When a concept starts showing up everywhere, starts feeling like a fad, it is time to put on a skeptical hat. Customer Experience (CE) is such a concept, lately appearing in all kinds of business discussions in many shapes and forms. Surely, many a business can benefit from and indeed establish a sustainable competitive advantage by differentiating their customer experience in the segments they target. But is this true for everyone who claims CE is their strategic advantage? In fact, under what conditions does customer experience become truly strategic? This paper lays out a simple framework to evaluate when customer experience should or should not be considered among key strategies a business pursues.
CE Evaluation Framework
The quintessential criteria to include CE in strategic thinking is when it has a high impact on customers - with impact defined by frequency, duration and intensity of customer interactions. While every business can argue that the experience it provides its customers has meaningful impact on them, the actual sway falls on a very wide range. Sometimes the customer truly cares about it. Sometimes the effect is immaterial for the customer.
Consider Four Seasons, often a prominent example cited when people talk about great customer experience. Why is it so? Because hotel stays benefit from a reasonable duration and high intensity. If intensity can be defined as powerfully touching all senses, then the night or two you spend at a hotel meets the criteria. Furthermore, many high-end business travelers stay at hotels often, with such frequency increasing impact.
The author of this paper once advised a media company to replace employee stays at Four Seasons with hotel chains like Hilton or Sheraton as a significant cost cutting measure. It would have saved this particular enterprise tens of millions a year. The recommendation was not just unpopular; the leadership team turned almost hostile. “We stay at Four Seasons, you don’t get it!” This is obviously a case where the impact is high and CE makes a difference.
Four Seasons wins also because the experience is differentiable in the eyes of the customer. The extra service level, the fanatical attention to details (e.g. a Four Seasons customer vividly remembers decades later how the hotel helped him in an anxiety attack), you are unlikely to mix it up with Motel 6. A straight-forward test of differentiability is the price range in an industry; if large price variations are observed like in the case of hospitability, CE is probably more differentiable.
Now, let’s consider another case where a company asserts CE as a key differentiator, namely TMobile in the US. T-Mobile’s “un-carrier” campaign was a bold move by any account. The company, led by an energetic new CEO, wanted to leverage the general dissatisfaction with service levels in telecommunications. “We are not like AT&T or Verizon, we will provide you a totally new level of service.” Did it work? Surely T-Mobile’s market share went up. However, profitability proved a huge challenge. In fact, when one looks deeper, it is very doubtful that service 2 levels had anything to do with the share gains, which were much more likely to be tied to reduced pricing (e.g. in sign up bonuses, eliminated fees etc.). In fact, the fact that T-Mobile had to offer price concessions is a sign that the CE strategy was flawed. Last January the CEO of Deutsche Telecom admitted to the fact that “T-Mobile’s current approach is not sustainable in the long term.”
Why doesn’t CE work as well in telecom services? In contrast with the hospitality industry, the impact of good service in telecommunications is not high. A typical customer interacts with the carrier at sign-up and if there is a change or issue to resolve. At the same time, the customer can be in constant interaction with her phone. The intimacy with the phone is unarguably very high. But to the customer that is represented by Apple, Samsung et al, not the carrier. Even the individual apps like Facebook, Skype are higher impact than the carrier. Furthermore, a carrier’s ability to differentiate its service is low. Of all the factors under its control, network strength is probably the main driver for this (no one likes dropped calls which still happen a lot in the US).
Most of the pricing differences in cellular services can be attributed to relative market shares and market powers of various players, not to CE levels. Therefore, our framework of Impact and Differentiability ranks cellular service much lower than hospitability when it comes to CE strategies:
And it is not hard to introduce other sectors into this framework. See below examples of various service industries.
Before dedicating resources to a CE strategy, businesses are advised to apply this framework and evaluate if their market is one in which CE can in fact lead to strategic advantage. Like any framework analysis, this cannot be conclusive in itself but it should be an informative starting point. The framework highlights, for instance, that some segments such as hospitals could benefit more from emphasizing customer experience whereas others would likely fail to achieve much with it. In the current pro-CE climate, perhaps such systemic thinking will ensure that businesses are not misallocating their resources pursuing a goal that will not help them win against their competitors.
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