This podcast was brought to you by the Center for Services Leadership, a ground-breaking research center in the W. P. Carey School of Business at Arizona State University. The Center for Services Leadership provides leading edge research and education in the science of service.
Darima Fotheringham: Today, I’m talking to Dr. Phil Klaus, Professor of Customer Experience and Marketing Strategy and founder of Dr. Phil Klaus and Associates Consulting. Phil Klaus is a frequent keynote speaker at conferences and seminars. He shares his expertise in customer experience strategy and profitability with companies around the world and his award-winning research has appeared in various academic and managerial journals. He is also the author of a new book, Measuring Customer Experience: How to Develop and Execute the Most Profitable Customer Experience Strategies. Thank you so much for talking with us today and congratulations on the new book. The topic could not be more timely.
Dr. Klaus: Thank you so much, Darima, for your kind introduction and for your kind words about my book. And yes, it is timely indeed because customer experience is commonly seen as the next competitive better ground or the new competitive better ground. Let’s not go into much detail on why that might be or why it mustn’t be the case. The fact is it’s on every company’s CEO and board’s agenda. Customer experience is not just a hot topic, it is one of the key topics in terms of strategy development, execution and to its crucial link into profitability and what my book is trying to accomplish is offer companies an easy step by step approach towards measuring and managing the most profitable customer experience programs. It is not just good enough to have a customer experience program. Allow me to elaborate on this, we interviewed over 300 companies in a longitudinal way worldwide in order to find out what kind of practices are out there. Meaning ‘how do you really manage the customer experience?’ and by looking at all the data and the insights they reveal to us, we found three distinguished practices, three patterns, three strategies, three different approaches you can almost say three different customer experience business models.
Darima Fotheringham: You actually shared some of this insight in your blog post that you wrote for our blog. Are you talking about the preservers, transformers and vanguards?
Dr. Klaus: Exactly Darima. This is what I shared with your readers before.
Darima Fotheringham: So for those who haven’t had a chance to read the blog post could you maybe elaborate little more and go into the differences between the three types of strategies?
Dr. Klaus: Absolutely. And by the way for those who didn’t have the opportunity read it up at the CSL Blog and not just read about what I write about it, there are many of my colleagues who deliver cutting edge research and accessible writers to the CSL Leadership Blog so I really encourage you to read that frequently, passionately, evangelistically if you want to.
Going back to the three main practices preservers, transformers and vanguards who are they and what do they do? Let’s start first by the Preservers. Preservers are people, companies and firms who have a customer experience program. However when we dissect in detail what this customer experience program is, it is nothing more than what was before called the customer service, the voice of the customer, the customer centricity whatever it was before it is simply a rebranding exercise. In the UK we have a beautiful saying about this ‘It’s putting lipstick on a pig’. Even if you put lipstick on a pig it is still a pig. What we are trying to say here: these are companies who talk about customer experience but do not practice customer experience. It is not enough to add one or two questions to your customer satisfaction ranking and rebrand a department that had a different name before in order to embrace customer experience.
The second one are the Transformers. They are in between our preservers and vanguards. According to Porter being caught in the middle might not always be the right strategy. But what differentiates Transformers from Preservers, they not only know and believe in customer experience they put their money where their mouth is. You see their efforts normally around two main things:
Number 1: Try to listen and understand the customer better. Most of their initiatives are pilot studies or different initiatives in a small scale that try to find out what impact customer experience practices can have and these practices are guided normally by ease, making things easier for the customer to deal with and they also acknowledge and try to work on one of the crucial intersections between customer and the company, which is the employee. And we have a corresponding CSL blog about what we call the forgotten asset, the employee, for customer experience therefore for how your customers behave and ultimately how that influences your company’s profitability.
The third ones are the Vanguards. Vanguards are as close to perfect customer experience practice as we envisioned. Why? Everything revolves around the customer. It is not a division inside the company, customer experience is everywhere. It is only present not only in the way your service employees are trained but with which skills you need, how you hire them, how are you remunerate them, how you advance their career, everything revolves around the customer. Not only that they try to measure customer experience and they know clearly to measure customer experience because it is so complex and let’s get one thing straight customer experience is not simple but what we are trying to do is take this complexity out and offer you simple help into actions and results that leads to profitability. These vanguards, when I am always being asked by executives and colleagues what is the difference? Why do they business differently? The one key phrase that I always use is ‘Preservers and Transformers are always looking at the competitors first; Vanguards are purely competing for their customers’. When you listen to the CEOs and to the employees they never even talk about their competitors because they know when you take good care of your customers you will be doing good business.
Darima Fotheringham: And in your experience having worked with many companies across different industries does this typology apply across the industries or is it industry specific?
Dr. Klaus: Ah that is an excellent question because by how should I say, by default everybody will tell you this of course needs to be context specific because the rules of B2B don’t apply to B2C, the roles of a company in services are not the same as somebody in manufacturing, a company in the US has different preferences than in Japan, a company with 50 employees deals differently than one with 5000. The interesting thing we found out in our research these rules do not apply. Meaning it doesn’t matter where you are, how many employees you have, where your focus is or what you are doing the rules are the same. Meaning looking at our Vanguards we found companies with 50 employees with absolute tailor made services and we also found manufacturing companies of ten thousands in the opposite side of the world. It doesn’t really matter, the rules for customer experience apply to all of them and that’s a great message because it’s a message of, forgive me here, a message of hope you know it is not special, there is something that you can all use and all apply the rules apply to all. Why? Because at the end of the day customer experience is the focus, not your service, not your product it is what your customers are using it for and what they are doing with it that’s important.
Darima Fotheringham: Back when talking about Vanguards you mentioned that compared to the other two types not only they have clearly defined CX strategies but they are also good at measuring and tracking the impact of their CX programs and profitability. So can you give some examples of measurements that are used by Vanguards and just elaborate on that a little more?
Dr. Klaus: Oh yeah. Definitely. Because it is one of the key factors that we pick up in my book because measuring ‘Only what gets measured gets managed’. Peter F. Drucker said that a long time ago and these days it is more true than ever. People think about customer experience and what they traditionally measure is either an intention or an outcome. By intention we mean customer satisfaction. Customer satisfaction, measuring customer satisfaction is a very good thing, don’t get me wrong, however to base your customer experience program purely on customer satisfaction does not work for two reasons. A. You don’t know why people are satisfied or aren’t satisfied and secondly just an intention and how you feel in a moment doesn’t mean you act up on it. So the link between satisfaction and true customer behavior which ultimately drives profitability is not there. Measurements that also work in one way or another, most companies will be familiar with the notion of the net promoter score, the only number you need. The net promoter score in itself has lot of flaws and colleagues of mine in their papers clearly show that this is not a number or measurement you should look at and there are others that can do the job just as well. The good thing about NPS is it changes the mindset of an entire company and there it is good to have it as one of the ingredients. The companies who ever does it perfectly are using measurements like our EXQ. What EXQ does, EXQ stands for Customer Experience Quality, it measures what drives customer behavior. Meaning what are you normally after as a company, you are either after an increase in share of category or share of wallets or you want advocacy, people recommending things like measured in the NPS. But what EXQ does it tells you why people do or do not buy, buy more often and not only more often but more often from you versus your competitors and also tell good things about your company. So if you connect behavior by using XQ with the customer experience you have significantly more insight because all of a sudden all your data that you have from your CRM system or others discussing in detail what people are doing, when they are doing it and how they are doing it all of a sudden make sense. Because the most important question in customer experience is ‘Why do people do what they do?’ and these measurements give you the ‘why’ and with the ‘why’ the ‘how’, ‘when’ and ‘what’ the entire insight becomes more and more sophisticated and pushing forward your drive to profitability.
Darima Fotheringham: And so you discussed the customer experience quality measurement in your book in more detail?
Dr. Klaus: Yes. In lengths to be quite honest and we also have a special offer for the readers of our book because what we do for them thanking them for their support is we will do a free analysis of their company to tell them where they are in their customer experience progress. Of course a lot you can imagine why do people, why do my clients contact me? In 9 out of 10 times it is because something is going wrong. There is either dropping customer satisfaction, pressure from competitors, customer …, don’t reach the sales and revenues that you are looking for, make a long story short something is not going the way it should be. And these companies the first thing when they see that Vanguards outperform by far Preservers and Transformers, ask me how can I become a Vanguard? Well it is not that easy. Not everybody can become a Vanguard and there are also companies out there who don’t want to become a customer experience Vanguard. However the more you move towards in becoming a Vanguard the more profitable you will become, that’s the key message. So now tell me do you know any CEO who will say ‘Oh here is an opportunity in increasing our profitability. Ah, I don’t think we are interested in that?’
Darima Fotheringham: Probably not.
Dr. Klaus: And this is what we always encounter, but how to get there is a different way. The easiest way that we found out are the three things that you need to look at, number 1: Change your philosophy. Everything needs to start and finish with the customer. Of course CEOs and Customer experience professionals listening to this podcast will say ‘Oh yes what else is new?’ Well if it would be that easy then everybody would be a Vanguard. Regrettably you need to have processes, measurements and tools that guide you there. Just saying that you are going to do it doesn’t mean it is going to happen. Remember the famous research published at Harvard business that said: 80% of the CEOs say ‘We deliver a great experience but only 8% of their customers agreed with it. This what we call ‘slight’ gap in perception reflects customer experience reality. You think you know your customers but most companies do not know, because cause again they are missing the big question ‘why do people do what they do?’
Darima Fotheringham: So you also discussed the roles of social media in delivering multi-channel customer experience in one of the blog posts that you wrote for us. You mentioned that social media should be a key component of the overall strategy not just a strategy channel. But often times the C-suite is rarely involved in social media, so that obviously creates a challenge. When should the C-suite in your opinion jump on the band wagon and how to convince them it is time to do that?
Dr. Klaus: Great question. First of all I hope they are not just jumping on the band wagon. But you pretty much hit the nail on the head there. C-suite or the executive jump on the band wagon but if you do customer experience management like the Vanguards will do, the first question you will ask ‘will social media enhance the customer experience?’ and if your customers say ‘Yes’ then you should go for it. If it is just what CEOs, according to our research, see as an obsession with tools and toys then it has nothing to do there. It is not good enough to have a Facebook page and count your likes. I don’t see the conversion rate of that in a return for the investment. But social media can do good things and multi-channel is the future. Today’s customers conduct more and more of their transactions and tell people about it ‘online’. Even more and more move towards mobile. I recently had a conversation with Amazon, who told me some countries 80 % of their business is now done on mobile applications. So there you can see the whole mobile thing is coming up and there are two ways you either embrace, it because if your customers are using it using this technology then you need to cater to it because it is a part of their experiences. But what social media is good for and what Vanguards do with it is a little bit different. They use social media as an engagement platform, meaning they have a two-way communication that allows them to listen to their customers and immediately feedback, number one. Secondly by giving an engagement platform you centralize what people think about you, if you do it seriously. But the skills to engage in a social media conversation are not taught to the researchers that you might have employed 10 or 20 years ago. Communication meaning actively engaging with a customer is a different skill than just listening, trying to learn and design a questionnaire and try to collect data. Today’s researcher have to be a listener and a communicator and in order to communicate you need to speak the language of the customer. But what Vanguards, to come back to them, do better than anybody else, they use social media internally. Let me give you an example. I worked with one company which has global instant messaging system. So whenever a customer contacts whomever in the company with a request, requirement or a complaint and this person has not the perfect access or doesn’t have the perfect solution there, all they have to do is type in the instant messenger globally the keywords and the solutions they are looking for and people around the globe will see that and can immediately feedback what could be the perfect solution for this customer. This is smart, efficient use of a customer experience social media strategy. Use it internally and they also use it for internal learning having case studies telling them what happened, exchanging knowledge even resource allocation. Putting teams together in a virtual environment in order to get the best people is possible, but you need to embrace it internally. When C-suite thinks about social media they think about Facebook, Twitter. They never look at what you can do inside the company. Think about your inside branding by giving all your employees an opportunity to freely share their views, showing room for improvement. We always think about innovation from the outside, let’s include and co-create with the customers, how about co-create and co-produce with the people you have in the company. Use this internal engagement, employee engagement, resource allocation. They are great assets out there and employees are so important. Use them, utilize them but then again you have to create the platform for them. And the best platform as of today are the social media channels. So it works both ways. But the clever ones are using opportunities in both directions. Does that make sense?
Darima Fotheringham: Definitely, thank you so much. Now that your book is available, what is your next big project?
Dr. Klaus: What’s the next big project? Future projects are pretty clear. We are looking more and more into how people can convert into from Preservers into Vanguards. How inside the company you can go even farther, into using it. Then we help people right now how to use the famous Big Data in order to enhance the customer experience. I put the emphasis on Big Data because an acquaintance of mine, Harper Reed, who ran the social media campaign for Obama 2012, said to me, there is no Big Data. It’s just data. However, what we can do with the amount of the data we have today is we can answer big questions. And with most of my clients, I can see one big challenge: they have lots and lots of data, but they don’t have the dynamic capability to ask the right questions. Without the right questions, the strategically right questions, like when vanguards ask them, how can we enhance the customer experience for our customers, you won’t have any use for the data. It’s just a big mess of data, but no insight. Data is only relevant, if it gives you insight. In my humble opinion, and in all of our future research and in my upcoming book, the next book that is following up, it’s pretty clear: it’s only interesting if it drives profitability. And the only way to drive profitability is to give customers what they want.
Darima Fotheringham: Thank you so much for talking to us today. We talked about customer experience with Dr. Phil Klaus, Professor of Customer Experience and Marketing Strategy and Founder of Dr. Phil Klaus and Associates Consulting. His new book, Measuring Customer Experience: How to Develop and Execute the Most Profitable Customer Experience Strategies, is available on Amazon and you can also read the blog posts that Dr. Phil Klaus wrote on our blog and we’ll post a link to his book over there as well. Thank you so much for your time.
Dr. Klaus: Thank you so very much, Darima. I really appreciate it and for all of those listening, I really appreciate your time and best of luck with your customer experience journey. No matter where you’re going and where you’re going to be at your stage, if you move to the Vanguard, the world will be a better place.