The Customer Experience is a Means, not an Ends

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The objective or “ends” for a company is maximizing the firm’s value. This means maximizing the current and future cash flows from customers. Delivering great customer experiences is one strategy — the “means” — for realizing those goals.

Pronouncing that delivering great experiences is the purpose of a company may sound like a compelling ad or mission statement; it certainly sounds better than saying: “Our goal is to boost profitability and the value of the firm.” But as philosophically compelling as it may be to be in the customer happiness business, no company is in business for the end objective of delivering great experiences unless they can monetize those experiences.

Even Disney, perhaps the best example of a company that is primarily in the business of delivering great experiences, does so to further corporate financial objectives, not to give great experiences per se. The company doesn’t hold quarterly experiences calls with analysts or have an annual experiences report. Those Disney experiences enable the company to shatter the principles of the “price elasticity of demand,” mercilessly raising prices without suffering from a slackening in demand. In other words, the Disney “Magic” is financial pixie dust.

There are other strategies for driving value to a company. Walmart relies heavily on a pricing strategy. For McDonald’s and Starbucks, it’s mainly about real estate. Apple aggressively promotes the interconnectedness within the Apple ecosystem and the disjointedness outside that ecosystem. Each of these strategies — just like customer experience — is a means to the larger corporate objectives of value and profits.

The Business Case

While paying lip service to CX, the reality is that many senior executives see investments in better experiences as increasing costs and don’t think that such investments yield a positive return. CX often is seen as a cost center that is left underfunded and understaffed. Or CX is treated as a project led by whoever is in the rotation of up-and-coming managers.

It is incumbent upon those in CX to establish the business value of better customer experiences if they want to break out of the mold of being a check-the-box function. This means building the business case and linking CX performance to financial performance, business outcomes, and customer behavior. In other words, explain in detail how CX is the means for improved results.

This necessitates linking CX performance to business, operational, and customer metrics. CX leaders need to be able to answer how changes in the customer experience affect retention/renewals, referrals, revenues, profits, operational measures, cross-sales, share of wallet, or whatever key outcomes are relevant to the business. CX pros also need to be wise in choosing CX metrics, relying on those metrics that best explain or predict the desired business outcomes, not merely opting for the most popular or familiar metric.

We must also be aware of the various types of experiences customers have, especially the distinction between transactional and relationship experiences. My bank (sorry PNC) recently sent me a survey making the classic mistake of confounding the transactional and relationship dimensions and using the wrong metric (NPS). I was asked if I would recommend the bank based on my recent ATM experience. Perhaps 40 years ago this might have made sense, but now does anyone think customers will recommend their bank because of the ATM?

Revenues vs. Costs

For the most part, customer experience helps drive the revenue side of the balance sheet. This is not to say that there are no cost savings. ATMs, online banking, and mobile banking, for example, have dramatically reduced the costs of banking transactions while offering customers more convenience and easier access to their accounts. Win-win.

It is far more common, however, that companies use technology to reduce costs under the guise of a better customer experience. Sure, giving customers options for phone, email, and chatbots is meeting customers wherever they want to be. Hiding phone numbers (Amazon) or not even offering a phone option (Uber, Frontier Airlines) are pure cost-savings plays masquerading as a better customer experience.

If you can document costs realized from improved customer experiences, that’s great. Improvements in first-call resolution in the call center, for example, boost customer experience results and save money. But don’t pretend that pushing customers to lower-cost channels is a CX improvement technique.

Last Words

In the final analysis, don’t oversell CX as the be-all and end-all of the company. And don’t undersell CX as just another score-keeping activity. Present, promote, and sell CX for what it is: a business strategy to promote the company’s broader business objectives.

Howard Lax, Ph.D.

Supporting better informed decision making with technology, research and strategy. With a focus on CX/VoC/NPS, Employee Engagement and emotion analytics, Howard's domain is the application of marketing information and SaaS platforms to solve business problems and activating CX programs to drive business objectives.

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