Bridging the Gap Between Customer Experience and Business Outcomes
by Chris O’Leary, COO, Customer Innovations, Inc.
In the 25 years we’ve been helping companies design customer experiences, one of the consistent challenges has been to estimate the business impact of specific experiential improvements. The fact is that many customer experience (CE) programs simply fail to make a compelling argument about the business value that will be generated by specific CE innovations. In the absence of a compelling business justification, executive support and sponsorship may be weak or even absent, orphaning the CE program and robbing it of the executive leadership it needs.
In their efforts to generate a business justification, Customer Experience (CE) managers frequently try two approaches. Neither approach has been consistently effective in earning senior management support and sponsorship.
First, they may choose to rely on generally held beliefs about the value of customer satisfaction, engagement or Net Promoter Scores (NPS). Often, this reliance highlights a correlation between these indices and some business outcome (e.g., revenue growth or market share), but treats it as though it was a causal relationship. (see: Keiningham et al., “A Longitudinal Examination of Net Promoter and Firm Revenue Growth,” J. Marketing, Vol. 71 July, 2007, pp. 39-51)
In addition to the confusion of correlation and causation, we’ve also seen many cases in which high satisfaction or NPS scores actually co-exist with declining revenues, market share, and profitability. These measures reflect how customers feel about the company and not how the company may make customers feel about themselves. As a result, they are poor predictors of how customers will actually behave.
The second approach, of course, focuses on generating cost savings and efficiencies, most often at the service touch points. Unfortunately, service efficiency is almost always more important to the company than to the customer, and efforts to streamline or automate the touch points typically end up working against the quality of the overall customer experience. (See: The Customers’ Experience Does Not Happen at Your Touchpoints).
What is needed is a fundamentally new approach to focusing and justifying investments in customer experience innovation, one which directly addresses the core challenge of connecting specific experiential innovations with measurable business objectives.
For some time, we have been using a new approach to CE business justification called Outcomes-Based Experience Design, which represents a 180-degree change from common practices:
- Rather than trying to justify potential CE innovations by predicting or projecting hoped-for business outcomes, this approach starts by clearly defining the desired measurable business outcomes and working backward to identify the innovations required to generate those outcomes.
- Rather than relying on self-reported satisfaction, loyalty and NPS scores, this approach targets concrete business and customer behavior outcomes, both of which are measurable at the individual and the aggregate level. Satisfaction, loyalty and NPS are interesting, but should NEVER be used to justify investment in experience innovation!
Rather than competing for attention, funding and time with other business initiatives, this approach anchors CE to the existing strategic priorities, which is where CE should have been all along.
As illustrated in Figure 1, the Outcomes-Based Experience Design approach introduces a new measurable outcome, Behavioral Outcomes that connects Experiential Outcomes and Business Outcomes. Linking Experiential Outcomes and Business Outcomes in this manner enables CE program leaders to define and measure the specific business value that is being created, and this provide a rigorous business justification.
The model works in two directions. The first direction, going right to left, illustrates the design relationship. When designing the experience innovation, one starts with the business outcome of interest, then determines the specific customer behavior that needs to be influenced, and then designs the specific experiential interventions that are required.
Second, the model illustrates the causal relationship going left to right. The only way that CE innovation can create a business benefit is by influencing a specific change in customer behavior and choice-making. The difficulty in business justification discussed earlier arises from the fact that it is so difficult to predict how customers in general will respond to different CE innovations, and even more so for specific groups of customers,
Outcomes-based Experience Design generates a host of critical benefits. First and foremost, it positions CE innovation as a tool for achieving the priorities of executives and senior managers, NOT competing with those requirements. Second, it provides metrics and measurability at each stage of the causal relationship.
Third, it allows companies to invest only in those innovations that will influence the target customer behavior, and stop investing in potentially expensive initiatives which may not matter to customers or for which they are not willing to pay. Identifying (and terminating) uneconomic CE investments will often fund new investments that are far more impactful and that generate meaningful business benefits.
One final note: This model is effective only if we understand how and why customers behave as they do. Without the ability to link individual characteristics to the decisions and choices a customer makes, there is no way to design experiential interventions that will be effective in influencing the target behavior. More important, there is no way to assure that an experiential intervention targeting undesired customer behavior (e.g., attrition), will not adversely affect desirable customer behavior (e.g., retention, growth).
The necessary foundation of Outcomes-Based Innovation, therefore, is the ability to understand how and why customers make the choices that they do, and to use that information to influence those choices. The scientific and methodological basis for this understanding has been previously discussed here (Getting Beneath the Voice of the Customer) and here (Customer Experience: Beyond Better Sameness); practical challenges and applications will be discussed in the future.
Filed under: Customer Analytics, customer behavior, Customer Experience Tagged: | consumer psychology, Customer Analytics, customer behavior, Customer Experience, experience design, loyalty, net promoter score, nps, Outcomes Based Design, touchpoint