Sometimes digital transformation comes with an unexpected hurdle: customers who are reluctant to embrace change. Although customers are the top driver of digital transformation, some are a little more resistant to new digital routines. Indeed, customer behavior can spark or stall digital transformation efforts and leave businesses wondering how to keep these customers happy.
These resisters are the shoppers who write checks at the grocery store, fill out deposit slips at the bank or pop a disc into their DVD players to enjoy a movie instead of streaming it. In fact, these resisters are more common than you might expect. Netflix’s DVD shipping business, for example, still comprised a surprising 51.5 percent of its operating profit in 2016, according to the company’s
“This is why Netflix has not killed off the DVD business,” says Michael Goodman, digital media director for Strategy Analytics. “It is not the future, but it is still very profitable.”
However, organizations understand that digital transformation comes with many benefits, including increased agility, competitiveness and productivity. So in this digital age, how do you plan for a digital future without leaving “analog” customers behind? Here are some tips on when and how to preserve or sunset legacy lines of business and customer service processes.
Drive Efficiencies Into Existing Processes and Infrastructure
So how does Netflix, so well-known for its digital presence, still support a legacy line of business tied to analog customer behavior? For starters, the company eliminated much of the cost of running its DVD-by-mail operation, thanks in part to automation.
“If you cut back on service, you are going to lose your subscriber base,” Hank Breeggemann, general manager of Netflix’s DVD division, told The New York Times. “Expect us to continue to ship DVDs for the foreseeable future.” Instead of cutting back on the service, Netflix engineers figured out how to improve customer service while also making the process of returning, sorting and shipping DVDs more efficient. At Netflix’s Fremont, California, location, instead of about 100 people responsible for this process, 25 employees now handle the work along with machines.
This is a scenario many companies today face — many of them much older than Netflix, and therefore, with legacy systems of their own to manage. For these organizations, the answer may not be in a robotic arm that automates labor-intensive functions. To move forward, these organizations must find a way to increase the efficiency of existing IT systems, so they spend less time on maintaining the business and more time on revenue-generating initiatives. By modernizing their infrastructure, they can improve the performance and cost efficiency of existing systems and automate the manual tasks that cause bottlenecks to their digital transformation.
Create an Irresistible Customer Experience
For companies to move forward with digital, they must understand why some people cling to their analog ways. Then they can create experiences that help them part with those routines.
“Digital resisters want a tangible, real, secure and trust-based customer experience,” said Brendan Read, digital transformation senior industry analyst at Frost & Sullivan.
Some people need a gradual introduction to the latest technology and want to feel comfortable with the shift, according to Gary Small, author of “iBrain: Surviving the Technological Alteration of the Modern Mind” and a professor of psychiatry & biobehavioral sciences at UCLA. Companies should practice the principle of “train but don’t strain your brain,” according to Small. “There’s this tension between wanting excitement and novelty and not wanting to disrupt things too much,” he says.
“Train but don’t strain your brain. … There’s this tension between wanting excitement and novelty and not wanting to disrupt things too much.”
— Gary Small, author and professor, UCLA
Based on the experiences of companies that have successfully weaned customers off analog services, these strategies are key to winning over digital resisters:
Pace your product rollouts: Digital resisters need a gradual introduction to the latest technology and want to feel comfortable with the shift. “You want to introduce novelty at a level that’s not overwhelming,” Small says. Cox Communications has been phasing out its analog cable television service in favor of digital over the last few years, requiring those customers who still connected their TVs to their walls to switch to a digital cable box. When Cox switched customers in Omaha, Nebraska, off analog service in 2014, the company eased the transition by offering a digital minibox for free for a year. By October 2015, more than 90 percent of Cox’s customers switched to digital.
Offer a personal touch: Survey customers to find what endears a legacy service to them and create a digital service that speaks to that need. In its NYC flagship store, Ralph Lauren incorporated the personal touch by including a “Call an Associate” button on its fitting room smart mirrors. Installing the smart mirrors led to a customer-engagement rate of 90 percent,
Educate customers about digital services: Going digital provides incentives for both the company and the customer. According to a Fiserve study, mobile banking users produced 72 percent higher revenue than branch-only customers and were less likely to leave their bank or credit union. To encourage adoption of mobile banking, TD Bank uses digital signage in its branches to educate customers about mobile deposit, and Capital One has introduced an educational program called Ready, Set, Bank to enable older adults to become more comfortable with online banking. The institution uses “micro-learning” to educate seniors about mobile banking in small steps through more than 40 short videos of no longer than 120 seconds.
Entice customers to go digital: Find ways to make embracing digital services a fun customer experience. To digitally engage customers, Wells Fargo launched a mobile app called Daily Change. The app encourages customers to participate in daily challenges like drinking tap water instead of bottled water. “Everyone knows that saving money is a good thing. But this app puts it right in front of you, makes it real and helps you understand how it works,” Jonathan Burke, a lead teller at a Wells Fargo branch in Winter Park, Florida, told Wells Fargo Stories.
Move Forward with the Source of Sustainable Revenue
For entertainment companies like Netflix, the future of the overall physical media market is a “numbers game” and will be determined by revenue, according to Goodman. “At some point, the cost of supporting the analog market is going to outweigh the revenue derived from that market,” Goodman says. “At that time, you’ll see physical distribution go away.”
In a June 2016 New York Times Magazine article, Netflix co-founder and CEO Reed Hastings acknowledged that DVD shipping wasn’t the way forward indefinitely. The pivot that Netflix made offers a lesson on how to wean customers off behavior that isn’t profitable for your company in the long run and find new revenue streams in the process. “We knew there was no long-term business in being a rerun company, just as we knew there was no long-term business in being a DVD-rental company,” Hastings said, describing Netflix’s leap into original programming.
Netflix plans to fill at least half of its streaming library with original content, says the company’s CFO David Wells, according to Variety. As of December 2016, Netflix had 30 unscripted shows, and it plans to nearly double that with 20 more shows in 2017, says Ted Sarandos, the company’s chief content officer, according to Variety.
“At some point, the cost of supporting the analog market is going to outweigh the revenue derived from that market. At that time, you’ll see physical distribution go away.”
— Michael Goodman, Strategy Analytics
The Digital Tipping Point
Companies often lack a consensus on when is the right time to eliminate analog services altogether as part of their digital transformation. These decisions can sometimes result in conflict among management, according to Rob Enderle, principal analyst for the Enderle Group. “Often a legacy service can remain for excessive periods of time due to an inability to address a dependency timely,” Enderle says. “This results in secondary problems with security, interoperability, cost, performance and dependability.”
When introducing digital technology, executives must create balance between the digital resisters and moving full-speed ahead with innovation at the risk of losing legacy customers. “There is a far greater tendency once one of these programs gets momentum to go the ‘damn the torpedoes, full steam ahead’ route for fear the effort will be stalled,” Enderle says. “Balancing between the procrastinators and the ‘full steam ahead’ folks is often what makes a job in IT far more exciting than it needs, or the employee wants it, to be.”
As seen with Netflix, Ralph Lauren and Wells Fargo, how well a company manages this tension determines its ability to capitalize on digital opportunities and drive growth.