Wednesday, July 6, 2016

In the previous post , we began looking at a suggested approach for analyzing lost customer data at an individual level in order to identify specific customers and the value they represented to the company prior to their defection.  To illustrate this approach, here’s a hypothetical example that can be generalized to a variety of lost customer scenarios that many companies, regardless of industry, typically experience.

In this case, the company has four groups of customers segmented based on lifetime value.  That is, the company has simply totalled the value of all purchases made by these customers and developed four segments each with their own purchase threshold.  Looking at the segments from lowest value (segment #1) to highest (segment #4) reveals that attrition over the preceding 12-months has been 8% for segment one; 4% in segment two; 5% in segment three; and 3% in segment four.

On first blush, we’d be tempted to conclude that segment one, with 8% attrition, requires immediate attention.  Looking at lifetime values, however, indicates that while segment four lost only 4% of customers, this represents 65% of the revenue the company earned in the last 12-months.  While these are hypothetical numbers used to make a point in this example, this is not an uncommon occurrence.  This variation on the “80/20 Rule” is often seen in lost customer analysis and it’s the primary reason why looking at a single retention value is often misleading.  

In addition to this lost customer value, it’s also compelling to look at the corresponding inflow of new customers to determine if the value lost is being replaced by that brought in by the new acquisitions.  While this may not be possible in all industries because the new customers have yet to establish a purchase history with the firm, this analysis can be done in whole or in part, for example, in financial services.  That is, when these new clients open and fund their new accounts, how do the initial deposits compare with the value of deposits the lost customers have taken with them?  Comparing this inflow and outflow is perhaps the best way for CX to make a business case for addressing dissatisfaction and the resulting defection of customers.  As such, an inflow and outflow metric should be a critical component of any CX performance reporting.

Informed by this insight, from a strategic perspective, CX should next seek a thorough understanding of why these high value customers are defecting.  While the responses to survey questions may reveal some “first-level” reasons for leaving, it’s unlikely that quantitative data alone will provide a comprehensive understanding of customer attrition.  This is because, in most cases, the reasons behind defection are multifaceted and complex.  Specifically, as discussed in a previous post, customer expectations around products, services and the overall experience typically focus on functional, social, and emotional “jobs-to-be-done.”  Obtaining a deep understanding will likely require qualitative research methods such as individual interviews and/or personal observations of customers who are using your product or service.

One-on-one interviews with lost customers often results in actionable insights that can subsequently be used to address the shortcomings in the product or service that contributes to attrition.  In her very practical and informative book, Buyer Personas, Adele Revella presents an interview format geared towards acquiring a comprehensive understanding behind the reasons customers elect to do business with a company.  Adele refers to her method as the “5-Rings of Insight” and I’ve modified her approach to make it applicable to conducting lost customer interviews.
  • What triggered your decision to find another company from which to buy this particular product or service?
  • What were your expectations of the product / service when you first purchased it? These expectations must be categorized into functional, social and emotional “jobs”.
  • In using the product/service, what were the hurdles to satisfaction…that is, where did your functional, social and emotional expectations not line-up with what you actually experienced?  
  • What was your criteria in selecting a new company from which to purchase the product or service?  From this, you’ll want to identify if the customer is looking to complete the original functional, social and emotional jobs, or if perhaps over the course of the experience with your company, the list of jobs has been modified.
  • How did you go about selecting the company you’re now with?  Here, you’ll develop a  journey map depicting the trigger moment of defection from your firm and continuing all the way to the selection and use of the competitor’s product or service.


In the next post, we’ll use another hypothetical case to look closer at the lost customer interview.

Sunday, April 24, 2016

A Suggested Approach for Developing a Customer Experience Strategy - Lost Customers, Part 1

In the course of completing a strategy assessment of your company’s customer environment, you may get lucky and come across data regarding lost customers or prospects.  If an exposure to lost customers is not included in the assessment, you’re strongly encouraged to investigate this particular group of customers as this often represents the low hanging fruit that, if addressed, can pay immediate financial dividends for both the company and your CX efforts.  Surprisingly, many organizations ignore lost customers all together. But that said, it’s quite likely that the company’s finance department thinks about all about the foregone revenue that lost customers represent…they just don’t know what to do about it.  This is where a well thought through CX strategy can make financial inroads while establishing immediate credibility for the importance of customer experience.

The inflow of new customers and the outflow of lost customers speak directly to the basic economics of the organization…even not-for-profit organizations need to maintain a reasonable balance between customer inflow and outflow.  In the case of for-profit companies, it is imperative that over an extended period of time, the outflow exceeds the inflow in order to sustain the firm.  

If minimizing the outflow of customers is so critical, why do relatively few companies track it as a key performance indicator?  Across many industries, the sales function has a leading role in a company’s operations, and consequently, there’s a heavy emphasis on new customer acquisition while lost customers are often ignored.

That said, some firms do track lost customers…typically reported in the form of a retention value…but as we’ll see, this can be a misleading view of the firm’s economics. 

Drawbacks to Using a Single Retention Metric
As a rule, maintain a healthy skepticism about the insight that can be drawn from a single metric.  As the saying goes, “the devil’s in the details” and that certainly applies when trying to understand the dynamics around lost customers.  

Consider, for example, a company’s claim to having 75 percent customer retention.  Depending on the industry, that may well be a healthy retention rate, but it may also lull the company into a very dangerous complacency.  Delving a little deeper we should ask…who are the 25 percent who left?  How much of the revenue and profit did these customers account for?  What are the demographics of this group…were they younger and potential long term customers?  Were they older, more affluent and, at one time, loyal customers?  And, what about the 75 percent who stayed…how many are profitable?  Do they generate referrals?  These are just a few of the questions that should be asked to arrive at a more thorough understanding of the financial implications associated with customer retention.  As mentioned previously, one of the most effective ways to establish the credibility and importance of the customer experience role in an organization is to draw a direct link with the firm’s economics…the potential forgone revenue associated with losing key customers.

Lost Customer Analysis
As an alternative to reporting a single metric retention value, here are some suggestions for developing a more informative and actionable view of customer defection…
  • Start by determining on a monthly or, at least quarterly basis, the inflow of new clients and the outflow of lost clients.  This information can usually be sourced from a company’s CRM system or a sales database.  Ideally, you would depict four values…in the reporting period there were x number of new customers who brought in y revenue, and there were x number of lost customers who represented y value of lifetime purchases or account balances.  Walk the proposed metrics around to the various functional areas…Marketing, Customer Service, Sales, and especially, Finance, and get their input.  Ultimately, you’ll want to have agreement on these four metrics.
  • Once the high-level inflow and outflow numbers have been assembled, it’s time to disaggregate these values and get into the details…this is where the real insights will come from.  Focusing on the outflow number, unpack this, if possible, by client segment and the corresponding value.  This is where you’ll likely need some help from a database expert who can query your customer database and identify, at an individual level, those customers who have closed their accounts, or who have not renewed a subscription, etc.  In some industries and companies, identifying a lost customer is relatively straightforward.  In financial services, for example, it’s the customer who has closed all their accounts and no longer has any money with the firm.  The same idea applies to a subscription business where it’s clear whether the customer has renewed.  In other industries, identifying a lost customer is a bit more ambiguous.  In automotive, for example, identifying a customer a lost lease customer is similar to a subscription model where there’s a definite end-date to the contract.  In other contexts, tracking lost customers can be more challenging because there likely isn’t a clear indicator of customer defection such as a cancelled contract or an expired subscription that’s not renewed.  In cases like these, a suggested proxy for a lost customer is a purchase recency / frequency approach.  In analyzing their sales data, for example, an online retailer could identify those customers who had an established purchase cadence…monthly, for example, and establish a business rule to define a lost customer as one who, in this example, has gone three months since the most recent purchase.  Again, if this is the case, you’ll need to reach agreement with all stakeholders as to the proposed proxy for lost customers.
  • With the lost customers assembled by some type of segment classification, analyze the numbers and ask some questions.  Which segment is bleeding the most outflow?  How much…relative to the entire outflow?  It’s quite likely this will be a take on the 80/20 rule…20% of the lost customers represent 80% of the lost revenue.  Very importantly, be sure to identify trends in this data…for the past six-months, for example, has the same segment seen the largest outflow of customers and/or revenue?
In the next post, will discuss where to go next in addressing the lost customer issue.

Friday, January 22, 2016

A Suggested Approach for Developing a Customer Experience Strategy - Part 1

First things first…”strategy” is one of the most misconstrued concepts in business, so let’s start with a definition of what it is, and what it isn’t…here are some references I’ve come across in books and in various media:
  • “Our strategy is to be the most trusted and admired company in the ___ space.”  This may be a worthwhile mission, but it’s not a strategy.
  • “Our strategy is to sell 100,000 units this year, while reducing costs by 10 percent.”  These are objectives, not strategies.
  • “Our strategy is to improve on our customer and employee satisfaction scores this year.”  These are goals, not strategies.
In his book, Deep Dive, Rich Horwath presents a simple and useful way to correctly define some commonly (misused) terms…
  • Goal - what you’re going to do…generally (e.g. improve our customer satisfaction score)
  • Objective - what you’re going to do… specifically (e.g. improve our customer satisfaction score from 80 to 85 by the end of our fiscal year)
  • Strategy - how you’re going to achieve the goals and objectives…generally (e.g. we’re going to improve our customer satisfaction score by implementing a formal customer experience function in our company).  This definition of strategy is a good starting point, and I’ll build on it shortly.
  • Tactic - how you’re going reach your goals and objectives…specifically (e.g. improve customer satisfaction by implementing a CX function that includes hiring two staff with CX expertise and investing in a data analytics solution)
Let’s elaborate on the initial strategy definition by adding three key MUST HAVES that are critical components of any strategic plan…
  • Identify the precise Business Challenge, Opportunity, Issue or Problem:  In his book, Good Strategy / Bad Strategy, Professor Richard Rumelt writes, “A good strategy recognizes the nature of the challenge and offers a way of surmounting it.”  Rumelt goes on to say, “When you cannot define the challenge (going forward, “challenges” will refer to any opportunity, issue, problem the company is facing), you cannot evaluate a strategy or improve it.  Tying this back to Horwath’s reference to strategy as “how to achieve goals and objectives…generally, the strategy articulates how the organization will deal with the challenges that must be addressed in order to attain the goals.
  • Identify the Resources and Activities that will be used to address the challenges: As Professor Rumelt says, “The most basic idea of strategy is the application of strength against weakness.”  That “strength” consists of those resources and activities in which the organization excels relative to its competitors.  It is in the application of those key resources and activities that the company gains an advantage or is differentiated from its competitors as judged by customers.
  • Develop choices for achieving the goals and objectives, and select those most appropriate:  An organization may have identified its goals, issues and required resources, but it still falls short of having completed its strategy if it hasn’t also developed at least two viable choices for how to proceed.  Unfortunately, many companies stop their strategy development after coming up with only a single potential solution. In 99 percent of cases, there will always be at least two (if not more) approaches a company can take to achieve its goals.  Consequently, a robust and rigorous approach to strategy design will always thoroughly consider a group of potential options and select the one(s) that best fit and make use of its resources to achieve the stated goals.  

Goals, objectives, strategy and tactics, taken together, are the interrelated components of an integrated and coherent strategic plan…an absence of any one of these results in an incomplete plan.  

In previous posts , this blog has introduced various tools (e.g. surveys, journey maps, audits) that can be applied at the tactical and design levels to address specific customer experience activities.  Now that we’re focusing on CX strategy, over the next few posts, I’d like to introduce and explain a couple of new tools, that we’ll use to develop the customer experience strategy for the HealthScan company introduced in the previous post’s case study. 


Crafting a strategy is often overwhelming because it involves a lot of “connecting the dots” among seemingly unrelated items.  The essential purpose of these tools is to help organize our thinking and ensure we’ve addressed all of the components of the strategic plan.

Tuesday, December 29, 2015

Developing a Customer Experience Strategy - The HealthScan Company Case Study

We’ll use this fictitious case study to create our CX strategy.  The development of our plan will build on the various CX tools and concepts presented throughout the preceding posts on this blog.  Our strategy will be designed in the context of the following brief case study about a mid-size manufacturing company.  While the setting of the case is business-to-business, the approach used in designing the strategy can also be applied in a business-to-consumer context.  

HealthScan is a mid-size manufacturer of various medical devices used in surgical procedures by doctors around the world.  The company’s direct (revenue generating) customers include hospitals and large medical practices who purchase the various diagnostic and surgical instruments used to treat patients.  Particularly in the case of hospitals, there are numerous “indirect” customers who have varying degrees of influence over the purchase decision.  These include financial managers and accountants, as well as paramedical staff including nurses and therapists.  From a customer experience standpoint, the needs and viewpoints of all of these stakeholders need to be taken into account during by HealthScan’s sales and service staff.

 With headquarters in Geneva, Switzerland, HealthScan has over 300 employees, mostly engineers and technicians, in Switzerland, and maintains regional sales offices in Chicago to serve its North American customers, while its Asia-Pacific base is in Melbourne, Australia.  
Established in 1935, the company is privately owned, with a controlling interest held by the founding family.  Forty percent of the private shares are owned by the employees, who also each receive a vote on selected organizational matters.  While HealthScan has been consistently profitable since inception, the company’s operating margin has declined by two-percent in each of the last three years, and market share for three key product lines has eroded by over five-percent during the same time period.  

While a couple of competitors have introduced new products at lower price points to compete directly with HealthScan’s offerings, senior management does not think this is the primary reason for the fall off in performance.  Anecdotal input from global account managers indicate that customers are increasingly unhappy with both the process involved in purchasing the company’s products as well as with the quality and availability of service for devices needing repair.  HealthScan has always been an extremely product focused on company, and consequently, the formal collection and analysis of customer feedback has never been established.  Indeed, over the last two-years, four major clients have elected not to re-purchase replacement devices from the company, electing to go with competitor products instead…in the absence of a formal customer feedback system, this came as a complete surprise to HealthScan management.

In addition to these customer issues, HealthScan management was also dealing with some staffing concerns.  Over the preceding 18-months, a couple of senior engineering managers had left the firm and convinced a few of their staff to follow them to competitors.  Employee loyalty is a cornerstone of Swiss businesses, so such turnover is unheard of in most established companies.  Given its good reputation, management was surprised when it subsequently experienced a fair amount  of difficulty in attracting new staff for these roles.


Concluding that changes needed to be made in key facets of HealthScan’s operations, the executive team implemented a series of strategic choices.  One of these involved a renewed focus on customers, and to enable this, the company established a new customer experience management role and began recruiting suitable candidates.  With this brief case as background, the next series of posts will focus on the development and execution of a customer experience strategy for HealthScan.

Wednesday, December 23, 2015

Customer Experience Strategy - Audit: Part 2

Picking up from the previous post, let’s assess how the company fares in the nuts-and-bolts delivery of the customer experience.  The majority of customer touchpoints are delivered through some type of process.  To get a handle on the organization’s process orientation, consider the following audit items…

4) Current Customer Processes 
  • Are customer-facing processes documented?  If so, is the process reflected from an internal point-of-view, or from the customer’s perspective…the latter is typically represented using a journey map. (LINK to post)
  • Continuing with the process documentation, what’s the level of detail?  If journey maps are used, are they fact-based and include customer feedback such as survey scores or comments?  Does the documentation capture the end-to-end “ecosystem” that includes both the customer perspective  and the accompanying internal steps, policies, data, and vendors that collaborate to support the journey?
  • Who “owns” the customer-facing processes?  Are changes to a process dictated by management, or do front-line staff have discretion in making modifications?
  • In terms of ongoing process management, how much of an influence does customer feedback have in dictating ongoing changes (i.e. are process changes driven primarily by internal operational needs, or do changes stem from the identification of trends in ongoing customer feedback)?  
  • Overall, how would you gauge the organization’s commitment to the Continuous Improvement?  Are there, for example, recurring reviews of customer feedback, and is this customer information applied to gauging the effectiveness of the process?  And, for bonus points, are processes developed using a Lean approach…that is, is there a constant focus on executing the experience as efficiently as possible with a minimum of non-value add (the Lean term for this is “waste”) steps for both customer and internal staff?  Future posts will focus more on integrating Lean methods and customer experience.


The great management sage, Peter Drucker, is reported to have said, “…culture eats strategy for breakfast.”  The importance and prominence of an organization’s culture is magnified in a customer experience context.  That’s because, at its essence, customer experience is about ongoing change and a commitment to continuous improvement.  Consequently, CX thrives in companies where management and staff are open to new ways of doing things and maintain an inquisitive mindset.  These five questions can be used to shed a light on the fit between organizational culture and the potential for CX success…

5) Organizational Culture
  • How open is management to receiving staff input and recommendations for improving the customer experience?
  • How often does management engage directly with customers (e.g. face-to-face discussions; taking calls in the customer service center)?  How frequently does management review results from customer surveys, social media comments, or any other form of customer feedback?
  • What was the most recent meaningful change in how the organization engages with customers and/or employees?  Was this change internally motivated, or did it come about because of a competitor move (i.e. did the company “want” to make the change, or was the change “forced” upon it)?
  • What key performance indicators does management regularly track?  Are customer-related metrics such as satisfaction or likelihood to recommend included in this tracking?
  • How much discretion do employees have in dealing with customer issues (i.e. within reason, can staff determine how best to respond to a customer’s concern or complaint)?

The suggestions provided in these most recent two posts should serve as a foundation for conducting an audit of the CX “basics” in your organization.  With the audit as a starting point, future posts will now focus on the development of a customer experience strategy.

Friday, August 14, 2015

Customer Experience Strategy - Audit: Part 1

Over the next extended series of posts, we’ll layout in detail an approach for developing a customer experience strategy.  CX spans the organization and touches on numerous front and back-end functions, so the customer experience strategy must align with the company’s business, brand, and product / service objectives.  We’ll begin our strategy development by conducting an audit of the various facets that will comprise the overall CX plan.  We’ll then turn our attention to the strategy framework itself including a detailed discussion of each of its key components.  

A thorough understating of the current situation is the critical “must-have” initial step in developing a CX strategy, and the best way to do this is by conducting a comprehensive audit.  Recall from some of the earlier posts that our new CX manager undertook a bit of a mini-audit as part of her first few days on the job.  Hopefully, this gave her an initial perspective on the state of the company’s CX activities before undertaking some initial quick-win activities.  It’s now time to turn to a more detailed audit in order to gain a deep understanding on where things stand.  

An audit can be completed in one of two ways: directly by the CX manager and her staff, or by retaining a third-party.  For an audit to be worthwhile, it must be impartial and fact-based…for this reason, completion by a third-party, particularly in the case of large organizations, may be a worthwhile investment (just be mindful that the auditor’s objectivity may be compromised in the hopes of subsequently acquiring new business). On the other hand, in a smaller organization and / or in the case of a newly hired CX manager who likely won’t be biased by a history with the company, it may make sense for the audit to be completed directly by the CX team.

Regardless of the choice of auditor, what follows over the next couple of posts is a basic template for completing a CX audit…the template is not intended to be all-encompassing, but should serve to provide an understanding of those critical items that should be assessed.  
  1. The Corporate Strategy
  • What are the organization’s goals, and what is the linkage with customer experience?  For example, if customer acquisition is an objective, from a CX standpoint, is there a well-defined and executed sales process?  Does the process address the needs (job-to-done) of the prospect?  Similarly, if customer retention and increasing the share-of-wallet, is there a retention process?  Along those lines, is there a voice-of-customer tool in place to capture feedback from those who defect?  
  • In the course of the audit, you’ll want to parse the corporate strategy to identify those (often financial) objectives that logically align with a corresponding customer experience, and then ask…is there a corresponding customer process in place?  If so, how is it performing?  If not, should this be included in the CX strategy, and what resources might be necessary to do so?

2) The Brand Strategy
  • What is the brand promise?  Are all facets of the existing customer experience in alignment with the promise (remember, CX needs to be in sync with the brand, and not the other way around)?
  • What emotions does the brand want to elicit from the customer?  According to Forrester Research, emotions have a disproportionately large role in contributing to a customer’s satisfaction with their experience (1).  In the audit, ask…are we capturing customer emotions as part of our VOC?  If not, consider how this can be included in the CX strategy.
3) Customer Understanding
  • Ongoing feedback from customers is at the heart of customer experience, and therefore, this is a particularly important component of a CX audit.  Customer satisfaction data was briefly touched on in an earlier post…let’s now focus more closely on more fully understanding what you should be looking for to ensure that your CX initiative has the vital customer feedback needed to be successful.  
  • Qualitative Feedback…look for the following:
  • Focus group reports discussing customer experience questions
  • Journey mapping workshops with clients
  • One-on-one interviews with customers
  • Text analytics, primarily from the organization’s social media channels.  Results from text analytics are particularly insightful because customer comments, phrases and words are captured in their authentic setting (i.e. not in a more controlled research environment where customers are prone to self-editing).
  • Open-ended comments from surveys.  Perhaps most noteworthy here is to determine whether the company asks the Net Promoter question, “How likely are you to recommend____ to family and friends?”  Customers are asked to rate their likelihood to recommend using a 0 to 10 scale, but what’s arguably most important here is whether the key open-ended follow up question is asked…”why did you rate your likelihood a ___?”  Responses properly coded by the NPS segments of Promoter (9-10), Passive (7-8) and Detractor (0-6) are a potential CX goldmine for better understanding what pleases and dissatisfies your customers.
  • Quantitative Feedback…some items to include in an audit:
  • Is there a transactional survey in place?
  • Does the company execute a relationship survey, or do existing surveys ask relationship questions?
  • Do these surveys capture trends over time?
  • Other Sources of Customer Understanding…
  • Is the company’s customer base segmented?  There are numerous methods to segment customers, and two that are of particular value for CX are attitudinal and by customer value.  This is because you may want to consider designing different experiences based on how your customers feel (attitudinal) about particular products or services, or offering a different experience to the company’s most valuable customers (value).

In the next post, we’ll conclude this discussion by looking at a few additional items to include in a CX audit.

Saturday, July 18, 2015

Customer Experience Strategy and the Ecosystem


In their Customer Experience Maturity framework, Forrester Research identifies the first stage in establishing CX as Repair (1).  In this initial stage, organizations typically focus on establishing a measurement system, and finding and repairing broken processes.  Up to now, this blog’s posts have presented discussions and suggestions around the various tools used to support this initial CX stage.  Taking the perspective of a new manager tasked with establishing a new customer experience initiative from the ground up at a mid-sized organization, we’ve covered the following…
  • We began by “going to the spot” and talking with staff, customers, and vendors to form an initial impression of where the company’s CX currently stands
  • Following this, we studied existing customer research to expand on some of our initial personal observations
  • After identifying initial gaps in the voice-of-customer feedback and existing key customer transaction processes, we took some steps to establish “quick-wins” and begin to build credibility and buy-in for CX throughout the company.  Indeed, at this early stage, it’s just as important to establish the importance of CX among staff as it is to be begin making addressing specific customer issues.  From experience, perhaps the biggest initial hurdle for a CX manager to overcome is convincing skeptical and jaded staff about the importance of executing a first rate experience in today’s competitive environment.  Some of these initial activities included:
  • Implementing an ongoing and systematic voice-of-customer (VOC) transactional survey and reporting (LINK).
  • Incorporating the VOC feedback with a rigorous problem-solving method that facilitates the identification and resolution of common process related customer sources of dissatisfaction. The importance of establishing a VOC and a problem-solving / root cause identification method cannot be emphasized enough.  These two components form a foundational infrastructure that can be subsequently scaled and serve as the foundation for all subsequent CX activities.
  • Basic journey-mapping was introduced as a tool to help with depicting the end-to-end experience from the customer perspective
  • More recent post presented the Value Proposition Canvas tool to help identify the customer “jobs to be done”.  Delivering on these jobs is essential in building a future-state journey map…successfully executing the functional, social, and emotional customer jobs will make or break the ideal customer experience.
With these basic tools established…voice-of-customer, root cause problem solving, journey mapping, and value proposition development…we can now turn to discussing broader strategy considerations in the context of an organization’s customer experience initiative.
   
Over the next series of posts, we’ll delve into a framework for developing a customer experience strategy, as well as looking at the customer experience ecosystem through the lenses of Lean Management and the dependencies that come with establishing the various internal components required to deliver value to the customer.  We’ll use the tools introduced thus far, as well as introduce new methods to both craft an effective CX strategy and design the delivery ecosystem.  The objective of this next phase of posts is to introduce tools and approaches that can be used to develop more advanced customer experience design. 


(1) The Path to Customer Experience Maturity, Forrester Research Report, June 27, 2013