Linking the customer experience to
value
Many
customer-experience transformations stall because leaders can’t show how these
efforts create value. Patiently building a business case can fund them, secure
buy-in, and build momentum.
The road to failed customer-experience programs is paved with good
intentions. Executives are quick to see the end-game benefits of a
customer-centric strategy: more satisfied customers, increased loyalty, a lower
cost to serve, and more engaged employees. But they often fail to understand
clearly what a superior customer experience is worth and exactly how it will
generate value. At a recent roundtable, fewer than half of the
customer-experience leaders present could say what ten points of net promoter
score would be worth to their businesses.
Many companies begin their efforts to change the
customer experience with a broad aspiration to transform it. Executives launch
disruptive initiatives to delight customers with bold moves and innovations.
But they often fail to quantify the economic outcomes of differences in
customer experiences, so their efforts end up having clear costs and unclear
near-term results. Customer-experience transformations invariably raise
questions about business policies, cross-functional priorities, and how to
invest in innovation. Without a quantified link to value and a sound business
case, such efforts often can’t show early gains, build momentum among
functional executives, and earn a seat at the strategy table. They stall before
they ever really get going.
There is a better way, anchored in science, fresh
research, and a structured methodology. We also find that the most successful
programs are self-funding—early wins remove costs from the system and simplify
the business. Those savings can then fund medium-term initiatives to innovate,
to change the trajectory of the customer experience, and to support some of the
boldest actions. With a self-funding business case, a customer-experience
program can maintain momentum and build buy-in throughout an organization.
Make no mistake, however: building an unambiguous link
between the customer experience and value requires patience and discipline to
invest early in an analytic approach. It is easy to skip this step for the sake
of speed, but that is a mistake every time. When establishing a link to value
is done well, it provides a clear view of what matters to customers, where to
focus, and how to keep the customer experience high on the list of strategic
priorities.
In essence, getting the logic and the math right for a
successful program requires a structured approach and real science to achieve
three objectives: building an explicit link to value, directing investments to
where they will do the most good, and designing a detailed road map populated
with early successes to self-fund the transformation.
Building
an explicit link to value
Companies investing to improve the customer experience
must be clearer about what it is actually worth and exactly how the
improvements will generate value. To construct this link, start by defining the
customer behavior that creates value for your business and then follow customer
satisfaction over time to quantify the economic outcomes of different
experiences. Several steps can help.
Develop a hypothesis about customer
outcomes that matter. Start by identifying the
specific customer behavior and outcomes that underpin value in your industry.
For example, in the telecom sector, more satisfied customers should be less
likely to churn, have fewer issues that escalate into calls, and sign up for
more products. Airlines will focus on capturing a greater share of trips and
trip revenues and on lowering the cost to serve. Business outcomes will vary by
industry, but the principle is the same—postulate three to five hypotheses
about the outcome measures that deliver value.
Link what customers say to what they do. The next step is to link what customers say in
satisfaction surveys with their behavior over time. Begin by building a
customer-level data set of the results of past surveys that asked respondents
about their overall satisfaction or willingness to recommend your products or
services. Using an email or customer identifier (with due regard to customer
privacy concerns and in compliance with applicable regulations, of course),
most companies can link survey results back to their databases. Query your
customer database to pull down two to three years of monthly data for each
priority outcome measure. For example, a pay-TV company matched its historical
willingness-to-recommend survey responses at a customer level, on the one hand,
with two years of monthly data on customer retention, cost to serve, revenues,
product upgrades, and referrals, on the other. This type of link will form the
backbone of your customer-experience data analysis.
Analyze the historical performance of real
customer cohorts. Using customer data linked to survey
respondents, analyze customers you designate as satisfied, neutral, or
dissatisfied over a period of one to two years. How much less subject to churn
are satisfied customers than dissatisfied ones? What about generating expensive
calls, adding additional lines of business, or defaulting on loans? For each
group of customers and segments, summarize the one- to two-year outcomes. Those
with larger differences among dissatisfied, neutral, and satisfied customers
tend to link more solidly to value. Leading customer-experience companies use
these data to estimate the value, at an enterprise level, of moving 5 percent
of their dissatisfied customers to a neutral status.
Look at the trend to take a
forward-looking view. Successful customer-experience
programs look forward, not backward, in assessing the link to value. Building a
business case solely on backward loyalty data may overinflate the economics in
ways that bias investment decisions. For example, since 2009 the stated loyalty
of customers has dropped by 20 percent for pay-TV companies that provide an
average customer experience. By looking at year-over-year changes in outcome
measures for dissatisfied, neutral, and satisfied customers, companies can
build a view of where the link to value is heading.
Track outcomes. In our experience, the best approach to quantify
the value of the customer experience is to track outcomes over time for each
customer segment that matters. To set priorities and quantify payouts for
improving the customer experience, every company with a program to improve it
should be able to link satisfaction directly to business outcomes.
Directing
investments to where they will do the most good
To be confident that your customer-experience program
will generate a positive return on investment, building a link to value is
necessary but not sufficient. The next step—where most companies fall short—is
to base priorities for initiatives and opportunities on their importance to
customers.
What
matters to customers
To do this well, a company must create a model of what
matters to customers, a graded short list of customer pain points to eliminate
or fix, and a view of opportunities to innovate as seen from the customer’s
perspective. A number of actions can be taken.
Focus on customer-satisfaction issues with
the highest payouts.Customer-experience break points are not
standard across industries. For example, in health insurance, improving the
experience of customers who are dissatisfied with the service so that they
become merely passive about it has more economic impact than migrating such
“passives” to the category of people willing to promote the service. However,
in retail banking, every promoter does matter—moving someone from the 80th to
the 90th percentile of satisfaction has a significant economic payout. Using
the link-to-value analysis outlined earlier, determine if it would be more
valuable to reduce the number of detractors or to create more promoters, and
then focus your portfolio of customer initiatives on achieving that goal to
maximize the return on your investment from the start.
Build a model around what matters to
customers. End-to-end customer journeys, not
individual touchpoints, are the unit to measure when setting priorities for
your customer-experience investments. Why? Our research has found that journey
performance is significantly more strongly linked to economic outcomes than are
touchpoints alone. Modeling customer satisfaction around journeys rather than
touchpoints enables you to estimate the most important end-to-end journeys
across customer segments. Start by rethinking the scope of existing surveys.
Test whether they cover the most important customer journeys and lesser
elements of customer satisfaction. Next, expand your customer data set so that
it links up with operational data, as well as input from employees and
customers. Finally, you can use advanced “derived importance” analytics, such
as Johnson relative weights,1to
build a model of customer satisfaction that links perceived and operational
performance on each journey with long-term costs and revenues.
In addition to identifying the most important journeys,
supplement the model by exploring how consistently you perform. In our
experience, improving your consistency in delivering a flawless customer
journey is often one of the best ways to create value. A flawless onboarding
journey, for example, might entail a single sales phone call, zero callbacks,
service activation within 48 hours, active usage in the first ten days, and no
issues on the first bill. A company may be 80 to 90 percent successful at each
stage of that sequence, but only 30 to 40 percent of customers will have a
flawless experience end to end. Done well, the satisfaction model will also
help you measure the value of consistent performance.
Within journeys that matter, size and set
priorities for key areas to improve. Once
you know the journeys to focus on, assemble a cross-functional team to dig into
possible initiatives to improve your performance. What pain points or opportunities
will help you differentiate your company? Where do you want to focus first?
To create a set of pain points, analyze the voice of the
customer, starting with the driver model above. But extend it into specific
operational surveys, focus groups with customers who recently undertook the
journey in question, and deep structured interviews to highlight pain points,
missed expectations, and opportunities to differentiate. In parallel, the voice
of the employee will help you gather the experience of those who know customers
best—the front line. Use site visits, employee focus groups, and supervisor
interviews to construct a map of the current journey and a short list of pain
points, complexities, and opportunities to streamline.
Once you have listed the pain points, size the potential
impact of each, using three measures: reducing the cost to serve, capturing
longer-term revenues and loyalty, and improving overall satisfaction. In the
customer-experience area, the most concrete business cases are often built on a
near-term reduction in the cost to serve: fewer calls, escalations, technician
visits, and so on. These moves remove both customer pain points and costs from
the system. Then measure longer-term outcomes. For example, mobile customers
who dispute their first bill are less likely to remain active 12 months later—a
lagging effect common across many industries. Finally, for each journey, size
the potential impact of improvements at every pain point on overall
customer-satisfaction scores. Moreover, what does the model you have created
suggest about the value of customer-satisfaction improvements over time? Taken
together, the near-term cost, medium-term loyalty, and overall-satisfaction
analysis will help you set priorities for addressing specific pain points in
the journeys that matter.
Identify opportunities to innovate and
disrupt in competitive white spaces. While
eliminating pain points for customers is important, it is equally critical to
identify areas where you can differentiate your company from competitors as
customer expectations change. For example, retail-banking customers
increasingly want a digital, branchless, and paperless experience. Getting
ahead of that trend is far more important than incrementally improving the
branch experience.
Where
else can you innovate?
Voice-of-customer analysis can provide a starting list
of disruptive ideas. How else can you decide where to innovate? First, focus
innovation resources either on important customer-experience journeys where you
have a large gap against competitors or on reasonably important journeys where
the gap is narrow or unclear. The model described above will help you estimate
the potential for disruption in those areas.
Second, look at your operational data for
digital-innovation opportunities. Which customer journeys drive the largest
number of calls? For example, a typical banking customer of the diversified
financial-services group United Services Automobile Association would make
multiple calls to obtain a new car loan. USAA turned this process into an
online digital-loan-origination solution. Journeys that generate more than six
calls per customer are leading opportunities for digital innovation; you can
build an economic case around reducing the cost to serve customers and
promoting loyalty by engaging them more intensely.
Third, conduct ethnographic research to follow customers
in their daily lives and identify unmet needs and innovation ideas. Then assess
these ideas against the customer-satisfaction model to estimate the potential impact.
Designing
a road map with early successes to self-fund improvements
So far, you have analyzed what matters to customers, set
your priorities for customer journeys, and weighed the importance of
initiatives. Now you can construct a transformation road map backed by a clear
business case. Many customer-experience efforts lose momentum because the path
to impact is too slow or too vague. Efforts to improve near-term quarterly
performance can therefore sweep aside initiatives to improve customer-satisfaction
scores. To overcome that risk, successful efforts construct road maps that ring
the cash register in the near term, fund themselves in the medium term, and
make a long-term impact anchored in a model of the things that matter most to
customers. To create that road map, it can help to follow these steps.
Calculate
each initiative’s expected value, time to capture, and cost to implement
The exploration of what matters most to customers should
unearth the value of initiatives under consideration and help to crystallize a
short list of priority efforts. With that in hand, convert an initiative’s
overall potential impact into an expected value by combining the severity of an
incident or opportunity (for instance, its magnitude of impact, whether it is
positive or negative, or when it occurs) with its frequency (say, how often all
or part of the customer base is affected). For example, a telecom company would
consider a phone’s technical failure a severe but infrequent event. By
contrast, surprise billing changes are less severe as individual events but
happen all the time. Addressing the customer shock from billing changes almost
always represents greater overall value.
For each of these examples (and others), a
cross-functional team must then estimate the time needed to capture the value
at stake. If the expected benefit is reducing customer churn or boosting future
revenues, a payoff may not be visible for more than 12 months. Finally,
estimate implementation costs.
In a smart sequencing, you want to order and balance
multiple initiatives: those that will affect the largest number of customers,
that will pay off quickly, and that address the most severe problems or the
most important areas to exploit.
Separate
initiatives to help balance the portfolio
To achieve the right balance and sequence, two
dimensions are critical. First, some initiatives, such as simplifying billing
or revising rules on issuing customer credits, will be policy driven. Others,
such as enhancing the skills and training of field technicians or boosting
customer-service skills at a retail bank, will require a frontline field
rollout. In general, policy initiatives can be directed centrally and are
therefore faster to implement than field-driven initiatives requiring
disciplined rollouts in waves. A well-sequenced road map balances both types of
initiatives throughout.
Second, some initiatives will affect nearly all
customers, and some will be severe opportunities that affect only a few. A good
sequencing balances both because companies must ensure that a majority of their
customers experience the change in some way. An overemphasis on severe
incidents and opportunities is a common blind spot.
Design
a balanced road map that will signal success and fund itself
With the expected value, cost, and impact timetable for
each initiative in hand, and with a clear sense of which initiatives can be
undertaken centrally and which require a rollout in the field, operators will
have enough information to build a well-sequenced road map. Keep in mind a few
design principles:
·
Ensure some quick wins
early. For example, make a policy change that is easy to implement, even if its
impact is relatively small.
·
Tackle at least one
sacred cow in the early going to signal that you are serious. Every company has
them—often, some pricing or policy element that the organization knows to be
customer unfriendly but generates such high earnings that most executives shy
away from unwinding it. Armed with a robust fact base, leaders can demonstrate
the value of piloting such initiatives.
·
Balance severe incidents
and opportunities with frequent ones—make sure the road map will touch all
customers and all employees in some way within the first year.
·
Finally, use the early
wins to finance investments in longer-term solutions—for example, upgrading
systems or easing logjams in IT. Armed with your analysis of what matters to
customers, you will typically find constructing the business case to be
straightforward.
Many companies begin customer-experience efforts with
lofty ambitions but a poor grounding in linking programs to value. There is a
better way. Take the time to construct a self-funding business case and you
will reap company-wide buy-in as your reward. That will anchor your
customer-experience program and pay dividends long after the up-front months
needed to do it right have passed into history.
About the Authors
Joel Maynes is
an associate principal in McKinsey’s Southern California office, and Alex
Rawson is a principal in the Seattle office.
http://www.mckinsey.com/business-functions/marketing-and-sales/our-insights/linking-the-customer-experience-to-value?cid=other-eml-alt-mip-mck-oth-1603
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