Despite vast commitments towards digital technologies, most company’s digitalization efforts fall short of achieving topline growth. According to a recent Simon-Kucher & Partners study, 77% of companies that undertook a digitalization initiative to realize topline growth have failed to do so.
In our experience, the biggest reason for this big digital fail: companies neglect the very parts of their business that have the greatest impact on revenue generation — namely value creation and monetizing for that value. Instead, they focus on reducing costs, improving operations, or aggressive pricing to keep up with the competition.
In order for digitalization initiatives to have the greatest impact on revenue growth, company leaders must require investments in digital technologies to unlock new value, build pricing power, improve segmentation, and help the company sell better.
Digitalization is not just an upgrade to maintain competitiveness or improve efficiency. Most companies overlook how digital technologies can be applied to reach more consumers and open new markets.
Consider the case of Poland-based Idea Bank. Recently, his mid-sized bank introduced a Happy Miles program that uses GPS technology to develop a pay-as-you-drive loan feature. With Happy Miles, a borrower’s monthly auto-loan payments vary depending on distance traveled. The more they drive, the more they pay.
Using Happy Miles, Idea Bank was able to unlock new value and reach new segments — namely borrowers who do not drive regularly and companies that lend cars to employees for business purposes.
Similarly Leveris, a lending platform provider, allows a bank to offer borrowers the ability to restructure loans on the fly. Borrowers adjust the length of a loan’s term or monthly payment amounts using a mobile app. Increasing the loan’s term length automatically lowers monthly payments and vice versa. Idea Bank and Leveris are examples of how companies can leverage digital technologies to offer more personalization to reach new customer segments.
However, unlocking new value is only the first step. Companies have to take a realistic look at their innovations to assess if customers are willing to pay for it. All too often companies give away digital innovations for free in the name of customer acquisition, or they leave the monetization discussion to the end after a large investment has already been made.
Leverage Big Data
To ensure that they are able to monetize digital initiatives, companies must leverage digital technologies to support smarter pricing practices. Digitalization is often accompanied by more intense pricing pressure due to increased competition, price transparency, and customers’ power to negotiate. Companies must have the discipline to refrain from engaging in price wars, which has a detrimental effect on margins.
Instead, advanced pricing practices can be used to maximize profits. This is what Airbnb did in 2015 when it made its pricing algorithm available to its hosts. Using big data, machine learning and information on changing market conditions, Airbnb’s dynamic pricing algorithm helps hosts determine the optimal price to charge for a short-term rental. In a CNBC interview, Airbnb said it expected the new smart pricing feature to provide a 13% boost in revenues on average for hosts. This is a direct benefit to Airbnb, which charges a fee for each booking.
In our survey, we found that initiatives that optimize prices for digital innovations using big data have the highest impact on topline growth. Companies need to invest in professional pricing resources and leverage big data to make smarter value-added pricing strategies and avoid aggressive pricing.
In the digital age, companies that are able to respond quickly to customer’s evolving needs are the ones most likely to capture market share. To stay competitive, companies must become customer-centric organizations and develop a multi-dimensional and sophisticated understanding of their customers’ needs, behaviors, and most importantly, their willingness-to-pay. More effort is needed to harness digital technologies and behavioral science to support advanced customer segmentation, personalization, and customer experiences that resonate.
Although technology is changing customer engagement, human interaction is still highly valued. For most industries, some level of personal interaction will always remain an important component of the overall sales strategy. There will always be multi-channel customers who want experiences in both digital and traditional channels. Along with improving digital customer experiences, companies must also be ready to evolve their sales force and sales processes for the digital journey. Digitalization can free up the sales force and help them engage better with the right customers.
Companies can also leverage technology to sell better through digital channels. Instead of static websites and mobile apps that exhaustively list products and services, organizations can use interactivity and advanced digital choice architecture to make the buying process more engaging. Companies can nudge customers towards certain behaviors using pricing psychology tactics like dynamic calculation of value based on choices, behavioral-based rewards, and visual tracking of progress.
With digitalization, new money-making opportunities are emerging while old ones are evaporating. A clear understanding of customer’s needs and behaviors across the organization supports the confidence and willingness to pursue new segments and markets. Big data, algorithms, and advanced analytics can ensure pricing practices maximize profits. Finally, we have to recognize that digitalization fundamentally changes the company’s relationship with the customer and requires a new approach to selling.
Wei Ke, PhD is a managing partner and David Chung is a director at Simon-Kucher & Partners, a global consulting firm.