As originally published on LinkedIn Pulse
This is the third part in the “Experience Chain” series (article #1, article #2). The Experience Chain concept explores the need for traditional, product-driven value chains to adapt to a more experience-minded consumer.
Value chains start with products. Experience Chains need to start with the customer – the end-user, the ultimate buyer and user of the product. My previous article in this series outlined the need to shift to this new mindset.
That mindset shift is critically important, but that is where the hard work begins. If all the participants in the value chain turn their attention to delivering an experience to the end customer, that will fundamentally change the dynamics of their relationship to one another. The connection points along the chain needs to shift from transactional exchange to a collaborative exercise.
Trading Value vs. Accumulating Value
In the current version of a value chain, the product drives the exchange. The manufacturer creates the product, determines how much it costs them to produce, and then sells it to the next link in the chain for a reasonable profit. The handoff happens because the manufacturer has determined, for some combination of reasons, that the next step in the chain is not a viable part of their business. For example, they might determine that standing up regional warehouses, like distributors provide, is too costly and/or too much of a distraction. They would rather focus on their aspect of the business and use partners to get the product closer to customers.
They negotiate on price, quantity, and delivery. When they agree on the terms of the exchange, the partner receiving the goods must then determine what value they add to the equation. How much is their role in the value chain worth to the next link? They take the product and add a markup accordingly. If they are a distributor, with expertise in warehousing, logistics and delivery, their customer will likely be some form of retail outlet. It could be a physical retail store, a contractor, a designer, etc.
Finally, the value chain reaches a partner that interacts directly with the customer. They determine what value they have added in the chain via their retail locations or their trade expertise and they present the customer with a price that includes a markup they believe is fair for their role in the value chain. They are negotiating on the same items as the previous step in the chain.
Each partner in the chain does a job that the other doesn’t want to do. Their specialized expertise makes the chain efficient and designed to maximize focus and profitability for all players. See Figure A below. The process is linear, and each exchange is about price, quantity, and delivery.
This chain is optimized for efficiency. It is designed to get products to market. An Experience Chain will be more dynamic.
The New Dynamic
The goal of the Experience Chain is to get all the partners along the chain cooperating to sell something other than a product. The product is the tangible object of the purchase, but it is no longer what is driving the purchase decision. The experience becomes a complementary set of intangibles wrapped around a product. Experience can’t be a set of stops negotiated at each step along the way to the customer. The partners must collaborate to build an experience that accumulates value at each link in the chain.
This will require all partners in the chain to look at the model along two dimensions. See Figure B below.
The first dimension to consider is direct contact with the customer (the green arrows to each link). Each player in the equation needs to examine if they have any direct contact with the customer. This could be a customer-facing website, a customer service team, a warranty/repair program, or a host of other contact points.
Direct contact with the customer means the partner in the chain that has control over the interaction. They are providing the messaging, the service, the experience. Taking inventory of these interactions is critical because these areas can be quickly addressed and improved. Each partner should be looking at these interactions with a critical eye and asking two questions. First, “Are we doing a good job serving the customer in these interactions?” Second, “Are there other interactions we should be having directly with the customer?” These answers will determine what happens in relation to other partners in the chain.
The second dimension each player in the Experience Chain needs to consider is the experience their partners needs to deliver. This is where the fundamentals of the value chain relationship shift. Each player not only needs to control their own interactions with customers (if they have any), but they also need to support their partners in delivering the best experience possible. We’ll call this “indirect” experience support. Each partner needs to understand everyone else’s role in the experience. It is all interconnected. By knowing and understanding, partners can find ways to assist, whether it is removing friction in the process or adding “extras” that contribute value.
Look at the two-way gray arrows in Figure B above. There needs to be an open collaboration around what the experience is and where they can work together to make it better. It can’t be a one-way handoff. It must be an ongoing effort to tweak and improve. Here are some examples:
- A cabinet maker adjusts the way they ship components to make fabrication and installation smoother
- A carpet manufacturer creates backing for its products that is easier to install and has less potential damage to the customer’s home
- Industries build fulfillment and tracking that shows an order’s status from the manufacturer all the way down to the company delivering it to the customer’s house
- A distributor shifts “product sales training” efforts to “customer experience workshops” for their retail partners to help improve their daily customer interactions
All of these are examples of things happening right now. The Experience Chain concept does not suggest that customer experience has not been a priority or that progress has not been made. Rather, for customer experience to truly become a differentiator, there needs to be a conscious decision by all parties to operate with their partners in mind. Whether it is a direct interaction or indirect support, all efforts around customer experience need to be deliberate and the experience must improve along each link in the chain. It must accumulate value.
To illustrate, consider an example I have referenced before – Cadillac. Automobile value chains are as traditional as you can get. The designers create the vehicle, the plant makes it, the brand works with dealers on pricing, quantity, and delivery. The manufacturers work with dealers on advertising, with the goal of driving all customer interactions to a local dealership where final configuration, price negotiation and customer delivery are handled.
That model is changing. Cadillac is looking at the customer experience along the two different dimensions and reimagining how to accrue new value in the experience. The Cadillac website is an example of a direct interaction with customers. In the past, this touchpoint would allow customers to look at models and then contact a local dealer. Now, customers can go to “Cadillac Live” and have a direct video interaction with a Cadillac brand representative. This experience makes a direct connection with the customer while they are browsing and helps them narrow their vehicle options.
One might think this could conflict with a dealer. But Cadillac is looking at the experience across both dimensions, so they are considering how they will handoff experience to their partners. Cadillac Live does not sell any vehicles. It gets customers excited and answers initial questions. It allows them to make progress before they even get to the dealer. It also allows Cadillac to learn about the customer – their needs, their timing, their budget. This becomes information Cadillac hands off to the dealer. Now, the dealer has more information on the customer when they walk in. They have a more excited buyer and can spend less time going over initial customer questions. This sounds like a major win for both the customers and the dealers. Cadillac’s innovation created a new direct interaction that reset the dynamics of the value chain and created a more seamless experience for all involved. It is not Carvana’s model, where the entire exchange happens online. It doesn’t have to be. Cadillac is using their value chain relationships to deliver an experience to people who want a great experience but don’t want to purchase a car online.
Accelerating the Shift
The idea of an Experience Chain would not have been possible nor relevant without the events of 2020. It simply would have taken traditional manufacturing industries too long to adapt. However, the pandemic has accelerated both customer demands for better experiences and the recognition within “old school” industries that change is imperative.
Price, quantity, and delivery are relatively straightforward. Direct and indirect customer interactions are more complex. The good news is that it’s still early in the game. Cadillac Live, for reference, is only a year old. But innovation will happen fast. Begin the conversations about what aspects of the experience you can control and which ones you can influence for the better now.
In the next installment of the Experience Chain series, we will talk about how incentives and metrics need to shift to support the new relationship dynamic.