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Innovation and Customer Experience

We live in amazing times with endless opportunities to experience and participate in the process of many established industries being re-imagined. However, an innovation is a risky business and most attempts to re-think how things are done conventionally do not produce commercial success.

The single most important reason new products and services frequently fail to find massive commercial success is tInnovation and CX 1he misunderstanding of the core difference between innovation and invention.

Invention is about creating something new, while innovation introduces the concept of “utility” of an idea, process or method. An invention is usually a “thing”, while an innovation is often an application of one or more inventions that causes change in behavior, interactions and experience.

 

These terms are often used interchangeably and that inadvertently causes a shift of focus from experience to technology. That focus is what separates inventors like Dean Kamen from innovators like Elon Mask, Steve Jobs and Jeff Bezos.

 

Innovation and CX 2

 

The romance of novelty (invention) blinds many entrepreneurs to the fact that markets have relatively low capacity to absorb (adapt to) radical change. Consumers – your potential customers – are too busy occupied by the complexities of jobs they are trying to perform. There are not in the market for products or services, but for the desired outcomes these products promise to deliver. Therefore, unless the use of your product or service can dramatically simplify that “job”, they are not likely to “hire” (purchase) it in large numbers regardless how “new”, “improved”, “exciting”, and “innovative” your marketing describes it.

The domain of innovation is not defined by the best features, specifications or market segmentation, but by consistent simplification of the target customers’ experience.

Innovators should think less about market segments and more about the jobs customers want to do. The job, not the customer, is the fundamental unit of analysis for an innovator who hopes to develop products that customers will buy” Clayton Christensen (text in italics is added by me).

 

When I needed to re-publish a website for my wife’s business I was referred to Wix.com as the best website builder software provider. Initially, I loved its innovative design functionality until I had to actually publish the site at which point the software was not very helpful and the customer support non-existent.

After a few days of frustration I became a very grateful customer of GoDaddy.com that has substantially less creative website building software, but got me up and running within 2 days.

The examples of iPhone and Tesla show that discovery and reduction of complexities and frictions your target customers experience on their path to desired outcomes, is the shortest and surest road to innovation and creation of new markets.

The secret to high rate of customers retention

Customer retentionIt took me a few years to realize that happiness is based on one’s ability to manage expectations. We experience happiness when our expectations are exceeded. We may experience content and satisfaction when our expectations are met, or nearly met.  A disappointment is not an experience most people like to reiterate. Regardless of our age, gender, education or social status we all have expectations. Nobody ever enters into any business or social transaction without having an expectation of outcome.

Expectations are formed by multitude of our own experiences, experiences of people we know and by marketing messaging. A price of transaction or fleeing nature of social interaction may reduce an importance of meeting our expectations, but the repeat experience of being disappointed will most definitely change our willingness to try once again. Even when you buy on a whim a $0.25 lollypop packaged in orange colored wrap at a gas station, you will be disappointed if you experience a strawberry flavor in your mouth. This experience may not make you very unhappy, and may not cause you to drive a few extra miles next time you need gas – the first time that happen. However, it may start to erode your trust in the establishment and to question its ability to deliver quality customer experience. Here are some examples:

  • My sailing friend mentioned to me a few times about great experiences he had at the Dirty Cello I purchased tickets for the next one only to be bored by pompous “community” messages and the opening act that have lasted for over an hour, before the performance we paid for started. I noticed a few customers living in disgust.
  • After watching Ford Fusion commercials about their terrific fuel economy I went to a considerable effort to secure one for my last trip rental. While it is certainly a nice car, the fuel economy is nowhere near commercial’s claims. There is no doubt my next car will not be a Ford.

From a company’s perspective it is imperative to have a clear understanding of its “best” customers’ expectations. I placed the word best in quotes because there are multiple ways to differentiate your customer base. One company may consider their most profitable customers “best” and optimize its products and processes to meet or exceed expectations of these customers without sacrificing profit margins. Another company may see those who’s feedback indicate the best fit, between their expectations and the experience the company delivers, to be their “best” customers. Such company may decide to optimize their products and processes to leverage their “best” customers’ enthusiasm to increase its market share and its share of their valet.

The point is – you cannot expect to retain your customers if you fail to deliver what the customers expect.

Cheap Gas, Electric Cars and Customer Experience

Cheap gasEven if you sell a commodity, customer experience often outweighs price considerations. Just because the term Customer Experience Management (CEM) is  relatively new to corporate vocabulary, the power of “experience” is not lost on marketing professionals. The world of marketing is drastically changing, moving away from the hype of novelty and awareness-building through branding and advertising, towards  the creation of loyalty through great customer experiences.

 

As oil prices impact every element of the world economy, and markets expect the depressed levels to last for at least a decade, the future of alternative energy technologies being questioned. The sales of electric and hybrid cars  are dipping, seemingly in concert with oil prices, and auto industry analysts are trying to assess whether or not cheap gas will kill the demand for such vehicles.

It is important to remember that even at the near-record high of gas price, customer retention of hybrid vehicles was only 35%. Specifically Prius owners’ loyalty in 2012 was only 25%.

“Only 30.9% of hybrid drivers traded in for another gas-electric model in the third quarter of 2011, when gas prices were stable. But as prices at the pump surged in the final three months of that year, so did hybrid car repurchases, leading to a 40.1% loyalty rate.”

It is easy to see correlations between gas prices and sales of electric vehicles, but perhaps it is a mistake to take these as the causation.

It is true that sales of electric cars from Nissan (Leaf) are 20% down this year and gas-electric hybrid Chevy Volt’s are down 50%. However, the demand for Tesla Model S is stronger than ever and sales are up 35% during the first quarter of 2015.

Mining online reviews posted by customers, who have purchased these cars, reveal a much stronger correlation between customer experience and retention/loyalty than the correlation between sales of electric cars and price of gas. As the novelty of electric/hybrid cars and the social cache of environmentalism fade, the underwhelming customer experience these vehicles delivered to their owners, compels customers to return back to familiar, fossil fuel vehicles. That will continue until the electric cars sold provide better customer experience than conventional ones at the same or better price. The energy, that drives these cars, may be alternative, but it is not a substitute for the delivery of superior customer experience.

Without trust, a business cannot grow. Without reputation a business cannot be trusted.

Without trust-comcastCustomers prefer to buy from companies they trust. When consumers’  choices are limited and they have to do business with companies they don’t trust, customers only care about price or looking for ways to avoid to do business all together.

The television broadcasting companies are the best example of the latter. Most, if not all, research into sentiment of the industry’s customers, consistently shows their disdain with having to support these companies. There is a growing number of consumers who prefer to find ways of “cutting the cord” rather than buy from the companies they distrust.

The regulatory environment and capital requirements for potential direct competitors have left consumers as prey of established operators, who would rather spend money on lobbying government agencies than on finding ways to improve experience of their customers. On the surface, the growth of these corporate giants seems to challenge the argument “without trust, a business cannot grow”. However, if you look deeper into their corporate reports, you will notice that most of their growth comes from acquisitions and the “natural” subscription increases are heavily impacted by customer churn.

The acquisition game just encountered a very abrupt stop as unhappy customers have flooded FCC with a tsunami of petitions to kill the merger of Comcast and TWC. The too familiar tactics of divide and conquer (bribing so-called consumer activist groups with special dispensations in exchange for their public support) did not work this time. I predicted it might happen here over a year ago.

A company’s reason for existence is to serve its customers, to make their lives easier. Fulfilling this promise earns their profits honorably. The television Without trust-comcast-1broadcasting companies’ executives are aware that their customers hate their business practice of bundling channels and mysterious rate manipulations that come with this practice. However, they prefer to protect their undeserved profits by sharing them with regulators via political contributions and lobbying efforts. While they decided to take a defensive position against desires of their customers, the companies who choose to innovate content and distribution methods, will continue to gain momentum and keep taking a larger cut of the advertising budgets.

Another example of companies that seem to put their quarterly earnings ahead of their customers’ interests are software maker Intuit and tax preparer H&R Block. In fact they invest millions annually to lobby against any initiative promising to make the lives of their customers easier by simplifying the tax preparation.

On the opposite side of these digital “barricades” are companies like Uber and AirB&B mobilizing consumers, who experienced vast improvements over traditional transportation and hotel services, to put pressure on regulators that try to run interference for status quo.

Only time will tell if this is the beginning of a fundamental shift of power to the Social Consumer from “special” interest groups.

 

 

 

Algorithms vs People – Customer Experience Perspective

Algorithm vs human1During the last few months I’ve seen a significant increase in a number of articles warning about the onslaught of automation in workforce. A lot of very respectable and technologically advanced people, from Stephen Hawking to Elon Musk, express their deep concerns about implications of the latest advancements in artificial intelligence. These concerns range from the social implications of automation replacing jobs, previously thought to be immune, to outright threats to the existence of human species.

Shifts in the employment paradigm are the most immediately noticeable to most people who operate in economically developed and developing countries. Growth in entrepreneurship and shared economy at the expense of  permanent shrinkage of full time jobs in manufacturing and service sectors are very obvious in the US. The return of previously outsourced/off shored jobs translates into the automation or  part-time sub-contracting as companies shed off increasingly high costs of full employment.

Those who make their living by fanning conflicts between people, point at evil “employers” as the root of future mass unemployment to be caused by more automation. It is not surprising as they consistently warp economics into a Cinderella for political science and one cannot promote a political agenda without a villain.

“Technology first allowed the job to be outsourced. Now machines at call centers can be used to seamlessly generate spoken responses to customer inquiries, so that a single operator can handle multiple customers all at once. Meanwhile, the customer often isn’t aware that she is mostly being spoken to by a machine.”

I would like to point out that today’s economy is largely consumer driven and without improving customer experience the cost savings, obtained through automation alone, cannot be sustainable.

During the last 3 decades I was actively involved in development, deployment and adoption management of various automated solutions. I have never experienced a sustainable adoption of an algorithmic solution that decreased the cost of delivering customer experience without also improving it. Surely there were many implementations that did not meet both conditions, but inevitably these were abandoned under competitive pressures within 2-3 years of trials.

I will never forget the remarkable advance in my experience as a customer of banking services with the advent of ATM technology. The availability of on-line banking elevated my experience even higher. Did these automation efforts delivered higher profits to the banks? Absolutely! Would these efforts succeed without the customers adopting to them enthusiastically? I don’t think so.

The experience of riding with Uber is a dramatic improvement over the traditional taxi experience most of the time, but algorithmically driven vehicles are likely to make it even better every single time. The cost of the change is the devastation of employment in the transportation industry which currently accounts for over 30% of the US labor force.

Algorithms do not perform better than people. However, they do consistently perform better than many people. Customers demand consistent experience every time. If most bank tellers delivered exceptional customer experience, ATM technology would not be able to replace them. Unfortunately, the impact of our attitudes toward job performance is not commonly considered in this algorithms vs human equation.

We use remarkable, self-learning algorithms optimized for mining customers’ opinions and sentiments from their unstructured comments and reviews to assist in discovery of customer needs and differentiation. However, some product marketing people expressed their frustration with the technology because it does not generate marketing requirements automatically. When such algorithms arrive it will signal the start of product marketing jobs departure. And they will arrive because the product marketing employees demand them and because their customers are likely to get a better experience with products designed by the algorithms.

While the last two decades brought substantial improvement in the quality of algorithms they also brought considerable increase in direct and indirect cost of labor. Meanwhile, we have developed unfortunate expectations that stop us from bringing the best humanity has to offer – curiosity, empathy, original thinking and creativity, to enrich our working lives and to make us indispensible. We (the humans) need to bring our A game to our jobs, and do it consistently, to outperform the algorithms if we don’t want employment to become another meaningless entitlement.

Why is it so difficult to get funding for Customer Experience change?

CX initiative fundedIf you are reading this post you are likely well aware of customer experience’s capacity to improve your company’s performance. You are also likely very frustrated with a lack of actual commitment from your boss. Oh, he is probably saying all the right words at the company meetings, but when it comes to bankrolling the action, the time is never right.

The reality is that while 90% of executives say that customer experience is central to their strategies, and 80% want to use it as a form of differentiation, 86% of these executives do not expect to see a significant uplift in business resulting from it.

The reasons it is so difficult to get funding for customer experience initiatives are:

1. Your boss’s mental framework is focused on cutting costs and/or raising revenue – it is very difficult to find very specific examples (i.e. best practices) that directly connect improvement of customer experience to achieving these goals.

 

2. Fear is a stronger motivation than desire. The desire to provide better customer experience may not be strong enough to inspire the change. Fear of falling behind the competition in how customers perceive their experience of doing business with your company, may facilitate sufficient stimuli. Particularly if that fear is confirmed by trends in customer churn rate or increased product returns, while your competition enjoys healthy market share growth.

 

3. We all like to think of ourselves as the rational decision makers. Behavioral economics research exposes how predictably irrational are our decisions. Your boss, assuming s/he is human, is no exception and likely makes very important business decisions based on beliefs rather than evidence. Challenging these beliefs with “solid” data is a fool’s errand. A much better strategy is to understand which of these beliefs inspired him to hire you into his organization in the first place.

 

It is the time for the disclaimer – I believe that Customer Centricity can only be architected by the top leadership of a company as it requires alliance of corporate culture, customer experience metrics and operational KPIs. It is a long term corporate strategy and not a project or initiative.

However, most of us are not fortunate enough to work for leaders who share our commitment to viewing our company’s business processes and practices through the eyes of its customers. Most of us know how difficult it is to earn credibility and trust while evangelizing the importance of customer experience. Since this is the road less travelled, you are not likely to find a blueprint or a list of waypoints to guide you. However, an understanding of your environment and seasoned advice may help to navigate these uncharted “waters”. The scope for every milestone/waypoint has to be crafted to be uniquely relevant to the specifics of your situation and the landscape of your company. There is not space in this blog post for specific examples, I am happy to offer them, if contacted directly.

Nothing works better for evangelists than miracles delivered on time and within the budget.

The Strategic Value of Customer Feedback

Strategic Value of VOCMost companies solicit customer feedback on their products or services in various forms, even though it is hard to find evidence of any strategic benefits derived from its use. Most commonly used methods, surveys and focus groups, are tightly controlled by companies through the selection of the subjects of inquiry and carefully formulated questions that require a quantitative response. These efforts are focused on validation of hypotheses about a product or service’s adoption by target market segments. However, they do little to help the discovery of unmet customer needs or to support construction of alternative hypotheses.

Unsolicited customer feedback, found “in the wild” at online customer reviews sites and forums, is an excellent source of insights comparable to the ones discovered by ethnographic research (by observation).  Both methods share the focus on the customer’s outside-in perspective, but “in the wild” feedback provides more statistically representative samples at a much lower cost.

“The only truly unbiased voice-of-customer feedback, I believe, is the feedback you find “in the wild,” that is, by simply observing the comments made by your customers in social media.” Don Pepper

It is a common practice today for many companies to collect and/or monitor both types of customer feedback. The problem is what they do with it. Ultimately, the quality of business outcome trumps what types of customer feedback or methodologies were used to produce it. There is a growing body of evidence that puts a very high value on the use of “in the wild” customer feedback for strategic innovation efforts. Yet, most companies use social media comments to focus on the resolution of public complaints by responding to them at a micro level.

“An ounce of prevention is worth a pound of cure.” Ben Franklin

The goal should be discovery and elimination of systemic process/product failures that impact customer experience. However, companies are often skeptical to consider unsolicited customer feedback as a reliable and fertile ore for mining strategic insights. Their management seemingly prefers the comfort of familiar, if not effective, evaluations by the “house” customers at the expense of their brand’s degradation by “in the wild” social consumers. The use of Band-Aids is not effective to stop heavy bleeding.

Since most “tamed” customer feedback is used for validation, and most “in the wild” customer feedback is used for firefighting, the relative ROI should be examined closely. Perhaps a better model would be to start using unsolicited Voice of Customer for selection of subjects for validation.

Where are Customer Experience Success Stories?

Where are CX success stories.Companies cannot control how their customers perceive their experiences with their products and services. However, they can and they must optimize their processes to deliver the best experiences from their customers perspective, profitably. Some would argue that doing this is critical to a company’s longevity.

In developed markets the quality of customer experience quickly becomes the primary competitive differentiator. Recent studies found that 90% of executives say that customer experience is central to their strategies, and 80% want to use it as a form of differentiation. The problem is that 86% of these executives do not expect to see a significant uplift in business resulting from it. As long as this is the case, nothing will change, and the customer experience mantra will remain just empty words, while their companies continue to compete on price on the race to the bottom.

This will linger on as long as business leaders put the interests of short term share traders ahead of the interests of customers, employees and investors. The focus on quarterly growth of earnings per share benefits only day traders and corporate raiders. All the while the company’s longevity is being compromised. Companies exist to serve customers profitably. The executives, that cannot see “a significant uplift in business results” from customer experience investment, should closely examine what business results they pursue and a time frame they expect the results to occur.

The business results to be expected as a return on customer experience investment made skillfully include, but not limited to:

  • increase in revenue per customer
  • growth of customer lifetime value
  • increase in their market share
  • decline in marketing costs
  • decline in customer support/service costs

However, these gains typically start to make impact on the earnings per share (EPS) two or three years after the first round of the customer experience investment was executed successfully.

Customer Experience Management (CEM or CXM) is a relatively new discipline. A Google search of the term finds the first relevant reference on the second page as the very vague Gartner definition:

” the practice of designing and reacting to customer interactions to meet or exceed customer expectations and, thus, increase customer satisfaction, loyalty and advocacy.”

Given the association of Gartner with the software industry, and the most of subsequent search results point to technology companies, it is easy to assume that customer experience management investment means buying and implementing technology. Nothing can be further from the truth. In fact, technology is never the solution to your customer experience management challenge. The solution is an investment of effort and money into the rethinking of your business processes and practices from your customer perspective. Only after this is accomplished, modeled and tested, may you want to use a technology to speed the proliferation of the results throughout the company.

Specific methodologies and best practices for successful customer experience strategy implementations are very hard to find. Each success came after multiple failed attempts and is unique to the market in which the company operates. When a company considers customer experience to be a competitive differentiator, the last thing it wants to do is to share their hard earned customer competency with their competitors. Over 90% of our clients insist on strict non-disclose conditions before we start any work with them. This experience is not unique.

That is why successful implementations of marginal technology solutions will be publicized and imitated ad nauseum. The successful implementation of customer centricity strategy may see a lot of publicity, but its specifics would always be left for public guesswork and folklore.

Customer Experience – From Data to Action

Customer Experience-From Data to ActionToo many analytical efforts focus on a single stream/source of data and that makes them unproductive. The purpose of analysis is the development of actionable intelligence:

  • to lower the uncertainty of management action
  • and/or to help form ideas to bridge the gap between the existing and desired state of affairs.

Confining these efforts to the analysis of a single source of data does not provide enough intelligence to produce confident outcomes.

Google Analytics is a good example of an excellent tool that provides a great deal of transactional data that requires interpretation to suggest an action. When the interpreters have no data about the customers’ experience with the website, they would have to make assumptions about the motivations behind the transactional data. Every time an assumption substitutes for  data,  the confidence in a suggested action is diminished. I am not arguing for “paralysis thru analysis”, but there is a reason why GPS requires the minimum of three satellite signals, before it gives your position’s coordinates.

I used to look over Yelp reviews before selecting a new restaurant to check out, but 9 out of ten times my experience fell well below the expectations created by other customers’ perceptions. Since I have no access to data about the reviewers age, culinary experience, cultural background and priorities, the analysis of their perceptions cannot produce confident/meaningful recommendations to act. Hence, Yelp restaurant reviews are no longer a reference source for me.

Analysis of customer reviews of products published on Amazon and other sites like that can be very valuable to product and brand managers. They can find great insights for optimization of a product’s lifecycle, a brand’s product mix or advertising efficacy. However, the correlation between customer experience data and sales and returns’ data, will always produce much more confident calls to action.Customer Experience-From Data to Action 1 dashboard

The myth of “The One” has been propagated in our culture for a long time. That explains the popularity of books and movies that try to make us believe in a single source of wisdom, love and happiness, or whatever else they sell. Similarly, technology providers market their analytical tools for a single source of data as a “strategic” solution, but market intelligence is highly contextual and requires a multiplicity of sources to be meaningful.

Flashy dashboards, without blended data sources, cannot produce confident calls to action.  Blending different models to analyze the same data will likely increase the confidence even more. It is important to remember that the effectiveness of your efforts depends much more on the data sets you choose to analyze in concert, than on the tools you choose for analysis and visualization.

Customer Satisfaction Is Not Enough to Forge Loyalty

CSAT and LoyaltyMost companies, large and small, monitor satisfaction scores given by their customers. Regardless of the methodology or scale they employ, the utility of these measurements is somewhat questionable. Aggregate metrics like these offer very little actionable intelligence, but trending them over time may provide alarms, acting as the proverbial canary in the mine.

Presumably, companies that compete in the market have to satisfy their customers to stay in business.  Therefore, relatively high customer satisfaction scores signal the likelihood of the company’s longevity. Many hypothesize that high customer satisfaction leads to the creation of loyal customers, low customer churn, and subsequently high profit margins with increase in market share. While the correlations between increases in customer experience scores and wealth creation are relatively well documented, the cause and effect between the two are very hard to establish. There are many gaps in the logic of such inferences:

  1. Relativity of the score – most companies measure customer satisfaction of their customers without benchmarking these scores against the competition. Such an approach provides no more than a data point without reference to the realities of the marketplace.
  2. Satisfied customers do not automatically become loyal customers. Customer satisfaction is an absolutely necessary condition for forging customer loyalty, but it is not a sufficient one. Loyal is the customer who will continue to buy from your company regardless of the market pressures:

– even if the product or service can be purchased cheaper from someone else

– even if your competitor comes with a “better” product

– even if the delivery comes a day later than competition.

Rudy Vidal of Vidal Consulting Group shared with me the results of his research on the correlation between customer satisfaction and loyalty – only 13% of “extremely satisfied” customers identify themselves as being “loyal” as described in the definition above.

Make no mistake, raising your customer satisfaction scores above the scores of your competitors will likely have a positive impact on reducing your customer churn rates. The challenge is to produce “real” quantified evidence of such impact. It may be substantially easier to produce evidence of how loyalty (not declared intent, but observed behavior) impacts profitability and/or revenue growth. The methods for doing this have to be discussed in the context of specific product or company. The more relevant question for this post is – what turns satisfied customers into the loyal ones?

Many subject matter experts seem to think that loyalty is created by an emotional response of customers to certain elements or attributes of their experience with a product, brand or company. Moreover, the loyalty is only forged when the customer exposed to such experience on multiple occasions.

Most “loyalty” programs on the market today completely miss this point and act as “golden handcuffs” to incite repeat business rather than creating loyal customers. All the talk about “awing” or “delighting” customers is unlikely to produce any specific, measurable and lasting effect in creating customer loyalty. Without understanding what customers value on emotional level these programs will likely fail.

The ultimate challenge for a practitioner is to recognize which elements/attributes of their customers’ experience inspire emotional responses and optimize the processes to deliver them consistently.