For many years, Jim Sinegal, the Founder and then CEO of Costco was pressured by investors regarding the wages and benefits paid to its employees. In his refusal to change the company’s policies, he explained that the employees were central to who Costco is as a brand. For those of us who have been watching, Costco is consistently a CX leader and its sales and profitability are consistently moving in the right direction. Today there are few retailers that can claim the consistent record of success that Costco has achieved.
Let’s imagine for a moment that Costco had agreed to lower wages in the face of this pressure. In the first few quarters I’m guessing that Costco would have increased its profitability. But what if its employees cared less about the company and its stores? What if the employees no longer had long tenure and got to know, greet and help customers? Customers might find stores that were less clean and orderly and cashiers that were less efficient and more prone to mistakes. I’m guessing customers would shop less and Costco’s “scores” would go down as would their profitability. Those same investors pressuring them to reduce pay would then say they should raise prices on their famously inexpensive hot dogs and other hot food items to increase their profitability. Costco would firmly be planted in a downward spiral.
Now, I’d imagine that afterwards investors would push for replacement of leadership, a new CEO might come in and say they need to refocus on the customer experience and put in a CX management program featuring NPS or some other metric. After all, we know that these scores are correlated with business success, right?
Perhaps some of you will disagree, but this seems like a very plausible series of events. Hopefully, the story points out a few things.
Most outside company owners (institutional investors, PE firms, VCs and others) are either too short term focused and/or just don’t get it when it comes to customer experience. At a time when most CEOs of major corporations feel that customer experience is one of the key strategies and differentiators for their business, I am left wondering if their bosses (investors and boards) agree with them. Perhaps the even bigger question is whether they (including the CEOs) know what it takes to succeed at fundamentally changing and improving the customer experience.
Recently, I have posted several blogs on the choice of metrics such as NPS, Customer Effort Score and others. http://customerthink.com/arguing-about-nps-is-a-waste-of-time/ My point is that companies spend too much time arguing over metrics and not enough time focusing on the processes that actually drive change and improvement that in turn, drives revenue and profitability. In part, senior management, boards and investors are to blame for this. These leaders have been susceptible to sound bites that suggest that a one-number metric solves everything. However, a single customer loyalty metric is only a barometer. It’s the diagnostics you have that help you understand why your performance is graded as it is and provides a roadmap for improvement.
For decades, boards and company leaders have emphasized the use of quality management approaches to reducing costs through more efficient manufacturing, call center productivity and other disciplines within the enterprise. Why don’t they espouse as enthusiastically practices around customer experience that drive both growth and cost reduction?
Most enterprise companies are not killing it when it comes to organic growth. And when I say organic, I don’t mean expanding into new territories. I mean increasing spend among existing customers and growing the customer base within existing markets. Investors do hold businesses accountable when they don’t hit targets for year on year growth of existing businesses, but that can be accomplished through a number of means, particularly in the short term.
Perhaps the biggest reason that customer experience has not caught on as a focus area with investors is that customer experience results have not been converted to a metric on the balance sheet. A metric such as the asset value of the customer or lifetime value might solve this. Inherently customer asset value is a function of loyalty and product appeal. Put another way, when a company is sold and the acquirer accounts for the assets purchased, a value is assigned to goodwill as the value of intangible assets above and beyond the value of hard assets. In the past, goodwill was often associated with the value of the brand name. Today, a company’s brand is the promise of its customer experience. Goodwill is more a measure of loyalty and expected future revenue flows of the existing customer base.
Some who complain about metrics say that you can see increases and decreases in NPS or Customer Effort or Overall Satisfaction and not see corresponding improvements to business results. If we had a well vetted estimation of customer asset value that included a component of not just revenue but cost to serve, I am quite certain that would be a strong indicator of future success.
Isn’t it time that those in the investment community start demanding excellence in customer experience improvement that leads to higher customer asset value?