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4 pillars of success
In recent years, discussions around Customer Experience Management (CXM), particularly those initiated by service providers, have increasingly focused on showcasing “skin in the game”. This shift underscores the idea that effective CXM in the post-pandemic world requires genuine commitment, shared responsibilities, and a deeper level of collaboration between service providers and their clients. Providers capable of demonstrating positive impact on strategic outcomes – beyond mere cost arbitrage – will outperform their competition.
This leads us to the question: How can service providers effectively transition to value-based commercial engagement models?
Staying relevant in an ever-changing environment
With increasing customer demand for empathetic and personalized experiences, there’s a growing focus on evaluating providers based on their ability to drive hard, business-enhancing outcomes, such as revenue acceleration, improved customer retention, and increased customer Lifetime Value (LTV). Simultaneously, the expectation for collaborative initiatives involving joint investments and co-creation of intellectual properties (IPs) is also at an all-time high.
While the conversations around value-based engagement models are not new, what distinguishes the current landscape is the increased frequency of these conversations and a heightened willingness on the part of organizations to walk the talk.
Successfully transitioning to value-based models
For service providers, transforming into a strategic partner with the ability to influence business outcomes is far from straightforward. It demands comprehensive evaluation by both service providers and businesses of their existing capabilities, governance structures, and contracting models, followed by the development of suitable alternatives.
Prioritizing the following four pillars can significantly ease the transition:
- Becoming data-driven: In the initial phase, it is crucial to assess the outcomes service providers aim to influence and identify the starting point in their value delivery journey. Organizations that are data mature can swiftly access pertinent information, enabling providers to establish a baseline, effectively segment customers, and design customer journeys geared towards achieving desired outcomes.
The challenge though stems from the fact that data capabilities vary among organizations. Even within a specific sector, there are leaders, laggards, and those in the middle tier. For organizations that are not data-driven, acting on data and addressing CX challenges becomes difficult. In such instances, the argument often reverts from value generation to cost arbitrage, preventing them from taking advantage of the true potential of value-based pricing models. Becoming a data-driven organization is therefore a crucial first step. - Implementing measurement systems: One of the primary goals of value-based models is to align incentives between the client and the service provider. A well-designed measurement system provides a means to objectively assess the performance of both the client and the service provider, and helps in accurately attributing value creation to each party. This, in turn facilitates fair and proportional reward allocation based on the risks undertaken by each.
By enabling continuous improvements and mitigating risks, the measurement system acts as a cornerstone in building strong partnerships, fostering a collaborative environment for mutual success. As the business landscape evolves, robust measurement systems also provide the flexibility to adapt to changing circumstances. By incorporating new metrics or adjusting existing ones, the model can stay relevant and effective in capturing the evolving dynamics of customer experiences. - Embedding digital technologies: Based on our collaborations with several Fortune 500 and FTSE 100 companies, it is clear that automation, chatbots, AI-driven knowledge bases, and predictive analytics play a significant role in streamlining processes, minimizing response times, and delivering personalized experiences. Incorporating digital technologies also allows businesses to provide automated services that deliver near-human levels of interaction, multiple self-service options, and also offer seamless multi-channel support.
The introduction of Generative AI (Gen AI) into the equation is poised to further accelerate the adoption of hybrid and outcome-based pricing models across industries. As Gen AI captures the imagination of CX leaders, they are moving to swiftly implement these capabilities across both voice and non-voice operations to achieve substantial productivity gains. According to projections from the Everest Group, Gen AI is positioned to propel digital CXM growth at a rate of 16%-18% over the next three years. This growth is expected to influence various sectors, including BFSI, Telecom & Media, Retail, Travel and Hospitality, and Technology, impacting processes such as technical support, customer service, and order fulfilment. - Creating genuine partnerships: Transactional partnerships have limited impact. What is needed is the cultivation of deeper and more strategic partnerships, with a focus on co-investing in solutions, and actively shaping the future. Establishing a contractual framework and a commercial agenda that supports this objective, and embedding the necessary capabilities in both organizations, facilitates a smoother transition to value-based pricing models. This is essential for allocating capital efficiently and effectively managing risks associated with the shift to value-based models, especially in today’s uncertain macro-economic environment.
In essence, transitioning to value-based pricing necessitates a comprehensive organizational transformation across various functions of the service provider organization, including client engagement, sales, contracting, finance, risk management, and performance reviews. All these aspects must be aligned with the central concept of delivering value.
Partnering for impact
Value-based pricing models enable businesses and service providers to enhance efficiencies and seize new opportunities, ultimately accelerating revenues and contributing to improved margins. The challenge lies in businesses expecting immediate results, creating a disconnect between short-term deliveries and long-term possibilities. As the alignment of cost incurrence and value recovery is not synchronous, establishing trust, sharing best practices, and engaging in frequent value-driven discussions—highlighting achievements and setting expectations for the medium and long term—will prove crucial in gaining client buy-in.
When done right, the value-based pricing model allows service providers to distinguish themselves. By judiciously sharing risks, prudently allocating capital, and actively participating in the co-creation of intellectual properties, service providers embracing these models will capture a significant share of the future outsourcing market.