So… we’re ten years into the Experience Economy and, over that time, there’s been an explosion of attention and investment in creating and improving customer experiences.  Even in this midst of very challenging economic environment, it’s hard to find a company that isn’t either actively involved in or planning customer experience investments.   As the economy now starts to show signs of turning around, we’ve observed an increasing level of interest in getting closer to customers.

Despite the attention paid to customer experience, with a few exceptions, people are no happier with their experiences as customers today then they were 10 years ago.  It’s as if the majority of customer experience efforts have produced little more than “better sameness.”   Better sameness is doing what you’ve always done… and what pretty much all your competitors do… a little bit better and faster; providing friendlier customer service, incrementally faster response times,  a more appealing retail environment, a more streamlined web catalog and ordering processes, etc…

The problem is, customers don’t perceive these incremental differences.  If you’re looking for a competitively relevant improvement, you need to do something that actually grabs the customer’s attention and positively influences how they feel and what they do.  These are the only things that actually improve your competitive differentiation.  Moving beyond better sameness demands doing something that isn’t just a difference in degree; it demands doing something that’s a difference in kind.

For examples:

Southwest and JetBlue represent a difference in kind experience compared to the other major US-based airlines;

Umpqua Bank represents a difference in kind financial experience is a sea of highly undifferentiated consumer banks;

Wegmans, and Nugget Market is a difference in kind experience compared to most other major grocery retailers.

Unless what you’re after is better sameness…

…the most common tools for improving customers’ experiences are insufficient ! !

This includes:

Customer Satisfaction Measurement: Most companies ask customers for subjective evaluations of the company’s or product’s performance on the assumption that these expressed attitudes drive behavior, such as repeat purchases or positive word of mouth.  Unfortunately, decades of research into the correlation between evaluations and subsequent behavior show, although the link exists, it tends to be relatively weak.  Most customers who switch said they were satisfied.  Satisfaction is not an emotional state that powerfully drives behavior.  In order to get beyond better sameness, companies need to surface how the the experience influences customers’ perceptions and feelings about themselves not the company.

Voice of the Customer Insight: Listening to customers is critical for gaining insight into their lives, their goals, their needs, as well as, their frustrations, feelings, and behaviors.  However, as Henry Ford said, “If I asked customers what they wanted, we’d just have ended up with faster horses.”  In addition, what customers say they want is not often well-correlated with the deeper goals and subconscious factors that influence their behavior.  In many cases, what customers say they want is inconsistent with what ultimately drives their behavior… leading companies to invest in the wrong things.   Getting beyond better sameness involves engaging customers in fundamentally different kinds of conversations and getting beneath the surface of what they say to understand their deeper goals and the experiences they’re having.

Touchpoint Mapping and Service Level Improvements:  Touch point mapping is a highly company-centric activity.  Customers’ experiences do not just happen at your company’s touch points.  Customers follow an end-to-end set of activities that make sense to them given the goals and needs they’re trying to address.  You can’t understand and meaningfully improve the customers’ experience by just looking at and incrementally improving service levels at your touch points.  As customers go about their busy lives, they rarely pay attention to or act on any of the incremental service improvements at the existing touch points.  Getting beyond better sameness involves creating high contrast, signature experiences that get customers’ attention, influence how they feel, and shape the story about what you stand for.

Training and Motivating Front-line Service Employees:  Having engaged, well-trained, and motivated service employees is important.  However, a lack of training and motivation is rarely the real issue behind a poor experience.  The experience customers’ have with any organization is the product of behavior that emerges from a complex organizational system. The root of that behavior is a leadership, management, measurement, and cultural environment that reinforce “unwritten rules” inconsistent with employees doing the right thing for customers.  Focusing on training and motivating employees without surfacing and addressing the unwritten rules is like hacking at the leaves rather than striking at the root of the problem.  Getting beyond better sameness involves surfacing the unwritten rules and leadership and management beliefs and behavior that constrain the experience.

Creating positively and profitably influential experiences, that go beyond better sameness, requires a more fundamental shift in perspective.  You have to focus first on how customers HAVE experiences… not on how your organization or product DELIVERS experiences.  This includes being very clear on:   What are customers really trying to accomplish?  What influences the pathway they follow in pursuing those goals?  How do they actually construct preferences and make choices along that pathway?  How does the process make them feel about themselves?  How does the experience influence the relationships they care about?  In most cases, understanding how customers HAVE experiences, leads to a completely different set of strategies for creating experiences that really make a difference for customers and the business.

Customer Innovations follows a unique Cognitive-Affective-Behavioral Engineering approach that enables companies to design products, services, and experiences from the mental model of the experiencer… not just the mental model of the company.  Over the course of 25 years track we’ve helped leading organizations realize bottom line results of 10-25% in the form of increased retention, incremental sales, reduced acquisition costs, positive word of mouth, higher price realization, and improved productivity of customer-facing operations.

The Customer Innovations approach is driven by three toolsets deliberately structured to push companies beyond better sameness:

• Experience Miner^TM – surfaces, analyzes, and measures the ways customers think about, feel about, and act on their experiences, including tools for mapping customers goals, mining deep insight from customer stories, identifying how constructs learned from past experiences shape expectations, measuring customers’ emotional states and triggers, and understanding and influencing how customers make choices.
• Experience Designer^TM – guides every step of the experience ideation, concept development, and blueprinting processes focusing on not only prioritizing incremental improvements but also creating high contrast Signature Experiences that get the customers attention and influence the choices they make.
• Experience Economics^TM – It’s exceptionally easy to deliver an uneconomic experience.  Most organizations simultaneously over-invest in elements of the experience that don’t matter to customers and under-invest in elements that have significant influence on customer behavior.  The Experience Economics^TM toolset helps companies find the optimal investment point to drive the financial performance of the business.

Doesn’t it make sense that:

• If you want to know what customers want, just ask them.
• If you want to see if they’re satisfied with the experience, just ask them.
• If you want to know if they’re come back or will refer you, just ask them.
• If you want to understand what you can do to improve, just ask them.

Listening to customers is critical for gaining insight into their lives, their goals, their needs, as well as, their frustrations, feelings, and behaviors.  Unfortunately, we’ve found that most structured “voice of the customer” research is not only ineffective for designing influential customer experiences, but it can seriously undermine innovation by directing investment at the wrong things.

It’s common for companies to conduct customer interviews, surveys, and focus groups trying to understand what customers want.   The reality is that what customers say they want is not often well-correlated with the subconscious factors that influence their behavior.  In many cases, what customers say they want is actually quite inconsistent with what ultimately drives their behavior.  The key is to able to engage customers in fundamentally different kinds of conversations and get beneath the surface of what they say to understand the deeper experiences they’re having.

I first encountered this disconnect about 25 years ago.  At the time, I was working with Dick Larson at MIT.  Dr. Larson is an expert in the psychology of waiting.   The situation involved commercial real estate managers responsible for several high-rise office buildings in New York.  These managers were trying to figure out how to address customers’ dissatisfaction with the amount of time spent waiting for elevators during peak periods.  Not surprisingly, if you ask customers what they want, they’ll tell you that they want an increase in service levels:  faster elevators and less waiting.  Obviously, the complexity and cost of actually improving service levels are quite high; it would involve installing faster elevators, dedicating more interior space to elevator banks, improving the optimization of elevator queuing, etc…   It turned out that the most effective improvement was to install mirrors in the elevator lobbies.  This allowed people to entertain themselves by fixing their hair, straightening their tie, and checking each other out in a much more socially acceptable way.  The perceived experience improvement was greater with the relatively low cost mirrors than with the relatively high cost technology required to improve actual service levels.  Note:  Waiting is an important aspect of many experiences, for more information about designing better waiting experiences see: Helping Customers Lose Wait.

In general, the design of influential experiences involves a trade-off between two strategies:  1) improve the reality of the events, service levels, etc… and/or 2) influence the way customers experience and act on those realities.   When you ask customers what they want or what they liked or didn’t like about their experience, what do they tell you?  In most cases, they only talk about the relatively obvious service levels associated with the first strategy.

Another example of this disconnect involves customers’ surface-level desires for more choice… compared with their subconscious distaste for actually having to make choices.  When conducting traditional voice of the customer research, customers often ask for a set of choices that allow them to find the alternative they prefer.  However, when presented with the range of choices uncovered in the research, the same customers find that actually making the choice exceeds both their level of motivation and capacity for processing information at the point of purchase.  In essence, giving customers the choices they request often leads to a “choice overload” that gets in the way of profitable customer behavior… in many cases, influencing them to postpone making a decision.

In one illustrative experiment, conducted by Iyengar and Lepper, consumers shopping at an upscale grocery store were presented with a tasting booth that displayed either a limited selection (6) or an extensive (24) selection of different flavors of jam.  The experimenters measured both customers’ initial attraction to the tasting booth and their subsequent purchase behavior.  While the extensive choice booth attracted more customer attention, customers presented with the limited set of choices were 10 times more likely to make a purchase.  Customers that sampled from the limited choice booth made a purchase 30% of the time versus only 3% of the time from the extensive choice booth. Leading companies are really starting to internalize this finding.  P&G, for example, reduced the number of versions of Head and Shoulders shampoo from 26 to 15, and, in turn, experienced a 10% increase in sales.

Voice of the customer research makes the underlying assumption that people have a relatively stable, conscious, explainable, and at least somewhat consistent set of preferences.  It also makes the assumption that when ask customers about their preferences they can tell you or, in some cases, when you present them with a set of forced choice trade-offs (e.g., would you prefer to buy A or B), how they choose will reflect what they do in real life.  Unfortunately, this is far from true.  People typically don’t know what they want until they see it; they construct their preferences and work through decisions as they perceive their alternatives in the actual purchase environment.  Subtle differences in the design of that purchase environment can have a significant impact on the decisions customers make.  In fact, research in the areas of cognitive psychology and behavioral economics has shown that…

…small and seemingly insignificant contextual details have a major impact on people’s behavior.

One of my favorite recent examples comes from MIT Professor Dan Ariely.  (See Dan’s great book:  Predictably Irrational)  Dan came across the following advertisement for The Economist:

The Economist Subscription Options

The ad offered three subscription options:

• Electronic Only: $59
• Print Only: $125
• Electronic and Print: $125

Which of these options do you think people would choose?  Why would anyone choose the “Print Only” option rather than opting for the additional “FREE!” electronic subscription?  It seems very unlikely!  In fact, Ariely conducted a test with 100 Sloan School students and only 16 chose “Electronic Only” while 84 chose the “Electronic and Print” option.  No one chose the “Print Only” option! On the surface, this option seems totally irrelevant.  Why would you even offer it?   It turns out that something very interesting happens when this seemingly irrelevant option is eliminated.  When another 100 students were offered only two choices: “Electronic Only” and “Electronic and Print”, 68 chose “Electronic Only” while only 32 chose “Electronic and Print.”

The presence of an irrelevant option influenced a more than 250% increase in customers choosing the more expensive alternative!!!

Ariely observed the following, “Thinking is difficult and sometimes unpleasant.” Cues that allow us to establish the relative value of various offerings, then, reduce the cognitive load or effort required to think about your options.  What the Economist offered was a no-brainer; while we can’t be certain that the print subscription is worth more than twice the electronic version, the combination of the two was clearly worth more that the print version alone.

In another illustrative example of how subtle environmental details influence customer behavior, Cornell University researchers Sybil S. Yang, Sheryl E. Kimes, and Mauro M. Sessarego found that by dropping the “$”symbol on a restaurant menu can have a significantly positive impact on the total ticket value.  The researchers did a side by side comparison of three ways of presenting menu prices: with a preceding dollar sign (e.g., $14.95), without a dollar sign (e.g., 14.95), and as written out prices (fourteen dollars and 95 cents).  Aside from the subtle differences in price presentation, all other aspects of the actual pricing and customer experience were held constant.  They found that the average total ticket increased by $3.70 when prices were presented without the dollar sign.  They also found that the average ticket decreased by $1.85 when prices were written out.

All of these examples illustrate a level of insight into the way people have experiences and act on their experiences that cannot be accessed by most  traditional, structured voice of the customer research.

The Vast Majority of Human Experience is Subconscious

Every waking second of the day, each of us processes just over 4,000,000 bits of sensory information.  At the same time, we get to pay conscious attention to only 7+/- higher level and relatively abstract notions about what’s happening to us, what we’re doing or planning to do, and how we’re feeling about all of this.  Luckily our brain does an outstanding job of filtering, predicting, and prioritizing all if this information in a way that makes it possible for us to be reasonably effective in the world.  The challenge is every normally functioning human being on the planet lives in a state of “naïve realism.”  This naïve realism, gives us the sense that we’re experiencing our surroundings as they actually are, rather than just as a high level abstraction of what we believe them to be.

If we are asked by a researcher to describe an experience, particularly an experience we had at some point of time in the past, the best we can do is relate what we think we remember, about how we believe we felt, along with the alibis we construct for the choices we made, in an experience that was almost entirely subconscious.  However, due to the state of naïve realism we live in, we’re convinced that our explanations have merit… despite the fact that we are just reconstructing a plausible sounding story for what we think happened.  This is the way it works for all of us.  It’s also the fatal flaw for most structured, traditional voice of the customer research.

Understanding how to design highly meaningful, differentiated, influential, and profitable experiences involves engaging people in fundamentally different sorts of conversations and listening in ways that get beneath the surface of what they say to understand the deeper, subconscious aspects of how  people actually have experiences.

While there’s value to listening to customers’ recollections of the experiences they’ve had and their suggestions for improving that experience, what you really need to look for and understand are:

1. Goals and Desired States
   • What set of desired states and goals are people really trying to accomplish?
   • What kinds of experiences are people attracted to and comfortable engaging with?
2. Beliefs and Expectations
   • How do people make sense of and remember the experiences they have?
   • How do people construct situation-specific expectations and preferences?
3. Emotional States and Triggers
   • What conscious and subconscious emotional states influence peoples’ actions?
   • How do specific events trigger emotional reactions that influence behavior?
4. Natural Behavioral and Decision Pathways
   • What behavioral pathways do they naturally follow to accomplish their goals?
   • How do people make choices in light of these expectations and preferences?

We’ve developed an innovative toolset for answering these questions. Experience Miner^TM provides a rigorous way of capturing and analyzing the most critical aspects of the way people think, feel, and act  on their experiences.  It involves a fundamentally different way of listening to what people say and watching what they do in order to identify what’s going on beneath the surface.  Built on 25 years of research into the cognitive, affective, and behavioral basis of experience, it provides the specific insight required to focus design and delivery efforts on the areas of greatest influence and financial return.   Experience Miner^TM is used to identify the most influential experience elements for each target customer personae.  This insight is used to 

…design evocative experiences from the mental model of the experiencer.

The Experience Miner^TM toolset consists of the following seven elements, each designed to fill in a critical piece of insight required to design experiences that influence behavior.

• Goal Space Mapping^TM – Describes the desired states and situation-specific goals that motivate and direct the experience for each key persona
• Experiential Temperament^TM - Profiles how temperamental differences influence the way people are drawn to and engage with novelty seeking, harm avoidance, social orientation, and persistence
• Framing Metaphors – Surfaces the underlying physical metaphors people use to interpret, evaluate and act on their experiences in the relevant domain(s).
• Experiential Constructs^TM – Identifies the most common, learned distinctions that enable people to recognize, categorize, differentiate, and form expectations.
• Emotional States and Triggers^TM -  Surfaces the emotional states and specific triggers across the lifecycle of the experience highlighting areas of uncertainty, stress, frustration, etc…
• Experiential Pathways^TM – Maps the end-to-end set of activities and choice points that people follow in pursuit of their goals… including the unwritten rules and automatic behavioral scripts people apply along this pathway.
• Experiential Choice Dynamics^TM – Describes the situation-specific choice processes that people follow, as well as, how they construct preferences and make decisions that influence their behavior.

If you’re interested, I’ve covered various topics related to the elements of Experience Miner in a wide range of other posts, including:

• Experience Miner: Creating Profitable, Evocative Experiences
• Whatever You Do… Don’t Confuse Experience with Reality
• Understanding Basic Drives and Experiential Temperament
• Making Experiences Memorable
• Customer Experience and Our Search for Meaning
• Designing “Socially Influential” Experiences
• Designing for Customers’ Reactive, Deliberative, and Reflective Experiences
• Choice Architecture: Designing Experiences that Influence Customer Behavior
• Optimizing the Most Critical Elements of the Customer Experience: Customer Choices
• Framing and Priming the Customer Experience
• Automatic Behavioral Scripts: Don’t Overestimate Your Customers’ Interest in Having an “Experience” with You

We are in the midst of a dramatic shift in the way business is done.  In most industries, a much more open and collaborative network model is replacing the traditional closed and controlled firm-centric view of the world.   This shift has been well documented by my colleague Don Tapscott in his bestselling book Wikinomics.  Don is the head of nGenera Insights (a Customer Innovations partner).

As this shift takes place, companies must reconsider many of the foundational assumptions about their role in the complex ecosystem of customers, competitors, intermediaries, and other influencers.   While many basic relationship management capabilities are still important, there are two major problems with the traditional approach to  “Channel Management”:

1. The first problem is the “channel” part. In a network view of the world, a channel is an outdated, linear way of viewing the market.  In many ways, it reinforces the notion that you move your products and services forward through the channel to reach end-consumers.  This doesn’t work in the presence of media-savvy and networked consumers.  These next-generation consumers can easily find better deals with more agile providers and, in the process, are more likely to either by-pass intermediaries all together or deal with newer intermediaries (e.g. Amazon, etc…) that consolidate products and services in a way that makes it easier for them to get what they want.
2. The second problem is the “management” part. In a more agile, networked view of the world, channel participants are more difficult to manage or control.  They tend to either have or believe they have more alternatives.  In most cases, they have the all-important relationship with the ulimate consumers who are paying the money.  In addition, they have to deal with a rapidly changing set of consumer demands that change what it takes for them to be successful.  If I’m an insurance agent, retailer, distributor, etc… struggling to keep up with changing consumer demands, preferences, and alternatives, I’ll challenge anything that product providers do that gets in the way of my responding to and serving my customers.

As we move beyond the linear, Channel 1.0 view of the world, companies must begin to more effectively position themselves as part of a collaborative ecosystem.  We call this Channel 2.o model, Collaborative Ecosystem Management.

The new channel model builds on many of the Channel 1.0 capabilities (covered in:  Channel 1.0: Foundational Capabilities for Optimizing B-to-B-to-C Performance) but must express these capabilities in a world that includes a complex, shifting network of participants, an evolving and emerging set of channel partners, and, as a result, must leverage more adaptive collaboration processes and technology.

Example:  The SAP Developer Network (SDN) is an online community for SAP developers. It is a resource and collaboration channel for SAP developers, architects, consultants and integrators. The SDN hosts forums, expert blogs, a technical library, downloads, a code gallery, e-learning catalog, a Wiki and more.  All these support open communication between active members of the community, which includes more than 1,455,000 members.  The SDN has fundamentally transformed the scale and effectiveness of integrated and supporting SAP’s products in a way that continued to fuel the growth of the company.  This allows SAP to maintain a primary focus on evolving their product while managing an enabling network of other participants that can apply the product and fuel their growth.

In general, we’ve learned that moving to a Channel 2.0 model must integrate three dimensions.  This builds on and extends the basic Channel 1.0 Capabilities, as well as, the Consumer-Back Approach that were introduced in Channel 1.0: Foundational Capabilities for Optimizing B-to-B-to-C Performance.  The three dimensions that must be integrated are:

1. Consumer-Back Experience Design. Creating a platform for integrating complementary providers and partners in order to provide a seamless end-to-end consumer experience around goals that are important to consumers.
2. Provider-Forward Experience Design. Creating an “experience chain” that helps makes traditional intermediaries, as well as, the wide range of other ecosystem participants successful in serving their downstream customers, whoever those customers are.
3. Collaborative Ecosystem Platforms. Providing an open communication environment for connecting consumers, channel customers, complementary product/service partners, and other influencers.  This collaboration platform often creates the opportunity for channel customers and complementary product/service providers to collaborate with each other in ways that are currently impossible.

These are not three alternatives.  Effective Channel 2.0 strategies must integrate all three.

Dimension 1:  Consumer-Back Experience Design. A more ecosystem-oriented environment makes it possible to integrate capabilities across complementary service providers in ways that were previously impossible.  Often that integration was left to the customer.  For example, if your goal was to relocate your family from New York to San Francisco, the experience you would have as a customer would involve integrating the capabilities of real estate agents, mortgage companies, movers, banks, schools, doctors, utilities, home furnishing retailers, cleaning services, hotels, airlines, the post office, etc…    A significant step beyond the Consumer-Back approach described earlier would be to do what we call Consumer-Back Experience Design. This is what “The Right Move Group” did when they created an integrated platform of services address all of the elements listed above for families moving to the San Francisco area.

We are starting to see an increasing number of Consumer-Back Experience Design examples in other areas.  For example, the range of integrated platforms for launching small businesses (a.k.a. Business in a Box platforms).  This includes platforms like:  Smart Online and Microsoft’s Start Up Zone.    Other examples include travel integration services like TripIt, wedding experience integration service like Wedding Channel, and personal concierge services like Fini.

We believe that building an effective Channel 2.0 strategy starts by thinking Consumer-Back.  However, success is dependent on also considering the other two perspectives.

Dimension 2:  Provider Forward Experience Design. Forward Experience Design builds on and significantly extends the capabilities described in the Channel 1.0 Capability Model.  A more technology-enabled, ecosystem-oriented model makes it possible for providers to collaborate with their channel customers in fundamentally more effective ways.

Examples of technology that can enable Provider Forward Experience Design include:

• New Media Broker/Agent Portals. This includes the systems provided by FirstBest, iter8, or  The Broker’s Workstation.  These systems provide capabilities that help make intermediaries more effective in meeting the needs of their customers.  Systems like this can offer significant additional collaborative capabilities, dashboards, information, and what-if-oriented sales tools that go beyond the first generation portals many companies provide their intermediaries.
• Salesforce.com. Salesforce.com provides a suite of tools that enable partner channel management on a collaborative community platform.  It’s worth checking out their whitepaper with ideas on next generation channel management.  Their suite includes it’s Partner Portal, Partner Marketing, Content Management, and the innovative Ideas Platform.  This Ideas Platform is currently being used for Dell’s IdeaStorm and Starbuck’s mystarbuck.com sites.
• Other Partner Relationship Management Vendors. This includes companies like Channeltivity and Treehouse Interactive which provide sophisticated partner relationship management systems.

Dimension 3:  Collaborative Ecosystem Platforms.  As we move towards more of a Channel 2.0 world, both of the previous two perspectives will increasingly be enabled by an Collaborative Ecosystem Platform.  A Collaborative Ecosystem Platform creates an environment within which participants from multiple organizations can work together to create an integrated experience that improves the performance of participants and, in the end, creates more value for customers.  This can run the range from:

• Relatively unstructured sites for sharing information, like Microsoft’s Technical Community Platform
• Process specific platforms for collaborative service like Get Satisfaction (enables product companies, intermediaries, and end-consumers to all collaborate on generating answers to technical and service issues.
• Domain specific platforms like Sermo which provides an environment for physicians to discuss courses of treatment, the application and effectiveness of pharmaceutical and medical device products, etc…
• Social networking platforms like Facebook which is providing additional ways for companies to reach end-consumer and participate in the dialogues that consumers have about the experiences that are important to them.

The migration to a Channel 2.0 strategy is very much an emerging capability for most companies.  It creates the ability to mobilize a much larger and more diverse set of participants in a way that can accelerate growth.  At this point, most of the companies we’ve seen and worked with are putting their toe in the water.   In our experience, it’s still very important to address any gaps in the foundational capabilities that are left over from Channel 1.0.  Very often addressing those gaps can have a substantial and immediate impact on business performance.  In most situations, we are recommending  a parallel set of activities aimed at:  1) addressing Channel 1.0 capability and performance gaps and 2) developing a Channel 2.0 strategy and roadmap that includes identifying the business experiments required to start to learn about and get traction in a Channel 2.0 world.

As I mentioned in my previous post (Optimizing B-to-B-to-C Performance: From Channel 1.0 to Channel 2.0), the foundational, Channel 1.0, capabilities required to optimize B-to-B-to-C performance include carefully selecting, cultivating, collaborating with, and deliberately managing the lifecycle and performance of channel relationships.   Unfortunately, many companies struggle with issues or symptoms of issues that result from not having these foundational capabilities in place.  These Channel 1.0 capability gaps often show up in the form of the following issues and symptoms:

Common Channel 1.0 Issues / Symptoms

• Not proactively identifying and selecting the right channel partners. This results from either inadequate attention to profiling the ideal partner (the “Ideal Partner Profile”) or a superficial search that doesn’t acquire the best partners (the ”Warm Body Syndrome”).  The business impact is that there are a significant number of under-performing channel partners and / or channel partners where the support costs outweigh the benefits derived from working with them.
• Focus on “selling to” rather than “selling through” the channel. Often the channel is considered the “customer” rather than the ultimate consumer.  This limits the business’ ability to anticipate changing consumer needs and priorities.  As a result, the business misses opportunities to innovate services that help partners win by selling more of their products.
• Listening to what the channel asks for rather than what the channel needs. Changes in consumer expectations and alternatives are having a significant impact on what it takes for channel partners to be successful.  Most of what channel partners ask for is a reflection of the past rather than a proactive view on how their needs are changing.  Responding to what the channel is asking for misses opportunities to “lead the channel” to a better solution.
• Channel partners undermining the quality of the brand. Very often channel relationships are formed without putting the principles, education, support, and controls in place to manage the quality and the consistency of the experience that channel partners create for consumers.  In many cases, this problem occurs when the traditional agreement with channel partners is no longer relevant in the current business situation.
• Being locked into a legacy experience model that can’t change. Because the B-to-B-to-C system has a lot of moving pieces, the system often becomes difficult to change as market conditions, consumer expectations, and competitive forces shift.  The experience that consumers have ends up being driven by a loosely coupled network of independent service providers that may not be able or willing to deliver the experience that keeps the system competitive.
• Not effectively supporting channel partners across the lifecycle of the relationship. Most businesses do a good job of initiating channel relationships, but miss opportunities to actively measure and manage the evolution and productivity of these relationships.  As a result, there may be a large number of relatively unproductive channel partner relationships.

When we encounter companies with these issues, we start by assessing and identifying specific gaps using our Channel 1.0 Capability Model.  Generally issues with channel performance can be traced to a set of specific capabilities that must be addressed.  The following Channel 1.0 Capability Model represents a comprehensive best practices perspective.  Some of these capabilities are more or less important based on the fundamental nature of the channel relationships.  For example, these things show up very differently with tightly, coupled franchise and captive agent models versus loosely coupled retail and distributor relationships.

Channel 1.0 Capability Model

In the course of addressing specific capability gaps, we’ve learned that most effective approach to optimizing the performance of B-to-B-to-C relationships is to work Consumer Back.  In other words, to look past what your business customers are asking for to find innovative ways help them be more successful with their customers. In fact, we’ve found that many organizations that consider themselves pure business-to-business (B-to-B) providers would benefit from adopting a B-to-B-to-C “Consumer-Back” Approach… such as the following:

The B-to-B-to-C “Consumer-Back” Approach

1. Understand how expectations and alternatives are changing for the end-consumer. In most cases the end-consumer has a rapidly advancing set of expectations being driven by the best experiences they have with other providers. In addition, these consumers frequently have an expanding array of options for meeting the same set of needs.
2. Understand how these changes affect the nature of the relationship that exists between your business customer and the end-consumer. Very often the changes identified in Step 1 create tension in the relationship your business customer has with the end consumer.
3. Understand how these changes affect what it takes for your business customer to be successful. This includes changes in what it takes for your business customers to acquire consumers, serve and retain them, manage them profitably, etc… In a large portion of the situations we’ve seen, changes in end-consumer expectations lead to a fundamental shift in the dynamics of your channel customers’ operations. In some cases, these are shifts that your channel customers may have not fully recognized.
4. Ensure that you have a solid “economic model” of your channel customers’ business. This should include understanding the basic processes and costs associated with acquiring, serving, retaining, and managing their relationships with consumers. This provides a foundation for focusing on the elements of the experience that have the highest impact on your channel customers’ business (very often not the “table stakes” requests they make of you). It also provides the foundation for knowing how to communicate with your business customers about the innovation you develop in a way that reinforces the business value to them.
5. Brainstorm any and all opportunities to help make your channel customers be more successful meeting the changing needs of the end-consumer. Generally these opportunities have a direct impact on your channel customers’ effectiveness in acquiring, serving, retaining, and managing their relationships with consumers. We’ve found that it helps to surface the explicit or implicit “rules” that constrain your traditional relationship with the channel customer. Very often the greatest opportunities to innovate come from uncovering the opportunities and implications of breaking these rules.
6. Analyze the impact that each of these potential innovations have on the economics of the channel customers’ business and prioritize them based on business value, complexity of implementation, and your credibility with customers on delivering that innovation.
7. Present these innovation opportunities in terms of their economic value to the channel customer. In some cases, there may be a considerable sales cycle to helping your channel customers get their head around these innovations… particularly if they have not been directly involved in the above process with you.

B-to-B-to-C Consumer Back Examples

One of our first experiences with this approach was about 15 years ago.  At the time, we were working with a leading tire manufacturer that sells replacement tires through independent dealers.  Our client had already spent a lot of time listening and responding to what these business customers asked for… typically improvements in ordering processes and turnaround times, payment terms, and advertising support.  These requests really represented “table stakes” improvements in the basic service levels that define the traditional relationship the tire manufacturer had with these dealers.  Responding to these requests generally involved investments that were difficult to justify; they just added to the manufacturers’ cost to serve without driving additional revenue growth.  They clearly needed to do something different.

Over the course of 2-3 months, we studied the factors that influenced consumers’ experiences associated with their tires and observed how consumers shopped for and decided about replacement tires.  This was done in 5 different European markets.  It turns out that there several innovative ways the tire manufacturer could help their dealers be more successful with the consumer.  For example:

• In the Scandinavian countries, consumers generally have two sets of tires for summer and winter. In addition, these consumers typically did not have room to store the tires in the off season. If the tire manufacturer helped the dealers set up and run a tire storage service, the dealer would be able to get the consumer back into the store on a semi-annual basis. This would generate stickiness for the dealer and also provide an opportunity to inspect the condition of the tires and make more optimal recommendations about when they needed to be replaced. This created a clear economic benefit for both the dealer and the manufacturer.
• In the German market, time was more of an issue. In this situation, we determined that the opportunity for the tire manufacturer was to help their dealers provide mobile mounting services that would replace the tires while the car was parked at the customers’ home or workplace.

In each of the markets there were things the manufacturer could do to optimize or improve the relationship between their customer and their customers’ customer.  (See Most Efforts to Improve Customer Experiences are Misdirected!).  Like most of the situations we’ve seen since that time, these innovations are the kinds of things that business customers would never ask for.

After that experience, we started to (semi-jokingly) tell our other clients that they needed to stop listening to their “channel” customers so much.  We’ve observed that these channel customers typically ask for things that drive up your costs rather than increase your revenues.  Of course they need to pay attention to what customers are asking for (or at least look in their general direction when they’re talking)… but the trick is to look past what they’re asking for to find more innovative ways to help them be more successful with the end-consumer.

Since that time, we’ve worked with very many companies to create similar opportunities, for example:

• Several financial broker-dealers that now provide innovative services to help their independent financial adviser customers be more successful acquiring, serving, and managing relationships with individual investors.
• A leading food processor that now provides innovative and collaborative concept development, meal design, kitchen layout, and education services to their restaurant customers… all aimed at helping their restaurant customers stay ahead of changes in consumer expectations for dining experiences.
• An automotive financial services company that provides dealer financing, pre-paid maintenance, extended warrantee services, etc…  Beyond these basic products, this company’s entire positioning is now focused on collaborating with automotive dealers to improve the profitability and performance of their customers’ finance and insurance function. In addition, the company is now getting paid based on increases in their customers’ profitability not just the sale of their basic products.
• A leading small group health insurance company that has significantly improved their performance by focusing on how they can help independent agents provide value-added services and advice to small businesses on the management of health benefits costs and employee wellness/productivity.

In this post, I’ve dealth with the foundational capabilities associated with the Channel 1.0 model.  In an upcoming post, I’ll share some of what we’ve been learning as we’ve helped companies build on these foundational capabilities in order to move to an inherently more agile, collaborative, and open, “next generation” Channel 2.0 model

How do we keep up with changing consumer expectations when we only have limited direct contact with the ultimate consumers of our products?

How do we align agents, brokers, retailers, or franchisees in order to deliver a consistent brand experience that drives growth?

How do we overcome complex, legacy distribution channels in order to reinvent the customer experience in a way that allows us to stay competitive?

How do we balance attention or investment in channel “customers” versus end-consumers?

How do we collaborate across an increasing array of diverse distribution network participants in a way that helps us accelerate growth?

The majority of companies we’ve worked with operate in some form of intermediated business model that fits a Business-to-Business-to-Consumer (B-to-B-to-C) structure.  This includes:

• Product companies that sell through retailers, distributors, or sales reps
• Financial services companies that sell through agents, brokers, or financial planners
• Technology companies that sell to and through integrators
• Food products companies that sell to restaurants and food service companies
• Franchise operations that maintain and manage a network of franchisees

It also includes many companies that haven’t traditionally thought of themselves as operating in this model, but would benefit from doing so, including:

• Pharmaceuticals or medical devices that focus on providers as well as patients
• Placement agencies that manage employer, as well as candidate relationships

Although the B-to-B-to-C structure is an efficient way to go to market, there are a common and predictable set of challenges that not only make it difficult for the model to work effectively but to change as market and competitive conditions shift.  As downstream consumer expectations change and competitive alternatives arise, upstream product companies often find themselves locked in to a set of channel relationships that are difficult to influence.   Most of the B-to-B-to-C companies we’ve worked with experience a lot of angst and conflict about how to integrate:  1) what they do for their channel, 2) what they try to encourage the channel to do for the downstream consumer, and 3) what they do for the downstream consumer themselves (often very uncomfortably by-passing their channel.

This angst is now being amplified by a dramatic shift in the way business is done.  In most industries, the emerging model for the market is a much more open and collaborative network rather than a closed and controlled firm-centric model.   This shift has been well documented by my colleague Don Tapscott in his bestselling book Wikinomics.  Don is the head of nGenera Insights (a Customer Innovations partner).

The traditional concept of channel management is a product of the older closed, controlled, and firm-centric market model.  We call this “Channel 1.0.”    The basic capabilities associated with Channel 1.0 include carefully selecting, cultivating, collaborating with, and deliberately managing the lifecycle and performance of channel relationships.

In the more open, collaborative network model for business, these capabilities are still critical but they must be exercised in a fundamentally different way.   In this new world, there are two problems with the traditional Channel 1.0 concept of “channel management:”

1. The first problem is the “channel” part. In a network view of the world, a channel is an outdated, linear way of viewing the market.  It locks you into thinking that you move your products and services forward through the channel to reach end-consumers.  This doesn’t work in the presence of media-savvy and networked consumers.  These next-generation consumers can easily find better deals with more agile providers and, in the process, are more likely to either by-pass intermediaries all together or deal with newer intermediaries (e.g. Amazon, etc…) that consolidate products and services in a way that makes it easier for them to get what they want.
2. The second problem is the “management” part. In a more agile, networked view of the world, channel participants are more difficult to manage or control.  They tend to either have or believe they have more alternatives.  They also have to deal with a rapidly changing set of consumer demands that change what it takes for them to be successful.  If I’m an insurance agent, retailer, distributor, etc… struggling to keep up with changing consumer demands, preferences, and alternatives, I’ll challenge anything that product providers do that gets in the way of my responding to and serving my customers.

This leads me to Channel 2.0, which for the lack of a better description can be called Collaborative Ecosystem Management. In a more networked business environment the fundamental shifts include moving…

In my next two posts, I’ll share some of what we’ve learned in helping companies improve performance by establishing the foundational performance capabilities associated with Channel 1.0 and building on those foundational capabilities in order to move to a more agile, next generation Channel 2.0 model.

Addendum… here are the next two posts:

• Channel 1.0: Foundational Capabilities for Optimizing B-to-B-to-C Performance
• Channel 2.0: “Collaborative Ecosystem Management”

Along with my colleagues at Customer Innovations, I’ve had the opportunity to help structure and manage major customer experience initiatives for a wide range of companies.    In the course of doing so, we’ve run into every imaginable roadblock and gone down our fair share of unproductive “rat holes.”   About a year ago, the Customer Innovations leadership team took a step back and summarized the stress points that organizations face as they try to build and maintain momentum with their customer experience programs.   Here’s what we came up with:

Customer Experience Program Stress Points

These stress points create confusion, slow or stall progress, and often partially, if not totally, derail the effort.   We’ve found that these stress points occur predictably with certain roles (e.g., the project team, executive stakeholders, support functions, etc…) and at certain points in the lifecycle of the effort.   Although they occur predictably, they tend to catch most organizations by surprise.   The key to building and maintaining progress is to know how to anticipate these stress points and manage them in advance.

Here are just a couple of the predictable stress points and what we’ve found is important to proactively address them:

• Moving Beyond Platitudes (Executive Sponsors). Many executives have strong rhetoric around customer-focus and the need to deliver a compelling customer experience.  Very rarely do they understand how to move the organization beyond this rhetoric into action.  The experience that customers have with the business is typically the product of very deeply entrenched structural, cultural, and behavioral “legacy effects.”   Shifting the customer experience in any noticeable and profitable way involves knowing how to shift this deeply entrenched organizational behavior.  Addressing this stress point requires having a comprehensive, well-tested roadmap that allows Executive Sponsors to know how to create the conditions for success with a program that follows through on the rhetoric.  This roadmap must take into account surfacing and addressing the legacy effects that get in the way.  (see:  Centers of Gravity: Levers for Shifting the Customer Experience,  How Employee Experiences Drive Organizational Behavior, and Integrating Customer and Employee Experiences)

• Knowing Where to Start (Project Leadership and Support Functions). Improving the experience customers have with the organization seems all encompassing.  There are usually a very wide range of processes, functions, technology, and people that touch the customer.  Most organizations have multiple lines of business, each with multiple types of customers, and often many different channels or intermediaries that play a role.  Where do you start?  Do you try to work top-down on the things that are common across all of these dimensions or do you try to work bottom-up by focusing on individual elements of what the organization does to influence the experience?   The answer is neither… and both.  We’ve found that an iterative top-down / bottom-up process works best.  Starting with top-down principles and a unifying customer experience specification (see:  Customer Experience Specification) and then refining the principles and specification in bottom-up detailed design and pilots with individual lines of business or experience components.

• Productively Engaging the Organization and Partners (Line Management and Front Line Employees/Partners). How do you include and engage the organization in the project?  How do you involve outside intermediaries, agents, franchisees, brokers, integrators, etc… ?  Addressing this question involves understanding how the extended organizational system influences the experience customers have.  We’ve found that a deliberate combination of workshops, immersion events, participative research and design approaches, etc…  can make a huge difference in getting the broader set of participants in the delivery of the experience on board and owning the initiative.  (See:   Optimizing the Business-to-Business-to-Customer (B-to-B-to-C) Experience and Rapid Revenue Retention: A “Swarming” Approach to Keeping Customers During Recessionary Conditions)

• The Experience Mapping Swamp (Project Team and Support Functions). Touch-point mapping… the analysis of how customers experience what the company does at each of the points of interaction… is the central approach used in most customer experience initiatives.    It’s very rational that the organization would want to know how it’s doing at those points of interaction.  The problem is that it’s close to useless for figuring what to do to significantly improve the experience.  In most cases, addressing the issues that get surfaced in touch point mapping exercises creates no more than “better sameness.”  (see:  Whose Experience is it Anyway? and The Customers’ Experience Does Not Happen At Your Touchpoints!)   The fact is, the customers experience doesn’t just happen at an organization’s touchpoints and, as a result, it’s really impossible to know how to meaningfully improve that experience unless you understand what’s happening at the non-touch-points.   The most effective tool for proactively addressing this stress point is making sure that the effort starts with an “experiencer-centric” definition of the experience.   (See Experience Miner: Creating Profitable, Evocative Experiences)

There are many other stress points:   Facing the ugly truth in “Coming to Terms with the Truth About Today“, overcoming the tendency to define an “Ideal Experience We Can’t Implement,”  having the guts to do drive towards “Differentiation vs. Better Sameness,” while avoiding “Painting the Surface vs. Changing the Core,”  and overcoming the “Surfacing Unwritten Rule Barriers” that make it impossible for the organization and it’s intermediaries to behave in a way that creates the desired experience, etc…  You get the picture.  We’ve developed effective strategies for addressing each of these stress points.   I’m happy to provide additional information…. just shoot me a message.

Cheers, Frank

Note:  Our stress point framework was inspired by the “Reengineering Stress Point” framework originally created by brilliant consultant,  Glenn Mangurian, while he was at CSC Index in the mid-90s’

Another note:  If you found this post interesting, you might also find the following posts helpful:

• Why Customer Experience Initiatives Fail?
• A Break in the Service Profit Chain: Why Increases in Employee Engagement Don’t Improve the Customer Experience

Most of the time and money organizations invest on customer experience is wasted…

… because they focus on how the organization “delivers the experience”…

… rather than on how customers actually “HAVE the experience”…

… and how those experiences influence behavior!

Most customer experience efforts are based on touch-point oriented approaches that define the experience in terms of a customers’ interactions with the company.  These approaches are inherently company-centric and, at best, lead to improvements that create “better sameness.”  The fact is:

Customers’ experiences do not just happen at your organizations’ touch-points.

Evocative Experiences… The Experiences that Matter

An experience is evocative when it positively and profitably influences:

• What people think (cognitive outcomes)
  • What they remember about their experience
  • The story they tell themselves and others about their experience
  • The distinctions they draw that differentiate what you did for them
• How people feel (affective outcomes)
  • How doing business with you makes them feel about themselves
  • How the way they feel about themselves drives how they feel about you
  • What specific emotional states and triggers motivate behavior
• What people do (behavioral outcomes)
  • Making additional purchases
  • Diversifying what they buy from you
  • Telling stories about their experience with you
  • Recommending you to others
  • Behaving more cost effectively
  • Adopting new product, service, or process offerings

Four Characteristics of an Evocative Experience

1. Are immediately simple to understand and easy to navigate. The vast majority of peoples’ experiences are accomplished using a combination of “gist processing” and “automatic behavioral scripts.” Well-designed experiences fit easily with the mindsets and natural behaviors people have for the problem they’re trying to solve. Note: As a result of being designed around automatic behavioral scripts, evocative experiences can have a surprising subconscious influence on behavior.
2. Offer innovative solutions to peoples’ latent problems. Well-designed experiences start with a deep understanding of what people are trying to accomplish and provide solutions to problems, accomplish goals, and address needs that people may not even realize they have or be able to easily describe. These innovative solutions almost never occur at the existing company touch-points.
3. Tell a compelling and memorable story. People perceive, interpret, and recall their experiences using stories. Well-designed experiences tell a story that has a clear and distinctive message that resolves conflict using a small number of high-contrast, signature experience elements. These signature experience elements get people’s attention and are perceived as a meaningful differences in kind… rather than incremental differences in degree.
4. Trigger specific emotional states that influence behavior. The most influential experiences are designed to influence how people feel… not about the company… but about themselves. The specific emotional state(s) associated with the experience are chosen as the precursors to the behavior the experience is intended to generate.

Creating Evocative Experiences

In order to create evocative experiences you must start with an “experiencer-centric” rather than “company-centric” definition of experience.   We define an experience to be:

Experience:  A person’s cognitive, affective, and behavioral reactions… across the end-to-end process they follow… in order to realize a desired state, satisfy needs, and accomplish goals that are important to them.

This is fundamentally different than the typical company-centric definition:  Customer experience is the sum or all interactions a customer has with a supplier of goods or services, over the duration of their relationship with that supplier.

Experience Miner^TM and the Design of Evocative Experiences

The objective of any product, service, or experience design is to profitably and powerfully influence how people think… how people feel… and, most importantly, how people act.   Most organizations’ efforts fail to achieve this objective because they focus on how their organization “delivers” an experience rather than how people actually HAVE experiences.  As a result, organizations routinely over-invest in incremental improvements that deliver “better sameness” at the existing touch-points.  In the course of doing so, these organizations miss the fact that customers’ experiences don’t just happen at their touch-points.   Although these investments may have a marginal impact on reported satisfaction, they often don’t lead to any measurable change in behavior in the face of changing customer needs, priorities, expectations, and alternatives.  In order to positively influence customer behavior, experiences must be designed and delivered with a deep understanding of how people actually HAVE experiences.  For more information on this, see:  Getting Beneath the Voice of the Customer

Experience Miner^TM provides a rigorous way of capturing and analyzing the most critical aspects of the way people think, feel, and act  on their experiences.  Built on 25 years of research into the cognitive, affective, and behavioral basis of experience, it provides the specific insight required to focus design and delivery efforts on the areas of greatest influence and financial return.   Experience Miner^TM is used to describe the key elements for each target customer personae.  This insight is used to 

…design evocative experiences from the mental model of the experiencer.

The Experience Miner^TM toolset consists of the following seven elements, each designed to fill in a critical piece of insight required to design experiences that influence behavior.

Goal Space Mapping^TM – Describes the desired states and situation-specific goals that motivate and direct the experience for each key persona

Experiential Temperament^TM - Profiles how temperamental differences influence the way people are drawn to and engage with novelty seeking, harm avoidance, social orientation, and persistence

Framing Metaphors – Surfaces the underlying physical metaphors people use to interpret, evaluate and act on their experiences in the relevant domain(s).

Experiential Constructs^TM – Identifies the most common, learned distinctions that enable people to recognize, categorize, differentiate, and form expectations.

Emotional States and Triggers^TM -  Surfaces the emotional states and specific triggers across the lifecycle of the experience highlighting areas of uncertainty, stress, frustration, etc…

Experiential Pathways^TM – Maps the end-to-end set of activities and choice points that people follow in pursuit of their goals… including the unwritten rules and automatic behavioral scripts people apply along this pathway.

Experiential Choice Dynamics^TM – Describes the situation-specific choice processes that people follow, as well as, how they construct preferences and make decisions that influence their behavior.

Are you losing too many customers or sales opportunities?    Are you experiencing too much negative word of mouth?    Are customers’ expectations changing faster than your company’s ability to stay ahead of the competition?    Do you have trouble aligning the efforts of intermediaries in order to deliver for the customer?    Are customers behaving in a way that constrains or undermines your efficiency and profitability?    Are all your efforts just leading to “better sameness”?

Over the past couple of years, I’ve covered an extensive array of topics focused on how companies can address these issues.  In this post, I’d like to take the liberty of  describing the type of work we do and the unique tools we use in the process.

My colleagues and I at Customer Innovations have a 25 year track record helping leading organizations create experiences that improve the acquisition, retention, and profitability of customers.  In the course of our work, we’ve demonstrated bottom line results of 10-25% in the form of increased retention, incremental sales, reduced acquisition costs, positive word of mouth, higher price realization, and improved productivity of customer-facing operations.   Most of our work has been with organizations that create experiences across complex networks of “customers” including consumers, agents, brokers, retailers, and other influencers.

Our work generally takes the form of these types of efforts:

• Rapid Revenue Retention. We quickly identify specific elements of the current experience that are leading to attrition, lost sales, negative word of mouth, and unproductive customer behavior.   Intensive 10-12 week efforts often lead to $10 – $100 million in benefits.
• Accelerating Sales From the “Outside In”. Rather than starting with the internal structure, processes, tools, and training, we start with a deep understanding of how and why your customers buy and then focus improvements on shifting buying behavior.
• Creative Customer Insight. Without breakthrough customer insight, design efforts can only produce “better sameness.”  We have a unique approach to surfacing customers’ latent motives, beliefs, needs, and priorities in a way that informs the creation of highly evocative and profitable products, services, and experiences.
• Signature Experience Design. We design, deliver, and engage customers in experiences that capture their attention and influence the actions they take.  These evocative experiences are structured to tell a meaningful and influence customer behavior using a set of differentiated “signature experience” elements.
• Aligning Effective Employee and Intermediary Experiences. We help create the specific employee and intermediary experiences required to ensure that those who work directly or indirectly with your customers reinforce the intended evocative experience.

We Have a Unique Technology for Creating Experiences that Influence Customer Behavior

Traditional touch-point oriented approaches rarely deliver more than “better sameness” because they focus on how the organization delivers an experience rather than on deeply understanding how people actually have experiences and how those experiences influence behavior.   Customer Innovations has a unique approach and toolset for designing evocative experiences that positively and profitably influence behavior. 

• Experience Miner^TM – Traditional “voice of the customer” approaches are insufficient for understanding the largely subconscious processes that influence customers’ desires, preferences, emotional states, choices, and behavior. Based on 25 years of cognitive and behavioral research, the Experience Miner^TM toolset helps surface, analyze, and measure the ways customers think about, feel about, and act on their experiences.
• Experience Designer^TM – The output from Experience Miner^TM feeds our structured Experience Designer^TM toolset that guides every step of the experience ideation, concept development, specification, and blueprinting processes.  Experience Designer^TM also incorporates an integrated experience-chain framework that helps specify and design the specific employee and intermediary experience interventions required to generate the intended customer experience.
• Experience Economics^TM – It’s exceptionally easy to deliver an uneconomic experience.  Most organizations simultaneously over-invest in elements of the experience that don’t matter to customers and under-invest in elements that have significant influence on customer behavior.  The Experience Economics^TM toolset helps companies find the optimal investment point based on the influence that individual and collective experience design elements and service levels have on the financial performance of the business.

I’ll continue to expand on these tools in upcoming posts.   In the meantime, you might want to check out the following links:

• Rapid Revenue Retention: A “Swarming” Approach to Keeping Customers During Recessionary Conditions
• When the Going Gets Tough… The Tough Get Closer to Their Customers
• Choice Architecture: Designing Experiences that Influence Customer Behavior
• Designing Experiences that Fit the Customers’ Mental Model
• Integrating Customer and Employee Experiences
• A Break in the Service Profit Chain: Why Increases in Employee Engagement Don’t Improve the Customer Experience

If you’d like any more information, just post a reply or send me a note at fcapek (at) customerinnovations (dot) com.   Cheers, Frank

There are four core processes you must execute effectively in order to succeed in any uncertain and rapidly changing external environment.  These four core processes are the foundation of agile maneuver:

• OBSERVE changes in the environment in real time… while aggressively avoiding your own strong tendency to just see what you either expect or hope to see
• ORIENT yourself quickly to what those changes mean… being careful to challenge and revise your outdated assumptions and beliefs about reality
• DECIDE on a course of action… chosen from range of creative alternatives most relevant to the changing environment
• ACT in a coordinated and committed manner… while being ready to OBSERVE, ORIENT, DECIDE and ACT in order to ensure progress and enable course corrections as necessary.

NOTE: These interrelated processes are called the Boyd Cycle; more on this later

The ability to effectively OBSERVE – ORIENT – DECIDE- ACT is critical for any organization that must adapt to the rapidly changing customer needs, priorities, and criteria.   The current economic environment is just part of the challenge.  The uncertainty and fear we’re experiencing in the economy must be multiplied by the high levels of technological, demographic, social, and global competitive changes we’ve seen over the past few years.  Any organization that relies on an outdated set of beliefs about customer is more likely to accelerate their irrelevance than ensure their success.

Many organizations are already dangerously disconnected from their customers.  One of the indicators that this disconnect is Bain’s research that found 80% of companies believed they were delivering a superior experience while only 8% of their customers thought they were receiving a superior experience.  This disconnect will continue to grow as the rate of change in customers’ priorities exceeds the rate of change of managements’ beliefs about customers.    Across the industry situations we’ve seen, there are four urgent issues that most organizations must OBSERVE – ORIENT- DECIDE – ACT on:

• Customers’ Priorities are Shifting. During a recession, your customers do not just become more conservative… their needs and priorities change significantly.  As a result, it is very dangerous to rely on traditional or untested assumptions about customers’ needs, priorities, and behavioral drivers.   Prescription – OBSERVE: Get outside of the normal channels to observe, talk with customers, and get a clear picture of specific shifts in their needs, priorities, and behavioral drivers.
• Experience Issues are Driving Attrition. Your organization is unnecessarily losing customer and prospects you worked hard to acquire.  Most organizations frustrate, annoy, and miss opportunities with customer in ways that are hard to see without looking at the experience clearly from the customers’ perspective.  Prescription – ORIENT: Quickly diagnose and repair specific customer experience issues that are leading to unnecessary attrition and lost opportunities.
• Customer Profitability is Shifting. A smaller number of your best customers will contribute an even larger share of your profits… while a growing number of margin or unprofitable customers will create even more of a drain on the system.  Prescription- DECIDE: Identify and aggressively prioritize investment in understanding, collaborating with, and improving the experience for the most valuable customers.
• Employee Engagement is Deteriorating. As a recessionary mindset settles into the workforce, it drives increasing levels of distraction, indifference, and depression.  Unless the employee experience is addressed, these issues will have a profound impact on the level of hospitality employees provide customers.  Prescription – ACT: Shift communications and engagement efforts to mobilize employees and create a drumbeat behind the highest priority initiatives and performance objectives.

The question is… can you do this faster and more effectively than your competitors?

The winner of any business competition is determined by THE CUSTOMER

In any competitive situation, it’s a race to see which of the competitors can effectively re-orient themselves to the rapidly changing customer priorities and, in doing so, outmaneuver their competitors.  An organization that can OBSERVE – ORIENT – DECIDE – ACT faster and more effectively than their competitors will be able to remain relevant, retain and grow their business, and build the strongest customer relationships.

There are many great examples of this.   One classic is the Honda – Yamaha “war.”  Honda learned that Yamaha was planning to build a large factory to ramp up production of motorcycles.  However, rather than responding to this competitive threat by building another factory of their own, they out maneuvered Yamaha by concentrating on business processes that allowed them to quickly release a flood of new models aimed at the rapidly changing concept of what customers would find compelling.  Customers responded positively and Honda emerged with the advantage and additional market share.

There are numerous other outstanding examples, including the way we’ve seen Dell outmaneuver many of the other PC manufacturers in the late ’90s.  We’ve seen WalMart outmaneuver just about every other mass market retailer over the past 20 years.  We’ve also seen Toyota outmaneuver GM and Ford, Southwest outmaneuver Delta and American, Best Buy outmaneuver Circuit City, and we’re currently seeing Google and Apple outmaneuver Microsoft today.  In each of these cases, the prevailing organization has done a better job of OBSERVE – ORIENT – DECIDE – ACT… and the winner has been determined by the customer.

We’ve applied the core principles of agile maneuver in our work with clients over the last decade.  The high level roadmap we’ve followed is:

The overarching goal is to keep the value proposition and customer experience relevant, compelling, and differentiated.   In order to sustain differentiation and even move the market in a new direction, you must offer customers something new; a product, a service, or an experience that both fits with… and influences… the way they think, feel, or act.

However, we frequently come across organizations that have beliefs about customers and their own capabilities that range from simply arrogant to downright delusional.   This can include inaccurate beliefs regarding who the company’s best customers are, what customers really want, and how differentiated the company’s products, services, and capabilities really are in the customers’ eyes.  If this is true, it’s only a matter of time before the business becomes irrelevant and its customers increasingly go elsewhere.

My post, titled “Rapid Revenue Retention: A “Swarming” Approach to Keeping Customers During Recessionary Conditions,” provides a specific application of agile maneuver focused on customer retention. The Rapid Revenue Retention approach is structured like an OODA loop.  The approach quickly Observes and Orients around the experience customers are having and uncovers the experience elements that create frustration, confusion, annoyance that contribute to attrition and missed additional opportunities.  The approach then focuses on Deciding and Acting on the highest priority interventions required to reduce attrition.  We’ve seen companies realize benefits from these efforts ranging from $20-100 million in incremental revenue.

The Boyd Cycle and Agile Maneuver

The Boyd Cycle:  OBSERVE, ORIENT, DECIDE, and ACT was developed by and named after Colonel John Boyd, an exceptional US Air Force fighter pilot engaged in the tail end of the Korean conflict.  After the war was over, Boyd was intrigued by the fact that the Americans achieved as high as a 10-to-1 kill ratio in air-to-air combat, despite the technical superiority of the Russian MiG 15’s flown by the North Koreans compared to the American F-86 Sabres.  The MiGs had a higher ceiling, superior climbing rate, faster acceleration, a tighter high-altitude turning radius, as well as, more powerful weaponry.   When Boyd studied this, he found that F-86s had two distinguishing features that allowed the American pilots to better observe the situation unfolding around them and respond more quickly than their adversaries.  Those two features were a canopy design that allowed better 360^o visibility and hydraulic controls along with an all-moving tailplane that enabled pilots to respond more quickly.

Boyd concluded that these two capabilities contributed to the American pilots’ ability to OBSERVE, ORIENT, DECIDE, and ACT more quickly than their adversaries.   The result was that the American pilots could outmaneuver the North Koreans despite superior raw capabilities of their technology.  Boyd described an ability called “fast transients” that allow one entity to operate “inside the OODA loop” of their adversaries.  When this happens, adversaries’ actions become increasing irrelevant because they are reacting to an environment that has already changed.  Eventually the adversary gets so confused that they can no longer stay on top of the changing situation.

Boyd went on to develop extensions to this theory that have become the central tenets of modern maneuver warfare and is considered to be one of the most influential military strategists of the late 20th century.   (See:  Robert Coram’s Boyd: The Fighter Pilot Who Changed the Art of War).  In addition, Boyd is credited with the design of the F-16 Viper light weight fighter that put the principles of agile maneuver and fast transients into practice.

By the way, Boyd offered an elegant proof of why there is always on “orientation gap” between an entity’s beliefs and the realities of that entity’s external environment.  He showed that it’s impossible to fully understand the performance of any complex system while operating inside that system.   His proof used a combination of Gödel’s Incompleteness Theorem, Heisenberg’s Uncertainty Principle, and the Second Law of Thermodynamics (see Boyd’ paper titled:  “Destruction and Creation“).   The key learning is that, in order to maintain an accurate or effective grasp of reality, one must undergo a continuous cycle of interaction with the environment in an effort to continually close a gap that is always growing.  This has profound implications for competitive business situations.

OBSERVATION:   Getting Past an Arm’s Length Understanding of Customers

The first issue that must be addressed is the gap between the customer who is “out there” and the decision makers who are “in here.”   Many companies have a very arms length way of trying to understand their customers.  As Wharton Marketing Professor, Peter Fader, observed, “Our understanding of customers is about where it was 40 years ago.  We can store every customer transaction in our database, but we need to find a way to use this to understand what makes them tick.”

Most companies tend to hire market researchers to go “out there” and conduct interviews, surveys, and focus groups in an attempt to find out what those customers really want.  The researchers bring back what they’ve learned and, in most cases, deliver a presentation or write a report.   In some cases, the group of decision makers actually attempts to get their head around these findings and try to guess what new products and services might work for those customers.

I’ve always felt that trying to understand customers based solely on arms length quantitative analysis feels a lot like trying to determine how the furniture upstairs is arranged…  by tapping on the ceiling! But the ceiling is a little like the barrier between the company and its customers.  Obviously, you’d get a much clearer picture if you just went and took a look… rather than trying to infer what’s going on through indirect and limited data sources.  In addition, inferences drawn from arms length approaches are prone to interpretation errors.  Without an adequate visceral context for understanding the data, we’ve seen many organizations draw conclusions akin to “Our customers in South Florida are born Hispanic and die Jewish.”

In the more boundariless, Wikinomics view of the world, there are a growing number of examples of organizations bringing the customer inside.  This Next Generation Experience is “always on” listening to, observing, and interacting with customers.  It includes organizations that are starting providing platforms for collaborating with customers on the development and improvement of the products, services, and experiences.  This includes great examples from Dell’s IdeaStorm and My Starbucks.com.  It also includes companies like Peugeot, engaging customers in the design of its vehicles.  It also includes platforms for connecting customers with other customers in order to have them share experiences and provide each other support.

ORIENTATION:  The Destruction and Recreation of Beliefs

Of the four processes ORIENT may be the most pivotal.  The way we ORIENT filters and biases the way we OBSERVE.  It also influences and constrains what we DECIDE to do and how we ACT.  In essence, ORIENT is all about accurately understanding how the environment you’re in is unfolding.  This is very difficult for people to pull off.  The issues is that to some extent, we all hold onto beliefs about the world that significantly bias the way we perceive and interpret what happens to us.   Our beliefs also have a profound impact on the way we perceive, interpret, and evaluate what we OBSERVE in our environment.

We don’t see the world the way it is… we see the world the way we are.

Although our beliefs are never fully accurate representations of the way things actually are, they become a real problem if the environment around us is changing rapidly.  Very often we just see what we expect to see. Dr. Leonard Orr said this succinctly as, “What the thinker thinks, the prover proves.”

In addition, our beliefs limit and enable what’s possible by influencing the alternatives we consider and the actions we take.   George Bernard Shaw once said,

Our lives are shaped not as much by our experience as by our expectations.

Our beliefs limit and enable what’s possible for each of us in our lives.  Regardless of what we’re willing to admit… our behavior is always fully aligned with our core beliefs.  In fact, we cannot activate, maintain, decide about, prefer, plan for, or pursue any goal which is not grounded (implicitly or explicitly) on a set of underlying beliefs.

In any situation where the external environment is changing faster than our beliefs, we run the risk of taking actions that are not only irrelevant but, in many cases, accelerate our own demise.  In order to close that gap, the trick is to uncover and master beliefs rather than belimited by them.  These can include the beliefs about what’s important, as well as, the unwritten rules that drive the real behavior of the organization.  This is both critically important and easier said than done.  Your beliefs are so much a part of how you think that it can be difficult to recognize them.  It’s like a fish being unaware of the water it’s swimming in.

In a fascinating CIA paper titled “The Psychology of Intelligence Analysis” Richard Hauer describes not only the issues surrounding the perception and interpretation of information but also outlines an approach to overcoming this bias.  The approach, called the “Analysis of Competing Hypotheses” forces analysts to more deliberately evaluate evidence for alternative conclusions rather than searching for evidence to confirm a pre-existing hypothesis.  I’ve found that following a simplified version of this approach to be invaluable on a personal level.  It avoids the tendency we all have to just look for and see the evidence that supports our pre-existing beliefs.  The basic steps of this approach are to:

1. Identify a wide range of competing hypotheses
2. Gather evidence for and against each of these hypothesis
3. Prioritize each hypothesis based on the weight of evidence that disproves rather than proves it

Summary:

It’s important to recognize that customers’ needs, priorities, and choices are different today than they were just 6 months ago.  Any organization that relies on an outdated set of beliefs about customer is more likely to accelerate their irrelevance than ensure their success.   In order to overcome this tendency it’s critical to follow the Boyd Cycle:

• OBSERVE changes in the environment in real time… while aggressively avoiding the strong tendency to just see what you expect or hope to see
• ORIENT yourself quickly to what those changes mean… being careful to challenge and revise outdated assumptions and beliefs
• DECIDE on a course of action… chosen from range of creative alternatives most relevant to the changing environment
• ACT in a coordinated and unconstrained manner… while being ready to OBSERVE, ORIENT, DECIDE and ACT to ensure progress and enable course corrections as necessary.

I’d love to hear from you with comments and questions… Cheers, Frank

Given all the business challenges you’re facing today, the last thing you want to do is drive away customers, particularly your most valuable customers.  However, I can say with total confidence that:

Some of your best customers will leave you based on negative experiences they’re currently having!

How do I know this?  Because, after having worked on customer experience initiatives with many dozens of different companies, I’ve learned that every complex organization is, to some extent, disconnected from their customers’ changing priorities… and the harsh realities of the experience customers have as they pursue those priorities.  (Note:  It turns out that this statement is more than just an observation.  It’s a provable certainty that I’ll cover in another post). As a result, it is highly likely your organization is unintentionally frustrating, annoying, confusing, missing opportunities with, and on the verge of losing some of its best customers.  And your organization is doing this in ways that are impossible to fully see from where you are sitting inside the organization.

I’m not trying to be antagonistic.  I’m just stating something that should be intuitively obvious to anyone that’s ever experienced the joys of being a customer.   Bain’s “Closing the Delivery Gap” clearly illustrated this disconnect as follows, “When we recently surveyed 362 firms, we found that 80% believed they delivered a “superior experience” to their customers. But when we then asked customers about their own perceptions, we heard a very different story. They said that only 8% of companies were really delivering.”

But wait!  It gets worse!   Not only does the gap exist, the gap is almost always growing.  This is true in any situation where the EXTERNAL REALITIES (customers’ circumstances, needs, expectations, and perceived alternatives) ARE CHANGING FASTER THAN THE INTERNAL BELIEFS held by management about what’s most important to customers.  If this is true in your situation, the rate this gap is growing is proportional to the rate of change in your external environment.

As we’ve entered this recessionary economic period, the external environment is changing quite dramatically and quite unpredictably.   As a result, any organization that turns its attention inwards rather than getting even closer to customers is only going to accelerate customer attrition and, ultimately, the irrelevance of their business.

In previous posts, I’ve started to address the most important strategies for dealing with these challenges.  (See:  When the Going Gets Tough… The Tough Get Closer to Their Customers and Delivering Winning Experiences for the Recessionary Customer Mindset ).   In this post, I’d like to extend these perspectives to one of the most valuable things you can start doing today.

Rapid Revenue Retention – A “Swarming” Approach

Over the past decade, we’ve done a particular type of focused Rapid Revenue Retention effort for clients.  We’ve affectionately call the approach we follow “swarming” or “swarm sensing” because it involves sending a distributed team of people into the field to observe (i.e., to swarm around) the experience customers are having.  The approach we follow is based on Swarm Intelligence; a highly parallelized approach to reconnaissance used by the military.

The objective is, over an 8-10 week period to:

Identify and prioritize the six most important things the company can immediately start doing or stop doing that will lead to a substantial improvement in customer retention or additional sales

In order to accomplish this objective, we send a team of “swarmers” into the field to live with and talk with customers and prospects; to experience things first hand, from the customers’ perspective; and to identify the specific frustration and confusion points that are leading to attrition or lost sales opportunities.   Generally these efforts have been able to quickly identify improvements that lead to a 3 to 5 point increase in retention and, often, a significant increase in the win rate on new business.  Depending on the size of the business, the benefits of this focused effort have traditionally run into the tens of millions of incremental retained revenue.

Here’s an example:

• Situation: The company is a leading provider of financial products that get sold through intermediaries (dealers) around the country. The differentiated positioning for this organization was their ability to partner with those dealers in a way that created a measurable improvement in their performance. The President of the organization approached us and said, “I believe we provide a highly superior product but I can’t understand why dealers are leaving us at an increasing rate.”
• Approach: In order to respond to his request, we had a team of swarmers hit the field and spend about 6 weeks with current dealers, lost dealers, as well as, the customers of those dealers. Like other situations we’ve been in, it’s surprising how immediately apparent the issues are when you’re able to step into the customers’ perspective.
• Results: In the course of those six weeks, we were able to identify seven immediate interventions that improved both dealer retention and the profitability of the existing dealers. These interventions included improvements to the screening criteria for pursuing new dealers, modifications to the initial dealer training they provided along with the creation of a refresher training schedule, and an attrition early warning process that picked up on changes in dealer behavior and directed sales people to intervene proactively as soon as the dealer started to exhibit the behaviors associated with leaving. Over the course of the 6 months following this effort, the organization was able to increase their retention from 88% to 91% creating a revenue uplift of approximately 20 million dollars.

Organizing the Swarm

We’ve generally done this with a small number of trained swarmers (consultants or researchers) supported by a team of more inexperienced swarmers (employees).  While it’s generally easier for outsiders to approach the situation from a fresh perspective, there are several conditions that can be managed to make it possible to accomplish work economically with inside people.  The keys to organizing the swarm include:

• Ensure swarmers are capable of seeing things from an unbiased perspective. This can be an unnatural act for anyone that’s been involved in any way in delivering or managing the services being observed.  People who’ve had any involvement in delivering the services being observed are “burdened by knowledge.” This includes being steeped in the processes, constraints, assumptions, excuses, biases, and blind-spots associated with delivering the service.
• Arm swarmers with the right tools and training. Over the past 10 years, we have developed and continuously improved a “Customer Experience Observation Field Book” and accompanying training that has been effective at helping swarmers better see the experience from the customers’ perspective.

• Ensure swarmers are able to put themselves in the customers’ shoes. Swarmers must be able to step into and “live” the customers’ priorities.  It’s important that swarmers be able to viscerally “get” what the customer is trying to accomplish, feels their needs, and understands how the customer looks at the experience.  This can be easier to do with inexperienced swarmers when those people strongly resemble the customers in question and have themselves been in similar customer situations.  For example, we’ve found that inexperienced swarmers have done an outstanding job observing the experience at Disneyland, when they themselves fit the profile of the customers whose experience we’re interested in.  However, we’ve had much less success in situations where swarmers come from significantly different cultural, economic, or business backgrounds than the customers in question.
• Ensure that swarmers have no relationship with the customers being observed or interviewed. The presence of any personal, professional, or organizational relationship with the customers being interviewed will bias: 1) what customers may feel comfortable sharing, 2) what the swarmer is comfortable asking about, and 3) the purity of observations that can be captured.  It is particularly important that neither party has a stake in the findings.  This is one of the reasons why…

One of the most biased and ineffective ways to listen to customers is through your sales and account management executives.

The immediate reaction we typically get is, “We’ll just have our people on the frontlines… the one’s that spend all day with our customers… do this.”  While we understand the advantages, we’ve learned this is generally a bad idea.  There are three multiplicative barriers that get in the way of having salespeople and account executives be a good source of insight.  First, when salespeople talk to customers, they have an agenda and customers know it.  There are often negotiation-oriented and face-saving dimensions to the relationship between the salesperson and the customer.  As a result, customers do not tell salespeople everything.  Second, since sales people show up with their agenda and existing relationship, they generally filter everything they hear through that agenda and relationship.  So, salespeople don’t hear many of the most important things customers have to say.   Third, salespeople don’t accurately report everything they’ve heard back to management.  This is particularly true if, by any stretch of the imagination, what the salesperson heard might reflect negatively on them.

• Build a capable, well balanced team. There is a profile for the good swarmers.  In our experience, the best swarmers tend to be extroverted, empathetic, open-minded, detail-oriented people who are capable of withholding judgment rather than quickly jumping to conclusions quickly.  Although we generally have a diverse team, you need to have enough of these types of people in the mix.

There are several things that make the Swarm Sensing process different from “mystery shopping.”  Most importantly, the intention is different.  The objective is to aggressively identify the highest impact improvements that can be made immediately.  This requires executive sponsorship and visibility for the effort, as well as, for implementing subsequent improvements.  In addition, the level of depth is different.  Most mystery shopping exercises are more about measuring compliance with expected service standards rather than getting deeply under the covers of what’s working and not working about the experience customers are having.  In a way this makes the swarming effort more like a highly directed ethnographic study.  The most challenging elements of this are equipping, training, and coordinating a distributed team of swarmers to do the work over a short period of time with a very well-defined and highly valuable business objective.

I’d be happy to share more perspective on this approach than I have room to address here.  Shoot me a message or add a comment if you’d like more information.