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Best of both worlds: Customer experience for more revenues and lower costs

By Harald Fanderl and Jesko Perrey
Best of both worlds: Customer experience for more revenues and lower costs

There are huge opportunities to both cut costs and grow if you invest wisely in customer experience.

If you believe that high customer satisfaction requires spending more, you’re not alone. But you are mistaken.

Through experience with dozens of companies, we’ve seen that there are huge opportunities to both cut costs and grow if you invest wisely in customer experience—especially in sectors like insurance, energy, telecoms and banking.  

That’s especially the case when it comes to delivering a great customer journey—those series of interactions a customer has with a brand to get something done. If it sounds too good to be true, the data say otherwise. We know that brands that can improve the customer journey see revenues increase as much as 10 to 15 percent while also lowering the cost to serve 15 to 20 percent.

How is that possible? The reality is that there are significant inefficiencies over the typical customer journey, which often cover multiple touchpoints managed by many different parts of an organization (website, sales, call center, etc.). A call center may respond to a customer complaint, for example, but not identify the root cause, and means other customers will continue to complain about the same issue. Or a frustrated customer will have to repeat information s/he has already provided. And as customer journeys become more complex with the proliferation of new technologies and channels, the opportunity for inefficiencies increases.

In many cases we see that procedures are duplicated, poor standardization creates confusion and slows down the overall process, and ingrained habits make change virtually impossible. Who suffers? Not just the customer; the company itself in the form of costly waste.

At the same time, creating those efficiencies that help deliver a fanstastic customer journey experience is an important source of growth.  In industries we have analyzed since 2009, we have found that key measures like “likelihood to remain/renew’’ or “likelihood to buy another product” is  5 to 10 percent lower each year when customer experience performance is only average.  But improving customer journeys from average to “wow” is worth 30 to 50 percent more in those same industries.

Four steps to growth and savings

Here are four ways to deliver a better customer experience while cutting costs:

1. Get your teams together

The main culprit in faulty customer journeys is that there is rarely one person with responsibility for the entire process. Marketing might own the corporate website, PR govern social media, and operations oversee fulfillment. It’s no surprise, then, that customers fall through the cracks between functions.  Even if it’s too high an organizational mountain to climb to make a single person responsible for all customer journeys, it should be possible to make one person accountable and responsible for a particular journey.

For example, management at one leading car rental company wanted to improve the pick-up journey at airports. They assigned one person to manage the process and pulled a team with representatives of each phase of the journey, including counter staff, car cleaners, exit gate personnel, and bus drivers. It was the first time they had all come together to talk about the customer experience. Most of them, in fact, had no idea what the complete customer journey looked like aside from their own point of customer interaction.

The team first mapped the customer experience and brainstormed on how to improve it. At one location, they discovered that the company was short of clean cars during peak demand. They suggested installing a buzzer between the rental counter and the car lot, to alert workers when pressure for cars was building up, which drastically reduced customers’ wait times. Marketing, meanwhile, suggested the unit broaden the range of cars available for pickup. By the end of the pilot, customer service scores doubled, revenues from upselling climbed 5 percent, and the cost of serving customers dropped 10 percent.

2. Don’t just solve problems; root them out

Customer complaints can be expensive but also valuable. If you figure out why a problem arose and then correct the cause, the number of complaints will drop, and so will costs.

One European energy company examined complaints from customers who were moving to a new residence and discovered that 18 steps were required to set up the new utility account. Numerous duplications and unnecessary demands cluttered the process. The company was able to cut the steps to just five and thereby reduced costs by 40 to 50 percent. The number of complaints also dropped, and with it the number of people handling them, from 109 to 20.

3. Understand when it pays to improve the experience and when it doesn’t

When speaking with your CFO about investments in customer experience, it’s important to have good data on hand. In our experience, one of the most critical pieces of data is what’s called “breakpoint analysis,” which shows at what point it’s no longer profitable to improve a particular customer experience.

For example, a car rental company’s breakpoint analysis found that customers didn’t care much whether they waited in line for three minutes or five minutes. Cutting waiting times from five minutes to three minutes would be expensive, so the company decided it wasn’t worth it. That’s the kind of analytical rigor a CFO wants to see.

4. Keep your metrics focused on what matters

Figure out which key performance indicators (KPIs) really move the needle, and focus on those.  It’s important, of course, to establish KPIs that reflect the whole journey, from call-center times and customer perceptions of service to impact on churn and revenue.  But companies can get carried away. One energy provider had 150 KPIs and could not agree internally about which were most important. Then it drilled down to eight, concentrating on a manageable set of core metrics, to drive the business.

It’s also important to consider setting aggressive targets. Incremental targets produce incremental improvements. We have found that reaching beyond what you think is possible liberates your thinking and problem solving. This is a key trait of the best-performing companies in customer experience.

When it comes to customer experience, companies are too often rooted in an either/or mentality. The fact is that companies need to have a broader view of the benefits of providing excellent customer journeys to deliver growth and savings.

A version of this piece appeared in The Economist blog Lean Back

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