Transforming the Customer Experience

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Episode 004 – It’s All About the Money

Episode 4 – It’s All About the Money

Shownotes:

  • Money and profits – not bad words
  • CX is now recognized as the tipping point
    • in 2014, 89% of companies planned to use CX as their primary competition platform by 2016. It’s 2018 now… that means that 89% of companies are aware of CX, what it is, and are trying to use it as the tipping point to gain customers. If you are new to this concept… you are in the right place, and not a moment too soon.
    • in 2014, $3.7 Billion dollars were spent on CX programs. In 2019, it’s expected to nearly triple to $8.3 according to Markets and Markets 2015 report.
    • Back in 2015, customer relationships were ranked =THIRD of top challenges for CEOs, stated by AMA in 2016.
    • 80% of businesses believe they provide “superior” customer service. But only 8% of their customers would describe the service they’ve received in such glowing terms. When customers aren’t happy, there’s often significant damage done. In fact, U.S. businesses collectively lose an estimated $83 billion a year due to shoddy customer service. This comes from The Customer Experience Index released by Forrester in 2012.
    • So knowing all of that, how have things changed? Not much, according to the American Customer Satisfaction Index, the Temkin Group, American Marketing Association and MaritzCX, most companies still struggle with making any real improvements.
    • Why? In the research I do and the work I do with clients, my observations are there are high expectations with no real plan or accountability.
    • You can’t wish for results. You have to DECIDE. You have to DECIDE if you are only Interested or truly Committed. So if there hasn’t been much improvement in the past 5-10 years, why is everyone all up in arms about it? Because the key is that MOST companies haven’t noticed a difference. SOME truly have and that is where the magic happens.
    • Once you commit and quitting and failure are not options, you almost have no choice but to see improvements.
    • Lifetime Value of a customer is the first important number you should know. If you don’t, it’s fairly simple to calculate
  • For our purposes here… this is extremely simplistic and should not be used as any final number for accounting purposes, but its a good place to start.
  • Start with your sales in the last 12 months or fiscal year. Divide that number by the total number of customers, not repeat sales, but the number of unique customers of your company, and that is your average spend.
  • Remember, we are not going to complicate this yet and break things down by tiers or levels of spending, right now we want the average spend per year.
  • Now… how many years is it reasonable to hope or expect that a happy customer would likely do business with you?
  • That is the extremely simplistic calculation of your average lifetime customer value.
  • Two examples… If you run a grocery store, you make think that a customer is worth about $100 to you as you see them walk through the front door. But people need to eat, and they need to eat daily, that means they’ll need more food. So, to keep it simple, let’s assume they come back every week and spend another $100 in your store. Over a year, they spend about $5,000 in your store. That’s not something to just throw away, but you also wouldn’t have to close up shop if that person moved out of town. 
  • Let’s assume they stay in your neighborhood for 20 years… do the math… $5,000 times 20 years becomes $100,000 spent in your store. I don’t know of any company that wouldn’t be concerned about losing $100,000 if the customer felt that another grocery store a few blocks away had better parking, better lighting, longer hours, kept the floors clean, always had the most popular food items in stock, and made sure that all of the carts had wheels that rolled the same direction.
  • Did you notice something about those small items I just mentioned? Not one of those had anything to do with customer service! We didn’t talk about friendly staff, people who would walk you to the product you needed rather than just wave in a general direction or suggest an aisle number. That’s because as we talked about in episode number 1, the CX is EVERYTHING, not just customer service skills.
  • Now, for a contract example… one of my clients is in a contract business model. Their average customer spends $12,000 annually with them for a contract term of 5 years. That’s $60,000 per contract. They have typically experienced an average of 3 contract renewals per customer, so that brings the lifetime value of each customer to $180,000. Now, they have some that are worth many times that amount, and some that are worth significantly less.
  • Don’t consider your customers as mere dollars walking through your doors. THEY ARE PEOPLE. As Marilyn Suttle states, “People do business with people, not with companies.”
  • So CX considers everything about your business from the customer perspective as people. what are their irritations? If the irritations persist, they’ll leave. you might not think that a gas station that can’t seem to understand that they need fluid in the bins that the windshield squeegee are left in need to be filled would be that big of a deal or that customers would leave over that. But they do. I’m married to one of them. It annoys him to the extent that he will drive a few blocks out of the way and maybe spend just a bit more to have the squeegee be wet enough to do the job it was designed to do. And he’s not an uptight guy, really! But that is a very simple example of something in the experience impacting the buying decision of the customer.
  • And that brings me to my next point… Now that you hopefully have a general idea of what your average lifetime value of your customers is, now we can see what it will do to your bottom line if you focus, or don’t care about, the CX.
  • transactional businesses are focused on return frequency and spend per visit.
  • Contract, or subscription, businesses are concerned about retention, cross-sell and up-sell.
  • Medallia found that in transaction-based businesses, the customers who had the best past experiences spend 140% more compared to those who had the poorest past experience.
  • They also found that contract based customers, they used a gym as an example, who had poor experiences only had a 43% chance of renewing their contract a year later. Conversely, gym goers who rated their experience one of the top two options had a 74% likelihood of renewing.
  • So use the numbers in these studies and consider your average lifetime value of your customers and see the impact that makes.
  • It’s also important to share this Lifetime Value with every single one of your staff. It’s important that they understand that how they work with, engage with and serve your customers has to be good enough and deserving to earn that amount from your customer. When I deliver presentations and state it like that, I can tell it makes a difference with people. You’ve got to be good enough, actually MORE than good enough to earn that money from your customers. Because if you aren’t and you irritate someone on the wrong day, or a minor irritation festers, your customers will leave.
  • The reasoning that some companies state for not focusing on or investing in CX is that it costs too much money. However, executives in companies that are seeing CX  improvements state the opposite. They claim delivering great experiences actually costs them less to serve customers well than before the focus began. Example, when a customer is unhappy or upset, they are more likely to require much more support and/or return the product. Sooo…. the natural thing to do would be to fix the true issue and since returns would now be down, you are reducing the cost it costs you to take care of your customers… less product to toss or return to the supplier and NO staff time in resolving the issue in the first place.
  • Now we’ve all heard stories of staff going above and beyond to delight customers. That is part of the argument for CX focus costing too much money… but let’s be realistic, that’s not realistic to expect to deliver day in and day out.
  • As Shep Hyken says… Amazing CX doesn’t have to be over the top… it just has to be better than average… consistently.
  • Basically, customers are literally VERY SATISFIED when they get what they expected and feel they were treated fairly. If you can be nice and human on top of that, you have a customer for life.
  • Another thing to consider, John Goodman states that price sensitivity doubles when a customer experiences problems and doubles again when those problems happen again or multiply. That’s why companies that provide consistently positive customer experiences can maintain higher margins. Any of you familiar with Nordstrom, Apple, or the Ritz Carlton brands?
  • So that brings us to the companies that HAVE seen improvements.
  • And one thing I want to make clear, this is not about improving survey scores or rankings. Those can be easily swayed and influences and often have other consequential negative effects. We are truly talking about the entire experience, by focusing on what is important to your customers.
  • Now, of the 28% of companies surveyed by MaritzCX who consistently apply CX practices, 66% of those report successful impacts in their businesses.
  • Companies that have proactive identification of customer needs have double the business success than those companies doing merely basic customer recovery.
  • And while only 1 in 5 companies report optimizing employee rewards based on CX performance, 69% state that their CX efforts are driving business outcomes.
  • Bottom Line… Be so good at the CX that your prices become irrelevant.

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Is Customer Loyalty Unattainable?

I was asked to review an article post written by a colleague in my field. The premise was that customer loyalty is a thing of the past. His point was that consumer demographics have changed, the economic situation has created a different mindset, and that while customers are looking to form relationships, we, as business owners, can’t expect them to be loyal. Therefore, measuring loyalty should now be a thing of the past.

It’s a good article written by Dean van Leeuwen that I believe gets us to delve deeper into the real world use of the term – customer loyalty. Loyalty is what I think you should always strive for. But in the mind of the customer, like Dean says, they are not going to fall for glossy ads and empty promises. They’ve been let down too many times. They want companies to back up what they promise.

The comment I made is posted below……. What are your thoughts on this?

The title certainly caught my eye and I was ready to completely disagree with you. After reading the rest, I think you’ve hit the nail on the head. I believe you are dissecting the word “Loyalty” to nuances we generally gloss over.

My thought is that companies hope for loyalty, but ultimately to break it down – they are hoping for repeat business from their existing customers time and time again. Your point about customers never looking to find a business they can be loyal to is correct. I think that customers are looking for a “go to resource” for that particular need. The way to do that is to create a truly unique experience. You build unique experiences by tapping into the feelings of the customers and thus, building relationships that continue over time.

The key here is to constantly be talking and engaging with the customers. As you so eloquently pointed out, they are not falling for empty promises or glossy ad campaigns. Studies show that 80% of companies think they are delivering good service and making good on their promises, but only 8% of their customers agree. To that point, as you said “companies are now being forced to build genuine and mutually beneficial relationships with their customers” – that is the crux of successful sustainability.

Based on human nature, people remain loyal to those they have positive relationships with, be it family or best friends. As consumers, we absolutely want to have one resource that is based on a positive relationship – one where the customer is appreciated for the dollars it brings to the business, and the customer values the efforts being made by the business by trying to solve their problems and create an environment and experience that draws the customers back.

With my clients, the first thing I tell them is that it is not their product or service that their customers are buying. It is the relationship that is being bought. The relationship based on the promises that the company makes and their willingness and ability to fulfill those promises, wrapped up in a package catered to the preferences of that customer.

So, that being said – I think you are dissecting the word loyalty to one that many have not done before. Loyalty on the part of consumers cannot be expected. The repeat business is what the company is wanting and they must do everything in their power to make their customers want to go out of their way to do business with them.

Very thought provoking post! Keep them coming!

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