Use Customer Value to Fill In the Cracks in Customer Experience

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There have been cracks in the CX story. And now there is another article by a CX proponent, Charles Bennett of the Next Ten Years, Great Customer Experience does not always mean great business performance.

He goes on to say:

“The theory says customer experience is proportional to revenue. At least that’s what “best practice” thinking has taught us. The better the customer experience the better the business result.

Really? Problem! This is not always true. There is new thinking emerging that differentiates customer outcomes from customer experience. It adds a new dimension which helps companies differentiate from their competitors.

It also explains why some great customer experience companies fall into decline and why some dreadful customer experience companies are massively profitable.”

He examples Spirit Airlines, which has terrible CX, and people say “never again” after traveling it. They rank at the bottom of the American Customer Satisfaction Index, the lowest Net Promoter Score and gain the greatest number of customer complaints, by far! And yet they are profitable, and people buy and travel them. (You could ask if NPS relates to business results!)

Spirit Airlines is amongst the most profitable airline in the world with an operating margin of 23% in 2016 . You can’t deliver that sort of business performance unless customers are buying, and buying they certainly are. There must be another customer dynamic going on.

Another example is Subway, ranked 8th in the Temkin Customer Experience Survey of 300 odd US companies. Yet their revenue figures fell 4.3% in 2015 for the second consecutive year. It opened 911 new restaurants but closed 877.

Bennett goes onto add “You would expect that great CX would mean a higher market share and a higher ROI for your company.”

Very often this is not the case. It took years before companies learnt that Customer Satisfaction did not lead to business results. Poor satisfaction did not always mean lower market share, and great satisfaction did not necessarily mean higher market share.

Customer Value Thinking

All this started at AT&T. In the mid ‘80s they got 95% CSat scores. The Board of Directors was delighted and gave out bonuses. 3 months later they lost 6 points of market share and had to fire 20000 employees. Customer Chief Ray Kordupleski was perplexed. After much analysis, he reached the conclusion that CSat did not correlate to business results, and he came up with the concept of Customer Value (Benefits – Cost), and that Customer Value was always to be measured against competition. Brad Gale, then at Strategic Planning Institute promoted the concept of Value.

Look at this yourself. You have examples of when you were upset with your airline or your favourite restaurant and even your wife. Did you leave them. It takes a lot more to do so. What are the factors that could lead to your leaving?

Continued aggravation over a period of time. Getting a better option (and you find this better option will create greater value for you).

Take my case. I owned a Honda car and liked it. Yet during re-purchase I chose the Suzuki competitor, because it gave me better value, better features at a competitive price. I bought the Suzuki because of its enhanced value over the Honda. In my next purchase, I went back to buying a Honda, even though I loved the Suzuki. At that point in time, the Honda seemed to create better value for me.

Customer Experience Replaced Customer Satisfaction

When companies started to find satisfaction was not good enough, a new term was used to replace satisfaction and it was called experience.

The experience with this transaction vs. the satisfaction with this transaction.

It allowed the industry to re-invent itself into CX. Measurement of CX is the same as with satisfaction. It is not to say that CX and CSat are not important. They are. But they form a component of the value you perceive. We do not expect great experience or emotions at a gas station as when buying a BMW.

We all have to think this through, and move ahead. Increase CX but also the value you provide. Let the cracks not break your business results and you.

So what can you do? The easy way is to do a real Customer Value creation desk analysis of yourself (your product/service) and your competitors. This forces you to look outside your company at the market, your competitors and their customers. Why do people buy from them and others buy from you.

The problem with this desk analysis is

  • It is biased by your thinking
  • You do not have real data from Customers and your competitors Customers. You may not know what Customers are saying about you and competitors’ Customers saying about them. You probably will have to guess and you could be far off from the truth.
  • You have to outside in think (rather than inside out think)

Customer Value is Based on Competitive Reality

So this was the easy way. The more difficult way is to really hear and capture the Customer Voice in a Value study, where you measure the scores on the benefits (and the breakup of the benefits) and on the cost (which is price and non-price terms such as ease of doing business, price justification etc.). You then can measure the Value (Benefits –Cost) you are creating versus competition.

The competitions’ data is derived by asking the competitors’ customers the same questions you ask your customers (Most people do not want to do this extra step and spend the extra money. They lose out because they cannot compare themselves versus competitors). Short cuts will give you incomplete data, and you will wonder why you do not come out a winner. This is part of the problem of only relying on CX or on NPS.

Here is a simple Value attribute tree:

The data you collect will tell you how important benefits are and how important costs are. You may surprise yourself by finding people consider you costlier even though you believe your price is reasonable. Or that people think price is very important and you do not think of yourself as a commodity player (which the data says you really are!)

CX is one part of the benefits, and you may find it is relatively important or not at all important in the Value study. So, if you did an analysis of budget airlines (the more finely you segment your study, the better off you are), you may find CX is not truly important, and that price and other terms, convenience and airports served, and luggage rules are more important.

Use CX Wisely

Give the experience where it is required. Reduce the need for an experience when it isn’t: I just want things to work (the flight leaves on time, there is no hassle with my carryon luggage and so on). The moment things go wrong (the airline says your luggage is too big to carry on) or flights are delayed, or you have to get a refund, you start to get poor experience; an experience you never wanted, and you will say Never Again, but you will continue to travel that airline again.

Remember your Customers’ quest for Value and a good experience as you sell to and service them, and you will be more successful.

19 COMMENTS

  1. Gautam, as usual this article is on point and clearly defines thge roles of CVC and CX. My only suggestion is to rewrite the title to “Use Customer Experience to Fill In the Cracks in Customer Value”.

  2. Customer experience can always add value but it must be an experience for the customer, not some survey or formula.

    I fly Spirit whenever I can. I brag about the deals and how the experience suits me fine. I was displeased when I opted for a long flight in economy but they delivered what they promised. I won’t do that again. I just order a big seat unless it’s a short flight. I share this every chance I get.

    Subway is a good sandwich, but it’s just a sandwich. I have low expectations and they meet those expectations. To WOW me, they would need to be something else. I don’t share about anything that happens during a Subway experience.

  3. Warren, happy to hear your comments. You pretty much echo what I wrote. You are right, the right experience can add value. But you sought Spirit because it created value, but not so much for the experience

  4. Gautam, you are correct. I am also saying that a good experience will not sell a product or service if it does not create value for the buyer but people will buy value with poor experiences like with Sprint or Ryanair

  5. Warren, what a wise comment. Yes, experience is important in many cases, and leads to value. On the other hand a good experience may not just be enough to create enough value and re-purchase. There are other factors creating value

  6. Sam, if we accept what you are saying, then we would expect CX is used judiciously and not just as a magic bullet, CX will become more effective.CRM used to be treated as a be all and see what happened

  7. Gautam

    Of course. I was just commenting on the value related to experience. Though I continued to be amazed at how little of life is what it rationally appears to be.

    I just came from a toddler’s birthday party. Met a guy who doesn’t have much in common with me, had a good talk about the silliness of 30 adults hauling little families together for an event the kid won’t remember.

    Just as I commented, I caught myself and said “I guess it’s worth it. I got to meet you”

    Then we compared notes. My son’s girlfriend was married to his son. We’re 2 or her 4 grandfathers. I walked away contemplating it, the possibility of not ever seeing him again. Or how we may become good friends. Bumped into him in the parking lot.. saying goodbye.. found out he flips house and live in one 3 blocks away.

    There is no brand equity in the story. I don’t want to go back to the horrid pizza place. But I’ll not forget the story, the experience, the relationships involved. In the end, it was a great time, so maybe I will.

    I fully agree that national customer satisfaction surveys are worthless, as are many data points we call marketing intel. What matters is people, relationships. The commodities sold and business practices of a company pale in comparison to how we feel about experiences.. even bad ones.

    Yet we MUST work to improve the scores, engage our customers, and build equity in helping them experience whatever happens. We won’t get it right every time. We will be noticed if we care.

  8. I think it depends on how CX is defined and practiced.

    Originally CX was defined as interactions — all those touchpoints between customer and company other than the product or the price. The idea was to focus on improving these interactions — experiences — because you couldn’t compete based on product or price anymore. Let’s call this CX 1.0.

    But in the past few years, CX has evolved into a “theory of everything.” CX includes products, pricing, interactions, and any perception the customer has. Basically, Customer Experience Management is the new name for Customer Loyalty Management. Call this CX 2.0.

    So if someone is practicing CX 1.0, customer value can fill the cracks. And the cracks are big, because product and price still matter, a LOT.

    If practicing CX 2.0, then there are no cracks to fill because CX 2.0 is defined as including anything and everything the customer perceives.

    My take: CX consultants promote CX 2.0, but most companies practice CX 1.0. Which leaves plenty of cracks to fill.

  9. Warren, what a great example.
    The fact is the experience of meeting this person created value for you. If the expected value in the future is worthwhile, you will advance the relationship. The point is the experience in itself may not be enough to seek the person out.

  10. Bob, Love your CX versioning. 🙂

    Reminds me of something Jay Conrad Levinson (the Guerrilla Marketing guy) told me many years ago. “Marketing is everything that touches the customer”

    I took that to mean EVERYTHING, such as clean offices, happy employees, fill material in packaging, community service… EVERYTHING.

    When CX 1.0 came around, I thought they meant what you describe as CX 2.0. Now I’m learning that a happy person talking about you while waiting for a bus could be as important as anything.. even if that person never buys. 🙂

  11. Bob, good points.

    In a sense CX 2.0 is Customer Value. But since it does not do Benefits – Price or Benefits/price, it is not really Customer Value. CX 3.0 may be Customer Value.

    I support CX because it is directionally right. My problem is that users are not discriminating enough, or do not understand the significance of CX in their context and its limitations, whether CX 2.0 or 1.0.

    As I said earlier, there are times when the experience is not important, let’s say when filling up your car with gas. On the other hand if the gas station is always busy and you have to wait, you may not want to use it again

  12. Gautam

    Yes. And I’ll go on step farther. Without positive experiences, there is no buy decision.

    There’s a fine line between “we can’t measure it so let’s just throw spaghetti at the wall and see what sticks” and “we know what works. We know it doesn’t always work. We’re willing to do the best we can, measure it wherever we can, and expect serendipity to be on our side”

  13. Warren, sometimes you buy something for the first time with no experience at all. Sometimes you have a terrible experience and you come back (Spirit Airlines example).

    This is the problem with CX being a catchall. It does not work always

  14. Gautam,

    CX people will say the customer had an “experience” reading an ad or another marketing message before deciding to try something. That forms an impression, which is also an experience. Everything is an experience!

    Or, after a bad experience with a cheap but poor quality product/service, the customer comes back because it wasn’t bad after all. The “experience” with the price was great!

    Regarding the difference between CX and CV, yes Benefits – Cost may be one. Another is comparing value to competitors.

    It’s not enough to improve CX if it just keeps up with what competitors are doing. Everyone is busy “doing” CX, yet why are there so few success stories beyond the favorite brands? In fact, my research finds only 30% of CX initiatives getting a clear value — in terms of tangible benefits or improved competitive differentiation.

    The thing about definitions is that everyone has one, and it’s usually self-serving. Over 15 years ago I gave presentations defining CRM as “the mutual exchange of value.” Of course that definition was not accepted. CRM became known as a tech thing, automating processes and extracting value from customers, not the more holistic customer strategy that I envisioned.

    I personally like your definition of customer value, but if you ask business people I’m sure some will say it just means getting the best price. Others will think you’re talking about customer lifetime value — what the customer is worth to the company, not how the customer perceives value.

    Same goes with CX — proponents define it very expansively, yet actual CX initiatives rarely match. How many CX initiatives are about product innovation or pricing? If these are “experiences” that customers value, why aren’t CX program focused there?

    It would be interesting to break down “customer” strategies and initiatives (whether called CRM, CX, CV or whatever) to find what kinds of activities are actually included, and how that matches up with how all of us experts define these terms.

  15. Buying something (even a pack of gum at the petrol station) is an experience. Whether you want to define it with CX terms is up to you.

    People complain about airlines. Spirit may have a problem to tackle with that image. Meanwhile, they grow and profit from those of us who consider their experience to be positive.

  16. Warren, you’re exactly right. We can define anything as an experience or value or engagement or even a relationship!

    Loyalty research has been around for quite a long time attempting to explain why people buy or don’t. I don’t see how relabeling it as CX advances thinking, but that’s where we are.

    There are important differences in emphasis in the different constructs. For me, what’s important about CX is taking an outside-in view and focusing more on interactions. CV reminds us that value can come from other things.

    It didn’t end well for CRM to try to be all things; the same outcome is likely for CX. When a term means everything, it could end up meaning nothing, and people will move on to the next buzzword.

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