The profit and opportunity of customer experienceby
10th May 2010
Is the investment in customer experience worth it? Will it deliver a long-term benefit and payoff? Let me frame my answer - which you’ve already surmised, certainly - by way of another example: a credit card company once correlated customer willingness to recommend with customer spend.
Their analysis calculated a differential of $200 million in spend - that’s per month - between those who were fully and emotionally engaged and those who weren’t. Multiply that by 12 months: 2.4 billion dollars worth of customer satisfaction - in rough economic times.
Companies come to us seeking guidance with customer experience motivated by numerous differing issues - market share, wallet share, customer satisfaction, customer attrition, and so on. But the need for customer experience is ultimately driven by one factor: commoditisation. This is the overarching business problem that the differentiation of customer experience can resolve.
Companies are increasingly finding themselves at the heart of commoditisation, and at that heart, also find themselves at a juncture. When customers perceive that they’re purchasing commodities, price is the only differentiator that matters to them. Commoditised companies must compete on price, which erodes margins and sends profitability spiraling downward.
When customers begin demanding discounts, they’re telling you that they don’t see the connection between your product or service and the price you charge. They don’t understand your value.
You have four choices when trying to escape the heart of commoditisation:
- Add pre-sales value.
- Innovate products or services.
- Add post-sales value.
- Default to the last resort.
The fourth choice - the last and least desirable choice, and therefore the last resort - is to provide discounts. When you discount, you might think you’re pleasing your customers, but ultimately you’re in danger of upsetting them. This week, they see, you’re charging $40 for a product. Last week it was $50. Last week you were, in their eyes, ripping them off for $10. Such moves actually destroy customer trust.
Another critical driver of customer experience is profitable growth. No investment that doesn’t return growth is worth considering. Investment without solid return does little more than increase the cost of sales. You must demonstrate to yourself and to your executives that customer experience will maximise revenues and allow the company to meet and beat its numbers.
You’ll find that executives tend to perceive sales alone as the means to meet numbers, so if you hope to move some budget dollars from sales and into service departments, you must demonstrate ROI impact. If you can’t demonstrate that to yourself, then don’t even pursue customer experience initiatives further. However, I’m confident that you will effectively demonstrate profitable growth - and, in fact, that you can demonstrate profit erosion by not pursuing customer experience.
Summing up: the reward ahead
Establishing the direct financial impact of customer experience can be, I grant you, a challenge for some companies, but consider this example. One of our clients is a utility - the only one in the market, making it a monopoly. The utility already has 100% market share. How can customer experience possibly help raise profits and margins for this organisation? Ease in gaining higher rate hikes. Any hikes the company seeks are subject to governmental approval after public hearings. Satisfied customers speaking at the hearings enable the company to gain faster approval of hikes, and greater increases in doing so.
In tough economic and competitive times, it’s easy to fall into the traditional behaviour traps. But experience has demonstrated that often short-term cost-cutting efforts come with a hefty survival cost in the long run. Customer loyalty, as select companies have now discovered, isn’t subject to the boom-and-bust cycle. Relationships need long-term investment. Best-in-class companies are learning from recent history and refuse to repeat the tempting mistakes of the past. They’re charting a new course of doing business with customers, and refusing to abandon their customers at the time when their customers need them the most. These companies are reaping the financial benefits of this new strategy.
You can as well. Lets start charting your customer experience course.
Lior Arussy is the president of Strativity Group a global customer experience research and consulting firm. Follow Lior on Twitter @LiorStrativity
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