What is Customer Experience?

Customer Experience refers to the experience customers have when interacting with a company. It is especially focused on the process and experience when a customer provides a complaint or critical feedback to the company’s customer service departments. How important is it to monitor their customer engagements? How important is it for a company to optimize the customer experience? And if your company is upside-down in customer service, how do you turn it around? This article should answer these questions and more.

The importance of a positive Customer Experience

Most people comprehend the value of a great customer experience. Brands that deliver them are ones that we want to interact with as customers, which we become loyal to, and we recommend to our friends and family. But leaders of business can find it difficult to determine where to prioritize the expenses associated with delivering an exceptional customer experience since it isn’t always so cut and dry.

In order to quantify the impact of a good versus poor customer experience, Harvard Business Review looked at two companies with different revenue models. One transactional, the other subscription based. They did this by exploring and quantifying two common elements relevant to all industries which were: customer feedback, and future spending by individual customers. To see the effect of experience on future spending, they looked at experience-data from individual customers, at a point in time, and then compared individual customers’ spending behaviors over the subsequent year.

Transactional businesses primarily value return frequency and spend-per-visit, while subscription-oriented businesses focus on retention, cross-selling, and up-selling. After using multiple regression factors that might drive outcomes other than from customer experience, for instance bias and membership preference; they found it became clear that the customer experience is a major driver of future revenue.

They also found that customers with the best past experiences spend 140% more compared to those who had the poorest past experience. Customers with the poorest experience had only a 43% chance of keeping a service a year later; while top experiences would drive a 74% retention rate for another year. In fact, those with the highest experience were reliable customers for an average of an additional six years. So, an exceptional customer experience tends to drive retention of customers as well as a higher spend per customer.

Contrary to popular belief, that investing in an optimum customer experience comes at a high cost, delivering optimal customer experiences actually reduces the cost to serve customers from what it was previously. Unhappy customers are expensive customers, and we know that while satisfied customers are likely to share their experiences with friends and family, unhappy customers are more likely to share negative experiences. Unsurprisingly, the sensationally bad experiences may continue to proliferate for several degrees of sharing, while great experiences get shared, but to a much lesser degree. Not only is it cost saving and profit forward to invest in an optimized customer experience, but the costs of poor customer experiences can be crippling for the brand resulting in: slow new client acquisition, increased customer attrition, and an increase in the costs of doing business.

Harvard Business Review summarizes that “This is no longer a philosophical debate about whether to invest in the customer experience, it is not a question of beliefs, it is a quantifiable fact that delivering a great experience vs a poor one, will demonstrate to everyone in your organization just how big that impact can be.”

Per data by the American Customer Satisfaction Index (ACSI), Customer satisfaction is at its lowest point in the past two decades. Companies must focus on improving the customer experience without sacrificing revenue.

With Customers’ growing knowledge of excellent customer experiences occurring, customer’s expectations have expanded and dramatically increased. Customers no longer compare companies simply to immediate competitors; today, companies are compared to the best companies and brands across industries.

Which Customer Satisfaction areas should a company focus on to create a greater profit at a lower risk?

Customer Satisfaction is defined as a strategic company asset. It should be optimized, not maximized or ignored, but optimized, per the ACSI.

As a company grows and its customer base widens, the expectations and needs of customers become more diverse. For this reason, it can be extremely challenging for companies dedicated to realizing high customer satisfaction scores.

Many companies will proclaim their goal is to “always exceed customer expectations,” which is not a realistic goal since it is simply not sustainable. They should instead turn their focus to creating a robust customer experience with specific, measurable, achievable, realistic, timely (SMART) goals.

These SMART goals could measure and optimize:

  • Quality performance
  • Providing value rather than lowest price
  • Driving and rewarding customer loyalty

Learning to appreciate customer complaints, are among the best ways to develop an effective strategy to drive a highly appreciated overall customer satisfaction score.

Focusing on price alone to try and establish value can be very detrimental to customer satisfaction. The customer satisfaction is more positively affected by product and service quality.

The essential predictor of macroeconomic growth in a national economy and changes in that country’s economy is customer satisfaction. Be thankful for complaining customers, it is impossible to please every customer’s diverse needs and expectations, but learning to celebrate the opportunity given to a company through the feedback loop of customer complaints is a great way to keep a pulse on market expectations and prioritize changes to business practices.

The opportunity to receive feedback from a complaining customer provides the organization a priceless view of the current market expectations and is much more valuable to the business than focusing on their customer base which does not address their customer dissatisfaction. It should be a top priority to create an easy and short customer feedback loop for the company to capitalize on the gift of critical customer feedback.

Companies that take customer complaints seriously tend to develop more competitive brands, products, and services. To reiterate, it is much more advantageous for customers to express their dissatisfaction, over customers that do not take that time and energy to engage with you. This is because the customer feedback loop gives the organization the insights into expectations and values of those buying your products or services. It is wise to embrace these customer feedback opportunities.

End Game: Make Customer Experience a priority to your company.

Almost perfect complaint-handling often results in stronger loyalty even from those customers with a problem-free experience. It is those companies that proactively navigate the complaints given by customers that end up driving loyalty to the company. This gives more evidence to the importance of a company intentionally being grateful for the complaints by its customer base for the opportunity to improve.

Different generations tend to behave differently when it comes to loyalty. Surprisingly, Millennials (those born between 1981-1996) are among the most loyal behind those born between 1928-1945.

Satisfied customers are profitable customers. Numerous scientific studies support the overwhelming cause-and-effect relationship between customer satisfaction and financial performance.

Managers tend to overestimate: customers’ expectations, perceived value, satisfaction, and loyalty; while underestimating customers’ complaints. It is critically important to be intentional about viewing all experiences a customer has with the product, service, and staff; and optimize the experience by fully taking advantage of any opportunity to gain their insight of the experiences they receive.

An increasing customer base tends to equate to declines in customer satisfaction because the wider the customer base, the broader the customer expectations, needs, and wants. In order to capitalize on customer satisfaction, companies need to take a customer-centric, experience-based approach to drive a positive customer experience through developing a customer-centric ecosystem based on scientific customer-experience metrics.

The importance of customer service shouldn’t be underestimated, investing in your customer service team now pays dividends. Customer service is the direct connection between your customers and your business. It retains customers and extracts more value from them. Top-notch customer service can recoup customer acquisition costs and build a loyal customer base.

Loyal customers help companies acquire new customers free of charge. Their positive testimonials will be more effective than your current marketing efforts, and are highly economical. A company with excellent customer service cultivates greater profitability such as: increased customer retention, new customer acquisition, and increased sales revenue.

It is less expensive to retain your existing customers than to acquire new ones. A company who delivers exceptional customer service doesn’t have to attempt to be the least expensive option in town. Studies show that customers place such a high value on a positive customer experience, that 80% of customers report being more likely to give repeat business. It is also well documented that customers are willing to pay as much as 18% more for like product or services for an excellent customer services experience.

Keeping your customers needs in mind, being empathetic with customers’ concerns in conversations and offering solutions based on customer feedback will help foster a high customer experience. Customers who have a positive experience with customer service interactions tend to enjoy greater lifetime spends per customer, greater referrals, and greater loyalty.

Optimized customer service makes new customers more trusting of your business and tends to be more receptive to upsell and cross-sell with less friction.

A report “Experience-led growth: A new way to create value;” showed a strategy focused on improving the experience of existing customers can deliver breakthrough growth for incumbent companies – often more than double that of their industry peers. Many companies are so obsessed with new customer acquisition, they neglect their most powerful competitive advantage, which is their existing customer base.

Compensating for the value of just one lost customer can require the acquisition of three new customers. Organic growth can be strategically realized by introducing upsell and cross sell products and services to existing customers. A company can measure these metrics by analyzing wallet-share, repeat purchases, or net revenue retention. Net Revenue Retention is derived from recurring revenue retained from existing customers over a given time period, according to McKinsey.com

McKinsey.com continues “It is imperative to listen to customer needs and take advantage of every customer interaction, especially honing in on dissatisfied customers. Companies that achieve leader status in customer experience achieved more than double the revenue growth of those companies with sub-par customer experience between 2016 and 2021.”

The McKensie paper continues saying “We have observed that successful experience-led growth strategies, those that increase customer satisfaction by at least 20 per cent, can deliver a range of significant financial benefits; such as increased cross-sell rates by 15 – 25 per cent, boost companies’ share of wallet by 5 – 10 per cent, increase cross-sell rates, and improving customer satisfaction and engagement by 20 – 30 per cent.”

American companies reportedly lose about $136.8 billion yearly because of avoidable customer attrition. Demonstrating a positive or negative customer experience is directly related to a company’s revenue growth.

Personalized customer service is imperative. Customers need to feel like personal, individual care is being given to them. Using their name, and being sure they feel heard are important factors in delivering a personalized customer service experience.

Most businesses will experience dissatisfied customers at one time or another. When providing a positive and personalized customer experience, results show 78% of customers would do business again after a mistake was adequately remedied. Data also shows that only 20% of customers will forgive a bad experience if they perceive the customer experience to have been “very poor.” That means the realized empirical advantage of a positive personalized customer experience is repeat business of 58% that would have been unrealized had that interaction been poor.

Companies that train their employees to prioritize excellent customer service will create satisfied customers. Satisfied customers will refer other new customers such as their family members, friends, and others within their spere of influence. Happy customers are 50% more likely to try a new product and spend 31% more money on the product than a new customer will. Studies show that as much as 67% of customer churn is preventable if the customer’s issue is resolved during the first interaction.

“We see our customers as invited guests to a party, and we are the hosts. It is our job every day to make every important aspect of the customer experience a little bit better.”

Jeff Bezos AMAZON FOUNDER

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