Detecon Opinion Paper Customer Experience Management. Managing Customer Experience Profitably
Detecon Opinion Paper Customer Experience Management. Managing Customer Experience Profitably
Detecon Opinion Paper Customer Experience Management. Managing Customer Experience Profitably
Customer Experience
Management
Managing Customer Experience Profitably
2009 / 07
www.detecon.com
Customer Experience Management
Table of Contents
1 Executive Summary............................................................................................. 2
2 The Special Significance of Customer Experience Management (CEM) ........... 3
3 What Is Customer Experience Management?..................................................... 4
3.1 The “Fundamentals” of Customer Experience Management....................... 4
3.2 Fields of Action in Customer Experience Management............................... 5
3.3 Customer Experience Management’s Place in the CRM Framework......... 7
4 The Challenge: Exciting Customers and Making Experiences Profitable........... 8
4.1 Objectives of Customer Experience Management ...................................... 8
4.2 Success Factors for Customer Experience Management ........................... 9
5 Conclusion and Outlook .................................................................................... 13
6 Recommended Reading.................................................................................... 14
7 The Authors ....................................................................................................... 15
8 The Company .................................................................................................... 16
1 Executive Summary
What is to be done when the previous unique selling point of the customer orientation turns
into a simple “must have” among competitors? What if the necessity to initiate measures to
secure the company’s existence suddenly becomes more than just urgent owing to an
international economic crisis? Detecon has an answer to these questions within the
framework of observation of a newer development: customer experience management
(CEM).
Successful companies build up strong emotional ties between their customers and their
products or services. This emotional relationship is based on the creation of an authentic
customer experience which has a stimulating effect on the senses and differentiates the
company from its competitors. The customer experiences described above are enormously
significant, especially on highly competitive, saturated markets such as those in the
telecommunications industry, financial services, or the automotive industry.
But the CEM concept does not focus alone on the creation of emotional customer
experiences. In Detecon’s opinion, the possibility to quantify CEM measures in the form of
the ROI or shareholder values is first and foremost the essential characteristic which turns
CEM into a powerful tool for securing sustained competitive advantages.
Positive experiences with products or services raise the value of the offered products for the
customers and increase their appreciation for the company offering them, so they have a
decisive effect on shaping brand preference. By deliberately creating convincing
experiences, companies can exploit sales potential with new customers and realize
increased sales with regular customers whose loyalty has been permanently secured.
However, this requires employment of emotional factors to create customer loyalty which go
beyond objectively convincing product, service, and sales performance. The objective of
customer experience management (CEM) is to create customer loyalty on an emotional
basis – initially with solid, basic performance, then through distinct and surprising
experiences going beyond the fundamentals which exceed customers’ expectations.
Customer experience management measures are implemented through the systematic
shaping of the interaction between company and customers at all points of contact. These
measures represent an enhancement of previously existing CRM activities by adding CEM
activities which generate experiences and emotions from the customer perspective.
The growing significance of CEM in recent years can be described by referring to a panel
study of 287 managers in the USA: in 2007, 38% of the respondents attributed a critical role
in corporate strategy to customer experience management, but in 2008 this proportion had
risen sharply to 64%. Forrester has confirmed that this trend will continue in 2009: in the
meantime, 89% of the surveyed company representatives identify CEM as an important
measure for achieving differentiation over the next three years.
These findings have prompted Detecon to take a closer look at the contents and concepts of
customer experience management and to give interested decision-makers and experts in
companies insights into the goals, characteristics, and challenges of CEM approaches.
Experience
The “E” in CEM stands for “experience” in two senses. On the one hand, it refers to the
specific encounter every customer has when he or she receives or buys a product, makes
use of a service, or otherwise comes into contact with the company, e.g., when requiring
servicing. But it also goes beyond this to encompass the history of encounters as a whole
which the customer uses as a basis for assessing the specific encounter.
Positive and personal experience generally has a holistic effect on customers and
consequently directly on their loyalty with respect to the company or brand. This is becoming
more and more important, above all on markets in which the differentiation by means of
product core properties is becoming increasingly difficult or is no longer even perceived by
customers because of the commodity character of a product.
There is a need for action at several different levels so that a comprehensive experience
strategy can be defined and implemented within the framework of customer experience
management.
1) Analysis of the customer group – and of every single customer to the extent
possible: What needs, desires, expectations, and intentions does the customer
have?
2) Analysis of customer perception:
What interaction experiences with the company are significant for the customers’
perception, and by what encounters can these experiences be defined (e.g.,
moments of truth)?
3) Analysis of customer interaction:
How should regular interaction cycles and processes between customers and
company be designed to create positive and emotional customer experiences?
4) CEM implementation fields:
A suitable CEM strategy must be implemented in the organizational units which are
close to the customer. In particular, the personnel which have regular contact with
customers must be thoroughly trained, and the IT systems necessary for support
must be set up.
The starting points for customer experience management can be described on the basis of
the following value chain:
A CEM concept has its starting point in the product or service development phase in which
the company’s performance for the customers’ buying experience is designed. Examples of
this are the sound design in the automotive industry or the usefulness tests of software and
technical devices. Since many industries already make use of customer experience
management during this phase, few, if any, competitive advantages will be created here.
So the utilization of CEM measures in marketing and in sales and service becomes all the
more attractive. In this case, customer experience management consciously makes a
promise concerning performance within the context of the sales-oriented communications
(e.g., advertising, telemarketing) and branding.
For the buying phase, customer experience management designs interaction points such as
shops which fulfill functional customer expectations concerning a purchase and, going
beyond this, convey an emotional shopping experience consistent with the brand.
For the service phase, CEM identifies critical interaction points with customers, determines
the performance expected and perceived by customers, and closes any gaps which are
found, taking into account costs and quantified benefits (additional turnover, customer value,
quantified value of word of mouth).
The perception of the company’s performance by customers plays the dominant role here. A
combination of the basic functions of a product or service with additional individual, even
unexpected services heightens the branding awareness and promotes identification, i.e., the
customers’ emotional bond.
Definitions of customer relationship management (CRM) in technical literature are many and
varied. According to dominant fundamental understanding, CRM is a strategic management
approach applied throughout the company and can also be understood as a system for
management of customer relationships. As a rule, CRM measures are developed from the
company’s perspective of the customer. The emphasis is frequently on functional measures
and the fulfillment of rational expectations. Examples are the creation of a customer contact
history or the fulfillment and realization of requests submitted by customers to customer
service in the call center.
Customer experience management, on the other hand, takes the customers’ standpoint and
should, in cross-channel dialog, exceed their own expectations. Moreover, CEM employs
emotional and unexpected, positive experiences to generate a “wow” effect for customers. If
the company succeeds in creating this effect, above all at the moments which are so
important to the customers, its chances of securing the customers’ long-term loyalty to the
company increase, creating additional opportunities to shape the customer relationship with
the goal of greater profits and sustained exploitation.
The intended experiences for specific customer groups must be carefully designed with
respect to positive perception and association with the company. Yet the necessity to subject
these measures to a critical cost-benefit analysis must not be neglected: the costs of the
planned measures must be compared with the expected effect of increase in turnover. This
is the only way the “return on CEM investment” can be determined.
The chain of effects familiar from customer satisfaction research clearly shows the path of
development from “expectations exceeded” to the increase in “customer value/customer
equity”:
Financial Excellence:
ARPU Ò
Churn Ô Customer Value /
Market Share Ò Shareholder Value
Experiences Loyalty Pos. Word of Mouth Ò
Satisfaction
Brand Equity Ò
Costs Ò
Expectations
CEM identifies the customers’ expectations from the product, service, and interaction with
the company in the first step. The customers’ perspective is systematically taken and the
interaction is evaluated from their viewpoint – not from the company’s.
The second step is of fundamental importance. The basic performance, characteristics, and
functions of services or products must meet the previously determined expectations of the
customers (e.g., waiting times, functions and useful life of a technical device). This “Fix the
Basics” is the fundamental basis for CEM in the relevant business transactions. Decorative
touches such as special friendliness, additional services, and communicative extras will not
be able to compensate in the customers’ perception for a serious deficit in the basic
performance. On the contrary, there is even a risk that customers will question whether the
company has its priorities straight.
It will be possible to fulfill an adequate condition in the third step solely on the basis of this
pragmatically functional component in the sense of a CEM hygienic factor: the aim is to
create special (buying) experiences which satisfy emotional needs (e.g., picking up the new
car right from the factory). The expression “wow” effect is often used to describe unexpected
over-fulfillment in an emotional dimension.
The costs for measures to increase customer loyalty, which are by no means negligible,
have been given little attention in the CEM discussion to date. However, the rise in customer
and corporate value which is being sought here will be achieved only if the positive turnover
effects (profit margins) exceed the costs of the concrete measures.
The commercial effects of the measures creating the experience are especially difficult to
specify beforehand. CEM realistically regards customers as beings who think irrationally (as
well) and act emotionally, meaning that there are limits to correctly anticipating their
behavior. This represents a special conceptual challenge in designing the measures and is a
massive obstacle to estimating the adjusted payment surpluses which will come from the
customers’ additional purchases in the future.
Turning the CEM idea into reality involves a series of challenges. It has been possible to
identify success factors for customer experience management on the basis of initial
everyday practice in the implementation of CEM concepts:
See profitable measures through the customers’ glasses – and realize them under the
existing circumstances!
The first step is to take stock of the quantified positive and negative effects of current
customer experience on customer satisfaction, loyalty, turnover, and costs. Understanding
the customers’ perspective (especially with the aid of customer surveys) during the analysis
phase is an elementary success factor for all CEM concepts. This is the perspective from
which profitable measures must be defined which can then be implemented in the existing
organizational framework.
Let experiences have an effect consistently and individually for each customer at
several levels!
Successful CEM concepts address customers at six different levels, as is shown by a survey
of a total of 2386 customers of 12 companies which are especially successful internationally
(cf. Q6 European Management Journal 2007):
1. The sensory level is reached by engaging the five senses (seeing, hearing, feeling,
smelling, tasting). Especially successful products (e.g., Pringles, Starbucks,
Swarovski) do not address all of the senses with the same intensity; instead, they
concentrate on specific sensors as a way of creating the special experience.
2. The pragmatic level refers to the generation of an experience through fundamental
usability, user friendliness, and fulfillment of purpose while making minimal cognitive
demands (e.g., iPod, Aldi, McDonald’s).
3. The emotional level covers the address of the emotional system by creating moods
and feelings (e.g., Disney, Allianz Versicherung – hopefully insured by Allianz).
4. The cognitive level creates an experience through intellectual challenges, e.g.,
creativity and problem-solving behavior (e.g., Lego, DIY markets).
5. The lifestyle level promotes an experience through the customers’ identification with
the values communicated by a product or service (e.g., Bionade, Hotel Adlon).
6. At the rational level, the experience is sought through consumption within the
framework of a community. The product communicates belonging to a group, creating
a social identity (e.g., FC Bayern Munich, Harley Davidson Community, World of
Warcraft).
These examples demonstrate that successful products and services are all equally intense,
but that they create a unique experience profile appropriate to their specific product/service
characteristics by varying the intensity of the experience at the various levels. So there is no
such thing as an ideal profile or a general formula for success.
However, consistency among the “experience messages” conveyed in the interaction chain
and with the corporate image which is sought is fundamentally necessary. So when offering
insurance policies, the short-term emotions which are triggered (e.g., fear) should
correspond to the long-term values (e.g., conservatism, security) which are being conveyed.
Additionally addressing the cognitive level, e.g., through overly complex presentation of
insurance products, does not create any additional experience character and even
counteracts the security experience.
Best practice products in CEM are characterized by a balance of experience value and
functional value. The functionality expected by the customers is a hygienic factor, i.e., an
absolute “must” for a positive interaction experience. In other words: in the long term, even
customer experience management cannot sell a bad product any better.
Besides identifying the most important (groups of) customers, customer experience
management concentrates on the interactions which are dearest to the customers. Active
management of the “moments of truth” is appreciated most by customers (cf. Q14 Carlzon
1987). The goal, following the creation of a positive basic experience for all customer
interactions, is to concentrate the company’s resources on critical interactions. A major
prerequisite here is the identification of these special moments in the relationships between
customers and company (cf. Chapt. 3.2).
Customer experience management which is successful in the long run learns from its
mistakes and lives the classical continuous improvement process (CIP). Best practice CEM
creates mechanisms to collect and analyze the results of the customer interaction
continuously so that improvements can be derived from them and implemented.
Customer experience management must see products and the related services as a whole
and manage them in integrated form (“service infusion”) so that the consistency of the
customers’ experience is guaranteed. This is a substantial challenge, especially for large
companies. They are the ones who must coordinate this experience across various product
groups, disparate functional units, and diversified contact channels, perhaps even across
national borders.
According to a recent survey, US manager see the greatest hurdle for improvements in
customer experience in the lack of internal cooperation and coordination. That is why they
demand the following three measures as the top CEM priorities for 2009 (Q9 Burns 2008, p.
3; Q11 Temkin 2008, p. 2):
1. Attention of top management to customer experience management
2. Establishment of a dedicated customer experience executive committee
3. Development of a crossover customer experience strategy (which does not exist today
in 56% of the cases)
Successful companies integrate customers into the value-added process, allowing the
required space for both their need for self-determination and their desire for the chance to
choose their own way. The aim of their strategy is to avoid monotonous consistency and
dictatorial predetermination because this provokes an emotional reaction from consumers.
The example of a negotiating guideline for sales or service purposes clearly shows how
standardized consistency and individual care compete against each other. They must be
brought together in intelligent balance.
An answer script for a specific problem or a highly standardized negotiating guideline for the
sales agents broadly assures consistent suggestions for solutions with respect to the
customers. But as soon as the customer’s requests deviate from the standard case, the
agent must be put in a position of being able, of wanting, and of being permitted to act
according to the specific circumstances. Ultimately, a balanced degree of freedom for
employees is the key to creating convincing experiences: through the combination of a
consistent message with individual tonality and detailing by appropriately trained employees
instead of negotiating guidelines read by a robot.
The final objective is to find a balance between individualization and standardization. This is
why service options (e.g., option lists for automobiles or rate schedules for mobile services)
should be constructed so that the product/service properties relevant for the customers are
variable while the other (secondary) properties are standardized and stipulated by the
company.
Pro-active companies are paying more heed to their customers than ever before. The goal
here is emotional, sustained customer loyalty, whereby another important aspect, namely,
increasing the profitability of every single customer, is also kept in the sightline. Such
measures must be intensified above all in economically critical times because many
customers, especially in such times, maintain their constantly high expectations for
comfortable services and comprehensive care from companies because they assume, and
rightly so, that in economically difficult times every customer counts.
Good customer experience management complements CRM measures which have already
been initiated by including a viewpoint from the customers’ perspective and concentrates on
the positive shaping of the critical interactions with the customers. Detecon regards the
drafting of concepts for emotional bonding of customers to the company required for this to
be decisive. Besides the design of the CEM effect chain, there is a question of the definition
of measurable, meaningful key performance indicators. In particular, it will be necessary in
the near future to clarify how measures can be assessed in detail so that the benefits of
investments in positive “customer experience” can be verified (return on investment of CEM).
Detecon will continue to track the discussion of CEM from this angle as well and illuminate it
to an even greater depth.
We will do so because operational CEM concepts and measurable successes for managers
and strategic CRM decision makers are of key significance so that they can design and steer
their customer-centric activities even more efficiently in economically troubled times.
6 Recommended Reading
Q (Q1) Schmitt, Bernd; Mangold, Marc: Kundenerlebnis als Wettbewerbsvorteil,
2004
Q (Q2) Schwager, Andre; Meyer, Christopher: Das Kundenerlebnis verbessern;
in: Harvard Business Manager, p. 58, April 2007
Q (Q6) Gentile, Chiara; Spiller, Nicola; Noci, Giuliano: How to Sustain the
Customer Experience, in: European Management Journal, pp. 395-410,
October 2007
Q (Q7) Bonnemaizon, Audrey; Cova, Bernard; Louylot, Marie-Claude:
Relationship Marketing in 2015: A Delphi Approach; in: European Management
Journal, pp. 50-59, February 2007
Q (Q8) Temkin, Bruce D.: Customer Experience Innovation In Three Steps,
Forrester, 2008
Q (Q9) Burns, Megan: Customer Experience Spending Intensifies in 2008,
Forrester, 2008
Q (Q10) Temkin, Bruce D.: Focus on Customer Experience, Not CRM, Forrester,
2008
Q (Q1 1) Temkin, Bruce D.: Obstacles to Customer Experience Success,
Forrester, 2008
Q (Q12) Forrester: The State of Experience-Based Differentiation, 2008
Q (Q13) Duncan, Leigh: Customer Experience Management vs. Customer
Relationship Management, 2006
Q (Q14) Jan Carlzon: Moments of Truth, 1987
Q (Q1 5) Forrester Research Report: Obstacle To Customer Experience
Success, 2009
7 The Authors
8 The Company
Detecon International GmbH
Detecon offers both horizontal services that are oriented towards all industries and can entail
architecture, marketing or purchasing strategies, for example, as well as vertical consulting
services that presuppose extensive industry knowledge. Detecon's particular strength in the
ICT industry is documented by numerous domestic and international projects for
telecommunications providers, mobile operators and regulatory authorities that focused on
the development of networks and markets, evaluation of technologies and standards or
support during the merger and acquisition process.