I just returned from a business trip that provided me with a fresh perspective on the importance of Customer Experience. Don’t worry – this is not a rant about poor customer services I personally had to endure during my traveling. It is a musing about Customer Satisfaction and Customer Experience and their financial impact on profitability of a business.
Marketing and Innovation
Peter Drucker famously said,
“Because the purpose of business is to create a customer, the business enterprise has two–and only two–basic functions: marketing and innovation. Marketing and innovation produce results; all the rest are costs. Marketing is the distinguishing, unique function of the business.”
His definition of marketing goals as
“to know and understand the customer so well the product or service fits him and sells itself”
may not be very popular with many practitioners of today, but to me, Mr. Drucker is still the foremost authority on business management.
Marketing creates customer expectations by defining segments and personas, creating product requirements and communications to engage the customers. Every company uses services of reasonably well-defined specialists to do these things and to manage their performance. It is hardly a secret that a marketing budget is a significant expense for most businesses, but for some, it is a significant investment. Marketing creates expectations Customer Experience has to meet. The difference between an expense and an investment correlates to a degree the customers’ expectations are met or exceeded by their experiences.
As for innovation, I would like to offer this definition:
“An innovative product is the one that significantly simplifies customer experience of performing the ‘job’ they ’hired’ this product to do.”
In this context, I used the term “product” to also mean “service.”
Companies that cannot innovate default to financial management objectives, post good quarterly results, and pay generous executive bonuses, but ultimately erode profit margins in the race to the bottom.
Customer Experience and Customer Satisfaction
The concept of Customer Experience is not commonly understood or defined. It is often confused with Customer Satisfaction, which is also an ambiguous but very commonly used term, and is in my opinion a subset of Customer Experience.
Here is an illustration. During my trip, I made sure to eat at one of my favorite restaurants in NYC area – Anthony David’s in Hoboken, NJ. I discovered the place a few years back while frequently visiting a client in the area, and every time enjoyed a meal that exceeded my expectations. The probability of me recommending the creations of the chef to my friends or family member is 10 out of 10. However, my interactions with the staff serving branch, after lunch coffee as well as the parking challenges make my Customer Experience substantially less attractive.
“Customer Experience is how your customers perceive their interactions with your company.”
By “your customers” they mean anybody who have, is or will experience any interaction with your company, whether they have or have not purchase your product or service.
Hence, there are two reasons why Customer Experience is so hard to manage:
- It is an outside-in perspective, and most companies, as most individuals, are very self-centered. Customer Experience does not map well into organizational charts of the companies and their departments. Customer Service or Tech Support department is very interested to know how satisfied you are with their resolution of a problem with which you have called. They don’t care about your satisfaction with the product because it is not about their department.
- There is no clear, well-accepted methodology and tools for measuring Customer Experience. Management discipline cannot be practiced without consistent measurement and trending. One quote that deeply resonated with me is
“Customer experience leads to profits if you treat it as a business discipline.” Parrish Arturi at Fidelity.
Measurement of Customer Experience
We practice measurement of a delta between customers’ expectation and experience acquired through opinion mining of customer feedback. The accuracy of such application of technology is often challenged, but the last few years brought a lot of improvement. Given the latest advances in opinion mining technologies, benefits of consistency in measurements outweigh concerns about its accuracy.
The most important question is, “Why bother?” Harley and Kerry provided some very good answers in their excellent book.
And as for financial impact, the chart below shows the impact of Customer Experience on Revenue by Industry.