5 Foolproof ways to go bankrupt with Customer Experience

Customer Experience (CX) can make or break your business, and, if you don’t look at it strategically, you run a serious risk of it making more harm than good and actually breaking you.

What may appear like a great idea, in essence, can often cost dearly if not sense checked against the wider realities of business. It’s important to bear in mind that customer experience isn’t an end in itself but merely a means to an end, one strategy, one path towards a greater goal: business survival and growth. Sadly, sometimes an ill-calibrated focus on customer experience can lead to the opposite effect and some disastrous consequences.

Here are 5 fool-proof ways of making sure your business throws its hard-earned cash out of the window by focusing on the customer (I also thought of calling these cardinal sins but I couldn’t bring myself to add two more items and risk making this article too depressing). Use this as a checklist, alarm bells should ring in your head if your business is guilty of any of these!

1.     Exceed their expectations. Consistently

Exceed customer expectations and they will be delighted and will become raving fans, right? WRONG!

This is wrong in many, many ways and could do with its own article, but in a nutshell:

First, not every part of the experience will satisfy customers. Some elements, known as hygiene factors in HR research or dissatisfiers in marketing research will not drive satisfaction up when present but will generate dissatisfaction when absent, such as a working payment page on a website or a clean store in the real world. There is no point in making the shop cleaner than a hospital room because your customers won’t notice nor would they care, it just need to be to a certain level and this will suffice.

Even where exceeding expectations is possible (known as satisfiers or motivators), research from Dixon, Toman and Delisi (The Effortless Experience) identified that delight rarely occurs and often costs more than the ROI it generates. Rust and Oliver (Should we delight the customer) tells us that exceeding expectations of customers raises the bar, for both satisfaction and delight (intuitively, you probably knew that) and that while the cost to delight further in the escalation will rise gradually, delight will do so at a decreasing rate. In other words, it’s a losing battle. They do however call out that while it hurts a firm to delight its customers, it hurts their competition more, which still doesn’t make it profitable.

The higher you raise the bar by exceeding their expectations, the more they will expect, costing you more in operating cost and shrinking your margin, potentially to the point of making your customers unprofitable or the business model inviable.

Finally, remember that as we are loss averse, it is a lot more painful to fall short on the promise made to the customer than it is delightful to exceed it. By raising the stake, you are making your life a lot harder and your failures a lot more painful – and both situations will be more expensive.

Raising Expectations = Raising Costs & Slashing Margins

2.     Fill a leaky bucket (acquisition before retention)

An article in the Harvard Business Review pointed out that the cost of acquiring a new customer (CAC) is anywhere between five to 25 times more expensive than customer retention.

Not only is this backed by an assortment of studies, it also makes sense, rationally and financially speaking. In most cases, a customer spent money on you because you spent money on bringing them in first (advertising, branding, PR, referral schemes…) and any money you get from that customer will first offset the CAC and then contribute to your margin. The longer you manage to retain a customer, the more profitable that specific customer will become to you, this is often measured under the label of customer lifetime value (CLV).

Now, imagine that half of your customers leave your company within 6 months, and that it takes you 8 months to recoup your investment to acquire them. The math won’t add up, you will be out of pocket and you will frantically accelerate your customer acquisition efforts, leading to more leakage.

It’s as if you were running yourself a bath but you forgot to put in the plug or there is a hole at the base. Water (customers) will fall through, and the bath (revenue) will be far lower than your capacity would allow, which means you may not have the luxury of actually enjoying the bath (profit). 

Conversely, if you plug the hole first, and then run the water, more will stay in and the tub will be fuller. The same goes with customers. Fix reasons for churn before you grow the input, or you will simply continue losing money, at a greater magnitude.

Retention > Acquisition

3.     Putting your customers first

This is probably the most controversial one for someone working in customer experience to say but putting your customer first is a mistake. You should put the business first, first. The goal of every organisation is to generate value through its activities, which is frequently measured in terms of revenue and profit. There is no point giving every customer the five stars VIP treatment if it is self-evident that the organisation will never recoup that money direct or indirectly. It needs to be a win-win for it to work: offering better experiences to the customers must generate enough value in return for the organisation, directly or indirectly, in the short, medium or long term to justify the spend.

I am not saying to only invest in improvements that are obviously quantifiable (because you won’t transform much), but you need to account for the organisation’s perspective rather than having a myopic focus on the customer. It needs to tie back somehow to what’s in it for the organisation?

Yes, a large transformation programme that completely overhauls the customer experience you deliver can and MUST include things that aren’t easily quantifiable or justifiable, as part of the bigger picture. You will still need your leadership to take a leap of faith in unlocking resources for this, but if you have set the scene and articulate focus on the customer cannot come at the detriment of the business, you are probably on the right track.

Don’t be customer-centric, you risk omitting the business from the equation.

4.     Technology ahead of people & processes

It is tempting to think one can throw money at the problem and it will disappear. This urge is what vendors tap into when they claim their product has the solution and will solve all your woes, if only you purchased it.

Now, the fact of the matter is that most of these vendors do have a leg to stand on, but they conveniently tend to omit a key factor: implementing anything is hard work and, more often than not, organisations will tend to do a half-baked job at it, trying to cut corners and do the bare minimum, expecting to experience all the benefits that they were promised.

Not quite. Technology can be, and is, a crucial part of the solution, but it is not the only part of it. A much bigger and more critical part is around people & processes. A transformation done well starts with the processes to diagnose, iterate, or revamp and with the people contributing to this process. Technology is also a part of the process but isn’t the be-all and end-all that it is often thought to be.

After all, if you still have your couriers throwing parcels on your customers' roofs but you spent millions on technology, all you’ll get is a prettier screen showing you the wrong info (because thankfully ‘left it on your roof’ isn’t an option on the tracker for any courier company). Focus on your process as a whole and do not make the mistake of neglecting the cultural/people aspect.

You can put lipstick on a pig, your customer still won’t be happy with it.

5.     Measure for a goal you don’t have

Did you know that if a plane was facing even one degree off when readying itself for take-off, this would completely transform its trajectory? We are talking massive impact, in terms of sometimes hundreds of miles. Something of the magnitude of a flight leaving San Francisco towards New York City making it to Miami instead (don’t quote me on the specifics, it’s purely illustrative).

What does that have to do with customer experience? Everything. What you measure has a direct influence on where you get to. No matter what people out there tell you, there is no single best CX metric, just metrics that are more or less appropriate for your aspirations.

But the question is, where do you want to be? Do you want a loyal fanbase or raving fans? These aren’t the same. Net Promoter Score (NPS), if used correctly (which isn’t always a given), could give you an indication of having raving fans, but would be a poor measure of loyalty. If you are a car marker and ask me at purchase how likely I am to buy another car in years’ time, you won’t get much relevant information.

The key is to identify where you want to be and find which measure will get you the closest to that. It doesn’t have to be one of the mainstream measures, all that matters is that you identify what you want to be known for, how you want your customers to behave and you measure the closest thing possible to that. What you measure will dictate the insight you get, the analytics you run and the recommendations you make.

One degree off-course is sometimes the difference between safe harbour and landing in a different country. Know where you want to go and make sure that’s where you are pointing towards.

There you are, five ways to transform your customer experience strategy as a sure fire-way of regretting you spent money on it instead of another initiative. If you are at a loss for how to do customer experience properly and would rather want it to generate value for your business both short and long-term, consistently, you’re in luck: at the time of writing, I’m on the market for a new role!

So whether you are looking of getting serious with it or need a sounding board as you don’t know where to get started, get in touch, I’m happy to share thoughts and guidance, no strings attached!

About the author

Gustavo Imhof is a Customer Experience (CX) professional who was named one of 30 rising stars in customer experience worldwide under the age of 30. He specialises in insight-led, profitable and science-driven customer experience strategies by transforming data into compelling insight-led narratives around the ROI of customer experience strategies.

His hands-on approach coupled with his strategic thinking and storytelling abilities drives cultural and business transformation within the business around the customer, for the benefit of the organisation.

It’s not about being nice to the customer. It’s about growing the organisation through the customer.