This is a great customer experience summary from Christopher Koch at SAP.
Yes, we’ve done the work so you don’t have to. Our eyes still glowing red from the pain of poring over the arcane verbosity of dozens of academic research papers (though a few interesting books helped ease the inflammation; some are noted below), we’ve compiled a list of what we think are the most important questions to ask about the customer experience and, based on our research, come up with the clearest, simplest, and most complete answers to those questions. Please let us know if you agree.
Many experts like to say that customer experience is any interaction that customers have with a company. But some interactions matter more than others. The ones that matter the most have a measurable impact on the answers to these two questions:
What do your customers think about you?
What do your customers do based on their perception of you?
Because customer loyalty is the closest thing to a holy grail in customer experience and these two questions represent the two components of customer loyalty: “attitudinal loyalty,” which means having a favourable mental impression of a company, and “behavioural loyalty,” which means that they don’t just like you, they buy from you – and keep buying from you.
Research shows that attitudinal loyalty plays the biggest role in customer loyalty. If customers have a positive emotional outlook towards the customer experience, especially when measured against a competitor, they are more likely to buy from you and become loyal (repeat purchases). Research shows that customers’ evaluations of their experiences mirror the emotions they display during the interactions they have with companies as well as the feelings they experience after the encounter. If those emotions are negative, you can kiss sales and loyalty goodbye.
No. Customer service is just one slice of the customer experience. Customers only contact customer service when they have a problem. As authors Harley Manning and Kerry Bodine put it in their excellent book Outside In, “Equating customer service with customer experience is like saying that a safety net is a trapeze act … If the performer has to use the net then something is wrong with the show.”
You want them to like you, really like you. A positive attitude toward your company and its products or services has direct ties to customer loyalty and satisfaction. So any efforts that you make to improve customer experience should be considered in terms of how they make customers more satisfied and more loyal. If they are more satisfied with the experience you offer leading up to the sale than competitors, they are more likely to buy from you. If they feel more loyal, they are more likely to buy from you repeatedly.
However, it’s important to keep in mind that satisfaction does not necessarily lead to loyalty. For example, a customer could be satisfied with her experience with you but if a competitor offers something comparable or better she may buy from them next time. Customer experience efforts should drive towards making you customers’ preferred choice. (This distinction between satisfaction and preference is what has helped Frederick Reichheld make millions with his Net Promoter Score methodology.)
Because even a single positive experience can be expressed in other ways besides repeat purchases. For example, happy customers can give you positive recommendations on websites or in social media or by recommending you to others via word of mouth.
You can’t necessarily trust your customers to tell you. Few will take the time to complain or fill out a survey (especially online); they’ll simply go to a competitor, or worse, social media to complain. Better to ask these questions:
Getting the answers to these questions will not only help determine the current quality of the customer experience but will also form the basis of a business case to do something about it.
Less and less, unfortunately. You know the drill: product cycles are getting shorter and automation and globalisation have made it much easier for competitors to crank out “good enough” substitutes.
But even for highly complex products and for services, the quality of the customer experience often matters more. Research has found that in some cases, customers would rather buy an inferior (though good enough) product that comes with a superior relationship than a better product that does not.
It’s not so much the individual components themselves, such as a Web site or a call centre (though those are certainly important); it’s more about whether the individual touch points contribute to creating a positive impression in customers’ minds. Here are the building blocks for creating that impression:
Trust. This is the foundation of a positive customer experience. If customers don’t feel that they can trust the interaction points (say a Web site) or the company behind them, they will be less likely to purchase.
Research says that trust consists of two main components:
Another issue is the tradeoff between what customers want and what companies are actually capable of providing. In their book The Experience Economy, authors B. Joseph Pine II and James H. Gilmore call this “customer sacrifice.” If the gap between what the customer wants and what the company offers is too great – for example, a cable TV customer has to subscribe to 10 extra channels she doesn’t want to get the one she does want – the experience generates negative emotions.
Positive emotion. Emotion shows up again and again in the research as being the most important factor in the customer relationship. Positive emotions are necessary to build satisfaction and long-term loyalty while negative emotions can destroy in a few moments relationships that companies have invested years in building.
Personalisation. Though this is a relatively new and controversial area, research shows that personalising the customer experience in the right ways creates positive emotion and leads to more satisfaction and loyalty.
In any relationship with a company, customers expect – or at least hope – that their interactions will require as little effort as possible to get what they want. This means that companies have to make the experience smooth, reliable, and efficient. If, for example, customers are shuttled among three different departments (all asking for their customer numbers) before they can accomplish a typical transaction, then the experience generates a negative emotion (frustration is the one that researchers agree is most common) and leads to reduced sales and loyalty.
However, some researchers believe that customers’ perceived effort isn’t just about what they have to do, it’s also tied into how they feel. In their book The Effortless Experience, authors Mathew Dixon, Nick Toman, and Rick Delisi found that only 35% of customers’ perceived effort had to do with exertion; 65% had to do with their emotional reactions during and after the encounter. So easy must go hand in hand with enjoyable.
If, through competitive analysis and surveys of customers, it’s clear that your customer experience lags behind your competitors then improving customer experience should be considered part of the cost of doing business. Customers can research you and your competitors much more easily now through the web and social media. The holes in your experience will be revealed, causing negative emotion and an exodus to competitors.
Of course, a grocery chain doesn’t have the same profit margins as a luxury hotel chain. However, even companies with limited budgets can try experimenting with small pilots to see how changes in the customer experience impact sales, satisfaction, and loyalty. The percentages of extra revenue, improved loyalty, and increased profits gained from the pilots can help determine the budget for customer experience improvements.
Removing the bumps in the road that cause customers to expend extra effort is the best place to start. Research by the Corporate Executive Board outlined in the book The Effortless Experience found that moving customers from rating the experience “below expectations” to “meets expectations” gave companies as much economic value as customers who said their expectations were exceeded. So just fixing the existing potholes in the experience will go a long way.
To do this, companies need to look outside by surveying customers about their experiences. Companies also need to look inside by surveying employees (and partners and external providers), about the frustrations they encounter in trying to accomplish their roles in the customer experience.
Employee emotions are as important as customer emotions in the customer experience. Employees and managers who feel unable to do their jobs as they perceive they should be done – and feel powerless to change the situation – become unhappy and less able and willing to put out the effort it takes to keep customers happy. Rather than speak up about problems, they simply focus on doing what they are told, what research company Forrester calls a “culture of compliance.”
Yet let’s not be too hard on employees and managers here. An individual employee or manager may not be able to tell where the bumps in the road are. Employees may be happy and feeling confident about their contributions while being completely unaware that they are in fact causing problems further down the line because they are isolated from the rest of the experience process and can’t see the negative impacts.
Most companies begin by mapping out the customer experience both in terms of how customers interact with the company and the internal processes designed to make the experience flow smoothly. You also have to capture all the processes that happen outside your company, with partners and outsourcers. Having a holistic view can reveal where failures are occurring and form the basis of the case for change.
To create the map, you need your most knowledgeable process participants; ideally, those who have unbroken visibility out to what customers experience, as well as to the internal processes and experiences of employees and managers. Where the line of sight is broken, bring in people who can fill in the gaps. This is best done as a group exercise using the proverbial whiteboard and sticky notes, so that everyone has the opportunity to comment and contribute to determining where the problems are and debunking myths about where people might have thought the problems were, but weren’t.
Of course, this all presumes that the different areas involved in the customer experience in your company are even speaking to one another, much less willing to collaborate on fixing problems. Old habits, old grudges – and old silos – die hard. There should be a high-level executive leading the customer experience change effort, one who is a charismatic convincer (and decider), and who has a direct mandate from the CEO to get everyone to play nice with each other.
Digital channels and processes play the most important roles in pursuing the goals of speed and convenience and reducing customer effort. Of course, fixing existing problems with the digital experience (not just for customers but also for employees) is easier said than done because it is expensive and time-consuming. Many of the systems that customer service representatives use in call centres, for example, are as old as a greying dad – even a few grandfathers.
Why we are still on hold
And this is the rub. It’s one thing to identify potholes in the customer experience, it’s quite another to fix them. The reason that customers must be put on hold and transferred to different departments and asked for their identification information again and again is usually that the systems that serve these departments were developed in the mainframe era when the concept of integration – and more importantly, the technology to accomplish it – simply did not exist.
Customisation has created a nightmare
To make matters worse, companies have layered customisation on top of customisation over the years to make these systems more able to talk to one another and to company networks, databases, and the internet. They’ve made huge investments just to attain the level of mediocrity we all endure today.
New technologies will help – eventually
The good news is that technology has finally caught up with the customer experience problem. Cloud technologies make application integration easier and in-memory databases have the power to hold massive amounts of information from multiple systems together in real time; that would have seemed like science fiction to mainframe developers of the sixties and seventies.
However, we are still in the early wave of the transformation. Companies remain cautious about discarding old systems that work well in favour of new technologies that are less proven. And though companies have a lot of freedom to make changes in their website experiences, the best Web site is only as good as the data behind it. Customer experience executives would do well to make the CIO their best friend right now.
In the meantime, companies do what they have always done. They pave the potholes in the customer experience with people. People fill the experience potholes – and pay the price.
Companies use people to try to ameliorate the long hold times and the call transfers that stem from having to navigate among different archaic systems and process workarounds. It’s an extremely difficult job and it’s why call centre turnover rates are so high.
Most people who work directly with customers these days have been trained to suffer. Researchers have even developed a term for it: “emotional labour.” Studies have shown that employees expend a lot of mental energy in the customer experience, such as having to express happiness when they don’t feel it and having to suppress anger and other inappropriate behaviours when customers treat them abusively.
The toll of this emotional labor can become so high that employees can suffer from researchers call “emotional exhaustion,” which expresses itself in burnout, feelings of low accomplishment, and a kind of emotional numbness in which employees are no longer able to summon the positive attitude and empathy that are so necessary to a successful customer experience.
For those who interact directly with customers, yes. Research says that extroverts do better in customer experience roles because they are more naturally inclined to want to interact with others. But these extroverts should also have the ability to do three things:
Regulate inner emotions
Enjoy helping others
In combination, these factors give employees extra endurance when it comes to dealing with people and more ability to suppress inappropriate behaviour (even when customers deserve it).
Even the best employees can burn out if they are forced to adopt what researchers call “surface acting,” in which employees have to put on the proverbial smile and feign emotions that they aren’t feeling during an encounter with customers. Part of the stress is that customers can sometimes detect the falseness of employees’ emotions, which research says causes customers to react negatively.
Instead, companies should focus on training employees to offer two things:
1. Treat customers with empathy. This means hearing customers out and treating them with dignity and respect at every point in the interaction and acting to defuse emotional tension – without having to put on false emotions such as a painted on smile.
2. Offer customers justice. Employees need to get on the same wavelength as the customer to determine what would constitute a just outcome for the experience in the customer’s mind and then weigh that against the limits the company has set on the experience and come to a mutually agreed upon resolution.
In part, this depends on the degree to which employees are allowed to exercise their own independence and judgment. But it also depends on the preset outcomes that the company builds around the experience. For example, are customer service representatives given the freedom to send a replacement product for one that is one month – or one year – past warranty? Companies need to constantly revisit these outcomes to maintain a good balance between giving employees the power to give customers experiences that lead to positive emotions while not breaking the bank.
There’s clear evidence that digital contributes a lot to make the experience easy and fast, especially in transactional types of relationships such as buying a book on Amazon, which customers like. Digital is also great for information-intensive experiences, such as complex products and services that require customers to do a lot of research before buying. And of course, digital experiences are much cheaper for companies, though most surveys show that companies do a poor job of managing them — especially when it comes to coordinating across digital and human channels. Indeed, a good customer experience can rarely be completely online or offline. Increasingly, it’s the coordination of the two that matters most.
Digital may be great for easy, but we still need humans for when things become hard – such as when that product that was so easy to order online breaks offline. Research shows that customers place a high value on the quality of the relationship they have with companies. In that regard, there is no replacement for human-to-human interaction – at least not until virtual reality hits the mainstream (which could be sooner than you think). Until then, careful placement of a pleasurable human interaction into the customer experience when competitors are trying to pave everything over with digital can have a major impact.
An example is ING, the Dutch bank that entered the U.S. market in the nineties with an online experience only – no branches. But in 2001, the company decided to create a human experience, not with a traditional bank branch but with a café in New York City. Instead of serving up deposit slips, employees serve coffee, treats (sales of which help defray the costs of running the offices), and financial planning advice. The original café was a big hit and ING (whose U.S. online business was purchased by Capital One for $9 billion in 2012) began building cafes in major metro areas around the country. Capital One has continued the expansion plan while other banks have been shutting down branches or imitating the approach.
Companies that invest in delighting the customer without first making sure they are at least meeting the expectations of the vast majority of customers are probably wasting their money. Getting a free gift card for a restaurant is meaningless if the food and service aren’t so hot to begin with. Plus, giving stuff away or sending your employees out on time-consuming missions to bring smiles to customers’ faces is expensive – 10-20% more, according to executives surveyed by authors Mathew Dixon, Nick Toman, and Rick Delisi in The Effortless Experience.
The first priorities should be to drive down customer effort and sacrifice.
However, delighting the customer does not necessarily need to be focused on going above and beyond the call of duty. There are less expensive ways to do it (see the “customer experience as theatre” examples below).
Given the current sorry state of the customer experience in most industries, yes.
But let’s assume for a moment that you are the world’s master of easy, fast, reliable, and convenient. What happens when a competitor catches up? What’s next?
Some researchers argue that there are two other ways to differentiate your customer experience that are harder for competitors to match:
Customer experience as theatre
Author B. Joseph Pine II says that Best Buy’s Geek Squad has taken the classic military motif of the uniform a step farther by adding a dose of humour and humility. The Geek Squad purposely dresses its employees in an outfit that still gets nerds hung from their underwear in gym lockers around the world: white button-down shirts, thin, clip-on black ties, black pants, and white socks.
Each employee also gets a titanium badge designed to look just like a policeman’s badge. The geek squad drives Volkswagen Beetles painted black and white to look like extremely awkward and ineffective police cars. It is the nerd as the anti-hero hero, here to save the day for you and your computer.
Theatre need not cost much.
Through this minimalist and, Pine is careful to point out, inexpensive, bit of theatre, the Geek Squad, which Best Buy bought when it was a tiny startup, has grown exponentially and become a household brand name. Is it because of the name and the uniforms, or is it simply because the Squad offers better service and is tied to Best Buy, which has long been a household brand? Impossible to tell, but once again, the clip-ons haven’t hurt.
Pine, who is the co-author, with James H. Gilmore, of The Experience Economy, believes that any company, with enough creativity and a good employee screening and training program, can create the same kind of differentiated experience. “Whenever employees are in front of your customers, those employees are acting,” says Pine. “They need to act in a way that engages the audience. And it does not require any expenditure. It requires that you direct your workers to act, that you give them roles to play and you help them characterise those goals on the business stage.”
Though he acknowledges that he has nothing beyond anecdotal evidence to back up his theory, Pine argues that performance is a way to stand apart in a crowded field and create customer preference rather than mere satisfaction.
Personalisation is controversial but holds promise because it can be another form of easy. Though we usually think of customisation as adding more, it can also mean simplifying the experience by removing everything except what the customer truly wants. This is particularly true on the web, where websites and e-commerce portals overstuffed with offers and information can trip that magic switch of frustration that kills sales and loyalty.
Sweeping away the noise and personalising a Web site to a customer’s tastes – we will look back on Amazon’s recommendation engine as the stone-age prototype for this sort of thing – can reduce customer effort and sacrifice. Research has shown that offering relevant information and simplifying the experience results in more customer trust and satisfaction and more sales.
More importantly, as databases become ever-more fast and powerful, we can add a powerful new aspect to the digital customer experience: learning. At the core of recommendation engines like Amazon’s and Netflix is machine learning – the ability to memorise your actions and preferences and use algorithms to serve up personalised offers.
However, personalisation treads on the same dangerous turf as efforts to “delight” the customer. It can be complex and expensive. And if it only leads to satisfaction rather than a positive preference for the brand, that money may be wasted. Indeed, one research study found that for customers that were already satisfied with their experience, personalisation had limited benefits. Only in instances where the customer had a high degree of trust in the company but low levels of satisfaction did personalisation make a significant difference. Therefore, it’s best to start with a pilot project to see if personalisation will make a difference before investing too much.
In order to make recommendations and personalise web pages, companies need to gather information. And as we’ve all learned, various companies and governments have stepped all over people’s privacy in order to gather data about them.
Businesses need to build a customer experience model that helps individuals understand the data that companies want to collect about them, the methods the companies will use to make behavioural predictions, and the trustworthiness they can expect from those predictions.
Here are five ways to use Big Data to be cool, not creepy.
Articulate “What’s in it for me?” Research has found that the majority of consumers in the United States and the United Kingdom are willing to have trusted retailers use some of their personal data in order to present personalised and targeted products, services, recommendations, and offers. But the value has to be crystal clear, no matter who’s tracking the data. For example, insurance provider Progressive and Tesla Motors have convinced car owners to have devices installed in their vehicles that track where and how they drive. In exchange, customers potentially get lower car insurance rates (an average 10% to 15% reduction on premiums) or improved service, such as supercharger stations near their most frequent routes.
Be transparent about the data relationship. Slapping a dense data use policy written in legalese on the corporate Web site does little to enlighten customers. Instead, companies should think about the customer data transaction – what information the customer is giving them, how they’re using it, and what the result will be – and try to describe it as simply as possible.
Let customers learn about each other. In 2011, Procter & Gamble created a “Mean Stinks” campaign for Secret deodorant that encouraged girl-to-girl anti-bullying posts on Twitter, Facebook, and Instagram. The pages let participants send apologies to those they had bullied; view videos; and share tips, tools, and challenges with their peers. Besides helping girls, it drove a 16% market share increase in the Secret deodorant line.
Experiment and build trust. Building a Big Data strategy that improves customer experience takes time and continual tweaking. Google’s Autocomplete isn’t always on point. Amazon’s suggestions sometimes go astray. But as customers build up a history of experience with a brand, they see that data is used for their benefit more often than not. They develop a trust in the exchange of data for value. They see where it came from. And they forgive the missteps.
Make the distinction between little data and Big Data. “I steer companies to really focus on leveraging the data that customers give them in the normal process of doing business first and think about the third-party stuff later,” says Elea McDonnell Feit, assistant professor of Marketing at Drexel University. “At least 80% of the value you can generate from customer data comes from using the information customers reveal about themselves directly to you.”
Given that personalisation can be complex and expensive, it could pay to segment customers into those most likely to respond to personalisation. Some companies have created composite personas of customers to do more broad-brush personalisation that doesn’t cost as much as one-to-one efforts. For example, you could create a set of categories across the customer base based on past purchase history and other data and create separate customer experiences for each category.
Unfortunately for customers (and in the long run, companies, too), there’s really only one measure that matters: switching costs. If there are no viable alternatives in the market, or if switching to a competitor would cost more than the product or service itself or involve so much customer effort that it doesn’t seem worth it, customer experience becomes less important to revenues. Research shows that customers who perceive high switching costs are more likely to stick with a company that provides a less-than-stellar (but acceptable – again anger and conflict trump all other factors) experience, thereby reducing the potential returns from investing in improving that experience.
But even companies with high switching costs or lack of competition neglect customer experience at their peril. Cable companies, for example, are feeling the pain today as disruptive pay-per-view entertainment options such as Hulu, Netflix, and Amazon Prime lure away cable customers who have long wished for an alternative but have had no other choices – until now.
Loyalty over time matters.
But let’s assume that you are in a competitive industry. The most important impact that a good customer experience has is in customer loyalty. Because it costs more to acquire new customers than to maintain relationships with existing customers, most experts point to loyalty as the decisive metric. More specifically, they cite lifetime customer value – usually computed as the revenue from each customer over the length of the relationship.
Author Frederick F. Reichheld puts a finer point on the metric in his book The Loyalty Effect, saying that companies should measure the lifetime profit per customer minus the cost of acquiring them in the first place. The problem here is that few companies even measure revenue per customer over time, much less take it to Reichheld’s ideal level. And not all researchers agree with Reichheld that profits matter more than revenues.
In their book Outside In, authors Manning and Bodine modelled three areas where companies can benefit from improved customer experience that is slightly easier to measure:
1. More incremental purchases from existing customers
2. Higher retained revenue as a result of reduced churn
3. New sales driven by word of mouth
They found that in the hotel and wireless industries, small improvements in customer loyalty led to major gains – in the billions – in revenue because competition in those industries is so intense and switching costs are so low. However, even in less volatile industries where switching costs are higher, such as health insurance, Manning and Bodine saw opportunities to gain revenue in the tens of millions by improving the customer experience.
Neil ran his first SAP transformation programme in his early twenties. He spent the next 16 years working both client side and for various consultancies running numerous SAP programmes. After successfully completing over 15 full lifecycles he took a senior leadership/board position and his work moved onto creating the same success for others.