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Shaun Smith: Five steps to thriving in an experience economy

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2nd Aug 2010
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Customer experience expert Shaun Smith explains the five steps that are crucial for you to get in place if you are going to turn your customers into fans.

One of the most important trends that has been identified by experts is the shift from a product economy to service economy to experience economy.
Leading customer experience expert and founder of Smith+co, Shaun Smith explains: "If you go to the early stages of any market, you can be pretty successful if you have a good product. If you can bring a product to market at the right price, at the right place, with the right functionality, it can be successful," he says. "What we know though is that it isn’t very long before you get competitors, with substitutes and alternatives coming into the market. All of a sudden, having a great product is no longer enough. And what happens then is that the default becomes service. The customer starts expecting not just a product but service on top of the product."
However, that is now no longer enough. With the web you can now buy whatever you want, whenever you want, wherever you want. There are so many organisations out there offering very similar products, with value added services, meeting all the basic requirements, that actually the only thing that makes you a market leader is if you create a great experience.
Smith points to MP3 players as an example. "They very quickly started to become a commodity, they were being sold on capacity, battery life, price, functionality, and they were pretty much the same - until Apple came along with the iPod," he suggests. "What was it that Apple did significantly different in terms of the iPod? iTunes. The iPod is a fabulous design, but what Apple actually did to change the market, was not the product, but the service, it was iTunes.
I would argue that today, Apple is not actually about service at all. It is about experience. There are 283 Apples stores around the world now, and those of you that have been in one know they have the great entrance, all the people in the polo shirts, very knowledgeable and enthusiastic, you have the genius bar where you get your problems sorted out, you have presentations, you can play with all the toys – it is an experience. 50 million people walk through Apple stores every year. They sold 250 million iPods. So I would argue that this is not about product. It is about experience. And this is the future."
 
Research from IBM found that companies that are successful in creating both an emotional and functional bond have much higher levels of retention and also cross sells. It found that retention rates were 84% compared to only 30% for those organisations that didn't create a functional and emotional bond, and it found that cross-sell success was 82% compared to 16%.
As such, Smith highlights the following five steps that are crucial for you to get in place if you are going to turn your customers into fans.

1. Customer insight

The three things you want to know are:
  • Who are your profitable customers – you may serve many types of customers and can't afford to just focus on a few profitable ones, but when you are designing how you are going to serve your customers, what channels you are going to use, and where you are going to invest your money, you absolutely need to know which are your most profitable ones because they are the ones you have to love to death, they are your potential fans.
  • What do they value – to make them fans you need to have level of insight around what your most profitable customers value so that you can make a proposition to meet their needs.
  • How are their needs changing – make sure you are ahead of the curve by knowing how their needs are changing.
A few years ago, First Direct went through this process. "The high net worth individuals tend to bank offshore and they have multiple financial services providers so it is hard to get a major share of their spend," says Smith. "With the lower income groups, they are profitable in the sense that they rack up interest, but they don't own many products, and the more products a person has then the more profitable they are. So the mid-tier is the really profitable group. First Direct therefore went out and did research of this group – and they said 'be there when we want you 24/7'.
"First Direct's proposition is that it is a bank designed around you, rather than you around it – and it delivers on that proposition so the level of trust in the brand is very high. Every five seconds they get a new customer through referral. 58% of their business comes to them through satisfied customers."
 

2. Brand promise

 
Once you are clear about who your profitable customers are and what they value and what you can do differently, then you need to be really clear about what you stand for, what your propositions are and what your promise is. What does your brand stand for, what can you promise and how will this differentiate you?
"The tone of voice and the language for First Direct is quite different from most banks, in which the language and design is all pretty much the same about products, loans and mortgages," Smith continues.
"With any page, you could take away all the images and logo and you'd still know who it is, because of the tone. Innocent is another example of an organisation with a unique tone of voice. And O2 has a unique tone of voice. So if you can communicate with your customers in a way in which they know who you are even without the advertisement that it becomes quite powerful."
 

3. Design the customer experience

 
You then have to deliver the promise. So how do you deliver the promise and where do you over-index? During the recessionary period executives all around the world were having the same conversation: "Revenues are down and sales are down so we need to cut costs, so let's take 10% out of everybody's budget." When execs say that, it demonstrates that they have no conception about where value is created for their customers, says Smith.
"The fact is there are certain touchpoints where you deliver maximum value to your customers, where they really derive value from you. And there are others where they don't care. And you need to over-index to protect those areas that create the value and take away from those that don't. Working some years ago with O2 we did some research and at that point they were going through a cost-cutting exercise and what they did which was very brave was take 500 jobs out of head office and put 2,000 people into the retail stores and call centres. That is an understanding of where you create value and how you over-index in certain areas."
 
Virgin Airways, for instance, looked at its profitable customers, considered what they value, and decided what they could do to create an experience which differentiates it. They looked at the customer journey and designed it to take out the pain points at the critical points in the journey. And it has very successfully taken huge market share from its competitors by doing that.
 

4. Drive organisational behaviour

 
Having identified the proposition, the promise, and having designed the experience, we then need to drive it through the organisation. And that is the hard bit.
 
Getting your people and your processes and your technology to support and enable the experience is very difficult because all of these things just tend to get in the way and what we need to do is make them enablers. From Convergys research we know that when you call into the contact centre for instance that having knowledgeable and responsive employees is in the top three things that customers value. Your people are your brand.
The majority of contact centres are still run as cost centres instead of strategic business units. Traditionally call centres were cost-focused and providing customer support at low price points. For those organisations that are price leaders and are competing primarily on the basis of a low price model, having contact centres like that is fine because you need to strip the costs out of your business. But if your business model and the way you're trying to compete is not on the basis of low price then this is a dumb way to run a contact centre because all you are doing is creating an experience which is more cost-driven and not customer-driven.
"Over the last few years we have also seen a shift towards more outbound communications, using contact centres to provide outbound marketing and cross-sell and so on," adds Smith. "For most customers, 'CRM' is about that phone call that you get from the call centre from Bangalore at five o’clock on a Saturday evening. It is about that junk mail that comes through your door. It is the spam email in your inbox. For many customers, CRM is a dirty word. It means people trying to sell me stuff I don't want because they don't know much about me. And actually one of the things that technology can do is give us real insight around customers and what they value and enables us to provide that value.
"We are going to see more organisations understanding that the call centre is a fundamental touchpoint and recognising that really thinking and over-indexing on the call centre experience you can really deliver a wonderful customer experience that becomes distinctive."
One organisation doing this well is Zappos.com, a very fast growing US business with a terrific reputation, and one that puts emphasis on the culture of the organisation.
"Our company values speak a lot about what type of company Zappos is," CEO Tony Hsieh is quoted as saying. "They are not just a list of things we have up on the wall that we look at and ignore. We really try to live and breathe them in every aspect of our operations here. We recruit based on them, we hire on them. Every department has its own interpretation of them. It's just something that Zappos really believes in. It helps us make the company what we are."
 

5. External communications

Customers are increasingly looking for us to interact over various channels. Recent Convergys research, for instance, demonstrates that text is emerging, with the millennials being very likely to use text – 55% would use it if it is reliable. There are also apps, and with the iPad this is an area that is really going to grow as apps become more important.
The younger generation are more likely to want to use channels such as text, SMS and apps so we are going to see that growth increasingly rising in subsequent years.
But the important thing to remember is that it is horses for courses, says Smith. "There are times when I want to be able to speak to someone in the call centres because she can help me. There are times when I want my bank balance and when all I want to do it text and get it right away. There are times when I want money and so I'll go to the ATM machine. So the experience we have depends on the channel we want to use. So we shouldn't stereotype and assume that all the boomers want to talk to people and all the millennials want apps. It depends on the purpose that you have. And if you have a problem there is no substitute to talking to a real purpose."
 
The question of credibility will also become more important than ever before when it comes to communications. What can your organisation claim credibly? "I think we're going to see a shift from expectation marketing to experiential marketing. Expectation marketing is traditional above-the-line marketing – 'use us', 'buy us'. What is the point of making claims in advertising which are clearly incredible. We are seeing a big backlash against marketing claims. We are seeing movement towards experience marketing."
Experience marketing is when we believe other consumers - when people go onto TripAdvisor to check out a hotel for instance. Increasingly we pay more attention to what other consumers have to say that what marketers say.
Being a big company or being around a long time is no longer so important to customers. Yet much of traditional marketing still focuses on telling customers that the company is big, has been around a long time and is everywhere. But what the customers really want to know is why they should trust you. According to research by Grey Worldwide, millennials are 31% more likely than baby boomers to rank "is a company or brand I can trust" as a top five customer service attribute. Trust is becoming an increasingly big deal.
 
You need to be able to deliver on that trust by responding, Smith says. According to Convergys research, 85% of customers that have had a bad experience will tell friendly or colleagues. And when customers choose to use social media the damage can be far greater than simply a verbal conversation – as United Airlines found to its detriment when it damaged Dave Carroll's guitar.
"Word of mouth is an incredibly powerful weapon – for you and against you. And unless you're managing it you are going to have problems. That is why we are going to see a shift from traditional expectation marketing to experiential marketing," says Smith.
"Organisations like the Geek Squad aren't just monitoring social media but doing something with it. If you are having problems with your computer and tweet your frustration, Geek Squad could be monitoring that, you can get a tweet back saying 'sorry you are having problems we can make that pain go away. We can come around and fix it for you.'"
Ultimately, Smith believes these steps could prove crucial for organisations if they are to respond to the shift to the experience economy - and turn your customers into fans.
"In real terms, this would wipe out any of the impact of the recession, because this kind of shift is way bigger than any decline we've seen," he concludes. "Yes the size of the cake is smaller, but your slice of the cake can be a lot bigger, and the reason you get a bigger slice of the cake is by taking it from your competitors - and the way you do that is by creating an emotional bond with your customers."

Replies (3)

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By Graham
03rd Aug 2010 13:32

 I believe that TRM (Trusted Relationship Management) can contribute to addressing some of the important issues Shawn Smith raises in this article.

1. Customer insight

Provide your customers with access to your knowledge about them so that they can correct and update their personal information for mutual benefit.

2. Brand promise

Provide your customers with a communication channel so they can tell you what they like and don’t like about your business for mutual benefit.

3. Design the customer experience

Virgin do a lot of that but, using TRM, even their communication can be improved.

4. Drive organisational behaviour

CRM is no longer trusted as the accurate customer knowledge base to provide ‘relevant’ information for customers. CRM data has been corrupted, stolen, shared and sold to the detriment of customers as described by Smith above.
The solution is to involve customers by extending CRM to TRM allowing 2-way communication and justifying the word 'Relationship'.

5. External communications

TRM: More Trust = More Business = More Money!

You can read more about TRM (Trusted Relationship Management)

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By Henry Dean
09th Aug 2010 12:19

Thanks for bringing this to my attention Graham, I had come across vendor relationship management in my travels but never TRM; I will read up on this further.

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By Graham
09th Aug 2010 13:36

Hi Henry

TRM (Trusted Relationship Management) recognises that we are more than consumers.
We use different persona for our multiple roles; student, employee, citizen, patient, consumer etc. and each requires different levels of privacy and trust.
TRM extends CRM to allow two-way participation for mutual benefit.

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