The Customer Experience Hyperbole

By Howard Lax posted 13 days ago

  

If you listen to some CX firms you’d think that their tools/platforms/approaches are panacea cure-alls for everything from the common cold to revealing the meaning of life. I don’t know if they are smoking their own dope or just think that the rest of us are plain stupid.

Take, for example, these claims from a well-known CX vendor:

“turn customers into fanatics

products into obsessions

employees into ambassadors

and brands into religions”

I appreciate that marketing and advertising often resort to hyperbole (dare I say exaggeration?) to make their point, but the chasm between the vision and reality must be plausible. I know this won’t get me main-stage attention, but the practical promise of CX is to

  • encourage customers to continue to be customers
  • entice customers to give a firm a large share of their category spend and make customer relationships stickier
  • motivate employees to speak well about their company
  • and inspire customers to give brands permission to extend their product lines and recommend the brand to others.

 Granted, my take is less sexy and may not make for a compelling banner, but it is far more practical and realistic.

 Business Objectives

I’m no Pollyanna. I’m not about to argue for improved customer experiences as a means of making for a better, happier world or as a pathway to world peace. CX is a business strategy, not a beach ball game. The rationale for investing in CX is the payoff, the “RoCX” (the Return on CX). This is a hard-core economic argument about promoting business objectives.

Companies strive to create value. What is the source of that value? While investors and M&A folks will talk about market capitalization and finance people will be quick to point out the company’s assets, value is created by customers. In fact, the value of your company is determined by the current and future value of cash flows from customers.

Customers buy stuff – that’s what creates value. Great experiences and strong customer relationships prompt customers to buy stuff again (AKA retention), buy stuff more often (AKA frequency), buy more stuff (AKA cross-sell and share of spend), buy more expensive stuff (AKA upsell) and recommend that others buy stuff (AKA referrals). Maximize these behaviors and you will maximize the value of your company. That’s the promise of CX.

 And CX Isn’t Everything

Perhaps this is a bit of heresy coming from a CXer, but there is more to successfully running a company than managing the customer experience. There are any number of proof-points in the form of one-time CX leaders that went bankrupt over the years or simply were acquired by firms with less stellar CX records: think Wachovia Bank and Washington Mutual, as well as Blockbuster, Circuit City, EF Hutton, MCI, Continental Airlines, Radio Shack, and Tower Records. Better yet: in 2011, Forrester Research cited Borders as the best company in CX in the US across all industries; later that year, Borders filed for bankruptcy.

 Obviously, CX is not everything. There is a host of other factors that affect a company’s financial performance: external factors such as adverse macro-economic trends, interest rates, political decisions public policy, seasonality, weather or, of course, a pandemic; or internally sourced factors such as a weak balance sheet, scandal, failed business models, and other strategic miscues. Add product, pricing, and placement to the list of potential issues.

For many businesses, location still matters and can trump CX in spite of the Amazon-ization of the world. For others, “Everyday Low Prices” has allure – even if it means messy, crowded, sterile stores with too few and often disengaged clerks. Monopoly status also helps. Government agencies, utility companies, and even cable and cell carriers virtually always bring up the rear on any CX rating.

The Importance of CX

The big-name CX leaders erased from the marketscape are the exceptions that prove the rule – for every company that was once a CX leader and went kaput, there are countless other company failures caused, at least in part, by inability to deliver customer experiences that nurture strong relationships. And there are countless current CX leaders reaping the rewards of faster growth, increasing market share and rising profits.

Quantifying the impact of all the factors that affect a company’s performance is a daunting task. Meta-analysis suggests that CX and relationships explain roughly 20% of the overall sales of a company (technically it’s the variance in sales, but that makes for a geeky and awkward distinction). This doesn’t seem like much, so why not focus on the other 80%?

Simple. Up to half of the impact on sales stem from those external factors a company can’t influence. This dramatically shifts the calculus – CX and relationships are estimated to account for perhaps 40% or more of the impact among the variables a company can directly influence. As such, CX is possibly the most important factor over which a company can exert influence (dare I say control?) in driving its financial performance.

But, alas, this is all about smart business decisions for managing customer experiences and relationships, not grandiose visions of fanatics, obsessions and religious commitment . . . let’s focus on business and leave the fanaticism for terrorists, obsessions for serial killers and religions for the devoted believers.

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