world grapples with
the ravages of global waarming, and environmental
e l concerns coontinue to
influence buuying behavioour, Corporatee Environmenntal Responsib bility will
no longer bee optional. Thhe company of tomorrow w will have no choice but
to make susstainability paart of their DNNA, and willl be obligated d to make
specific conntributions to the
t environmeent.

Fiig. 9-14: The Company

C an Interface
I Custtomer–Talent
Source: J.F
F. Valls
 Profit and Business Sustainability 135

Mendelson distinguishes between the following three business model

archetypes:

- Front-end: Specialises in tailor-made solutions for unique or highly

targeted customer needs. This involves a very intimate and ongoing
learning relationship with the customer and relies on information
gathered at the front-end interactions with the customer.
- Back-end: Smart and efficient management of the pre-production
phase (identification of goods and services to procure, optimisation
of suppliers for cost efficiency, identification of the most effective
technologies and processes) can yield considerable savings in the
cost of products or services. A lower price structure gives a price
advantage over competitors and increases volume and scale, which
enables reinvestment in innovation and process improvement.
- Value chain coordinator: Creates value by coordinating the front
and back-end components of the value chain: process engineering,
value contribution in each link, selection of the part of the chain on
which to focus (Mendelson, 2014).

Regardless of the approach, the company of the future requires a

continuum of back-end–value-chain coordination. This does not
necessarily mean that those companies that participate in all three models
simultaneously will be the most competitive; it will depend on their ability
to satisfy the demand of a target audience. At any rate, for all three models
it is important that all the partners and stakeholders involved in the other
functions act in alignment, since weakness in any of the links could thwart
the company’s role as an interface.

In the old days, the balance of power was always in favour of the
company, which was solely in charge of almost all its business
functions—initiative in innovation, procurement of materials, recruitment,
design of production processes, identification of target audience, and
distribution via own or other channels. This rigid model is now quickly
giving way to a “boundaryless” structure where many functions,
previously carried out solely by employees of the company, are now being
shared among other players: customers, users, independent contractors,
distributors and other partners.

Again, all these business models need to be shored up by a sound value

proposition and differentiated positioning, in addition to a competitive
advantage for users, target audience as well as the frontline workforce
136 Chapter Nine

(internal and external). Value propositions therefore must be clear,

compelling and tailored to each target audience; and positioning clearly
differentiated—price range, brand, design, perceived quality, innovativeness,
etc. Likewise, the competitive advantage must be evident, sustainable and
difficult to imitate by competitors, in terms of costs, experience curve,
sales turnover, internationalisation, better knowledge of the customer
journey, proprietary algorithms, customer relationship, great customer
experience, talent, flexible value chains, and speed of response.

Companies will offer greater brand portfolio diversity to reach a wider

range of consumer segments at different price ranges, once they have
consolidated their position as an interface. Collaborative partnership will
become increasingly important (in technology, talent, distribution, finance,
etc.), and will inevitably lead to a flat or self-managed organisational
structure. Companies will become less specialised (applying a lean
approach to specific production functions) but will gain in speed and
agility to branch off into other markets, something that would be
impossible with a heavily layered, bureaucratic structure.

New alternatives to bank financing are emerging. While banks still

play a crucial role in fulfilling the bulk of external financing needs, the
credit crunch gave rise to a diversity of non-bank funding sources that are
ideally suited to today’s market conditions. Banks are gradually losing
their monopoly to new competitors in the form of intermediaries,
individuals and other entrepreneurs that offer cheaper and more accessible
capital. When banks chose to focus more on financing large corporations
and retreated from lending to SMEs and start-ups, they left their flanks
wide open to these newcomers, which are quickly gaining ground.

Left in the lurch by banks, small businesses were forced to resort to

other sources of funding. As such, alternative and collaborative financing
stepped in to fill this gap and is now an unstoppable worldwide trend.
These new financing channels include P2B and P2P crowdfunding,
microcredits, direct exchange of services or cooperation. There are over a
thousand worldwide crowdfunding websites, which raise funds for small
creative or social projects: art, film, music, videogames or development.
There are four main categories of crowdfunding:

- Rewards-based crowdfunding: One of the most popular, where

individuals donate to a project or business with expectations of
 Profit and Business Sustainability 137

receiving in return a non-financial reward, such as goods or

services;
- Donation-based crowdfunding: Typically used to raise money for a
non-profit or a cause;
- Equity crowdfunding: In return for shares in the company;
- Loan-based or debt crowdfunding: With the expectation of getting
paid back the principal plus interest.

Most crowdfunding activities are online, although there are a few

offline platforms. The platform assesses the projects and launches a
fundraising campaign, for a listing fee or portion of the funds raised.
Many platforms operate an all-or-nothing funding model. This means
the funds are released only if the target is reached, if not the money is
returned. The global crowdfunding industry raised approximately € 40
billion; while insignificant compared to bank financing, it is doubling
every year. There is also a proliferation of microlending sites (not only
in developing countries), which extend small loans to women in
particular and to any other type of entrepreneur lacking access to
traditional bank loans.

Interest in these types of financing establishments is based on the

diversification of sources of funding. Cash-poor entrepreneurs no longer
have to be at the mercy of a partner, who has a say in business decisions
and dictates the interest rate and repayment terms. Now, friends, family,
individuals and companies with money to lend pool together to fund a
project by assuming small slices of the loan, with no say in the decisions
of the business. Since the risk of default is spread among many
participants, the borrower is not pressured into obtaining immediate profit
to service the loan. These platforms are experiencing meteoric growth,
being better suited to this new open and collaborative mentality.

Revenue models. With the rise of collaborative and online business,

we are seeing a shift away from the transactional model (where revenue is
made from one-time purchases of products/services comprised of a set of
tangible and very opaque intangible elements) to a subscription-based
model: a pay-per-use fee or a fixed fee for unlimited use (Mendelson,
2014). The trend is expected to gain momentum over the next few years as
digital natives, who grew up with subscription models for online media
music and news, expect this type of service. Some businesses, especially
online, use a pay what you want (PWYW) pricing model (also referred to
as co-pricing as an aspect of the co-creation of value), which empowers
138 Chapter Nine

the customer to weigh the value they got from the product/service and pay
an appropriate price. A suggested price may sometimes be set, but
customers can have the freedom to decide—from a paltry sum to a great
deal of money, depending on the degree of satisfaction or delight (a bit
like tipping). A number of sectors like hotel and gastronomy are dipping
their toes into the world of the pay-what-you-want marketing strategy. The
Michelin-star restaurant Martin Berastegui has created menus based on the
price customers are willing to pay, the greater the satisfaction the higher
the price and vice versa.

Three factors will have a negative impact on sales revenue: consumers

have been conditioned to expect lower prices; financially-strapped
shoppers have become more frugal; and cutthroat rivalry from nimble
upstarts is putting downward pressure on prices. Let us take the example
of a P2P accommodation rental or transportation online platform. They
create a digital marketplace connecting millions of buyers and sellers and
facilitate the transactions for a small fee. Owners wishing to rent out their
assets (accommodation or vehicles) can list them on their websites to be
found by those wishing to rent or use them. Users book and pay through
the platform, which subsequently releases the fund to the owner. The
platform allows owners to optimise underutilised assets and users to access
these services at very affordable prices.

Each market players will receive compensation commensurate with

their contribution to the value chain. The bargaining power, when the time
comes to distribute the funds, will be in the hands of whoever is in the
driver’s seat. It is not the same thing collecting funds directly from your
own website as receiving a broker’s fee; nor is it the same being an own-
brand manufacturer, as being a private-label manufacturer for a retailer,
who dictates the price and terms.

In the face of this relentless pressure on prices that shows no signs of

abating, companies will have no choice but to readjust their factors of
production and reallocate financial resources along the value chain in
order to preserve their profits. As core-business revenue shrinks,
corporations must seek new avenues of profit. As such, cooperative
arrangements with companies in similar industries or at different ends of
the supply chain will be the order of the day. By teaming up with well-
chosen partners to share know-how, licences, services, equipment, teams
and costs, businesses can gain benefits too expensive to achieve on their
own; this will also give them access to other markets. If the customer is at
 Profit and Business Sustainability 139

the heart of business decision making and the customer relationship is

digital, production costs will be lower, as both contact and sale are carried
out in the same channel.

More resources should be allocated to big data, predictive analytics and

metrics, algorithms, customer service and innovation and less on the
production processes. Leveraging customer intelligence with regards to
demand, the price the customer is willing to pay, the exact moment of
consumption and preferred channel will drastically reduce costs for a
number of reasons. The company can calibrate production cadence to
respond directly to customer demand, thereby reducing capital investment
in inventory, as well as inventory carrying cost such as storage, insurance,
maintenance and other factors. Accurately predicting demand will increase
customer satisfaction and revenue by avoiding out-of-stock occurrences. It
also lowers the risk of having to dispose of surplus inventory through
secondary or third markets. Furthermore, maintaining a relationship with
the customer along the entire journey is more cost effective than
establishing a parallel circuit to capture, impact and sell. By adopting an
on-demand approach to production, working capital is not tied up in
inventory and can be put to more productive use.

The on-demand economy, so entrenched in today’s society, has not

bypassed the labour market and we are seeing a growing number of
businesses tapping into a wide spectrum of contingent talent (entrepreneurs,
self-employed portfolio workers, remote collaborator, gig workers) for
their just-in-time staffing needs and projects requiring specific skillsets.
Goal-driven, profit-sharing schemes boost employee productivity—
talent/cash management (Popkin, 2015)—and ultimately organisational
performance since everyone is pulling in the same direction.

The usual strategy would be to outsource non-core activities and focus

internal resources on those core activities that generate the greatest value
and improve competitive position and financial performance. Outsourcing,
however, is not a panacea and caution should be exercised when deciding
to convert fixed costs to variable costs, even in hard economic times, and
especially if they are related to talent and innovation. Outsourcing can
potentially lower value rather than raise it. Depending on the circumstances
of each company, it might be more profitable to acquire a start-up
company to immediately access new knowledge, or internalise innovation
via a spin-off, and thus deliver high margin revenue, as they will probably
be operating in a blue ocean.
140 Chapter Nine

Today, sustainable development requires a different approach to

creating value, i.e. long term-gains versus short-term profits. We need to
move away from speculative investing, which too often prioritises short-
term performance gains over long-term sustainable growth. The island of
Lanzarote is a case in point. Wrestling with population growth and the
pressure of tourism, it instituted a moratorium on new hotels and other
accommodation establishments, in a move to preserve the ecological
integrity and economic sustainability of the island. A group of experts was
commissioned to identify which sectors could substitute construction and
mass tourism as the main drivers of economic growth. The most
interesting conclusion of the study, carried out in 2003, was that
renovation generated more wealth and jobs than new construction (Valls,
Tuñón, Calero, Ramos and Prats, 2004). In Spain, the sun-sand-sea
formula, based on attracting more tourist and building more hotels and
apartments, has led irremissibly to the deterioration of the destination
through the depletion of resources. For Lanzarote, this new model proved
to be more profitable than the previous one, which was considered non-
substitutable.

Profit is the main motive of all business undertakings in the private

sector and the driving force in a capitalist economy. But, what happens is
that some groups receive more favourable treatment than others and do not
contribute their fair share of revenue to the public coffers. While
corporations continue to lower their tax bill, wage earners and consumers
are picking up the slack with a higher tax burden. It is not only a question
of low company tax rates (it is argued that higher taxes rates have a direct
incidence on wage deceleration) but the underlying problem of “legal” tax
avoidance due to base erosion and profit shifting. Taking advantage of a
tangle of tax breaks, loopholes or accounting stratagems, many large
corporations are able minimise their tax liability, thereby starving the
public purse of much-needed revenue. This does not prevent criticism of
the voracious tax-appetite of governments, which is sapping funds from
the private sector.

Seemingly overnight, a range of new business models have emerged,

upending many industries, where nimble upstarts unfettered by regulations
challenge legacy businesses, many of which are heavily regulated and
taxed. The opportunity should be taken to scrutinise and reduce regulatory
burdens faced by incumbent operators, freeing them to compete fairly with
the disruptors. The backlash faced by ride-hailing services such as Uber
from traditional taxis has emerged out of a sense of unfair advantage.
 Profit and Business Sustainability 141

Ride-hailing drivers are able to undercut prices since they pay very little
tax and are not subject to the taxes and stringent requirements imposed on
the taxi sector (expensive licences, regulated fares, safety inspection and
robust liability insurance, for instance in Spain liability insurance for taxis
is higher than that for private cars). This widespread conflict paves the
way for a more liberalised market where both business models can co-
exist and compete in a level playing field, benefitting users: lower fares,
more responsive, faster and better service. Across the globe, there are
protests against online short-term rental business, which is encroaching on
traditional hotel business and bringing prices down. These short-term
rental platforms, typified by companies like Airbnb, operate in the lodging
industry, but do not play by the same rules. Traditional establishments in
the accommodation sector have to pay local, state and even international
taxes plus social security contributions for employees. Furthermore, they
have to meet strict health, safety and fire regulations, and other
bureaucratic requirements that are unproductive. On the other hand, short-
term rental landlords are generally not subject to such strict safety
requirements; plus, the ephemeral nature of the property listings and ease
of transaction facilitate tax avoidance. The bottom line is that the
unregulated businesses of some destroy those of others, who are burdened
by taxes.

This money, in private hands, would facilitate the creation of

businesses and boost economic growth during this period of transition.
Whereas in the hands of the public administration, growth is stifled, as
vast sums are siphoned off by corruption, clientelism and other
unproductive activities. Better management of taxpayers’ money by
improving the performance of the public sector (doing more and better
with less) could lead to a reduction in numerous unnecessary taxes. All of
this would redound in benefit of a better competitive landscape, where all
stakeholders could learn from each other.

The majority of corporations base their profitability projections on

optimistic expectations of stable growth, which is then incorporated in
their annual budgets. Shareholder value depends on senior management’s
incentive to deliver earnings and ultimately increase the share price. Just
as the cyclist needs to keep pedalling to keep from falling, so too the
economy needs the business wheels to keep turning for healthy growth.
Can economies maintain constant growth, and can businesses deliver
superior returns permanently? The MBA Class of 1994 of the Graduate
School of Management, St. Petersburg University, during the defence of
142 Chapter Nine

their thesis, impressed us (the panel) with their professionalism and

foresight to consider a 3-year decline in GDP growth rate in their financial
projections. Their forecasts actually turned out to be true (they had to
make very few adjustments to the projections of the firms that hired them).

For far too long companies have only worked towards the vested
interest of their shareholders alone, keeping environmental sustainability
and social responsibility initiatives on the back burner. But, times are
changing. Corporate Social Responsibility (CSR) is no longer an
afterthought but a fundamental ingredient to the sustainability of their
business. Many multinationals, as well as national and local businesses,
still neglect to cultivate their relationship with the community. Enterprises
are stakeholders in their communities. Both their customers and workforce
belong to the community. They use their raw materials, technology,
financial resources and experiences; and are physically and virtually
present in the community. Being socially responsible is more than just
donating money; it is about developing and maintaining strong and
mutually beneficial relationships with the community. An active interest in
the community by a business can generate community support, goodwill
and loyalty. CSR also means being fully tax compliant, ensuring that
essential resources are available to meet economic and social objectives.
This revenue belongs to the community and should be paid locally, not in
a tax haven, simply to maximise profits. Furthermore, enterprises should
actively engage in initiatives that support people, events and organisations
in their local communities. They can contribute to positioning the
community to be a better place in which to do business and a better place
to live. Consumers are no longer willing to ignore irresponsible action;
they will punish companies they consider irresponsible. Adams states that
cost cutting measures, through the exploitation of cheap labour and
pollution of the environment, have damaged the reputation of
multinational giants. The success of the company of the future will depend
on its relationship with society and the natural environment (Adams,
2014).

Another aspect of CSR is the commitment to sustainability by reducing

the environmental footprint, by using natural resources in a reasonable
manner, being energy efficient and using renewable energy. Economic
activity is dependent on different types of resources (natural, heritage or
other) and should not degrade or destroy them.
 Profit and Business Sustainability 143

This entails the application of rigour both internally (respecting the

environment and reducing the cost) and externally (getting involved in
improvement initiatives). Business growth should be carried out using eco-
friendly materials and resources, renewable energy, and by keeping waste
to a minimum. This means embracing the circular economy, where
resources remain in a perpetual cycle, renewed and reused, rather than
wasted after a single use.

Social involvement with the community and contribution to

environmental sustainability are embedded into the core strategy of the
company of tomorrow to ensure long-term sustainability. The related costs
will be factored into corporate budgeting and not treated as a random cost.

Finally, long-term sustainability of enterprises will depend on their

ability to connect with customers and interpret their needs and aspirations,
and to develop value propositions with robust competitive advantages
through flexible value chains that create satisfactory and cheaper products
and services. Those companies that survive will be promoters of
innovation, will have a relationship with customers and talent, operate in
harmony with the community, and collaborate with all stakeholders to
improve the environment. The reward, according to Adams, will be to
manage a responsible business, with intrinsic long-term value for all
stakeholders (Adam, 2014).
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