The Goal:
Learn how Customer Experience triggers profits and sustainable growth.
The Tool:
Ongoing growth is the promise of customer experience management.
“Companies can boost profits by almost 100% by retaining just 5% more of their customers,” said customer experience industry pioneers Fred Reichheld and Earl Sasser in their 1990 Harvard Business Review article, Zero Defections: Quality Comes to Services. Studies in 2016 confirm the same economics: customer lifetime value should be a guiding factor in managing business.
“Unfortunately, today’s accounting systems do not capture the value of a loyal customer,” the authors continued. “Most systems focus on current period costs and revenues and ignore expected cash flows over a customer’s life-time.”
Have we made progress? Not only do today’s accounting systems still fall short, but today’s customer experience management strategies fall short of the vision and promised growth.
Let’s examine how to make customer experience ROI a reality.
Two Sides of the Coin
Customer engagement is the primary focus of customer experience management today. The emphasis is on increasing revenue in the current period through subscription renewal or repurchase, upselling, cross-selling, maximizing the number of Net Promoters to promote the brand, and winning back each customer who shows signs of teetering toward the competition.
Here’s the other side of the coin: the London School of Economics compared revenue gains from increasing positive word of mouth to those from decreasing negative word of mouth. They found that reducing negative buzz pays off more than improving positive buzz by 300 percent.
What percentage of your customer experience management is aimed at:
- Decreasing negative buzz versus increasing positive buzz?
- Customer lifetime value versus short-term gains?
- Preventing recurrence of issues for the entire customer base?
- Creating mutual value for your entire customer base?
Gifts That Keep on Giving
Continual streams of precious resources can be diverted from their current wasteful trajectory, and re-channeled into higher-value trajectories.
Decreasing negative buzz: Customers vent frustration to many others. And buyers trust peers’ opinions more than advertisements and sales conversations7. It is expensive to address each instance of negative buzz. And by definition, damage has already occurred when negative buzz is detected. Furthermore, it is impossible to detect every instance. Hence, it is best to prevent negative buzz by doing things right the first time. Prerequisites to right the first time are appreciation of customer lifetime value, predisposition to prevent issues, and ability to anticipate and create what customers will reward company-wide.
Customer lifetime value: Cumulative profit over the duration of a customer’s dealings with your company is a powerful way to prioritize all kinds of managerial choices, both strategic and tactical. It is widely underutilized. Part of the reason is impatience: fixed costs are difficult to assign among customers. Best practice calculation occurs in stages, evolving over several years: start with cumulative revenue projected over a reasonable estimation of “lifetime”, then migrate to cumulative revenue minus cumulative variable costs, and then add sophistication as managers gain agreement on assigning the rest.
Companies that are using a form of customer lifetime value are seeing stronger results from customer experience management. Make it easy to use, and require it as evaluation criteria for all kinds of managerial decisions, in all organizational functions. Apply it to survey and service reports to show the size of business affected. This will certainly compel significant action to prevent issue recurrence and create value.
Preventing recurrence of issues: Ease of doing business (or absence of frustrations) is the ultimate reason customers renew their purchases with your company or your competition. Frustrations accumulate to a tipping point of no return for a percentage of customers each period.
It is expensive to entice them to give you another chance. Escalating issues is expensive: numerous managers’ time is diverted to address an emergency situation, often with expensive concessions. It is expensive to fix the same issue over and over again for different customers.
Hidden expenses accumulate when the same customer experiences the same issue across an extended period. In fact, customers may be incurring a great deal of expense for each issue, and as such they may be diverting purchases that would otherwise be part of your revenue. Some issues for B2B customers may divert their resources from gaining new business, which would otherwise be part of your revenue.
Preventing issues earns trust. Prevention pays off for all customers and prospects. Trust is the foundation of relationship strength. A strong relationship is the most secure and profitable route to ongoing growth.
Creating mutual value: Ongoing growth is fueled by innovation that customers want to reward. These rewards may be in the form of new revenue streams of new offerings, lower costs, or engagement. An example of lower costs is fewer resources required to meet needs. Types of engagement include positive word-of-mouth, social media influence, referrals, survey response rates, community participation, co-innovation, and so forth.
Mutual value means both customers and your company see value. From the customer’s viewpoint, value means saving time, costs, worry, risk, or effort – or expanding or enabling a capability. The best context for value creation is the customers’ ultimate goal with your product or service: to relax, to avoid pain, to live, to grow, etc.
Any part of the customer experience journey is an opportunity for value creation. This is true both for interactions and customers’ behind-the-scenes activities. It applies to the entire customer life cycle. Products, services, business models, information, processes, policies, environment, and attitudes are applications for mutual value creation.
Prerequisites are a clear understanding of customers’ realities and anticipation of customers’ reactions. This includes keen understanding of what customers are integrating your product or service with: materials, technologies, processes, and people. Best practices empower every employee to suggest and help create mutual value.
HOW READY ARE YOU TO TRANSFORM CUSTOMER EXPERIENCE?
