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© 2016 TeleTech. All rights reserved.

ISBN: 978-1-48356-347-3

eISBN: 978-1-48356-348-0

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 Customer Experience: What, How and Why Now

CONTENTS

Foreword
Chapter 1 Technology Drives the Customer Experience Movement
Where Technology Meets Humanity
Are Your Customers Assets? Or Obstacles?
Defining the “Customer Experience”
Customer Experience in a Diagram
What Kind of Customer Experience Are You Capable of Delivering?
Chapter 2 Customers Just Want Their Problems Solved
Take the Friction Out of Your Customer Experience
The Best Customer Experience Is NO Customer Experience
Are You Making It Hard for Customers to Buy From You?
Treating Different Customers Differently
The Real Implications of the 80-20 Rule
Chapter 3 Every Customer’s Experience Is Personal
Different Customers Have Different Needs
In Customer Relationships, Context Is King
Service or Cost? You Decide
Relationships Will Be Required
Four Steps to Managing Customer Relationships
Brands Aren’t the Same as Customer Relationships
What Honeybees Teach Us About the Customer Experience
What Do Your Friends Think?
Chapter 4 Eliminate the Friction in Your Customer Experience
The Shoe Salesman’s Secret Motivation
Four Attributes of a Frictionless Customer Experience

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 Delivering a Reliable Customer Experience
Price Is What You Pay. Value Is What You Get.
Avoiding Death by Procurement: Four Strategies
Chapter 5 Deliver a Customer Experience That’s Relevant to Each
Customer
Don’t Run Your Business on the Goldfish Principle
Five Types of Customers by Their Value
What Does It Mean to Be “Relevant” to a Customer?
Four Technologies to Make the Contact Center Experience Relevant
Are Your Biggest Customers Your Biggest Losers?
Customer Loyalty: Is It a Behavior? Or an Attitude?
Improve Customer Loyalty by Recruiting Loyal Customers
That Old-Time Customer Loyalty Feeling
Chapter 6 Seek Out Customer Feedback
#EpicFail: Are You Hearing Enough Complaints?
Customer Experience Is a High-Wire Act, Customer Service Is the Net
Tapping Into the Hidden Value of Complainers
Changing the Definition of “Integrated Marketing”
Is Your Customer Survey Really Useful?
Non-Invasive Voice-of-Customer Feedback
Chapter 7 Personalize the Customer Experience
Loyalize Customers by Remembering Their Needs
Dealing with Customer Variability
Customized Pricing? How to Do It Trustably
Improve the Experience by Not Giving Customers Choices
Use Interactions to Maximize Customer Insight
Mass-Customizing the Customer Experience

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Chapter 8 Earn Your Customers’ Trust
What Does it Mean to be “Trustable?”
The Rapidly Evolving Trustability Opportunity
Trustability Is the New Black
Gross Incompetence Implies Bad Intentions
Five Requirements for Being Trustable
Chapter 9 Let Your Humanity Shine Through
Frictionless First, Then Delightful
Make Your Customer Laugh Once in a While
Delight Customers With Your Humanity
Customer Experience: It’s All Relative
Putting Humanity into Your Company’s Mobile App
Chapter 10 It Won’t Be Easy
“The More I Buy, the Worse They Treat Me”
Three Reasons Why Customer Transformations Fail
Do You Allow Employees to Use Common Sense?
Four Types of Customer Experience to Plan For
Dealing With the Alignment Problem
The Alignment Problem Up Close and Personal
Six Leadership Behaviors for a Customer-Centric Transformation
Chapter 11 There’s Real Money to Be Made
How to Pay For a Better Customer Experience
Customers Create Two Kinds of Value
How Do You Build the Business Case for a Good Customer Experience?
Measuring the ROI of a Frictionless Customer Experience
The Business Benefit of Being Trustable
Chapter 12 How Much Is Customer Loyalty Really Worth?
Customer Retention Should Never Be Your Only Goal

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 When Are Loyalty Programs a Waste of Money?
Loyalty Programs Provide “Longitudinal Insight”
Five Best Practices for Loyalty Programs
Chapter 13 Life in the Frictionless Fast Lane
The Consumer of the Future Will Be an Algorithm
If I Ran a Brick-and-Mortar Retailer
The Twilight of the Corporate Call Center
Turn Customer Frustration Into Opportunity
At-Home Reps Can Improve Your Health
Chapter 14 Caution: Good Intentions Required
Knowledgeable Customers Create More Value
Influencing the Influencers
The Smothering Downside of Personalization
How to Avoid Being Smothered by a Personalized World
The Competitive Advantage of Trustability
Transformational Leadership for the E-Social World
Technology’s Lesson: Be Apple, Not AOL
Endnotes

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 CUSTOMER EXPERIENCE:
WHAT, HOW, AND WHY NOW
Foreword
In just the last 20 years, technological progress the business world over has
irreversibly transformed the nature of business competition.
Because of technology, customers are far more empowered than ever before—
more knowledgeable, more connected to other customers, more discerning.
And customers have higher standards today. They expect more. They demand
it.
Because of technology, entrepreneurs scour the ever-changing business
landscape to find the next disruptive innovation, while established companies
struggle to anticipate and defend against having their own business models
disrupted. But today’s customers have zero tolerance for a substandard
experience with any product or service, so it turns out that customers
themselves are the biggest disruptors of all.
The result is that literally every business on the planet seems to be engaged in
some type of customer-oriented initiative or another, just trying to stay one
step ahead of their customers’ demands, or at least trying not to fall too far
behind them.
The task that businesses are taking on goes by a number of different labels
and buzzwords. Some refer to it in terms of “customer centricity.” What does
it take for an enterprise to differentiate itself by putting the customer at the
center of its business, and then serving customers better than its competitors
do? Others may refer to it as “customer engagement,” or perhaps “customer
relationship management,” and they search for the mechanisms, strategies,
and offerings most likely to entice customers into long-lasting, loyal
relationships based on trust.
But what all these initiatives have in common, what every one of them takes
as a first principle, is that to be successful they must see the business through
the customer’s own eyes. They must experience what the customer
experiences, and then take steps to ensure that this experience becomes better,

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easier, more convenient, more enjoyable, more useful, and appropriate for the
customer. And they do this because they hope that a customer experience that
is better for a customer will be more profitable for the enterprise, as well.
The central task companies are grappling with, in other words, is managing
and improving each individual customer’s experience with their brand or
product. They want to use technology to deliver the right experience to the
right customer at the right time.
It takes effort and resources to improve the customer’s experience. Yes, new
technologies need to be employed, but new tasks also have to be
accomplished, processes must be altered, and people must be paid. A large
part of any improvement in the customer experience will come simply from
eliminating all the obstacles and “friction” a customer has to deal with just to
meet whatever need they’re trying to meet.
In the contact center space, for instance, when a company resolves an issue on
the customer’s very first call, it eliminates friction in the experience. The irony
is that when a company eliminates friction, it not only improves customer
satisfaction and loyalty; it also reduces its own costs, because fewer calls will
have to be handled, and fewer problems will have to be dealt with later.
But technology waits for no one. It doesn’t slow its pace to allow us mere
mortals to catch up. If we want to be competitively successful, we have to
think more quickly and act more expeditiously. In fact, we have to change our
companies at least at a rate that matches technology’s accelerating speed, just
to keep up with our customers’ ever increasing expectations. This is why
today’s businesses all want to become more customer-oriented right away
—yesterday, if that were at all possible.
Still, while technology may be driving this massive, worldwide transformation
of business, a customer’s experience, by its very nature, is based on humanity.
Computers and automated systems may render products and services ever
more efficient, but machines don’t buy anything. They aren’t acquisitive. They
have no needs to meet, no problems to solve, no mouths to feed.
Only humans are customers. And while they do respond to the features and
attributes of personalized services and products, they also crave empathy,

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creativity, humor, irony, and the sense of emotional fulfillment that comes
from accomplishing new things or mastering new tasks. Above all, human
beings want to connect with other human beings, to feel a part of something
bigger, to belong.
Technology by itself simply cannot fulfill these human cravings, but it can still
empower and augment the efforts of a company’s employees to do so.
Delivering humanity to customers is an essential element in providing a
higher-quality customer experience, and with technology a company can
deliver humanity at scale. But, this requires considerably more than writing a
few choice lines of code or putting together a few well-integrated business
process rules.
To manage individual customer experiences, a company has to have the right
technological capabilities, including data systems, analytics, and interactive
platforms. But it also has to ensure that its organization is properly aligned, so
that it can see and manage the customer experience even as it is being
influenced by the actions and reactions of multiple different business units
and interactions, across the whole range of channels.
Moreover, because it will never be possible to automate everything no matter
how advanced the technology becomes, and because human-to-human
interaction is the only sufficient way to inject humanity into the process, the
people within the organization will need to have the right mind-set—a mind-
set that predisposes them to make the right decisions with respect to
protecting customer interests, and to take the right actions even in the absence
of plans, algorithms, or scripts.
Delivering a better customer experience represents an immense problem to
solve, even for a company with no cumbersome industrial-era baggage. And
with every new interactive platform or mobile app, the urgency of solving it
only intensifies, as customers become even more informed, even more
demanding and impatient.
This book is designed to help.

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 CHAPTER 1
Technology Drives the Customer Experience Movement

The customer experience business revolution is driven by information

technology.
Not that providing a good customer experience hasn’t always been a
good thing to do anyway, because it has. But the customer experience
has only become the central focus for so many businesses because of
information technologies developed in the last two decades or so.
If you were a small proprietor in the 1800s, you worried about each
customer’s experience with your product or service, because you met
with and served each customer personally. With the introduction of
assembly lines and industrial processes, mass-produced products
could be delivered at a fraction of the cost, but the personal touch
had to be eliminated, because it was so costly.
Instead, customers became the objects of a company’s competitive
strategy. Ever lower manufacturing and transactional costs drove real
benefits for consumers, but with each dollar of cost saved, the relative
cost of trying to maintain an individual customer relationship became
that much more significant. There simply was no practical, cost-
efficient way to pay attention to thousands, or millions, of customers
individually. Mass marketing came to depend on branding to
reassure customers of their products’ quality.
But computer technology has changed all that, allowing businesses to
once again try to engage their individual customers in ongoing
relationships. Customer databases, analytical tools, interactivity, and
mass customization processes – all these computer-mediated
capabilities now make it possible once again to pay attention to
customers as individuals, and to manage each customer’s individual
customer experience. Even when you have millions of them.
Where Technology Meets Humanity

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For the first 100,000 years or so of the human race’s existence, the average
human being lived on the equivalent of perhaps $400 to $600 per year in
resources. Year after year, from century to century, millennium on
millennium, the population grew, continents were explored, and settlements
expanded, but on a per capita basis people were no better off, economically.
Only a few rulers and other powerful people ever lived on much more than a
few hundred dollars’ worth of resources a year.
It wasn’t until the Industrial Revolution in the 1700s that people on average
began to get wealthier with time. It was only then that mothers and fathers
first began expecting that their children would be able to eat more regularly
and have more things than they themselves had had.
The rate of growth in per capita wealth in the industrialized world was about
0.75 percent per year in the 1700s but by 1900 it had grown to about 1.5
percent per year, and by the middle of the 20th century per capita wealth was
increasing by almost 2.5 percent per year. Technological innovation is what is
driving this faster and faster economic growth, and it means more than just
comfort. It means that fewer people die of disease or hunger, natural disasters
are easier to deal with, and life spans continue to increase.
Worldwide, the average human life span today is increasing at the rate of
about five hours every single day! This means that the average baby born
today can expect to live about two months longer than the average baby born
one year ago.
Obviously, Malthus was wrong. Thomas Robert Malthus, the English
economist, famously predicted in the 1700s that populations would grow
geometrically, while resources only grew arithmetically, so sooner or later we
would run out of resources entirely and we’d all starve. It turns out, however,
that the more people we have, the faster technology accelerates (because there
are more brains at work combining ideas), and one of the most important
benefits of new technology is that the same amount of food, shelter, and
comfort for any single individual can be produced with fewer resources.
But rapid technological progress has extremely important implications for
businesses. Used to be you could launch a business and, if you were

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successful, you’d have several generations’ worth of profit to harvest. This is
no longer true. Launch a business these days and you’ll be lucky if your whole
business model hasn’t been outdated or overturned by some new technology
within just a decade or two.
The Iridium system, for instance, a low-earth-orbit network of satellites
designed to facilitate mobile phone communication without cell towers, was
technologically outdated within about 10 years of its design. The technology
was to involve 77 satellites (iridium is the 77th element in the Periodic Table),
but the business plan was architected in the mid-1980s, and by 1998, when 66
of the satellites had been launched and the system was deployed, the whole
idea had been outdated. The company filed for Chapter 11 in 2000, costing its
original investors some $5 billion.
So, the first lesson we should draw from this accelerating rush of technological
progress is that for any business to be successful today, it’s not enough just to
have a new idea. You need to be able to produce new ideas continuously. You
can’t generate profit for long from any single innovation, no matter how
brilliant it is. Increasingly, the only way you’ll be able to sustain a business is
through sustained innovation.
But the second lesson to draw from technology’s rush is that the nature of
business competition itself has been fundamentally altered. Information
technology now permits companies to remember and interact with millions of
individual customers, one customer at a time. Technology allows a business to
treat different customers differently, providing each individual customer with
an individually configured product or service, along with individually relevant
messaging or offers.
Instead of having to focus on just a single product or service at a time and
then advertising to broad populations of potential customers in order to sell as
much of that product as they can, today’s marketers increasingly focus on one
customer at a time, and try to gain as much business from that customer as
possible, over the lifetime of that customer’s patronage.
Businesses today are obsessed with managing the experience that each
individual customer has with their product, their service, their brand.

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But, no matter how automated their systems are, or how flawlessly their web
sites and mobile apps render these experiences, if companies want their
customers to stay with them from product to product, business model to
business model, they will need their trust. And trust is not technological at all.
It is a deeply human quality.
People trust other people. They don’t trust bureaucracies, processes, policies,
or machines. They trust their family, their friends, their colleagues and
compatriots. So, if a business wants its customers’ trust, then it has to figure
out how to use its technology to deliver its own humanity.
The customer experience itself is where technology meets humanity.
Are Your Customers Assets? Or Obstacles?
Sometimes a counter-intuitive idea can seem interesting simply because it is
unorthodox. And sometimes the reason it sounds counter-intuitive is because
it’s dead wrong.
Not long ago, a stock market analyst covering the banking industry wrote in a
note to his followers that when a bank caters to its customers it is wasting its
money, diverting resources it should be applying elsewhere. According to the
New York Times, the analyst, who already had a rather contrarian reputation,
said banks should keep their focus on the all-important central task of pushing
products and managing risk, even if it meant neglecting customer service.
Whether you find this idea appealingly counter-intuitive or not, the decision
on whether to focus on the customer experience should never be a binary
choice; the question is how much attention you should pay to it. Nor is your
company’s quarterly bottom line the sole indicator of financial success; long-
term shareholder value is also important.
All businesses – including banks – create 100 percent of their bottom-line
profit and shareholder value through serving customers. In the final analysis,
if you don’t have a paying customer then it doesn’t matter how superb your
products are or how skillfully you manage risk.
Without a customer, you don’t have a business at all. You have a hobby.

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Unfortunately, too many businesses still seem to embrace the idea that
customers are essentially “service problems” to be resolved and served as
inexpensively as possible. For a business following this reasoning, a customer is
just an object – one more obstacle that lies between the business and a higher
bottom-line profit. The more customers, the more obstacles to overcome and
problems to deal with.
Just ask yourself how customer care is handled at your own company. Is the
customer service budget shaved down as much as possible every year, in order
to reduce your cost of doing business? Or is it treated as an investment
designed to improve shareholder value?
The problem is that the real economic benefit of customer loyalty and
retention isn’t generally recognized in a firm’s financial statements, because
this value won’t be realized until future periods. However, the costs of
providing customer service must be recognized as they are incurred. So the
more a business focuses on its current-period bottom line (as opposed to its
long-term shareholder value), the more averse the business will likely be to
customer-centric initiatives.
That’s the message this contrarian bank analyst was trying to put across: that
(at least to him) the short-term costs of delivering a better customer
experience weren’t worth the long-term benefits of increased customer loyalty
and shareholder value.
But for the vast majority of businesses, customers are the primary link
between short-term earnings and long-term shareholder value.
If you think about it, a customer is really just a bundle of future cash flows,
with a memory. And these future cash flows will increase or decrease based
on how the customer remembers being treated, today.
So for a bank, the mission should be to keep every customer’s cash flow as
positive as possible, while recognizing that (as they say in the investment
business) past performance is no guarantee of future results.
Defining the “Customer Experience”

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A lot of businesses are concerned with improving their customers’ experiences.
But before going too much further, we probably ought to define the term.
What are the actual elements of a “customer experience,” and what should
you focus on? What kinds of actions would improve the experience you offer
to customers?
In my view, any useful definition of “customer experience” should be based
on straightforward language, while at the same time clearly differentiating the
term from all the other marketing terms and buzzwords out there, such as
customer service, brand preference, customer satisfaction, CRM, or customer
loyalty.
So here’s a simple definition of customer experience that is both
straightforward and differentiated from other buzzwords.
Customer experience is: The totality of a customer’s individual interactions
with a brand, over time.
Each of the terms in this definition is important, because each term identifies
some aspect of your own company’s customer experience that you have to pay
attention to when it comes to making improvements. If you are crafting an
initiative to improve your customer experience, the words in this definition
will help ensure that you are focusing on the right things, and not
undermining or diluting your effort:

The word “customer” is meant to include both current and

prospective buyers and users. When you make it easier for a prospect
to find information about your firm or your product, for instance,
you are improving the “customer experience” even though the
prospect may never actually become a customer.
“Individual” means that we are talking about each different
customer’s own individual perception or impression of the
experience. What you intend to provide a customer is not nearly as
important as how the customer perceives what you provide.
“Interactions” occur in addressable or reciprocal channels, i.e., non-
mass media. Marketing campaigns, taglines, and brand messages may

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be important, but they aren’t interactions, so they lie outside the
“customer experience» domain. On the other hand, improving your
mobile app by, for instance, embedding voice or chat connections
into it, would definitely improve your customer experience.
“With” a brand means that only direct contact counts as part of the
customer experience. The interactions a customer has with others
about a brand are not really a part of it, although of course how your
company actually engages with customers and prospects within
various social channels is, because it is a direct interaction.
“Brand” is a proxy for all your marketing, selling, and servicing
entities. In addition to your own company, it includes dealers and
distributors, marketing and advertising agencies, any retailers that sell
your product, and any service firms that install or repair your
company’s product, or that handle customer inquiries or interactions
of any kind. For each of these interactions, you can contract out the
task, but not the responsibility – at least not as far as the customer is
concerned.
“Over time” recognizes the ongoing nature of a customer relationship.
Each customer’s experience is not an isolated event, but accumulates
through time. You improve your customer experience, for instance,
when you make it easier for a repeat customer to get back to their
preferred configuration, or when your call center agent already
knows what a prospect was just trying to find out on your web site.
And the very first word in the definition, “totality,” means that you
cannot improve your customer experience without considering all of
these issues in total, including how each one impacts the others.
Integrating your interaction channels may be the single most
important step you can take today to improve your customer
experience, and there are all sorts of new technologies now available
to do this.

Customer Experience in a Diagram

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What does it mean to be focused on your customer’s experience, as a
business? Assuming that you start with a quality product and service, focusing
on the customer experience requires you to understand the customer’s own
point of view and respect the customer’s interest. You must fix problems,
handle complaints, and remember individual customer preferences.
But it isn’t merely a matter of adding up these different components of
quality, service, insight, and responsiveness, either. You can introduce all
these ideas into your business model, but if you don’t grapple with your
company’s most basic strategic objective, then sooner or later your efforts to
focus on the customer experience will fail.
In the past I’ve found it helpful to explain the contrast between customer-
centric and product-centric competition by using a diagram, illustrating
visually that these two strategies actually represent different “dimensions” of
competition. If you think about it, for a business to be competitively
successful, it must meet two conditions:

It must be able to satisfy a customer’s need; and

It must have a customer who wants to have that need satisfied.

The product-centric competitor focuses on one need at a time and tries to find
as many customers as possible who want to have that particular need met,
while the customer-centric competitor focuses on one customer at a time and
tries to satisfy as many of that customer’s needs as possible – across all the
company’s divisions and business units, and through time (i.e., meeting a
customer’s needs week after week, month after month).
If we visualize a kind of “marketing space” defined by the different customer
needs a business can satisfy (the vertical dimension) and by the different
customers it has (the horizontal dimension), then we can map customer
centricity and product centricity on the same diagram:

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From this diagram it should be clear that customer centricity doesn’t actually
conflict with product centricity, because they aren’t opposite in direction.
They’re orthogonal, so these two different types of competition have little or
no effect on each other. That is, the strategies and tactics you follow to be
more product-centric will have little effect on your share of customer, while
customer-centric strategies will have little effect on your market share.
Both of these strategies are useful to a business. Both can be pursued
simultaneously, and in fact most businesses do pursue these strategies
simultaneously. It’s important to acquire more customers for your business by
promoting products and services that meet specific customer needs, but once
you have gone to all the trouble and expense of acquiring a new customer, it’s
at least equally important to pay attention to keeping that customer longer,
and satisfying even more of their needs.
But in addition, this graph illustrates the role that customer experience plays,
because while a product-centric competitor focuses on managing the public’s
perception of the product (i.e., its brand image), a customer-centric competitor
must focus on how it delivers each customer’s individual experience.
There are, however, a few more points worth explaining in this diagram.
First, this two-dimensional marketing space is not defined by products, per se,
but by different customer needs. So when you think about your “share of
customer,” you shouldn’t just think in terms of wallet share. Instead, ask
yourself what share of this customer’s needs are you actually meeting? What
share of this customer’s life are you participating in? And, what additional
products or services might allow you to increase your participation in the
customer’s life, overall?

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Indeed, while product-centric competition involves finding more customers
for the products you offer, customer-centric competition, at its best, involves
finding more products to meet even more of the needs your customers have.
Second, unlike products, customers have memories. This means that the
business customers generate for you tomorrow, either as a repeat customer or
as a reference for other customers, will be based partly on their memory of
how good their experience was today. Whether you remember them or not,
customers remember you.
So focusing on the customer experience is a qualitatively different kind of
competition than focusing on the product and its ability to attract more
customers. Products don’t have experiences, and they don’t have memories.
How you treat a product today has absolutely no effect on that product’s value
to you tomorrow. But your customer’s experience today has everything to do
with that customer’s value to you tomorrow.
The implications of this final distinction are very important, because customers
are the most direct link between the profit you make today and the profit you
are likely to make tomorrow. The customer relationship directly connects
today’s profits and costs to your company’s overall shareholder value.
What Kind of Customer Experience Are
You Capable of Delivering?
From the definition of “customer experience,” it’s clear that delivering a better
experience involves improving the quality both of a company’s interactions
with its customers and its individualized treatment of them.
But different businesses will have different capabilities when it comes to
interacting and customizing. One company may be able to interact with
individual customers only by phone, for instance, while another could also
engage via email, online chat, or perhaps even real-time video. And in terms
of the product or service it renders, one firm might have the ability to deliver
different types of service to a few broad segments of customers, while another
has the ability to track individual customers and to modify its service or
offering as necessary to meet specific, individual customer demands.

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So we can think of these two capabilities – interacting and customizing – as
having a kind of scale, on which any individual business could be highly
proficient or not so proficient. Your own company’s mix of capabilities when it
comes to interacting with, and customizing for, customers will actually define
the kind of customer experience you’re capable of delivering.
Below is a “Customer Experience Capabilities Matrix” outlining four different
kinds of customer experience, based on a company’s capacity for (1) cost-
efficiently and effectively interacting with customers, and (2) customizing its
behavior toward individual customers, based on who they are.

In Quadrant 1, on the lower left, a company that has little ability to either
interact with individual customers or customize for them, will rely almost
entirely on advertising and promotion, and its product or service offering will
be fairly standard for all customers, delivering a “mass” customer experience
designed to be pretty much the same for everyone. In the B2C space, think of
Procter & Gamble selling Tide detergent to millions of customers with the
same basic brand message. This kind of customer experience is less common
in B2B selling, but it could describe the way some large enterprises sell into
the small-and-medium business (SMB) market.

The “niche” customer experience delivered in Quadrant 2, on the lower right,

is the result of a company that can alter its product in meaningful ways for
different types of customers, but it isn’t capable of interacting with those
customers richly enough to be able to fit specific products to specific

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customers. Instead, it will market to different niches, using niche-specific one-
way messaging. A typical brick-and-mortar chain of athletic shoe stores, for
instance, might choose to offer one kind of customer experience to sports
enthusiasts, and a different kind of experience to fashion junkies. It lacks the
capability, however, to interact efficiently with individual customers, in order
to shape a more personalized experience.
In the upper left, Quadrant 3, a company has the reverse problem: it isn’t
capable of customizing or tailoring its product offering, but it does have the
capability to interact on a real-time basis with individual customers. In this
case, you could think of them as delivering a kind of “targeted” customer
experience. That is, the customer knows that the firm is interacting and
communicating individually, but the communication is not designed to elicit
an individual customer’s needs so much as it is aimed at positioning and
selling the product that the company has available. Loyalty programs fall into
this quadrant, for the most part. Your typical airline loyalty program, for
instance, will involve you in a great deal of interaction with the airline, and
you might earn enough points to qualify for expedited check-in – but
everyone qualifies in exactly the same way, and on the flight itself there’s no
mad scramble for particular seats or locations. (Airlines could increase their
capability to customize if they begin remembering your meal or beverage
preference from one flight to the next, or even if they just acknowledge your
home city the next time they send you a “fare sale” email blast.)
It is in Quadrant 4 that a company is capable of delivering a genuinely “one to
one” customer experience. If your business can interact efficiently with
customers in real time, and also tailor your product-service offering for
individual customers, then the experience you deliver to the customer will be
more meaningful for them and more profitable for you. When a customer
interacts with you to tell you how they want to be served, and you tailor that
customer’s product or service to meet that specification, the relationship is now
“owned” by both of you.
In fact, when you deliver a truly one-to-one customer experience, you are
predisposing the customer to want to be loyal, rather than switch to a

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competitor. Even if your competitor offers the same level of rich interaction
and personal customization, in order for your customer to get back to the
same level of convenience he now enjoys with you, he’d first have to spend
time interacting with your competitor to “re-specify” what he’s already
specified with you.
It is in Quadrant 4, with a one-to-one customer experience, that a business
can realize the true benefits of managing relationships with customers.
It’s important to note that companies and industries are not born into these
quadrants. Yes, their business models might make it more or less difficult to
improve their ability to interact and customize, but no matter where your own
company falls in this matrix today, you merely have to improve your technical
capabilities to move into Quadrant 4, and deliver a one-to-one customer
experience.

23
 CHAPTER 2
Customers Just Want Their Problems Solved

Like water or electricity, customers seek the path of least resistance.

Except on very rare occasions (an entertainment experience, for
instance), customers don’t buy from a company just for the
enjoyment of it. They have problems to solve and needs to meet.
They want these needs to be met and these problems to be solved as
conveniently, inexpensively, and expeditiously as possible.
That’s what customers are buying, and your customer experience
needs to be designed, first and foremost, to satisfy this demand.
Take the Friction Out of Your Customer Experience
In physics, friction is the enemy of efficiency. It bleeds energy out of a
machine or system, generating heat and noise. The Second Law of
Thermodynamics (entropy always increases) means that some friction is
inevitable, but the less friction a system generates, the better. Friction is a
waste product, with very few redeeming attributes.
In a consumer’s life, friction plays a similar role, bleeding energy out of the
customer experience. The wasted time required to hold on the phone or to
wait in the queue before speaking with a service rep is friction. Friction is the
time and money spent getting an item repaired or replaced when it breaks or
runs down. It is the cost of gasoline used, when driving to and from the store
for groceries. Even the time and effort spent online trying to figure out which
product is better, or which service package makes the most sense, constitutes
friction.
But the inevitable existence of consumer friction also represents a business
opportunity. Because every time you can reduce the friction in your
customer’s experience, you are adding value, eliminating waste. You are
making the customer’s life run more smoothly. So identifying and eliminating
the kinds of friction your customer encounters can be very beneficial when it

24
comes to gaining a competitive advantage and improving a customer’s loyalty
and lifetime value.
When Ally Bank clearly displays its toll-free number on every page of its
website, along with the estimated wait time before speaking with a rep, it is
adding value to your customer experience by eliminating friction. When
JetBlue automatically credits your account with the value of a refund due to a
delayed or canceled flight, it is removing friction from the customer
experience. When Safelite AutoGlass emails you a picture of the repairman
scheduled to come to your house on a service call, in advance of his arrival,
the company is adding value by removing friction. And one of Amazon’s latest
friction-removing initiatives, according to CEO Jeff Bezos, will be to send a
refund to a customer in advance of the customer even having to request it,
whenever a service situation would normally call for one.
The highest quality customer experience is one that is as frictionless as
possible. So what are some of the opportunities your own business might have
to gain a competitive advantage by eliminating consumer friction? Here are
just a few ideas to start your thinking:

Simplify your pricing

Reduce the complexity of your “terms and conditions,” including
privacy-protection assurances, refund requirements, warranty
conditions, and other service rules
Allow your customers to post product reviews on your own website,
comparing brands without having to search elsewhere
Improve your customer data system so that a customer never has to
repeat information to you (everyone’s favorite gripe: being required
to key in their account number when they first connect with the
contact center, and then when they finally talk to a live human, the
first question is “what’s your account number?”)
Design a smartphone app allowing customers to accomplish routine
tasks without having to wait for your participation (depositing a

25
 check by emailing its photo, for instance, or locating your store, or
checking on a package).
Train and empower your service employees to make non-routine
decisions on their own authority.

To both the physicist and the consumer, friction is the enemy. It may never be
possible to totally eliminate it, but the less friction generated, the better.
The Best Customer Experience Is NO Customer Experience
All over the world, companies are trying to meet increasing customer
expectations by improving their customer experience. Executives appoint
Customer Experience Managers, they share their findings at customer
experience conferences, they read books on customer experience
management, and everyone genuflects reverently before the high altar of
“CXM” (customer experience management).
Managing how customers experience your company’s product or service has
become a universal requirement for being competitively successful.
So, why would I have chosen such a provocative headline for this essay?
Because there’s actually a great deal of truth to the idea that customers aren’t
really looking for “experiences.”
Think about your own business for a minute. Unless your name is Disney,
your customers almost certainly aren’t coming to you for the “experience” of
buying from you. They’re coming to you because they want to solve some
problem or meet some need, and they think your company has a product or
service that will help them do that – whether it’s feeding the family a meal, or
fixing their car, or maybe communicating with a friend.
And here’s the thing: If they could solve their problem or meet their need
without ever having to deal with your company (or any company) at all, don’t
you think they would do that?
What this means is that the ideal customer experience should be designed to
be as easy and painless as possible. The ideal experience would be one that
requires absolutely no extra effort on the customer’s part. The customer would

26
never have to repeat anything they’d already said, and no obstacles would
have to be overcome in the process of meeting the customer’s need. The more
that a customer’s experience with your product and service fades into the
background, in fact, the faster and more conveniently the customer will be
able to meet their need.
That’s why my suggestion is that the ideal customer experience is no
experience. In the ideal situation, the only thing a customer would
“experience” would be the elimination of whatever need or problem drove
them to you in the first place.
Marketing research supports this idea. Studies have consistently shown that
customer loyalty is not very highly correlated with customer satisfaction scores,
although customer disloyalty does have a high correlation with customer
dissatisfaction. Matthew Dixon, Nick Toman, and Rick Delisi, for instance, in
their 2013 book The Effortless Experience, cite a survey of some 97,000
consumers conducted by the Corporate Executive Board, which found
“virtually no difference at all between the loyalty of those customers whose
expectations are exceeded and those whose expectations are simply met…
[and] virtually no statistical relationship between how a customer rates a
company on a satisfaction survey and their future customer loyalty.”
In fact, the survey found an R-squared (coefficient of determination) of just
0.13 between satisfaction and loyalty, which is very close to zero. (R-squared
values range from 0 to 1.0, and to put this particular score into perspective, the
R-squared correlation between “getting good grades in school” and “achieving
career success later in life” is 0.71.)
To put it simply, customers don’t necessarily stay because they’re satisfied, but
they often leave because they’re not.
Across industry after industry, the key driver of customer disloyalty is
dissatisfaction, driven by unresolved problems or service issues. From the
customer’s perspective, this represents friction, and the same study reports that
a customer service interaction is roughly four times more likely to drive
disloyalty than loyalty. That is, every time you interact with a customer, you

27
are four times as likely to drive the customer away as to turn him into a raving
fan.
So when you start journey-mapping your customers or trying to design a
better customer experience, before brainstorming all the ways you can
“surprise and delight” them, make sure you have eliminated as many
problems and obstacles as possible, in order to make the experience easy,
simple, and totally frictionless.
You want a customer experience so frictionless that the customer won’t even
notice it.
Are You Making It Hard for Customers to Buy From You?
Eliminating friction in the customer experience is really about obliterating all
the obstacles and problems that customers encounter when they want to buy
or use your product. Think of all the tasks a customer must accomplish in
order to get your product or service to meet whatever need he or she has in
mind. And then work to ensure that there are absolutely as few tasks as
possible, and that they are as simple as possible.
If you look at a business – your business – from the customer’s point of view, it
really won’t be difficult to identify such obstacles. But to make things simpler,
I’ve put together a checklist of things you should be doing, in order to
minimize friction:
On your website:
Use standard navigation features
Make sure phone numbers appear on every page
Provide “talk to someone” or “chat” buttons throughout
Provide “contact us” buttons making it easy to email your company, and
be sure to specify how much time will likely be required before a reply is
sent. Forms aren’t enough.
At your call center:
Try to answer as many calls as possible without requiring a customer to
navigate a “phone tree” interactive voice response (IVR)

28
 Coordinate whatever IVR choices you must offer with the choices
shown on your website
Rely on short menus for your IVR, in order not to tax a customer’s
memory
Provide options to leave a number (and a time) for callback
Allow the customer to hit 0 at any point to reach a human
representative
Don’t evaluate calls by their length – longer calls almost always provide
more value to customers
On your outbound email campaigns:
Be sure the subject line contains enough information to understand the
reason for the email
If you’re emailing to alert the customers to an update requiring them to
log in to your website, tell them something about the nature of the update
in the email itself
Provide direct links from the email message to whatever pages on your
website correspond with the subject matter
Always include a phone number in the email message
List clearly the alternatives to using the website
At your stores, branches, or physical outlets:
Provide phones for calling the contact center directly
Make self-service desks available for information
If you have an online offering (and you should), then equip your sales
people with tablets to access it (your customers will already be using their
smartphones to access your online offering, and possibly your competitors’
offerings, as well)
Be proactive with your notifications to customers:
Contact the customer in the event of an unexpected problem or failure

29
Contact whenever necessary to protect a customer’s best interest (credit card
fraud, nearing the limit on a pricing plan, about to incur a late fee, and so
forth)
Provide this and other information to the customer in a way he can control
(choices with respect to alerts, frequency of contact, privacy controls, etc.)
Reach out to customers to manage their expectations appropriately whenever
lengthy or time-consuming processes are involved
It’s really very simple: If you want to eliminate friction, then you have to
experience that friction from your customer’s point of view.
Treating Different Customers Differently
Customers are all unique and different individuals, and one important
component of a frictionless customer experience is relevance. You want to
deliver to each different customer an experience that is relevant to him or her.
Being relevant to any customer inherently implies treating that customer
differently from how you treat other customers.
As it happens, “treating different customers differently” is also the single most
concise definition of Customer Relationship Management, or “CRM.” The
actual process goes by many names – customer experience management,
personalized marketing, customer centricity, customer intimacy, or one-to-one
marketing. But whatever you call it, the process commences when you begin
treating Customer A one way and Customer B another way, based on what
you know about their differences, in order to improve each customer’s
experience and to make each of them more valuable to your business.
Before the advent of computer databases and interactivity, it wasn’t practical
to treat different customers differently. Unless you were a B2B seller, or
perhaps a personal services firm with just a few large clients, you had to treat
all your customers the same. To do anything else would have been just too
costly. It was really the advent of the World Wide Web that generated what
we now all recognize as the customer revolution, which has required every
business to ask itself how to do a better and more efficient job of treating its

30
different customers differently, whether it has thousands of customers, or tens
of millions.
But how are customers different, actually? From a business perspective, there
are really just two principal ways:

1. Customers have different values to the business, and

2. Customers have different needs from the business.

These two kinds of differences account for both sides of your value
proposition: what your customers pay you, and what they want from you. All
other descriptions of customer differences – segmentation models, transaction
histories, demographics, and psychographics – are really just interim steps
designed entirely to allow a business to infer the answer to these two
questions: How much is this particular customer worth? And what does this
particular customer want?
But note that these two descriptions will appeal differently to businesses and
to customers. To most businesses, insight into a particular customer’s value is
clearly the highest priority. Companies thirst to know which of their customers
are the most valuable, which would allow them to increase the efficiency of
their marketing efforts. They can spend more on serving their most valuable
customers (to try to retain them longer), while peppering them with more
sales appeals (because they’re more likely to buy).
The thing is, however, your customers really only care about the second
difference – their needs. For the most part, customers don’t know and don’t
care what their value is to you. They are concerned with what they need –
what problem they want solved, what task accomplished, or what aspect of
their own life improved.
And, different customers often have very different needs from the business.
As difficult as it is analytically to differentiate your customers by their values,
the fact is that the problem is one-dimensional. The answer can be expressed
in dollars and cents. Or pounds and pence.

31
But there are as many different dimensions of customer needs as there are
analysts and marketers to think them up – not just demographics and
psychographics, but personality types, buying behaviors, social media
participation, etc. Needs-based customer differentiation is really where the pay
dirt is for CRM.
Please don’t get me wrong here, because ranking customers by their value is
indeed a necessary step in setting up a customer-centric marketing program.
But while it’s necessary, it’s not sufficient for long-term success. It isn’t likely
to generate much customer goodwill or genuine emotional loyalty. And it will
leave you vulnerable to competition from another company that can better
tailor its own offerings to the more finely differentiated needs of your
customers.
To create genuine loyalty you have to try to see your business through the
customer’s own eyes. You need to be the customer, to think the customer’s
own thoughts. And the customer won’t be thinking about their value to your
business. They’ll be thinking about what they need from it.
The Real Implications of the 80-20 Rule
Imagine you had access to a baseball stadium full of 50,000 customers and
prospective customers in your category. How would you go about increasing
the amount of business you’re getting from these customers?
Well, with a captive audience like this, locked into their stadium seats, you
could put ads up on the lighted stadium board, or maybe sponsor some in-
game announcements or contests. You might also put your logos on the
seatbacks or the hotdog wrappers, or advertise on the billboards into and out
of the stadium, or all of the above.
But the fact is that this isn’t a very efficient use of resources. Because some of
these customers will inevitably be much more valuable to you than others, and
your marketing investment would be much more productive if you knew who
they were.
The Pareto Principle, also known as the 80-20 rule, suggests that there is a
skew to the value of your customers, and that 80 percent of your profit likely

32
comes from just 20 percent of your customers. Of course, the actual
magnitude of this skew is different in different kinds of businesses. For an
airline it is probably as steep as a 90-10 distribution, while for a grocery store,
say, it might be more like 70-30, or even shallower. Whatever skew applies,
the result is a kind of “power law distribution” of values, and this is very
different from your standard normal curve, or bell curve.
What some people forget about this kind of distribution is that if 20 percent of
your customers do 80 percent of your business, then 20 percent of that top 20
percent will do 80 percent of that 80 percent, and so on. So, the top 5 percent
or less of your customers will often account for two-thirds of your profit, and
the top 1 percent may account for close to half of your profit all by themselves.
If your customer base has an 80-20 skew, in other words, then somewhere in
this stadium full of 50,000 customers there may be 100 who do close to more
than half the amount of business done by the other 49,900 customers put
together!
So rather than paying to put your ad message in front of all 50,000 customers,
with a series of stadium-wide initiatives, why wouldn’t you invest a little of
your marketing budget to find out where in the stadium these 100 people are
actually sitting? Then you could hire some folks to go up into the stands, sit
down next to each one of them, buy them a hotdog and a drink, and simply
ask them what it would take to get more of their business. (And then, of
course, you would do it!)
By the end of the game you would have taken more than half the market, and
the entire process would have taken place completely outside of your
competitors’ view. This is the real power of direct, interactive marketing. One-
to-one marketing. Customer-centric marketing. CRM.
Of course, the stadium is just a metaphor, and in the real world there’s a lot
more to it.

Analytics: First, you’ll need reliable and sophisticated analytics not

just to rank your customers by their value but also to determine

33
 where and how you can interact with them individually (i.e., where
are they “sitting in the stadium”).
Interaction: You’ll also have to be able to conduct individual
discussions with each customer in order to get their feedback
(customer insight) regarding what it would take to earn more of their
business.
Personalization: And (last but probably the most difficult capability
of all) you’ll need to treat each of these different customers
differently, tailoring your treatment of an individual customer to that
particular customer’s individual specifications, so you can pay off
your promise of personalized service for each of them.

None of these capabilities is a slam-dunk. But if you want to set up and

manage relationships with individual customers, it’s best if you also know
which particular customers are most worth the relationships in the first place.

34
 CHAPTER 3
Every Customer’s Experience Is Personal

A market is incapable of having an “experience” with your product or

service. Markets and market segments, no matter how thinly sliced
and carefully defined, do not use your product or service to meet
some need. Markets and segments are inanimate. They have no
intellect of their own, but are simply intellectual constructs, designed
by thinking people to help other thinking people simplify complexity
and make useful generalizations.
Only customers – human customers with awareness, feelings, and
memories – are capable of “experiencing” the way you treat them. So
one of the most important aspects of managing your customer
experience is that you are trying to manage each customer’s own,
personal feeling about your product or service. You’re trying to
behave in such a way that each individual customer has a more
positive feeling about what they experience with you.
But feelings, by their very nature, are unique and personal. A
customer can share her feelings with another customer by talking
about them, or blogging about them, or rating the company on a
scale of one to 10. But no matter how much a customer shares in this
way, in the end her own feelings will continue to be unique to her,
and only imperfectly described by whatever method she chooses to
describe them.
Different Customers Have Different Needs
LEGO sells great toys all over the world, and it knows that its customers “use”
its products for different reasons. On any given day, in fact, three 10-year-old
children might buy the same exact set of LEGO blocks in the same store for
the same price, but for three completely different reasons:

35
 Constructing. The first child enjoys figuring out the diagrams that
come with LEGO blocks and then putting things together exactly as
specified.
Role playing. The second child gets the most fun from putting a toy
together and then pretending he is the spaceship captain or the race
car driver for the toy he just built.
Creating. The third child wouldn’t dream of putting together
something that someone else had already put in a diagram! She
wants to see what else she can build that might be completely
different.

The thing is, when LEGO knows which child is which, it can sell them a
variety of other products and services to meet their different needs. For the
“constructor” it can offer extra diagrams for more toys that can be put together
from the same set of blocks, along with diagrams of things that can be
constructed from multiple sets. For the “role player” it can sell costumes,
accessories, story books and videos. And, for the “creator” it can offer
imaginative challenges – pictures of other possible uses for the blocks, but
without the blueprints, for instance.
We all know that when we sell to a customer we need to do it in such a way as
to appeal to the customer’s motivation, or need. But it’s easy to forget that
customers are all different, and their needs are often quite different as well.
At the most basic level, customers differ from each other in just two
fundamental ways – their value to the business, and what they need from the
business. All other descriptions of customers – demographics, product
preferences, spending records – are aimed at capturing one of these two
principle differences. And while it’s important to understand which customers
have the most value, which ones have the most growth potential, and which
ones are perhaps not profitable at all, you won’t be able to change any
customer’s behavior (to get them to stay loyal longer, or to buy more lines of
product, say) unless you know what motivates them.

36
In order to achieve whatever objective you have with any particular type of
customer, you have to change that customer’s behavior, right? And how do
you do that? How do you change a customer’s behavior?
By appealing to the customer’s own individual needs. By showing the
customer how a behavior change can better satisfy whatever need or desire is
motivating him.
The problem is that customer needs are multidimensional. They aren’t
denominated in dollars and cents, like customer value. And the only practical
way to act on different customers’ different needs is to simplify things by
categorizing your customers into needs-based groups (such as LEGO’s
constructors, role players, and creators).
The best way to begin differentiating your customers by their needs, however,
is to field some scientific market research, designed to cluster your customers
around a multidimensional framework based on how different customers
make various trade-offs against various personal desires, product features, or
benefits.
Forrester’s research in the telecom category clusters smartphone users in terms
of whether they are technology optimists or pessimists, whether they have
high or low income, and whether they use their phones primarily for family,
business, or entertainment purposes. Based on this combination of factors, it
describes the characteristics of various clusters of customers using colorful
names such as “mouse potatoes,” “gadget grabbers,” “hand shakers,” and
“techno-strivers,” among others.
In our consulting work, needs-based differentiation of customers is the secret
to delivering a more relevant customer experience, so it is often one of the first
tasks we tackle. Sometimes we can rely on generic, category-based research
(like Forrester’s, in the smartphone category), while other times we urge a
client to conduct some original research. For a national online florist business,
for instance, we identified customers who were:

Well-meaning but overwhelmed (they need advice),

Big-hearted benefactors (impulsive and indulgent),

37
 Practical and self-sufficient (sometimes they forget dates),
Slow but sentimental (they want something imaginative and
memorable), or
Last-minute and lavish (they often forget dates, need help, and
they’re happy to spend).

But even before fielding this kind of market research, you may be able to
make some useful judgment calls with respect to your customers’ own
different categories of needs. Here are a few “thought starters” to stimulate
your creativity.
An international airline might serve:

Utility and schedule buyers,

Luxury and comfort seekers,
Price shoppers and bargain hunters,
Deal makers, or
Insecure decision makers.

A commercial real estate business might encounter:

Active deal makers (interested mostly in speed and flexibility),

Buy-and-hold investors (interested in cost containment and
operational efficiency), or
Operators (interested in synergies, combinations, and ways to
improve a property’s value).

A truck-and-tire dealership would probably have customers who are either:

Big fleet owners (who want consistency and convenience, and who
treat speed-of-service and cost-of-service as interchangeable values),
Mom-and-pop operators (who value friendliness and trust, and want
to make “deals”), or

38
 Specialty vehicle firms (tank trucks, refrigerated vehicles, flatbeds,
etc.).

Note that all these distinctions are inherently artificial and approximate. They
are not exact, and they never could be exact, because customers are
individuals, not categories. But they are useful as generalizations, precisely
because they simplify a very complex notion and make it actionable.
In Customer Relationships, Context Is King
Hmaun binegs are craetrues of cnotxet. In fcat, cntxoet is the olny way we are
albe to raed. As lnog as the fsrit and lsat lrettes of wrdos are in thier prpoer
pleacs, not much else rllaey mttares.
Seeing things in context is one of the most important features of human
intelligence, and it plays a vital role in our relationships with others, including
the relationship that a customer has with a company. By focusing on
deepening the context of your customer relationships, you can ensure greater
customer loyalty and probably higher margins, as well.
Start with the fact that all relationships are inherently interactive, by
definition. Relationships involve communication back and forth between two
parties, and we expect the other party to respond and react to our input just as
we respond and react to theirs. When a relationship develops a deep context,
the interactions become more efficient. I can say less and less, but because of
our previous interactions (i.e., the context of our relationship) you’ll
understand more and more.
When a customer tells you how she likes her product configured or delivered,
for instance, and you remember her preferences when she buys again, you are
using the context of the relationship to save time and trouble both for her and
for your firm. Context streamlines the interaction when you rent a car and
don’t have to stop at the counter to fill out another contract from scratch, or
when you use your bank’s online bill paying service, so you don’t have to re-
enter each vendor’s details every time you send a payment.
But to be competitively successful, you should go beyond simple descriptive
and transactional data if you can, because the deeper the context of a

39
customer relationship, the stronger it will be. What if your customers could
specify their preferred sizes, colors, added features, and other product
configuration details, along with their preferred delivery times? What if they
could specify how often they want to be communicated with, how much
additional warranty coverage they prefer, or what day of the month they
prefer to be invoiced? Or what if your product itself were embedded with
information technology allowing it to “recognize” a customer and remember
the customer’s previous settings in order to conform itself to their use more
and more individually?
A deeper relationship context will improve a customer’s loyalty by eliminating
friction from the customer experience. It makes it more convenient for a
customer to stay loyal, rather than to incur the friction of having to start from
scratch with a different provider.
Relationship context is also the most reliable way to maintain your margins,
because when your offer is individualized it is no longer simply a commodity.
The customer herself has collaborated with you to create the most unique and
valuable product-service configuration for her. So essentially, the service you
are now providing was jointly created.
Developing context-rich relationships with customers requires you to start
with the objective of treating different customers differently, and then to zero
in on identifying and remembering the different preferences that individual
customers have. This may sound particularly difficult if you’ve come to think
of your product or service as commodity-like, with competition taking place
largely in terms of price and promotion. But even for the most commodity-like
of products, there will still be differences in the way customers perceive,
desire, and use the product.
Here are a few questions you could ask yourself, in order to uncover potential
context-building differences among your customers:

How might different customers prefer your product in terms of its

features or capabilities, size and fit, weight, color, design, style,
timing, or frequency?

40
 What do different customers do differently with your product?
How might different customers prefer the invoicing to be done, or
the packaging, palletization, promotion, communication, or service
support?
Can you save your customer time or effort by remembering some
detail or specification?
What additional tasks does your customer have to accomplish to gain
use out of your product, and what role could you play in helping
them to accomplish these tasks?
Are there particular types of customers with more complex problems
or management issues?
What ancillary services do your customers need in conjunction with
your product?

To the extent you can actually deliver different services or offerings to meet
some of these different needs, you can use this process to create loyalty.
Uncvoeirng tehse dffireneces and rmebemrieng tehm for eervy cutsmeor alolws
you to depeen the cnotxet of yuor rleoitanhsips, one cutsmeor at a tmie.
Service or Cost? You Decide
In 1906, British physicist J.J. Thomson was awarded the Nobel Prize for his
discovery that the electron is a particle.
In 1937, British physicist George Thomson, J.J.’s son, was awarded the Nobel
Prize for showing that the electron is a wave.
So which is it, a particle or a wave? The correct answer is “both.”
“Wave-particle duality” is one of the bedrock principles of quantum physics.
Quantum physics, in turn, explains how transistors work, and transistors give
us iPhones, word processing, GPS, and LinkedIn.
More than a decade ago I met with executives at Australia’s St. George Bank,
now part of the WestPac Group. At the time, St. George Bank had just
reprogrammed its cash machines to “remember” an individual customer’s

41
usual transaction. When you put your cash card into a St. George Bank ATM
and enter your PIN code, the ATM will ask, “Would you like your usual $100
cash withdrawal, no receipt?” This kind of personalization is more common
today, but St. George Bank was one of the first to offer it, and it was extremely
innovative at the time.
That morning in Sydney, the marketing executives I met with clearly
recognized that their bank’s innovation represented a greatly improved
customer experience. And survey results showed that customers did indeed
appreciate the initiative.
But then in the afternoon I met with some of the bank’s senior IT executives. I
complimented them on the fact that they had successfully implemented this
highly customer-centric innovation, and I told them how much their
marketing people appreciated being able to treat customers individually,
remembering their preferences, and how happy they were about this
improved customer experience.
I’ll never forget what one of the IT executives said then. He scoffed at the very
idea that this had been done to improve customer service. “That’s not why we
did this! Is that what the marketing people told you? Pfff! No way.”
“Why did you do it, then?” I asked.
“We did it because real estate for ATMs in Sydney, Australia, is very costly,
and new sites are difficult to come by. But this way, each of our ATMs serves
many more customers in the same amount of time.”
So which is it? Customer service, or increased business efficiency?
The correct answer is “both.” Call it “friction-cost duality.” When you use
technology to deliver more humanity to customers and remove friction from
the experience, your costs will go down, as well. Not only will customers be
happier on account of the more personalized service, but you’ll waste less time
and effort on your side. This might mean better asset utilization (as St. George
Bank found), or it could be reduced inventory carrying costs (if, for instance,
you were mass customizing a product).

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The point is that when you use computers to personalize each customer’s
experience, there is less wasted effort on both sides of the transaction. Your
customer doesn’t waste time and energy re-inputting information or
specifications that he’s already provided you, and your business doesn’t waste
time and effort offering every customer every option every time.
Relationships Will Be Required
Are you your customer’s enemy?
Do you remember your customers individually, from one transaction to the
next? Because if you don’t – if your business has no memory of a customer’s
history with you – then every individual buying transaction is a self-contained,
zero-sum game. You and your customer are in fact enemies.
Yes, you heard that right. You and your customer are adversaries with
diametrically opposed interests, no matter how much you may try not to act
the part.
Think about it: Your customer’s goal for each individual purchase event will
be to buy the most product at the lowest price from you, while your goal will
be the exact opposite of this: to sell the least product at the highest price. Every
dollar you gain is a dollar the customer had to give up, and vice versa.
If, on the other hand, you are able to remember individual customer
interactions and transactions over time (either with the aid of computer
technology or by using your own memory), then you are much more likely to
collaborate with your customer to design just the right product, service, and
overall customer experience this time around. “Let’s see, last time we did it
like this, so this time…?”
Whether it’s a car rental company remembering your contract details so you
don’t have to fill out another form or a Starbucks barista remembering the way
you like your latte, it will be a better customer experience. The more you
remember about your customer, including their likes and dislikes, the richer
“context” your relationship will have. And a deep relationship context is one
of the most powerful keys to customer loyalty.

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Do you want your customers to trust you, rather than to suspect your motives?
Do you want them to consider you a reliable friend, rather than an adversary?
There are a variety of strategies for achieving this objective, based on
delivering a richer, more context-laden customer experience, so that a
purchase transaction is no longer considered an isolated, zero-sum event.
But what this means is that you simply can’t deliver a truly frictionless
customer experience unless you have the tools and capabilities to develop and
manage individual customer relationships, one customer at a time.
Four Steps to Managing Customer Relationships
In order to set up and manage your relationships with individual customers,
you have to accomplish four basic tasks:

Identify customers individually. Obviously, relationships are

individual. You can’t have a “relationship” with an audience or a
population or a market segment, only with a single, individual
customer. So before you can establish a relationship you must be
capable of identifying your customers, one customer at a time. You
don›t have to have each customer›s name and address, but you need
to know that the customer on the phone right now is the same
customer who was in the store yesterday, or on your website the day
before that.
Differentiate customers, one from another. Customers differ from
each other, in terms of both their value to your business, and what
they need from your business. Of course, you can’t ever know what a
customer really needs from you, or why he or she is buying, because
you’re not a mind reader. You can only infer what the customer
needs by observing the customer’s behavior. And the customer’s
behavior will then create (or destroy) value for your business.
Interact with customers. Almost by definition, a relationship
depends on some interaction between two parties. You want those
interactions to be cost-efficient, so you need to drive them into more
efficient channels. But you also want them to be effective – that is, to

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 tell you something about the customer’s needs or value that you can’t
learn simply by observing the customer’s behavior.
Customize for customers. The “pay off step” for managing a
customer relationship comes when your business behaves differently
toward that individual customer, based on what you know about
them. We call this step “customization” even though we’re not
necessarily talking about it literally in terms of customizing the
product or service. But whenever you treat Customer A differently
from Customer B, based on what you think you know about their
differences, you are “customizing” the customer’s treatment.

If you’ve ever studied Customer Relationship Management (“CRM”)

academically, there’s a good chance that these four steps – identify,
differentiate, interact, and customize – are already familiar to you. Martha
Rogers and I have produced two editions of a CRM textbook for graduate-
level business students, Managing Customer Relationships: A Strategic
Framework, and this textbook is organized around the “I-D-I-C”
methodology. (And as I write these lines, we’re starting work on a third
edition). At our consulting firm, Peppers & Rogers Group, a large proportion
of the work we do can be understood in terms of dissecting how these tasks
work (or don’t work) within a client’s organization.
But a couple of other things are worth pointing out about the I-D-I-C model
of relationship management. The first two tasks – identifying customers and
differentiating them – are steps that a company can take within company
walls. Your company has a database of individual customer records, you track
the transactions and interactions of individual customers, and yet the
customer herself never actually participates in the process. The customer may
not even be aware of the data you are compiling, or the analysis you are
doing.
By contrast, the third step – interaction – demands the customer’s personal
attention and participation. You can’t interact with a customer unless the
customer interacts with you, right? And ditto with the fourth step,
customizing your behavior. This is the experience you deliver to a particular

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customer. It’s called an “experience” because the customer experiences it. It
involves the customer directly, as a participant.
So, you could think of the first two steps of the I-D-I-C model as “analytical”
CRM, while the next two steps are “operational” CRM. Analytical CRM is
required to develop better customer insight, while operational CRM is how
you deliver a specific customer experience.

If you think about the process of managing your own customers’ individual
relationships with your firm – through your website, your loyalty program,
your contact center, at the point of purchase, or in after-sale service, virtually
everything your company does can be understood in terms of how these four
I-D-I-C steps are executed.
Delivering a better customer experience requires developing and managing
relationships with your individual customers, and managing relationships
requires the I-D-I-C process.
Brands Aren’t the Same as Customer Relationships
You cannot have a customer relationship with a population of customers, or
with an audience, or with a market segment. You can only have a relationship
with an individual customer. Sometimes this point can be difficult to absorb,
but the very idea of a customer “relationship” only makes sense when you’re
talking about one customer at a time.
In a workshop once, I was explaining the I-D-I-C model for understanding
customer relationship management (CRM) – identify customers, differentiate
them, interact with them, and customize for them.
At one point a brand manager in the workshop audience insisted that her
brand’s mission was to maintain a personal relationship with each of her
customers. Part of her brand’s role, she said, was to embody the relationship

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each of her customers had with the company. That’s what she spent her time
doing, she insisted – maintaining her individual customers’ relationships with
her brand.
But, no offense intended to brand managers anywhere, this is just not correct.
It’s entirely the wrong way to think about what a brand does.
Before going further, let me say that the brand plays a vital role in nearly every
company’s marketing success, as we are all increasingly bombarded with a
cacophony of overlapping and conflicting commercial messages. Simply
differentiating what one company’s offering “stands for” in comparison to
others’ offerings is part of a brand’s important role. A good brand is an
extremely valuable asset especially today, when there is so much information
inundating us.
However, differentiating your business is not what a relationship is about. A
relationship involves differentiating your customers – which will then allow
you to treat different customers differently. A relationship, by definition,
involves direct, one-to-one interaction with an individual customer – a
customer whose needs are different from the needs of other customers, and
who will be treated differently as a result of his or her relationship. But brands
don’t interact with customers individually; they don’t even know individual
customers’ identities. Brands do not treat different customers differently.
So I told the brand manager that her brand had basically the same kind of
“relationship” with each of her customers as Justin Bieber had with my
teenage daughter. My daughter had a picture of Justin on her wall, and she
knew every one of his songs pretty much by heart. But Justin Bieber doesn’t
know who my daughter is, has never interacted with her, and has never
changed his behavior in any way on the basis of what she said to him. If he
did any of those things, then that would be a relationship.
If you want your business to be customer-centric, you need to know how
profound the difference is between how your brand works and how a
customer relationship works. Yes, having a well-respected brand can help you
strike up relationships with your customers, because the customers will be

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more willing to engage with you because of your brand. And yes, having great
individual customer relationships will in fact strengthen the brand, as well.
But relationships and brands operate in different marketing dimensions.
Brands aren’t relationships. And relationships aren’t brands.
What Honeybees Teach Us About the Customer Experience
Honeybees are social insects.
Whenever a foraging honeybee comes across a new flower rich in nectar, it
returns to the hive and does a little “waggle dance” to tell all the other bees
where to fly in order to find the bonanza. The honeybee waggle dance has
been shown to be sophisticated enough that it accurately communicates not
only the direction to the food source from the beehive, relative to the sun, but
its distance from the hive, and even its overall attractiveness.
So imagine, for a moment, that your business is a flower, and that business
success comes from providing nectar to the honeybee market. As the business
manager in charge of this flower, your job is to generate the highest possible
market share for your nectar. You want lots of individual bee visits in order to
maximize the chances that your pollen will be spread to other flowers.
Occasionally, a bee buzzes through the airspace above you. How should you
entice this potential customer to come take a look? Obviously, you do it with
bright colors and an attractive smell.
But once you entice a bee to come in to sample your nectar, what determines
whether that bee returns to the hive and spreads the word to all the other
bees? That’s simple: It’s only going to do its waggle dance if it has judged your
nectar good enough to merit telling everyone else.
Moral of the story: To encourage customers to sample your product, all you
need is advertising. Bright colors and a great smell will get any single
honeybee’s attention at least long enough to make a visit. But if you want your
customers to spread the word and come back for more, then you better
provide a satisfying customer experience, as well.

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Because in the end it isn’t the attractiveness of your flower but the quality of
your nectar that will entice a real swarm of customers to come in.
Human beings are social animals, also. We like being with others, telling
stories, whispering rumors, playing games, laughing, entertaining, and being
entertained. We like to share ideas, get feedback, discuss nuances, and
sharpen our own thinking with other people’s perspectives. We even look to
others in order to know what our own true feelings should be. Being social is
an essential ingredient of human nature. The term “antisocial” is an
indictment, implying that someone is unfriendly, cold, or misanthropic. If
you’re antisocial, something must be wrong with you.
As important as our social nature is, however, social media and other
interactive technologies have injected it with steroids. Before our very eyes,
and within just the last 20 years or so, we have been transformed into a
dynamic and robust network of electronically interconnected people in a
worldwide, 24/7 bazaar of creating and sharing, critiquing, collaborating,
helping, learning, competing, and having fun. We are like honeybees with
smartphones, constantly doing our waggle dances on Pinterest, in the
Twittersphere, or on the Facebook timeline.
It takes good marketing and advertising as well as a good customer experience
to build any business into a success. You can’t grow and prosper unless your
marketing campaigns deliver a steady stream of new customers. But you also
have to be sure these customers are in fact satisfied with the customer
experience you deliver. And the more social your customers are – the more
they communicate and interact with each other – the more important the
customer experience becomes, relative to marketing and advertising.
Interactive technology has made delivering a better customer experience more
vital to every company’s success than ever before. And, as that technology
continues to improve, the relative importance of the customer experience also
increases.
Research by Google1, in fact, does show a distinct and dramatic rise in the
volume of social interactions that surround individual buying decisions. In just
two years, for instance, the percentage of consumers who say they consult the

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opinions of their friends and connections prior to making a purchase nearly
doubled, from 19 percent to 37 percent.
And guess what? When customers ask their friends about a product, they
aren’t asking about the advertising. They’re asking about the customer
experience.
They want to see the waggle dance.
What Do Your Friends Think?
Trust is our most important tool for evaluating incoming information and
deciding what’s important. Trust is how we decide what’s worth our attention.
And the more technology continues to connect us with others, accelerating
the incoming torrent of information, the more important trust becomes,
because trust is what makes interactions efficient. Trying to deal with some
person or company or information that we don’t trust is a hassle. And the
faster our lives go, the more of a hassle it is.
But our decision to trust someone or something is also influenced by our
social relationship with others. One of the quickest ways for me to assess the
trustworthiness of someone else, or of the information provided by someone
else, is to see how my friends or associates assess them. I already trust my
friend, or my business colleague, and if they vouch for it, then it’s one less
decision I have to make.
In business, a crude form of this vouch-safe process is the current practice of
hosting customer reviews. By reading what others have already said about a
product or company, I can get a better perspective on the quality of the
customer experience I’m likely to have, rather than having to rely on what the
company says about itself. And a whole host of third-party sites, from Angie’s
List to TripAdvisor to Yelp, have found business opportunities by making
customer opinions available to other customers in a range of categories.
But in your real-world social life, you naturally trust some friends’ opinions
more than others. For instance, you might trust Adam’s opinion when it
comes to electronic equipment or high-tech things, but you wouldn’t trust him
to recommend the best sushi or Thai restaurant. You’d much rather know

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Becky’s view on that. The problem with most customer review sites is that you
are reading the opinions of complete strangers, with no way to assess their
actual value.
In addition, sometimes the reviews themselves are fake. An unscrupulous
business can pay shills to write bogus, glowing reviews of their products. There
are tons of people selling this service online for a few pennies a word. So if
you’re a business with no principles, you can buy dozens of positive reviews
for yourself and negative reviews for your competitors and flood the review
sites with them.
A few years ago, for instance, the UK’s Advertising Standards Authority
questioned TripAdvisor’s objectivity because of the prevalence of fake reviews.
According to an article in The Telegraph newspaper, the crackdown “follows a
complaint last year from two unnamed hoteliers and a website called
Kwikchex, which helps companies manage their online reputations…Chris
Emmins, co-founder of Kwikchex, said that there are a ‘substantial’ number of
fake reviews on TripAdvisor, which is being ‘abused by fraudsters.’ Fake
comments range from unsubstantiated claims of food poisoning in restaurants
to theft and credit card fraud in hotels,” said Mr. Emmins.
Forward-thinking sites (like Amazon, for instance) try to boost the
trustworthiness of reviews by verifying whether a reviewer has actually bought
the product (on Amazon), and by facilitating reviews of the reviewers. That’s a
big step in the right direction, but it requires a great number of reviews to
make a “review the reviewer” system work, and not all businesses are as
maniacally customer-focused as Amazon.
Increasingly, however, we will see the rise of “social filtering” – that is, filtering
others’ opinions based on the extent to which you know them. Rather than
relying on the opinions of complete strangers, people will look to the opinions
of their personal friends and colleagues, or even the friends of their friends.
Facebook’s Graph Search application was a step in that direction (although a
hesitant step, and probably not really aimed at the customer benefit of social
filtering). Fast Company’s2 assessment of Graph Search’s potential, for
instance, included the suggestion that “The promise is that you’ll find answers

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to queries that might stump Google, such as… ‘friends of friends who like my
favorite band and live in Palo Alto’ or ‘Indian restaurants in Palo Alto that
friends from India like.’”
And there is already a growing assortment of social aggregators trying to
harness this capability from a customer’s existing network of online social
connections. Wajam, TagWhat, and others now let you check what your
connections have had to say about various products. I have a Wajam
extension on my Chrome browser, and whenever I go online to check out a
movie, or a restaurant, or a particular new product, if any of my connections
have had anything at all to say about it, I’ll have their comment flagged for my
attention.
All this just serves to underscore the steadily rising importance of the
customer experience to any business’ success. If your customers have problems
with the experience you give them, then that’s the opinion they’ll freely share
with their friends. Not to get back at you, but simply to help their friends.
Because that’s what friends do. They trust each other.

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 CHAPTER 4
Eliminate the Friction in Your Customer Experience

In physics, friction is mostly just waste. Friction simply adds to the

increasing and inevitable randomness of the universe we live in –
entropy.
For a customer, friction consists of wasted time, effort, or energy.
Every time you task a customer with doing something that you could
have done for him, it’s just friction, from the customer’s standpoint.
It is waste.
So, if you want to know how to improve your customer’s experience,
then the very first thing you should concentrate on is eliminating
friction.
The Shoe Salesman’s Secret Motivation
One Saturday afternoon at a shopping mall during the busy Christmas season,
a management consultant colleague of mine ventured into an athletic shoe
store to buy some new running shoes. This particular consultant actually
specialized in retail. He consulted both for retailers trying to improve their
operations, as well as for manufacturers trying to sell their wares to retailers
and retail chains. So whenever he went out on his own to buy anything he
was always an observant shopper.
He told me that the shoe store seemed to be especially busy that afternoon, so
he took a place in line behind two other folks being helped by one of the sales
clerks. And as he waited, he saw that the salesman offered the same off-brand
to each of these customers – customers who looked like they would have been
willing to pay full price for a better name. The first customer, he said, had
been interested in a pair of Nike basketball shoes, but the salesman first
brought out this off-brand, at about half the price of the Nikes, and the
customer ended up buying them. The same sales process, with the same
result, ensued with the next customer, a woman who originally had said she
was interested in the Reebok cross-trainers. But the salesman again talked the

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customer into trying out the cross-trainers from this off-brand first, and she
bought them.
After watching two sales snatched from the jaws of well-known national
brands, the consultant’s curiosity was aroused. So when it was his turn to buy,
he first asked the salesman why he had switched the two previous customers
to this particular off-brand – a brand he’d never even heard of. After all, the
consultant said, these customers seemed to have been willing to pony up
higher prices for the name brands.
Oh, the salesman replied, it had nothing to do with margin or pricing, nothing
at all. But he seemed a bit nervous at having been found out, and so my
friend persisted. Was this off-brand paying some kind of bonus commission,
then? Or was there some kind of contest or promotion going on? No, the
salesman said. No, that wasn’t it.
Then the clerk gestured toward all the people crowded into the store on this
very busy afternoon. Look around, he said. See how busy it is in here? I don’t
even have time to slip away for a coffee or a bathroom break on a day like this,
that’s how crowded it is!
But this particular off-brand? Whenever they ship their shoes to the store, the
laces are already in them, so it saves the clerk a lot of time not to have to lace
up one of the other brands.
It seems to me that this little story is a perfect metaphor for illustrating the
power of removing friction in your customer experience. That’s what this off-
brand shoe was doing. Their customer was the shoe store, and they were
removing friction in their customer experience by lacing their shoes up in
advance.
No matter what your business is, do you try to ship your shoes with the laces
already in? Could you?

If you’re a retail bank, and your customer comes to you for a second
mortgage, you could lace up the customer’s shoes simply by filling out
all the information on the mortgage application that your bank

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 already knows about the customer (starting with name, address and
bank account number!).
If you’re an airline and a flight gets canceled, you could lace up
customers’ shoes by re-booking them on the most likely flight
immediately, and then texting or emailing them the information,
rather than simply telling them the flight is canceled and requiring
them to call in to re-book themselves.
If you’re a mobile phone company you could lace up a new
customer’s shoes by printing out a sample bill, while they’re in your
store or signing up for their service, so they can see what it’s likely to
cost, including all those charges that you don’t like to mention.

Friction is the enemy of a good customer experience. Eliminate the friction

and you’re on your way to having a satisfied and loyal customer.
Four Attributes of a Frictionless Customer Experience
“Customer experience” is definitely a business buzzword these days. Customer
Experience Management (“CEM”) is all the rage in many marketing
discussions, and everyone wants to deliver a better experience for their
customers.
But what does that mean, really? What makes a customer experience better?
To answer that question, which lies at the heart of many, if not most,
marketing strategies, you have to take the customer’s perspective. And from
the customer’s point of view an excellent customer experience is one that is
simply frictionless. No customer wants to be required to go to any extra
trouble, or to fix problems, or to repeat things already communicated. The
best kind of experience a customer can have is one in which he can meet his
need or solve his problem completely effortlessly, without having to jump
through hoops or overcome obstacles. Obstacles are friction. No one has time
for obstacles.
To remove friction, marketers should focus on four basic attributes of a
frictionless customer experience:

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Reliability. Your product or service should perform as advertised, without
failing or breaking down. You should answer your phone, your website
should work, service should be performed on time, and so forth. Reliability in
a customer experience is what you could call “product competence.” A
company’s production and service processes must be competent. This means
rendering a product or service on schedule, seamlessly across multiple
channels and consistently through time, in such a way that it doesn’t need a
lot of maintenance, repair, correction, or undue attention from a customer to
meet the customer’s need.
Value. No one likes to be ripped off, which is what happens when you find
out you’ve paid more for a product or service than it’s worth. A frictionless
customer experience is one in which the value-for-money relationship is
appropriate. As a customer, when you go to Costco you don’t expect a
Bergdorf experience. But when you buy a Lexus, you expect more than a Ford
experience. Whatever product or service you’re buying must be good value-
for-money. It will be economical for customers who are interested in price,
and it will provide “fair value” for customers more interested in quality, status,
or other attributes.
Relevance. If reliability is about product competence, then relevance is about
“customer competence.” The overwhelming majority of companies operating
today are just not very customer competent. Many companies fail to
remember their customers’ details. Every time you have to tell a call center
agent your account number again, having just punched it in on your phone,
you are face to face with a company’s customer incompetence. Customer
incompetence is friction, and the most efficient way to overcome it is to
remember each customer’s individual specifications and needs, once you learn
them.
Trustability. In today’s hyper-interactive world, mere trustworthiness – that
is, doing what you say you’re going to do and not violating the law – is no
longer sufficient to render a frictionless customer experience. Increasingly,
customers expect you to be proactively trustworthy, or “trustable.” A trustable
customer experience is one in which the customer knows the company

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provides complete, accurate and objective information, and will help the
customer avoid mistakes or oversights. If a customer has to count his change
or double-check that he isn’t doing something he’s going to regret later, the
experience is a hassle. It isn’t frictionless. Some good markers of a trustable
customer experience include facilitating objective customer reviews, or
reminding a customer that the warranty period is nearly up, or advising
customers when they’re buying more than they need. Some companies (AOL,
Vonage, Stamps.com, etc.) make it very difficult to quit your subscription. This
is untrustable behavior, guaranteed to generate friction.
As business leaders, we all want to ensure that our products and services are
positioned and delivered in such a way that customers receive an excellent
customer experience. And from the customer’s perspective, the less friction
generated, the better that experience will be. It’s really that simple.
Delivering a Reliable Customer Experience
If a frictionless customer experience is reliable, valuable, relevant, and
trustable, then what does it mean to deliver a genuinely “reliable” customer
experience?
A customer experience is reliable in the eyes of customers if it directly and
efficiently solves their problem without introducing a host of other hassles,
problems, or issues. You could think of reliability as a form of “product
competence,” because the word itself implies that customers can rely on the
product to competently meet their needs.
Reliability not only involves the quality of whatever physical product might be
sold to a customer, but also the efficiency of the services that surround that
product – such things as handling inquiries and requests in a timely fashion,
proficiency in making repairs or service improvements, and protecting your
customers’ data and privacy.
Start with the fact that customers don’t think in terms of departments or silos.
A company that delivers its customer experience through the separate,
uncoordinated activities of two or three or a dozen different operating entities

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isn’t likely to appear very reliable to the customer. Remember, it’s the
customer’s perspective that defines the experience.
Regardless of whatever internal elements are involved in running your
business, a reliable customer experience can only be delivered by removing the
internal focus and division between “customer-facing” and “non-customer-
facing” groups and processes to deliver a single, unified experience to each
customer. From billing and invoicing to technology implementations and
employee training programs, all parts of a company should consider their role
in influencing the customer experience.
Take, for example, the case of a hospital client we once worked with. Its goal
was to improve the patient experience in its Emergency Services Department
(“ESD”) by making its emergency room experience more reliable.
Unfortunately, because of years’ worth of bureaucratic requirements and
compound, duplicated processes, the admissions procedure in the hospital’s
emergency room had grown to a mind-boggling 111 separate steps.
By focusing largely on a number of duplicative back-office operational
processes, our client was able to make significant improvements. Using process
mapping, detailed data analysis, and a review of current care delivery models,
a team of hospital professionals collaborated to define new, integrated
workflows. This resulted in a better, more reliable process for emergency room
patients, as well as a more unified and collaborative environment within the
ESD itself.
And the results were startling: Not only was the 111-step admission process
cut to just 46 steps, trimming admission times by 14 percent, but most
importantly for the patient, the time between arrival and seeing a physician
was reduced by nearly 90 percent – from 27 minutes to just 3 minutes!
By focusing on product competence, in other words, this hospital not only
boosted its own operating efficiency, but dramatically improved the reliability
of the patient experience, as well.
Even luxury products and experience-based services can improve their
customer experience by focusing on reliability and product competence.
Consider the luxury resort and hotel space, for instance. As a very frequent

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international business traveler myself, I’ve had the privilege of sampling a
large number of luxury hotels in a variety of countries over the last 20 years.
But I’ll never forget how the Four Seasons Hotel Istanbul at the Bosphorus
checked me in for a four-day stay during one business conference I attended a
decade ago. Not only were my keys and check-in papers already waiting for
me when I arrived, but the desk clerk asked me what time I would prefer to
have my room cleaned each morning. And sure enough, the clean-up staff
arrived every day at almost exactly that time.
More than simply a luxury experience, however, this added feature of the
customer experience at the Four Seasons Hotel reassures the customer that the
hotel is in fact reliable, and that its systems, processes, and products are
competent.
Each customer has his or her own personal customer experience with your
company. And, as in the saying, the beauty of that experience is in the eyes
the beholder. So if you want to deliver a truly frictionless customer experience,
start by re-imagining your processes from the perspective of the customer, and
then make sure that they combine to provide the most reliable experience
possible.
Price Is What You Pay. Value Is What You Get.
In the 19th century, a wagon-maker had to leave his shop in the care of his
teenage son for a few days as he journeyed to a nearby town on business.
Unsure of how to handle customers, the boy protested, “But Father, I don’t
know how much to charge for one of our wagons! What if I make a mistake?”
But the father replied, “It’s easy, son. When someone asks ‘how much for a
wagon?’ you say ‘$20.’ If they don’t blink at that, you say ‘for the wheels.’ And
if they still don’t blink, you say ‘each.’”
Today’s technologies are giving new life to this wagon-maker’s pricing strategy.
Financial services firms price their products based on a customer’s reported
income or wealth, and e-commerce sites charge a customer less if the
customer lives near a competitive store. Supermarket chains are increasing

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their profits and generating more customer loyalty by charging individualized
prices based on different customers’ previous purchases.
As Warren Buffett said once, “Price is what you pay. Value is what you get.”
A frictionless customer experience must be reliable, valuable, relevant, and
trustable. But when considering the issue of value we have to think about a
great deal more than just price.
Value represents the total utility or usefulness delivered to a customer, but it is
an inherently subjective quantity. Price is an objective quantity. You can write
it down or divide it into percentages. But value, like so much of the customer
experience, is completely in the eye of the beholder. Something has value for
me if I say it does.
So while we may not want to follow the wagon-maker’s advice completely,
there is some truth to the parable, and there’s a lesson for us. The value
customers perceive in your product or service bears a direct connection to the
importance or urgency of whatever subjectively understood need they have
for it. And since customers have different opinions about these needs, they
will have different opinions about the value of your offering.
We know this to be true, for the simple reason that those who consider the
value of your offering to be higher than its price are going to buy it, while
those who consider its value lower than the price will not.
So in delivering value to a customer, the trick once again is to treat different
customers differently, to the extent that you can grasp what their differences
are. Your price might be posted for everyone to see, but how you
communicate the value of your offering should reflect what you understand
about each individual customer, one customer at a time.
Moreover, the value delivered in your customer experience will go up in direct
proportion to the amount of friction you remove. Your offering will have more
value whenever your customer spends less time and effort getting the product
to work correctly, or re-inputting his settings or preferences, or checking
whether he’s getting the lowest price.

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And because friction can also be costly to a company, removing it can provide
compounding benefits. One of our clients, for instance, found this out in its
own three-year effort to eliminate friction in its customer experience. By
zeroing in on one source of friction at a time, this $20 billion telecom company
was able to document not just a measurably better customer experience (more
value for its customers), but it also eliminated nearly $2 billion in unnecessary
process costs and generated an estimated $3 billion in added revenue.
In physics, friction is the inevitable heat waste generated by any closed system.
In the physical universe this waste is always increasing, and the measure of the
increase is entropy.
In business, friction is the extra effort that impedes a customer from efficiently
meeting his or her need. But in the business universe, constant improvements
in technology and the relentless pressure of competition mean that customer
friction is inevitably on the decline. And the measure of this decline is value.
Avoiding Death by Procurement: Four Strategies
“There is hardly anything in the world that someone can’t make a little
worse and sell a little cheaper – and people who consider price alone are
this man’s lawful prey.”
– John Ruskin (1819-1900)
I don’t know about you, but at Peppers & Rogers Group I get very anxious
whenever a customer sends us to the procurement department. Yes,
procurement means we got the business (probably), but it also means we’re
about to take a big haircut on pricing and our profits are going to be put under
the magnifying glass. As a consulting firm specializing in customer-facing
issues, most of our clients are large, name-brand companies – companies with
a great deal of buying power and negotiating leverage. Companies with
powerful procurement departments that make me anxious.
I once interviewed a former executive at a big, well-known technology
company to get his take on how his former company approached the vendors
it bought from. What he told me: “[Our company] was always looked upon as

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the must-win account for every supplier, and we knew that well. So we
routinely adopted very tough positions and made stringent demands.”
According to this executive, when dealing with a smaller vendor his company
would: “work closely with that company, study them, and try to extract as
much of the process and knowledge as possible, then fire the supplier and do
it ourselves. Overall, being self-sufficient was always a key objective. A few
companies managed to avoid this ultimate fate by continually innovating
faster than [our company] could absorb, so they maintained the ability to
deliver new value each year.”
Here are four strategies for avoiding the slow, painful death that a tough
procurement department can subject you to:

1. Innovate. As the executive I quoted above suggested, to the extent

you can stay ahead of your customer with innovative product or
service ideas, you’ll always have something to sell. So your mission
should center on being nimbler, more creative, and cost-efficient – all
at the same time. The value you bring for the customer, however, is
only partially found in the new product or idea itself. The reason the
customer will want to keep dealing with you is because of your
demonstrated ability to continue to innovate with even more new
products and ideas. You have to keep the innovation wheels spinning
fast without losing control of costs.
2. Customize. Any customized service or product configuration creates
switching costs that increase a customer’s willingness to continue
buying from you rather than bidding out a contract at every
opportunity. The trick is to ensure that whatever high-end services
you develop can only be duplicated by your competitors with great
effort, even if they are instructed in advance (and they will be – by
your customer!). You want to make it more convenient for the
customer to continue dealing with you, rather than going to the
trouble of re-specifying with a competitor. So seek out the design
engineers responsible for integrating your firm’s components into the
customer’s final product, or the regional merchandising managers

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 whose jobs depend on the programs you help organize for them. The
richer the context of these relationships based on customization, the
stronger they will be.
3. Appeal to a customer’s own end users. A highly desirable brand
name, or a product in heavy demand by your client’s own customers,
can be very effective at pulling your products through the customer’s
organization. The “Intel Inside” advertising campaign creates pull-
through for Intel. When Mattel offers Toys-R-Us an exclusive
arrangement for particular configurations, or for products with their
own consumer brands such as “Barbie” or “Hot Wheels” or “Harry
Potter,” it is making itself indispensable to this very tough customer.
Any service that saves time or effort for an end user will help, also.
Dell’s online services for enterprise customers, for example, not only
save money for big customers, but also provide Dell with direct, one-
to-one relationships with the executives who actually have the Dell
computers on their desks (i.e., the end users).
4. Concentrate on finding “good” customers to begin with. Look for
the kind of customer most likely to want to partner with suppliers,
rather than exploit them. The best kinds of businesses to deal with as
customers themselves will be the ones that that have strong internal
cultures based on trust. Toyota might be considered such a customer.
The five-part “Toyota Way” is a well-known set of values that have
defined Toyota’s business culture for years. It is a culture based on
cultivating the trust of dealers, consumers, employees, and supply-
chain partners, and the benefits have been significant for the
company. Several years ago, for instance, when a sudden fire at one of
Toyota’s Tier One suppliers threatened to disrupt the company’s
production, several other suppliers proactively banded together and
took the steps required to keep the assembly lines going, without even
waiting to get formal approval from Toyota. They simply trusted that
Toyota would do right by them, and the company did. So look for
companies that already have long-term vendor relationships, which
are a marker for true partnerships. Such relationships will be harder to

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dislodge, but once you gain a place at the table it will be worth every
penny of sales effort you put into it.

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 CHAPTER 5
Deliver a Customer Experience That’s Relevant
to Each Customer

Reliability and value are important qualities of a frictionless customer

experience, but every customer’s own experience with a brand or
product is personal and unique to that individual customer. The way
one person perceives his or her customer experience is often different
from the way others would perceive it.
Because of information technology, every business today has the
ability to deal with these individual differences among customers.
Moreover, because competitors have access to the same technology,
every business must try to do so, simply to remain viable, and
customers have come to expect them to. Customers are no longer
satisfied by a customer experience that involves telling a company the
same things about their wants and preferences over and over.
As a result, improving any individual customer’s experience requires
a business (1) to know something about that customer’s uniqueness,
and (2) to act appropriately on that knowledge. You must remember
your customers, and you must use that memory to inform and
perfect the actual experience you deliver to each of them. You must
be relevant.

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 Don’t Run Your Business on the Goldfish Principle
Certain species of tropical fish have no territorial memory. None. Perhaps this
trait evolved because the species inhabited the open sea, where territory was
not very important and territorial memory counted for nothing. But the fact is
that no matter where such a fish swims today, it never recognizes the fact it
has swum there before. We can imagine such a fish swimming around and
around in an aquarium or a goldfish bowl and never getting bored, because
there’s always something new and interesting to see.
Many of today’s businesses still operate on “The Goldfish Principle” when it
comes to their customers. They evolved in the age of mass marketing, before
computers made it possible to remember customers individually, so whatever
business model they developed didn’t rely on a customer memory. You can
recognize a company operating on The Goldfish Principle when you sign up
for a promotion with your airline or car rental firm, for instance, and then you
still get a periodic email blast urging you to remember to sign up, or when you
go online to your credit card website and schedule your payment a few days
before the due date, but then they still send you an email reminder that your
payment is almost due.
A colleague of mine tells a hilarious story of The Goldfish Principle in practice.
On a business trip he was booked for three days at a nice hotel, and before
going to bed the first evening he called the front desk to ask for a wake-up
call. The cheerful desk clerk told him that as a premier business guest he was
entitled to a “special offer.” Would he like a complimentary coffee and
newspaper brought to his room in the morning, five minutes after his wake-up
call? My colleague said he preferred tea, if that was OK. No problem, said the
clerk, and would he like the New York Times or the local city paper? Well, he
asked, could he get the Wall Street Journal? Sure, she said.
In the morning everything went well, just as requested. The second night, my
colleague again called the desk to arrange a wake-up call, and the clerk
cheerily told him (again) that as a premier business guest he was entitled to a
“special offer.” Would he like a complimentary coffee and newspaper brought
to his room in the morning, five minutes after his wake-up call? Yes but tea

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not coffee, please. No problem, came the reply, and would he like the New
York Times or the local city paper? The third night it was the same story. So by
the end of his stay, do you think the hotel had made this customer feel
“special?”
With today’s information technology there’s absolutely no excuse for operating
on The Goldfish Principle. It’s actually worse than doing nothing, because it
demonstrates a level of incompetence that destroys a customer’s trust in the
business. The hotel simply wanted to improve its customer experience, but it
probably diminished it. And while it’s convenient to be able to schedule a
credit card payment a few days before it’s due, if the company continues to
remind you that the payment is due soon, you might find yourself having to
check again whether the payment is actually scheduled or not. Just a few
weeks ago I double-paid a credit card bill for this reason. And not long after
that I found myself having to call my car rental company on the phone just to
confirm that I was already enrolled in the promotion they had again emailed
me about (I thought they might have emailed me because my first attempt to
enroll had failed).
Operating on The Goldfish Principle today doesn’t just communicate that you
aren’t competent enough to run a sound business, it screams that you don’t
care enough about your customers to even try to be competent.
Five Types of Customers by Their Value
At the vast majority of businesses, a minority of customers account for the
majority of profits, whether they are split in an 80-20 manner or something
less or more extreme.
And while we often speak of customers as having different values to a
business, the truth is that the value of a customer is based on what that
customer will buy in the future. What the customer has bought in the past is
certainly one indication of likely future purchases, but past spending is already
in the bank, and it’s not the only information that would go into an estimate
of future transactions.

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There are really two separate ways to think about a customer’s future
transactions and purchases:

1. Actual Value: How much do we expect the customer to buy in the

future, as of today?
2. Growth Potential: How much more could the customer buy, if we
had the right marketing?

This reasoning leads to two “dimensions” of customer value that we can use to
map customers into five different categories of value, as shown in the diagram
below:

The way you treat these different types of customers will be based on their
different “value profiles.” Each value profile leads to different financial or
business objectives, as follows:

MVC: Each of your “Most Valuable Customers” (lower right

quadrant) does a lot of business with your firm. They may not have a
lot of growth potential, but they’re each very valuable (they’re part of
the 20, not the 80), and your primary objective for these customers is
to keep them. Customer retention tactics could include recognition
programs, churn prevention analytics, and customization, among
other things.
MGC: Your “Most Growable Customers” (upper left quadrant) don’t
do much business now, but have a lot of growth potential, so your
objective should be to actualize this potential. Tactics could include
account penetration initiatives, product add-ons and value-adds,
cross-selling, up-selling, and service enhancements.

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 Super-growth: These customers (upper right quadrant) are more
common in B2B situations. Typically, they are large enterprise
accounts that already do a lot of business with your company but
could do much more. Think Microsoft, or Google, or General Electric
as customers. For these customers your objective should be to retain
them and to grow their business. You might even have to re-think
your business model to accommodate such growth.
Low-maintenance: The vast majority of your customers probably fit
into this fourth category (lower left quadrant). None of them is very
valuable to you individually, but there are a whole lot of them. For
these customers, your financial objective should be to improve your
efficiency and streamline your operations. You want to reduce the
cost to serve these customers, without reducing the quality of their
customer experience. Tactics could include automated and self-
service options, inside sales coverage, and mass customization.
BZ: Finally, every business has a few “below zero” customers (very
left side). These are the ones who cost more to serve than they’re
worth, and who have little if any growth potential. For some types of
businesses (retail banks, for instance), the majority of customers may
actually consist of BZs. Your financial objective for BZ customers
should be to re-architect your value proposition so as to (١ ) cover
your costs, and/or (٢ ) encourage defection (yes, I actually said that!).
Tactics could include imposing fees on previously complimentary
services (you can waive the fees for more profitable customers), or
requiring a minimum amount of business to maintain an account.

The main reason you want to know how different customers compare in both
their Actual Value and Growth Potential is to help you set different business
objectives for each different type of customer. To realize those objectives, of
course, you’ll need to know more than their values. You’ll need to know what
each customer needs. And you’ll have to launch different kinds of marketing
campaigns, and make different kinds of offers, in order to appeal to each

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individual customer based, not on that customer’s value to you, but on what
that customer needs from you.
What Does It Mean to Be “Relevant” to a Customer?
British retailer John Lewis is trying to deliver a more relevant in-store
customer experience by equipping sales personnel with tablet devices that can
mimic the online experience. According to Retail Week3, “Store staff will use
the tablets to help shoppers decide what to buy, and their data trail will be
collected in the same way as it is when shoppers buy online.” And Fast
Company4 has reviewed the even more sophisticated technology that eBay is
now testing for the fashion brand Rebecca Minkoff – again, in an effort to
make the physical customer experience nearly as relevant and personalized as
the online experience already is.
These examples illustrate how difficult it will be for brick-and-mortar firms to
deliver an in-store customer experience that is truly relevant and
individualized. But relevance will be critical for their long-term survival, so
they work hard at it.
Other firms don’t seem to work at it at all. Here’s a copy of an email message
that a colleague of mine received recently from Marriott Rewards, with a
comically irrelevant message. It might as well broadcast “We don’t care who
you are but we really don’t give a s**t anyway!”

For most businesses, the very best kind of customer experience is one that is
frictionless, that is, reliable, valuable, relevant, and trustable.

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But what does it mean when a customer experience is relevant? Well, if
reliability is “product competence,” then relevance can be thought of as
“customer competence.” To deliver a relevant customer experience, your
company must be competent enough, in terms of processes, data, and systems,
to treat different customers differently, and to treat each one appropriately for
what you know about them, or what you ought to know.
The first requirement for delivering any kind of relevance, of course, is
analytics. No matter what our business is, we all know that our customers are
not identical. In my experience, however, business managers often don’t
appreciate just how different their customers are from one another.
At the most basic level of marketing, customers are different in terms of their
value to a business. Some customers are clearly worth more than others, so
most companies focus the majority of their customer-differentiation efforts
simply on understanding different customers’ different values – who are the
most valuable customers, the most growable ones, the below-zero ones, and so
forth. A customer’s value profile allows you to set different financial objectives
for different customers.

In order to achieve your objective for any of these customers,

however, you have to get that customer to behave differently in some
way (i.e., to buy more, or to stay longer, etc.), and to do this, you
must appeal to that individual customer’s needs. But there’s no single
metric for customer needs. There are as many different categories
and dimensions of customer needs as there are analysts trying to
catalog them.
The point is that being “customer competent” involves a lot more
than simply tracking a customer’s buying volume and frequency. It
requires mixing the science of analytics with the art and wisdom of
human judgment. So delivering a truly relevant experience to an
individual customer is no walk in the park. Moreover, because the
online customer experience can often be highly relevant, the contrast
with a less relevant brick-and-mortar experience can be stark, which

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is one reason that forward-thinking retailers like John Lewis and
eBay are trying to master the task.
Clearly, being relevant to an individual customer is on the bleeding
edge of delivering a more frictionless experience. But you don’t
necessarily have to be inventing new technologies. You can also
become more relevant to your customers simply by applying existing
technologies in a more customer-friendly way.
In just the few days before writing this, for instance, I suffered
through two different flights canceled by bad weather, on two
different airlines. Both airlines texted messages to my mobile phone
advising me of their flight cancellations. The first airline advised me
of the cancellation and instructed me to call a toll-free number to
rebook myself. The second one advised me of the cancellation and
told me I had already been rebooked on a later flight, giving me the
flight details and record locator number, and advising me that if I
wasn’t happy with the new flight I could either go online or call to
change it.
It should be obvious which cancellation notification was more
relevant to me, and created a more frictionless experience.

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 Four Technologies to Make the Contact
Center Experience Relevant
We all know what it’s like going onto some company’s website to try to get
something done, and not being able to figure it out, right? When we finally
give up and call in, we can only talk to a human being after first doing battle
with the robot voice, and then when we finally do get the rep on the line we
have to explain things from the very beginning, because the rep has absolutely
no clue what we just spent the last 15 or 30 minutes trying to do on the site.
In the United States, more than half of inbound customer service calls are
now preceded by an online session of some kind. And since the vast majority
of these inbound calls are in fact just as “disconnected” as I have described
them, this means that whenever your contact center fields a live customer
service phone call these days, there is a high probability that the customer is
already upset and impatient.
So even though you may measure your contact center’s performance in terms
of its “first call resolution” rate, from the customer’s standpoint more than half
the time it’s already their second attempt to solve the problem!
As bad as this disconnect is when it comes to customer care issues, it costs real
money if you’re talking about online sales. Imagine a prospect who searches
your site for the right configuration, delivery schedule, pricing terms, or some
other issue. The prospect can’t find it and decides to call in, but this call is
answered by a rep who has absolutely no insight at all into what the prospect
was considering, how long she looked at certain options, what alternatives she
considered, or anything else. So rather than routing your prospect’s call to
someone who specializes in the subject the customer was interested in, and
rather than providing your rep with a click-stream record of the prospect’s
search so far, you have to start all over again.
Ironically, there are four simple, straightforward technologies available to
eradicate this problem, but the vast majority of customer service contact
centers don’t use them, which is just one more reason why so many customers
rate their call center experiences as sub-par.

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1. Click-to-call. An increasing number of online searches take place on
customers’ smartphones, and it’s easy for your website to recognize
what kind of device a customer or prospect is browsing your site with.
(Google even penalizes websites that don’t offer mobile-friendly
versions to mobile browsers, by reducing their ranking in mobile-
based search results.) So when a customer is cruising your site from
his phone, it makes sense for you to allow him to click a button to call
directly from his phone into the contact center, all within the
browsing experience itself. And of course, when this happens, the
call’s routing can reflect what the customer was doing on the site, and
the answering rep can be shown the customer’s click stream or other
customer-specific data.
2. Proactive chat. If a customer isn’t browsing from her smartphone,
one of the easiest ways to give her some human-to-human assistance
while she’s on your website is to offer a chat window at the
appropriate time. Be careful with this, because customers will simply
tune out if they get a pop-up invitation to chat just by logging in. The
right kind of chat invitation is one based on a tested algorithm that
considers factors such as how long a visitor has already been on the
site, what pages they’ve viewed, and how much time is spent on
particular pages. Don’t try to do it by the seat of your pants. Use
analytics to set up your algorithm and test it until you get it right. But
when you proactively offer to chat with a customer or prospect at the
right time it’s an ideal way to reduce abandoned shopping carts,
buttress any low-performing pages on your site, or simply nail a
difficult service problem with a minimum amount of hassle.
3. The “Call Me” button. If you’re on Amazon’s website and you can’t
get things figured out, rather than just calling the toll-free number,
you can click the “Call Me” button, enter your phone number, and in
a few seconds (or whenever you specify), someone from the contact
center will call you. And hey, guess what? The rep who calls will
already know exactly what you were doing on the website when you

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 clicked the button, and they’ll also happen to be skilled in handling
that particular issue.
4. The temporal phone number. Not many folks have heard of this, but
it’s an ideal mechanism for splitting the difference between proactive
chat and “call me.” When customers or prospects are on the client’s
website and decide to call in, they click the “contact us” button and
what pops up is a toll-free number that is actually a unique, one-time-
use phone number just for them. It will only be valid for a few hours,
and when they call that number the call center’s technology knows
who they are and what web session they’re connecting from, so their
call can be routed to a rep who specializes in handling the products or
issues they were just dealing with, and can see a record of the entire
visit and click stream. (One client of ours saw a ten-fold increase in
sales conversion using this process!)

These are all ways to do a better job of giving your customers or prospects a
truly integrated experience, even when their interaction crosses over from
online to contact center. If you want to reduce the friction in your customer’s
experience, you should already be relying on one or more of these
mechanisms.
Are Your Biggest Customers Your Biggest Losers?
The CMO of a life insurance company once showed me a decile analysis
illustrating which of his company’s customers generated the most profit for his
firm, and which ones generated the least.
A decile analysis simply arranges some quantity of financial information by
decile – that is, by 10 percent increments. The insurance company’s chart
looked something like this, graphically showing the percentage of this
company’s profits over the last five years that were produced by the top 10
percent of customers, the second 10 percent, the third, and so forth:

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You can see from the bar chart that the top 20 percent of this company’s
customers actually accounted for more than 200 percent of all the profits
earned by the company over the previous five-year period, while the bottom
60 percent constituted a net drag on profits. (You might be tempted to try to
match this decile analysis to the 80-20 rule I wrote about previously, but be
careful, because power-law distributions like the 80-20 rule are more difficult
to fit to data that is both positive and negative, such as profits and losses.)
But this is just a side discussion. Now for the main event:
Let’s overlay onto this graph a line that shows the “average face value” of the
policies purchased by the customers in each of these different deciles:

What the shape of this line clearly shows is that this company’s most profitable
customers and its least profitable, money-losing customers each tended to buy
the highest-value, most expensive life insurance policies!
How can this be? Why would a high face-value policyholder be unprofitable at
all? Why doesn’t this line simply slope down and to the right, as policies
become smaller and smaller, and therefore less and less profitable?

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Before you suggest it, this profitability chart has absolutely nothing to do with
actual death rates. It is an actuarially normalized chart, which means that
whether a person dies and has his policy paid off has nothing to do with the
profitability attributed to him, because the costs of death benefits are
actuarially distributed across the entire customer base.
But if not death benefits, then what else could explain this U-shaped curve?
Actually, the answer is very simple, and it has to do with customer retention.
As with many businesses, it costs money to acquire a new customer in the life
insurance category. When a new policy is purchased, the company pays a sales
commission. The typical commission amounts to more than two years’ worth
of profit on a policy. What this means is that, if a new policyholder terminates
his or her relationship with the company less than two years after buying a
policy, the company actually loses money on the customer. And of course, the
bigger the policy, the more commission is lost.
It would be hard to come up with a more graphic depiction of the value of
customer loyalty, right?
But I also like this graph because it clearly illustrates something else that is
vitally important to marketers: A customer’s acquisition cost is usually related
to the volume of the customer’s business, but not to the customer’s loyalty. So
while high-volume customers all cost more to acquire than low-volume
customers, some of your biggest customers will also be your biggest losers.
The real issue for your business is how best to align your customer acquisition
cost, not just with a customer’s purchasing volume, but with customer loyalty,
cost to serve, and other variables that contribute to a customer’s overall
“lifetime value.”
Customer Loyalty: Is It a Behavior? Or an Attitude?
What does it mean when we say that customers are “loyal” to a brand? Does it
mean they’re a repeat purchaser? Or does it simply mean they like it? In other
words, are we talking about physical actions, or does “loyalty” refer to a state
of mind?

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If loyalty is a state of mind, then being “loyal” to a brand or a company means
that you prefer its products, services, or brands over others. In purely
economic terms, you should be willing to pay a premium for your preferred
brand, relative to others. Attitudinal loyalty is therefore closely akin to brand
preference, customer satisfaction, Net Promoter Score, and other metrics
designed to gauge the internal sentiments of customers.
Personally, I have a couple of problems with trying to define loyalty purely as
an attitude. For one thing, attitudinal loyalty would be redundant with brand
preference, so why introduce a separate term at all? Moreover, an attitude can
be completely separate from any continuing relationship on the part of a
customer, and this simply flies in the face of the common English definition of
the word “loyalty.” Customer A and Customer B might have an equally loyal
attitude toward a particular product, but what if Customer A has never even
consumed that product before, while Customer B has consumed it regularly in
the past? In this situation, it wouldn’t much matter whether Customer A was
“willing” to pay a premium for the brand or not.
The behavioral definition of loyalty, on the other hand, relies on a customer’s
actual conduct, regardless of whatever attitudes or preferences underlie that
conduct. By this definition, you should be considered a “loyal” customer
because you continue to buy, period. It’s not your mental state being
measured, but your transactions, so your behavioral loyalty can be measured
in dollars and cents.
However, the behavioral definition has its own drawbacks. It’s quite possible
for customers to behave loyally even when they don’t really like a brand,
provided there are other reasons for purchasing. An airline with poor
customer service, for instance, might have customers who behave loyally but
aren’t happy about it, if it has the only nonstop flights between certain
destinations, or even if its prices are significantly lower than those of other
airlines. And some business-to-business firms selling complex services may
rely on long-term legal contracts in order to ensure they are adequately
compensated for high set-up costs.

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Nor do you have to stretch your imagination very far to recognize similar
situations. How do you feel about your bank, for instance? Many people hate
their retail banks with a passion, but it’s still just too much trouble to switch.
Plus, they reason, the next bank’s service will probably be just as lousy
anyway. So defining loyalty in purely behavioral terms is just not very useful.
In behavioral terms, monopolies have the most loyal customers of all.
For all these reasons, when you think about trying to improve your customers’
loyalty, you need to pay attention to both definitions of the word
simultaneously. Attitudinal loyalty without behavioral loyalty has no financial
benefit, while behavioral loyalty without attitudinal loyalty is competitively
unsustainable. What you want is a positive customer attitude that drives
positive customer behavior.
So yes, you definitely need the NPS surveys or the CSAT surveys, but you
must also correlate the attitudinal insights you gain with the actions you
observe from these same customers.
If you don’t keep both your customers’ attitudes and their behaviors in mind
simultaneously, then you’ll be easily seduced into buying your customers’
loyalty, rather than earning it. But while discounts, premiums, and reactive
anti-churn policies can often be useful tactics, they won’t contribute much to a
long-term franchise as a business.
In the long term, you want to do business with customers who want to do
business with you.
Improve Customer Loyalty by Recruiting Loyal Customers
One of the many inspiring stories told by Fred Reichheld in his classic book
The Loyalty Effect has to do with Nissan’s Infiniti brand and Toyota’s Lexus.
More than 20 years ago when they were launched in the U.S., each high-end
brand was carefully engineered not just as an automobile of flawless quality,
but also marketed as a customer experience unique to the automotive category
– one designed to provide highly personalized, concierge-like customer
service.

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Yet despite their similar aspirations, these two brands developed very different
patterns of customer loyalty. Early on, Lexus achieved a remarkable 63 percent
repurchase rate among first-time buyers, while Infiniti only achieved a rate of
42 percent. While 42 percent was still far superior to the typical 12 percent to
30 percent car-brand repurchase rate in the United States, it was considerably
less than Lexus, despite the fact that each brand had similarly sterling quality.
So what was the big differentiator? Why did Lexus customers show so much
more loyalty than Infiniti customers?
According to Reichheld, it had to do primarily with the different types of new
customers recruited by these two car companies in their initial marketing.
Lexus went after Cadillac and Mercedes drivers – customers who tended to be
older and attracted to comfort, long-term value, and reliability. But Infiniti
positioned its brand to go after Jaguar and BMW drivers – customers more
interested in style and performance. The customers Infiniti targeted, in other
words, tended to be “experiential” customers who simply had a personal
preference for new and novel experiences. An Infiniti owner, when seeking to
purchase a new car, might say to himself, “Wow! That Infiniti was great! Now
I want to try something else…”
The obvious lesson: If you want loyal customers, start by trying to recruit the
kind of customers predisposed to be loyal in the first place.
But this introduces another problem, because the kinds of customers who are
personally more inclined to be loyal are going to be inherently more difficult
and expensive to acquire in the first place.
Trying to solve this problem, Lexus found that one of its most effective
recruiting tools consisted of recommendations from existing customers. But
this was before Facebook, Twitter, and various online rating platforms made
customer recommendations and word of mouth into the kind of marketing
phenomena that they have become today.
Even before the e-social age, Lexus figured out a truly ingenious way to secure
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Its secret? Well, in the ordinary course of business its dealers accumulated
sales leads through advertising, promotional activities, and showroom visits.
Dealers also had a growing database of existing customers, and feedback
surveys revealed which of these customers were the most sincerely
enthusiastic about their new cars, as well. So one of the most effective selling
programs Lexus used was for dealers to stage an elegant, catered dinner or
other event at the dealership, at which they would show off the vehicles. The
dealer would invite sales prospects for this free dinner, promising that there
would be absolutely no selling or arm-twisting at the event. In fact, the dealer
would tell them, Lexus sales people would not even be invited to the dinner!
However, in addition to the sales prospects themselves, dealers would also
invite current Lexus drivers whom they knew from their surveys to be
particularly happy and enthusiastic about their cars. The seating was arranged
in advance, so that each sales prospect was seated between two happy current
Lexus drivers. It made for a great sales tool, with absolutely no selling
required.
That Old-Time Customer Loyalty Feeling
We can easily define customer loyalty as a metric of success, but sometimes it
makes more sense to think of it as a feeling.
At a business conference a few years ago, Jason Sadler, founder of
iwearyourshirt.com and a highly creative marketer, related an anecdote about
how Best Buy had helped him find the right flat-screen television. Apparently
his living room had unusual lighting and dimensions, and he didn’t really
know what parameters were important, so he tweeted out an appeal. Anyone
know anything about flat-screen televisions?
As he told the story, he soon received a reply from Best Buy asking him what
the dimensions of his room were, and then where the light came from in the
room—what side of the room were the windows on, and how big were they?
After a number of such back-and-forth tweets, Best Buy recommended a
particular type of television for him.

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This, Sadler said, was amazing. He had been completely sold by a series of
Twitter interactions. So he went to the Best Buy store and found the television
that had been recommended to him. However, as he was in the store,
prepared to buy, he decided to use his smartphone to search online for the
same model, and guess what? He found it on Amazon for a lower price. What
should he do? What would you have done?
Although his conscience pained him, Sadler said, he elected to save the money
and bought the product from Amazon. But he tweeted back to the Best Buy
folks to let them know, and their message back to him was something like
“well, we’re glad we could help. Maybe next time…”
Ever since, however, as Sadler related this story to the business conference, he
said that he has looked for every excuse imaginable to patronize Best Buy. He
goes to the Best Buy store for routine things, even when it’s out of his way. He
recommends Best Buy to friends who are in the market for electronics. And,
he tells this story everywhere he goes.
So my question to you is, did Best Buy benefit or not from its interaction with
Sadler? Was it stupid or smart for the company to spend time simply helping a
customer find the right product to meet his need? The fact is, it lost the sale in
the end, right?
Yes, and Best Buy lost it for the same reason many other brick-and-mortar
retailers are losing sales to online companies—because the world is now
completely transparent to customers armed with smartphones and connected
24/7. Why shouldn’t a customer simply find the lowest price before buying a
product? After all, in this kind of immediate buying situation, the products
being compared are virtually identical. They are probably mass-produced by
the same company at the same plant, so if one is even a dollar cheaper than
the other, then that’s a dollar in the customer’s own pocket. (And Best Buy
has since improved its online offering to ensure it is more competitive with
other online merchants.)
But if this is your entire perspective, then you’re missing a key point. Because
in the process of giving Jason Sadler advice, just helping him to figure out
what particular product would be right for him, Best Buy also created a bond.

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Even though the interactions were entirely via Twitter, Jason felt closer to Best
Buy. He felt an obligation. It wasn’t a legal or contractual obligation, but a
social one. It was just a feeling.
Sadler felt he ought to repay Best Buy for the kindness it showed in helping
him. He felt that he was in Best Buy’s debt, and that he ought to give back,
somehow.
My suggestion is that no matter what your business is, this is the feeling you
want your customers to have about you. If your customers have a genuine
affection for you, if they simply want you to succeed as a business, then
ultimately it’s more likely you will.
Maybe genuine customer loyalty isn’t measured just in dollars and cents, but
in feelings and emotions.

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 CHAPTER 6
Seek Out Customer Feedback

You’ll never get an accurate picture of how customers experience

your product or service if you don’t listen to what they say. Hearing
feedback from customers is essential if you plan to improve the
customer experience over time.
But hey, guess what? Customer complaints come unsolicited, and
they’re a great source of feedback all by themselves. They don’t
require a survey mechanism, or a research firm, or tabulation
software. They’re free! So, studying customer complaints is a great
“first order” method for gaining insight into the customer’s
perspective, and to identify the kinds of friction you need to
eliminate in order to deliver a better customer experience.
#EpicFail: Are You Hearing Enough Complaints?
One summer day a boy we’ll call “Jimmy” entered a small town’s hardware
store and asked the proprietor, a successful local entrepreneur, if he could
borrow the phone. “Sure,” the man said. The entrepreneur couldn’t help but
overhear the boy’s end of the conversation, which basically went like this:
“Hello, Mrs. Wilson? My friend and I cut lawns for money all around town
and I just wondered if you’d ever like us to cut yours?… So, someone already
cuts your lawn? Well, are you happy with the job they’re doing? Sure we
couldn’t take a crack at it ourselves?… OK, then, well, that’s good that you
have someone you can depend on, thanks for your time anyway.”
With that, Jimmy put the phone down and headed back out of the store, but
the entrepreneur felt sorry for him and wanted to coach him a bit. “Jimmy,”
he said, “you have wonderful, engaging style, and that was a really nice sales
pitch just now. Very professional. But selling is a numbers game, Jimmy. I’ve
built more than one business in my time, and one thing I know is you have to
try again and again. If you called 10 people just like her, I bet you’d be cutting
two or three more lawns this very afternoon!”

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The boy smiled somewhat shyly, and replied, “Actually, sir, I wasn’t trying to
sell Mrs. Wilson anything. The truth is, you see, my friend and I already cut
her lawn. I just wanted to be sure she’s happy with what we’re doing.” Then
he excused himself, turned, and left to tend his business.
Question: Who is the smarter entrepreneur?
Jimmy was practicing something called “complaint discovery.” When it comes
to delivering a good customer experience, complaints and dissatisfaction are
the single biggest indicator of areas that can be improved. And customer
loyalty isn’t as highly correlated with customer satisfaction as customer
disloyalty is with customer dissatisfaction.
Rather than trying to surprise and delight customers with ever-increasing acts
of heroic service, in other words, you might generate better financial results
for your business if you just took care to find and redress problems, fix things
that go wrong, and directly confront the complaints that customers encounter.
But what if a customer never voices her complaint to you? What if she only
tells her friends, or family members, or work colleagues—or her Twitter
followers? The average complainer tells nine or more others about an unhappy
experience. So successfully resolving a complaint is not only likely to generate
increased business from the complainer, but also to restore nine or more
potentially lost opportunities with other customers or prospects. The point is, if
you’re not hearing any complaints this might be a reason to worry, rather than
to congratulate yourself.
To maximize your own business success, and to keep your customers as loyal
as possible, you need to ensure that you are able to address more and more
complaints. It might sound perverse, but the more complaints you discover,
the more opportunities you have to build your business. A few things you can
do:

Make it easy to complain. Be sure to publicize both a toll-free

number and an email address for customer complaints or comments
of any kind, in addition to making it a simple option on your website.
Give customers multiple avenues for voicing any problems. And

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 monitor these channels 24/7. Outsource the function if you have to,
but don’t simply “close your ears” because it costs money to listen!
Monitor social media traffic for any mention of your brand, your
product, or your business, and reach out immediately to
complainers. Twitter has become the complaining channel of choice
for many today, so don’t let those complaints go untended. It’s better
to respond within minutes, rather than hours. Letting more than a
few hours go by is unacceptable.
Follow up after a complaint is resolved. Make sure the customer is
happy with the outcome. After handling any unusual or stressful
transaction, be sure to ask the customer for permission to follow up
in a few days. And during such follow-ups, don’t try to sell anything
with this outreach. Just verify whether everything went OK, and ask
how your company might have done anything better.

Customer Experience Is a High-Wire Act, Customer Service Is the

Net
In their excellent book The Effortless Experience, the Corporate Executive
Board’s Matthew Dixon, Nick Toman and Rick DeLisi write that a positive
product experience generates word-of-mouth more than twice as often as a
negative one. However, when it comes to a customer service experience, just
the opposite applies: a negative service experience gets shared with others
twice as much as a positive one.
Take a look at the two graphs below, from their book:

We can speculate about why this is. Perhaps people find it more personally
satisfying to tell others about a product they just bought because a great new
iPhone or a new car with terrific features, or even a really practical household

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device reflects well on the purchaser’s expertise. But, a customer service
experience often occurs via the corporate contact center, after the product
experience isn’t up to snuff. No one rushes to tell their friends about how
great a company’s phone service was. Instead, stories of “customer service
hell” are simply entertaining to tell, in a “you won’t believe this” kind of way.
In that spirit, a colleague of mine recently emailed me his own very
entertaining “you won’t believe this” tale of woe at the hands of an airline’s
reservations and customer service call center, which I have condensed here:
My wife and I have just had several days of poor customer experience
with [XXX airline], trying to upgrade our daughter’s seat on a flight to
Indy to be closer to her friends up front. It would cost $67 …or I was
going to try to use miles.
First we tried to complete the upgrade online, but were told we had to
call the 800 number to do an upgrade with miles. So over the weekend
we called in several times and went through the IVR each time. It takes
several minutes to go through the IVR to get to “Awards Travel”
because you first have to attest to all this info about non-hazardous
materials, etc. And each time, when you finally get to awards travel
they don’t have an option that’s relevant, so you have to ask for a
representative. Three times they said: “Due to storms on the East
Coast, we are experiencing an extraordinarily high volume of calls.
Please call back later.”
When I finally reached someone they said, “Sorry, I can’t help with
Awards travel, let me transfer you.” Then they transferred me to a
queue where I waited for 90 minutes more, before finally hanging up to
go to dinner. Three days later, and after multiple attempts we still
haven’t been able to speak with anyone about upgrading with miles,
despite the fact that this is what their own website said we had to do –
speak with someone.
The next day my friend sent me an update:
OK, we have a resolution to this story, and you won’t believe this.

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 My wife called back for a fifth time and got to the awards travel queue
where she was put on hold. Twenty minutes later a man picked up and
asked if she’d been helped and she told him what she wanted to do. He
said “I can’t help you with that” and put her back on hold.
Another 40 minutes later, she finally spoke with someone who could
help with rewards upgrades. She wanted to upgrade a coach seat to a
premium seat near the front using rewards points, rather than have to
pay the $67 fee. She was told that they only allow points to be used to
upgrade to first class. My wife said she just wanted to upgrade to the
premium seat and was told they couldn’t do that.
So, my wife said, “I’ve been on hold with your company for four hours
over the last several days and you’re telling me you can’t help me with
this?” and then pleaded, “Is there anything you can do since it’s been
such a difficult experience?” She was told there was nothing they could
do if she didn’t want to use points to upgrade to first class.
…so that’s the resolution – four hours of effort after seeing instructions
online to call for help with points upgrades. And in the end they told us
they can’t help her use points to upgrade to a premium seat.
There are plenty of opportunities to screw up your customer service process,
and the bigger the screw-up, the more entertaining the story will be, as it’s
passed around among your customers. I find it highly ironic that whenever a
company treats the task of handling customer interactions as simply a
necessary cost of doing business, all the effort that goes in to minimizing that
cost will actually have the reverse effect.
This story is compelling not because anyone should dictate how an airline
allows its own customers to use mileage points to upgrade to Premium
Economy. It’s entirely within every company’s individual discretion to decide
its own pricing and product configurations.
The point is, whatever a company’s policy is, it should make it easy for
customers to get their questions answered online, on its automated website.
Either that, or it needs to make doubly certain that a customer can get an

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explanation via the call center, and without hours of pointless effort – bad
weather or not. Problems like this can provide hours of entertainment for
other customers.
If delivering a good customer experience were a high-wire act, then customer
service would be the net. And when the net fails, even a slight flaw in the
experience will be fatal, no matter how lofty a company’s intentions are.
Tapping Into the Hidden Value of Complainers
If you put one pot of boiling water and another pot of lukewarm water into
your freezer at the same time, guess what happens? The boiling water will
freeze first! This phenomenon has been known since the time of Aristotle, but
apparently even today no one understands precisely why it happens. Recently,
in fact, the U.K.’s Royal Society of Chemistry put up a £١ ,٠ ٠ ٠ prize for the
first person who can offer a satisfactory explanation.
Similar to freezing a pot of boiling water, companies can often turn the most
vociferous of complainers into raving fans—brand advocates who are even
more convinced in their positive views than other, more satisfied customers
are. And, this is a phenomenon that isn’t so hard to explain.
While rapid technological progress and rising levels of interactivity are clearly
raising customer expectations in general, a complainer is someone whose
expectations are, shall we say, downwardly mobile. If you feel a company has
wronged you in some way, then you’ll examine every new interaction for
evidence to confirm this personal belief. (This is your confirmation bias at
work. Don’t even bother trying to deny its existence.) As a result, something
that might have begun as a flawed company policy of some kind, or an
oversight or simple mistake by someone in the firm, could soon be interpreted
by the complainer as bad intentions on the company’s part. And bad
intentions constitute the most serious breach of trust possible.
Trust is largely a social concept. The trust a customer has in your company
reflects not just the customer’s own independent opinion, but also how the
customer’s friends evaluate you. Even a single complainer’s dissatisfaction and
distrust can soon infect a large number of others. So complainers, if left to

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their own devices, can do immense damage to the overall value of your
customer franchise.
However, the mere fact that a complainer has already developed a particular
point of view means that as soon as the company does something to contradict
that point of view—reaching out to handle the complaint proactively, for
instance, or apologizing sincerely and trying to make things right—its action
has the potential to completely reverse the customer’s mindset, violating the
customer’s expectations once again, but this time in a positive manner. The
more a business contradicts the customer’s own pessimistic expectations, the
more noticeable and memorable its initiative will be. When done right, like
the boiling pot of water that freezes faster, a simmering complainer will often
become a highly convinced brand advocate even faster than someone who
never had a complaint to begin with.
You probably already know this to be true, simply from personal experience.
But what it means for your company is that a complaint, once it is voiced to
you, is an opportunity to improve your bottom line. So when your company is
fortunate enough to hear a complaint from a customer, your policies and
employee training should support five simple actions:

1. Acknowledge: Always begin by acknowledging the complaint and the

complainer. Whether or not you think a complaint has merit, you
have to start by granting the legitimacy of the complainer’s point of
view. Empathy is a very powerful cure-all, but it must be displayed
freely and without reservation on your part.
2. Apologize: There’s no substitute for simply saying “we’re sorry.” No
ifs, ands, or buts—just plain old “sorry for this.” As the complainer
tells you what’s wrong from his or her perspective, apologize early and
often. With feeling.
3. Amplify: Probe for any additional information about the complaint.
As the complainer vents to you, and as you are acknowledging the
complainer’s problem and apologizing for the inconvenience or for
whatever other injury the customer incurred, keep asking if there is

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 anything more—any further dissatisfaction that has not yet been
voiced. Get it all out.
4. Ask: Once the problem has been fully exposed—when the complainer
says there isn’t anything more—you should ask the single most
important question: What does the customer think would be a fair
and satisfactory resolution? How can your company remedy the
injury?
5. Act: Then, if it’s at all possible, do what the customer has just told you
would be fair. Or go even further, if you want to see that pot of
boiling water cool faster.

Changing the Definition of “Integrated Marketing”

For years, one of the most common buzzwords in the sales, marketing, and
customer service disciplines has been “integrated marketing.”
Originally coined in the late 1980s, this term has traditionally stood for the
kind of marketing and sales promotions that are closely coordinated across all
media. Basically, you want your marketing to be “integrated” so that it doesn’t
look like it came from different companies, and its various offers and appeals
don’t overlap or conflict with each other.
Wikipedia’s current article on “Integrated Marketing Communications” tracks
at least three successive definitions of the concept over more than 25 years:

From the American Association of Advertising Agencies in 1989: “an

approach to achieving the objectives of a marketing campaign
through a well-coordinated use of different promotional methods
that are intended to reinforce each other.”
From Northwestern University’s Journal of Integrated Marketing in
the 1990s: “a strategic marketing process specifically designed to
ensure that all messaging and communication strategies are unified
across all channels and are centered around the customer.”

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 From Brian Bennett’s Stirology blog post5 in ٢ ٠ ١ ٣ : «the
development of marketing strategies and creative campaigns that
weave together multiple marketing disciplines (paid advertising,
public relations, promotion, owned assets, and social media) that are
selected and then executed to suit the particular goals of the brand.”

Excuse me, but all these definitions (even Bennett’s, unfortunately) seem so…
20th century. Today, integrated marketing must involve not just integrating
your own messages and communications, but integrating your customer more
directly into the actual marketing, sales, and service processes.
Technology is smashing all these functions together like never before.
Marketing, sales, and customer service are smearing into each other with each
new channel opportunity and smartphone app. The only truly integrated view
of the entire start-to-finish process is the customer’s own view.
So I would propose a slightly different, and simpler, definition for “integrated
marketing” today:
Integrated marketing incorporates an individual customer’s own
perspective into all the customer-facing functions at a company,
including marketing, sales, and service.
Truly integrated marketing, in other words, happens when a specific,
individual customer’s own worldview infuses all the customer-facing processes
that affect that customer. Truly integrated marketing would be if:

Your Web marketing campaign generated a lead, and instead of

tossing that lead over the fence to the sales organization to be
pursued like every other Web-generated lead, it was instead
packaged into a customer-specific selling strategy based on the
expressed preferences and other insights already learned about the
customer.
Your customer’s smartphone app automatically displayed his flight’s
boarding gate and on-time status as he entered the airport, because

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 the phone already knows where he is and has access to the flight
information already on his calendar.
A customer called your company on the help line, and along with the
service issue being satisfactorily resolved, a cross-selling opportunity
relevant to the customer’s own needs was also pursued, either in the
same call or in a subsequent message.

I don’t know about you, but I’m ready for some TRULY integrated marketing.
I’ve about had it up to here with marketers thinking that all they need to do is
just get their own act together.
You want to leapfrog your competitors? Try integrating the customer into your
marketing, sales, and service activities, one specific customer at a time.
Is Your Customer Survey Really Useful?
Voice-of-customer (“VOC”) feedback is always useful, but it’s not always used
correctly.
Not long ago I attended a presentation by a senior executive who was charged
with collecting voice-of-customer feedback from the business customers
served by his very large technology company. He based much of his
presentation on some figures that were compiled from more than 100,000
online customer surveys completed over a year’s period.
His VOC feedback program yielded some very helpful insights, particularly in
the form of the many verbatim comments collected. Also, it allowed the
company to identify and reach out to those who expressed high levels of
dissatisfaction. So far, so good.
But then the executive told us that his company was so committed to
improving its overall customer experience that senior executives at the firm all
had a portion of their incentive pay based on the survey’s results. That’s too
bad, I thought, because the way this particular survey was structured meant
that it was virtually worthless in terms of understanding the overall level of
customer satisfaction.

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This was because his VOC survey was based on a highly biased sample. Good
for anecdotal feedback and identifying specific problems, but nearly useless for
understanding the general level of customer satisfaction within the entire
customer base.
Here’s why: All customers were solicited for their inputs virtually every time
they completed any kind of transaction on the company’s website, and there
were nearly 4 million such transactions during the year. So 100,000 survey
completions, in fact, amounted to a response rate of less than 3 percent. The
problem is, with that low of a response rate it’s almost certainly the case that
those who chose to go to the trouble of completing the survey did so because
they were either highly displeased or highly pleased with their interactions.
Remember, these were business customers. They were busy managers and IT
executives who don’t have a lot of spare time to begin with and aren’t likely to
dedicate even a few minutes of it to helping some other company figure out
how to do its job better. Unless, of course, they were extremely unhappy, and
wanted to give the company a piece of their mind, or perhaps extremely
pleased, and eager to share their good wishes.
Using such data to infer overall satisfaction levels would be like sticking one
hand in ice water and the other in scalding water, then inferring that, on
average, you must be quite comfortable.
It doesn’t matter how large your VOC sample is, if your sample is biased it will
be far less useful than a smaller but less biased sample. Rather than soliciting
everyone and netting a 3 percent response (even if that amounts to 100,000 or
more respondents), you would do better by soliciting just a couple of
thousand participants chosen at random, and offering them some form of
compensation or benefit designed to generate a higher participation rate.
There will still be some bias in the results, but far less than in a universal
survey that suffers from an extremely low participation rate.
With just a few tests you might even be able to find some combination of
prizes or fees that would generate an 80 percent or 90 percent participation,
which would give you much greater assurance that the busy executives whose

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opinions you were now collecting more fairly represent the entire population
you are trying to serve.
The only truly unbiased voice-of-customer feedback, however, is the feedback
you find entirely “in the wild” – simply by observing the comments made by
your customers to their friends and colleagues, mostly in social media.
Non-Invasive Voice-of-Customer Feedback
The “observer effect” is one of the strangest principles of quantum mechanics.
The act of observing something in the quantum realm determines whether the
something you are observing is a wave or a particle. Before an actual
observation, it is either or both, but once it is observed, it will only be one or
the other.
Similar to the observer effect, obtaining VOC feedback is not as easy as
surveying your customers to ask their opinions, because the act of asking the
customer will contaminate your results. Not that surveys don’t produce useful
data, but genuine voice-of-customer feedback is subject to its own “observer
effect,” over and above any biases introduced by insufficient sample size or
survey techniques.
When I ran marketing for a small airline, one of the things I did was to record
a random 30 minutes of inbound calls at our reservations center. Basically, I
would choose an agent and time of day at random, then record his or her calls
for 30 minutes at that time. With this done, I made several copies of the
recording and distributed it to the half-dozen or so other senior executives at
the airline, so each of us could listen to it on our way to work the next day.
This constituted our voice-of-customer program, a bit rough-hewn but at least
free of any observer effect.
Resourceful executives go to great lengths to obtain uncontaminated – that is,
truly unbiased – voice-of-customer feedback. Chip Bell and John Patterson, in
their marvelous book Wired and Dangerous, tell us that the mayor of Santa
Clarita, California meets regularly with hairdressers in the town, because they
are likely to have the real scoop on what citizens have been saying. And the
manager of a hotel in Texas schedules focus group meetings with taxi drivers,

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because he knows that his hotel guests are more likely to share their honest
opinions with them than with the front desk manager or in an online survey.
Fast-forward to the e-social era, and VOC feedback can increasingly be
obtained “in the wild,” that is, on a variety of interactive and social media
platforms where customers make their opinions known without having to be
asked for them. Gathering VOC feedback in a non-invasive manner is likely to
become an extremely common activity in the future.
Satmetrix now has SparkScore, for instance, a social media analysis tool that
can help a client deduce a company’s implied Net Promoter Score without
surveying its customers directly. It does this by examining the strength and
pervasiveness of positive and negative sentiments, on a variety of social media
platforms, from Twitter and LinkedIn to specialized customer forums and
communities. (Obviously, one of the capabilities this offers is to assess a
competitor’s NPS numbers as well.)
And non-invasive voice-of-customer feedback can also be used for discovering
business-building opportunities on a one-to-one basis with individual
customers. For one of our financial services clients, for instance, the audio files
of inbound calls were digitally analyzed to identify any mentions of a set of
important life events (births, retirements, college plans, etc.). It turned out
that more than 2 percent of inbound calls had potential “selling opportunities”
related to such events, and analysis showed that if just 10 percent of these
opportunities could be closed, the client could realize a total increase in
customer lifetime values of more than $200 million.
Big Data has arrived, and Big Data means that the era of non-invasive voice-
of-customer feedback is upon us.

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 CHAPTER 7
Personalize the Customer Experience

Every customer is unique, so every customer experience is personal.

An essential capability required for any business to be able to ratchet
up the quality of its customer experience is the ability to personalize
how it approaches each one.
Treating all customers the same is how the vast majority of businesses
have operated for the last 150 years or so – basically ever since mass
production processes took over the modern economy. It’s only the
arrival of computer technology that allows enterprise-sized businesses
to track individual customers, discern their differences, and then try
to accommodate each customer’s own individual preferences and
needs.
Knowing how your customers vary from one another is important,
but that’s only half the battle. The other half is using technology to
render different services, offers, and even individualized products for
these different customers, in order to deliver humanity to them, at
scale.
Loyalize Customers by Remembering Their Needs
When I’m on a business trip I’m a sucker for a quiet evening in my hotel room
with a room-service pizza. One time, while staying at a Ritz-Carlton hotel, I
called downstairs for a pizza, then resumed working on my laptop until the
knock on the door came about 30 minutes later. Only then did I realize I’d
forgotten to request red pepper flakes. I love red pepper flakes on a pizza. How
do people even eat pizzas without red pepper flakes?
In any case, I opened the door and the waiter wheeled in the room-service
table with my pizza, a soda, some utensils, and….a small dish of red pepper
flakes! Hooray, I thought. At least this hotel knows how to serve a pizza!

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I signed the bill, but as the waiter was just about to leave, I had a thought. I
asked him whether they served red pepper flakes with all their pizzas. “No,”
he said, glancing down quickly to check his pad, “but you like them, don’t
you?”
I had completely forgotten that this was not my first room-service pizza at a
Ritz-Carlton, and they had already noted my preferences. From my
perspective, it just seemed like Ritz-Carlton had the best pizza.
Customized products and services are important tools for any company trying
to improve its customer experience. Treating different customers differently is
the very essence of what makes a customer experience relevant.
When customers tell you how they want to be treated, and then you do treat
them that way, you are providing them with a kind of service they simply can’t
get anywhere else at any price – at least not without first re-teaching someone
else what they already spent time and energy teaching you.
This is one of the primary reasons why people engage with the same e-
commerce site over and over again, whether it’s NewEgg, Amazon, eBay, or
someone else – because once you’ve already given the site your credit card
information and shipping address, it’s so much easier just to keep going with
them. Provided, of course, that they don’t screw up, and that some other site’s
prices aren’t significantly lower. I say “significantly” because most people aren’t
going to give up all the convenience of shopping somewhere that already
knows them unless the price difference is significant enough to make up for
the effort. It might vary with the customer, but convenience saves time, and
time is money. Different people will attach different values to it, but at some
level everyone wants convenience.
So if you want to loyalize a customer, try remembering some specific need or
preference the customer has communicated to you in some way, and deliver
on that need without having to be reminded.
Dealing with Customer Variability
There is a famous scene in the 1970 movie Five Easy Pieces in which a young
and surly Jack Nicholson is stymied in his effort to get a side order of plain

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wheat toast at a roadside diner. Told by the waitress that the diner doesn’t
serve plain toast (it’s not on the menu), he asks her whether he can get a
chicken sandwich on wheat toast. When she says yes, Jack says OK then, bring
“a chicken sandwich on wheat toast – no mayonnaise, no butter, no lettuce,”
and then adds “and now hold the chicken.”
Fast forward to the present. A woman goes into a Starbucks and asks for a
simple glass of milk. Real milk, 2 percent please, just milk. According to her
account,6 this not-so-routine request of a Starbucks barista almost caused his
head to explode. “Mocha,” he called out, but she had to correct him. Twice.
And even though she asked for just a glass of milk, the first time it arrived it
had been steamed, so it had to be re-ordered. (Cold, please. Ready to drink.
M-I-L-K.)
Starbucks, like the roadside diner and any other business, tries to maintain its
quality and control its costs by standardizing processes and operations.
Routine tasks, if they can’t be automated, are at least handled in the same way
by every employee.
But customers are all different. They want different things – different sizes of
products, different delivery dates, different specifications for services, and so
forth.
On one hand, customer variability like this creates an opportunity to generate
loyalty, because by remembering individual customers and their preferences,
we can create relationships that are durable and long-lasting. This can
generate better profits for you provided you minimize costs by using computer
power to automate the process.
But on the other hand, not all customer variability is so easy to deal with, and
if you don’t have a routine process for automating how you handle it then
your production and service delivery operations can suffer. According to
Frances Frei and Anne Morriss, in their very useful book Uncommon Service:
How to Win by Putting Customers at the Core of Your Business, a few of the
different forms that customer variability can take, in addition to specific
requests and preferences, include:

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 Arrival times: Grocery stores, for instance, are often crowded during
the evening rush hour, while the lines at Starbucks can be
interminable just before the workday begins.
Capabilities: Some customers need more hand-holding than others,
which means the cost of serving different customers can be quite
different. For instance, whether a patient can accurately describe her
own symptoms or not has a big impact on how costly it is to provide
adequate medical care.
Effort: Some corporate controllers are well organized, while others
are not, which changes the economics for an auditing firm handling
the account. Some shoppers return their shopping carts to the store,
others don’t.

Variability like this is something Frei and Morriss call “customer chaos,” and
they suggest it can be managed in two basic ways: either by eliminating it, or
by accommodating it. If you choose to eliminate variability, you will generate
more efficiency. If you choose to accommodate it, you will generate better
service.
And whenever you launch a new product or begin selling to a new market
you have to be prepared for an increase in customer variability. This is one of
the things that makes it so difficult to accommodate multiple business models
under the same corporate umbrella.
When Dell Computer began selling enterprise-level servers, the authors say,
“the company knew the corporate market for these machines would create
significant new service demands, which it would have to accommodate with
around-the-clock assistance. Dell faced a choice between destroying its
margins by creating an underutilized and expensive service infrastructure or
falling behind competitors that had more efficient operations. Dell landed on
a creative solution—outsourcing service to a third-party provider optimized for
these kinds of 24-hour, on-site service calls. By doing so, Dell reduced its
exposure to customer variability by essentially handing off the challenge to a
company better prepared to manage the challenge.”

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Handling customer variability is never going to be a walk in the park. Under
some circumstances you might be able to turn it into a competitive advantage,
but you also have to be prepared either to minimize it, or to lay the risk off to
a third party, as Dell did.
And perhaps next time our Starbucks customer, who just wanted a glass of
milk, would get a better result if she were to ask for “a tall skinny latte, no
steam. Now hold the coffee.”
Customized Pricing? How to Do It Trustably
A few years ago I was listening to incoming phone calls at a call center run by
a Peppers & Rogers Group client. This was a credit card and financial services
firm, and for about an hour I sat directly behind one of its best agents with an
extra earphone to my ear, listening to her incoming calls and conversations.
As I listened, a caller said she had just received an offer for a competitor’s card
with a reduced fee of just $25 a year and a very low interest rate, so she was
thinking of switching. The agent tapped a few keys and replied, “Well yes,
Mrs. Smith, actually we have that same card available. In fact, my records
show we sent you an offer for a card with these terms back in April. The offer
was included in your billing statement, but maybe you didn’t see it. If you’d
like this card now, why don’t I just send it out to you? We can even give you a
retroactive credit for three months’ worth of the higher annual fee you’ve
been paying…” Naturally, the customer was delighted.
About 20 minutes later, after handling several other calls, the agent received
virtually the same inquiry. A man said he’d received an offer for a $25 card at
the same low interest rate (from the same competitor), so he was thinking of
switching. However, after tapping a few keys this time, the agent replied, “I’m
sorry Mr. Jones, but we just can’t match that offer at this time. We do hope
you’ll choose to stay with us, though. Is there anything else I could help you
with?”
We all know what was going on in these two calls, right? Mrs. Smith was
obviously a good customer, probably more creditworthy and more profitable
for the credit card company than Mr. Jones. This is an example of what

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economists call “price discrimination,” and it is a perfectly legal and highly
useful economic practice. Unlike racial or ethnic discrimination, there is
nothing illegal or unethical about offering a product at different prices to
different customers (as long as you aren’t basing your offer on race or
ethnicity, of course). Airlines and hotels set different prices based on different
travel restrictions, B2B companies negotiate different prices for different
clients, movie theaters have special deals for children and senior citizens, and
Florida theme parks give discounts to Florida residents. These are all examples
of price discrimination.
By charging different prices to different customers a company is simply trying
to maximize the profit obtained from each customer. After all, customers are
all different. Some will desire a product more than others do. Some will be
more likely to buy on impulse, some will buy more often, some will trade
quality for price, and some will be more particular about getting exactly the
right brand.
As common as it is, however, price discrimination can easily be perceived as
sneaky and untrustable. A recent Wall Street Journal article described a
massive survey involving tens of thousands of online shopping events that
revealed websites engaged in very sophisticated forms of price discrimination,
sometimes charging different customers different prices based on how far each
customer was from a competitor’s store, physically. And while no one would
think it odd for a brick-and-mortar store to compete more aggressively with
stores in its own neighborhood, somehow the idea of having different prices
quoted to us by an e-commerce company operating over the Web seems
manipulative.
Of course, being technologically manipulated by a vendor is only offensive if
you actually find out about it, and for now at least, most people don’t. But
what technology giveth a business today, technology can taketh away from the
business tomorrow. And it won’t be long now before social filtering tools allow
consumers to find out for themselves the lowest price a company is currently
charging for a product or service among all its customers, or even how to take
advantage of a company’s pricing algorithm itself. In the case of one

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supermarket chain’s program, for instance, the New York Times7 interviewed
one shopper who, “[L]ike any good shopper…is already starting to game the
system: she noticed that she received cheaper prices on ground coffee when
she alternated between Starbucks and Dunkin’ Donuts brands rather than
buying just Starbucks.”
Some online aggregator sites are already experimenting with services that will
make a kind of “reverse scalping” possible – meaning that consumers will be
able to make their own personalized discounts available to other consumers,
either for a fee or just for the satisfaction of it. And with smartphones,
customers will gain access to this kind of information and make this kind of
decision even while they’re in the store.
Customer trust, however, will be harmed whenever customers feel they’ve
been taken advantage of, or that they were simply fooled into paying more
than they needed to. If, for instance, slight product modifications come to be
seen as a mere smokescreen for charging customers as much as they are
willing to pay, or if the complexity of the pricing system itself is overly complex
or confusing to a customer (as is the case with airline fares and mobile phone
plans, for instance), then a business is on thinner ice, and the trust customers
have in a firm can be damaged.
So, if you operate a business with scientifically individualized services and
pricing, tailored to the different situations of different customers, what should
be your strategy?
My advice: Treating different customers differently is not untrustable, per se,
but trying to conceal what you are doing from customers is. In the case of the
call center where I listened in on calls, I suggested to the client that it should
prepare in advance for the possibility that sooner or later two customers
getting different offers might compare notes, because they are neighbors, or
good friends, or work at the same office. So if and when Mr. Jones calls in to
ask why he didn’t get the same offer that Mrs. Smith did, the company needs
to be able to explain exactly what he can do if he wants to receive it – raise his
credit score, go six months without a late payment, spend more per month,

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something like that. (And, of course it would have to do this without violating
Mrs. Smith’s privacy.)
If you want to improve profits with individualized pricing while minimizing
the risk of erosion of trust, I suggest:

1. Position your program externally, and think of it internally, as a way

to offer tailored discounts, rather than as a way to extract higher
prices;
2. Assume your customers, individually, will find out how your
individualized discounting decisions are being made;
3. Have a policy for “negotiating” with individual customers for
different discounting terms, based on clear criteria; and
4. Above all, in any dispute, problem, or policy decision, strive to be
“fair” with each customer – simply treat the customer the way you
would want to be treated if you were that customer.

Improve the Experience by Not Giving Customers Choices

Yes, I know it sounds absurd, particularly from a one-to-one marketing
“guru,” but not giving customers choices will often improve the customer
experience. Let me start with a story from my own life.
A few days after our family moved into a new house, my wife took me
furniture shopping. We needed a new sofa, she said, to match some of the
other new stuff we had acquired for our expanded living room. As we neared
the furniture super store, I saw a billboard atop it proclaiming “Thousands of
Sofas to Choose From!” and my heart just sank. This was going to be just
AWFUL!
As contrary as it might seem, you are not doing your customer any favor by
offering thousands of choices, or even dozens. The act of choosing is an
imposition. It’s friction, plain and simple, because you’re asking customers to
do your work for you. Yes, the customer will want something just right, and

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yes, every customer may want something different. But the choosing of it is
still an onerous activity.
It is a well-known principle8 in the direct marketing business that one of the
surest ways to reduce the response rate in any communication with a customer
is to require the customer to make a choice. Want fewer people to respond to
your offer? Be sure to ask whether they prefer Option A or Option B. Want a
further reduction in response? Offer Option C. Requiring a customer to make
any choice at all is, by itself, an extra burden of effort. More often than not, in
a direct marketing campaign this effort alone will overwhelm whatever
likelihood you had of getting a response.
This doesn’t mean that choice is always wrong, but you have to approach it
carefully. One wise use of customer choice is for gathering insight on a
particular customer – learning the customer’s actual preferences. An
automotive company I once worked with launched a loyalty program and
offered new members their choice of gift for joining: a pair of racing gloves
with the brand’s logo on them (it was a kind of sporty car), or a package of
three children’s videos, or a collapsible umbrella and road atlas. In this case,
making the choice was extremely simple, didn’t involve a decision about how
much money to spend, but simply what free gift to accept. And the option
chosen revealed a great deal to the auto company with respect to how to treat
each different customer in future interactions.
Another wise use of choice is when it serves as a mechanism to stimulate
customer thinking, or to give them ideas. Not all customers really know what
they’re searching for. They may prefer to meander a bit, trying to zero in on
something. But the fact that a particular customer likes to meander is itself a
bit of customer insight you should also tuck away. Different customers view
the shopping experience differently.
If you have a wide variety of sizes, specifications, prices, colors, delivery
options, and the like, then one way to reduce the burden of choosing is to
mass-customize. Don’t eliminate the choosing process altogether, but reduce it
by using categories. Modules.

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Imagine, for instance, that the furniture super-store my wife and I visited had
made this offer to us, online: “Pick the price range, base colors, and preferred
styles you will be shopping for and before you come to the store we’ll propose
a selection of no more than 10 ‘most-likely’ choices to start your search…” Or
better yet, what if they had said “Send us a picture of the furniture you’re
trying to match and we’ll have a small selection picked out for you.”
You really want more sales? Try to reduce the number of choices customers
have to make in order to get what they want. Requiring customers to choose is
friction. Eliminate it.

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 Use Interactions to Maximize Customer Insight
In the heyday of the dot-com boom, one online pet supplies retailer asked a
single, fact-based, yes-or-no question of its website visitors, designed to
identify those with the highest potential for spending on their pets. This is an
example of what we call a “Golden Question” – a customer interaction
specifically designed to reveal a great deal of insight about customers, but
without subjecting them to a battery of marketing research.
If it is designed well, a Golden Question can often generate highly useful
insight without even appearing to be a survey or a marketing inquiry at all,
and it can often be fun or interesting for the customer to answer. Like the
automotive company from the previous essay that offered new loyalty club
members their choice of gift, a Golden Question is simply any customer
interaction designed specifically to elicit important and useful insight.
One of our former consulting clients, for example, was a vacation time-share
company. Research had shown that vacation time-share customers used their
membership in two different ways:

“Vacationers” tended to buy a time-share at a particular resort they

liked, and then they would vacation there regularly, allowing the
company to rent their property out in the meantime to defray the
ownership cost.
“Traders,” on the other hand, liked to exchange their time-share
property for other owners’ properties at a variety of different resorts,
and they would usually vacation at different times and places each
year.

For obvious reasons, the company wanted to be able to tailor its offer and
sales pitch appropriately in order to address the different needs of these very
different types of prospective customers. But how could it decide, as soon as
the discussion started, which category any particular prospect belonged to?
It turned out that the most useful and predictive characteristic of a trading
family was that they had no young children at home. So during any discussion

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with prospective new customers, the sales rep would ask about children. If the
family included young children, then it was almost a certainty they would not
be trading their property much, at least not until the children grew older.
And in the world of Big Data, Golden Questions are easier than ever to find.
OkCupid, the matchmaking website, has analyzed thousands of different
questions asked to millions of customers, and it turns out that the single
question that does a better job of predicting relationship longevity than any
other is: “Do you like horror films?” (Go figure.)
As these examples all demonstrate, it isn’t always necessary to administer a 50-
question survey or subject a customer to detailed scrutiny in order to gain
insights useful enough to provide a more relevant customer experience.
Figuring out the right Golden Question may generate just the insight you
need. And it can be fun, too.
As for the pet supplies retailer? Its Golden Question was: “Last year, did you
give your pet a holiday present?”
Mass-Customizing the Customer Experience
The first task in treating different customers differently is to recognize and
remember how they are different, both in terms of their value to you, and in
terms of what they need from you.
But the next task is to render different “treatments” for different customers. In
order to scale this process economically you have to reduce the need for
manual intervention or constant human oversight. The automated process for
rendering different customer treatments is called “mass customization.”
No matter what kind of customer experience you’re trying to mass customize,
you need to think carefully about two different tasks in order to do it
proficiently:

1. How the customer specifies his or her preferences or requirements,

and
2. How you remember them and apply them.

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The first task, the specification process, represents a kind of “design interface.”
In a make-to-order world, your business needs a convenient but accurate way
for a customer to specify exactly what kind of customer experience he or she
needs. That is, they need to be able to design their own treatment. If your
design interface involves strolling around a three-acre warehouse to find the
right sofa, or waiting eight weeks for the made-to-order product, not only is it
inconvenient for the customer, it’s also costly for the business. Better to offer
the customer a series of simple choices (but not too many) in order to capture
the primary differences among your customers. Do you prefer warm colors or
cool? Home delivery or pick-up? Monthly invoicing or quarterly? Postal
letters, email, or text messaging?
And the second task, remembering, involves your customer database or CRM
system. You can only make it irresistibly convenient for a customer to
continue doing business if you actually remember what each customer has
specified, individually. So train your sales and service people, and anyone else
entering data into your CRM system, to listen carefully for each customer’s
individual preferences or desires, and to be meticulous about recording them.
Both these aspects of customization – specification and memory – must be
correctly mastered in order to turn the act of customization itself into an
effective competitive tool for getting, keeping, and growing customers.
Now think about how you can break down your production and service
delivery process into different components, or “modules,” each of which can
be combined with other modules in order to deliver a specific, relevant
customer experience. By pre-configuring just a few modules to be combined
into different offerings, you may be able to render thousands, or even billions,
of possible customer experiences.
To keep the customer’s experience as frictionless as possible, start with
whatever customer insights you already have, and then walk the customer
through as few additional choices as necessary to arrive at the correct offering
for that individual.
In addition to a product’s physical attributes (size, color, etc.), there are many
aspects of the overall customer experience that could be tailored to an

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individual customer’s need. For instance:

Configuration: Without changing the physical product itself,

perhaps you could pre-configure a system to your client’s needs.
Acumen Vitamins, for instance, are offered in pre-configured daily
assortments, often including a dozen pills or more, based on a health
questionnaire and an analysis of a single strand of the customer’s
hair.
Packaging: How many variations of packaging make sense for
different types of consumers or business customers? Would seniors
want smaller, lighter packages with instructions in larger type? Would
professionals like different or more detailed product information?
Which customers would prefer multi-packs, or perhaps mini-packs?
Ancillary services: Should the equipment come with regular
maintenance or calibration service? Should the new car come with
quarterly detailing, monthly wash-and-wax, or automatic pickup and
delivery when it’s time for maintenance? Should the warranty for
your device or product be tailored to the customer’s own intended
use, perhaps in terms of copies-per-month, hours-per-day, or miles-
per-quarter?
Additional products: What additional products contribute to
meeting a particular type of customer’s need? This might involve
accessories (story books with LEGO sets, insurance with automobiles,
cages with hamsters, or sweat socks with sneakers). It could involve
replenishable supplies (oil changes for automobiles, pet food for
hamsters). Or consider offering high-volume customers a greater
quantity than everyone else gets – a dozen bars of soap, five dozen
golf balls, or a half container-load of product instead of a single
pallet.
Pre-authorizations: Some B2B companies help their customers
enforce preset authorizations to fit different corporate approval
systems. Vice presidents are allowed to order leather desk sets and

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unlimited paper supplies, for instance, while secretaries are pre-
authorized for routine purchases up to $200 per month.
Invoicing and payment terms: Are invoices sent at the convenience
of the customer or at your own convenience? Are they developed in
the most desirable format for a customer, or for ease of issuance by
your accounting department? When you notify a customer by email
that his bill is now available online, do you provide any other helpful
information in the email (like total due, or due date), or do you
make the customer log in to find this out? Do you anticipate cash
discounts? Some buyers prefer smaller payments and longer terms,
while others seek to forestall payment and are happy to pay the price.

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 CHAPTER 8
Earn Your Customers’ Trust

From the beginning of commerce, customer trust has always been

important to a business.
Most authorities on the subject have talked about customer trust in
terms of two different qualities – good intentions and competence.
Do you, as a business, have good intentions towards me, your
customer? Are you going to act in my interests? And are you
competent to do that? Both of these qualities have to be positive for
me to trust you. It does me no good if you have the best of intentions
but your product is poor quality, cannot be delivered on time, or
breaks when I use it.
As the rush of technology empowers us to interact more and more
with others, trust has become ever more important, not just to
businesses, but to everyone. We don’t have time to stop and count
our change at the cash register every time. We expect businesses to
act in our interest, in general – or at least not to be sneaky and take
advantage of us when we aren’t watching.
What Does it Mean to be “Trustable?”
The fourth component of a truly frictionless customer experience – after
reliability, value, and relevance – is trustability. “Trustability” is a precise
word, designed to capture the nature of customers’ increasing demands. And
it may just be the most important frictionless component of all.
Whenever two people interact—either face to face or online—one of the most
important subtexts of that interaction is trust. Trust greatly improves the
efficiency of any person-to-person interaction, so as technology increases the
speed and volume of interactions, trust becomes more and more important. If
you don’t trust someone on the other end of an interaction, it slows you
down. It’s a hassle. A pain. You have to check your facts, and count your
change. You might even have to get your own lawyer or auditor involved.

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In addition to this, interactions themselves generate transparency, so the
increasing efficiency with which we all interact makes it ever more difficult to
keep secrets. Whether we’re talking about WikiLeaks or the latest customer
service snafu at a pizza restaurant, the world is more obviously transparent
than it ever has been.
Teenagers will tell you it’s much harder to cheat on their boyfriends or
girlfriends than it was before everyone was on Facebook. It’s much harder to
cheat on your customers, too.
So customers are starting to hold the businesses they deal with to a higher
standard. They want “proactive trustworthiness,» and the term I use for this is
“trustability.” It’s no longer sufficient for a business simply to do what it says
it’s going to do and charge what it says it’s going to charge. That would
certainly be trustworthy—it’s not cheating or lying—but it’s not trustable.
A trustable company will remind customers if a refund is due, warn them in
advance before a warranty expires, or even advise them if it looks like they’re
buying more than they really need. Being trustable means protecting the
customer from careless mistakes, poor judgment calls, lack of knowledge,
oversights, and other self-inflicted problems.
The easiest way to explain trustability is to provide a quick example from the
way Amazon delivers its customer experience. I buy a lot of books (as well as
other things) from Amazon, and the Amazon experience is quite frictionless
already. I might be reading some article online, and if I see a book referenced
that I ought to get, I simply bop over to Amazon, find the book, click on it,
and it comes directly to my house or my Kindle, because Amazon already has
my credit card and address information. Easy peasy.
One day I read an article that referenced a book I thought I should read, so I
went to Amazon and clicked on it. But this time, instead of getting
confirmation that the book would be immediately delivered, I received a
message: “Warning: You already bought this book from Amazon. Are you
sure you want to buy it again?”
No, I didn’t need two copies of the book. I’d just forgotten about previously
buying it.

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Of course, had Amazon simply gone ahead and shipped me the book it
wouldn’t have been cheating. It wouldn’t have been dishonest in the least. But
it wouldn’t have been trustable.
And here’s the thing about trustability: My experience dealing with Amazon is
now even more frictionless, because not only do I not have to provide my
credit card and address information, I don’t even have to check my
bookshelves first, to see if I’ve already got the book. If I already have it,
Amazon will tell me.
Trustability takes friction out of every customer experience, and because
interactions are coming so fast and furious now, this is even more important
than it used to be.
Your customers already want trustability, today. Tomorrow, they’ll demand it.
The Rapidly Evolving Trustability Opportunity
On a family vacation once at a South African game preserve, we were out in a
safari vehicle and spotted a pair of rhinos grazing in the distance. Parking the
vehicle, our guide suggested we get a closer look by approaching on foot
quietly from downwind, so the rhinos wouldn’t smell us. But the rhinos
wouldn’t see us, either, because they were facing away from us, into the wind.
Puzzled, I asked our guide why a grazing animal wouldn’t naturally have
learned to face downwind rather than upwind. For millions of years predators
have sneaked up on their prey from downwind, just like we were now doing.
He told me that they graze upwind because the grass tastes better that way.
The more tannin a grassy plant has in its leaves, the more bitter it will taste.
And large ruminants emit flatulence that can be detected by many grasses,
triggering them to draw more tannin into their leaves whenever grazing
animals are about. As incredible as it sounds, therefore, grass-eating animals
graze into the wind so the grass doesn’t know they’re coming.
Evolution is a truly beautiful mechanism for ensuring that life persists and
prospers. And with all due respect to any reader’s religious beliefs, God could
hardly have chosen a more intelligent way to design life than by employing
the inexorable, yet beautifully intricate, dance of evolutionary forces.

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But evolution can also serve as a metaphor for how an economy actually
operates. Creativity and innovation propel virtually all economic activity, as
the best innovations prosper and replicate themselves, while less desirable
innovations go extinct. Companies innovate and adapt to others’ innovations
in order to attract more customers and outdo their competitors, while
consumers evolve too, as their own expectations and preferences change.
Every innovation, therefore, poses both a challenge and an opportunity to an
existing business. Adapt to the competitive threat, or harness it and use it to
threaten your own competitors.
And the rising tide of trustability represents exactly that kind of innovation –
one that will either threaten a business or become an asset to it.
This was driven home to me by an incident with my cable provider not too
long ago. My wife and I got home one evening to find our cable service on the
fritz. And our favorite series reruns from Law & Order were on USA that
night, too! When I called my cable operator to find out what the trouble was,
I got an automated message that there had been a disruption in our area, but
that the company was working on the problem and hoping to restore full
service by late that evening. OK, I thought. Stuff happens.
And sure enough, the next morning the problem had been remedied. But
after more than 20 years of thinking and writing about customer experience
issues, I’ve become a particularly demanding customer myself. So I called the
cable company again. Call me cheap, but I wanted to be sure that my monthly
bill showed a credit for the day we had to go without cable. It wasn’t so much
the amount involved (tiny), but the principle.
When I spoke to a rep he confirmed that yes, my account would indeed be
credited, no problem. Then I asked him whether they had already planned to
give me this credit, because since the problem was clearly something that had
affected my whole area, they knew which households were in fact due for a
refund.
His answer: “No, we only give refunds to the ones who call and request
them.”

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This is, of course, a perfect example of the difference between trust and
trustability. It’s not untrustworthy of the provider to wait until a customer
claims a refund to issue it, but the trustable thing would be to proactively
advise customers that because an outage lasted for some particular amount of
time, a credit will be automatically applied to the bill. No call necessary on
your part, because we know you experienced this outage, and we’re watching
out for you.
And just think how customers would react! How would you react if your cable
or phone company sent you a message saying “Sorry! We’ll keep trying to do
better, but in the meantime we’re taking $1.27 off your bill this month
because of last night’s outage, and thank you for your continued loyalty?”
In isolation, it may sound like a costly initiative for any cable provider to
refund even a few dollars to thousands of customers at a time, but the point is
that sooner or later this policy is inevitable. Whether or not my own provider
initiates it, sooner or later one or more of its competitors will, and then it will
be forced to follow suit anyway.
When the natural environment changes, all organic species must either adapt
to that change or perish. And when the business environment changes, all
business species must adapt, as well.
Trustability Is the New Black
Most businesses today would consider themselves trustworthy, and by 20th
century standards they definitely are. They post their prices accurately, they
try to maintain the quality and reliability of their products, they refrain from
cheating or stealing from customers, and they generally do what they say
they’re going to do. But for the 24/7 connected consumer of the 21st century,
this kind of trust is no longer enough.
Consumers today demand proactive trustworthiness, or trustability. They want
companies to help them manage their own best interests.
But even today, lots of businesses still generate substantial profits by fooling
customers, or by taking advantage of customer mistakes or lack of knowledge,
or simply by not telling customers what they need to know to make more

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informed decisions. Whole business categories are based on tricking customers
out of their money. Yes, I’m perfectly serious. Think about it:

For credit card companies, a marginally sophisticated borrower who

can never resist spending, rolls his balance from month to month,
and often incurs late fees is considered a most valuable customer! At
some credit card companies, in fact, the term used to describe a
credit card customer who dutifully pays his bill in full every month
and never incurs a late fee is “deadbeat.”
Mobile phone carriers regularly and joyfully profit from contract
customers who enlist for more expensive plans than their voice and
data usage actually requires, or from roaming and data services
accessed by accident. Just a few years ago, for instance, one major
mobile carrier was caught instructing its call center reps not to
voluntarily tell customers how to disable the buttons on their phones
that often resulted in erroneous and expensive data charges9.
Retail banks in the United States make a substantial portion of their
operating profit from overdraft charges and other fees assessed for
what are usually just simple customer errors. One of the principal
reasons banks began encouraging customers to use debit cards a few
years ago, in fact, was that debit card usage tended to increase the
number of inadvertent overdraft charges10.
The poster child for untrustability, however, is probably AOL, which
has made billions by fooling customers into paying more than they
need to pay for the services they get, and by making it ridiculously
difficult for a customer to stop subscribing. A colleague of mine told
me she took a job there as a customer data analyst in the late 1990s.
She said AOL did A/B testing on everything: all their policies,
promotions, marketing, and service initiatives. It discovered through
testing that the most cost-efficient way to reduce churn was to hide
the “cancel my subscription” button on the website, and to require
people to call in before being able to cancel. It even began to
intentionally disconnect inbound phone calls prematurely whenever

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 the caller first mentioned their desire to cancel, in order to require a
second call.

All of these business practices and others like them are destined to become
extinct, and probably within just the next decade or so. Companies that
engage in these kinds of untrustable practices will soon be out-competed by
new entrant businesses that do a better job of ensuring a more frictionless
customer experience – an experience based on proactively watching out for
customers’ interests.
The practice of making money by fooling customers or taking advantage of
them is on the way to becoming entirely unfashionable.
Trustability is the new black.
Gross Incompetence Implies Bad Intentions
To earn a customer’s trust, the customer must think you have:

1. Good intentions; and

2. Competence.
But while good intentions and competence might sound completely
unrelated, the fact is they are joined at the hip.
Recently a colleague related an experience he had had with a major
airline. This airline is highly regarded for its good service. As a consultant
he’s a very frequent flyer and he told me he had been nearly the first one
to board one of its recent flights. As he took his seat in First Class (a perk
for all who travel!), the flight attendant took his jacket and hung it for
him, and he sat down and soon became engrossed in some work on his
laptop.
Unfortunately, however, at some point prior to takeoff another flight
attendant mistakenly thought that his jacket must have belonged to one
of the previous passengers on the flight that had just arrived (because the
aircraft had just emptied and no other jackets were hung yet). So
unbeknownst to my colleague or the first flight attendant, she

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immediately rushed the jacket out to the gate agent where a page could
be issued for the passenger who had left his jacket on Flight XX to please
come back and retrieve it from the gate.
It wasn’t until after landing at the destination that this mistake was
discovered, at which point the flight attendants were both extremely
upset (as was my colleague). They frantically called the previous airport
to try to ensure that he could connect with his jacket. But no luck.
He said he applauded the flight attendant’s initial motives, which were
simply to be sure all customers were given above-and-beyond service
(going to great lengths to return a passenger’s forgotten jacket), but he
added that he was very disappointed with how the airline itself handled
his problem from that point on. No one at the departure airport would
even let him (or the flight attendants) talk to anyone at the gate where he
had boarded the plane. Instead they told him to call “Lost and Found.”
But, he said, after calling for more than two days, no one from Lost and
Found had ever answered the phone or returned his messages.
While this airline’s flight attendants obviously had good intentions, and
had been trained to try to protect the customer’s interest at all times,
apparently the company itself was totally incompetent when it came to
helping this customer resolve an unanticipated problem.
The reason good intentions and competence go hand in hand is because
if you don’t put enough effort and investment into your processes and
systems so that you can be reasonably competent when it comes to
managing your customer’s experience, then how good can your
intentions actually be?
As it happens, two other colleagues of mine recently related similar
stories about their dealings with two other companies, both highly
respected customer-centric brands. One colleague told me she had
recently had a very bad customer experience with a home-improvement
store. The evening after this experience she received a call from the
store’s parent company asking her how her experience had been. So she
took the opportunity to complain, telling the company that she had been

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highly dissatisfied, thought she had been mistreated, and so forth. After
that, she said, nothing. Nada. It never contacted her again. No call, no
email, no letter, nothing.
Her verdict: They must be bad people. She can no longer trust them
because they obviously don’t care for their customers at all.
Another colleague emailed me recently to complain about an overnight
delivery service, because in his opinion it had become completely
unreliable, and had lost its customer-oriented focus. From his email:
They are awful now with splitting up ground and express…one
can’t pick up packages for the other, and it’s hard to get in touch
with ground to schedule them to pick something up, etc.
I think they are on their way down based on how their changes
are hurting customer experiences, I will never use them again if I
don’t have to.
His verdict: He can’t trust the company anymore.
My verdict on each of these companies, the airline, the home-
improvement chain, and the package delivery service: Their intentions
are good, but they are incompetent. Their systems and technologies just
don’t connect well enough to be able to carry through on what they want
to do, which is to deliver a good customer experience.
On the surface, these are good companies. They make all the right noises
about serving the customer’s best interest. But in the end, if they don’t
care enough about respecting their customers’ best interests to invest the
time and money required to fix their various dysfunctional systems and
processes, then how good can their “good intentions” actual be?
The lesson in all this: Don’t think that by cutting back on your
investment in technology and systems you won’t undermine your
reputation with customers. If you aren’t competent, your customers still
won’t trust you.
Five Requirements for Being Trustable

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Trustability is a word that Martha Rogers and I “re-appropriated” in our
book Extreme Trust: Honesty as a Competitive Advantage. I say we re-
appropriated it because the word “trustable,” while rarely used, is already
defined in the dictionary as a synonym for “trustworthy.” Martha and I
were looking for a single word, a new word, to encompass this new
standard of proactive trustworthiness that consumers are increasingly
expecting, so we re-appropriated “trustability” to serve that purpose.
There are many aspects to being trustable, but if you had to summarize it,
you could talk about five overall requirements:
3. Demonstrate Humanity. To be trustable, a business must act
toward its customers the way one human being would act toward
another. Humans have empathy, and humans are fallible. To have
empathy a business has to see things from the customer’s
perspective, demonstrating genuinely good intentions toward them.
As for fallibility, just think about it: Your business is already fallible.
Every business is. All you have to do to demonstrate humanity to
your customers is admit to it once in a while.
4. Be Competent. You have to be both product competent and
customer competent. Not only do you have to have a product and
service quality at least on a par with your immediate competitors,
but you have to be able to treat different customers differently and
maintain individual customer relationships that grow stronger with
every interaction.
5. Think Long term. You can’t be trustable if you’re entirely focused
on the short term. Customers are the link between short-term
actions and long-term value for a company. If you don’t have the
ability to embrace the long term, then don’t even think about trying
to become more trustable. Eventually your flawed arithmetic and
off-center metrics will do you in.
6. Share. People enjoy sharing things with others. If you want to be
trustable your business has to share, also. Share your ideas, your
technology, and your data. Make your intellectual property more

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 freely available, in order to stimulate innovation. Trust others the
way you want them to trust you. And remember: You can only
harness the power of social production with trust, not money.
7. Respect Evidence. Don’t manage by judgment alone, but rely on
evidence. Evaluate information for its objectivity and accuracy. And
take the steps required to deal with the inevitability of random
events: Pay more attention to numbers and statistical best practices,
measure inputs in addition to results, and plan more carefully for
alternatives and multiple scenarios.

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 CHAPTER 9
Let Your Humanity Shine Through

If your plan is to improve the customer experience you deliver, then

at some point you have to acknowledge that on the other end of that
experience is an actual thinking, breathing human being – a
customer. And while all of us humans are certainly capable of
complex reasoning, calculation, and planning, our thinking processes
and our very beings are still dominated by the very emotional quality
of being human.
As humans, we experience joy and happiness, sadness, regret,
anxiety, nostalgia, jealousy, pride, and the whole rainbow of other
emotions. We want to connect with others, to belong, to be
appreciated, and to be loved.
Our strongest motivations are usually not rational thoughts, but
emotional feelings, and scientists who study how people think are
increasingly of the opinion that it is our emotions that more often
drive our decisions, which we “explain to ourselves” with our rational
thoughts.
Never overlook the human element in a customer experience.
Frictionless First, Then Delightful
For the vast majority of businesses, the ideal customer experience is not so
much delightful or surprising as it is frictionless. It’s an experience that
requires no extra time or effort and imposes the least possible burden on the
customer.
This is because unless you first do a good job of meeting the customer’s need
and solving his or her problem, then “surprise and delight” won’t be very
compelling. In fact, if your product or service isn’t frictionless to begin with,
trying to “wow” a customer might even call attention to your failures.

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However, after you’ve made your customer experience reliable, valuable,
relevant, and trustable – the four primary qualities of a frictionless experience,
then delighting or wowing a customer with something unexpected, or
something “over the top,” can in fact be a very effective way to gain that
customer’s genuine emotional commitment to your brand.
Delivering an over-the-top, delightful experience doesn’t necessarily require a
heavy expense. It may, in fact, involve no expense at all. The most direct way
to connect with a customer emotionally is simply to allow your own humanity
to show through.
After all, smiles and empathy are free.
Even small bicycle parts don’t cost too much. At Zane’s Cycles, a Connecticut
bicycle “super store” doing some $13 million of business, if you come in to
acquire a part for your bike, and the part costs less than a dollar, they don’t
charge you for it. And if you think about the rationale it makes perfect sense.
As Jeanne Bliss relates in her classic customer service book I Love You More
Than My Dog, if all you’re coming in for is a tiny part, and you only need one
of them, then you’ve already spent more time and energy than this part would
be worth just by getting into your car and driving to Zane’s.
But being empathetic and kind to customers isn’t limited to small businesses
or retail merchants, either. The massive and hugely successful UCLA Health
System has a reputation for delighting its “customers,” i.e., the patients it
serves. That’s right, you can become terribly ill, go through a series of
traumatic procedures, be subjected to painful treatments, and yet leave the
institution utterly delighted – not just because you were cured, but because
you were treated in an extremely human, and humane, manner.
The UCLA Health System’s entire culture is based on reaching out to patients
individually, showing respect and courtesy, listening to their problems, and
responding to their issues. It’s not just the quality of the medical care that
makes this institution successful, but the quality of care – the quality of its
attention to the human beings who are its patients. Similar stories could be
told of other fine medical institutions, such as Mayo, or Cleveland Clinic, or
Geisinger.

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And at Southwest Airlines, the flight attendants are well known for their
playful shenanigans, often hamming it up in front of customers, not to
mention going the extra mile to ensure that everyone enjoys the flight, even
when it’s crowded.
Importantly, each of these businesses is competently operated and has already
eliminated all possible points of friction in its customer experience. Southwest
runs a tight ship, more on-time and dependable than most airlines. And it
wouldn’t do Zane’s a bit of good to give away bike parts if the bicycles it sold
weren’t up to par, nor would it matter how nice the service was at the UCLA
Health System if patients still found themselves buried in forms, or having to
explain their symptoms over and over again to different physicians or nurses.
But another important quality that each of these organizations has in common
is a unifying corporate culture and sense of mission. It is this sense of mission
that unites individual employees around a common purpose, which is to act in
the interest of the customer. A culture like this ensures that all customer-
facing workers are empowered to be empathetic and caring, spontaneous,
creative, and even playful – in short, human. And the human quality of this
kind of service is what delights a customer.
Because it offers a glimpse into the humanity within an organization, true,
customer-oriented service can create a genuine emotional bond. In turn, the
customer is likely to begin thinking of the company more as a friend, rather
than simply as a faceless seller of goods and services, to be compared with all
the other sellers.
So yes, first eliminate all the friction in your customer experience. Wring it
out. Make things operate like clockwork for the customer’s benefit and
convenience.
But then, once you’ve done that, seal the deal by letting your humanity shine
through.
Make Your Customer Laugh Once in a While
With all the serious talk about listening and responding to customers,
monitoring social media, innovating, cutting costs, recovering from mistakes,

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etc., the very idea of being customer centric can begin to sound like really
hard work.
But, maybe it doesn’t always have to be. Maybe you should occasionally just
have some fun with your customers. Make them laugh.
My brother Jeff is an Army chaplain. An ex-Ranger, he has no hair on his
head and looks like the kind of body builder you wouldn’t want to tangle
with. Apparently one of his dietary secrets is the zero-calorie noodles he
orders online from Miracle Noodle. The other day, after placing an order
online, he received this email notification:
Dear Mr. Peppers:
Your noodles (order 221579) have been gently taken from our highly
secured warehouse with cotton gloves and placed onto a satin pillow.
Our team of employees inspected your Miracle Noodles and polished the
labels to make sure they were in the best possible condition before
mailing.
Our packing specialist from Japan lit a candle and a hush fell over the
crowd as he put your Miracle Noodles into the finest box that money can
buy.
We all had a wonderful celebration afterwards and the whole party
marched down the street to the post office where the entire town of
Chatsworth waved ‘Bon Voyage!’ to your package, on its way to you, in
our private Miracle Noodle jet on this day, (5/6/2013 2:43:00 PM).
I hope you had a wonderful time shopping at Miracle Noodle. We sure
did. Your picture is on our wall as “Customer of the Year”. We’re all
exhausted but can’t wait for you to come back to Miracle Noodle.
Shipped Via Carrier Priority Mail, Medium Flat Rate Box
Shipping Tracking Number 9405510200986079715532
Warm Regards,
The Miracle Noodle Team

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I’m sorry, but I found this send-up of the standard customer-service message
that “your product has shipped” absolutely hilarious!
At the end of its email, Miracle Noodle included an acknowledgment that the
idea was “inspired by Derek Sivers.” Sivers was the founder of CD Baby, an
online music store launched in 1997 (before iTunes) that specialized in music
by independent artists. Sivers also represents a great source for original ideas
about how to do business, most of which can easily be accessed at
http://sivers.org. And it’s quite obvious that he likes to have fun.
Maybe we should all have a little fun with our customers once in a while!
Earning your customers’ trust requires you to “demonstrate humanity.” You
want your customers to think of your business not as a big, bureaucratic
organization with rules and procedures and lines of software code defining
how things are done, but as a human organization, full of warm-blooded
human beings with all the emotions and qualities of other humans - like
customers themselves.
So yes, part of being “human” is to acknowledge mistakes and vulnerability,
but part of it also is to have fun, to play, and occasionally to be silly.
Try it sometime. Your customers will like it, and they’ll like you.
Delight Customers With Your Humanity
Nearly all descriptions of the quality of the customer experience have two
basic components to them.

The first requirement for providing a good customer experience is to

eliminate problems and obstacles, making it as easy and painless as
possible for the customer to meet her need or solve her problem.
The second requirement is to please customers – to delight them with
something enjoyable, or surprise them with something unexpected.

There is a priority to these two customer experience tasks. Don’t even bother
trying to accomplish the second task (providing enjoyment), if you haven’t
fully accomplished the first task (eliminating friction).

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Forrester’s Harley Manning and Kerry Bodine suggest a “Customer Experience
Pyramid” in their recent book Outside In: The Power of Putting Customers at
the Center of Your Business:

Although Manning and Bodine’s pyramid involves three levels, it’s easy to
simplify their argument to the two basic components I described above,
because meeting the customer’s basic need and making it easy are both about
removing friction. Only after you do these things, Manning and Bodine say,
can you benefit substantially by making the experience enjoyable.
Assuming you first eliminate the friction, however, “enjoyment” is not just
some attribute or function in the customer experience. Enjoyment is a human
feeling. An emotion. A sense of pleasure. And while it may be linguistically
correct to say that a customer can “enjoy” a perfectly functioning product or
service (i.e., a customer experience that is frictionless), this isn’t really what
we’re talking about.
An enjoyable – or delightful – customer experience involves pleasure, not just
satisfaction.
And where does pleasure come from? It comes from some kind of emotional
connection within the experience itself. It comes from your humanity, as a
business.
You can convey humanity to a customer in a number of different ways – as
many different ways, in fact, as there are emotions and feelings in the human
mind. But here are a few ways to think about it:

A customer could easily enjoy an experience when you make it

entertaining in some way. For some companies, the value proposition
itself is based on some aspect of entertainment – at an amusement

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park or club, a fine restaurant, or luxury hotel, for instance. But even
commodity products can enliven and “humanize” their customer
experience by injecting some entertainment value in it, perhaps with
a hilariously tongue-in-cheek confirmation email message, such as
the one my brother received from Miracle Noodle (see the previous
essay).
A simple thank-you note or hand-written communication can also
make a human connection, provided that it’s personalized and
relevant to the customer, and not just something written the same
way to every customer. When you check in to a hotel these days, it
isn’t unusual for there to be a hand-written note in your room from
the hotel manager, hoping you have a nice stay. However, while it’s
certainly a valiant effort to make a connection with a customer, in
most cases these notes are not personalized at all, beyond the name
of the guest, perhaps. How much more delightful would it be for me
to find a note from the manager that said “on your last visit, you
bought some Diet Cokes at our retail counter, so I took the liberty of
putting a couple of Diet Cokes in your fridge, with our compliments.”
Now that would be delightful.
You can provide enjoyment in a customer experience by doing
something good for the customer that was unexpected, also – that is,
by providing a pleasant surprise. Because genuine surprises aren’t
generated by automation, they show that your business has humanity
– that it’s more than just a smoothly functioning set of processes. As
Bill Price and David Jaffe say in their book Your Customer Rules!,
“What makes surprises so alluring isn’t necessarily their content or
grandiosity. Even a small kindness, when it’s unexpected and freely
offered, can change the course of a customer’s day. Somehow the
unexpected aspect, the surprise, is much more important than the
thing itself. Being taken unaware changes the emotional response.
The customer is suddenly aware that there are real people on the
other side of the transaction, thinking about how to make the day
just a little bit better.”

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Never overlook the human element in a customer experience.
Customer Experience: It’s All Relative
To paraphrase Warren Buffett’s sidekick Charlie Munger, the secret to a
satisfied customer is similar to the secret to a satisfying marriage: low
expectations.
As with many things in life, a customer’s satisfaction with a product or service
is something that can really only be measured against that customer’s own,
personal expectations. The customer will be satisfied with your company’s
offering if his or her expectations are met. But, of course, this means that if the
customer’s expectations go up, then satisfying the customer will become more
difficult. And the fact is that customer expectations, in general, are a
constantly rising tide.
Your customers are not evaluating their customer experience with you against
the customer experience delivered by your competitors. They are comparing
the customer experience you deliver to the customer experience delivered by
Amazon, or JetBlue, or Apple, or American Express.
Claes Fornell is the Swedish professor who came to America more than 20
years ago and founded the American Customer Satisfaction Index (ACSI). In
his excellent book, The Satisfied Customer, Fornell reports that before field
testing the ACSI, his team scoured the literature on customer satisfaction in
order to ensure that they captured just the right kind of variables.
According to Fornell,
Although there was no consensus on how to measure customer
satisfaction, three facets showed up over and over. The most common
had to do with the confirmation or disconfirmation of prior
expectations. Another was the idea of comparing a company’s product
to a customer’s ideal version of the product—regardless of whether or
not such a product even existed. The third facet was the cumulative
level of satisfaction when all interactions, the customer’s total
experience over time with the company, were taken into account.

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In other words, a customer may become less satisfied not because your
product or service declines in quality in any way at all, but simply because his
or her expectations increase.
Now what do you think is happening to customer expectations, in general, as
companies around the world focus more and more on improving the customer
experience, streamlining and automating their processes, and constantly
improving their online capabilities?
That’s right, the general level of customer expectations with regard to all
companies is increasing. Which means you can’t simply maintain your position
by continuing to do what you’ve always done. If you remain static, your
customer satisfaction scores – whether you measure them in terms of ACSI, or
NPS, or just some kind of very-happy-to-very-unhappy score – will inevitably
decline! In fact, even if you improve your service quality, satisfaction may still
decline if your improvement isn’t keeping up with other companies.
No matter what your business is, no matter what kind of industry or category
you dominate today, you simply will not maintain your position, over time,
without actively working to improve your customer experience, because the
rising tide of customer expectations will soon submerge your satisfaction
scores.
And as the pace of technological change continues to accelerate, you can
expect to have to improve your customer experience faster and faster, just to
keep your head above water.
Putting Humanity into Your Company’s Mobile App
Today’s customers expect their offline and online experiences with a business
to sync up, but in all too many cases they don’t. To help meet this challenge,
one thing companies will soon begin doing is upgrading their mobile apps to
handle real-time, human-to-human customer interactions, no extra call or
computer session required.
Imagine the world a few years from now, when your customer will be able to
use your company’s mobile app to browse for advice about something related
to your offer. If she doesn’t find the answer to her question, she’ll be able to

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push a button to connect with one of your own live agents (by voice, chat, or
video). The agent will see her history on the website and won’t require her to
repeat everything (the way you have to do today, if you leave a company’s
website and call in to the toll-free number). When necessary, your agent may
even be able to push a diagram of the correct way to operate your product, or
a chart of other options available, directly to the customer’s smartphone, and
all within the same app.
This technology is available today. Already. If you want to deliver a more
trustable experience for your own customers, if you want to deliver humanity
to your customers directly, then this should be your company’s app. Today.
Amazon’s Mayday button for its Kindle Fire delivers exactly this kind of
service. If something goes wrong with your Kindle, or you have trouble
figuring out how to do something, you press the Mayday button, and…presto!
A real live human being appears on the screen to help you through the
problem.
But other companies are now starting to integrate this kind of live, human
connection directly into their smartphone apps without requiring a specific
device (like the Kindle). At the end of 2014 Weight Watchers, for instance,
introduced 24/7 Expert Chat, a feature allowing all premium members to
access a live coach anytime, anywhere, for any reason, via chat. And all within
the Weight Watchers app itself, whether it was accessed on a computer, a
tablet, or a smartphone.
Members get instant advice on how to get started losing weight, or get back on
track, or simply stay motivated – 24 hours a day, seven days a week – from a
Weight Watchers-certified coach who was once in their shoes and has
successfully lost weight. The company has some 16,000 service providers in
the field, a significant advantage over its competitors, and at last count it had
trained nearly 4,000 of them to connect via the chat app. According to Weight
Watchers, voice connections are next.
The company deep-linked this human connection into its mobile app by
relying on technology from a start-up named “Humanify,” recently spun off
from TeleTech. Apps have always been able to “deep link” with other apps.

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This is why, as John Battelle says in his Searchblog post11, you get an ad served
to you in the middle of your maps function for, say, a nearby restaurant.
Battelle says that up to now (late 2014) deep linking has been primarily driven
by the commercial incentive to do more cross-selling and lead generation, but
he predicts a dramatic change – a “turning point” – coming soon. Deep linking
will be used to improve the customer experience, rather than just to boost ad
revenues.
This is the frictionless future of the connected customer experience, so watch
for the stampede as other brands begin to reach for this kind of drastic
improvement in the capabilities of their commercial apps.

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 CHAPTER 10
It Won’t Be Easy

While the idea of managing your customer’s experience is compelling

(what could be more obvious than trying to watch out for how your
customers deal with your product and service?), putting together the
resources and processes required to do so is actually quite difficult.
It’s difficult for a wide variety of reasons, not the least of which is that
your business is almost certainly organized around products, services,
and channels, rather than individual customers. It’s difficult because
it will require capabilities, and technologies, and systems that you
probably don’t yet have. They’re available, that’s not in question, but
if you haven’t already tackled the issue it’s highly unlikely you have
the required IT systems, software, and tools required. And it’s
difficult because as compelling as the idea is, it runs counter to how
most businesses operate, even today.
So you’re likely to run into a buzz saw of resistance when you try to
implement the required changes. It definitely won’t be easy.
“The More I Buy, the Worse They Treat Me”
This was what a colleague told me about his bank, just the other day.
What he meant was that the more divisions he dealt with at this bank, the less
likely any of them would actually know what his total relationship with the
bank was like. When he called in about his credit card, for instance, it didn’t
seem to know he also had checking and money market accounts at their bank.
Then, he said, when he applied for a second mortgage with this bank, it
wanted him to fill out all the paperwork first, starting with his name and
address, his account numbers, the balances in his accounts, his credit card
details, and so forth – all of which was information it had access to (or should
have had), because all these accounts were with this same bank!

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My friend’s conclusion: The more he buys from the bank, the more
disconnected his experience becomes. All of this bank’s various operating units
and silos of business may in fact be flying under a single brand name, but they
clearly don’t talk to each other, and either they don’t share a common
customer database, or they aren’t interested in using it to make their
customers’ lives simpler. So from the customer’s perspective they might as well
be entirely separate companies.
In fact, my friend said, it would probably be better for him to do business with
separate companies, and just manage his finances himself in an integrated way
using some online service like Moven or Simple.
This is not a new affliction for business. Many businesses that are made up of
separate business units selling their own products or services also have their
own marketing and sales functions, funded by the sales they generate for their
own units. So these people don’t think about the mother ship. They only think
about their own division of it.
Sometimes these problems are caused by disconnected IT systems that can’t
talk to each other in the wake of some merger or business combination. But
even then, it’s important for a business to pay attention not just to its own
operational needs, but also to smoothing the customer experience as much as
possible.
If you flew on American Airlines during the year following their purchase of
US Airways, for instance, you would have noticed the same kind of
disconnected and uncoordinated service. Try to check in for your flight at the
airline counter for American, and they would send you to the other end of the
check-in area to the US Air counter. Your ticket might have said “American,”
and your reservation said “American,” but rather than telling you in advance
that you should check in at the other counter, they let you – the customer –
make up for their poor system coordination.
Don’t let your own business look like this to customers – like some random
bunch of independently operated, uncoordinated companies loosely joined
together under some umbrella brand name. Fix your systems or connectivity
problems as soon as you can, but until you do fix them, be prepared to provide

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your customers with a coordinated experience, even if you have to do it
manually for a while!

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 Three Reasons Why Customer Transformations Fail
Is your company engaged in some kind of customer-oriented transformation
right now? Perhaps you’re facing a threat from a disruptive new online
business model in your category, or you have a problem managing individual
customer relationships that span different business units, or maybe you’re just
trying to improve your service and boost your customer satisfaction scores, in
order to be more competitively successful.
Whatever your motivation, a customer-centric transformation is a significant
undertaking, and many of them just don’t succeed. Perhaps as many as two-
thirds of these efforts fail, depending on which studies12 you believe, but
regardless of the actual failure rate it can’t be denied that making this kind of
transformation is extremely difficult.
In my experience counseling companies on this topic over the last 20 years,
I’ve seen three basic kinds of problems that plague a customer transformation:
Lack of Capabilities
Some firms just don’t have the right data, systems, analytics, or other
technology to track individual customer relationships and manage the
customer experience properly. The problem of technical capabilities should be
easy to solve, because technology has progressed to such an extent that you
can access many of the tools you need via the cloud, with less and less upfront
hassle, but more often than not a company doesn’t take advantage of the
capabilities it would need to address its tech-savvy, 24/7 connected customers.
Which leads to the second problem…
Alignment Issues
When a company’s internal goals, metrics, or accountabilities aren’t aligned
well, they can create conflicts that will undermine any customer-centered
initiative. This is what upset my friend when he lamented that none of his
bank’s various departments – mortgage, credit card, retail checking – seemed
to know about his whole relationship with the bank, so the more of the bank’s
services he used, the less coordinated they seemed. Whenever different

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business units at a company all sell their own products and services and have
their own sales and profit goals, as was apparently the case at this bank, then
managing any individual customer’s experience across different business units
can be difficult.
Or, if a company is simply paying its salespeople commissions to acquire new
customers, while at the same time asking the marketing and analytics team to
improve customer retention, this will also create a conflict, because the easiest
customers for any company to acquire are, by definition, the least loyal. That’s
why they’re easy to acquire.
An alignment problem considerably more difficult to deal with arises when a
business tries to reconcile its customer-centric metrics of success (such as
customer satisfaction scores) with its own financial metrics and goals. It’s fine
to set the objective to improve your NPS or your CSAT scores, but when the
quarterly profit number is in jeopardy, the vast majority of companies will toss
aside this effort if it’s necessary to make the number.
Mindset Problems
The third set of obstacles that can make a customer transformation difficult
has to do with the mindset of individual employees, from rank-and-file
through middle and senior management. The employee has to want to delight
the customer. But therein lies the problem. Do your employees really have a
desire to improve the company’s customer experience?
Corporate culture – what employees do when no one is watching – is by far
the single most important internal force at any company, for good or bad. As
Peter Drucker famously said, “Culture eats strategy for breakfast.”
Probably the defining quality in a culture, when it comes to succeeding with a
customer-centric transformation, has to do with how individual employees see
the company’s purpose, or its mission. What do employees consider to be the
“direction of success” when they are wrestling with some problem or issue? If
the direction of success is always to try to act in the customer’s interest, even
when it sometimes costs money to do so, this can be a terrifically unifying
mission – and it has the added benefit of being something very easy to sell to
employees. We’re all customers, after all.

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And one more thing, very important: Even though the wrong mindset can
hinder success, the right kind of mindset can be an enormously valuable asset
for overcoming capabilities and alignment problems. If you have a thoroughly
engaged and motivated workforce, with a unifying sense of mission that
involves acting in the customer’s interest, then often your individual
employees will act on their own initiative to devise workarounds for a lack of
capabilities, or a misalignment of responsibilities.
Do You Allow Employees to Use Common Sense?
You really don’t have to require employees to be fair to customers. You just
have to let them.
A few years ago, when my family lived in London, my wife and I were
planning a weekend trip to rendezvous with some of our U.S. friends on
France’s Brittany coast. So she booked a flight to Nantes on British Airways’
website in order to arrive about the time everyone else was coming in. Then
she called a couple of our friends in the U.S. just to confirm how long
everyone was staying, before going back to the website to book her return to
London. At this point she learned that a roundtrip ticket bought all at once
would have cost less than either of the one-way tickets she was now in the
process of buying! Unable to make the correction online, however, she called
the British Airways reservations center.
Sorry, the agent replied, nothing could be done. “Your one-way ticket is
already booked and paid for. I know it was just an hour ago, but I can’t
change it now. The system won’t let me.” My wife asked for the supervisor,
but got the same answer, along with a deep, sorrowful apology. “You really
are entitled to a refund, and I would definitely issue one if I could. But
unfortunately, the company doesn’t let us do this, even when it’s unfair.” The
reps my wife talked with about the issue were all in favor of righting this
wrong, but they were powerless. And, they seemed personally unhappy with
their own company’s inflexible rules, as well. In the end, we paid £300 more
than we needed to, and we felt cheated.
Fast forward to the next month, when the Family Peppers planned a weekend
trip with our two school-age kids to Amsterdam. It was a bank-holiday

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weekend in the U.K., meaning that Monday was a day off, so we booked four
non-refundable roundtrip tickets on EasyJet, a discount airline. But, we were
unprepared for the vast amount of traffic leaving London that Friday
afternoon and we didn’t arrive at Gatwick Airport until 30 minutes after our
flight’s scheduled departure time. Thoughts going through my head: “This
weekend is now completely ruined, because the outbound tickets are
nonrefundable, as are the return tickets, the hotel deal in Amsterdam, the
whole weekend is shot, this really sucks, etc. etc. etc.”
When we arrived at the check-in desk, however, the agent greeted us with a
smile, sympathizing with us by saying how easy it is to get tripped up by
London traffic. “But, tell you what, why don’t you just take a room here at the
airport hotel, and I’ll waive the re-booking fee and get you out to Amsterdam
on our first flight tomorrow morning.” Great! We said. “And also,” he
continued, “give me the name and phone number of the hotel you booked in
Amsterdam. I’ll call them on your behalf and see if I can get them to waive
any charges for tonight.”
Now here’s the thing. British Airways and EasyJet are both well-run
companies with tightly drawn processes. But at British Airways, “system rules”
defined all behaviors, and employees were not allowed to exercise their
judgment to override the system, even when they knew the system was faulty.
The result was a company with ossified, inflexible rules that not only
occasionally misfired when it came to customer service, but clearly frustrated
the company’s own employees, most of whom would have jumped at the
chance to deliver a better customer experience.
EasyJet, by contrast, had similar restrictions and rules about its discount fares
– even more restrictive in most cases – but the company allowed its employees
to use their common sense, and to override those rules (like waiving the
rebooking fee) when it was necessary to provide better service.
So here’s the question: Which of these airlines’ operating styles most closely
resembles your own? At your company, how much latitude do you give lower-
level employees when it comes to pleasing customers or solving unanticipated
(and unscripted) customer problems? And what control or reporting

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mechanisms do you use to ensure that your employees actually “do the right
thing” in handling these kinds of exceptions?
Four Types of Customer Experience to Plan For
You’ll never be able to write a line of code or a business process rule that
requires an employee to deliver a great customer experience; the employee has
to want to deliver it.
Sooner or later every company encounters a situation that simply wasn’t
anticipated in advance. So when a customer’s experience involves this kind of
unforeseen event, especially if it is of great significance or importance to the
customer, you want your employees to be willing and able to deal with it, even
if it might mean overriding a standard practice, or making a judgment call on
their own authority.
One way to visualize the issue is to use a diagram that categorizes the kind of
customer experience you’ll be delivering, based on how standardized the
business process is for a situation, and how engaged the customer is in it.
Based on high and low levels of both process standardization and customer
engagement, we can identify four different types of customer experience that
must be planned for:

The vast majority of customer experiences with any sizable business will be in
the lower right quadrant, “Business as usual.” Here you have a lot of
repetitiveness and a high potential for standardization, while the customer
considers the transaction or experience to be routine. Buying one more item
from an online retailer, for instance, or making a call to your credit card
company to check your balance, are business-as-usual customer experiences.
And many of these kinds of experiences can be entirely automated, which

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gives the company the ability to deliver a completely frictionless experience
simply by hard-wiring the right customer-centric processes into its computer
system. When iTunes reminds you that you already bought an item you’re
about to purchase, it’s not because anyone made an on-the-spot decision
about how to treat you, but because it anticipated the situation in advance and
built appropriate rules into its computer system.
In the upper right quadrant, “Predictable customer lifecycle events,” the
customer experience is highly significant in the customer’s mind, but it is still
predictable, and the delivery of that experience can be standardized, even
though customers themselves are likely to be highly interested or engaged in
them, and would probably not think of them as routine. One example might
be when a customer receives his very first bill from the mobile carrier he just
signed up with. He’s likely to be quite interested in understanding why the bill
is higher than he had expected, and in many cases he’ll call the carrier to
discuss it. But, because all new customers receive a first invoice at some point,
and it’s not uncommon for them to call in to inquire about it, the mobile
company can prepare for this customer experience in advance. It will likely
have a standardized way to deal with these kinds of inquiries.
In the lower left quadrant, “Threats to cost efficiency” are many of the kinds
of customer experiences that weren’t anticipated and planned for already,
including unusual requests or out of the ordinary events, in which the
customer isn’t terribly interested or engaged. Your company still has to pay
attention to them, however, and manually address these issues one at a time,
because they undermine your cost efficiency. An example might be, for
instance, when a hotel company’s website can’t automatically consolidate a
customer’s duplicate frequent guest accounts because of an overlooked
discrepancy in the address field, or some other minor problem. For the most
part this is nuisance friction, and you should be logging each such problem as
it comes up, in order to continually improve your process standardization and
automation capabilities.
It’s in the upper left quadrant, however, where a negative customer experience
can be the most threatening to a company’s profitability and reputation. The

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customer experience in this quadrant is one in which the customer is highly
engaged, but the company itself has not prepared in advance to address the
issue, and there is no standardized process in place. This might be because the
problem was hard to anticipate in advance, or because the company hasn’t
been careful enough in mapping out all its customer journeys to begin with.
Either way, these “surprises, trials, and tribulations” will test a firm’s corporate
culture.
So the question for your company is, when a customer is wronged or ill-served
in some way, how easily can the situation be remedied by rank-and-file
employees who get involved in the customer’s interaction?
The vast majority of employees – and particularly those in customer service
jobs – want to work for a company that can be trusted by its customers. But if
you want to be able to handle the kinds of problems encountered in this
upper left quadrant effectively, then your employees must be (1) actively
engaged with your firm and its mission, and (2) enabled to make the decisions
and take action on their own.
Dealing With the Alignment Problem
“We have met the enemy and he is us.”
– Pogo
Whenever companies try to improve their customer service and become more
customer-centric, one of the first and most important problems they confront
almost always has to do with how well their internal metrics and
responsibilities are aligned with the goal of being customer-centric. In most
cases they aren’t, and this misalignment represents an existential threat to
whatever customer-oriented activities are being planned.
On a business trip not long ago I met individually with senior executives at
several large and successful companies. Each of these companies had a brand
name that was virtually a household word in its market, and each had already
publicly declared its strong commitment toward better customer service.
The commitment went by different names at these firms – “Customer
Advocacy,” “Service Revolution,” “Customer Transformation,” or “Customer

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Excellence” – but the bottom line was that each firm was sincerely focused on
improving its own customers’ experiences with its brand. This is an admirable
goal, and it is something that an increasing number of companies are
committing to, because customer service can, in fact, be a very powerful
competitive differentiator.
The companies I met with were in a variety of industries, including financial
services, telecommunications, media, and technology, and they had made
different amounts of progress toward their goal. But what struck me was what
they all had in common. They each confronted almost the exact same
roadblock to further progress, and it was a self-inflicted wound.
The roadblock confronting each of these firms was that being more customer-
centric conflicted with the fundamental alignment of the organization. It
interfered with how success was actually measured and rewarded, and with
how responsibilities were allocated among various executives and
departments.
At one large financial services firm, I had an hour-long conversation with a
very senior executive who appealed to me over and over again to please tell
her how it could do better. Toward the end of our discussion, however, I only
had to point out that each and every problem she had identified was internal
to her company and could be remedied with a change in policy. For instance,
although she desperately wanted her firm to treat customers better, at the end
of every quarter she said her people had to hustle just to achieve their
financial goals, which undermined customer service. To make the top-line
numbers they often had to sell whatever they could to whatever customers
they could sell to, despite their carefully laid plans to treat each customer
more appropriately and individually, based on individual customer interests.
And to make their bottom-line numbers they sometimes resorted to clamping
down on many of the more costly customer service initiatives, which led to a
stop-and-go kind of unpredictability in their policies.
At another firm, a telecom company’s CEO and senior staff had committed
heavily and publicly to raising their firm’s level of customer service. It turned
out that because the numbers were not being achieved in one recent quarter,

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the finance department unilaterally decided to impose a tight limitation on
customer refunds. The new policy was so strict that it made it difficult for a
customer to get a refund at all, no matter how severely disrupted his or her
service was. This was a significant change to the prior refund policy and,
naturally, it completely undermined the customer service initiative.
No matter what you call your own company’s customer-oriented initiative,
you won’t make much progress until you firmly commit to aligning your
company’s financial-centric and customer-centric metrics of success. The most
straightforward way to do this, in my view, is to spend time and effort
documenting the fact that the customer base itself is a valuable corporate
asset, and that good service will increase its value, while bad service will
diminish it.
Customers create two kinds of value at a firm – short-term value when they
buy something, and long-term value when they have a good experience,
which increases their lifetime value. Whether or not your firm actually
employs sophisticated analytics to model the lifetime values of different kinds
of customers, it can’t be denied that these lifetime values do, in fact, exist. Nor
can it be denied that a customer’s lifetime value will go up or down as the
customer’s attitude toward a brand improves or declines. The financial asset
value of your customer base – often called “customer equity” – is simply the
sum total of lifetime values of all your current and future customers.
Ideally, if you want to beat the alignment problem at your own firm, you
should commit to a customer analytics effort sufficient to begin gauging which
service improvements tend to generate what kinds of lifetime value increases,
and which service problems tend to generate what kinds of lifetime value
decreases.
If you find this analytics task too complicated or difficult, then at a bare
minimum you need to persuade your investors, your board, and your senior
executives that any financial metrics that ignore the asset value of the
customer base entirely (as almost all current financial metrics do) are
fundamentally flawed. They simply don’t paint an accurate picture of your
company’s true financial prospects.

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One quick fix for the problem would be to assign financial values to whatever
non-financial customer-centric metrics you are tracking. Make your best, most
reasonable estimate, but in the end just make the arbitrary assumption that an
increase of x percent in average customer satisfaction, for instance, is worth a y
percent increase in customer equity.
If you’re a senior executive wrestling with the difficulty of gaining traction for
your own company’s customer initiative, my advice is to focus carefully on
fixing the alignment problem, before it completely undermines even your
most enlightened customer experience improvement efforts.
The Alignment Problem Up Close and Personal
A friend of mine makes a decent living working at a contact center where for
years the primary activity has been fielding inbound calls from retail customers
interested in buying one or more of the firm’s high-end products.
Not long ago, however, this firm decided it should be doing a better job of
managing relationships with its customers, so it introduced CRM software to
begin tracking callers and the sales reps they talk to. They wanted a record of
each customer’s information, along with a synopsis of each call and its results.
My friend, who is a firm believer in the power of relationships to build sales,
was part of the pilot program that introduced the system.
But he told me the system didn’t work very well when it was implemented,
because the salespeople at the call center were undermining the company’s
objective, which just didn’t align with their own objectives (to maximize their
commission income).
The company wanted salespeople to begin cultivating relationships with past
buyers, because if reps maintained relationships they would generate more
customer loyalty and future sales. So to ensure that its reps did this, the
company began requiring everyone to make at least 12 outbound contacts per
day with customers they’d handled sales for in the past – that is, with the
customers who were allocated to them by the CRM system, based on past
transactions. And under the rules of this quota system, only a voice contact
was to be counted. It wouldn’t be sufficient for a rep to make 12 attempts – he

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or she had to reach ١ ٢ folks on the phone, which usually meant making ٢ ٠
to ٣ ٠ additional attempts, and would often consume an hour or more of a
rep’s day.
According to my friend, the company’s managers were soon puzzled by the
fact that the CRM system wasn’t producing the results it had hoped for, even
after implementing this policy. There was no noticeable uptick in sales and, if
anything, the reps’ productivity numbers declined after implementing this set
of processes.
The problem was that this company’s call-center reps were all commissioned
salespeople who lived and died by the sales they made. By requiring them to
take time out of their day to accomplish one more task – making a certain
number of outbound contacts – the company was reducing the time they had
available to field inbound calls and make more commissions for themselves.
The reps quickly figured out that making contacts with previous customers
and trying to get them to buy something more was not a very promising idea,
when there were calls coming in all the time that could generate commissions
right now. Building a longer-term relationship with a past customer would
only pay off for a rep much later, if at all.
So to minimize the time required to make these dozen outbound contacts,
many of the reps didn’t try to make contact with the folks who had bought the
most expensive or comprehensive product package the last time around.
While these were obviously the company’s best customers, based on history,
they also tended to be much more difficult to reach on the phone. Instead, the
reps would call as many small-purchase, easily reachable people as possible,
even though they knew they wouldn’t be selling anything to them. They just
want to “check the box” as fast as possible and get back to answering the
phone. And earning commissions.
For a company wanting to strengthen its customer relationships, there’s an
important lesson here. You can’t “install” customer relationships with new
CRM technology. Nor can you simply decree that employees should engage
customers in relationships for the long-term benefit of the company. Your
employees have to want to do it.

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 Six Leadership Behaviors for a Customer-Centric Transformation
Because new technologies have armed today’s customers with up-to-the-
minute information about the companies they buy from, the products they
want, and the opinions of their friends and acquaintances about each brand’s
customer experience, there’s hardly a business anywhere that isn’t trying to
become more customer-centric.
I was once asked to run a workshop for a small group of senior executives at a
large, multi-division enterprise seeking to transform itself into a more
customer-centric business. During a planning call with the company’s CEO, he
asked me how he would know whether the workshop was a success.
What do you mean? I asked.
Well, he said, what will my executives do differently, if we’re successful at
convincing them that this is a good direction for our company?
It was a good question, so we brainstormed the issue on the phone for a few
minutes, trying to list the kinds of “leadership behaviors” that would be
expected of an executive who became convinced that moving his or her
company in a more customer-centric direction was the right course. And, with
only a few modifications I’ve been using this list of leadership behaviors in my
workshops and speeches for a number of years now.
If, after reading the essays in this book, you want to ensure that your own
company becomes more capable of delivering a genuinely satisfying customer
experience, then here are six “leadership behaviors” to watch for among your
managers:
Accumulating expertise in customer centricity. Leaders committed to improving
the customer experience will do things like attend conferences and training
sessions, benchmark with customer-centric firms, and share best practices with
other business units or affiliated companies. If I see leaders setting up and
participating in customer-oriented training programs for employees, for
instance, then I know their commitment to their company’s transformation is
genuine. (Reading this book is a good start.)

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Making direct, insight-generating contact with customers, regularly. Leaders
committed to delivering a better customer experience will demand more
voice-of-customer feedback. They’ll crave it. This might mean attending focus
groups and research sessions personally, or interviewing customers directly. It
could involve mystery shopping their own firm, as well as their competitors’
firms. At a B2B company, where regular contacts between salespeople and
customers are the rule, what I would look for would be higher-quality
contacts – discussions, not about the products the company has on offer, but
about the business problems or issues the customer is encountering.
Crossing boundaries to generate enterprisewide results. Organizational silos are
anathema when it comes to customer centricity, so leaders who are committed
to a better customer experience will spend the time and effort necessary to
break them down. But even when these barriers persist, committed leaders
will do their best to ensure that each customer has an experience that is
consistent across all products and channels. When they commit to this kind of
transformation, leaders will make it their business to sponsor cross-
departmental initiatives aimed at eliminating inconsistencies and sharing best
practices.
Measuring success differently. Crossing boundaries can only be effective over
the long term if new metrics and reward structures are also introduced,
including things like customer satisfaction scores and NPS. The benefits of
better service or higher customer satisfaction often don’t translate into sales
and profit in the current financial period, so when a firm’s incentive
compensation plans are based solely on financial performance, I know the
firm’s leaders aren’t truly committed to customer centricity. They may
consider it nice to have, but not essential. Customer centricity requires a
company to link financial incentives and budgeting decisions to the metrics
gauging the quality of the customer experience, it’s that simple. For example,
one of our large technology clients (which I’m not allowed to name) retained
us to help generate sales to small and medium business customers. However,
the primary metric for rewarding our success in this contract isn’t sales
volume, but customer satisfaction scores. This client’s leaders are authentically
committed to delivering a quality customer experience.

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Focusing on incremental progress and “quick wins.” A large part of any change
management effort at a company will involve accumulating small successes,
celebrating them, and building gradual organizational momentum toward the
change required. To be successful, a company’s leaders must not be so
consumed with the ultimate destination that they can’t pay attention to fixing
small problems, getting bite-sized projects off the ground, and piloting a
variety of customer-centric initiatives in different areas, simultaneously. The
competitive world changes too quickly to wait for perfect solutions. But over
time small efforts, limited-scope projects, quick wins, and even “near misses”
all add to the momentum. This makes it easier to attempt, justify, and
implement larger efforts, and it builds support for the direction of change
among the rank-and-file.
Communicating and living by customer-centric values. Finally, does your
executive team really “walk the walk” or just “talk the talk” about delivering a
good customer experience? A committed leader finds opportunities to discuss
with staff members how the company should treat certain types of customers,
perhaps focusing on particular lifestyles, transaction patterns, or just simple
demographics. He or she will place greater emphasis on initiatives designed to
improve the different customer experiences among a variety of different types
of customers. And a leader committed to customer centricity will also be
committed to transparency and trust – ensuring that the organization’s official
policy is always to act in the customer’s interest, even when it might not yield
the same level of short-term profit.

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 CHAPTER 11
There’s Real Money to Be Made

Business is not a charity. To stay in business, a company needs to

earn a profit.
One of the most difficult issues to resolve, when putting together a
program designed to raise the quality of your customer experience, is
how to pay for it. Delivering better service costs money, so where will
that money come from, and will you ever get it back?
The fact is that customers may be the single most important asset that
your business has. This wasn’t always the case. As recently as 1980,
virtually 100 percent of the market capitalization of the S&P 500 was
in the form of tangible assets – plants, inventories, and other things.
But in a dramatic change, by 2010 only 40 percent of the S&P 500
market cap was in the form of tangible assets. The rest was a
hodgepodge of what accountants call “good will,” but what could
easily be called “customer equity.” Apple, Google, Facebook, and
Microsoft together are worth nearly $2 trillion, and the vast majority
of this value comes from their customer franchise, not their facilities,
and not even their patents.
The trick to profiting from providing a better customer experience
isn’t creating value. It’s reconciling the value your customers create
for you with outdated accounting conventions that have yet to catch
up with the changes that technology has wrought.
How to Pay For a Better Customer Experience
Everyone agrees that a better customer experience should be good for a
company, but a lot of us worry about how to pay for it. Customer service does
cost money, so the question is how to tell whether the cost of delivering a
better experience is worth it or not. Will a better customer experience pay for
itself?

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At Amazon, the most useful indicator of a customer’s satisfaction is considered
to be “resolution.” The company wants to ensure that all of a customer’s
problems are quickly and easily resolved, so that no friction interferes with any
customer’s experience. According to one former Amazon executive, the single
most important metric it uses to gauge success in its own call centers is what it
calls the Negative Resolution Rate, or NRR.
While most call centers track metrics like average handle time (AHT) and
first-call resolution (FCR), Amazon goes directly to the issue of customer
dissatisfaction. NRR is specifically designed to track any friction in the
customer experience that has yet to be eliminated – friction that inevitably
generates unhappiness, frustration, or even anger in the customer’s mind.
To improve its customer experience, Amazon focuses relentlessly on the
problems encountered and not yet completely resolved. It keeps those
problems visible to the enterprise until they are fixed, and then tries to ensure
that similar problems don’t arise.
Seeking out and eliminating the sources of friction will often pay for your
customer experience improvement just by reducing the costs involved in
handling these unresolved problems, one problem at a time. You don’t have
to boil the ocean to improve your customer experience; you don’t even have to
heat up the pond.
Want an example? Consider how Fidelity’s SVP of Customer Experience,
Parrish Arturi, approached the problem. As recounted by Forrester’s Harley
Manning and Kerry Bodine in their book Outside In, Arturi focused his efforts
on one small process improvement at a time. Importantly, he set up a
customer experience improvement budget and allowed people to tap it for
small amounts of funds to fix these individual problems without having to do
fully fleshed out proposals.
Manning and Bodine recount one instance of how this operated:
One of these small projects began when a service rep noticed that a
large number of people were having trouble logging in to their accounts
through an automated phone system. The rep started a thread about
the situation on a Fidelity discussion board dedicated to generating

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 ideas for experience improvements. [Arturi’s] team, the owners of the
board, saw the thread and flagged it for attention, [and]… then worked
with the people who manage the phone system to identify the root cause
of the login issue and quickly launch a solution.
Although the total cost of that fix was less than $20,000, it saves
Fidelity $4 million a year by averting calls to customer service. It was
just one of over 160 projects that came through Fidelity’s experience
improvement system in 2011. Together those projects accounted for
over $24 million in annual savings.
You could do this for your own company, couldn’t you? Establish a small
budget of funds for the specific purpose of removing the points of friction in
your customer experience. Then let your employees – even rank-and-file
workers – tap this fund for small amounts without having to submit
comprehensive proposals to senior people.
And watch your customer experience get better, one resolved problem at a
time.
Customers Create Two Kinds of Value
I’m a lifelong runner. And whether racing or training, when I want to increase
my speed there are only two options: I can try to pick up my pace by taking
quicker steps, or I can try to lengthen my stride by covering more ground with
each step. But these two methods conflict with each other. When I quicken
my pace it’s more difficult to take bigger strides, and when I lengthen my
stride it’s harder to take faster steps.
A similar conflict exists with how a business handles the quality of the
customer experience it delivers. Customers create value for a business in two
different ways: They buy more today, or they improve their disposition toward
you and buy more tomorrow. But for a business these two types of value
creation are fundamentally in conflict just like pace and stride are in conflict
for a runner. The harder you work to “sell” a customer on today’s offering, the
more likely you are to wear out your welcome and erode the customer’s
willingness to buy in the future.

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The biggest problem facing businesses today, I believe, is that most are so
totally focused on short-term results that they are unable to see this trade-off
for what it is – a trade-off. Companies find it easy to count each period’s sales
and convert this to a financial value, but it isn’t so easy to quantify the
financial value of improving the customer experience.
This doesn’t mean it can’t be done at all – just that it’s a bit more difficult. In
economic terms, the financial value of future cash flows attributable to a
customer is the customer’s lifetime value (LTV). So when a business improves
a customer’s predisposition to buy in the future, or to recommend the business
to other customers, it is increasing the customer’s LTV. The increase in a
customer’s LTV produced by a better customer experience is real economic
value created today. But the cash effect of that increase in value won’t be
realized until sometime in the future.
Another way to think about it is to visualize the cost of a bad customer
experience. Suppose a good customer calls you with a complaint, and for some
reason your firm doesn’t handle the complaint very well, so at the end of the
call this very valuable customer slams the phone down in disgust. Didn’t your
firm just lose a little bit of its economic value, as a going business?
Economically, the value of your business is the net present value of the future
cash flow you expect to generate, but the future cash flow you can expect now
has diminished somewhat, because this customer will buy less, and perhaps a
few of his friends or colleagues might buy less, as well.
So the event that destroyed this economic value occurred today, with the
customer’s lousy customer experience, but the actual cash effect of this event
won’t be realized until some point in the future. And therein lies the problem
for most businesses.
If you don’t make some attempt to measure your customers’ lifetime values
and try to understand today’s events that cause these values to increase or
decrease, your business is doomed to live perpetually in the world of short-
termism. Competitively you’ll be prey to other companies that take a longer-
term view of their business, and try to strike a balance that generates both
kinds of value.

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Unlike products, customers have memories, which means that customer
relationships are the most direct link between a company’s short-term
financial results and its long-term shareholder value.
How Do You Build the Business Case for a Good
Customer Experience?
Let’s face it: If delivering a better customer experience were always beneficial
to a company’s bottom line, then there would never be any question about
how to fund the effort.
A better experience will encourage customers to come back more often, spend
more, and refer their friends, all of which will benefit future sales. But these
future benefits must be weighed against the costs of providing that better
customer experience to begin with. Good service isn’t free, so the question is
how much are you willing to spend to secure how much increase in future
sales?
The difficulty most companies come up against when trying to evaluate the
business case for delivering a better customer experience comes from the fact
that while the increased cost of a better experience can easily be measured, the
benefits it will generate occur sometime in the future, and can only be guessed
at.
If you’ve sometimes struggled with this issue, here are some ideas for assessing
the business case for delivering a better customer experience:
Run an A/B test
Before undertaking a costly improvement in service across your whole
customer base, test it on some statistically representative sample of customers.
Then measure their future transactions, compared to those who weren’t given
the better service.
Running a test is straightforward, but you’d be surprised how few managers
actually employ A/B testing to make better business decisions13.
Testing a service improvement against a baseline of normal service requires
you to run the test for a long enough period to be able to estimate the actual
future behavior of the customers exposed to it. For instance, a few years ago

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when a book club decided that making “welcome calls” to new customers
tended to increase first-year sales by 8 percent and annual renewals by 6
percent, it had to track customer behaviors for at least a year following the
calls to find this out.
In some situations, it won’t be practical to run an A/B test, because you can’t
set up a statistically valid control population. In addition, to run a test, your
customers have to be individually addressable. That’s why you can’t really test
a broadcast radio or television ad, for instance (although you can test different
ads in different geographical areas).
Use “Return on Customer” as a metric
If you calculate, track, and fully analyze your customer lifetime values, you
should eventually be able to measure your actual Return on Customer for
various service initiatives. Return on Customer (ROC) differs from return on
investment (ROI) because it uses customer lifetime values in the denominator
of the fraction, rather than total dollars invested. And at the enterprise level,
ROC is mathematically equivalent to Total Shareholder Return.
Companies that engage in continuous predictive modeling of customer
behaviors (as some of the more sophisticated telecom and financial services
firms do) will be able, over time, to identify and quantify leading indicators of
lifetime value change. For instance, you may find that when customer
satisfaction, NPS, or some other survey-based gauge of customer attitude
increases by X points, within a certain segment of customers, it might predict
an increase of $Y in customer lifetime values within that segment. This kind
of insight – which can be developed over years of tracking individual customer
behaviors in a variety of segments – will allow you to estimate the future
financial benefit of a service improvement by measuring the current
improvement in surveyed customer attitudes. (For more about the benefits
and limitations of this metric, see Martha Rogers’ and my book on the subject,
Return on Customer: Creating Maximum Value From Your Scarcest Resource.)
Use non-financial metrics
Obviously, you can’t make a “business case” without using financial metrics.
But if your company is forward-thinking enough to realize that the financial

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metrics produced by most businesses today are woefully inadequate when it
comes to capturing all the value-creating and value-destroying actions that any
business engages in, then you might already be using a number of non-
financial metrics to assess the performance of various departments or
initiatives.
Your customer service center, for instance, might be evaluated not just on the
average cost or time required to handle an incoming call (which correlates to
short-term cost), but on the percentage of inquiries completely answered on a
single call, or perhaps on the level of customer satisfaction measured (which
correlates with changes in lifetime value). These would be non-financial
metrics.
Measuring the ROI of a Frictionless Customer Experience
A man was visiting his farmer friend one weekend, and as the two of them sat
in rocking chairs on the front porch the visitor couldn’t help but notice a pig
hobbling around the barnyard with a wooden leg. How remarkable! So, he
asked his host, what’s the story on that pig with a wooden leg there?
Oh, the farmer replied, that’s my pig Winslow. Winslow is one terrific pig. We
had a barn fire about a year ago and believe it or not, Winslow went into the
barn and dragged my two-year-old son Jimmy out by the scruff of his neck.
Probably saved Jimmy’s life.
So, the visitor surmised. Winslow must have injured his leg in the fire?
No, the farmer said, but when you have something that good, you only want
to eat it a little at a time.
A lot of businesses today generate their profits by eating their own customers a
little at a time. Response rates continue to decline generally, across all forms of
outbound marketing, while customers themselves feel less loyal to the brands
they deal with, so their lifetime values are declining, as well. Why?
It’s really very simple. The overwhelming majority of businesses measure their
financial success based on current sales and costs, while customers are focused
on the customer experience they anticipate.

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The ROI of delivering a frictionless customer experience isn’t reflected in a
company’s current-period sales. When a customer has a frictionless experience
she becomes less likely to defect and more likely to buy things in the future,
but the cash effect of these benefits won’t be realized until some financial
period in the future. They represent an increase in the customer’s current
lifetime value, but not in her current purchasing.
The problem is that there is an inherent conflict – a trade-off – between a
customer’s current-period purchases and her lifetime value. For one thing,
successive outbound marketing campaigns will inevitably suffer from
diminishing returns, as the most likely customers buy first, so the population
of remaining customers becomes less and less likely to buy. But in addition,
the more aggressively a business tries to promote its current sales, the more
resistant its customers will become, perhaps even feeling pressured and losing
trust in the marketer’s motives.
Most companies don’t have analytics systems refined and ambitious enough to
estimate the magnitude of an increase in a customer’s lifetime value, so they
ignore it altogether. Instead, they focus solely on the dollars and cents
involved in this quarter’s transactions. They are laboring under the ridiculous
idea that the more easily measured something is, the more important it must
be.
The result is that almost all large businesses are maniacally obsessed with
short-term results, primarily because they are the easiest results to measure. If
your business is operating this way, here are a few things you can do to ensure
that your efforts to deliver a better customer experience don’t fall victim to
short-termism:

Improve your customer analytics function to ensure that average

customer lifetime value is regularly measured (at least quarterly, if
not daily) for a variety of different customer segments.
Then track changes in lifetime value over time, in order to
understand the actual financial value created by improvements or
changes in the delivered customer experience. (Use test-and-control

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 mechanisms to try to eliminate, as far as possible, non-relevant
factors.)
Introduce some non-financial metrics of success, in addition to the
financial metrics of sales revenue, costs, and profits. NPS, customer
satisfaction scores, and other voice-of-customer metrics can be
correlated with changes in customer lifetime values. Over time this
will give you a useful “shortcut” for estimating the real ROI of
improvements in the customer experience.
Be sure to get the CEO’s commitment to this effort, and explain the
program to shareholders. Otherwise, these kinds of metrics will get
thrown out again the very first time your company’s short-term
results decline.

If you continue to focus entirely on current-period financial results, you will

be gradually depleting the customer lifetime values available to your business.
And, you really don’t want to be in the business of eating your own
customers, a little at a time.
The Business Benefit of Being Trustable
When you build a home to sell to someone else in Connecticut (and in many
other states) you’re required to guarantee the structure and its construction
quality for 12 months. During this warranty period, the builder is required to
fix all structural flaws or defects at his own expense.
A number of years ago, my wife and I had a house built in Connecticut. What
surprised me was that a few months after we moved in to it I got a call from
our builder reminding me that my warranty period was going to be up soon (I
had forgotten all about it). He said he would be happy to send a team over to
examine our house for any defects, in order to ensure that they would be
repaired within the warranty period, at the builder’s expense.
This is the essence of what it means to be trustable – treating the customer the
way you’d like to be treated yourself, if you were the customer. It’s obvious

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that when you do this, your customers will want to buy more, because it’s
always in their interest to deal with you.
But homebuilding is a business with very few repeat customers, and a builder
won’t gain much financial benefit from customer loyalty. So I asked our
builder why he undertook this service. I greatly appreciated it, but it obviously
cost him money, relative to the alternative of just sitting quietly by while the
majority of clients forgot about their warranties.
He told me he does it because he generates referrals of new customers at
about twice the rate as his competitors do, and referrals represent a very
substantial portion of any homebuilder’s business. In addition, he has an
easier time hiring new employees, because employees themselves want to
work for his kind of business. It makes them feel better, knowing that they are
always trying to do what’s in their customers’ interest.
Because customers remember you, when you treat customers to a good
customer experience today, they will remember this in the future, and they’ll
likely change their future behavior. Perhaps they’ll do more business with you,
or they’ll refer friends and acquaintances to you. And demonstrating selfless
trustability has to be one of the most direct routes to a better customer
experience.
It is the customer experience that provides the “missing link” between your
company’s short-term, current-period earnings and its long-term, ongoing
value as a business enterprise – its shareholder value. If you want to build
your own shareholder value, think of all the opportunities you might find, just
by helping your customers avoid oversights. In addition to warning customers
when their warranty period is about to expire:

Send customers an email reminder before charging their credit card

to renew an annual subscription.
Advise customers proactively if they are overlooking a less expensive
or more appropriate option.
Remind customers by SMS or email a few days before a late fee
would apply to their payment.

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Warn customers when it appears they are about to buy more than
they likely need.
Proactively notify customers when they’ve become eligible for a
product upgrade or for a higher-value service.

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 CHAPTER 12
How Much Is Customer Loyalty Really Worth?

You can buy a customer’s loyalty but you have to earn the customer’s
satisfaction.
I’ve always had mixed feelings about the issue of customer “loyalty,”
because for many businesses what they actually mean by the term
isn’t the affection and goodwill of a customer, but simply the
customer’s repeat business. Period.
Repeat business is certainly an important financial contributor to a
company’s success, but it shouldn’t be confused with the kind of trust
and affection that genuinely loyal customers will have for a brand
they consider to be “theirs.”
And customer trust? Now that’s worth real money.
Customer Retention Should Never Be Your Only Goal
No matter what your business is, I can absolutely guarantee you an increase in
your average customer retention rate. If customer retention is the only thing
you care about, I have a 100 percent sure-fire method to improve it, no matter
how good or how bad your product or service is, and no matter how many
customers you have today.
Want to know my secret? Just stop acquiring new customers. That’s right, quit
bringing on any new customers and it’s a mathematical certainty that your
average customer retention rate will increase.
The reason is very simple. In any given population of customers, different
customers will always have different likelihoods of remaining loyal. Some are
more prone to defection than others, and they’re more likely to leave first. So
the customers who remain, on average, will consist more and more of those
who were less likely to leave to begin with. It’s a statistical certainty that your
newest customers will be less likely to stay loyal, on average, than those who
have already been with you for a longer period.

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Of course, my foolproof method for improving average customer loyalty is not
really a sound business strategy, because over time your business will die if
you don’t recruit any new customers. No business can remain healthy without
new customers.
I’m using this as just one more illustration of the importance of thinking about
your sales and marketing objectives in a balanced way. Long-term value
creation is just as important as short-term sales. And customer acquisition
should be balanced with customer retention. The next time you hear someone
brag that their average customer retention has increased, be sure to ask them
whether customer acquisitions increased or decreased during the same period.
And if they don’t know the answer to that question, or don’t understand why
it’s important, then they don’t really understand what happened to their
customer retention rate at all, do they?
In fact, the best way to discuss customer retention, as a percentage rate metric,
is to refer to it as a percent of all customers in a particular “vintage” (customers
acquired in Year 1, Year 2, Year 3, etc.), or in a specific “cohort” (customers
acquired in Campaign A, or Campaign B, or Initiative C, etc.).
But there’s another lesson here, as well. Whatever your customer acquisition
strategy, it’s important to take into account the simple fact that some
customers are naturally more likely to remain loyal than others, and to appeal
specifically to those types of customers, whenever possible. As I mentioned in
a previous essay, this was the strategy Lexus pursued in its early days, and the
result is that Lexus continues to have one of the highest customer loyalty rates
in the automotive category.
Here are a few additional ideas:

Design your sales incentives to reflect more than one-size-fits-all

customer acquisition. You might consider paying a higher
commission for certain types of customers than others, or perhaps
providing a salesperson with a continuing revenue stream for ongoing
business. Imagine how a car dealership might operate, for instance, if
it gave salespeople commissions not just based on the initial sale of a

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 car, but perhaps a small percentage of whatever additional business
the customer generates over the next several years (including service
visits, other cars, referrals, etc.).
Put a value proposition together that is more appealing to the most
knowledgeable customers. These are the customers more likely to
have high word-of-mouth influence with others.
In the B2B space, focus hard on acquiring “good” customers, as
opposed to other types of customers. You want to zero in on the
kinds of customers more likely to want suppliers capable of adding
value, rather than simply slashing costs to the bare minimum.
Offer customers the opportunity to help other customers with service
or usage issues, not just to gain value from the goodwill of your more
loyal customers, but also to improve their commitment to the brand.
Renounce the short-termism that forces you to focus only on
immediate, easily measurable numbers such as sales and costs (and
the average retention rate), in order to take into account long-term
and non-financial metrics as well, such as lifetime values and
customer satisfaction levels.

When Are Loyalty Programs a Waste of Money?

Cost cutting and streamlining are always compelling business strategies.
Occasionally, business executives have second thoughts about their loyalty
programs and ask our consultants whether their program is really worth its
cost.
The answer, however, depends on how well the program is aligned with the
type of customer base being served.
A loyalty program or frequent-buyer program rewards customers with points,
miles, or other credits that can be redeemed for discounts and free products.
Loyalty programs have become ubiquitous in a variety of industries, from
airlines and groceries to credit cards, soft drinks, packaged goods, mobile
phone services, coffee and restaurant chains, and retailers of all kinds. But

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they are probably over-used; in the U.S. alone, researchers have tallied more
than 2 billion loyalty program memberships, which means the average U.S.
household belongs to about 18 different programs.
And they do cost money, not just in terms of the rewards and prizes offered,
but also the administrative burden, so it’s not uncommon for executives to
question their value. Evaluating a program, however, should be based on the
circumstances under which it will generate incremental repeat business, and
how valuable its other benefits are, including the chance to gain insight into
individual customer needs and preferences.
In 1996, Martha Rogers and I published our second book together, Enterprise
One to One, and we tackled the first question head on. We hypothesized that
a loyalty program is probably more efficient at boosting customer retention
whenever a business’ customer base has two specific characteristics:

1. Just a few high-value customers do the vast majority of business;

and
2. Customers’ needs are fairly uniform, so that there isn’t much
product differentiation in the category.

(Fifteen years following the publication of our book, two Yale marketing
professors, K. Sudhir and Jiwoong Shin, were given the John D. C. Little
Award in marketing science for having proved Martha’s and my argument
mathematically.)
The long and the short of it is that paying customers for their loyalty is more
likely to generate a direct profit when your customers have similar needs but
highly different values. The airline industry is a great example. At a typical
airline, the top 1 percent or so of flyers account for a much larger percentage
of flights sold, and probably generate a majority of its profits. But all the
airline’s customers are fairly uniform in their needs—to get safely and reliably
from Point A to Point B—and pretty much any airline that flies that route can
do the trick. There’s little demand for any particular seat or service on board a
flight, because all the passengers in any class of service receive basically the
same treatment.

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So airlines benefit by using a loyalty program to purchase customer loyalty
directly, but if your business isn’t characterized by a similar kind of customer
base, with a small minority of extremely high-value consumers who have
relatively undifferentiated needs, then it might not make as much sense for
you.
Which brings us to the second issue: What other business benefits can a
loyalty program generate? One benefit central to the majority of retailers’
loyalty programs has to do with compiling and using customer-specific data.
By encouraging customers to identify themselves (in order to get their
benefits), you can track their purchases and interactions, and then use insights
from this data to tailor your offer, your product, or your service to individual
tastes. In effect, rather than rewarding customers for their patronage, you’re
rewarding them for identifying themselves.
This strategy, however, is the most compelling not only when you have no
natural mechanism for linking customers’ purchases with their identities, but
also when your customers are highly diverse in their needs, so that
understanding different customers’ needs can be used to construct different
offers and sales propositions for different customers.
Grocery retailing is a good example here. The typical U.S. grocery store has
roughly 40,000 different SKUs (stock-keeping units) on its shelves. But the
average household will buy less than ١ percent of them, and every shopper
buys a different assortment. So individual customers’ types, sizes, and brand
preferences vary quite widely. Moreover, unless shoppers somehow identify
themselves at the cash register, the grocer has no practical way to keep a
record of any individual shopper’s purchases. By using a loyalty program to
identify individual customers and track each customer’s transactions, however,
a grocer can compile enough data to make personally relevant offers.
Consum, a Spanish supermarket chain with more than 2 million loyalty
program customers, offers printable customized coupons directly from store
kiosks, using purchase data to print the right coupons to the right individual.
The company turned 12 percent of their loyal customers into monthly users of

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the kiosks, with some stores reaching 25 percent. And the program generated
an 8 percent increase in incremental sales.
So if you want to avoid wasting money on your company’s loyalty program,
ask yourself these questions:
How much of your business comes from the top 1 percent or 2 percent of your
customers?
Is it possible to identify and track your customers’ individual purchases even
without a loyalty program?
Do your customers have diverse needs and preferences?
Are you prepared, organizationally, to treat different customers differently?
Loyalty Programs Provide “Longitudinal Insight”
For many businesses, one of the most significant benefits provided by a loyalty
program is tracking the purchases made by individual customers, over time.
This generates what you might call “longitudinal insight” into customer
behaviors. All marketers need longitudinal insight to see how their business is
actually affected by the experiences their customers have with them, but some
business models won’t naturally provide that insight without a tool like a
loyalty program.
If you operate a chain of retail stores, for instance, your customers come in
and buy your products, pay for them at the cash register, and leave. Without a
loyalty program or some other customer-specific mechanism (for instance, a
membership requirement), you have no way to connect a customer’s
purchases today with what that particular customer purchased yesterday, or
last week, or last year.
So let’s say your merchandising manager wants to evaluate how much shelf
space is allocated to various products carried in the store. She’d like to increase
the space provided for her most profitable products by trimming the space
given to her least profitable products. To make this decision, she relies on your
point-of-sale (POS) data. The problem is, while POS data will give her an

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accurate snapshot of sales at any one point in time, the data won’t show how
any individual customer’s purchases have varied over time.
To see how crippling this is, suppose the POS data your merchandising
manager sees for three different products stocked in one category look like
this:

From this table of data, it certainly appears as if Product A is your best seller.
At $99 per store, each week it generates 50 percent more revenue than
Product C, while Product B is somewhere in between. This is a snapshot of
the average week’s sales, and if any product ought to be de-emphasized or
even discontinued based on this snapshot, it would be Product C.
The problem with a data snapshot like this, however, is that it gives you no
insight into how many of your customers have actually tried each of these
products, or how happy they have been with them. To see these effects, rather
than a snapshot you need to see a “movie” of how your customers’ behaviors
are changing over time. You need longitudinal insight.
So now let’s suppose that, in addition to POS data, you have a loyalty program
that provides the merchandising manager with longitudinal customer data,
based on comparing each member’s transactions from week to week and
month to month. This new data would allow her to see the frequency with
which members purchase each of these products. And she could see how
many of her customers have tried a product at least once, as well as the
number who have re-purchased. The new table, with longitudinal data based
on customer-specific tracking, might look like this:

From this new data, providing longitudinal insight, she can clearly see that
Product C is actually the company’s star performer in this category, while
Product A is the dog. Product C is repurchased by consumers almost four

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times as frequently as Product A, but revenue per store is low because less
than one out of every 200 of your customers has even sampled it yet.
So rather than discontinuing Product C, your merchandising manager should
consider promoting trial with some coupons or two-for-one deals (offered
through the loyalty program to those customers who haven’t yet bought it).
After all, the more customers buy this product, the more loyalty and revenue
it will generate.
If you don’t have customer-specific data you can’t get a realistic view of how
your customers buy from you. And if your business model is one where
customers have traditionally bought without providing any form of
identification, then a loyalty program is a great way to acquire this kind of
insight.
Five Best Practices for Loyalty Programs
The most effective kind of loyalty program is one that either uses the
information provided by a customer’s rewarded behavior to provide
longitudinal insight and to fashion more relevant, customer-specific services or
offers, or one that uses the rewards themselves to incentivize loyalty in a
category in which customers’ needs are not so differentiated.
As these kinds of programs have proliferated, however, and as customers
themselves have become more interconnected and knowledgeable through
social media, the best loyalty programs also seem to be characterized by five
important best practices, which I often recommend to companies. There are
lots of other considerations, but if you’re thinking about a loyalty program for
your business, or if you’re trying to upgrade your current one, then these five
best practices can serve as a quick checklist:
1. Never waste an opportunity to gain insight about a customer. An effective
loyalty program will offer a choice of services or treatments in order to reveal
more about a customer’s personal preferences. Providing points in return for
completing surveys or responding to inquiries can generate a wealth of
insights, but so can more specific offers designed to illuminate different
customers’ different motivations. A financial services firm, for instance, could

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improve insights into a customer’s needs and investment perspective by
offering a mix of awards based on either lifetime accomplishment or short-
term behaviors. With an appropriate mix of awards you could even encourage
customers to specify their prizes in advance of earning the points needed to
redeem them, in order to gain these insights earlier.
2. An effective program offers modularity, enabling participants to mix and
match aspects to their own preferences. Modular offerings are a practical way to
allow for customer-driven personalization of a program without going to the
extreme of full customization. Key aspects of the program, like member
qualification, can be developed with several alternatives, and customers can be
offered a set of guided choices to select from. A sophisticated marketing
approach would offer different sets of choices for different groups of
customers based on their value—so everybody wouldn’t be choosing from the
same set. For example, a lower value customer might choose from rewards
alternatives that include a service upgrade, while high-value customers might
have choices that include additional redemptions or alternative merchandise.
In addition, modularity will allow a program to incorporate partners and co-
sponsors more easily, which will broaden the appeal of a program and enlist
higher enrollment.
3. Consumers value openness. So be sure your program works with other
programs. The more open your loyalty program is, the more beneficial and
attractive it will be to customers. Transferable points and rewards offer the
customer the greatest flexibility in using program earnings. As you gain
customer insight, your program can mature into a more open proposition
without endangering customer loyalty, because the barrier to a customer’s
switching will no longer be purely economic (i.e., the value of the points
earned), but convenience (having to “teach” another program about
individual desires and preferences). Openness is inevitable in loyalty
marketing programs, and companies must choose whether to lead the charge,
or to react to it. If your competitors’ points or miles are available for purchase
on the open market (as is already the case with many airline frequent flyer
programs, for instance), you may even want to allow your best customers to
redeem the points you issue for prizes offered by your direct competitors!

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Think about it: if you run an airline, wouldn’t you want to know what
competitor airlines your best customers also like to fly on?
4. A loyalty program should be managed around customers, not products. Align
the organization and administration of your program around certain identified
sets of customers, and then measure your marketing managers by the impact
they have on the behaviors of these different groups. This is the most direct
way to make progress in each customer segment, and to improve the loyalty
(and lifetime values) of the individual customers in each segment.
5. Above all else: simplicity. The fewer rules and restrictions you have, the
more engaging your program will be for the customer. It’s better to narrow
your offers to those you can deliver consistently, rather than including
elements that can’t be relied upon. Airline programs frequently suffer, for
instance, when they publicize high-value redemptions that turn out not to be
very readily available. Such offers often do more harm than good, by
unnecessarily raising customer expectations and then not delivering. If you
can’t deliver consistently on whatever reward you promote within your loyalty
program, you not only damage your program’s credibility, but you could
undermine trust in your whole brand.

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 CHAPTER 13
Life in the Frictionless Fast Lane

As technology continues its steady march, it is inevitable that

customers will seek out more paths of least resistance. They will
resent friction and avoid those companies that waste any more of
their time or effort than absolutely necessary.
And customers will be more in charge. They’ll have their own tools
and technologies. Today’s big-company customer analytics program is
tomorrow’s smartphone app for consumers.
The Consumer of the Future Will Be an Algorithm
Professional basketball player Jeremy Lin graduated from Harvard in 2010
with a degree in economics and a 3.1 GPA, but despite his great college
basketball playing he went undrafted by the NBA that year. It was only after
the New York Knicks lost two guards to injuries early in the 2011-12 season
that they signed him at all. And of course, to the great surprise of the team’s
management, Lin went on to electrify fans, scoring an average of 27 points a
game in six consecutive wins.
But what is fascinating about the “Linsanity” story is that nearly two years
before Lin started his first Knicks game there was one man, Ed Weiland, who
predicted Lin’s success based on what his own unique algorithm said about
the kid’s college playing statistics. In May 2010 on his basketball stats blog14,
Weiland wrote, “If he can get the passing thing down and handle the point,
Jeremy Lin is a good enough player to start in the NBA and possibly star.” The
amazing thing is that Weiland wasn’t a professional scout, nor was he a
statistician. He was just an avid basketball fan with a personal computer. He
made his living driving a FedEx truck.
Many of us don’t appreciate just how empowering Big Data will soon be for
ordinary people. We look at data as a corporate tool – “they” are tracking “us,”
and we can only hope that the big corporations with all this data will use it
humanely.

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But Big Data can also directly benefit consumers themselves. What will
happen within a few years, almost inevitably, is that business algorithms will
be making the offers, while consumer algorithms will be making the buying
decisions.
We can already see the outline of this model beginning to take shape. Maybe
you remember Farecast, the service that predicted when a particular airfare
was likely to be going up or down, prior to flight. By drawing on 175 billion
previous airfare data points and applying rigorous analytics, the service
claimed to be able to predict when an airfare would go up or down in the next
week, with an accuracy of more than 70 percent. Founded by computer
scientist and University of Washington professor Oren Etzioni, Farecast was
acquired by Microsoft for $115 million in 2008.
After selling Farecast to Microsoft, however, Etzioni launched another price-
forecasting service called Decide.com, which used even more data and
analytics to predict future price changes on a whole range of consumer
products. This company was eventually acquired by eBay.
Following in Etzioni’s footsteps, personalized shopping sites like StitchFix,
Trunk Club, Club W, and Birchbox use algorithms and mine data to
personalize clothing, wine selections, and beauty products for direct-to-
consumer markets.
My point is that your own shopping activities in the not-too-distant future will
likely be sharpened with highly sophisticated data and analytics tools. And
you won’t have to have a computer science degree either. You’ll have access to
these tools even if your day job is driving a FedEx truck.
If I Ran a Brick-and-Mortar Retailer
E-commerce vendors pose a very serious threat to brick-and-mortar retailers,
because today’s shoppers are never more than a click away from comparing
prices. As difficult as it is to compete with online vendors, however, there are
still a few strategies available to smart brick-and-mortar retailers.
The first big problem for physical stores is that online operators typically face
lower inventory and service costs, not to mention the overhead savings

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represented by not having to maintain retail outlets. So their prices are
generally lower than you can find in a physical store. To compete, the first
thing I would do is supplement my store’s regular, physical-products-in-the-
store business with online products delivered from warehouses.
Once I had a relatively robust online offering, I would actively encourage my
in-store customers to supplement their physical shopping with online
information, perhaps posting QR codes alongside product information, so
customers with smartphones could immediately access our website to drill
down into more detailed product specifications or read other customers’
reviews. Right there in the store.
Or, as John Lewis is doing, I would equip my in-store salespeople with tablets
providing them access to our online offerings and to the previously expressed
online preferences of the customers they’re dealing with right now, in the
store.
Either way, I would allow a shopper to buy a product in the store and walk
out with it right then, or wait a day or two and have it delivered from the
warehouse, for a slightly lower price. Even doing this, however, it’s unlikely I’d
be able to match the lower costs of a pure online vendor. I can come closer,
but I’ll have a hard time closing the gap entirely (and don’t forget that online
vendors sometimes still have a big sales-tax advantage).
If I sold more complex products, however, such as electronics, appliances, cars,
or something like building supplies, I would also offer services such as
installation, maintenance, and repair, along with the products sold in my
store. A car dealer with a great service reputation, for instance, is likely to
generate better car sales, even when facing competition from no-service
vendors selling the same cars for less. I’d want customers to feel that buying a
difficult-to-install product from my store could still be a completely frictionless
experience.
But I wouldn’t stop there. I’d work hard to improve the customer experience
within my store, in order to make the process of shopping into something
pleasurable, interesting, or exciting itself. When Target puts a Starbucks in
front of the cashiers’ stations, or when a bookstore adds a reading lounge and

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brings in authors for book signings, they’re trying to create an experience
worth coming in for, or at least one that is pleasant and not to be avoided.
The kind of customer experience I would try to create, however, would be one
that is as personalized and welcoming as possible. I would hire positive,
friendly salespeople, and I would train them in how to remember names and
faces. I would encourage all in-store employees to engage shoppers in
conversations, rather than sales pitches alone. I would teach my salespeople to
proactively watch out for our customers’ interests at all times – providing each
customer with the soundest, most objective advice and help possible, no
matter whether the customer buys from us this time or not.
Trustability has the potential to change the entire framework of competition,
because it can engage an individual customer’s empathy. So I would want my
salespeople treating the customer just the way they themselves would like to
be treated if they were the customer. When we proactively watch out for our
customers’ interests, our customers will want us to succeed.
Trustability engages people’s natural impulse to show empathy. As a result,
when trustability is used as a competitive business strategy it actually
transcends the commercial domain of monetary metrics and incentives, and
taps into the social domain of friendship, sharing, and reciprocity. Rather than
simply calculating the dollar value of product features and pricing, an
empathetic customer is more likely to take into account the “feelings” of the
business itself, because the customer experience is now based not just on
buying and selling, but on humanity.
And that’s the biggest single advantage my brick-and-mortar store could have
over any competitive vendor, online or off.
If all of this sounds too airy-fairy to you, then I suggest you take a look at a
few retailers who have used these strategies quite successfully already. In
Connecticut, Zane’s Cycles, founded by Chris Zane, is a good example. Or
look at the family of clothing stores owned and operated by the Mitchell
family. Or check out the Sewell Automotive family of car dealerships in
Dallas.

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Carl Sewell, Chris Zane, and Jack Mitchell have all written books based on
these and other, similar ideas that made their own brick-and-mortar retailing
businesses successful, in spite of the onslaught of online competition.
The Twilight of the Corporate Call Center
In November 2014, The Coca Cola Company announced to its employees that
it was doing away with voicemail15 at its corporate headquarters in Atlanta.
Who does voicemail any more, anyway? It’s always been a hassle. The demise
of voicemail has been predicted16 for years. Still, there is a bigger issue here,
involving the fact that voice communication, for all its advantages, also has
some serious disadvantages:

The voice channel is slow. Think about it. When we’re reading a text
message, whether email or SMS or something else, we can scan it at
our own speed, skipping over the fluff and re-reading or carefully
thinking about the important information.
The voice channel can’t be multiplexed. We can have several email or
text-messaging conversations going on at once, but we can’t really pay
attention to more than one voice conversation at a time.
An audible voice generates the most unstructured of unstructured
data. Before it can be transformed into other data (such as text) it has
to be analyzed and re-analyzed, and a computer can only parse the
real meaning of a voice message after it has first been rendered into
text.

OK, so now think about the primary purpose of most corporate call centers.
Start with the fact that more than half of the phone calls made to U.S. call
centers today are preceded by an online session of some kind – a customer
trying to find the answer to a question, or scheduling a service visit, or buying
something. For most of us, it’s only when we can’t solve our problem online
that we resort to a call in the first place. Having to make a call rather than
being able to work things out directly on a company’s website or within its

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mobile app is a hassle. It’s friction. The voice channel is slow and
cumbersome.
For almost any kind of routine transaction, most people would prefer to deal
with a machine rather than a person, because automated processes are totally
frictionless. Ever since the advent of ATMs, for instance, you can count on the
fingers of one hand the number of people who prefer to go into a physical
bank branch and interact with a teller, just to get cash or deposit a check.
At today’s call centers, the vast majority of reps sit in front of their computer
screens (often multiple screens), and as inquiries, reservations, or service
requests come in, they access their company’s computer systems with their
keyboards. They dig for answers or solutions, and then they relay what their
computers have said back to the customers.
Today’s call center associate, in other words, is simply “human middleware.”
He or she is the manual, human interface between a company’s computers
and its customers.
Increasingly, these human interactions and conversations are taking place in
non-voice channels. Online chats and email exchanges with customers are
already common enough that many call centers are actually more properly
referred to as “contact” centers. Moreover, cloud computing now permits
more customer interactions to be handled by at-home agents, or even by a
company’s in-store retail staff when they are available, so the word “center” is
no longer really accurate.
Today’s computers are getting better at recognizing voice inputs, especially for
simple things (“Please say or enter your account number…”), while the
computer systems feeding the call center associates’ screens are also improving
rapidly, as they become simpler and more intuitive to access. So we could
easily conclude that the corporate call center will soon go the way of
voicemail, or the teller window, but this is where the analogy breaks down.
Because there is one thing an actual human voice provides to a customer that
a computer will never be able to provide: humanity. Customers are people,
and people want empathy and caring from other people, especially if they are

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frustrated, or anxious, or unhappy. They want a human being to hear them
out, to commiserate, and to provide emotional support.
We may not want to waste time by going to the teller window for a simple
cash transaction, but most of us wouldn’t dream of undertaking a new
mortgage without meeting a loan officer face to face.
Yes, routine tasks are rapidly being automated away, but that leaves the really
tough jobs – the kinds of problems that can’t be solved with a line of code.
So watch for corporate call centers to be replaced by humanity centers over the
next few years. Rather than simply accessing and relaying computerized
instructions, tomorrow’s associates will be tasked with listening to customers,
absorbing their feedback, and providing empathetic support and advice, as a
way to ensure their continued loyalty.
The primary mission of tomorrow’s contact center will be delivering humanity
to customers, and that is a mission very well-suited to voice interaction.
Turn Customer Frustration Into Opportunity
Fully automated, bot-provided customer care will be available to all, sooner or
later. But for now, good customer service remains a people-intensive task
simply because human customers continue to need other human beings to
understand, analyze, and solve many of the kinds of problems that come up
on the products and services they use.
The problem is that many businesses continue to treat customer service as
simply a cost of doing business, rather than as an opportunity to connect with
their customers. As customers, we all know the frustration of trying to reach a
real human being when we call that toll-free number. And the more difficult a
company makes it to reach a live rep on the phone, the angrier we get.
One recent survey17 by Arizona State University shows that consumer
frustration and “rage” at cost-constrained, robotically provided customer care
has soared in recent years, as companies have continued to automate solely to
reduce their costs. According to the survey, overall customer satisfaction with
customer service was no higher than in ١ ٩ ٧ ٦ , nearly ٤ ٠ years ago.
Consumers are “frustrated that there are too many automated response

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menus, there aren’t enough customer care agents, they waste a lot of time
dealing with the problem, and they have to contact the company an average of
four times to get resolution.”
There’s even a website, GetHuman.com, dedicated to compiling the quickest
ways, at different companies’ call centers, to exit the answer robot and get to a
live human being. To reach DIRECTV in the U.S., for example, dial 800-531-
5000, and “press 0# each time it asks for your number, then say ‘Customer
Service,’ then press 6.” Or for British Telecom in the U.K., dial 0800-800150
and then “press * 0 each time you hear an automated voice.”
A business that thinks solely about the cost of handling customer calls,
however, rather than the opportunities they represent, is operating in a short-
sighted and ultimately self-destructive manner. If your company has ever
considered how to create better engagement with customers, then making
direct voice contact with a customer at a time when he or she is often
frustrated and under stress should be seen as a great opportunity.
Putting an authentic human being on the other end of an inbound phone call
is the most cost-efficient mechanism for showing genuine empathy with a
customer when things do go wrong, as they inevitably will, at least
occasionally. One of the principle roles for your company’s call center, in other
words, is to show a human face to your customers economically, and at scale.
Smart, forward-thinking companies know this. Capital One 360, for instance,
is Capital One’s online bank (formerly ING Direct), and it prides itself on
answering every call with a real person. But one of the tricks to this is that the
online tools are truly efficient and can easily handle virtually every routine
inquiry or transaction, without flaw.
And one of the more interesting recent developments in call centers is the
increasing use of at-home or remote reps for handling calls. Your contact
center associates no longer really need to sit within any particular “center” at
all. New technologies allow a business to route its customer service calls
directly and seamlessly to a rep’s own location, while using cloud-based
software to safely and securely manage the rep’s computer during the
interaction process. Obviously, this diminishes the need for a building, with all

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its desks and cubicles, along with the need for the reps themselves to drive
their cars into work, park in the lot, and so forth.
As a result, an increasing number of customer care calls today are in fact being
handled from remote locations – mothers with kids at school, professionals
with particular expertise or skills, and even retail service people who make
themselves available during slow times at store locations.
Besides the sheer convenience factor, cloud technology now makes it possible
for any business with a peak season to staff up and down almost instantly. A
retailer with a heavy Christmas shopping season, or a tax-preparation service
with a heavy March and April load, or a healthcare firm during the
enrollment season can quickly add pre-qualified at-home reps to its remote
sales and customer care staff without having to plan and take ownership of
new facilities months ahead of time. Nor does staffing up for peak season
require months or years of systems work, integration, and new IT facilities,
either.
Over time, automated interactions, web and mobile apps, and other self-
service tools will inevitably displace a larger and larger proportion of customer
care functions.
But this just makes the human opportunity even more important. Because as
more customers take advantage of these online tools, a higher proportion of
actual calls are likely to be the result of failed self-service experiences, so the
vast majority of these callers will already be frustrated.
More and more, simply answering the phone will present a great opportunity
to improve your reputation as a business. A customer who begins his or her
journey in frustration, but who then encounters an empathetic voice, will have
experienced your company’s “human face,” and that will likely be the best
customer experience of all.
At-Home Reps Can Improve Your Health
In addition to workforce flexibility, at-home company associates give a
company the ability to provide customers with a number of more complex

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professional services – services that would be hard to provide through staffing
up contact “centers,” because of the nature of the professionals involved.
In the healthcare category, for instance, at-home agents are playing an
increasingly important role. One of the biggest supply constraints in this
category is the availability of a doctor’s time. We all have had the experience
of traveling to the doctor’s office, signing in, waiting for a half hour or more,
having a nurse weigh us and take our blood pressure, and then… Voila! The
doctor appears, and within 5 or 10 minutes he or she confirms the numbers,
chats with us a bit about the problem, prescribes a drug or an x-ray or some
other treatment, and then moves on to the next patient, who has now been
weighed and prepped. It’s an assembly line based on optimizing the use of the
doctor’s time, which is the scarcest resource in the value chain.
But what about patients with chronic conditions who need more constant
attention? In the U.S., the Affordable Care Act (ACA) has now made
healthcare outreach services reimbursable, which means that a provider or
payer can follow up with patients, perhaps to confirm that they’ve taken their
medicines, or maybe just to find out how they’re feeling. This is a more critical
function than you might think, because a large percentage of patients don’t
follow through with taking their medicine.
Athena Health, a new and innovative public company in the business of
processing medical insurance claims, has found that an astounding 50 percent
of all doctors’ orders are not acted on. Just think about that fact for a minute.
What it means is that about half the time, a doctor’s prescription isn’t filled by
the patient, or treatments are simply not carried out. Athena knows this
because one of its lines of business involves matching up the diagnoses and
prescriptions ordered by physicians with the individual insurance claims filed
by the patients.
In the healthcare business they call this a “compliance” problem, and it is
significant.
Personal phone calls, made by trained nurses, are almost guaranteed to
increase the compliance rate, greatly improving healthcare outcomes. So this

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kind of medical outreach program represents a big opportunity for improving
care.
The problem is, since everything is already operating at nearly full capacity,
how can healthcare professionals afford to take even more time for this new
task? One solution is to employ at-home nurses to make these outreach calls.
Some may be retired, while others may have their own children to care for,
and others simply prefer not to have to commute in to a hospital or medical
facility.
Moreover, because different kinds of patients and diseases require different
kinds of treatments, using at-home medical professionals to perform this
outreach function allows a healthcare plan to do a better job of matching the
skills and experience levels of different professionals to the needs of different
patients. An at-home nurse in Boise, Idaho could talk or chat with a diabetes
patient in Ocala, Florida.
By matching the widely dispersed talent available in the healthcare category to
the widely dispersed needs of our population, everyone can in fact get more
personalized – and effective – care.

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 CHAPTER 14
Caution: Good Intentions Required

We began this book with technology, and technology hasn’t stopped

improving. Disruptive innovations will likely continue to be one of
the most significant characteristics of the business landscape for the
foreseeable future.
But how can you survive the next disruptive innovation in your own
business category? Will your customers stick with you? Will they even
care whether you succeed?
No matter what business model you launch, or which strategy you
pursue, or what technology you master, the only way to survive this
period of rapid and dramatic technological change is to have your
customers’ goodwill and support. And nothing will garner that
support faster than your good intentions.
Knowledgeable Customers Create More Value
A few years ago three professors did an interesting study on the amount of
value created by different customers from their own spending, as compared to
their referrals of other customers. They looked at one financial services firm
and one telco, modeling each firm’s customers to try to assess the amount of
lifetime value produced by direct spending, as well as by referring other
customers who spent. They wrote their study up in a Harvard Business Review
article, “How Valuable is Word of Mouth?18” which is highly readable and has
a number of very interesting points.
Somewhat counterintuitively, one thing they discovered was that the highest
spending customers are not the same as those who generate the most value by
referring others (at least not according to their model). To help visualize this, I
took the numbers from the telco company they analyzed, and I arranged them
on a bar chart:

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This chart clearly shows that the top three spending (CSV) deciles don’t
overlap at all with the top three referral (CRV) deciles. Or in plain English, the
30 percent of customers who spend the most are completely different from the
30 percent who refer the most other customers. Not even close. Big spenders
generate little value at all with their referrals of other customers, while those
who generate the most value from referring others tend to be middling
spenders themselves.
The authors of this study didn’t speculate as to why this seemed to be true of
both the telco and the financial services firm, but if you think about it, it easily
makes sense. You may spend more yourself on a product or service because
you have a greater need for it, so that makes you a high-CSV customer.
But the customers who refer the most other customers are more likely to do so
not because of their personal spending levels, but because they are the kinds
of people whose opinions their friends and colleagues value. They have
“authority” with their friends. They are known for their expertise and
credibility.
This dichotomy, between high spending and high reference value, becomes
more important every day, as technology continues to connect us more
seamlessly with our friends and colleagues. Personal expertise has never been
more easily shared with others, nor has it ever been easier to evaluate and rate
other customers’ authority and expertise – even when you don’t know them
personally.
For businesses, this means it’s more important than ever to cultivate
relationships not just with the highest spending customers, but with the most
knowledgeable ones as well. Too many businesses still regard less

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knowledgeable customers as high-value targets. But in the e-social era, the less
knowledgeable the customer is, the less likely it is that he or she will ever
generate much actual “word of mouth” value for your brand.
One more important point: In order to appeal to knowledgeable customers,
you have to do more than provide a discount or even a unique product
benefit. You need to earn their trust, as well.
Influencing the Influencers
You can buy your advertising, but you can’t buy your friends.
If you want to influence the influencers in your category – if you want to
generate more positive word of mouth and customer referrals from the most
knowledgeable and authoritative customers – you won’t be able to do so with
discounts, or free gifts, or anything of monetary value. If anything, offering
something like that might actually offend the customer.
Instead, you have to concentrate on earning your influencers’ trust by
understanding the non-commercial things they value.
Think of what might motivate an influential blogger or Twitter user –
someone whose opinions matter to thousands of followers. While almost all
such key influencers would be offended if you offered to compensate them for
a favorable post, they are still human beings, and like all the rest of us they
still have ambitions. They want to be noticed, and to increase their own
influence, which means writing better, more original and authoritative posts.
Most such influencers don’t think of themselves as experts on particular
companies or brands, per se, but as authorities with respect to an issue or
problem of concern to them and their followers. It might be a business issue or
a health issue or a relationship issue, but in most cases their central mission
isn’t to evaluate the products and services offered by you or your competitors,
but to help their followers and friends solve problems. Expressing their
opinions about brands and products is more likely to be a side effect of this
mission.
Think about social media influence in this context and you’ll realize that what
social media mavens value most are the signals and ingredients of influence

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itself: acknowledgment, recognition, information, and access. You can
remember them easily with the mnemonic word “aria,” as in the solo sung by
your favorite opera star.
Acknowledgment: Simply identifying an influential blogger or social media
influencer and acknowledging their existence will go a long way toward
having a positive influence. So when you identify someone important, reach
out by posting a comment on their blog, retweeting a smart update, or
emailing them with a thoughtful (but non-self-serving) suggestion. Just let
them know you’re paying attention.
Recognition: Consider mentioning authoritative bloggers in your own press
communications, providing recognition to the blogger as well as additional
sources for whatever reporters or other commentators follow your firm. And,
if you have a crowd service system that relies on a few super-users to handle
the complicated inquiries of other customers, then recognize them with special
badges, emblems, or status designations. Everyone wants to be Platinum in
something.
Information: Key influencers want the inside dope, the straight skinny, so
provide them with all the information you can reasonably manage. Even
without divulging the kind of “inside” information that might get a public
company in trouble, you can almost certainly provide a key influencer with a
more useful perspective and insight about your business or your category,
including the problems you face, threats you are trying to avoid, and
opportunities you see.
Access: Just as useful as insightful information is giving an influencer access to
the author of the insight, or the operating person at your business who is most
connected to the information. Probably nothing will pay bigger dividends in
terms of social media influence than simply allowing influencers themselves to
have access to some of your own people, experts, and authorities. Not
everyone gets this kind of access, because you just can’t take the time for
everyone. But do take the time for someone who has an important enough
following in social media.

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There’s a caveat to this, of course: No matter how influential you may become
with your own social media influencers, in the end it will always be their call.
So your ultimate goal with social media influencers is to establish a level of
mutual trust that will serve as a bridge, increasing your credibility with them
by increasing their own credibility with their followers. And then it’s up to
them, not you.
The Smothering Downside of Personalization
Increasingly, we are surrounded by personalization – retail stores offering
special deals based on your shopping history, websites serving up news based
on what you’ve clicked on in the past, and marketers selecting the right
message for you based on where you live, what else you own, and what you’ve
actually bought (or not bought) before.
As one of the very first proponents of personalized marketing, I should be
extremely pleased with myself. Just the other day, a news editor emailed me
to say “Countless people have said to me in the past month alone, ‘Now is the
time for true one-to-one marketing [and at scale]. Now we have the
technology to make this a reality.’”
There are many benefits to personalization. You can get individually
customized products, from blue jeans or running shoes to bicycles or cars. You
can order custom-printed M&Ms and custom-labeled bottled water. Movie
and book recommendations come tailored to your interests. And because
companies remember your data and preferences, you don’t have to tell an
online store where you live or what your credit card details are, nor do you
need 10 minutes to complete a new form or contract every time you book a
hotel room or rent a car.
But customization has a downside, too. From the very beginning, whenever I
talked about the benefits of personalization, one or two people would take me
aside to point out some of this downside. For instance, the more you get your
news online, the more likely it is that the websites you get your news from will
adapt to your interests. Click on a story about your college basketball team,
and news about that team will be more likely to be displayed to you the next

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time you log in. But this means that stories about homelessness, or genocide in
Africa, or the latest technology innovation, are less likely to be displayed.
They’ll still be there, they’ll just be one more level down, one more click away
from your attention span.
We used to call this the “serendipity” argument for un-personalizing your
news. When you leaf through a printed newspaper, printed up the same way
for everyone, you are more likely to encounter news or information by sheer
luck or happenstance. The industrial espionage story just happens to lie next
to the story about your company’s product launch, or the story about battered
women is on the same page as the one about a new fitness technique you’re
interested in.
The problem is, when you surf the news online, there’s very little serendipity.
Instead, personalized information will tend to smother you with sameness and
familiarity, reducing the opportunity for learning new things, or seeing things
from a different perspective. An algorithm has clocked your past views and
clicks, and quantitatively gauged the placement of today’s articles in terms of
their likelihood to interest you.
This is just one aspect of the argument explored in Ira Pariser’s 2011 book The
Filter Bubble: How the New Personalized Web is Changing What We Read and
How We Think. It’s not a new argument, but it’s more important today than it
was just a few years ago.
Today, everything seems to be personalized. Advertising messages and product
pitches are designed to show you things you are more likely to buy, and (not
surprisingly) what you bought yesterday is highly relevant to what you might
buy today. According to statistics Pariser cites, more than a third of Americans
under 30 already get their news primarily from social networking sites.
One of the problems with personalization is that it runs on algorithms, and
these algorithms (at present, anyway) are locked in to presenting new things
based on history or data already collected. This means, rather than discovering
new facts or perspectives when you search for news, information, or products,
you will be presented with “adjacent” concepts. It’s not so much discovery of
new ideas as it is exploitation of existing ideas.

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According to Pariser, if you talk to a tech person involved in crafting
personalization strategies, you’ll learn that one of the biggest obstacles to
progress is we could call the “local maximum” problem. Presenting someone
with better ideas or news about any particular product or concept will
inevitably lead toward the best possible news or information about that
particular item. But it will also exclude other, unrelated news or information
that might in fact be highly relevant to the user. And this kind of filtering can
easily cascade on you based on relatively inconsequential actions. As Pariser
says, “clicking on a link about gardening or anarchy or Ozzy Osbourne” will in
turn supply you with “more information on the topic, which you’re more
inclined to click on because the topic has now been primed for you.”
A “filter bubble” like this, moreover, depresses your curiosity, because it is
designed to speak to your known and already-expressed information desires.
You are less likely to encounter the serendipitous article on gene splicing or
The World Cup or the typhoon in The Philippines – articles that might have
triggered your interest had you just been exposed to them.
As a result of all this personalization technology, Pariser maintains that
consumers are more exploited for our known preferences and desires, while
citizens are becoming more narrow-minded and insular in their thinking.
People have always preferred associating with others who share the same
philosophical or political views, and now we hardly even need to be exposed
to people who disagree with us.
This would be a dangerous situation for any democratic society, and we
should pay attention.
How to Avoid Being Smothered by a Personalized World
A Frenchman walks into a bar with a duck on his head, and the bartender
asks, “Hey, where’d you get that?” So the duck says “I got it in Paris, they’ve
got millions of ’em there.”
This joke is funny because the punch line just doesn’t fit with the “context” of
the setup. It violates our expectations, and this gives it the power to give us a
chuckle.

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Human beings are constantly observing the environment in order to make
mental predictions for what will happen next, given the context of their
observations. I’ve already written about how important context is when it
comes to delivering a truly frictionless customer experience. The deeper the
context of a relationship—that is, the more detailed or informative your
previous interactions with a customer have been—the more loyal that
customer is likely to be in the future, because (among other things) the
customer just doesn’t want to have to re-teach one of your competitors what
he or she has already spent time and effort teaching you.
But context is also a key to innovation and creativity, which are context-
dependent, and to overcoming the smothering effect of increased
personalization. In this case, however, rather than using context to make
predictions about our environment, creative ideas come when we purposely
violate context. Context violations produce things you don’t expect, from
funny punch lines to innovative ideas.
Your most creative insights are almost always the result of taking an idea that
works in one domain and applying it in a different context. Every “new” idea
you have, personally, is based on some combination of previous concepts in
your own mind, even if you combined these concepts subconsciously. In a
sense, as Matt Ridley has observed19, innovation occurs when ideas get
together and “have sex” with each other. In evolutionary terms, it’s called
“exaptation.” Bird feathers, for instance, are thought to have evolved during
the Cretaceous period to help land-based reptiles protect themselves from the
cold, but when one species of reptile later began experimenting with gliding,
feathers were exapted as excellent tools for controlling air flow.
Innovation thrives on context violations and exaptation. The anti-lock braking
system in your car is a result of research and development originally done in
the field of aviation, for example. Icy airplane runways can’t be sprayed with
salt and gravel to assist in slowing a speeding plane, so anti-lock brakes were
first invented in this domain. Computer punch cards were exapted from the
punch cards originally conceived to drive weaving patterns on mechanized
looms. Viagra was originally developed as a drug to reduce hypertension.

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The problem with an increasingly personalized world is that context is harder
and harder to violate. You have to work at it more.
And it’s uncomfortable. As human beings we’re all biased to prefer the routine
and familiar, as opposed to the new and different. We feel safer when we
know what’s going to happen next and we’re more comfortable talking to
people whose views we share.
But humanity is not just about empathy. It’s also about creativity. Putting
humanity into your company’s customer experience requires both. So here are
a few ideas to stimulate your own creativity, by intentionally breaking the
context of your current thoughts and beliefs:

Read a magazine you would never ordinarily have the least interest
in.
Pick a point of view you vehemently disagree with, and argue in
favor of it instead. Be convincing.
At a restaurant, order a food you normally can’t stand, and eat it.
Put your clothes on in a different order every day (i.e., shirt first one
day, socks first the next, right then left instead of left then right, and
so forth).
At a party, find the person you have least in common with and spend
at least an hour in conversation with them.
Drive a different route to work or school, or to church, or to the club.
Take a long cut, on purpose.
Memorize something useless but ambitious, like pi to 100 digits, or
the names of all the major chess openings, or all the U.S. vice
presidents and the presidents they served.
Meet one new person a day for a whole month, either in person or
online. Converse with them, get to know them.

The Competitive Advantage of Trustability

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Not long ago I had to fly from Jacksonville to New York on JetBlue. The flight
experienced some mechanical problems before takeoff and ended up almost
six hours late. Everyone was terribly inconvenienced.
But when we exited the plane at JFK, each passenger was given a letter from
JetBlue apologizing for the delay, and notifying us that because of the incident
we were each entitled to compensation under JetBlue’s Customer Bill of
Rights20.
Here’s what stood out about JetBlue’s action: Rather than asking me to log in
to its website and fill in my flight information and confirmation number, or to
mail in my boarding pass or something, the airline said passengers didn’t need
to do anything at all to claim their refunds, just wait a couple of days and the
appropriate credit would automatically be posted to their “Flight Bank” at
JetBlue, to be immediately available for use on future bookings!
Because most of JetBlue’s competitors make you jump through a few hoops
before getting a refund, they enjoy a “breakage” on refund claims of 10
percent or more. That is, 10 percent or more of the customers who are entitled
to refunds from an airline simply fail to claim them, so these airlines get to
keep that money.
And not long ago, Amazon began paying refunds to customers even before
they ask! As reported by Bloomberg21, Amazon “has built automated systems
that detect when a customer hasn’t paid the lowest available price for a
product, or when the playback of a streaming movie is shoddy, and doles out
refunds.”
Amazon and JetBlue are like poster children for trustability.
But what would prompt these two otherwise intelligent companies voluntarily
to give up the “free money” that comes from making customers go through a
process to claim their refunds? Why would any company protect its customers’
financial interests proactively, even when its competitors do not, and it costs
real money to do so?
Well, in his 2013 letter22 to Amazon’s shareholders, CEO Jeff Bezos explained
that his company’s customer-centric focus has many advantages in terms of

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innovation, agility, competition, and investment priorities. And it is because of
Amazon’s intense focus on the customer that it implements such proactively
trustworthy policies. According to Bezos:
“One advantage – perhaps a somewhat subtle one – of a customer-
driven focus is that it aids a certain type of proactivity. When we’re at
our best, we don’t wait for external pressures. We are internally driven
to improve our services, adding benefits and features, before we have
to. We lower prices and increase value for customers before we have to.
We invent before we have to. These investments are motivated by
customer focus rather than by reaction to competition. We think this
approach earns more trust with customers and drives rapid
improvements in customer experience – importantly – even in those
areas where we are already the leader.”
If you’re not focused on your customer’s experience – if understanding what’s
in the customer’s interest and being proactive about protecting that interest is
not your absolute top priority as a business – then you’re probably not going to
be as agile, innovative, and competitive. It’s that simple.
So go ahead, bank those profits from unclaimed customer refunds and other
mistakes and oversights on your customers’ part. Have a ball, in the short
term. But realize that in the long term you won’t be around.
You’ll have been replaced by some other competitor – perhaps a start-up –
that delivers a genuinely human, empathetic, and frictionless customer
experience.
Transformational Leadership for the E-Social World
It used to be simpler for business leaders, when workers all gathered in the
same physical building or place of business, and authority could be
diagrammed into neat organizational charts. It used to be that you could build
and operate a large company mostly by applying “transactional leadership” –
that is, by using rewards and penalties to ensure that each worker’s self-
interest was aligned with the company’s top-down instructions and goals.

193
But that was then, and this is now. Today’s companies deal primarily with
information-intensive tasks, and decisions must be made by networked groups
of employees and partners working collaboratively, connected by technology.
Not only that, but an ever larger proportion of employees work from home or
on the road, from sales executives and research analysts to rank-and-file
customer service reps.
These kinds of organizations call for a more nuanced style of leadership –
transformational leadership – which engages employees by appealing to more
intrinsic motivations such as autonomy, fulfillment, mastery, a sense of
purpose, and a spirit of camaraderie at work. Engaged employees will bind
together to achieve the common goal. And, social cohesiveness like this is
what can motivate an individual to forego his or her own self-interest when
it’s necessary to further the group’s mission.
So the problem today’s leaders face is how to promote social cohesiveness in
an increasingly dispersed and independently functioning organization.
In his excellent book on moral philosophy The Righteous Mind, Jonathan
Haidt argues that social binding is one of the secrets of the human race’s
extraordinary rise, and that some cultural attributes of human society, such as
religion or patriotism, actually inspire people to be willing to sacrifice their
very lives for the benefit of the larger group. Military exercises such as
marching in step work well for armies precisely because they trigger our
“hiving” instinct – our desire to find fulfillment as a part of a bigger group.
Buried within Haidt’s book were some interesting and somewhat
counterintuitive suggestions for how business leaders might do a better job of
triggering this group-protection instinct and generating “hivishness” within
their own organizations. If you want your employees to be “self organizing,”
even though they may report up through different lines, as well as being
geographically dispersed, you might find this advice helpful.
In Haidt’s words (p. 276 of his book):
The hive switch may be more of a slider switch than an on-off switch, and
with a few institutional changes you can create environments that will nudge
everyone’s sliders a bit closer to the hive position. For example:

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 Increase similarity, not diversity. To make a human hive, you want to
make everyone feel like a family. So don’t call attention to racial and
ethnic differences; make them less relevant by ramping up similarity
and celebrating the group’s shared values and common identity. A
great deal of research in social psychology shows that people are
warmer and more trusting toward people who look like them, dress like
them, talk like them, or even just share their first name or birthday.
There’s nothing special about race. You can make people care less
about race by drowning race differences in a sea of similarities, shared
goals, and mutual interdependencies.
Exploit synchrony. People who move together are saying, “We are one,
we are a team…” Japanese corporations such as Toyota begin their
days with synchronous companywide exercises. Groups prepare for
battle—in war and sports—with group chants and ritualized
movements… If it’s too creepy to ask your employees or fellow group
members to do synchronized calisthenics, perhaps you can just try to
have more parties with dancing or karaoke. Synchrony builds trust.
Create healthy competition among teams, not individuals…. [S]oldiers
don’t risk their lives for their country or for the army; they do so for
their buddies in the same squad or platoon. Studies show that
intergroup competition increases love of the in-group far more than it
increases dislike of the out-group. Intergroup competitions, such as
friendly rivalries between corporate divisions, or intramural sports
competitions, should have a net positive effect on hivishness and social
capital. But pitting individuals against each other in a competition for
scarce resources (such as bonuses) will destroy hivishness, trust, and
morale.

If you’re a leader in a modern, information-intensive organization, it makes

sense to focus a bit of your time on boosting the level of camaraderie – the
spirit of shared purpose and social cohesion – in your organization. In the long
term, it may be the single most important factor in how your company adapts
to threats and exploits new opportunities.

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 Technology’s Lesson: Be Apple, Not AOL
We began this book by arguing that technology has made it possible for
companies to focus attention on their customer experience, and because
technology now makes it possible to do, competitive pressure demands that
they do it. So the customer experience “movement” is rooted in technology.
As technological progress continues to accelerate, however, every business
sooner or later becomes vulnerable to disruptive change. New business models
now appear (and disappear) at Instagram speed, and any company that can’t
adapt itself quickly just won’t survive for long.
So let’s consider Apple and AOL (formerly America Online), two technology-
oriented companies both launched in the early days of the Information Age.
These two companies have had very different fates, however, over the last 25
years of highly disruptive technology innovation.
At the height of its power in 2001, AOL bought media giant Time Warner,
enjoyed a market cap of $222 billion, and had over 30 million paying
subscribers. But since then it has been a business in decline. While it earned a
bit of money from operating a few interesting online properties, such as
MapQuest, Huffington Post, and Moviefone, it separated from Time Warner
(which remains reasonably healthy), and in 2015, after losing all but 2.2
million paying subscribers, AOL was acquired by Verizon, for $4.4 billion23,
about 2 percent of its one-time value.
Apple, by contrast, is one of the world’s most valuable companies today, with
a market cap over $700 billion.24 And during the last 25 years, Apple has re-
invented itself several times, moving from the PC business to the music
business, to mobile phones, then tablets, and now wearables. AOL, on the
other hand, somehow never managed to make the relatively simple transition
from dial-up to broadband.
Of course, Apple is a perennially creative technology company, with a litany of
breakthrough products. But AOL has also been highly creative, and remains
committed to launching new business initiatives.

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No, I think the difference between Apple and AOL that best explains the stark
contrast between Apple’s meteoric success and AOL’s anemic survival is this:
Apple has the trust of its customers, and AOL does not.
Consider: From the very beginning, Apple based its entire business on
delivering an exceptional, entirely frictionless customer experience. The
company literally obsesses over the user interface of each of its products.
Moreover, Apple has always tried to act in its customers’ interests, because
that’s how it can deliver the best customer experience even if sometimes it
runs against the company’s own financial self-interest.
As just one example, when Apple reported weaker-than-expected earnings in
April 2006, the analyst at American Technology Research attributed it to the
fact that “Apple’s sales representatives have been instructed to not push
PowerPC Macs [on] customers who want to wait for Intel versions,”
presumably because the non-Intel PowerPC Mac wasn’t completely up to par.
The analyst went on to say that “[i]n this day and age where making numbers
is important, we believe Apple is in a rare group of companies willing to
sacrifice its near-term revenue opportunity for greater longer-term success by
developing customer trust.”
Now contrast this with AOL, a company that rapidly expanded in the early
days of the Internet, but continually tried to maximize its financial results by
deliberately and enthusiastically taking advantage of customer mistakes and
oversights. If AOL had had a company slogan it would have been “Caveat
Emptor” – or “let the buyer beware.” It developed a reputation for making it
ridiculously difficult to unsubscribe, and it was constantly fooling customers
into paying higher fees than they needed to pay. In fact, as recently as 2011 a
departing AOL senior executive told a reporter: “The dirty little secret is that
75 percent of the people who subscribe to AOL’s dial-up service don’t need
it.”
Because it has always been so focused on the customer experience, Apple’s
customers want the company to succeed. They view Apple’s success as
something that is clearly in their own interest. They are on Apple’s side.

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AOL’s customers, on the other hand, are not emotionally attached to the
firm’s success at all. If AOL went out of business tomorrow, the company’s
executives might mourn its demise, but customers? Meh.
If Apple went out of business there could be rioting in every Western country.
The lesson here is that if you want your own company to survive the next
inevitable technology tsunami, then focus your efforts maniacally on
delivering a customer experience that is as frictionless as it can be – reliable,
valuable, relevant, and trustable. Don’t focus just on your short-term
financials, or your current business model. Focus on your customer.
The lesson is: Be Apple, not AOL.

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 ENDNOTES
1 “How to Be There When Customers Ask.” March 25, 2013.
https://www.linkedin.com/pulse/20130315202314-17102372-how-to-be-
there-when-customers-ask?trk=mp-author-card
2 “Why Facebook’s New Graph Search Is No Google.”
http://www.fastcompany.com/3004819/why-facebooks-new-graph-search-no-
google
3 “John Lewis to step up store-based omnichannel projects.”
http://www.retail-week.com/sectors/department-stores/john-lewis-to-step-up-
store-based-omnichannel-projects/5066429.article
4 “Why Rebecca Minkoff And eBay Are Betting On Smart Dressing
Rooms.”http://www.fastcompany.com/3035229/the-smart-dressing-room-
experiment-how-irl-shopping-is-getting-less-private-but-more-persona
5 “It’s Time to Redefine Integrated Marketing.” By Brian Bennett. April 16,
2013. http://www.stirstuff.com/time-to-redefine-integrated-marketing/
6 Milkin’ It: A Starbucks Story. By Anna Papachristos. December 11, 2013.
http://www.1to1media.com/weblog/2013/12/milkin_it_a_starbucks_story.html
7 Shopper Alert: Price May Drop for You Alone.” By Stephanie Clifford.
August 9, 2012. http://www.nytimes.com/2012/08/10/business/supermarkets-
try-customizing-prices-for-shoppers.html
8 “How Too Many Choices Can Hurt Direct Mail Response.” By Hugh
Chewning. February 3, 2012. http://www.articlesbase.com/marketing-tips-
articles/how-too-many-choices-can-hurt-direct-mail-response-5630192.html
9 “Move Over Management! Employees Will Learn Trustability Lesson.” By
Don Peppers. June 24, 2010.
http://www.peppersandrogersgroup.com/blog/2010/06/move-over-
management-employees.html

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10 “Yes, Banks Are Reordering Your Transactions And Charging Overdraft
Fees.” By Halah Touryalai. June 11, 2013.
http://www.forbes.com/sites/halahtouryalai/2013/06/11/yes-banks-are-
reordering-your-transactions-and-charging-overdraft-fees/
11 “Why I’m Watching Deep Linking in Mobile.” By John Batelle. August 18,
2014. http://battellemedia.com/archives/2014/08/need-search-economy-
mobile-discovery.php
12 “CRM failure rates: 2001-2009.” By Michael Krigsman. August 3, 2009.
http://www.zdnet.com/article/crm-failure-rates-2001-2009/
13 “Management Decisions in a Data-Rich Environment. By Don Peppers.
October 15, 2013. https://www.linkedin.com/pulse/20131015112316-
17102372-management-decisions-in-a-data-rich-environment?trk=mp-
reader-card
14 The story of Ed Weiland and Jeremy Lin is told in Christopher Steiner’s
excellent book Automate This: How Algorithms Came to Dominate Our World
(2012)
15 “Coca Cola Disconnects Voice Mail at Headquarters.” By Duane Stanford.
December 22, 2014. http://www.bloomberg.com/news/articles/2014-12-
22/coca-cola-disconnects-voice-mail-at-headquarters
16 “You’ve Got Voicemail. But Do You Care?” By Jill Colvin. April 1, 2009.
http://www.nytimes.com/2009/04/02/fashion/02voicemail.html
17 “New Customer-Rage Study Out for Holiday Shopping Season.” By Debbie
Freeman. November 26, 2013. https://wpcarey.asu.edu/news-releases/2013-
11-26/new-customer-rage-study-out-holiday-shopping-season
18 “How Valuable Is Your Word of Mouth?” By V. Kumar, J. Andrew
Petersen, and Robert P. Leone. October 2007.
https://hbr.org/2007/10/how-valuable-is-word-of-mouth/ar/1
19 “When Ideas Have Sex.” By Matt Ridley. July 15, 2010.
http://www.huffingtonpost.com/tedtalks/matt-ridley-when-ideas-

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ha_b_647326.html
20 JetBlue’s Customer Bill of Rights. http://www.jetblue.com/flying-on-
jetblue/customer-protection/
21 “Amazon’s Bezos Paying Refunds for Shoddy Streaming, Poor Service.” By
Danielle Kucera. April 12, 2013.
http://www.bloomberg.com/news/articles/2013-04-12/amazon-s-bezos-
paying-refunds-for-shoddy-streaming-poor-service
22 Jeff Bezos’ 2013 letter to shareholders.
http://www.sec.gov/Archives/edgar/data/1018724/000119312513151836/d511111dex991.h
23 “The real reason Verizon bought AOL.” By Kevin Fitchard. June 24, 2015.
https://fortune.com/2015/06/24/verizon-gains-aol/
24 Forbes World’s Most Valuable Brands List, 2015.
http://www.forbes.com/companies/apple/

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Содержание
Foreword 8
Chapter 1 11
Technology Drives the Customer Experience Movement 11
Where Technology Meets Humanity 11
Are Your Customers Assets? Or Obstacles? 14
Defining the “Customer Experience” 15
Customer Experience in a Diagram 17
What Kind of Customer Experience Are You Capable of
20
Delivering?
Chapter 2 24
Customers Just Want Their Problems Solved 24
Take the Friction Out of Your Customer Experience 24
The Best Customer Experience Is NO Customer Experience 26
Are You Making It Hard for Customers to Buy From You? 28
Treating Different Customers Differently 30
The Real Implications of the 80-20 Rule 32
Chapter 3 35
Every Customer’s Experience Is Personal 35
Different Customers Have Different Needs 35
In Customer Relationships, Context Is King 39
Service or Cost? You Decide 41
Relationships Will Be Required 43
Four Steps to Managing Customer Relationships 44
Brands Aren’t the Same as Customer Relationships 46
What Honeybees Teach Us About the Customer Experience 48
What Do Your Friends Think? 50
Chapter 4 53
Eliminate the Friction in Your Customer Experience 53
The Shoe Salesman’s Secret Motivation 53
Four Attributes of a Frictionless Customer Experience 55
Delivering a Reliable Customer Experience 57
Price Is What You Pay. Value Is What You Get. 59
Avoiding Death by Procurement: Four Strategies 61

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Chapter 5 65
Deliver a Customer Experience That’s Relevant to Each Customer 65
Don’t Run Your Business on the Goldfish Principle 66
Five Types of Customers by Their Value 67
What Does It Mean to Be “Relevant” to a Customer? 70
Four Technologies to Make the Contact Center Experience
73
Relevant
Are Your Biggest Customers Your Biggest Losers? 75
Customer Loyalty: Is It a Behavior? Or an Attitude? 77
Improve Customer Loyalty by Recruiting Loyal Customers 79
That Old-Time Customer Loyalty Feeling 81
Chapter 6 84
Seek Out Customer Feedback 84
#EpicFail: Are You Hearing Enough Complaints? 84
Customer Experience Is a High-Wire Act, Customer Service Is the
86
Net
Tapping Into the Hidden Value of Complainers 89
Changing the Definition of “Integrated Marketing” 91
Is Your Customer Survey Really Useful? 93
Non-Invasive Voice-of-Customer Feedback 95
Chapter 7 97
Personalize the Customer Experience 97
Loyalize Customers by Remembering Their Needs 97
Dealing with Customer Variability 98
Customized Pricing? How to Do It Trustably 101
Improve the Experience by Not Giving Customers Choices 104
Use Interactions to Maximize Customer Insight 107
Mass-Customizing the Customer Experience 108
Chapter 8 112
Earn Your Customers’ Trust 112
What Does it Mean to be “Trustable?” 112
The Rapidly Evolving Trustability Opportunity 114
Trustability Is the New Black 116
Gross Incompetence Implies Bad Intentions 118
Five Requirements for Being Trustable 120

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Chapter 9 123
Let Your Humanity Shine Through 123
Frictionless First, Then Delightful 123
Make Your Customer Laugh Once in a While 125
Delight Customers With Your Humanity 127
Customer Experience: It’s All Relative 130
Putting Humanity into Your Company’s Mobile App 131
Chapter 10 134
It Won’t Be Easy 134
“The More I Buy, the Worse They Treat Me” 134
Three Reasons Why Customer Transformations Fail 137
Do You Allow Employees to Use Common Sense? 139
Four Types of Customer Experience to Plan For 141
Dealing With the Alignment Problem 143
The Alignment Problem Up Close and Personal 146
Six Leadership Behaviors for a Customer-Centric Transformation 148
Chapter 11 151
There’s Real Money to Be Made 151
How to Pay For a Better Customer Experience 151
Customers Create Two Kinds of Value 153
How Do You Build the Business Case for a Good Customer
155
Experience?
Measuring the ROI of a Frictionless Customer Experience 157
The Business Benefit of Being Trustable 159
Chapter 12 162
How Much Is Customer Loyalty Really Worth? 162
Customer Retention Should Never Be Your Only Goal 162
When Are Loyalty Programs a Waste of Money? 164
Loyalty Programs Provide “Longitudinal Insight” 167
Five Best Practices for Loyalty Programs 169
Chapter 13 172
Life in the Frictionless Fast Lane 172
The Consumer of the Future Will Be an Algorithm 172
If I Ran a Brick-and-Mortar Retailer 173
The Twilight of the Corporate Call Center 176

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 Turn Customer Frustration Into Opportunity 178
At-Home Reps Can Improve Your Health 180
Chapter 14 183
Caution: Good Intentions Required 183
Knowledgeable Customers Create More Value 183
Influencing the Influencers 185
The Smothering Downside of Personalization 187
How to Avoid Being Smothered by a Personalized World 189
The Competitive Advantage of Trustability 191
Transformational Leadership for the E-Social World 193
Technology’s Lesson: Be Apple, Not AOL 196
Endnotes 199

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