The surprising truth about which countries lead in digital

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Here is a brief excerpt from an article written by Jorge Amar, Raffaella Bianchi, and Daniel Svoboda for the McKinsey Quarterly, published by McKinsey & Company. To read the complete article, check out other resources, learn more about the firm, obtain subscription information, and register to receive email alerts, please click here.

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While European and US companies are at different stages of their digital maturity across sectors, they can each take specific steps to increase digital market share. Here’s how it’s done.

Which country leads the world in digital? Many might be tempted to answer that the US does, but the answer actually depends on what aspect of “digital” you’re looking at. When it comes to Internet penetration, the US has much higher rates than in the EU, 88 percent compared with 71 percent. But dig a little deeper and the picture changes.

Where Europe has the edge

When it comes to customer preferences for digital channels, Europe is way ahead. Recent McKinsey research examined the digital customer experience in the mobile telecom sector and found that European customers are more open to digital services than their US counterparts. Almost half of them would be happy to manage their relationships with providers entirely through digital channels, for instance, compared with fewer than a third of customers in the US. In both sales and customer care, levels of awareness and usage of self-serve digital channels (such as mobile apps) and live digital channels (such as web chat) are already markedly higher in Europe than in the US (exhibit).

Similarly, European banking customers are more likely than Americans to prefer digital to physical channels. Another recent McKinsey survey found that 58 percent of Western Europeans (and a hefty 85 percent of Northern Europeans) prefer digital to branch-based transactions, as against only 52 percent of US customers. That’s despite the fact that digital banking has higher penetration in the US (at 73 percent) than in Western Europe (60 percent).

The European digital edge seems to extend to other categories too: 24 percent of car-insurance sales take place online in Europe, for instance, compared with 17 percent in the US; similarly, for personal loans, the shares are 27 percent and 16 percent respectively.

Customers in Europe are much more likely to use digital channels than stores or call centers, whether they are adopting a new service, reporting technical problems, querying bills, or making admin changes, whereas US customers still prefer to use stores, and to a lesser extent call centers, for some of these needs. What’s more, European customers are more satisfied with “digital only” experiences than with wholly traditional ones, which is not true of their US counterparts.

However, common ground emerged when we asked users of traditional channels what was deterring them from using digital services. Telecom customers in both regions expressed a preference for speaking to someone in person, though this sentiment was more marked in the US (three times higher than the second preferred option) than in the EU (twice as high).

Why the difference?

Consumers tend to adjust their expectations to the offer they receive, and in industries where companies have heavily invested in digital—such as retail, with Amazon—Europe and the US both show strong penetration. In the telecom market, the differences in the pace of digital adoption can be explained by four structural differences in the markets:

1. Fragmentation, competition, and cost pressure. Europe has a more fragmented market than the US, with many smaller players, including mobile-virtual-network operators (MVNOs), engaging in fierce competition on price and costs. As price levels were forced down, telecom providers used digital channels to find savings. On the other side of the Atlantic, US companies operating on a greater scale were able to spread their fixed costs over a bigger base and did not feel the same pressure to reduce their operating costs.

2. Innovative business models. New entrants in Europe such as Free, Congstar, and GiffGaff have sought to use distinctive digital elements in their business models as a way to pull ahead of the pack. In turn, traditional operators in the EU have been forced to adjust their customer- service models and make more use of digital channels.

3. The US emphasis on physical presence. Traditional US telecom operators have focused on developing their store networks and personal service, training their customers to go to stores to buy handsets and get service. This makes it harder for them to push digital channels and handle the resulting channel conflicts. Nevertheless, omnichannel customer behavior—shifting seamlessly from one channel to another—is slightly more common in the US than in Europe: 48 percent of American customers looking for mobiles do their research online and then purchase from a store, for instance, compared with 43 percent of Europeans.

4. Dependence on physical presence for upsetting and cross-selling in the US. US companies generate significant revenue from traditional channels (stores and call centers) and so are reluctant to introduce digital-only customer journeys.

Overall, the more competitive environment in European markets has produced a stronger digital offer for consumers, who are in turn more comfortable using mobile and online channels for most of their needs.

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Here is a direct link to the complete article.

Jorge Amar is an associate partner in McKinsey’s Stamford office, Raffaella Bianchi is a senior expert in the Milan office, and Daniel Svoboda is a partner in the Prague office.

The authors would like to thank Katrin Bastian, Roberto Bresciani, and Marc Thibaut de Maisieres for their contributions to this article.

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