Bridging the Gap: Consumer Companies That Link Customers With Suppliers are 100% More Profitable Than Competitors That Do Not.

Business Editors

NEW YORK--(BUSINESS WIRE)--May 20, 2002

Profits soar for organizations with "Digital Loyalty Networks" according to Deloitte Research global study of 250 consumer companies

But only 17 percent of consumer

business companies use the Web efficiently

Consumer businesses that create "Digital Loyalty Networks" to link their customer management and supply operations are twice as profitable as competitors that do not, according to a new study from Deloitte Research. The extensive global study, released today, surveyed executives at nearly 250 major consumer businesses in 28 countries throughout North America, Europe, Asia-Pacific, Latin America and South Africa.

However, while a handful of consumer companies -- including Colgate-Palmolive, Herman Miller, Dell, Heineken and Avon Products -- are reaping considerable rewards by leveraging Internet connections, Deloitte Research found these leaders represent a distinct minority: Only 17 percent of consumer companies are using the Web effectively, while 41 percent score low on both supply chain collaboration and customer loyalty.

Deloitte Research defines a "Digital Loyalty Network" as highly developed links between a company's supply chain and customer management operations - "digital" because they hinge on the use of the Internet and other digital technologies to collaborate; "loyalty" refers to the network's goal of boosting satisfaction and retention of the most profitable customers and, in turn, driving that efficiency throughout the entire supply chain; and "network," meaning that the information is shared seamlessly with customers, suppliers and other business partners.

"Companies with fragmented operations are going nowhere fast," said Jim Duffy, principal in Deloitte Consulting's Global Consumer Business Practice. "The smart money is on those companies that aggressively integrate with their customers and vendors by building tight bonds that engender loyalty. Digital Loyalty Networks are the way to do that."

Duffy explains that "Loyalty Networkers" outperform their competitors because they are able to identify their most valuable customers and adjust their service based on customer requirements, lifetime potential, and an intimate understanding of supply chain cost on a customer or segment basis. In addition, they build supply chains that can move in tandem with their suppliers' operations.

The Deloitte Research report, "Consumer Business Digital Loyalty Networks," reveals that consumer companies with Digital Loyalty Networks are two to five times more likely to achieve superior performance in sales, market share, customer service and other key measures, and much more likely to generate higher shareholder returns.

Challenges to Building Digital Loyalty Networks Establishing a Digital Loyalty Network requires companies to rethink their approach to customers and suppliers, presenting three key challenges:

1. Bridging the divide between supply chain and customer service

operations - SCM(1) and CRM(2) initiatives typically have

operated independently of each other. This divide is amplified

by different working styles: Supply chain managers tend to be

more process-oriented, and thus more receptive to diving into

operation details to root out inefficiencies. Marketing and

sales teams, while managing even more information about things

like customer segments and trade promotion, thrive in a less

predictable world of changing customer demands, creativity and

experimentation.

2. Incompatible information, measure and rewards - Marketing,

sales and service tend to keep their own records on customers,

in different systems and formats that can't be integrated

easily with the data that supply chain managers possess.

Measurement and reward systems can also be so contradictory

that both sides find it difficult to define mutual benefits.

3. Continually rising customer expectations - Despite improving

customer service and delivery, customer satisfaction may

deteriorate because the expectations for service have risen -

what was once seen as "great service" is now viewed as simply

"doing what you promised."

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

Overcoming the Challenges

"Overcoming these challenges doesn't begin with a bureaucratic overhaul of an organization, but instead, by creating links between existing systems and processes on the demand and supply sides of the house," said Duffy. Three elements play major roles in establishing and maintaining these connections:

1. Consumer/customer-centric vision - Digital loyalty networks

begin with a clear, shared vision about how to differentiate

product and service offerings for different customer segments.

A company must develop and institutionalize a mindset that

puts customer needs first, and it must determine which

customers and customer needs can be served profitably.

2. Network partnership strategy - To get every critical party -

from the raw material supplier to the retail outlet to the

consumer - to play a role in the Digital Loyalty Network,

companies must create strategies that considers all players

and provides "wins" for all.

3. Open business and technology architecture - "Because

participating in a Digital Loyalty Network requires a

significant investment of time and money for every player,

staging small, incremental initiatives can help recruit

players because it enables them to see the benefits before

jumping in with both feet," said Duffy. As pilot initiatives

progress, successful companies will standardize their

policies, business processes, software applications and data

architecture to create a open platform that is scalable and

secure.

The study, available upon request, contains a diagnostic test that executives can take to assess the Digital Loyalty Network readiness of their organizations.

To receive a copy of the study, or to arrange an interview, please contact Maria Stokes at 415-618-8708 or Jeannette Paladino at 212-419-4216.

About Deloitte Research

Deloitte Research produces cutting-edge research designed to empower global enterprises to take advantage of ever-changing market forces and the rapidly evolving technologies shaping their industries today and into the future. Thought-leading research is developed through state-of-the-art research techniques, surveys that assess the thinking of visionary leaders at some of the globe's leading corporations, insights gained on the front lines by our top-notch consultants, and relationships with some of the best minds in academia. Deloitte Research identifies and analyzes market forces and major strategic, organizational and technical issues that are creating an upheaval in today's business dynamics to provide insight into new and evolving challenges.

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This document is not intended to constitute professional advice, and should not be relied on as such. Before making any decision or taking any action that may affect your business, you should consult Deloitte Consulting or another qualified professional adviser.

(1) SCM = Supply Chain Management (2) CRM = Customer Relationship Management