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Customer-centricity : the new path to product innovation and profitability
 9781527519138, 1527519139, 9781527515871

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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

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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

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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 customercentric 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 postpurchase 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 omnichannel options that make it easy to buy what they want, when they want, and how they want to buy it.

Customer-Centricity

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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 x x x x x x x x x

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

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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

Fig. 2: Spanish Shopping Habits by Generation Source: J.F. Valls

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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

Fig. 3: Digitaal Transformaation Snake Frramework Source: J.F F. Valls

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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,

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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 lowcost 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

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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 prepurchase, through the process of engagement and post-purchase into a long-term relationship.

Chapter Two

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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 prepurchase 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 prepurchase 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

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-

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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.

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Fig. 2-4: The Customer Purchase Journey Source: J.F. Valls

The Customer Journey

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-

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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:

Chapter Two

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-

-

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

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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 customerexperience 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).

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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.

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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

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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, hasslefree 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

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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

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(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

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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, stateof-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

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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.

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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 frontdesk 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.

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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

x

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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 postpurchase 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

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-

-

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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 TripA Advisor. 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 m monitoring rev views and have them centrallised by coun ntry, and by bbrand in each h country, especcially for the premium p grou up. 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 action ns for ongoing improvementt. NH R Rewards (blue, silver, gold d and platinum m) 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 aim m 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 volum me and its consstant refreshm ment at a rate oof tens of thou usands of new review ws in several languages per p week, froom multiple and ever changing weebsites.

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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

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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

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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

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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

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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, highvelocity 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.

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-

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.

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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

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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).

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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,

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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 finetuning 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

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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

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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.

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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). -

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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.

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-

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Reward Hunters are high-achievers, who see travel as a welldeserved 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-beatenpath 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 priceconscious (Fig. 4-5): -

-

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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

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

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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 ecofriendly. 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

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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.

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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.

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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

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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 longterm, 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

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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 customercentric 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: -

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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.

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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: -

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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,

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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 TVspots (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.

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Fig. 5-7: Geeneral Scenariio for Commuunication Source: J.F F. Valls

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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 Look & Feel Breadth Depth 1.2 Aesthetics 0% Aesthetic appeal Clear and intuitive Consistent look & feel in all pages Brand consistency 2. Functionality 0% 2.1 Search 0% E-commerce Advance search Relevant search results Robustness Speed

Easy, intuitive, complete, coherent Graphic design of coverage of the website and topic of coverage of the website and topic Visual quality Aesthetic functionality Consistent layout, colour, style in brand voice (topic, tone)

Does it have transaction capabilities? Offers multiple levels of criteria Good match of results to the query Reliability, interruptions, blocked sites How fast is the response and load time

64 2.2 Personalisation

Chapter Five 0% Level of tailoring to individual users’ needs and preferences Oriented to make customer feel valued and special to become preferred brand

Personalisation Relationship marketing 2.3 Privacy & Security Policy Accessibility Transparency 3. Value for Customer 3.1 Content

0% Visible and easily accessible Easily understandable 0% 0%

Relevant to target audience Credibility Product orientation Virality 3.2 Product/service information 0% Product assortment Availability and transparency of price Novelties of product/service Decision-making tools Two-way communication 3.3 Support, accessibility & customer service 0% Manuals and instructions available FAQs CRM Internationalisation 3.4 Corporate information Corporate information Media

How relevant or important content is to target Does the site come across as credible How detailed is product information? How shareable is content Breadth and depth of product offerings Are prices shown, clear, itemised How often are new products, services or features added To help purchasing decision: Mashups, geo referencing, comparison tools User input, web 2.0 tools Level of tech support Is there a FAQs page and level of detail Is there access to a Call Centre, contact form, “Call Me Back” button To serve a global audience (language, currency, offering)

0% Information on the company/ businessman, management team, annual report News section for the media with press releases

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

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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

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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

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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 cocreation, 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: -

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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.

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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.

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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)

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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: -

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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.

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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 decisionmaking 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).

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Fig 6-9: Com mpany Valuess and Consum mer Values Source: J.F F. Valls

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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

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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 bargainseekers 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)

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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; reorder 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

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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 (multichannelity) 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,

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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: -

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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

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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: -

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People directly or indirectly involved in the whole range of valueadded 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.;

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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: J.F F. Valls

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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 assetlight route by divesting their properties to focus on the less capitalintensive 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: -

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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

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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

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economies of scale that would be otherwise impossible to achieve inhouse. 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 fastpaced 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

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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.

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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

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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

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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

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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 selfimprovement, 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-

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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: -

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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

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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,

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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 nonbrands, 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: -

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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.

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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.

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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 privatelabel 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 RitzCarlton 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.

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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

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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.

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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 24hour 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

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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);

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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:

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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

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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

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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-

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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

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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.

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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 multichannel, 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 omnichannelity 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

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across all channels and instruments needs to be carried out. This usually includes feelings, satisfaction ratings, and quality of shares, comments, retweets, 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;

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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

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

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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

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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 highspeed 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

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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, selfconfidence, 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

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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

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their positions saw their wages decline by 3%. On the other hand, reemployed 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

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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

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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, selfexaltation, 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 futureproof 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

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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: -

-

-

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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

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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,

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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

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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.

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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 selfemployment 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).

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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, selfemployment 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 exemployees 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.

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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 talentmanagement 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

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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, crosscultural 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 x x x x x x

Cross-border servitisation Asset-light market entry Adding value through software Global digital ecosystems Global personalisation Multilocal manufacturing 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,

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distributors and above all customers. They T would rreceive all thee revenue and allocatee the contribuutions as they y 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 for f 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 very time. It w will act as an interface between thee customer annd talent (Fig. 9-14). As thhe world grapples with the ravages of global waarming, and environmental e l concerns co ontinue 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 DN NA, 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

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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

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(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

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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

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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 ownbrand 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 wellchosen 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

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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.

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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 shortterm 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 nonsubstitutable. 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.

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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 coexist 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, shortterm 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

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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.

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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 ecofriendly 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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