What are your Costs-to-Acquire, Customer Penetration, and Customer-Lifetime Value? Do you have a Customer Experience strategy? Below is a blog from the Harvard Business Review by Ryan Smith and Luke Williams.
Most customer experience (CX programs) are positioned as strategic, but quickly veer away from business objectives and become simply about tracking CX metrics. Time passes slowly, data continues to mount, and paralysis sets in. Big, strategic goals evolve into score improvements and incrementalism instead of gleaning useful insights that allow change with confidence.
So where does it all go wrong?
Most CX programs are broken in similar ways:
- They are not designed with change or innovation in mind.
- They have “soft” metrics rather than real business goals.
- They move slowly and without purpose.
Mistake #1: Forgoing change and innovation
Ask your CX program leader about the purpose of the program. If the answer is something other than, “So we can make intelligent changes that benefit the customer and the business,” you may have a serious issue. CX programs must be about change.
At the most rudimentary level, basic programs track performance over time. Yes, that’s useful, but why is it important? Because you want to improve over time. This means you must do things differently than you did them before. While it’s not complicated, this is a frequently overlooked premise to having a CX program—it’s about change.
Effective CX programs prioritize the importance of what gets measured and stack those data against your desired outcomes—what’s called “driver analyses.” Good driver analyses unlock the method for having the most change in the fewest possible moves.
While executing driver analyses enables change, it’s not actual change. It’s just more data until you do something with it. The reasons change doesn’t often happen are reporting paralysis, the lack of “think time,” and failure to collaborate.
Reporting paralysis can occur when teams are so wrapped up in distributing data, ensuring data quality, or writing up insights that they forget the purpose of data. If you “measure everything and report everywhere,” you’re not being strategic with your data.
Building in “think time” can help with this. Instead of just measuring, manufacturing, and distributing, build in time to understand the implications and applications of the data. This will give you clarity and confidence in what you’ve seen, how the pieces of the puzzle fit together, allow hypotheses to be formed and plans for change to be made.
Collaboration is also important if CX is going to result in any real change. CX experts must work with other departments and stakeholders to push the agenda for customer-focused improvement. Yes, it’s hard to do this when no one has time to meet, much less collaborate. But the CX program is uniquely positioned to try to make this happen anyway. They own the customer, they’re the advocate, and they have the analysis. Most importantly, the CX program reminds everyone else why they have to make time for the customer, above all else.
Mistake #2: Linking metrics to business outcomes
Most CX programs use their own tracking measures as emblems of success or failure. If a score improves, that number is heralded and CX teams use it as evidence of innovation and improvement by the team. Often, these results are accepted at face value.
But the problem with this approach is you really can’t control for all other things that could cause scores to rise, and you can’t assume that a rise in scores is good for net revenue. When it comes time to set key performance indicators (KPIs) for the program, be sure to match them up against input from both your CMO and your CFO.
What are the kinds of things you might want to consider? Here are some examples:
- Cost to Acquire and Serve a Customer (CAC and CSC): The better you understand your customer and prospect base, the more you build experiences and services they crave, the lower your CAC and CSC should be.
- Customer Penetration and Share: Customer penetration is simply increasing the number of customers you have. Share of wallet is the ultimate measure of how they spend their money when the ultimate point-of-sale (POS) decision occurs. Study the drivers and barriers of both to optimize here.
- Customer Lifetime Value: This is the net present value of all future customer revenues with account for attrition and your discount rate. It’s a complex measure, but the best firms understand it and make it a central part of their scorecard.
- Customer Churn: A well-run CX program can contribute to gains against customers shifting away from your brand (attrition) or abandoning it altogether (defection).
There is place in the world for performance benchmarking survey metrics like net promoter score (NPS). Many firms aren’t sufficiently sophisticated with respect to the above measures, so measuring NPS or other metrics may be the only empirical evidence available. When this is the case, though, be certain to study KPI success or failure with caution. A satisfied customer is not necessarily a profitable one.
Mistake #3: Moving slowly, without purpose
A CX program is a living, breathing thing. It’s either in a state of growth, peak productivity, or decline. CX programs are like mountain climbing — if you aren’t confidently moving through the problem, you may be wasting valuable energy trying to figure out where you’re going.
While it’s critical that CX programs be well designed and methodologically sound, sometimes wasteful activities are allowed to creep into the design process and bog down the program. Lack of momentum and sluggishness spell doom to a CX program, and leadership must propel the program.
True CX leadership comes from:
- Ownership. There must be a program owner: a single person who is ultimately responsible for the success and quality of the program.
- Expertise. The leader doesn’t have to know everything about the business, research methods and analytics, or strategy to be effective. But the more they know about each, the more effective the program will be.
- Resources. Multi-million dollar budgets aren’t necessary to create or capture value. Start with a basic budget commensurate with those of an IT program. Let them demonstrate value to earn more resources.
- Empowerment. Give your leader the authority to be successful.
Going slowly when you don’t intend to is clear evidence that the program has slipped into neutral in the leadership camp.
There are many obstacles and detours that can prevent full ROI from your CX program. In our experience, these three are the most common. To avoid them, remember that CX programs are not merely about watching scores go up and down. The goal is to create experiences that add value to the customer and the firm simultaneously, and this requires constant change. So think about what ideal experiences you want customers to have, and work backwards from there. Work quickly. And re-invent as needed.