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The Magic Behind Customer Innovation

Microsoft Looks to the Cloud to Build Customer Relationships

If you have a computer, chances are you have some experience with Microsoft Office. The software set the standard for word processing, spreadsheet management, and other computer activities. The company led many of the technological innovations we now take for granted when working with computers.

Microsoft is innovating once again. Though this time, products are not the focus. The software giant is beginning a transformation from a product-led culture to one designed around service.

In January 2013 the company launched Office 365 for the consumer market. The latest version of the business software is a cloud-based subscription model. Today's consumers are mobile, have multiple devices, and require more than a per-unit product model. Microsoft knows it must innovate around the customer to compete in this new reality.

It's widely accepted in the tech world that cloud and service-oriented innovation is the future. It's not about pushing product volume anymore. Customers want to be part of a continuous subscription model, using relevant products and services within the entire solutions ecosystem. Success with this model requires improved customer relationships. So alongside the new product launch, Microsoft worked with Peppers & Rogers Group to create a customer retention and renewal program.

It's too late if a company creates the service experience after a product is launched. Companies need to understand their customers from the day they become customers, throughout their whole lifecycle. This type of thinking is a fundamental shift for Microsoft.

Innovation for Microsoft comes from the ability to gather data from multiple sources to understand what's going on behind the scenes to drive insights and decision-making across the entire customer lifecycle. In the past, there was product knowledge and behavior data available, but it was rare for the company to combine multiple data sources to create a big customer picture.

Microsoft's newly created product intelligence group is tasked with building the capabilities to anticipate, understand, and predict customer needs to drive the next best action. The Peppers & Rogers Group team partnered with Microsoft's Gagan Bajaj on this team to design churn programs for the new service.

Fighting churn before it starts

In the cloud-based model, long-term relationships are critical. Customer acquisition costs are much higher than customer retention costs, making customer churn very expensive. Customer retention becomes essential to strong ROI. The project included learning about retention program best practices across industries and creating foundational models ahead of the Office 365 launch.

Research revealed that customers churn for one of four reasons: cost, value, need, and experience. By understanding the drivers of churn in each of these four categories with different customer groups, Microsoft can mitigate the churn risk in efficient and effective ways. In addition, different customer groups tend to churn at different rates. The team looked at how to mitigate risks across those and other dimensions. The four churn models to "build muscle around" include:

  • Predictive churn management to prevent consumers from considering whether to churn.
  • Reactive churn management once consumers communicate their interest in churning.
  • Moments of truth identification within the customer lifecycle that may trigger a churn or no-churn decision.
  • Win-back initiatives once a customer has canceled a subscription.

Much of the data to enable the models currently exists in silos. Microsoft knows which customers call into the call center and what products they use, but not what features within Office they use most, how long they've been a customer, or what other Microsoft products and services are in their household.

Being predictive involves creating an end-to-end customer journey. Holistic customer experience data will provide meaningful insight in order to create the correct predictive models. In this regard, the team is creating a common set of metrics for the entire company to use.

And because differentiated treatment is required, customer value becomes an extension of Microsoft's retention strategy. The team has begun to develop models that segment consumers based on their lifetime value to develop customized treatments for different groups over time.

Outside-in transformation
The biggest challenge to Microsoft's initiative is that there are so many unknowns. It's a new product launch backed by a new service-oriented culture led by a newly formed internal team. It requires people to put a lot of faith in the project. But senior leaders know that focusing on serving customers rather than selling products is necessary going forward.

It's too early to garner any results, but the team can point to last year's successful Office 365 launch for the small business commercial group as a possible predictor. And it's important to remember that this initiative is more than just another product launch. The project represents a new way of doing business for Microsoft that leads with the customer.