In Part 1, we discussed the implications of cost cutting initiatives on the customer experience – principally the dilution of the customer experience and the eventual erosion in customer loyalty, revenue and profit. Companies that turn to the cost cutting knife at the earliest opportunity accelerate their own commoditization by minimizing their competitive differentiators. Therefore when companies eventually attempt to regain lost loyalty, they should not be surprised by the reaction from customers who vividly remember the poor experiences and higher prices.
A number of readers commented on the earlier article that I was advocating a “business as usual” approach even in the midst of this economic downturn. So I would like to clarify that I do not subscribe in any respect to this position. I do however, see a host of opportunities for those organizations (even in present environment) willing to take that leap and make the requisite investments in the customer experience.
During periods of moderate and high economic growth, companies are able to purvey their goods and services to the widest possible base of customers. Even unprofitable customers are selected under the guise of conversion (turning unprofitable customers into profitable ones) or because margins generated from profitable customers pay for the difference. During these periods, companies seem willing to forge any degree of customer selectivity, choosing instead to accept as many customers as possible in order to achieve the holy grail of corporate goals – market share expansion. Now, during these challenging economic times companies are increasingly being forced to become more selective as they migrate away from the market share goal towards that of corporate profitability. This migration has numerous implications among them the need to segment service by customer profitability in order to service different customer segments appropriately. In practice this can lead to companies moving customers towards self-service models, charging customers for live service or in extreme circumstances – even firing customers! As profitable customers become more demanding and the need to reinforce and demonstrate value increases, companies will have to become more discerning not only of the customers they take on, but on the level of service provided to their expansive customer bases.
Necessity is the mother of all innovation, and challenging economic times necessitate the ongoing innovation in products and services so that when economic conditions improve customers will reward those companies that were willing to invest in and provide a great customer experience. Adopting an innovative product and service strategy will yield future customer loyalty because it will distinguish an organization from its competitors. While many competitors will be cutting costs and devaluing their value propositions, customers will reward those organizations that were willing to invest in and deliver high quality experiences. Cost cutting initiatives will rarely grow a business but will certainly increase margins – for a time. However, an innovation-centric business strategy will attract new customers, retain existing ones and over the long term, increase top and bottom line revenue.
Companies do not need to turn a customer-centric strategy into an expensive undertaking. Rallying the troops around the customer experience could incorporate a focus around employee attitudes – elements such as facial expressions (smiling more often), communication skills and overall approach towards solving customer challenges – not exactly costly endeavors. Even a focus on employee attitudes can be a significant factor in improving the customer experience, and organizations have the opportunity to elevate employee attitudes so that the experience is a beacon of authentic value to customers.
Challenging times call for a discerning eye, extra effort and supreme commitment. While companies routinely initiate a series of cost cutting initiatives, they fail to recognize the devastating long-term impact on the value proposition and customer experience. Customer-centric organizations will approach challenging times in a different manner (recognizing that even the most customer-centric organization might have to cut costs). They will segment their customers, and offer a targeted and profitable service delivery model appropriate to each customer segment. Such an approach will demonstrate their commitment to customers, even when competitors are undertaking initiatives that damage the customer experience. Tough times are a true test of any relationship. Make sure you pass with flying colors!
I’d love to hear your thoughts.
What improvements are you trying to make to the overal customer experience during these difficult times?
Lior: I know that emphatic agreement can be boring to read in a blog, so I’d like to add a “Yes! . . . And . . .” instead of a “Yes. But . . .”
You rightly point out that cost reduction programs increase margins temporarily, but don’t contribute to long-term growth, which makes such programs the fiscal “cotton candy” of the Management by Magazine -thinking executive.
What’s missing is the risk-perspective–which you touch on, describing the failure to consider “the devastating long-term impact on the value proposition and customer experience.” To uncover the answers, the right questions need to be asked:
1. What value does our organization provide to our customers?
2. What do they want to buy from us?
3. What are they paying for?
4. What events, situations or conditions could erode or derail the delivery and transfer of that value to the customers we have now? . . . and for the customers we expect to have?
5. What would elimination or reduction of (program X) mean for our strategy and competitive differentiation?
6. How will our cost-cutting plan impact our financial goals in the next three to five years?