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There is no silver bullet for monetizing customer experience. Effective returns depend on your market strategy and your industry’s level of CX maturity. Brands wanting to differentiate themselves in the market by providing exceptional customer experience must focus on ‘the experience the customer has’ as a source of value.
The common definition that ‘customer experience is the sum of all touchpoints’ is myopic. Customers never sum all touchpoints in their decision-making; and certainly not just those touchpoints as ‘defined’ by the brand.
If we define ‘experience’ as how customers think and feel about an encounter with the brand, organizations should be concerned with designing experiences that improve customer well-being. Well-being represents that combination of thoughts and feelings that affect how customers perceive value. The theory goes that by doing this, customers will in turn spend more money for the privilege: if their well-being goes up so will spend and share of wallet. In this way, CX puts the customer at the centre of business strategy.
Over the last couple of decades, there have been several approaches to finding the return on customer experience, all of which, critically depend on creating value for the customer.
Origins: McGrath and MacMillan (1997), and Vargo and Lusch (2004). This approach gained traction due to the increasing commoditization of goods and services. It has been further enhanced in the 2000s by customer engagement analytics and the move towards co-creation.
What the customer experiences: New solutions to buy based on opportunities found in the customer journey when current goods and services are relatively commoditized. This maps the time and place of engagement through the whole encounter and defines solutions that can be strategic and that may lead to a complete redesign, or a tactical solution that looks at what the next best action is, and removes the friction.
Examples: Rolls-Royce shifted from selling aircraft engines to power by the hour; USAA introduced insurance claims through smartphone.
Basis of customer value: Innovation within the customer journey
Key KPIs: Growth
With this approach, new ways to differentiate are uncovered from a close view of the customer journey. These may not be as experiential, holistic or ‘brand love’ based as other approaches considered here but brands can still find experiences to sell; usually around added-value services.
MacMillan and McGrath in their paper ‘Discovering New Points of Differentiation’ (HBR, 1997) discuss mapping the whole consumption journey. In one instance they mapped a US candle producer whose products were mainly destined for religious purposes, that experienced business growth from $2 million to $500 million through reinvention into other product and accessory areas.
Vargo and Lusch (Journal of Marketing, 2004) took this to a new level. They stated that traditional marketing that was focusing on products was being overtaken by service.
The advantage of a ‘differentiated experience’ approach is that the customer gains from increased well-being through new service and product-based differentiation defined by journey mapping.
The downside is that customer journey mapping can become an end in itself. We risk producing linear maps that paradoxically take the focus away from the customer and result in a box-ticking exercise or a process map for future firm efficiency gains – rather than customer experience gains. What is worse, companies can get it wrong, pushing ever more solutions ‘at the customer’ and resulting in confusion.
Origins: Pine and Gilmore (1998). This approach gained traction due to increasing commoditization of goods and services.
What the customer experiences: new branded experiences when all around is commoditized. The customer holds affinity to ‘the brand’ and responds to ‘the experiential world of…’ design from which the company builds new value propositions. As a result, goods and services are the platform for what is really being sold: ‘the designed experience’.
Examples:: Starbucks change the coffee shop from selling coffee to creating a social space. LUSH stores and Hotel Chocolat change the goods and services sold by offering ‘an experiential world of…’ approach that engages customers.
Basis of customer value: the relationship to the holistic brand experience which immerses/ absorbs the customer in the ‘value of time well spent’ and new ‘experiential goods and services’ that reflect the theme.
Key KPIs: revenue growth, market expansion, loyalty
The Experience Economy view majors on creating personal and memorable ‘experiences’. Rather than create 10 different varieties of chocolate bar (product innovation), it creates a new experience through the customers ‘buying’ experience. The result is the ‘Hotel Chocolat experience’. The chocolate bar has certainly been innovated, but now as part of the larger theme.
We can also see this experiential approach applied in LUSH (soap), Geek Squad (technology repair), Apple (computers), stationery (Tinc) and in the public library (Cerritos Library).
In crafting an ‘experiential world of...’ solution, companies usually face a commoditized lack- luster industry with limited growth potential. It is also apparent that this dimension is popular amongst new entrants unencumbered by legacy but facing a static market.
In turn, this has influenced the larger market as new expectations of design are increasingly used even in commodity brands. Themed restaurants are now more popular and higher standards of experience are integrated into branded environments even where convenience is king – there are McDonalds stores for example, that include digital engagement as part of the experience.
The advantage to this approach is that customer gains from increased well-being. It’s a great experience, which they exchange for higher spend on the goods and services that reflect that experience. The basis is design and the value of ‘time well spent’.
However, there are many times when merely adding experience fails to make the difference or is badly executed – especially when it is not tied to customer value. We can see this in the way the delight movement has led to superfluous short-lived activities Take for example, the recent failed attempt by Morrison’s, a UK supermarket who attempted to add ‘experience value’ by spraying water vapor over fresh fruit. Without a compelling theme, and customer value creation, such piecemeal activities always fail.
This approach also requires innovation and risk-taking; something which many large firms are loathe to do even though ‘experiences’ offer growth potential. Mobile networks, for example, are being commoditized and what counts is their use as a platform for ‘experiential content’; yet the market for apps and content is not dominated by either Telco operators or Network infrastructure providers.
Origins: Matthew Dixon (2010), and Peppers and Rogers work on frictionless experience and VoC methodologies (NPS close-the-loop). This approach gained traction due to increased omni channel complexity and the failure of the delight movement. It also benefitted from increased availability of VoC data and the need to operationalize close-loop processes - through NPS and customer effort score –and a renewed emphasis on managing loss aversion.
What the customer experiences: satisfaction when things work – for instance when digital is complex and omni channel environments are difficult to orchestrate.
Examples: insurance companies that seek to reduce complexity in their digital channels. A key driver has also been close-the-loop NPS programs. The regulatory environment and seeking differentiation when other firms offer a poor ‘service’ experience.
Basis of customer value: the customer is just interested in things working; there is no disruption and it is effortless. Customer Journey and process mapping is used.
Key KPIs: customer effort score, satisfaction, NPS (low detractors), reduced churn, lower attrition.
In this instance, return on CX might mean focusing on reducing negative experiences, taking out the friction and the source of dissatisfaction. This is the most common definition and works hand in hand with the other value-based approaches.
An operator might measure web browsing speed to ensure thresholds are met and customers are not receiving lag time in their experience; or a firm may view digital analytics to ensure customers can easily move through a site. Likewise, customer reports on negative issues are collated through complaints data, detractor comments and journey mapping.
The upside to this ‘effortless experience’ approach is that the customer gains from increased well-being because things work. This is important in ‘broken markets’ or those with high complexity (such as digital) where the simple act that results in customers feeling things work can make the world of difference.
However, limiting differentiation to ‘making things work’ does not change the customer’s perception when things are running smoothly - it’s just business as usual or hygiene. And an unnoticed experience, while critical as an enabler of ‘the experience’, is itself not adding the kind of well-being value that customers would want to exchange money for. I expect the doors to open and the floors to be clean at my local convenience store; I certainly wouldn’t pay extra for it. There is also a considerable opportunity for data gaming; where any change in number such as an NPS score is assumed to equate to customer value creation.
Origins: Brian Sollis, digital analytics, real-time responsiveness
What the customer experiences: new business models that convey convenience and availability of new, more personal value-added services within a ‘desired’ price experience.
In personalization, we now have the technology to send email offers at the right time and right place. We can share personalized app-based data with store personnel via an iBeacon that informs them when a customer enters the store. We can use digital technology ‘to engage’, immerse and absorb the customer in the experience. Some of our retail banking clients are looking to personalize the experience received by their high net worth clients online and provide a consistent experience when they walk through the door.
Examples: Uber, AirBnB, Amazon
Basis of customer value: the customer receives a new way of doing business in return for improved well-being through reduced price/ better service and alternative types of service provision. ‘Availability’ and ‘personalization’ are the watch words. Digital analytics come into the fore.
Key KPIs: revenue growth and market expansion, loyalty.
Return on experience here means focusing on personalization, variety of offer, convenience and availability.
This has gained traction as a response to increasing availability of digital analytics and the maturity of web platforms and business models.
It’s a convenient, personalized and more available experience, with the added bonus of user engagement. This is exchanged for more frequent spend on the goods and services on offer.
Unfortunately, when digitalization is not used as a tie in to the customer but as a means to reduce costs we may end up with customers forced to use digital channels that are poorly constructed simply because it saves the company money. This leads to increased complexity rather than ease and convenience.
Origins: Relationship Marketing, Dr Olaf Hermans; complexity science; AI and IoT- big data analytics; cognitive computing
What the customer experiences: Relationship over time by asking the right questions, collecting the right responses and performing the right actions based on knowledge of the customer.
Basis of customer value: the company knows me and what’s best for me; I have a relationship with them.
Key KPIs: loyalty, goodwill, customer lifetime value
This fifth and final way to consider return on customer experience is actually the oldest approach of all. It dates back to the 1980s when experience was spoken of in relation to ‘how customers hold knowledge of us’. This could be framed in terms of the relationship marketing movement or as might be happening in the next few years: neo-RM.
It’s difficult with something so new to outline specific cases but the bare bones of this new approach to CX can be sketched out.
Firstly, there is a technological basis to it. With the upsurge in big data and IoT, companies will find themselves swamped in data. The only way through this will be to reconsider what they are trying to achieve; in other words, what is important to the customer over time is not everything that is measured but everything that is meaningful. This means that the competitive differentiator will not be how brand automate and scale but how brands empathize.
Organizations need to answer the questions: ‘Over the time you have been a customer, what experiences resonate with you?’, ‘Can we define these from the mass data we hold on you over time and through scenarios to predict what is right for you and supplement with the right VoC questions at the right time?
Examples of this are goodwill measures, service integrated relationships and vector-based approaches to CX. These are more integrated frameworks that account for the customer not as a single point of interaction but as a human with a memory of your brand who uses that ‘knowledge’ as their experience.
Only once we define this can we serve up experiences: whether next best action or next best question.
This reflects how analytics is moving from a mechanism of behaviorism to one that accounts for cognition and learning. It also means taking account of the human respondent and integrating behavioral psychology and complexity sciences into the framework.
The main advantage of the ‘knowledge of experience’ approach is that the customer gains from increased well-being as the brand’s actions are now set in their context. Encounters become more personalized and meaningful over time.
However, as with all relationship or loyalty based paradigms, the time taken to build a relationship may be negated by the immediate desire for return today, not sales tomorrow. Without putting greater emphasis on integrating subjectivity into the mix, the temptation to use machine algorithms alone may temper success as a focus for customer experience, for example, a short-termism direct mail type approach over a longer-term investment in experience.
Whichever way you look at it, new dimensions of value through how customers engage or use a brand have been derived. This translates into new services to purchase.
We see this if we take a less CX-based view against each of these dimensions:
1. Differentiation without an understanding of the journey would be product innovation from the firms point of view
2. Chocolate slabs without the theme might fail in a normal supermarket environment.
3. If we ignored friction and things didn’t work well, we would never gain the benefits of CX value
4. Merely cutting prices for a taxi ride would only lead to price competition without the digital platform of convenience and engagement.
5. Assuming how customers ‘hold knowledge of us’ without the commitment to the customer would not lead to personalization or relationship but more ‘junk mail’ (or in this case junk e-mail especially in an IoT environment).
It’s easy to see that there is no one aspect of CX that works.
The best way forward in designing customer experiences is wherever the customer resides in their engagement with the brand. However, there is a red-line. If it isn’t about moving the experience the customer has, improving how they think and feel towards you, which translates into purchase, then it’s not CX.