“Tasting” the McCafe’ business model

McDonalds announcement to introduce McCafe’ line of business brought many controversies during past year or so. One of the comments from a journalist was about hard-to-immagine truck diver who jumped in McDonalds for a fast and cheap hamburger lunch, asking a fancy cup of latte macchiato. Is this a problem? I went to the Zagreb McCafe and “had a taste” in person of the newly introduced McDonalds business model. Read about it in the furhter text and let me know what do you think.

A coffee shop in the hamburger kingdom

A year ago I read a lot about controversies about McDonalds’ decision to introduce coffee shops within their existing restaurants. At the time one of the many skeptics wrote that he couldn’t imagine a truck driver entering a McDonalds restaurant, taking a cheap lunch and ordering a fancy cup of coffee. There where many opinions that McDonald’s intrusion into Starbuck’s playground will turn into failure. There where many believing the opposite though.

Mc’Donalds decided for two approaches to introducing coffee line in its existing business:

1. In US the coffee line of business is integrated into the existing front counters

2. Separate counter and cafe’ – style furnishing within existing restaurants, started in Australia in 1993. This model started to extend to Europe in 2009.

In Zagreb the first McCafe’ was introduced in autumn 2009. I was really curious about what will be the success. These days I had the opportunity to “taste” the business model, through customer goggles. Here is my experience and annotations.

Me and my laptop walked through the McCafe’ door due to a reason different than usual choice of a cafe’. After the temporary suspension of the anti-smoking law in Croatia, McCafe’ remained one of the very rare places in Zagreb where one can enjoy a coffee without having to take the role of a secondary smoker.

Nice cakes, but where is the WiFi?

From customer perspective it was a decent experience (as I didn’t poor the coffee on my keyboard this time, my laptop will not be asked about his opinion :-)). The McCafe’ (at Zagreb at least) is smoothly integrated into the standard fast food area. As my idea was “work-and-coffee“, too many children running around after 3 PM where disturbing eventual phone calls. As some customers claimed to the Business Week’s reporter (http://www.businessweek.com/magazine/content/09_40/b4149070703260.htm?chan=globalbiz_europe+index+page_management+%2Bamp%3B+learning) in her article about McCafe’ penetration in Europe, the smell of French frites and hamburgers does spoil the coffee shop atmosphere. Indeed. During my stay at McCafe’ I really missed a WiFi link and a coffee sized less than a mid cup. What about a “small macchiato”?

When trying to have a look from the back door, my estimation is that the business model is placed on healthy basis. Here is why.

My only concern is that the McCafe’ bar seems often too empty, but the rest of business case seems to be built around productivity and up sell.

First, it is pretty hard to resist some of excellent, yet pretty expensive cakes, when you jump in for a cup of coffee.

Additional argument on up selling that keeps the business running, are many parents that approach the McCafe’ counter after having ordered food for their children at the fast food counters.

Productivity + up-sell is the name of the game

From productivity perspective, McCafe’ shares existing resources (such as cleaning personnel) with the rest of the restaurant and employs fewer personnel than an average coffee shop. Actually only one lady is taking care of the whole McCafe’ experience, including coffee making, cakes decorations, billing and the inevitable “enjoy” phrase.

Comparing with a traditional coffee shop that engages a “running waiter”, in McCafe’ the productivity is additionally enhanced by the fact that customers serve them selves at the bar and clean their desks afterwards by bringing their trays back to the McCafe’ counter. It is worth mentioning that the price of a small cup of coffee is among the highest in Zagreb area (10Kn = 1,3€, cca 2$). More expensive coffee can be found at a few very fancy places and 4+ star hotels.

Cakes to go

In terms of cross selling and reusing existing resources, McCafe’ has thought about the possibility to sell cakes “to go”, extending their presence to home parties and celebrations. McDonald’s has extended its business model to coffee line of business, without actually having to innovate, or spend too much. They got all of it already – food “to go”, restaurant management, location, experience management, standards,…

The Business Week’s article cited above, brought an estimation of Jeffrey Young, managing director of London management consultancy Allegra Strategies that the investment for a new stand alone Starbucks in Europe is at least tripple the amount of that for a McCafe’ within the existing McDonald’s facitilites. I’d add that it is the same ratio, if not higher, when talking about the daily business expences (personnel, energy and the like).

All in all it seems that there was no place for skeptics when talking about McDonalds introduction of McCafe’. The new line of business is all about up sell and reusing the existing resources. This was a simple business idea, and simply hard to miss. And here is a simple thought for the end: If these are results of a marriage between hamburgers and cappuccinos, think about the consequences of the merge between mobile (T-Mobile) and land line (T-Com) telecom operators.

My article on IVR systems – PART 2 (translated to English), Banka magazine, May 2002

This second part of the article published in Banka magazine in May 2002 talks about the recent technologies and trend in Interactive Voice Response (IVR) industry. While the first part of the article is pretty universal from time perspective, this one has to be read taking in mind that it was written in 2002. Today the major change is about today’s handy nature of mobile broadband and all the services and applications that exist on modern mobile devices. Enjoy reading how the future looked like in 2002.

IVR – technology for a great compromise – PART 2

Part 1 of this article was posted immediately before the Part 2. I recommend to read it first.

If you will use this text for publishing or academic purposes, be so kind to cite the author and source: Alen Gojceta, Banka, 05/2002. Thank you!

The Future of IVR

Except the growth of the number and size of call centers and the need to reduce their labor costs, the IVR market growth forecasts rely on new technologies that enable easier and more natural interaction comparing to the one based on tone dialing and pre-recorded speech sequences.

Here we primarily emphasize Natural Language Speech Recognition (NLSR), Voice Recognition (VR) and Text-to-Speech (TTS) technologies. Growing trends are as well driven by the new approach to using IVR technology, so called voice portals.

When it comes to advanced IVR technology, the future has already begun. Many solutions already exist. Due to the complex technology, there are a few suppliers of functional NLSR, TTS and VR software products in the world. To support these technologies, the leading providers of IVR systems usually integrate technological solutions by niche software vendors such as Nuance and SpeechWorks.

NLSR technology supports giving instructions to IVR by voice, using natural language. In the case of well-designed system, an order will be given in spoken like: “I want to make 550$ transfer from my savings to my current account”. The machine will perform the operation without employee interference. NLSR makes possible what was hard to imagine, and in some cases, it is inevitable replacement to the traditional service management based on tone dialing.

TTS technology enables translation of any digitally stored text to speech. In this way it is possible to dynamically leave a message to a caller. For example, a bank client contacts the call center to check the status of his account or other routine interaction. After identification of the client, the IVR automatically communicates a personalized message that was entered into the system in form of text by a bank employee in the loan approval department: “Dear sir (Jones) we are still waiting for your mortgage estimation to close your credit claim. Please contact mrs. Patty on 123456. Thank you.”.

VR technology is based on voice recognition algorithms that rely on original features of each individual’s voice. VR is one among many increasingly popular biometric identification methods, based on specific characteristics that are unique for each of us, such as fingerprint, eye pattern, and even the DNA structure.

All this technologically demanding solutions are based on complex mathematical algorithms and artificial intelligence technologies, such as neural networks. Important role in its success have the ever more affordable processor power and storage capacity.

The companies providing these technologies have operated at loss for years, funded by capital from different sources. We are witnessing a market capitalization of the few that survived. New technologies are constantly making management of IVR services easier, transforming in this way the IVR platform from a system of compromises to a system of customer desires.

Voice Portals

Voice portals are single access points that allow a caller to retrieve different types of information or manage personal communications services, by voice using the telephone service. Voice portals integrate Natural Language Speech Recognition (NLSR), Voice Recognition (VR) and Text-to-Speech (TTS) technologies with the communication infrastructure and application expertise. Simply put, voice portals are IVR systems with extended functionality resulting in increased ease of use and a better flow of information, thanks to the use of new technologies.

The concept of voice portals is very similar to the concept of web portals, so the supported types of services are very similar to those on the Internet. Most of these services will be focused on content, communication, voice commerce (as opposed to online store) and remote access to business resources.

The advantage of voice comparing to web portals, is in the handy nature of telephone communication. Consequently, the information that the user “pulls” by a phone will be the one that is urgent, updated and time sensitive.

As in the case of web portals, business organization behind the voice portal is a labor-intensive and complex. Therefore, their maintenance is left to specialized organizations that provide such services on the market. In line with this need, recently a new category of service providers appeared – Voice Application Service Providers.

Today (2002) we can identify a large number of application cases using the advanced IVR technology in various industries such as booking systems in tourism and passenger transport, access to financial data and performing transactions in banking, retail and catalog sales, accessing information of the government administration, CRM applications at mobile service providers…

As already mentioned, the Croatian market of “traditional” IVR systems is well developed. We will still have a lot to wait for new technologies like NLSR or TTS due to high cost of development of new languages patterns. But this is the fate of all small “non English speaking” markets.

END

My article on IVR systems – PART 1 (translated to English), Banka magazine, May 2002

This is the English translation of an article published in Banka magazine in 2002. The article is about Interactive Voice Response devices (IVR). IVR systems find their “best fit” within call center environments where they represent the “finest compromise” of a CRM strategy. This is the first part of the article, addressing pretty universal topics of CRM, IVR and call centers, and therefore still actual, despite its origin from 2002.

IVR – technology for a great compromise – PART 1

If you will use this text for publishing or academic pursposes, be so kind to cite the author and source: Alen Gojceta, Banka, 05/2002. Thank you!

CRM – the concept of technologycal compromises

One of the basic postulates of any CRM (Customer Relationship Management) strategy is to make customer’s interaction with the organization easy and accessible. Taking an ideal situation from the financial industry as an example, it would mean that each of us had his or her personal banking clerk on full disposition. In accordance with our wishes, let’s call him Super personal banker. He would appear at our office or apartment shortly after we called him. In a pleasant atmosphere, he would carry out the necessary transactions, advise on investing our money, and help us select the optimal insurance policy or recommend the best plan to close our loan. Of course, in this ideal case, the client would not need to pay considerable financial amount for such a great service.

It is obvious that the ideal case for a bank is not the same as the ideal case for its clients. That’s why the CRM strategy is usually characterized by multiple win-win challenges, where such wins-wins are necessarily converted into (winning) compromises-compromises.

Managing customer relationships is basically oriented to managing such compromises. By balancing between the cost of advanced customer service and provided total added value to the client, healthy development of a successful CRM strategy is assured.

IVR – the simplest service making the greatest savings, 24×7

The existence of a call center as supporting tool for an advanced CRM strategy also represents a compromise of its own. Whatever our position on cost is, a call center is a pretty expensive tool for any service provider, looking on a short or long term. The reason is simple – the price of labor makes up to 70% of the total call center cost. Exactly for this reason, there are machines that substitute different functions in the Call Center. These machines are called Interactive Voice Response (IVR) devices.

When talking about telephone communication, IVR devices represent one of the most common compromises of advanced customer relationship management. IVR is, in its principle, a computer that performs certain activities automatically upon caller’s requests, given by phone.

IVR functions can be divided into two basic groups.

First, filtering phone calls based on who the caller is and what is the purpose of the call, and finally attaching such attributes to the call. Based on those, calls are further processed within the call center routing algorithms. Processing herein means operations such as identification of caller’s segment, call routing to a particular agent or group of agents, triggering certain applications to enable agents solving caller’s requests. All of it based on the attributes that IVR has attached to the call.

Second, automatically solving telephone inquiries, usually via dial tone or voice recognition. IVR can read the data, both dynamically from a database, or just play predefined recordings from static voice boxes. Responses to inquiries can be using voice, by fax, or via e-mail. Usually the answers are numbers synthesized by a computer, from pre-recorded sequences. There are several providers that offer IVR solutions with messages in Croatian language. Known examples of IVR solutions in Croatia are widely adopted various forms of automated telephone banking in different banks, popular Infozap and devices for activation of prepaid services for GSM operators.

IVR applications are mostly being easily made and changed by special tools. There are cases when those can not be changed. Such machines are usually intended for specific areas of application as complete solutions.

IVR role in call center environment

In the Computers and business insert of the last issue of Banka magazine (03/2002), there was a Gartner’s estimation that IVR systems within call centers will be one of rare segments of the IT market that will record higher growth rates than average. This is not unusual. In the EMEA (Europe, Middle East and Africa) region there is an average of 5 new call centers a day. Different analysts predict growth of the number of call center agents in Western Europe between 400 and 500% for the period 1999 – 2004. Although IVR systems can function as standalone solutions, their real value is shown when implemented within call center ecosystems.

The growth of the total number of employees in call centers and growing number of transactions and CRM processes that rely on telephone communication causes growth of the related work force cost. IVR solutions are among the most effective vehicles to reduce this cost. Of course, such solutions are driven by compromises introduced earlier in this text. IVR lets service providers to provision simple information to its users in an inexpensive and efficient manner, 24 hours a day and seven days a week. Customers have the ability to access frequently requested services and information, in a relatively simple manner, with guaranteed quality and availability. The compromise is reflected here in the lack of human contact and unpopular scrolling through predefined dial tone menus.

There are two factors where IVRs significantly reduce labor costs in Call centers: reduction of the needed number of agents due to the calls managed by the IVR, and reduced turnover of agents who are released from boring, repetitive and uncreative activities.

Statistics say that, usage of an IVR system reduces the average call length for 18%, which cause reduction in related labor costs. In today’s call centers around 12% of calls are resolved within IVR systems without any interaction with “live” agents. In some industries, such as financial services, entertainment and tourism, this share ranges even between 16 and 18%. Moreover 35% of total calls, before being routed to agents, are received to the IVR system.

Health Risk Management – an example of a successful IVR implementation

This case study has been extracted from a Lucent white paper. The source document is available today (January 2010) at: www.goldsys.com/…/21-Gold%20Systems%20Health%20Risk%20Case%20Study.pdf

Health Risk Management Inc. (HRM) is a company from Minneapolis, United States, which since 1977 provides health care services and health risk management. As a part of the U.S. health care system, the HRM takes care of the medical insurance coverage for health treatment expenses. They assess health risk and serve as an intermediary between health institutions and health insured.

Like other companies in the industry, HRM already owned an IVR system which provided restricted functions to callers, such as checking the status of their requests. In order to reduce traffic and offloading call center representatives, HRM decided to introduce two IVR applications: the eligibility of patients for medical services and health insurance benefits. In addition, the existing application, that checked statuses of requests for refund of medical services, was enhanced.

While the old application was limited only to communicating the status of a request, the new one has added information about reasons of delays. In addition, the insured was able to get the information about the amount of health services covered by the insurer and the remaining of the amount to be paid. As part of advanced customer relationship, support for Spanish language was introduced. Some HRM customers had up 15% of the Spanish-speaking insured. The new application eased their access to information through their native language.

Calls to check eligibility of a policy holder for a particular health service where performed by physicians and medical institutions. IVR application used to return the information about the status of an insured, services covered by health policy and its expiration.

When integrating applications for medical benefits, the major challenge was how to communicate complex, accurate and understandable information from a wide selection of options in a reasonably short time. HRM was able to overcome this obstacle by achieving the most important compromise of IVR systems – releasing people of simple tasks, thus making a machine provision easy and fast automatic self-service, enforcing customer satisfaction.

HRM’s success was complete. IVR system was very well accepted. It used to completely resolve 58% of 50,000 calls dialed during the first three months. More importantly, the surveys among users showed no objections to such self service “information supplying system”.

TO BE CONTINUED IN PART 2… My next post will be the last two paragraphs of this article: “The future of IVR” and “Voice portals”. My plan is to post it on January 11 2010.

My article on call centers translated to English, Banka magazine, February 2002

Call centers represent the very hearth of a CRM strategy. Why do we need call centers? How do we choose it and what is the experience of those who decided to modernize their customer interaction environments? These questions and more I tried to answer in this article, published in 2002 in Croatian Banka magazine. I have translated it to English for the convenience of all English speaking visitors of this blog.

Call centers in the mission of customer satisfaction – the thing is (not) about technology

If you will use this text for publishing or academic pursposes, be so kind to cite the author and source: Alen Gojceta, Banka, 02/2002. Thank you!

Call centers today are unavoidable part of a successful strategy of advanced customer relationship management, known as CRM (Customer Relationship Management). In brief, CRM is set of rules, technological procedures and applications that companies implement, on large customer base, to simulate close relationship, which is usual between customers and small corner shops. Large customer base, in this case means thousands, hundreds of thousands or millions of users.

CRM strategy was built during early nineties in economies where keeping the existing customer base became a priority due to high penetration of products or services and existing strong competition.

Looking from this perspective, the CRM strategy is a natural process that can be recognized already on economic models of ancient world – when the logistics and human resources where not capable for new conquests (which where very often the means of economic growth), fortification and preservation of existing properties used to take place.

Concept of CRM today suggests technology as being in the “first line” of relationship with the customer. This technology include applications for managing marketing, sales and provision of user services, including communication channels that allow managing interactions with individual persons, belonging to a large customer base, who influence buying decisions or is involved in use of products or services.

The heart of CRM strategy

Call center, as technological solution for efficient and effective telephone communication with a large customer base, most often represents the very heart of a CRM strategy.

Choice of the most appropriate call center solution depend on the form and level of integration of business processes, number of daily calls, intensity of marketing campaigns, ratio between inbound and outbound calls and integration of different communication channels that would be used. As higher the quantity of calls (interactions) is, the more advanced Call Center technology has to be for management of inbound and outbound calls.

Users want to do business with organizations in a simple way. Take as example a bank customer that wants to know how and under what conditions to refinance a housing loan. By dialing a free phone number of the bank, he quickly gets the right person with the right information and, preferably, a solution to the problem in a form of revised contract received at his home the next day. Interactions as described are proved to assuring increased customer’s commitment to a bank that provides such fast and efficient service. Study conducted in 1998 by the JD Power and Associates on a sample of 10400 users of services of five leading U.S. credit card issuers, revealed that price was not decisive. The study showed that the quality of service was the key to retention and customer satisfaction. In this type of business, the service is reflected in three major elements: the quality of call center contacts, transparency in payment processing and perceived financial strength and confidence about these companies.

Exactly due to the need for fast and quality interactions, some invisible items of call center operations can be critical to success. As larger the call center is (proportional of the number of daily contacts) as important becomes technological side of the solution to enabling the business success.

Success factors

There are two magic formulas that indicate the success of a call center supporting CRM strategy: service levels, and customer satisfaction.

The level of service is measured in percentage of calls that are received and processed in a certain time frame compared to the total number of calls. The level of service of a call center is directly connected with intelligent call routing capability. This would ideally mean that the system automatically recognizes the phone number and the individual customer, anticipating his or her reason of call, and addresses the most appropriate call center agent to handle the call. If the most appropriate agent is busy, the system will, in order to preserve the required service levels, make a compromise and forward the customer call to the following most appropriate available agent. Thus, the system will try not to let customers wait too long or ultimately hang up the call. You certainly have that experience when, after your call, you keep hearing the famous “Wait a minute …” phrase for some minutes more than you can stand.

Such behavior is unacceptable for a service provider who wants to build long-term relationship with satisfied customers. Customer satisfaction is a direct consequence of the level of service, and other processes that affect the speed, quality and efficient customer service. Advanced call center technologies ensure that your call is not infinitely rerouted among agents and departments.

Also, after a caller establishes communication, the agent has to be enabled to perform the desired transaction, provide information or to start a process. Customer satisfaction depends not only on call center technologies. In addition, it is supported by a whole set of CRM applications and processes, including internal company organization. It is therefore important, when deciding about call center technologies that the platform is open and capable to integrate with different CRM applications.

Despite the fact that it is hard to intuitively perceive measurable results of usage of advanced call center technologies, the experience is positive. On larger call center solutions that engage fifty or more agent seats, advanced technology may affect increase of service levels to from 20% to 95%. It means that the number of calls not solved would be reduced from 80% to 5%.

Problem solving solutions

Faced with deregulation of the market in Eastern Europe and aggressive new competitors who where realizing multiple growth rates, one of the leading telecommunications company in its region find itself in situation of redefinition of their business model, including managing of relationships with existing customers. After decades of enjoying the benefits of monopolist position, the company was forced to change the approach.

Given the relatively low market penetration, the challenge was twofold: to attract new customers and preserve the existing ones. Preservation of the existing customer base was the task of the customer care department. For the first time in their history, they started to measure the effectiveness of the existing call center. The results were disappointing. In some periods, almost 80% of the calls happened to be lost or otherwise unresolved. Users where giving up because of infinite redirections of calls. The existing system was not capable to support traffic peaks, so it simply used to refuse the calls or let them for long waiting.

A decision was made to implement a call center solution with advanced technologies and intelligent call routing, where agents where divided into dynamic groups based on their expert knowledge and skills. Transformation that followed was amazing – calls where positively solved within first attempt in 90% of cases. Users were satisfied and, combined with the efforts of the marketing department; the service provider has adopted growth rates comparable with the new competitors.

This is just one of dozens of similar examples. One well known case concerns Capital One, the credit card issuer. PricewaterhouseCoopers brings this case in their book on the CRM (Stanley A. Brown, Customer Relationship Management). After strong growth rates of customer acquisition, based on aggressive pricing policies and marketing approach, Capital One has lost its pace showing below market average growth rates.
After measurement of customer satisfaction, they realized that the ineffectiveness of their call center significantly increased with the enlarged customer base. Due to the increased diversity of their products and services, the need for segmentation and customized approach became more important.

With the introduction of technologically very advanced call center in combination with advanced CRM technologies, the level of customer satisfaction increased significantly. The average length of calls as consequence of increased efficiency fell to one third of the previously measured.

The cost reducing factor

Modern Call center technologies do not only bring the benefit of satisfied customers. The same solutions that contribute to increased customer satisfaction reduce the costs of call center management, where human resources cover 60 to 70% of its total costs. Five to ten thousands of daily interactions make a very common number for a market of Croatian size. Such amount of calls can be generated by customers of a company which is among market leaders and puts strategic focus on modern channels of communication with customers.

Assuming an average call time of four minutes, saving thirty seconds per call, on pattern of 5000 calls a day, would mean saving more than forty man-hours per day. For the same functionality it would take five agents less. In the same way savings in network costs and other call center costs occur. This calculation is very approximate and does not include the distribution of calls during time, queuing, traffic peaks and a host of other factors. But the message is clear. Significant are savings than can be achieved by changing the business channel model. Good integration of business processes within the call center can significantly unload or even replace the traditional and costly forms of interaction with users, such as “brick and mortar” offices.

Call centers are a paradox of today’s business philosophy that is focused on close customer relationship. From organizational perspective they look like sophisticated, automated mass production factories, while their end product is intimacy of corner stores and, consequently, user satisfaction.

In the next issue of Banka magazine’s Computers and business, we will address technologies that enable automatic service provisioning, without direct client’s contact with the call center agent, such as IVR (Interactive Voice Response) and CTI (Computer Telephony Integration).

Hi folks – the blog intro post

This is my first post. After having brought a difficult decision on which blog platform to use, I have chosen to install the WordPress on my domain. I must say that the people from Google’s Blogger are great and I’ll probably never know if my decision was really right.

My vision is to provide here 3 different categories of blog posts:

  1. Posts in English about leadership, sales and marketing (mostly on CRM)
  2. Posts in Croatian language about same as above + some thoughts about how to make my country better
  3. My articles, published in different Croatian business magazines. Translated here in English (I’ll post as translated one by one – the first one right after this post)

In addition there will be a separate page with my academic work. I plan to provide this work in English and Croatian (I’ll probably need a sponsor for translation :-))

You can follow me on Twitter (search agojceta, untill I install a widget on this web site).

Enjoj