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Is the “Experience Economy” Contracting Towards Irrelevance?

Jon Picoult | Jan 16, 2009 2,860 views 5 Comments

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The stock of Starbucks Coffee, long revered as a prime example of a consumer-focused, experience-oriented business, was down over 50 percent in 2008 (underperforming the S&P 500 Index during the same period). With one of the poster children for the “Experience Economy” performing so poorly during the current recession, some CEOs may be questioning the value of experience-oriented business investments, if not revisiting the entire concept of an experience-oriented business strategy.

What’s a CEO to do during a time like this, with the Experience Economy apparently showing that it is not impervious to recessionary environments?

Are Experiences Relevant in a Recession?

For those not familiar with the term “Experience Economy,” it is a concept described in the 1999 book of the same name by B. Joseph Pine II and James Gilmore. The authors proposed that experience-oriented businesses—those that focus on choreographing memorable events and interactions for consumers—represented the next stage in economic evolution, following earlier periods of agrarian, industrial and service oriented economies.

So, as the theory goes, the different prices the market will support for a handful of coffee beans versus a can of instant coffee mix versus a Starbuck’s coffee is evidence that some consumers value increasingly refined products or experiences.



A more reasonable ambition is to ensure that the experience delivered is truly compelling and it is targeted to a consumer segment that derives real value from that experience.

Do the current struggles of Starbucks and other experience-oriented businesses somehow portend the crumbling of Experience Economy principles? Absolutely not. However, it would be naïve to think that experience-oriented businesses are not influenced by economic cycles like their agrarian, industrial and service-oriented predecessors.

A more reasonable ambition is to hope that if the experience delivered is truly compelling and it is targeted to a consumer segment that derives real value from that experience. Then, the business should be somewhat cushioned from the most severe impacts of downturns. That is, it will be one of the last places that consumers will cut and will be among the first places to which they return. It is this resilience to, rather than immunity from, economic hardship that will differentiate experience-oriented businesses from other players in their competitive set.

Balancing Ideology and Pragmatism

Still, even the strongest proponents of customer experience strategies have to acknowledge that these efforts will come under increasing financial scrutiny in economic downturns (along with most other business initiatives). What should executives do in such circumstances?

The answer is nothing different than what they should have been doing all along. I say this because the most successful customer experience improvement programs (in good times and bad) share two critical traits: (a) they balance idealistic, blue sky strategies with more tactical, incremental advancements and (b) they recognize that customer experience improvement and operating expense reductions are not mutually exclusive.

Whatever term you favor—customer, brand, stakeholder experience or something else—these strategic programs can easily become bloated and collapse under their own weight, precisely because these efforts demand a broad, holistic and integrated approach to shaping business offerings. In addition to analyzing and improving a wide array of customer touchpoints, these programs (and their sponsors) are often under pressure to deliver progressive—even radical—experience innovations that alter the competitive landscape. Under such challenging parameters, it’s no wonder that many of these initiatives lose their way or become targets for budget cuts.

To avoid such an outcome, companies must approach these programs with a healthy balance between fundamental redefinition of the consumer experience and continuous incremental improvements that are aligned with a longer-term vision.

Hold the Vision, Give Me Solutions

Take, for example, my experience with a Fortune 100 diversified financial services company that aimed to create a much more intimate relationship with its customers, tailoring both its pre-sale activities and post-sale services to the unique characteristics of each client. Creating a consolidated client database across its multiple product lines was viewed as a key cornerstone of this customer intimacy strategy. The scope of that project, however, quickly expanded to moon-shot proportions, as sales, service and marketing departments tossed in a litany of requirements that not only sought to consolidate reams of customer data, but also append demographic and other descriptors to it.

The visionaries had to be reigned in a bit when it became apparent that the front-line service staff didn’t even have an accurate and efficient way to look up customer holdings by name. After all, what good is it to know that your customer is a middle-aged male homeowner living in a wealthy zip code with four dependants—if you can’t even easily identify him by name when he calls, nor know what products he owns across your enterprise?

The project would have collapsed were it not for the application of “scope fangs” to dramatically, but pragmatically, narrow the requirements and phase the deliverables. Instead of a mammoth, bleeding edge customer database that immediately served everyone’s needs, we developed a simpler, but scalable, data store that enabled service professionals to identify clients by name and see what products they owned.

The customer experience (and efficiency) implications of this new capability were not insignificant. There was no more on-the-call fumbling when customers phoned without a contract number and there were less failures to anticipate the cross-product implications of customers’ requested transactions.

Poor customer experiences generate more work for organizations.

For this company, achieving greater customer intimacy was a noble goal. However, like many grand customer experience design visions, it required a careful sequencing of smaller building blocks that laid the groundwork for more sophisticated capabilities.

Today, the firm has gradually appended more customer information to the data store, enabling it to better understand its customer base and start personalizing its services to them. But it all wisely began with a much more focused, economical endeavor that created infrastructure for the company’s long-term aspirations, while simultaneously delivering immediate customer experience enhancements.

A CFO’s Dream: Experience Improvements and Expense Reductions

The second principle that’s helpful to remember when evaluating experience-enhancing investments, during periods of economic boom or bust, is that the resulting benefits can often transcend the top line. Many executives consider increased customer satisfaction and loyalty to be the endgame for these initiatives. That’s a legitimate conclusion, and one that CEOs and their staff will equate to increased long-term revenue (via better customer retention, greater cross-sell and up-sell opportunities, and more referral business).

But there is another side to the story that’s particularly appealing in tough economic times: Poor customer experiences generate more work for organizations. Indeed, many companies don’t fully appreciate how many of their resources are consumed by activity that wouldn’t even exist were it not for failed—or even just unfulfilling—customer experiences.

This work (or, in some cases, re-work) can originate from a variety of touchpoints between company and consumer. Examples include: confusing or convoluted customer communications; inaccurate or incomplete responses to customer inquiries; failure to articulate target dates for issue resolution; and absence of timely follow-up for complex inquiries.

These are all instances of “touchpoints gone wrong” that not only contribute to customer dissatisfaction, but also fuel more expense-driving contact between customer and company for all the wrong reasons. However, there’s an opportunity here for customer experience advocates to highlight the expense reduction benefits of customer experience initiatives, above and beyond their customer loyalty dividends.

Moving the Needle Without 7-Figure Budgets

The even better news is that the identification and remedy of some of these cost-inducing touchpoint failures need not be a multi-million dollar exercise. There are decidedly low tech, low cost, but still highly effective approaches to chipping away at these issues.

I have worked with a number of companies where we made tremendous advances in operational efficiency, employee retention, and customer loyalty without embarking on big, hairy, audacious multi-million dollar “business transformation” initiatives. In one instance, a handful of very focused and economical experience assessment/enhancement efforts helped drive millions of dollars in expense reduction and avoidance. The icing on the cake? On top of those expense improvements, loyalty gains were also realized, generating $30 million in additional annual revenue.

Some of the pragmatic approaches we employed at these companies included:

  • Monitoring and categorizing incoming customer inquiries. Even if you don’t have a fancy CRM system, you can still spend a few days having your front-line sales and/or service staff catalogue the nature of inbound requests. You’ll quickly identify some of the key root causes of substandard customer experiences.
  • Simplifying, polishing and demystifying correspondence with communication audits. Form a SWAT team to codify, streamline and improve the most frequently used pre- and post-sale communication pieces. Changes rendered can have a huge, positive impact by eliminating unnecessary customer contacts.
  • Centralizing institutional knowledge in on-line repositories. It’s hard to believe in this Google-inspired era of all information, on-line, all the time – but companies I’ve worked with were still relying on paper documentation, post-it notes, and personal memories to record certain product and/or procedural information. With on-line help system authoring tools, we quickly and cheaply brought these resources to employees’ fingertips, resulting in greater accuracy and consistency in service interactions.
  • Creating recognition programs for service professionals. Companies spend millions on incentives and conferences for salespeople—yet often reward service staff with a meal ticket. For less money than you think, a meaningful reward program can be established for service professionals that will help motivate them to create customer delight.
  • Promoting and celebrating ownership. Of all the low-tech approaches to improving the customer experience and simultaneously controlling expenses, few are more powerful than encouraging employees to take personal ownership for satisfying (if not impressing) their clientele. Absent such ownership, customers are subjected to frustrating hand-offs, ambiguous commitments, and broken promises—all translating into more work and re-work for the organization.

Taken in aggregate, these incremental advances—with their costs measured in the thousands, not millions—were quite powerful in moving the operational efficiency, employee engagement and customer loyalty needles. Transaction turnaround times were cut significantly, service center employee turnover was cut in half, and first-contact resolution helped eliminate nearly 20% of customer inquiries.

In hindsight, these improvements collectively might even be called transformational. But, we wouldn’t have dared use that term while making it happen. The program’s success, and its widespread organizational support, was rooted in its strategic linking of simple but elegant improvements that largely fell under the CFO’s radar (until, of course, the expense savings and loyalty dividends were realized).

Eat The Elephant One Bite At A Time

Economic recession should not signal the demise of customer experience business strategies. Rather, tough economic times should serve to remind us that managing and enhancing the customer experience is a complex and expansive endeavor. As such, it must be approached with a combination of visionary, strategic thought and gritty, tactical advances.

In many cases, those tactical advances will drive smart expense reductions that bring credibility and confidence to what can be a very daunting task. Particularly in today’s environment, that makes them a critical component of a pragmatic, well-balanced experience enhancement strategy that should better withstand any economic storm.

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5 Responses to Is the “Experience Economy” Contracting Towards Irrelevance?

  1. Firozali A. Mulla January 17, 2009 at 10:26 am (37 comments) #

    Is the “Experience Economy” Contracting Towards Irrelevance?
    I think we have the words the wrong way. Try, “Irrelevance Economy drives the customers away?’ You are better placed there at this time. After all the cannons of the economy are the same. It is us the greedy that have gobbled all the cash, have WE NOT?
    I thank you
    Firozali A Mulla MBA PhD
    P.O.Box 6044
    Dar-Es-Salaam
    Tanzania
    East Africa

  2. Guest January 19, 2009 at 10:30 am (374 comments) #

    I think you are misguided in proving the irrelevance of experience economy with your example of how to deal with changes in a financial company. All common knowledge that you share with us, showing that most (financial)companies are still in their (CRM) infancy recognizing their customers let alone give them a special treatment. A memorable, effective experience (CEM) is something completely different. In method and effect.

    Annemiek van Moorst
    Founding partner
    TOTE-M

  3. mikewittenstein January 26, 2009 at 3:21 pm (374 comments) #

    You’ve shown (quite well I might add) that Customer Experience Design isn’t irrelevant. To those still chasing incremental gains, it may slip somewhat in practicality. To those who are creating new ways to create new kinds of value based on what customers truly value, Customer Experience Design can also serve as a focal point for improving the firm’s ability to create value for its customers.

    Customer Experience Design can be used as the visual representation of a strategy. The ideal customer experience is one that elates customers emotions, engages employees, takes fewer resources to deliver, and improves the bottom line. A clear picture everyone can follow gives all players (finance, operations, marketing, technology, branding, etc.) the same mind’s view and makes alignment from the start possible–even probable. So, don’t think of customer experience design as a ‘soft consulting art’. Rather, think of it as the smart practitioner’s/leader’s tool to improve the agility of organizations and their ability to create value for customers.

    Mike Wittenstein speaks, facilitates, and consults on Customer Experience Design. Based in Atlanta, he travels globally. You can find out more at http://www.mikewittenstein.com.

  4. Firozali A. Mulla January 30, 2009 at 10:27 am (37 comments) #

    Is the “Experience Economy” Contracting Towards Irrelevance?
    Let us look at the issues that make up the economics. Demand, supply, elasticity, and cash you have with the laws that tie us to the way we pay. This is in a very brief a concept of the Economics terms we have in the world.
    The selling and the haggling of the price is o n the buyers and the sellers. I will not talk of the discounts and many form of selling techniques we have like advertisements.
    What is experience?
    The terms we learn as we grow.
    What is Irrelevance?
    The jolt we get out of the wrong purchases and that too, we find these after we have paid? Then we proclaim on the foolish cash spending to our friends in a very diverse format. The wide of the mark goods we have are now irrelevant to us, of no exploit.
    Now we turn to the subject and ask if we are buying the goods accidentally.
    The answer will be, “It varies from the cash we have for the extra good we want on the shelves and the cash we have to keep us moving for many years to come.”
    The experienced economist is nothing but the knock in a off mode with the money he has in controlled way. Is that what we connote here? I wonder who would carry on doing the above without getting blown off from the registers of the spendthrifts.
    I would in my may agree to this. The less stressed we are more careful we may be in spending. “In the stress, we may spend more” also is wrong to say.
    The argument is “How much cash we have”, makes our decision and I am sure the seller is equally strides to sell as he sees the pink slip by the employer.
    In short, we have the commodity and the seller. What do we want the economy to do with these without the state interventions?
    That is the confusion here that I have tried to clear and I come to the same in the end. Confused?
    I thank you.
    Firozali A. Mulla

    Firozali A Mulla MBA PhD
    P.O.Box 6044
    Dar-Es-Salaam
    Tanzania
    East Africa

  5. Carlos Abler May 27, 2009 at 5:11 pm (1 comment) #

    I realize your title was just a set-up, but if people are really asking this question in these terms, that is a bit alarming.

    To some extent: “User experience”, “experience Economy” and all the other human-centered terns that have a lot of current cache in marketing, services and product development, are only a more mature and conscious understanding of what has always been enjoyable when things are enjoyable, effective about what needs to be effected in any product or service.

    There has always been and always will be and “experience economy”. Historically people will get as much luxury out of the ordinary or extraordinary as they can afford. And there has always been a survival among the fittest among competing goods and services providers depending on the degree to which they consider the experiences of their customers, for as long as humans have been exchanging things.

    Within my grandmother’s lifetime it was a big deal to be able to make a cake from a box or pull a ready-made meal from a freezer. Now this is reflex occurrence we take for granted. Because we have a new label for it (e.g. experience economy), and because we can point a recent emergence of a new standard for a basic luxury (Starbucks and coffee quality) we feel like there is some hot new thing that you can either do, or not do as a strategy. The thing is you are always on the spectrum of better or worse in terms of providing great experiences for your customers in anything you do. We are just getting more sophisticated in our understanding of these mechanisms.

    Of course none of what I am saying addresses your extremely valid points about properly managing a response to this enhanced understanding and the project bloating that can occur especially if “Experts” who have an interest in large amounts of money thrown at them are at play. ALl of that is valid. User experience does not have to be expensive, it does not have to be opposed to efficiency, in fact it can support efficiency and reduced cost. But I do feel often compelled to point out that “The Experience Economy” is nothing new.

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