If value is defined as benefits versus costs, what’s your company’s customer experience value ratio? Superior value is the objective of customers and marketers alike. And since customers hold the purse strings, marketers are compelled to view value as customers do. In the customer experience value ratio, the numerator includes product and service value, as well as image and personal value. We may often overlook or be unaware of some of the cost dimensions in the denominator: money … plus time, energy and psychic costs.
In managing customer experience, the challenge is not only to maximize the numerator, but also to minimize the denominator. Touch-point analysis can be very helpful, but make sure non-touch-points are also considered, as the customer experience contains several elements that do not touch the company or channel. By carefully identifying and improving the time, energy and psychic costs to customers, the customer experience value quotient can be boosted significantly. In fact, the intangible elements of the denominator may be the hardest things for your competitors to copy, and therefore, your surest strategy to sustainable value superiority.
A great exercise in exploring your value quotient is to quantify the value ratio for all choices available to your customer. To develop a holistic perspective, plot these quotients as they existed in the past, as they currently exist, and as you project them to evolve in the future.
While the exercise above is illuminating, it’s incomplete in its prescriptive value to your organization. You may realize that your solution is inferior or superior to other alternatives available to your target customer, but which superior elements should you prioritize for protection and strengthening, and which inferior elements should you prioritize for improvement? The answer lies is customer experience outcome research, which involves ethnography to observe customers in their natural surroundings, revealing a more accurate and realistic viewpoint of the dimensions in the numerator and denominator of the customer’s value equation.
To innovate superior value, plot all available solutions by customers’ desired outcomes. If you have conducted customer outcome research, rank-order desired outcomes by importance x frustration x frequency. Now you’re able to see things the way the customer does: for the most important outcomes, how do the choices compare? Root cause analysis may identify engineering issues, service skill gaps, business process complications, or outdated policies.
Involve your whole organization in outside-in thinking and continual improvement by teaching them about the customer experience value quotient. For similar ideas, see my newest handbook, Innovating Superior Customer Experience.
Contact the author to find out how to customize these tips to your situation.
Lynn,
Thanks for a beefy and provocative post. Your ratio measurement is useful because it both illuminates the current condition and acknowledges the fact that experiences are rarely completely “good or bad”.
I would add to a customer’s view of value whether or not an experience solves a need that triggered them to act in the first place. In other words, I think every experience starts with a person who has a need or problem or desire they would trade something of value (typically money) to have solved. Whether or not – and how well – the need is solved is their ultimate measure of value.
Here’s some additional thinking you might find interesting: http://bit.ly/Fhe6z Your thoughts?
Again, thanks for a helpful post.
Linda Ireland
Lynn, I have to admit that I may have not really understood the concept. I only have an MBA, a degree in electrical engineering, a controllers diploma and visited some marketing classes, but I’m not a scientist.
I’m a big proponent of measurable results. After all I determined that Advocacy should be the ultimate goal of a business and particularly today easy to measure.
Advocacy is achieved when a customer is publicly stating his or her positive impression about a company. It is a testimony for a positive customer experience. If a product is good but the customer doesn’t talk – the customer experience was probably not very positive. If the customer experience is positive but the product bad, the customer is probably pretty silent as well. If both is bad you will hear it but in a not so favorable tone 😉
Now if I compare the positive “output” from my customers with the one from my competitor I have a great benchmark. I can put that in relation to revenue, profitability and much more.
I can take it a level farther: I check a whole economy and recognize that companies like Dell, Virgin, WholeFoods, Salesforce.com, Apple, Zappos… seem to have happy and vocal customers, expressing their excitement. It’s no coincidence that those companies are doing very well. In turn companies like United Airlines, Nortel, 3Com, Chase, GM, Comcast… have rather unfavorable customer statements – and voila those businesses are doing not well at all.
Now if one does a sentiment analysis – you get the root cause for frustration and excitement delivered free of charge – expressed by real customers. Fixing the problems in either customer care, technical support, order administration, the product itself is now a relatively simple business execution exercise.
Axel
xeesm.com/AxelS
Hi Linda,
Thanks for the comment; I’m glad you found the post helpful.
To get a better sense of customers’ desired outcomes and the full spectrum of the customer experience, you may appreciate taking a look at some sample pages from my ehandbook Innovating Superior Customer Experience.
The main challenges faced by managers of customer experience are (1) the temptation to focus on the numerator and (2) the temptation to prematurely declare the customer experience complete. Another challenge faced by most organizations is the tendency to define the denominator primarily as price, whereas a huge percentage of customer defections occur because of non-price costs. I wrote about that in an earlier blog entry Measure Customer Value the Customer’s Way.
-Lynn
Lynn Hunsaker helps companies improve customer data ROI, customer-centricity and customer experience innovation. She is author of 3 handbooks. See http://www.ClearAction.biz, http://www.Twitter.com/ClearAction, http://Facebook.dj/customerexperience.
Hi Axel,
Thanks for sharing your views. Marketers tend to focus on customers’ vocalization of their experience, and/or customers’ buying behavior. An often overlooked opportunity for Marketers is to influence the denominator — operationally — for more sustainable positive vocalization and behavior among customers. It’s surprising how often root cause analysis is not done, and fixing the problems is not found to be as simple as one would think.
I believe a careful analysis of the companies with great sentiment on a consistent basis would reveal that they’ve got their operational act together — much more than those that suffer poor sentiment. Marketers are making brand promises, so they have a vested interest in helping drive operational conformity to the brand promise, to prevent negative vocalization and behaviors systemically.
-Lynn
Lynn Hunsaker helps companies improve customer data ROI, customer-centricity and customer experience innovation. She is author of 3 handbooks.
http://www.ClearAction.biz
http://www.Twitter.com/ClearAction
http://Facebook.dj/customerexperience.
Lynn
I enjoyed your article, and the discussions that followed from others.
I also agree with many of your comments, esp. regarding the importance of including intangible value into the customer benefit assessment – I’ve done a lot of work in this area and have seen this at first-hand, time and time again.
One simple question from me: you mentioned assessing rank-order desired outcomes by importance x frustration x frequency . Are you suggesting multiplying out these 3 ranks, or is this just a confusion in notation ?
If you are multiplying these factors, this might be taking qual-derived preferences a bit too far, as your sample frame would be very small to base a Desired Outcome score on.
Hopefully, you can clarify this for me ?
Thanks
Rick
Owner – Customer Faithful
http://www.customerfaithful.com
http://customerfaithful.tumblr.com/
Hi Rick,
My preference for prioritization is to use relative importance (weighting of all considered factors to total 100%), with appropriate scales for frustration levels and frequency of occurrence.
However, experts in the innovation literature make strong arguments to use a 1-5 scale for importance and for satisfaction, and to add the maximum of [importance minus satisfaction, or zero]. See pages 44-48 of Anthony Ulwick’s What Customers Want, for his rationale on his recommended scaling method and apparent apples-and-oranges subtraction.
Another formula is (importance plus frequency) x frustration (all using a 1-5 scale). See the rationale in The Innovator’s Guide to Growth by Scott D. Anthony, et al, pages 105-107.
Regarding sample size, the idea behind outcomes-based research is to conduct in-depth ethnography research to gain a thorough understanding of customer-defined values, costs, and measures of goodness. Then map the customer’s world to the organization’s world, adopting customer’s jargon wherever possible. Then, for monitoring surveys, ask customers to rate their outcomes … instead of asking them to rate the company’s satisfaction enablers. I’ll write a post on this within the next week.
Thanks for your comment,
Lynn
Lynn Hunsaker helps companies improve customer data ROI, customer-centricity and customer experience innovation. She is author of 3 handbooks. See ClearAction.biz, Twitter.com/ClearAction, Facebook.dj/customerexperience.
Lynn – awesome blog. Certainly got my brain cells scrambling. In my writings I focus folks on the magic number ’42’ representing the 4Es (expectation, encounter, experience and emotions) and the 2 vital service equations of value and expectation.
How would you factor in the actual experience of using a product/service? Its my belief there are many interactions and only some moments of truth, where the customer gets that perception of whether you know what you are doing! My value equation (in the Guide to Universal Service Management Body of Knowledge – USMBOK) is:
Value = outcomes desired and achieved compared with the cost of using, wrapped in and influenced by the overall 4E (see above)
Thanks for your comment, Ian. The Value Quotient has a numerator and a denominator, and can be applied to a product or service per se, but preferably to the full customer experience (which is broader). As shown in the diagrams you can then plot components of the Value Quotient (e.g. product component across competitors, or full CX, etc.) in order to gain new insights about your brand’s strengths, weaknesses, and innovation opportunities.
The calculations are described in detail in the 2 books that I reference in my comment above titled “Customer Requirements Prioritization”. These calculations are based only on Moments of Truth in “the customer’s world”, and not at all on the behind-the-scenes things that are in “the company’s world”.
In my view, the problem with most research is that it tries to get customers to step into the company’s world, causing an unnatural scenario where customers try to do a favor for the company in answering their questions. Therefore, many people believe you cannot rely on customers’ inputs when you’re designing something. However, Anthony Ulwick does an excellent job in his book in explaining how to overcome this research glitch and let the customer answer questions which they’re fully qualified to answer and which are immensely valuable to all parties at that moment and in the future when the innovation transpires.
“Customer Effort” is a more common phrase related to the denominator of the Customer Value Quotient. how much effort the customer has to put forth during their experience with a company.
However, the Customer Effort notion was initially directed at contact centers’ customer service transactions. It includes customer empowerment, service agent empowerment, and prevention of future issues as well. I prefer to use this phrase in the context of the entire customer experience (service as your CEM strategy is too little too late), and I often refer to it as the “customer hassle factor”.
Ultimately, from the customer’s viewpoint, “customer effort” across their entire experience with a brand/solution is the denominator in their ROI — what they have to go through in order to get the value needed to move along in their life/business.