• June 13, 2009
  • By Jessica TsaiAssistant Editor, CRM magazine

Customer Experience Is A Key Differentiator

In an economic downturn, the first thing companies are conditioned to do is cut costs. According to Strativity Group's 2009 Customer Experience Management Benchmark Study, doing just the opposite is what companies should really be thinking about. The research took place from early February to early May, and is based on an online survey of 869 executives around the globe. Companies that invest 10 percent or more of their revenue on customer experience enjoy lower attrition rate, higher referral rates and customer satisfaction scores above 81 percent, compared to companies that are investing less than 2 percent of their revenue. Those who are making investments into the customer experience will not only be better positioned for the economic recovery, but are reaping the benefits now.

 "The assumption is that it's all about price," Arussy says. Just because customers are more conscious of price, doesn't mean they're sacrificing their appreciation for value. While cost may be the customer's primary demand (81 percent of executives believe customers are seeking cost-effective solutions), Arussy has found that it is followed closely by:

  • 76.8 percent of survey respondents who say customers are demanding complete solutions;
  • 70.7 percent demand greater speed in resolution and delivery;
  • 70.2 percent demand customized experiences; and
  • 70.0 percent demand a more personalized interaction.

"We're leaving money on the table because we're not innovating the total experience-the total solution-for our customers," he says. So instead of thinking about how to innovate and better serve the customer, companies project the preconceived notion that customers automatically simply want a cheaper solution. Only 20 percent of survey respondents believe that listening to customers through surveys and dialogue will give them a competitive advantage. "They don't even believe that listening to customer insight can actually help them out," Arussy finds. "They come from a very arrogant position of ‘We know better than you'."

The reason for low investments in customer service may come as a result of two factors, both of which have tainted the company's view of engaging in a customer dialogue:

  • the company conducted surveys for years and haven't seen justifiable returns; or
  • the quality of information wasn't significant.

While just over 70 percent of respondents say that customer experience is "more important than 3 years ago," approximately 46 percent report they invest in it 2 percent or less of their annual revenue. Budget changes, or lack thereof, are consistent with these jaded views toward customer interaction:

  • 40.2 percent of companies maintained the same investment in customer experience;
  • 8.2 percent decreased their investment by 20 percent; and
  • 2.9 percent decreased their investment by 50 percent.

On the bright side, there's still a significant percentage of companies that are increasing their investments:

  • 31.3 percent increased investments by 10 percent;
  • 10.2 increased by 20 percent; and
  • 6.3 percent increased by more than 20 percent.

Smaller companies are seeing greater rewards proportional to their customer experience spend, due primarily because of their size and the ability to change employee attitudes faster than their enterprise counterparts.

Companies that are investing 10 percent or more of their annual revenue in customer experience are seeing rewards more frequently than those that invest less:

  • Of the 34 percent of executives that saw referral rates of 10 percent or more, 51 percent are investing 10 percent or more, compared to the 27 percent that are investing between 1 to 2 percent;
  • Of the 17 percent that reported attrition rates of less than 5 percent, 22 percent invest 10 percent or more, compared to 17 percent of those investing between 1 and 2 percent; and
  • Of the 29 percent that reported customer satisfaction rates of 81 percent or higher, 43 percent invest 10 percent or more, compared to 19 percent of those investing between 1 to 2 percent.

Arussy believes that companies are failing to find value in customer experience primarily because they do not have a financial decision platform upon which to measure economic impact. More poignantly, the study points out that an astounding percentage of survey respondents don't know:

  • the cost of acquiring a new customer (86 percent);
  • the average annual value of a new customer (84 percent);
  • the cost of a customer complaint (89 percent); and
  • the cost of total resolution of a service issue (92 percent).

"In the absence of knowing the cost units associated with how you run your business, it's no surprise [that] you're not going to make the right investment," Arussy says. Executives still don't have a way of determining the consequences of their decision in an operational manner, which also explains why 40.2 percent of companies continue to maintain the same budgets as opposed to investing more in what works, or taking away from what doesn't. "All they want is to be ‘unbad'," Arussy says of those who maintain budgets. "They didn't invest a lot of money, [but enough] to just fix it and make [the problem] go away. They're not looking to differentiate through [customer experience]."

What's motivating customer experience should be more than a fear of being caught with a negative video on YouTube, or getting a bad review online. In fact, Arussy points out that a recent report by online review site Yelp! revealed that only 1 out of 6 reviews are negative. To that extent, enhancing the customer experience takes more than resolving issues in a one-off manner and throwing in a friendly smile. The link between the brand promise and the customer experience has to match up.

Traditionally, companies have been focused on heavy marketing and lead generation-i.e., the promise-and neglecting to follow up on the delivery. "If your actual delivery isn't funded properly, don't promise anything," Arussy says. "You're only going to raise expectations and create more upset customers." Where you have marketing doing one thing and customer service doing something else, there's bound to be dissatisfaction. "If you don't track [the brand], you will never understand where the gaps are and where you missed the mark with your customer," Arussy says.

The economy is not an excuse to slow down your customer relationship initiatives. "If you think for even the slightest moment that you've got a break because of this economy, because you and your competitors have the same competitive disadvantage and are reacting the same way, think again," Arussy warns. "The race is on."

News relevant to the customer relationship management industry is posted several times a day on destinationCRM.com, in addition to the news section Insight that appears every month in the pages of CRM magazine. You may leave a public comment regarding this article by clicking on "Comments" at the top; to contact the editors, please email editor@destinationCRM.com.

CRM Covers
Free
for qualified subscribers
Subscribe Now Current Issue Past Issues

Related Articles

Ain't It Rich?

The new competitive differentiation for luxe retailers will be about behaviors and solutions that are customer--not product--centric.

Imperfect Scores

Is a new industry standard keeping executives from focusing on the relationships that matter?

Where Has All the Commitment Gone?

Lofty statements too often end up as small and meaningless actions.

Fix What Works

The ever-evolving journey toward exceptional customer experience.

The Excellence Myth

In an exclusive excerpt from his new book Excellence Every Day, industry thought leader Lior Arussy examines the truth--and crippling fictions--behind the value of experience.

“At Least We’re Making Our Numbers”

If that's the case, do we really need to change?

Self-Service Is Just Less-Than-Full Service

The real thing requires tailored, customized, and personalized solutions.

Neuromarketing Isn’t Marketing

Focus on the customer's heart, not his head.

Is Customer Experience Relevant in a Recession?

Only if you remember why it mattered in the first place.

Want Customer Loyalty? Improve Customer Experience First.

Recent reports from Forrester find an increasing emphasis on customer experience -- and a payoff in terms of customer retention.

9 Essential Strategies to Improve Customer Experience

SAP CRM 2008: As advertising budgets shift to online efforts, customer care is where the money is.

Measuring the Customer Experience

New end-user monitors analyze the user experience in real-time.

Putting Customer Experience in Your Pocket

Tealeaf debuts an array of offerings aimed at digging deeper into mobile-customer behavior.

Barnes and Noble Tops Customer Experience List

Only 11 percent of companies were considered "excellent" in Forrester's second annual Customer Experience Index (CxPi) Rankings.

The 5 Levels of Customer Experience Maturity

Net Promoter Conference '09: Deliver an excellent customer experience, and riches are sure to follow.

4 Rules for Enhancing Customer Experience

Customer Experience Summit '09: A healthy dose of proactive service can go a long way toward forging better relationships.

Poking Holes in Attrition

Social networking has the potential to transform the day-to-day operations of customer service representatives.

Accelerating the Evolution of the Online Experience

Forrester Customer Experience Forum '09: A Day Two keynote stressed that the pinnacle of online capabilities yet awaits.

The Post-Recession Customer

From now on, consumers will be saddled with residual uncertainty.

You Are What You Measure

The measurements you track are an indication of the customer relationships you want to have.

The Moment of Power

Boost customer retention by acting at the right time.

Business Is Calling for the Customer Voice

Despite boasts that "the customer is king," a new report finds that consumer insight isn't getting a seat at the table.

Cashing In On Customer Experience

New research from Strativity Group finds consumers are willing to pay a premium for goods and services if companies deliver quality experiences.

Retailers and Hotels Top the 2010 Customer Experience Index

In Forrester's Annual survey, Barnes and Noble, Marriott Hotels, and Hampton Inn and Suites deliver the best experiences.