Digital Loyalty Network" Business Model Is More than 80 Percent More Profitable in the Global High-Tech Industry, Says New Study from Deloitte Research

Companies that create and maintain Digital Loyalty Networks" are 81 percent more profitable than those with below-average supply chain collaboration and sub-par customer loyalty, according to a new study by Deloitte Research, a thought leadership organization established by Deloitte & Touche and Deloitte Consulting. Released today, the global manufacturing report, entitled, Competing on Collaborative Customer Solutions: Differentiation in High-Tech Digital Loyalty Networks," focuses on this new business model which emphasizes relationship-based networks as the conduit to success in the highly competitive global technology marketplace.

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Digital Loyalty Network" Business Model Is More than 80 Percent More Profitable in the Global High-Tech Industry,

Says New Study from Deloitte Research

NEW YORK, February 12, 2002-Companies that create and maintain Digital Loyalty Networks" are 81 percent more profitable than those with below-average supply chain collaboration and sub-par customer loyalty, according to a new study by Deloitte Research, a thought leadership organization established by Deloitte & Touche and Deloitte Consulting. Released today, the global manufacturing report, entitled, Competing on Collaborative Customer Solutions: Differentiation in High-Tech Digital Loyalty Networks," focuses on this new business model which emphasizes relationship-based networks as the conduit to success in the highly competitive global technology marketplace.

The complexity of technology has made it virtually impossible for a single company to be everything to its customers. The technology companies who succeed in the maturing technology marketplace will be those that build and maintain 'Digital Loyalty Networks," said Doug Tuttle, global high-tech leader at Deloitte Consulting. Digital Loyalty Networks represent a new type of business model, where partnerships of companies provide a complement of products and services to meet their customers needs in a profitable manner-one customer at a time."

Digital Loyalty Networks Tie Directly to Positive Business Performance

The study provides an analysis of companies to determine the relationship of loyalty networks to business performance. In addition to finding that companies with loyalty networks are 81 percent more profitable than those with below-average supply chain collaboration and sub-par customer loyalty, the study also reveals that companies with loyalty networks are significantly more successful than companies with excellent supply chain integration but mediocre customer loyalty. In fact, they are twice as profitable and up to four times as likely to show superior shareholder value, sales growth, market share, and return on assets.

The Digital Loyalty Network as an Ecosystem

Jeff Balentine, industry leader for Deloitte & Touches Technology, Media & Telecommunications (TMT) Group equates the supply chain in a Digital Loyalty Network to an ecosystem. He said, The supply chain becomes an ecosystem with companies dynamically working with key partners to provide industry vertical solutions, not just hardware and software. This collaborative approach creates a new value proposition that will differentiate the companies that adopt the Digital Loyalty Network business model and help build unbreakable customer loyalty."

He explained, Like an ecosystem, the Digital Loyalty Network is a complex set of nodes, but theres a simplicity to each node. Digital Loyalty Networks optimize the entire ecosystem, from the supplier end to the customer. Its about building tight bonds of loyalty on all sides by consistently delivering successful solutions in a consistently profitable manner."

Loyalty networks are human-centric, not bits and bytes," Tuttle added. They are built on relationships and expand beyond a companys own four walls, using technology to enable the relationship, not as the center of the business."

In fact, digital and IT capabilities are paramount for a successful implementation of Digital Loyalty Networks. A well-developed digital platform with strong Customer Relationship Management (CRM), Supply Chain Management (SCM) and e-Business capabilities, and the ability to share and use information linked to customer loyalty, are essential components.

Developing Collaborative Customer Solutions Through Digital Loyalty Networks

Partnering across the 'value chain enables a company to deliver collaborative customer solutions that substantially differentiate it from the competition, while providing results-oriented, cost-effective solutions to customers," Tuttle explained.

A good example of a Digital Loyalty Network is a computer hardware company that partners with a software company and a management consulting company to solve a customers need in a given area, such as human resources, supply chain management, or manufacturing. By solving a customers need as a collective group, the partnership creates a loyal customer," he pointed out.

In a Digital Loyalty Network business model, partners collaborate to deliver-for each customer-a superior, differentiated experience that meshes with that customers requirements. Doing that effectively and consistently over time is the real test of the strength of a Digital Loyalty Network. The right partners are essential to success, and all partners must be creative and flexible as they define unique customer solutions.

Customer Satisfaction Improves by 50 Percent

In this reports study of early adopters using Digital Loyalty Networks, customer relationships improve by 50 percent. Loyalty Networkers are far more likely than their competitors to report exceptional performance on their goals of overall customer satisfaction," Tuttle said.

To succeed, customer loyalty strategies must be flexible and dynamic, and elements that drive loyalty are likely to vary from customer to customer and from solution to solution, according to Tuttle.

Supply Chain Performance Improves by 30 Percent

Companies that operate under the Digital Loyalty Network model invest in information technology to improve supply chain efficiency and responsiveness.

Balentine said, The results are impressive-an across the board 30 percent increase in performance in the three key areas for supply chain success: inventory reduction, parts shortages, and speed of new product introduction."

The combination of customer loyalty and supply chain collaboration is essential to generating this level of success, according to the report.

Implementing Digital Loyalty Networks To Improve Business Performance

The report provides detailed information on implementing Digital Loyalty Networks, including:

(1)    Partnering and loyalty: Developing a network for every customer

(2)    Beyond solution selling: How to engender loyalty

(3)    Key challenges for collaborative customer solutions: Single-brand vs. multi-brand

(4)    Using a loyalty strategy to drive differentiation

(5)    The Payoff: customer and supply chain benefits

The report also explains how high-tech companies need to think of their proliferating partnerships of hardware, software, and service vendors, putting major high-tech alliances into perspective, including: Dell/EDS, EDS/Microsoft/Compaq, IBM/Ariba, Fujitsu Siemens, and Computers/f5 Networks.

Loyalty among partners and customers is essential to success and will become more so as technology continues to become more complex. Ensuring the right balance between customer loyalty and profitability, customer requirements in terms of partners, products, and services, and total supply chain costs is a challenge, but it will be the root cause of business success today and in the future. It must be done-one customer at a time and over time," said Peter Koudal, director at Deloitte Research.

Three Essential Keys to Establishing the Digital Loyalty Network Business Model

According to the study, in order to build and maintain an effective Digital Loyalty Network business model, companies must be able to:

(1)    Effectively pull together the key data and analysis needed to drive differentiation, including information about each customers loyalty, profitability, and requirements, as well as a holistic understanding of partner and supply chain capabilities and costs to serve each customer.

(2)    Have the ability to develop and manage a flexible portfolio of partnerships that can efficiently satisfy and deliver success to customers one at a time, over and over again.

(3)    Transmit and use real-time information about customer loyalty requirements and supply chain costs throughout the network to effectively create collaborative customer solutions for differentiated customer experiences.

About Deloitte Research

Deloitte Research, a permanent thought leadership organization established by Deloitte & Touche and Deloitte Consulting, provides ongoing research and insight into the critical global and industry-specific issues facing business today. Comprising both practitioners and dedicated research professionals from around the world, Deloitte Research combines industry experience with academic rigor. The groups research identifies and analyzes the market forces and major strategic, organizational, and technical issues that are changing the dynamics of business. For more information about Deloitte Research, visit www.dc.com.

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Deloitte & Touche and the Deloitte & Touche logo are trademarks or registered trademarks of Deloitte & Touche. All other product and company names and marks mentioned in this document are the property of their respective owners and are mentioned for identification purposes only.

Deloitte Consulting and the Deloitte Consulting logo are trademarks or registered trademarks of Deloitte Consulting. All other product and company names and marks mentioned in this document are the property of their respective owners and are mentioned for identification purposes only.

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