Article

The financial discipline of customer experience

For the retail CFO, customer experience needs to shift from a "nice to have" to a "must have."

May 14, 2009

For many executives, the current economic times pose an unprecedented challenge — they need to make harder and tougher decisions about where to invest and where to reduce expenses. While this type of decision was made in previous recessionary times, it seems that the current crisis requires deeper cuts which actually touch the core value of what the organization delivers to its customers. Many feel compelled to make cuts in critical programs such as innovation and customer experience. These programs are now being put on a "nice to have" wish list.

When I was recently asked to comment on this dilemma, I replied: If you think customer experience is expensive, try commoditization.

My concern is not with the dilemma of needing to reduce costs, which I fully recognize, but rather in the way it is being conducted. 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. This is an integral part of your value proposition. Just like a customer expects tires on his car, he expects a delightful customer experience as part of the overall service.

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 cancelling customer experience. The case for customer experience is still based on general industry statistics and other generic substantiation.

During the good years, it was easy for customer experience professionals to get buy-in and general acceptance for customer experience efforts and commitment in their organizations. They presented their plans and the executives nodded in unison, agreeing with the importance of customer experience. Now, at the moment of truth, we can see the true value of this nod.

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. Customer experience practitioners neglected to calculate those costs and present the complete financial case to support and substantiate their customer experience programs.

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. We can learn from our experience and adapt. 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 5 P's 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: The real cost of serving customers. 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.

Moving forward, let us not be tempted by a shallow commitment to customer experience. Customer experience is too important to the long term viability and existence of every organization. As such, it needs to be measured and managed by the same criteria critical to the organization - the financials. We need to build a financial discipline through which every experience opportunity can be assessed and by which decisions can be made regarding where to invest in delighting customers. The result will be a positive financial outcome in the form of customer purchasing and loyalty.

It is time to move from the "nice to have" column of the CFO to the "must have" column. This can only be achieved through the financial discipline of customer experience.

Lior Arussy is the president ofStrativity Groupand the author of several books. His new book is Excellence Every Day: Make the Daily Choice-Inspire Your Employees and Amaze Your Customers (Information Today, 2008).Strativity