Demystifying The Black Box – How To Design, Manage, And Measure The Most Profitable Customer Experience (CX) Strategies

BBS  Philipp Klaus 1A copyBy Phil Klaus

CX blogs, consultants, programs, workshops, conferences, indexes, frameworks, awards, summits, metrics, NPS – CX is everywhere and widely considered the next competitive battleground. Managers, consultants, scholars, and even politicians seem to agree that the age of the customer has finally arrived and we are better going to be ready for it. The new customer needs new solutions, and blue chips companies like Siemens, IBM, Adobe, Google are standing by, ready to deliver. CRM is proclaimed dead, and CX management in an area where the customer calls the shots is the declared new silver bullet for companies worldwide. Managers read the great CX stories of Apple, Amazon, and Starbucks, and are left wondering how this will apply to their business? Moreover, while we still struggle to coherently define what constitutes CX, we already discuss the next generation of CX management, the role of social media, cloud networks in delivering excellent experiences in the CX revolution you tube channel.

CX established itself as one of the top priorities on companies’ strategic agendas. It really doesn’t matter if we talk about a B2B, B2C, or even C2C context, customers will always have an experience, good or bad, and it will influence their purchasing behavior – significantly. And not only their own behavior, but also the behavior of others; courtesy of the blessing – or the curse, depending on your viewpoint – of the www and social media (Klaus 2013). Our longitudinal global research clearly indicates that delivering superior experiences is, if not the source of, a sustainable competitive advantage. However, while acknowledging CX’s strategic importance is a step in the right direction, the main challenges go beyond acknowledgement.

We explored that companies are struggling with converting CX’s strategic importance into actionable processes leading to increases in performance, and, ultimately profits. CEOs worldwide agree that there aren’t an abundance of options. Either you engage into the big unknown – how to (successfully) manage CXs – or you will loose your customers, and your competitiveness. Moreover, CX cannot be designed, measured, and managed the way businesses managed their product and service offerings in the past. CX management and design is more complex, a well-known fact in boardrooms around the globe. The question on everyone’s mind, though, and the one that managers are struggling with, is how complex is it, and how to manage and design processes to deliver superior CXs?

Marketing researchers, consultants, and scholars propose holistic CX definitions and conceptualizations, in which CX includes all direct and indirect encounters with the company or the brand. I refer to this approach as the theory of everything, in which every single counter seems to be of relevance and importance – a bigger box phenomenon, in which we simply expand existing management and consumer behavior theories in order to explain every possible direct and indirect encounter a consumer has with the company/brand. By including even more possible reasons and triggers, we create an even bigger box, and bigger mystery about what is going on inside this CX black box. If we try to translate the theory of everything into actionable steps, however, it metamorphoses into the theory of nothing. After all, if everything is important, how can a company possibly design a successful CX strategy around this insight?

Regrettably, practice doesn’t offer too many truly strategic tools either. The frameworks, models, and concepts put forward range from looking at one particular (design) aspect all the way to high abstract concepts with, forgive me, very little applicable strategic use. The absence of clear guidance on how to design profitable CX strategies triggered multiple of our research projects. We interviewed managers from over 300 companies with an explicit CX strategy and management programs worldwide to gain insight on how the design of successful, i.e. profitable CX strategies can be achieved. We developed a typology of these strategies and CX management practices, identifying three main types of CX strategies and management practices – preservers, transformers, and vanguards (Klaus et al. 2012). Their CX management design differs significantly on all five CX design and management practice dimensions: (1) CX definition, (2) scope and objectives, (3) governance (4) CX policy development and (5) CX challenges.

Preservers define CX management as an extension or development of existing service delivery practices, and assess effectiveness using traditional customer outcome measures of service quality or satisfaction. While acknowledging its importance, Preservers are incapable of making a strong business case for CX to top-management. Preservers’ programs are characterized by a series of limited initiatives rather than a comprehensive program led by a well articulated long term vision, lacking central control, corresponding processes, or an overarching vision.

Transformers believe CX is linked positively to financial performance, but acknowledge its holistic nature and the resulting challenges in scoping and defining its management. This indicates clear internal discourse concerning CX strategy and its management practice. In comparison to a Preserver’s focus on incremental improvements, Transformers strive to become a CX-focused organization, but struggle to develop a CX business model and corresponding business processes.

Vanguards have a clear strategic model of CX management that has impact across all areas of the organization and develop commensurate business processes and practices to ensure its effective implementation. While Transformers merely acknowledge the broad-based challenges of CX management, Vanguards integrate functions and customer touch-points to ensure consistency of the desired customer experiences across their own business and those of their partners. Vanguards recognize the crucial role of accountability and are constantly developing new and better ways to measure the effectiveness and efficiency of CX practice.

CXIn a subsequent stage, we explored the relationship between these CX practices and profitability. The results were eye opening; preservers displayed the lowest profitability score, with vanguards outperforming them by almost 100 per cent. Transformers are, just as their practices indicate, right in the middle between the extremes.

Managers’ first question, after being exposed to our research findings, is, “how can I become a vanguard.” The answer isn’t as easy as it appears. We do not have yet enough conclusive evidence to determine if all companies have both, the abilities, and capabilities to become vanguards. Vanguards are, by far, the smallest of the clusters – a minority. Vanguards CX strategies are NOT context-specific; they apply across all sectors, industry, company sizes, customer emphasis, and location. Vanguards have both, a clear definition of their CX strategy, and a measure allowing them to track the CX programs impact on profitability. As a matter of fact, often the CX measurement drives the CX definition and the CX strategy design (Klaus et al. 2013). As the old managerial saying goes, you can only manage what you can measure. Consequently, a measurement, such as Customer Experience Quality ‘EXQ’ (Klaus and Maklan 2012; 2013) certainly allows a clear and concise CX strategy design.

I consider myself lucky to live in a period where customers slowly begin to realize that the shift in power towards them is gaining momentum. CX strategy design and CX management are clear signs of these changes. However, as ever so often with change, rather than embracing it, we resist, and only give in if faced with no other option. Our research not only clearly indicates that this time has come, but also that there are great opportunities to be a vanguard in designing profitable CX strategies. The implementation of the frameworks and measurements from our research are reliable and validated tools in assisting managers to guide them on this road to becoming a vanguard, consequently demystifying the CX design black box (Klaus 2014). Their implementation will ultimately lead companies to superior performance and profitability based upon designing and delivering the experiences their customers desire. This is, what I consider a true win-win situation.

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Dtwitterr linkedinPhil Klaus is Professor of Customer Experience and Marketing Strategy and holds multiple visiting professorships around the globe. His multiple award-winning research has appeared in a wide range of academic and managerial journals. Phil is a frequent keynote speaker at public and in-company seminars and conferences around the world. He has an active, international portfolio of Blue-Chip clients, for whom he advises on customer experience strategy and profit enhancement.

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How Customer Participation in B2B Peer-to-Peer Problem Solving Communities Influences the Need for Traditional Customer Service

Bone_SterlingBy Sterling Bone

Can peer-to-peer interactions in a customer support community reduce the need for one-on-one traditional customer support service? New research sponsored by Arizona State’s Center for Services Leadership and published in the Journal of Service Research (JSR) attempts to address this question. Firms that leverage the collective wisdom and knowledge in their customer communities quickly see how promoting peer-to-peer problem-solving can result in greater operational efficiencies – ultimately driving financial outcomes for the firm.

Providing fast and helpful customer support service is critical for all service firms. To address customer problems, firms offer a range of support services providing customer help needed before, during, and after purchase. For business-to-business (B2B) relationships, many companies are increasingly turning to firm hosted collaborative technologies, like virtual peer-to-peer problem solving (P3) communities, to fulfill some of their customer service needs. For many years, the traditional outlet for support or problem solving has been this one-to-one customer support model in which the customer calls a customer service agent to solve a problem or answer a question. Continue reading

Development of New B2B Solutions: Results of a Benchmarking Survey

Earlier this year Solutions Insights Inc. conducted a benchmarking survey designed to better understand the issues that B2B companies face in developing new solutions. The survey explored the following questions:

•    Current importance and relevance of solutions
•    Identification of the stakeholders who are involved
•    Key processes required
•    The level of process standardization
•    General challenges that solutions developers face

The Center for Services Leadership and the Institute for the Study of Business Management at Penn State invited their professional network of members and followers to take part in the survey. We would like to thank everyone who participated in the survey. The slideshow presents the highlights of the survey findings courtesy of Solutions Insights Inc.

Using Text Mining for Customer Feedback

Center for Services Leadership:

Great to see new research that’s happening on the intersection of multiple disciplines. With large amounts of data that companies are accumulating through various communication channels, finding new methods and metrics for timely and accurate analysis is becoming more and more critical. This research tested a new framework that allows to automate the analysis of customer feedback through a text mining model. The article is currently available free on Journal of Service Research website.

Originally posted on Management INK:

[We're pleased to welcome Francisco Villarroel Ordenes, who is one of five collaborating authors on the article "Analyzing Customer Experience Feedback Using Text Mining: A Linguistics-Based Approach"from Journal of Service Research.]

The Big Data phenomenon is not only about exponential growth of customer data, but about new and challenging data structures such as textual information which require new methods and metrics to facilitate 02JSR13_Covers.inddanalysis. Customer experience feedback, usually found in platforms such as social media, e-mails and feedback forms represents a form of complicated data structure which is challenging organizations to develop new methods for its timely and consistent analysis. Our paper, “Analyzing Customer Experience Feedback Using Text Mining: A Linguistics-Based Approach”, is the result of a collaborative effort between Marketing and Information Systems researchers. We develop a Case Study with a UK service organization which receives more than 10000 comments of customer experience feedback per month. In…

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Is Joint Achievement of Customer Satisfaction and Efficiency Beneficial in Merger Contexts?

Center for Services Leadership:

Merger may provide the right opportunity to improve both customer satisfaction and efficiency while maximizing shareholder value.

Originally posted on Management INK:

[Editor's Note: We're pleased to welcome Vanitha Swaminathan, who collaborated with Christopher Groening, Vikas Mittal, and Felipe Thomaz on their paper "How Achieving the Dual Goal of Customer Satisfaction and Efficiency in Mergers Affects a Firm’s Long-Term Financial Performance" from the May issue of Journal of Service Research.]

02JSR13_Covers.indd• What inspired you to be interested in this topic?
This paper began by looking at the often repeated assertion that mergers lead to reductions in customer satisfaction. While one may believe this to be the case, there is evidence that customer satisfaction improvements actually increase financial value…which led us to ask the question, would managers wishing to maximize shareholder value reduce their focus on customer satisfaction in a merger? Following this, we wondered if a focus on both customer satisfaction and efficiency improves shareholder value even more in a merger context.

• Were there findings that were surprising to you?

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Can snooty staff of luxury stores boost sales? What research actually tells us.

By Darima Fotheringham

New research by Darren Dahl,  University of British Columbia, and Morgan Ward, Southern Methodist University, “Should the Devil Sell Prada? Retail Rejection Increases Aspiring Consumers’ Desire for the Brandreceived a lot of attention in the press lately. The research shows that condescending attitude of sales representatives at higher end stores can actually encourage customers to purchase luxury products. Sounds counter-intuitive? Not necessarily if you look closer at specific scenarios the researchers tested.

The reported effect held true when 1) the research participants (customers) aspired to be associated with the luxury brand; purchase in this case was a way to show they belonged, proving they were a part of the “in-group”; 2) the sales associates were an authentic representation of the brand in the customers’ eyes. Snobby treatment did not work on those customers who did not have strong aspiration for the brand or on those customers who shop at luxury brands regularly. It also did not have the same effect when the sales representatives did not seem to fit the brand. Interestingly, the researchers found that positive image of the brand after rude treatment did not last very long. After two weeks, the customers reported that their desire for the brand significantly diminished, which is not surprising. The novelty effect of owning an aspirational brand wears off, while the unpleasant experience leaves much longer lasting memories.

While rude treatment may help boost immediate sales, it can discourage new customers to return, hurting the brand in the long run. Good customer service is still a gold standard. One important implication from the study: customers can tell and respond positively when front-line employees fit the part and appear to be an authentic representation of the brand. While it may be an impossible task to train the front-line employees to treat aspiring and non-aspiring customers differently, it will always pay off to hire and train front-line employees to appear and behave consistently with your brand. To learn more about the effect of brand authenticity in customer interactions check out our blog postBringing Brands to Life“.