Inside Jobs, December 18, 2008

The Right Way to Measure Your Customer Experience

Attempting to measure the customer experience with a single metric such as customer satisfaction or customer advocacy is overly simplistic and risky. Instead, companies should dig deeper and establish a portfolio of measures that can determine how each touch point contributes to the overall experience.

The Total Customer Experience is Greater Than the Sum of Its Parts

The customer experience is a complex process that can consist of multiple touch points; a process that can be broad, long-running, span multiple channels, and can be influenced by any combination of internal and external factors. Effectively measuring the total customer experience requires a more acute understanding of its individual parts.

The customer experience process does not begin and end at a store, sales representatives, web site or call center. It extends from the moment the customer becomes aware of your company and is comprised of multiple independent interactions, transactions, and contacts along the way.

Each customer experience is made up of any number of touch points and customer encounters, each of which should be measured independently to determine their contribution to the overall experience. An issue encountered at any one of these points can dramatically influence the overall experience.

For example, the quality of an automobile is an aggregate measurement of the quality of the individual parts combined with the integrity of the overall design and assembly process. If any one part fails to perform properly, the overall perception of quality is diminished. Likewise, even if every part is perfectly manufactured but isn’t arranged or assembled in a useable manner – the perception of quality will suffer. Only when quality manufacturing is guided by quality design will the experience truly be maximized.

Although overarching metrics such as customer satisfaction and customer advocacy are quickly becoming standard metrics in today’s companies, attempting to measure the customer experience with a single metric can be overly simplistic and risky. Effectively managing the customer experience requires effective measurement and management of a portfolio of metrics that will provide insights into what is - or is not - working.

Identify Your Touch Points

The customer experience is a collection of touch points encountered by the customer that includes the attraction, interaction, and cultivation of customer relationships. Touch points may include advertisements or promotions, online and in-store shopping experiences, transaction and bill processing, and post-purchase delivery, usage, and support.

The total number of touch points that the customer encounters goes well beyond the point of sale. Establishing an accurate inventory of all of your company’s touch points – both intentional and unintentional - can mean the difference between success and failure.

Defining when and where the customer experience begins and ends is perhaps the most difficult task facing any business. Too often, companies define the lifecycle and customer touch points too narrowly, leaving critical elements of the customer experience to chance.

A touch point is defined as any customer interaction or encounter that can influence the customer’s perception of your product, service, or brand. A touch point can be intentional (an advertisement) or unintentional (an unsolicited customer referral). In this era of broad customer skepticism, the unintentional touch points often matter the most. Which would you trust more: a company’s ad pitch or your best friend’s personal referral for a product? Both are touch points, but one carries much more value than the other.

When your business interacts with a customer, it’s often easy to overlook what is really going on; you are touching them in many, perhaps subtle, ways. When it comes to customer experience management, the right touch can make all the difference. To do it right, you must first identify all of your potential touch points and then work to measure and optimize each one.

Measure Individual Touch Point Effectiveness

Each customer touch point is typically designed for a specific operational purpose. An advertising touch point may be designed to build brand awareness or to identify prospects. A point of sale touch point may be designed to execute transactions. A call center touch point is designed to resolve customer issues. Each touch point is unique and contributes to the overall customer experience in different ways.

Effectively measuring each touch point requires a holistic approach to understand the contribution to both operational and customer relationship objectives. For example, the operational side of an advertising touch point may be measured in terms of a conversion rate. The customer relationship side of the same touch point may be intended to influence the customer’s perception or awareness of the company’s brand.

Measuring the effectiveness of each touch point should balance both operational and customer experience objectives. Operational metrics are typically easily identified, while customer relationship metrics can be elusive. Ideally, timely and recurring customer feedback is collected and compared to operational results to provide a more complete picture. In doing so, companies can obtain a better understanding of how each individual touch point is contributing to the overall experience.

For example, let’s say a business establishes a goal to achieve a 5% click-through-rate (CTR) with their pay-per-click campaign. If the actual campaign achieves 100% of that goal, they might consider it a success. However, customer perceptions might not be so rosy if the ad promised a product, promotion, or discount that isn’t readily available or is difficult to obtain. As a result of customer confusion and aggravation, the company may achieve only 50% of their revenue goals for the campaign.

Measure the Overall Customer Experience

In order to effectively measure the overall customer experience, companies must accurately measure the contribution of each individual touch point as well as the overall level of customer satisfaction and advocacy. At times, the results of one touch point may have an unanticipated affect on other aspects of the experience.

Consider how the individual touch points associated with a fictitious product launch might impact the experience at an electronics store:

1. Product Innovation: A key manufacturer is developing a leading-edge product that will be innovative in the marketplace. The media learns of these developments and publishes reports that an amazing new product is coming soon. Consumer excitement and anticipation is driven to extremely high levels, although actual ship dates remain unknown. (Score: 10/10)
2. Electronics Store: Employees at the store and call center are inundated with inquiries about the pending new product but are unable to provide any additional information regarding availability nor can they accept pre-orders. (Score: 3/10)
3. Marketing: The product launch date is set and marketing begins to actively promote the new product and its innovative features. Consumer anticipation is again driven to new highs as the launch date approaches. (Score: 10/10)
4. Product Purchase: On launch day, consumers flood the store and web site to get the new product. Those customers that are fortunate enough to purchase one are extremely satisfied. (Score: 10/10)
5. Out of Stock: Initial euphoria quickly turns sour as the store runs out of stock and thousands of customers are turned away without one of the highly coveted and heavily promoted products. Customers are told to check back again in a few weeks. (Score: 1/10)

For a handful of customers who were able to purchase the product, they are extremely satisfied with their experience and are willing to tell all of their friends about their latest purchase. Conversely, however, many other customers who were turned away empty-handed are now frustrated and highly dissatisfied with the experience.

Relying solely on customer satisfaction or customer advocacy measures may not illuminate how each touch point contributed to the overall experience. Simplistic customer satisfaction and advocacy scores may mask the underlying factors that either contribute to or detract from an exceptional customer experience.

Evaluating how each individual touch point contributes to the overall experience in this scenario can help to identify specific areas for improvement. While touch points 1, 3 and 4 scored high, touch points 2 and 5 clearly have room for improvement.

Focusing only on an aggregate metric without understanding or managing the contributing factors can yield unpredictable results. Companies seeking to improve their overall customer experience should establish customer experience measures that correlate individual touch point results to overall customer experience measures.

END NOTES:
“How Do I Touch Thee? Let Me Count the Ways.”, The Clear Brick Blog, April 16, 2008.

Inside Jobs, December 9, 2008

Cultivate Relationships to Increase Margins

A critical component of customer relationship management (CRM) - and yet often overlooked - is the cultivation of existing customers. We’ve seen it all too often; companies spend nearly all of their time and scarce resources trying to attract new customers - while existing customers are largely ignored. This practice can be costly in terms of lower profitability and higher customer turnover rates. Companies seeking to improve their CRM practices should look no further than cultivating existing customer relationships.

The Importance of Cultivation

All too often, businesses large and small become focused on one simple thing: attracting new customers. While this is an important dynamic for real business growth, it can become toxic if it is overemphasized and becomes the ONLY focal point for the business.

Customer acquisition is often the most costly and least profitable component of the overall customer experience. Companies throw promotions, price discounts, or free products and services at potential new customers - all of which can quickly hike up acquisition costs and squeeze profitability.

Don’t Make a Loss Leader be a Total Loss

We see examples of high acquisition costs every day. Grocery stores and other retailers are famous for offering loss leaders - popular products or commodities at an unprofitable price - in order to get customers in the door. Mobile phone companies subsidize new phone sales - again unprofitably - in order to land more subscribers. Even car dealers often sell new cars at very narrow margins in an attempt to land longer-term service relationships.

High-cost acquisition programs can be effective in landing new customers. However, in order to make the practice profitable, companies must focus more attention on taking care of existing customers and building meaningful and lasting relationships. Simply put, incremental revenue generated from an existing customer can be achieved at nominal costs. As a result, the cultivation phase - or back end - of the customer experience process can often be the most profitable.

Customer cultivation is important for one very important reason; it can significantly improve the customer lifetime value for your company. Customer lifetime value - simply put - represents the total revenue collected from a customer less any costs to acquire, serve and support the customer over the life of their relationship with your company.

Cultivate Your Relationships to Improve Your Margins

For example, if we commit $140.00 to acquire a customer that buys a $150.00 MP3 music player, we have made a margin of only $10.00. However, if we can develop and nurture the customer relationship at a nominal cost of only $50.00, they may turn around and spend $300.00 dollars on music downloads, gifts for friends, and related products over the next year - a respectable margin of $250.00.

If a meaningful customer relationship was never established after the initial transaction, then the lifetime value of the customer is a measly $10.00. However, by cultivating the relationship and obtaining additional follow-on revenue in our example, we increase the customer lifetime value to $260.00 from $10.00 - a healthy increase of 2600%!

How to Cultivate

Every new customer transaction plants a seed. What your company does with that seed can make a significant impact on future profitability. Will the seed lay there and be forgotten? Or will it be fed, watered, and nourished into a lush asset that bears fruit on a regular basis?

In order to get the most out of your customer relationships, you need to cultivate what you sow:

1. Relate: Relate with your customers through regular and meaningful contact, observations, and ongoing interactions.
2. Retain: Retain your customers by creating barriers to switching to a competitor and create an atmosphere of exclusivity.
3. Expand: Expand your relationship with your customers by offering complimentary products and services on an ongoing basis.
4. Innovate: Keep your customers excited and engaged by surprising them with new product innovations or special bundles that are tailored just for them.
5. Analyze: Analyze your customer behaviors and cultivation activities to predict and anticipate future wants and needs.

Very few companies get customer cultivation right the first time. Doing it effectively can take strong leadership, a clear vision, and an effective measurement system to continuously evaluate customer lifetime value. However, those companies that do it right can reap significant rewards.

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