In 1971 three friends from the University of San Francisco decided to start a coffee bean business. They didn’t serve any coffee, they just sold coffee beans. After 16 years of hard work, they had grown their business to six locations.
Business was hard. Overall coffee sales were declining in the U.S., and bean prices were in decline. Despite a quality product, they were in a race to the bottom. Eventually, they decided to sell the company to an entrepreneur who was willing to buy their commodity business. This entrepreneur’s friends and family thought he was crazy, but he had a breakthrough insight that would change coffee forever.
Think about coffee. It is a basic commodity product, traded on global exchanges. Today, the cost of wholesale coffee beans is around 2 cents per cup. But if you roast, grind, and package those beans, you can sell them for 25 cents a cup.
Brew the coffee, and serve it hot, and now you can sell that cup of coffee for about $1. On the whole, the numbers really haven’t changed much in a long time.
While traveling in Europe, this entrepreneur had been captivated by the romance of the coffee experience—everything from baristas calling customers by name to brewing the coffee in front of their eyes. Everyone was treated like family. So he took these six locations and invested in the ambience, the music, the product, and masterminded each customer interaction.
He also prioritized the employee experience so it would be a happy place to go. To him the experience was everything. And today, Starbucks is valued at more than $100 billion.
EXPERIENCE MANAGEMENT IS THE DIFFERENTIATOR
Starbucks had two sets of owners. One offered customers a commodity, and the other offered customers an experience. Not only did Starbucks disrupt coffee pricing, they also disrupted our daily routines. Many of us spend $3-to-$6 for a cup most mornings.
With the rise of the internet, smartphones, and social media, it’s never been easier for customers and employees to evaluate which companies provide great experiences, and which ones don’t.
Today, organizations are disproportionately rewarded when they deliver great experiences, and punished when they don’t. Not only does the market demand better experiences, but experience has also become the new growth engine. This is the heart of the experience economy.
Experience Management is the only sustainable competitive advantage. If you look at the experience portion of the Consumer Price Index (CPI) over the long term, you can see how experience offerings break away from the pack. As the worldwide economy advances from commodities through goods and services, we see that consumers pay more for experiences, and experience spending makes up a bigger portion of our spending than ever.
This experience premium drives greater value, repeat purchases, happy stakeholders, and viral word of mouth. If you are not competing on experience, just like the bean-only version of Starbucks, you are on a race to the bottom.
EXPERIENCE MANAGEMENT IS CHANGING INDUSTRIES
And it’s not just coffee. Think about ground transportation. You used to have to wait on the corner in the rain, then get in the equivalent of a squad car with a weird Plexiglas divider. Then you were asked to pay and tip while you’re trying to get out of a car, parked in the middle of the road in the rain.
But then one day, somebody woke up and said, “That’s a horrible experience.” There’s a massive experience gap between what people want and what was being delivered. They asked what would happen if you could call a ride without leaving the room, be notified when your ride was there, and then tip when you’re ready?
In 2014, taxis owned 37% of all ground transportation receipts. Now, they own less than 6%. Meanwhile, ride hailing went from 8% to 71%. This is how the taxi industry is being decimated. When you get the experience right, you can sweep the entire market.
Disruption happens in the gaps. And no industry is immune. We see it in exercise with Peloton. We see it in commercial real estate with WeWork. We see it in financial services with Venmo and Square. We see it in logistics with Flexport. All of these companies were started in someone else’s experience gap. The race is on, and only experience brands are surviving.
The problem is that most companies are disconnected with the experiences they provide. In a seminal study, Bain found that 80% of CEOs believe they are providing a great experience. But only 8% of their customers agreed. That’s a huge experience gap.
To close experience gaps, organizations need to focus on the four core experiences of business: customer, employee, product, and brand. Each experience area comes with its own gaps that lead to things like customer churn, failed products, and unwanted employee attrition. The Qualtrics XM Platform™ gives organizations the machinery to operationalize experience management, and close gaps.
X-DATA IS ESSENTIAL TO EXPERIENCE MANAGEMENT
When one of the top brands in banking moved to Qualtrics, their IT department worked with the business units to replace 16 different vendors and homegrown tools inside the company. IT led the initiative with a simplified system that everyone could access. They gave employees the best technology available and a platform that was secure and FedRAMP authorized. Now all their experience data (X-data) like customer feedback, employee feedback, NPS, product reviews, and brand sentiment all sits together on one platform. X-data is human factor data, feedback and input used to optimize any of the four core experiences. By using XM to find and close experience gaps, this company has lowered customer churn, reduced employee attrition, and is delivering products that land with customers.
That’s a success story today, and it’s not an uncommon way to start. When companies come to Qualtrics for help, their X-data is usually siloed. It’s everywhere. Teams and departments across the company are all collecting their own experience data: marketing teams, product teams, human resources, and sales. But too often there are no controls, governance, or security, and because information is not connected to the operations of the business, it’s very hard to take action on even the best X-data.
The experience economy insight at the root of Starbucks’ success is just as valid today as when Howard Schultz began transforming the company in 1987, but the company is not resting on its laurels. Today Starbucks is an incredible X-data strategist: augmenting in-store customer experiences from within its proprietary app, perfecting special product offerings before they go live, relentlessly reimagining its brand with customer feedback, and staying in constant touch with its 291,000 partners (employees) around the world.
Optimizing customer, employee, product, and brand experiences is a sustainable competitive advantage. That’s how you compete and win in the experience economy.
Ryan Smith is the Cofounder and CEO of Qualtrics.