The Consumption Chain – Whats That?

Whether you offer a product or a service there is a certain flow of events from procuring the input resources to delivering a solution. While. There has been a lot of progress in analyzing this supply chain and ensuring that efficiencies are achieved . There seems to be little effort in the consumption chain.

The Consumption Chain
So what is a consumption chain? Consumption Chain is broadly the set of events that start from the first sale of your product to the retailer/distributor/consumer to the point of actual consumption and the capture and transmission of the consumption experience back to the organization. This information has to flow to the right teams in operations, product and design so that there is a continuous improvement process built into the system.

Information like

• What happens when your consumers buy your products ?
• How did they like the product ?
• What would they like to see more of and what would they like to avoid?
• When do they need your services again ?
• In what scenarios do they like to get in touch with you ?
• And most importantly how can such information be driven through the organization to the right personnel so it meets its logical end.

So Why Has the Consumption Chain Been Largely ignored
Well a lot of information is still captured. Companies like to capture information of whats selling, whos buying it etc. But the lack of ownership for that data means that this information is hugely under utilized. The data is there but no one bothers. Its just that no one is sure who is responsible
for it and hense its just left there.

Marketing/Operations/Design who owns this anyway
Companies are still unsure who should use this information and how it must be put to use. In most companies customer feedback is still a marketing function than an operational function . Further a problem may have its roots in not just one but several departments. Ensuring that issues meet a logical end has be driven from the top management. I myself have been in so many scenarios at my bank or my favourite restaurant where I wanted to give some feedback but there was just no real way to do so. The ground staff seemed to just not want to accept the feedback as it would effect them directly .  As a result customers get indifferent to the business and there is no form of customer loyalty.

Addressing the Consumption Chain
Closing the feedback loop is a key step. It helps you understand the health of your business. How customers value your business and where you could be doing more. This allows operations to ensure that service levels are kept high and the businesses is healthy.

There is a quit a lot of work yet to be done in the consumption chain. If addressed well, we will have companies that are responsive and progressive.

United Breaks Guitars and an Expensive Lesson in Customer Care

Dave Carroll a musician from Halifax, Nova Scotia , traveled with his band and his guitar on United Airlines in the spring of 2008. The Guitar arrived broken and the airline did not bother to care for Daves complaints. Turns out after over 9months of pillar to post phone calls Dave decided to do what he does best and write and produce a song his experience.

Here is the story in short read the full story at http://www.davecarrollmusic.com/story/united-breaks-guitars/

dave carrol united breaks guitars

“In the spring of 2008, Sons of Maxwell were traveling to Nebraska for a one-week tour and my Taylor guitar was witnessed being thrown by United Airlines baggage handlers in Chicago. I discovered later that the $3500 guitar was severely damaged. They didn’t deny the experience occurred but for nine months the various people I communicated with put the responsibility for dealing with the damage on everyone other than themselves and finally said they would do nothing to compensate me for my loss. So I promised the last person to finally say “no” to compensation (Ms. Irlweg) that I would write and produce three songs about my experience with United Airlines and make videos for each to be viewed online by anyone in the world.”

With over 5.6Million views and 22,372 comments on you tube as of1st october 2009 the video and message have become a really big hit with lots of people relating to their experiences with UA. Many popular websites are carrying the story and the negative PR for United Airline cannot be even estimated.

What Just Happened?
Dave did not make just one phone call to UA. According to his version he tried to get his problem solved for over 9 months. And only when he did not receive any help he turned to the web to share his experience. This just shows how the problem does not lie with a single customer service representative but the process as a whole. How Customer Service can be carried out without a quantifiable way to check whether customers are satisfied or not. How small issues can be dragged on for years without and end. These problems always existed. All of us know that.

So what has changed?
The social media has changed the way information is created, shared, propagated and consumed. Individuals have the power of media that at one time only the biggest media houses could claim. At the same time user generated content is better received than productions. So while the problem always existed it is important to solve it now, because the customer will not sit down quietly. He will share is discontent with the world. And your One unhappy customer can make a huge impact on your business

This is a problem with most large businesses. One that has been ignored as it did not matter untill now. Can you still afford to ignore it?

The Hidden Multiplier in SAAS – Software As A Service

Off late I have been researching the SAAS model for a few concepts that I have been working on . The learnings have been quite interesting and there seems to be a “hidden” or overseen aspect that I would like to share today.

So for those who didnt know
SAAS is a delivery model which states that the software is provided ready to use off the internet on a pay as you go model. There have been some big success stories like SalesForce.com with 63,000 customers and about $1Billion USD in revenues and smaller but hugely popular ones like Basecamp from 37Singals with may be $10M USD in [i am guessing here] revenue.

The SaaS Revenue Model
The main source of revenue for a SaaS business is subscription fees [Most popular model]. Subscription fees are usually charged as Revenue = $X/Month. Now thats pretty simple for anyone to understand.

Revenue= Users * Subsription Fee * months

This is where things are a little more tricky than it seems

The “Hidden” Monster
Depending on what your application does. You may have just 1 user per customer or multiple users per customer. Lets take an example. In a CRM application, it is essential that each sales person has his own account so you can track who is doing what and who sold to whom. How ever in a SAAS website analytics tool. Each company needs only one account so even if it has100 people in the analytics team they would be able to use the application without any problem with just one single account. Lets imagine two SAAS Companies TheFlyingPan Co. selling CRM and TheFlyingStick Co. selling analytics.

If you were charging $40 per user for the CRM application, a sales team with 20 people would fetch you

TheFlyingPan Co.: Revenue = 20people*$40*12month = $9600 per/year from this customer.

However with the same monthly fee , if you were the analytics SaaS tool you would make

TheFlyingStick Co.: Revenue = 1 user account *$40*12months = $480 per/year from the same customer.

See the difference. Now presumably your cost of delivering the solution is going to be the same whether you are the CRM guy or the analytics guy. Yet your revenue is going to be vastly different to the point that your business model may just not be viable.

Now lets dig a little deeper

When it comes to selling your solution, wether you do door-to-door sales or online sales. There is always a cost per sale. Getting into a new account is always difficult and the cost of the initial sale is going to be high. Hense the profitability of the first sale is low. Now how does this effect our two companies.

TheFlyingPan Co.: ([Low Profitability ] First Account + [High Profitability] 19 subsequent Accounts) * Customers

TheFlyingStick Co.: ([Low Profitability] First Account ) * Customers

So , apart from making less money you also make less profit .

If you are offering a SAAS solution, review your business model. Does your application lend itself for SaaS. Infact, You may be well off with traditional models depending on what you offer. Review your numbers and make sure that the model you chose works for your business.