Why Customer Experience Is The Only Thing That Matters

The only source of competitive advantage is the one that can survive technology-fueled disruption: an obsession with customer experience.

I was at a conference talking to some attendees when one of them, a guy who works for the Abu Dhabi ministry of finance, asked what I do for a living. When I replied that I conduct research into customer experience he replied, "Companies already know all about customer experience! Isn't it just common sense?"

That's a fair question because it should be common sense. It's not, though, as I explained by offering the example of the difference between the customer experience on Southwest Airlines or JetBlue, and the customer experience on United Airlines or American Airlines.

I didn't get far in my explanation before he cut me off—I could almost literally see the light bulb turn on behind his eyes. "You're right! I always fly Emirates. Even if they're more expensive and I have to pay the difference in the ticket price myself, it's worth it to not have to fly British Airways or Air France!" Then he proceeded to extoll the virtues of the Emirates experience for the next 10 minutes, warming to his topic as he went.

Why am I telling you this story? Because it's a perfect illustration of the state of customer experience as a business discipline in 2012.

A firm called Watermark Consulting used our data to calculate the performance of a portfolio of publicly traded companies that are customer experience leaders. Over the last five years, a period when the S&P 500 was essentially flat, that portfolio produced a cumulative total return of just over 22%. During the same period a portfolio of customer experience laggards returned -46%. That shows that not only do customers reward a superior experience, so do the markets.

There I was talking to a sophisticated businessperson (with an MBA from a prestigious U.S. school, I later found out). And yet he hadn't given much thought to A) what the term "customer experience" actually means, B) how much it varies among direct competitors, or C) how much of an impact it has on customer loyalty.

The good news is that he caught on immediately once I started explaining these things: Customer experience may not be as easy as "common sense" but it's not as difficult as quantum mechanics, either. Which prompts the question: Why is so much of the business world out of touch with the concept of customer experience?

Ironically, the answer is that for decades, customer experience didn't matter as much to business success as it does today. Consider that from 1900 to 1960 we were in the age of manufacturing. In that era, if you owned the factory, you owned the market. Factories were expensive to build but, once created, generated products at prices that others couldn't compete with—like the Ford Model T, which took two people to start (hardly a great experience) but was a huge commercial success because it was affordable.

Then from 1960 to 1990 we were in the age of distribution.  Businesses globalized, and deregulation and freer trade meant they could manufacture cheaply in Asia. In that world, the key barrier to competition was a distribution network that brought goods from where they were cheapest to local stores. Companies like Toyota, Procter & Gamble, and Walmart took advantage of that change.

Although their customer experiences weren't bad, customer experience wasn't the key reason they won in the marketplace—it was their mastery of distribution.
What's more, these companies controlled the flow of information about their products and services. Comparing products and prices took a lot of work: driving around, calling around, or leafing through print ads.

But that situation changed radically starting in 1990 when we entered the age of information. Companies with information-centric products and services thrived, including Amazon and Google, which initiated a power shift from sellers to buyers.

Now we've entered a fourth age, which we call the age of the customer. In this age, past sources of competitive advantage have been commoditized: Now every company can tap into global factories and global supply chains. Brand, manufacturing, distribution, and IT are all table stakes. And with online reviews, social networks, and mobile web access, it's easy for your customers to know as much about your products, services, competitors, and pricing as you do.

In this age, the only source of competitive advantage is the one that can survive technology-fueled disruption: an obsession with customer experience.

You don't have to take my word for this. Over the last five years we've been running a study in which we ask consumers to rate the customer experience at companies they do business with. What we can now prove is that customer experience correlates to loyalty. Specifically, it correlates highly to willingness to consider for another purchase, willingness to recommend, and reluctance to switch to a different provider. In other words, if you want that next sale, if you want good word of mouth, and if you want to keep your customers, it's unlikely that anything else you do matters more than delivering a superior experience.

Will your business be one of those that profits in the age of the customer by mastering the business discipline of customer experience? Ultimately that's up to you.

Harley Manning is the co-author of Outside In: The Power of Putting Your Customers at the Center of Your Business. Manning launched the customer experience practice at Forrester Research and has led it for 14 years.

[Image: Flickr user John Atherton]

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32 Comments

  • Baruni Shiva

    Speaking from a customer's perspective, a positive experience is a powerful way to improve recall. While making a whacky advertisement could be another way, it won't convey how the brand can add value to my life. With customer experience that conveys relevance and value to audiences, brands will establish superlative perception in people's minds. Another post seemed to agree with this belief http://bit.ly/1gU2jPy

  • Cashewer100

    Retail service providers keep customers waiting in long queues. Customer experience is NOT common sense to most intelligent doctors, dentists and successful business owners.

  • kiran bhanushali

    Well. If enough people are tooting the customer experience horn then within a year or so it would become table stakes too. I guess we move on to the next big differentiator then?

  • Questions1st

    Funny how people often times confuse what companies know with what companies actually do. Not that people are much different. 

    But the one thing that people don't think about and companies do is how expensive it can be to implement common sense. Of course you should have a customer care representative available when someone calls - that's common sense. But if you need to hire more people and you're not sure that the investment is worth making, you'll forget about common sense.

    Fierce competition doesn't always make companies invest in customer experience, talent management, etc. Some choose the opposite strategy: reduce costs. Depending on the industry, their customer base, etc, both strategies can prove to be successful. 

  • lindaireland

    Harley you've done a terrific job explaining how we got to where we are. Your post and the comments here demonstrate another view of "Customer Experience in 2012" -- that it is often thought of and managed as if it is synonymous with customer service. Service is absolutely critical, but a component of the customer experience.
     
    The top performers you mention win because they make decisions in every part of the organization to move customers closer to an ideal experience. Managing key touch points is part of what it takes. Service is part of what it takes. Talent strategy (and a great employee experience) and technology and...all are needed.  
     
    Imagine a line of falling dominos: with a clearly defined target experience at the front and decisions across the organization lined up to deliver what customers value, the last two dominos to fall are healthy revenue AND profit. This is the mindset I see in today's top performers.  
     
    Thanks Harley for sparking a terrific conversation.
     
     
     
     

  • Malcolm Wicks

    No argument on the importance of good Customer Experience. The challenge is that it can't be delivered by just fixing one or two aspects of customer touch points. I always advice clients to ask: "What would be the impact on customers?"  before finalising any decision and,  if it's negative - don't do it.  If it's neutral work out if there is a way to make it positive.   

    Implemented from the top down it will improve improve customer experiences in all the little ways that are so important.    

  • Marissa Rexer

    While interesting, this is certainly not new.  Customer experience has been measured through the lens of customer satisfaction by the ACSI (American Customer Satisfaction Index), a predictive indicator of customer behavior and financial success for over 18 years. 

  • Ruth E Collins

    but don't forget that the front-line employees have to deal with sometimes unreasonable expectations from the behind-the-lines people. And the management has to deal with (non)support from the company's bottom line/ front offices.

  • Mark Riffey

    The irony is that these "suddenly" experience-aware global/national businesses have been forced to catch up with the kind of service most small town business owners had to deliver from the day they opened their doors if they expected to have any longevity.

  • Patsyd402

    This was a great read and i have shared it with team!!

    It seems that common sense is not that common when it comes to customer experience. As I say to my team everyday before they get on the phones, don't forget 'Last experience next purchase"

  • Amber King

    Excellent article Hayley. These days, in order to get ahead you need to have excellent customer service. Providing excellent customer experience will gain you their loyalty. A loyal customer is what businesses should look for.

  • andy_mcf

    Customer experience is certainly key.  Without it, you count on products to differentiate in the marketplace.  Many companies have this epiphany but fail to realize the next common sense step in the process. 

    Employees _deliver_ the experience.  Or re-engineer processes, or train the front line.  Unfortunately, employees aren’t as interchangeable as employers often believe.  Employers must match the skills and passions of people to the jobs that must be done.  Otherwise, all we do is use the wrong tool (in this case, human capital) for the job.

    Here are a couple of posts (1) on the pillars of customer experience http://bit.ly/dIt3Kz and (2) on the difference between someone to do the job and someone who is passionate about the job http://bit.ly/GS74DU

  • Robi Ganguly

    Fan-freaking-tastic! In our hyperconnected world with so much information and so many similar products and services, being unique in your offering isn't nearly as important as delivering a unique experience. People remember how you make them feel and the customer experience aspect of most products and services is the thing that really determines how someone feels. The difference between a Starbucks and the numerous coffee shops that have gone out of business is often the investment in service, particularly in creating a repeatable and high quality experience. If more companies understood that they're in the loyalty and relationship business, we'd all be happier customers. 

  • Shep Hyken

    Yes! The customer experience really is common sense.

    Unfortunately, it’s not always so common. Customer experience is simple: Have a product or service that does what it’s supposed to do and be nice and helpful. Okay, that’s an oversimplification. Yet, it’s not that far off. People assume that what you sell them will work. What’s left is the way you deliver it; the customer experience. And, much of the customer experience is driven by people. People have to be nice, respectful, knowledgeable and helpful. Do that and you’re 90% there.

  • Questions1st

    you're right when you say that "much of the customer experience is driven by people" but that's also a major problem because if you aren't able to motivate people, train or even educate them, any other investment in customer experience software or consulting will be pretty much useless. 

  • Kevin Croft

    Not sure about the 1990 date as a change from distribution to information age, but a very thought-provoking article. Thank you.

  • Abhay Mathur

    customer experience guarantees that your customer would return for more and that' why business exists.

  • Aywang67

    Fantastic article, particularly since it comes right after a recent trip on United Airlines, whose customer service resulted in the worst experience ever in all my years of travel. Too bad they bought Continental and threw out everything that made them such a great airline. Too big to fail? Try too big for their own good.

  • Hwy6AandM0

    Great article, and high time. I've noticed a decline in customer experience over the past 10 years or so. I felt it was due to employers trying to save money by hiring lower caliber staff. it won't surprise me if the solution is to try to commoditize the customer experience.