Retail Customer Experience: The Financial Discipline of Customer Experience

Discussion
May 18, 2009

By Lior Arussy, president
of Strativity Group

Despite the growth in
commitment to customer experience within organizations, it is still managed
more like an art than a science. This results in the current mindset that
when tough times hit, customer experience is treated like a
"nice to have" and not as a mandatory, integral part of the value
to customers.

I have noticed that there
are certain recommendations missing from the discussion about how to save
American industry. For example, no car company has suggested that in order
to achieve a more appealing price point for customers it will reduce costs
by shipping cars without tires — making tires an optional accessory.
Along the same line, no proposal was raised to eliminate windshields or
maybe seat belts. The reason is quite simple: A car is not a car without
those items.

The same logic applies
to customer experience. Your products and
services are not the same without delivering a proper customer experience.

If this is indeed the
case, you may wonder why customer experience programs are being cancelled
or reduced to a minimum today. The answer is simple. The car industry is
cognizant of the financial consequences of delivering cars without tires.
They, and others, do not know the financial impact of reducing or canceling
customer experience. The case for customer experience is still based on
general industry statistics and other generic substantiation.

Where did we go wrong?
We failed to build a data-driven financial decision-making platform to
guide management decisions. In every phase of the experience from promise
(done by sales and marketing) through delivery (customer service, finance,
operations, etc.) to loyalty and repeat business, there are unique customer
experience costs.

What is the result? We
are being given the message: "We are fully committed, but you need
to do it with no budget."

It is not too late. These
economic challenges should force us to rethink our programs and establish
the data-driven decision-making platform to substantiate the required investment.
When building the economics of customer experience you need to consider
the following components:

  • Return on
    Investment (ROI):
    What elements of customer
    loyalty could be improved as a result of enhancing the customer experience?
    To do this, examine the five Ps of customer experience – Preference,
    Profit, Portion of budget, Permanence of relationship and Promotion
    – to others.
  • Return on
    Nothing (RON):
    The impact on customer spending
    and behavior in the absence of customer experience. Will customers
    reduce their commitment to your organization and spread their purchasing
    across your competitors?
  • Experience
    cost units
    : How much does it cost to
    handle an exceptions request or a dispute? All customer experience
    costs units need to be identified with the full corresponding financial
    impact.

It is time to move from
the "nice to have" column of the CFO to the
"must have" column.

Discussion Question:
Does the lack of financial measures around customer service often cause
those areas to be cut during difficult times? If so, what are the challenges
of putting a financial cost on customer experience efforts?

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24 Comments on "Retail Customer Experience: The Financial Discipline of Customer Experience"


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Ryan Mathews
Guest
11 years 11 months ago

Of course economic constriction is often accompanied by a decrease in customer service as companies try to control costs by cutting back labor hours, employing less skilled workers or other cost-cutting devices. In the long run, these are usually great examples of false economics because they just increase the rate of sales decline over time.

The problem is finding a scientific measurement for service levels which are (after a point) totally dependent on the quality, personality, and experience of the employee. Of course you can do labor scheduling to make sure you have enough bodies on the floor but it’s much more difficult to tell which of those bodies is the “right” body for the job.

Doron Levy
Guest
Doron Levy
11 years 11 months ago
I see the argument here. As a manager I want to make sure my P&L statement balances at the end. If I’m not seeing sales coming in, I have to cut somewhere. The only real controllable line item is labor. Using the auto industry as an example, I can probably motivate or force an employee to do the job of 2 people because there is no face to face interaction. If I tell my employee he now has to bolt on 50 tires a day instead of 30, there is no immediate repercussion of reduced productivity or quality (notice how I say ‘immediate’). In retail, my customers are standing there waiting for service. If in the past I had 3 people on the sales floor to serve 10 customers, and now I only have 1, you will see immediate repercussions. Depending on how long the transaction takes, 9 of those customers could potentially walk out or not buy enough. We will feel that effect instantaneously as word of mouth will spread. So to all the… Read more »
Max Goldberg
Guest
11 years 11 months ago

Customer experience, like marketing, is one of the first areas cut during a recession. Is this because there is no industry-wide ROI measurement? I don’t think so. It has more to do with executive mindset. Companies that have a commitment to excellent customer experience have woven it into their their core story and culture. The others talk the talk, but don’t walk the walk.

Customer experience is not something that can be switched on overnight. It takes dedication from management and a company structure that reinforces the notion that the customer is more than a statistic. Unless it is already there, this notion is hard to sell in tough economic times.

Bob Phibbs
Guest
11 years 11 months ago

I’d say it is time to lose the terms, “Customer service.” The Disney-esque manner of talking about customers as “guests.” I wrote about this extensively in a piece in retail customer experience. It’s called “sales.” That is what produces results. ROI on grey is zip. ROI on sales training: priceless. http://www.retaildoc.com

W. Frank Dell II, CMC
Guest
11 years 11 months ago

Maybe we are looking at the issue from the wrong direction. What does poor customer experience cost the retailer? More returns, more damage, smaller customer transactions and last but not least, losing customers.

The issue I see most often is retailers just hire a body. There are certain characteristics and/or people attitudes that work well in retail. Hiring the right people gets to the heart of the matter and it does not cost one cent more.

Kevin Graff
Guest
11 years 11 months ago

Time and time again we see retailers shoot themselves in the foot by chopping training and service initiatives when times get tough. If it’s harder to make a sale, don’t you require your staff to step up and perform better? Not all retailers make this mistake. We see those that dig deeper into their commitment to front-line staff and managers and benefit from higher conversion rates and average transaction values.

Anne Howe
Guest
11 years 11 months ago

I’d want to know about any retailers who choose to test the Return on Nothing model. That way I can switch stores immediately and avoid that retailer for the rest of my shopping days. That’s my way of voting for retailers to actually take into account the true “culture of the marketplace,” which is what shoppers continue to seek and enjoy even in hard economic times. Shoppers often report how lonely they feel in an empty store, and how much more pleasure they have in busy–even crowded–shopping environments.

A retailer who gets it, like Stew Leonard, for example, provides a store that is specifically designed to provide that rich contextual shopping experience. Even employees respond and deliver it. That’s hard to measure with hard data, but should never be forgotten in the mix of ways to understand success at retail.

Len Lewis
Guest
Len Lewis
11 years 11 months ago

Within reason, now is exactly the right time to focus on customer experience. It is a simple matter of building for the future. Of course there are ROI considerations and I’m certainly not advocating what’s been called the Chinese retail solution–that is put 200 people on the floor to make a showing but none of them do anything for customers.

I think the bottom line is to have good labor scheduling and to make sure you have people on the floor that are paying attention to customers. You can be data oriented but this s still a people business. That kind of strong interaction will go a long way in providing ROI

Carol Spieckerman
Guest
11 years 11 months ago
This is a great topic with wide implications. In the e-tail world, I like Jeff Bezos’ perspective on this. He makes a distinction between customer service and customer experience, placing low prices, fast delivery and reliability (so that no one has to be contacted for help) in the customer experience category. Customer service is reserved for “those truly unusual situations.” By his e-tail metrics, customer experience is quite measurable; (margin, shipping costs and returns). Less so customer service. In the television world, the model has moved away from Nielsen ratings (the television is on) and toward engagement ratings (viewers can recall what they saw). Nielsen bought IAG for the company’s ability to measure engagement. Retailers and brands are getting better at measuring what a shopper is experiencing and how they are reacting to it; however, the danger lies in confusing what they are experiencing and how they react to various cues and stimuli with the quality of the experience they are having. You can now measure what the customer is experiencing and what they do… Read more »
Rachel Magni
Guest
Rachel Magni
11 years 11 months ago

The key word here is “discipline.” We work with a lot of retail and restaurant clients that have tried repeatedly to hammer home driving good customer service. But the only way to get there is if that experience is well-defined.

Do the due diligence to focus your efforts. What’s the 30 second pitch – How will your customer experience be better/different from the competition? What else defines the experience – from ops to merchandising to design/layout, etc. Get the fundamentals down. Let the customer experience be a rallying cry for execs, staff, and customers and just watch that ROI fly!

John Boccuzzi, Jr.
Guest
John Boccuzzi, Jr.
11 years 11 months ago

Customer Experience is a key differentiator for your business. When times get tough, this is the area that should not only be maintained but arguably increased. During tough times it is critical to keep your current clients happy and have them help you spread the good word about your product or service.

If you have not read “Hug Your Customer” by Jack Mitchell, pick it up today. Jack shows that customer service can drive bottom line results. Remember, a person that has a good experience with your business will tell 3-5 friends and might post it to Facebook, LinkedIn or a chat room (free advertising). A person that has a bad experience will most likely post it to Facebook, LinkedIn or on an industry chat room. What result would you rather have? Hug your customer and they will hug you back.

Doug Fleener
Guest
11 years 11 months ago
I would argue there are plenty of ways to measure the customer experience: – Sales against goal – Comp sales – Customer satisfaction and experience scores – Net profit For some reason we look at customer experience as a program or corporate objective, but the reality is the customer has an experience in every store whether the retailer is focused on it or not. We define the customer experience as “the perceptions, emotions, actions and reactions a customer has while interacting with a retailer’s environment, products, and employees.” A well-defined and well-executed customer experience will create sales, drive customer loyalty and increase customer advocacy. The decision for a retailer is how proactively are they going to manage that experience and maximize those opportunities. Unfortunately so many retailers choose to not manage the experience, and as result are passive in both engaging the customer and making sales. To see it in action go to an Apple store, or to a Brighton or Bose store. They may not always execute it perfect, but it is the foundation… Read more »
Lee Peterson
Guest
11 years 11 months ago

You know, this may have been true in past recessions/depressions, but we’re simply not finding this conundrum to be the case this time around. I think most retailers know, this time, it’s different…so the question of “what are we going to be when this is all over?” is much more prominent in the minds of industry leaders today.

The prevailing thought is that by 2011, retail is going to be two things: better and smaller. And if that’s the case, customer experience is THE main delivery vehicle for “better”.

Frankly, we believe the next few years will be a boom in terms of customer experience. The scant few that shop must be impressed or they’ll just go elsewhere, including online.

Mark Baum
Guest
Mark Baum
11 years 11 months ago

In good and bad economic times, executives need to understand that they can, in fact, reduce expenses while also improving customer experience, but this idea of a “joint value proposition” is often out of alignment. Redefining a company’s operating model with clear accountability to realize benefits–meaning a clear plan with milestones and the right metrics to measure success–is a key step, but this can only be done after the root causes of customer experience problems are identified.

It can be easy for company management to get stuck in the mindset of making across-the-board cuts when faced with high cost structures, but doing so will clearly impact customer service. To compete over the long haul, though, a company should be reinvesting savings from targeted cost cuts into cost-effective and value-added customer capabilities.

Ted Hurlbut
Guest
Ted Hurlbut
11 years 11 months ago
I’m concerned that we’re starting to blur our buzzwords. Customer service and customer experience are not the same thing. To me, customer service is the specific human interaction between customer and associates. Customer experience is the totality of the customers experience, sensory driven, and not merely their interactions with store associates. Customer service is a big part of customer experience, but not all of it. Having said that, poor customer service can destroy whatever customer experience a retailer is trying to build. We’ve all long noted on this board the sorry state of customer service in general, and management’s continuing focus on store level payroll as an expense item rather than a revenue generator. Customer service suffers. Building a great customer experience requires a whole host of factors acting in concert with each other; store fronts, first impression and greeting, display, housekeeping, visuals, store level policies, and employees. It’s all in the conception and the execution. It’s an intangible that defies being quantified. When you walk in a store, you simply know whether they’ve got… Read more »
Camille P. Schuster, Ph.D.
Guest
11 years 11 months ago
If companies are not measuring consumer experience or consumer loyalty, then they are not committed to it. Companies do what they measure. “Consumer experience” may be too amorphous and vague for companies to measure directly but there are many other ways a company can measure whether they are doing what is necessary to create loyal consumers. For example, how many complaint calls are received each month? How many are about which products or services? What consumers surveys are regularly conducted and what are the changes on the same questions over time? How many consumers visit your web page and leave without purchasing? How many people enter your store and leave without purchasing? Do any of your employees talk with your customers? Do they record comments? Does anyone look at them? If a company is not doing these things they are managing their companies blind. An article in today’s Wall Street Journal talks about a supply chain meltdown when players along the supply chain did not know what consumers were purchasing. Every company is vulnerable if… Read more »
Mark Burr
Guest
11 years 11 months ago

Training is the first to go. It’s immediate and directly tied to the budget and you can immediately measure savings. Or can you? Staffing is always tied to budget based on sales. Sales drop, budget drops, staffing drops. It’s that simple.

In the end you get poorly-trained, understaffed stores with little incentive for those left to handle the load to perform at any level other than less than they did before.

Jeff Hall
Guest
11 years 11 months ago

A retailer’s ability to link customer service and customer experience metrics to financial performance is absolutely key in today’s economy. Those that do not mistakenly cut such initiatives in challenging times. Our experience has shown that this is an important indicator of a brand lacking the commitment to integrating a strong customer experience strategy into the core of their brand promise.

Sustainable retailers not only weave their customer experience values into the culture of their organization, as Max has accurately voiced, but do so with an unwavering focus on delivering consistent, intentional experiences, across customer touch points, in order to build satisfaction and loyalty in a cumulative manner.

Marge Laney
Guest
11 years 11 months ago
A car is not a car without wheels because the consumer wouldn’t even consider looking at a car without them. So much pain would be inflicted on the car manufacturer and dealer that they would put those wheels on or be put out of business. The problem with customer service is that the typical customer has such a low expectation of service and such a high tolerance for poor service that they rarely punish the retailer by not buying. They inflict no pain on the retailer for a lousy experience. That’s changing fast! If the value proposition of the regular price and luxury retailer today is limited to only charging more for what the consumer believes is essentially the same product that they can find cheaper at a discounter or online, their goods will be sold only after heavy markdowns, or not at all. The negative impact on margin is devastating to the business model. Today’s consumer is saying, “If you’re stuff is worth more, prove it!” The ROI on customer service is higher conversion,… Read more »
Mel Kleiman
Guest
11 years 11 months ago

Most retailers and, in fact, most organizations that serve the public know that great customer service attracts and retains great customers. But to do that you need to treat your employees the way you want your employees to treat the customer, and most companies with a large front-line workforce have still not figured out that the front line is not disposable.

Mark Price
Guest
Mark Price
11 years 11 months ago

Customer experience is the hallmark of best-in-class retailing–it is hard to find someone who disagrees with that statement. Yet, at the same time, when the going gets tough (as it is this year), customer experience enhancements are some of the first things to go, because they (1) are hard to justify from an ROI perspective and/or (2) they would confuse the store personnel when management wants them to sell, sell, sell…as if customer experience did not yield sales.

The key is to apply a rigorous methodology to customer experience enhancements, with test and control areas, in order to evaluate the impact of the enhancements. The impact must be measured both in behaviors (typically sales revenue) and attitudes (usually intent to return and recommendability). Only in this way will you be able to get finance’s respect and the buy-in you need for expansion. Customer experience is not a standalone, qualitative “touchy-feely” effort; rather, customer experience covers changes that are measurable and meaningful. Don’t forget it!

Doug Pruden
Guest
Doug Pruden
11 years 11 months ago
Perhaps we’ve brought this problem upon ourselves. We’ve become convinced that if we want to retain customers, capture a great share of their category spending, and generate more positive word of mouth, that we need to please all our customers all the time. In doing so, we’ve established unreachable goals that don’t make good financial sense. No business has the budget to make every improvement, and staff gets hopelessly lost or frustrated when told that it’s just critical to do everything better. We need to better understand what customers really expect and what they truly value. We need to establish priorities and spend budgets where they will do the most good to improve perceived value of what is being delivered. We need to give staff more specific and attainable objectives for improving the customer experience. For those retailers that don’t currently take such a customer driven approach, there’s a great opportunity. Money can be spent where it will do the most good, everyone will understand the key tasks and measurement of ROI becomes more possible–providing… Read more »
David Rich
Guest
David Rich
11 years 11 months ago
Cars without tires? Obvious failure. Retailing with CEM? Not so obvious a shortcoming. Lior Arussy reiterates what so many of us have been saying on these pages over the years. We can’t count on our clients or management to understand what we so deeply believe; the customer experience (for many, but not all customers) is becoming a true point of differentiation between retailers. To some extent the resilience of Nordstrom and Neiman Marcus during this recession has shown that a well-managed customer experience will bond customers to a business. Lacking such a point of difference, customers will defer to the most objective criterion, price. In several case studies in which our clients have shared financial data with us, we’ve been able to show larger spend and more consistent visits from customers who appreciated good service and a quality experience. In my presentations to prospective clients I hold the sharing of financial performance data as a prerequisite to building a working relationship with the client. Rather than leave validation and ROI as “nice to haves” we… Read more »
Susan Parker
Guest
Susan Parker
11 years 11 months ago
I would venture to say that cuts to customer service (not to be confused with the customer experience) is a by-product of all the other cuts made in tough times. And it often starts before the product or service even reaches the storeroom floor. Why do I say this? Because very often, once cost-cutting measures are made they affect things such as supply chain logistics (stores don’t order as much stock or order items with lower price points but lesser quality); cutting floor staff (having fewer associates on the floor available to help customers); cutting warehouse staff (shelves/supplies are not stocked, merchandise sitting in a back room because no one to get it to the selling floor)–all of these create a less than optimal equation for perfect customer service. Employees are stressed because they know they cannot possibly offer the best service because they are not equipped with the bare minimum. Customers are stressed because they are no longer receiving the attention and care they once were. This lack of customer service will therefore result… Read more »
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