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Why Did The #1 Rated Firm In Customer Experience Go Bankrupt?

By on Mar 9, 2011 Editor's Pick 6 Comments

A few weeks ago, bookstore chain Borders filed for bankruptcy. Unlike many of the other companies that have succumbed to recent economic pressures, Borders was unique in one important respect: It was recently rated as having the best customer experience of any company in any industry.

That, at least, was the conclusion reached by Forrester Research in their fourth annual Customer Experience (CxP) Index study. They surveyed consumers for opinions on their experiences with over 150 brands, and Borders came out on the very top. Ahead of Amazon. Ahead of Apple. Ahead of lots of storied brands.

How on Earth did the top-rated company for customer experience end up in bankruptcy court? Did Forrester miscalculate their survey results? Are they asking the wrong questions of consumers? Or, even worse, could this be some sign from the heavens that customer experience excellence doesn’t really pay any dividends?

There definitely is a lesson to be learned from Borders’ downfall, but it doesn’t have anything to do with the merits of Forrester’s CxP Index or the fundamental value of great customer experiences.

There’s no industry-wide survey of customer experience that’s perfect. Forrester’s take on this exercise is as respectable as any of the other measures commonly used to rank companies on the customer experience spectrum.

Plus, as I’ve reported in prior posts, in the four years since Forrester first started compiling its Index, an interesting pattern has emerged, suggesting a linkage between Forrester’s rankings and corporate stock performance. Similar patterns have been observed with other prominent customer experience ranking studies. Borders notwithstanding, there’s plenty of evidence out there suggesting that differentiated customer experiences do indeed lift business results.

No, the lesson to be learned from Borders is not about research failure, nor is it about stoking the fires of customer experience skepticism. The lesson is that while the quality of a company’s customer experience is a critical driver behind long-term business success… it’s not the only driver.

There are basic elements of business management that, if not capably executed, can derail the prospects of even those firms with the most revered customer experiences.

In Borders’ case, the fall from grace can be traced back to a variety of management missteps:

· Poor profitability oversight. Hundreds of Borders outlets were just plain losing money, yet it’s taken a bankruptcy filing to get the chain to significantly narrow its footprint and remove this financial albatross.

· Unfavorable lease terms. On average, Borders stores had 15-20 year leases, limiting the chain’s flexibility to respond to local real estate developments (such as a new, high-traffic mall opening down the street).

· Ill-advised outsourcing. Until just a few years ago, Borders outsourced its online book sales to Amazon. Talk about letting the fox guard the henhouse.

· Imprudent expansion. Instead of grasping the significance of Internet retailing to its business model (and doing something about it), Borders chose to focus on an ill-fated international expansion that took attention away from its core U.S. business.

· CEO turnover. Borders has run through four CEOs in three years. Guiding a large retail chain out of a tailspin is difficult enough – imagine trying to do it with this level of turnover in the executive suite.

Even though consumers (at least those surveyed by Forrester) praised Borders for its customer experience, lurking beneath the surface were a variety of issues that – while not always visible to the public – still compromised the company’s performance.

And, as Borders has sadly discovered, there are some management missteps for which even a spectacular customer experience can’t compensate.

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6 Responses to Why Did The #1 Rated Firm In Customer Experience Go Bankrupt?

  1. John Todor March 10, 2011 at 4:40 pm #

    Borders was my favorite bookstore in the 1980′s, then Amazon came along. I initially stuck with Borders and still love the touch and feel of books and the bookstore experience. Unfortunately, too many people found Amazon-like services too compelling and Border grossly missed the boat.

    The other issues like rent, location are all symptoms of a business in trouble. One could make the same case for Blickbuster but clearly their problem was that Netflix disrupted their business model with one that customers find more relevant to their lives today.

  2. Marc March 14, 2011 at 2:03 pm #

    Nice post! Great customer experience is becoming the price of entry for sustainability of a business over time, but not the holy grail. The question remains what alternative choices might have kept Borders in business and thriving.

  3. Denis Pombriant March 14, 2011 at 3:02 pm #

    Customer experience is a secondary effect of doing business and I think we make a mistake if we over emphasize it. After all the original point of “The Experience Economy” was that companies needed to find ways to add further value to service to make it an experience that customers would want to pay for. But oo often we forget that and strive for CX over everything else and often we forget about getting the basic job done. That might sound over the top but it’s backed by research.

    A recent Harvard Business Review article, “Stop Trying To Delight Your Customers” shows that many companies are missing the important point that regardless of how wonderful they make the experience, if they don’t satisfy the customer’s basic need, all the delight in the world won’t help them. That means providing the right solution the first time, for instance.

    The basic issues of Borders demise had little to do with CX and much to do with the poor business decisions enumerated in your article. The case study should be a proof point that CX must go hand in hand with other aspects of doing good business.

  4. Raelin Musuraca March 14, 2011 at 4:37 pm #

    As I saw the “Store Closing” signs pop up around my area I did wonder what went so wrong.
    From a consumers perspective, the lease terms hurt them much more than they could have imagined. Of the three stores I know in the Pittsburgh area, all were situated in strange places—you had to make an effort to get there. At first this was fine because it was worth it, the experience was so new and refreshing compared to the mall bookstores. But then B&N moved in and put their stores in more convenient places.
    I recently saw a RightNow research report with a sliding scale based on how much more people were willing to pay for exceptional customer service. On the low end 75% were willing to pay 5% more and at the high end 10% were willing to pay up to 25% more for a superior customer experience.
    To reverse that scale, I think driving/parking convenience for the Borders stores fell into a similar effort vs. customer service ratio. Most people would undergo a little inconvenience for a superior customer experience but few would undergo a significant amount.
    One Borders in particular was only accessible from one side of the highway, had very little parking in front (hidden lot in back), and had a low, hard to see storefront. I’m sure only 10% of book lovers were willing to make the effort to get to that Borders versus the super convenient B&N just 2 minutes away and connected to the mall. I imagine that particular store lost 90% of its customer base to the B&N – I know I was one of them.

  5. Chris Brown March 16, 2011 at 9:09 pm #

    Hi Jon,

    Great post on the Borders story. I think another point to make in regards to its demise is that we have to remember customer experience does not exist in a vacuum. It is relative customer experience that matters, the borders experience is great but its value to customers has been undermined by better more convenient experiences brought on by the digital age…..

  6. Mark Smith November 23, 2011 at 2:19 pm #

    I think one of the reasons of chain Borders bookstore bankruptcy could be a bad planification of future times, for example, many bookstores has experienced a huge drop in sales on lasts years, and the reason are ebooks, people can get any book they want within seconds without moving from home and cheaper, obviously something like that will decrease sales of classic books.

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