Customer Experience Innovation

Robert Dew, Cyrus Allen

• Publisher: Emerald Publishing Limited
• Year: 2018
• ISBN:
  9781787547889
• Topic: Business
• Subtopic: Customer Relations
• Index: Business

Companies who invest in successful Customer eXperience (CX) innovation stand out from the crowd. Markets tend to reward these companies because it is rare for firms to try something new, much less prove customer acceptance of their attempted innovations. Firms offering remarkable CX create loyal customers who happily pay more for their products and services, and then refer them to other customers for free. This book outlines innovative processes used to research, conceive and develop innovations in the CX space for both large and small companies. The challenge is not so much finding out what customers like, as it is remaining apart from the crowd of rivals and copycats. Written as a practical guide for managers with a background in line management, operations, marketing, finance or customer service, this book contains a simple framework with an extensive range of design thinking and creative problem solving tools. Starting with a validation for investing in improving your firm's CX, the book also provides a primer on competitive advantage, the most critical objective of strategic planning. Mastering the book's content creates the potential for any business manager or owner to find a hard-to-copy market advantage and drive their business' growth.

CHAPTER 1

INTRODUCING SHEEP AND PIRATES

If, like me, you can get frustrated with how most large firms operate – maybe the most challenging firm is the one you work with – then this book is for you. We collected nearly a decade of insights into trying to help companies improve their Customer eXperience (CX) because so many businesses offer nothing more than a ‘meh’ to their customers. It can be a little dismaying to start with. The root cause of this seems to stem from overcompensating against the fear of making a bad investment. The larger the company, the more it will value, protect and promote herding behaviours: alignment, risk aversion and safety in numbers are probably the most common shared values in large companies. Ironically, these values are the same as those observed in a herd of sheep. We work hard to help our clients become more than one of the herds in their market. Sometimes it works and sometimes it doesn’t because some large companies are happy to remain as sheep, as long as they are well fed.

Sadly, the stark truth of the matter is that very few large firms will prioritise their customers until their existence depends on becoming more customer centric. Some firms with a strategic outlook see the sky beginning to fall and others miss the market movement until it is almost too late. Many of your corporate peers will only get interested in CX when they can’t work out how to improve returns in another more conventional way. To continue our sheep analogy, you will get some support from showing how ‘the grass is greener over there’ but even more if you point out either the forest fire or vicious wolves over here. The drive to improve CX almost always comes as a result of the market. We believe in the market, and if you do too, then this book is for you.

Markets reward companies when they stand out from the crowd in a way customers value. This is the foundation of CX innovation. If you help your firm do something remarkable, customers will choose it more often, happily pay more for it and then refer you to other customers for free. The challenge is not so much finding the stuff the customers like; it is about the standing out from the crowd. And this is where we find many executives get a little twitchy.

We likened the content of this book to piracy is because it is about how to do the unprecedented and rebel against the status quo. Just like pirates at large on the high seas, CX is one of the few relatively uncharted and unregulated areas in business. This does not mean this book is about doing illegal or unethical things. In fact, it is quite the opposite – we believe making customers happy is about building remarkable experiences designed to leave them with specific feelings and memories worth sharing. However, just like piracy, CX innovation tends to be more successful when it is near the bleeding edge of the market frontier. This requires a combination of bold daring and swashbuckling style. And, dare we say it, innovating your CX to get an advantage sometimes seems like cheating, because success requires flouting established market conventions.

This book is about innovation. The content covers a range of research and design processes validated in real world organisations. If you apply the tools outlined in this book, you will learn how to create a competitive advantage for your business. While there are many types of competitive advantages that have been identified, this book is specifically how to get one from offering a superior CX. Many of the examples relate to large companies because they are often more visible and so easier to connect with. However, the principles here apply to businesses of any size, including start-ups. To help you navigate more easily to topics relevant to your size of business, we have divided the book into sections:

This chapter provides a more detailed explanation of the rationale above. Read this chapter if you need more validation for investing in improving your firm’s CX, you can skip it if you are already convinced.

Chapter 2 is a primer on competitive advantage, the most critical objective of strategic planning. It is about what it really means to have a competitive market edge. Read Chapter 2 to learn about what makes a competitive advantage, discover examples of different types and compare with your firm’s strategic plan objectives. Skip this chapter if you are not interested in how CX innovation fits into the strategy development context, or if you are already an expert on competitive strategy.

Chapter 3 covers the research phase activities required to deeply understand your market context. It is based on mixed method research techniques. This chapter offers a crash course in how to combine customer interviews and surveys with statistical analysis, to capture critical context clues about your competitive landscape. It also covers customer journey mapping, market segmentation, value drivers and market positioning approaches. Skip this chapter if you are familiar with journey mapping, psychographic–behavioural segmentation, Blue Ocean Strategy and consumer decision modelling.

Chapter 4 introduces the TERMS framework prompts to identify and resolve pain points. These tools are useful for incremental CX innovation, and in some cases can prompt more transformative innovations. This is a good place to start if you have a list of existing customer pain points and need to design tactical improvement initiatives. This chapter is also useful to get a comprehensive and pragmatic understanding of customer centricity. It is probably the best chapter for small businesses looking for a cost-effective edge in their niche. However, it is common for large businesses to focus on reducing pain points. This is disappointing because they miss out on the long-term benefits of CX innovation.

How to Quickly Find Relevant Pain Point Examples and Solutions

We have formatted the mini case studies in the book like this so it is easy to find concrete examples. There is also a case list, so you can see examples from specific companies or industries you might know. If you are looking for guidance about how to identify a pain point, search for examples with a minus sign in their title. If you need inspiration for incremental improvements or transformational innovation, look for a plus sign in the title. We use some shorthand for specific concepts related to customer experience elements. If your issue relates to time, emotion, risk, money, situation or sense-based elements, you may find one of the abbreviations below useful as alternative search terms.

 

 

CX = Customer eXperience

T+ | T−  = Time based CX

E+ | E−  = Emotion based CX

R+ | R−  = Risk based CX − 

M+ | M−  = Money based CX

S+ | S−  = Situational or Sensation based CX

Chapter 5 presents advanced innovation design techniques and these are not for the faint-hearted. They are included for ‘power users’ who aspire to transform their organisations to deliver truly innovative CX. The challenge with these design tools is that their inherent effectiveness is also their weakness; you can use them to escape your current market paradigm, but this escape carries your firm into unchartered waters where the thrill of discovery must be offset against the risk of floundering on hidden hazards. Of all the content in the book, this chapter requires the most artistry.

Chapter 6 relates to learnings around implementation of new CX initiatives. This has two parts: managing both the changes needed and the resulting complexity. This chapter is critical to the strategic success of any CX innovation, because simple changes are easy for rivals to copy. There is no escaping the fact that it is complex to deliver CX improvements which result in a sustainable competitive advantage. Easy-to-implement CX initiatives also turn out to be easy to copy by rivals, which limits their useful lifespan.

CHAPTER 2

WHY IMPROVING YOUR CX IS IMPORTANT

CX innovation is one class of solution which resolves the three main strategic problems encountered in markets: price pressure, brand equity erosion and development races.

Price pressure occurs in oversupplied markets. Historically, markets were subject to undersupply; however, modern markets seem to always tend towards overcapacity in the long term. This in turn puts pressure on suppliers to reduce costs in order to remain both profitable and price-competitive (in real terms). Oversupply also provides a motivation to differentiate to insulate against the price pressure generated by overcapacity. The vast body of academic research suggests it is very difficult for competitive for-profit firms to pursue cost leadership and differentiation strategic objectives in parallel. Firms choosing to differentiate typically implement marketing strategies.

Marketing starts out with the objective of matching whatever makes a product or service distinctive with the group of customers who value this distinction. This offers an escape from price pressures. Naming or creating a symbol for valued distinctions results in a brand. Branding is all about perception. Brands are potentially so valuable that every market player is incentivised to brand their product. As more and more brands crowd the market, more and more pressure piles up on players to promote and ‘build’ their brands. As more investments in a brand are made, so every other comparable brand becomes less effective. This results in a similar vicious cycle to the price pressure described previously. The result is brand equity erosion, the second market problem.

Development races are the third market problem. Where branding is based on perceived differences, product and service development is about creating actual differences. In an ideal world, branding and development would go hand-in-hand. In the real world, some market players cheat by branding commodities to create the illusion of superior development. Players who do develop improved products and services tend to copy other more established market offerings. Again, this results in a kind of arms race, whereby each player develops their product or service as a response to developments by rivals.

Price pressure, brand equity erosion and development races are all specific cases of the systemic problem with market competition. While lower prices, effective branding and useful product or service developments are all valuable, they are generally able to be copied by market rivals. This means these approaches are tactical. Truly strategic solutions are identifiable because they are difficult to copy and hence sustainable. This book presents CX innovation as a possible truly strategic solution, because delivering a superior CX requires managing complexity. Successfully managing complexity turns out to be hard to copy. The first case below illustrates how markets evolve in response to strategic challenges to the current CX-focused state of play.

T+ From Flour to Fun

We are immersed in an evolving experience economy. Consider how the value proposition for birthday cakes has evolved: in the 1940s, mothers typically made birthday cakes from scratch with basic ingredients for a few cents’ total cost. Success in this market was determined by the perceived quality, availability and prices of ingredients. After World War II the economy pulled women into the workforce, reducing their available time at home. By the 1960s premixed cake ingredients from companies like White Wings in Australia and Betty Crocker in the United States were available for only a few dollars. Even though the premixed packets at a few dollars cost ten times more than the basic ingredients, they offered time savings that allowed mothers to continue to bake their own cakes. The original market for ingredients still existed (at lesser volumes), but even the world’s best quality ingredients offered for free could not compete in the new market for pre-packaged cake mix. In the 1980s, as the economy switched to services and parents had even less time, mothers (and now fathers) would order or purchase ready-made cakes from stores. Again, these cost ten times as much as the packaged ingredients, but many parents didn’t know how to bake and wouldn’t have been prepared to invest the time if they did. The original markets for ingredients and pre-packaged cake mix again still remained, but neither could compete with cake making as a service. From the 1990s, however, demand shifted again and parents began to outsource their entire children’s birthday parties to fast food chains or family-friendly event venues. The market had shifted again, now to birthday party experiences. The irony here is the birthday party (around ten times more expensive than a pre-made cake) often included the cake for free. Over time virtually every market has exhibited this same pattern of shifting from quantity demand (I need to make a birthday cake) to quality demand (I need an instant birthday experience). Dealing with this long-term problem is what strategy is all about.

In most markets, competitive pressures drive the development of new, improved versions of products. These are released over time, each new model having some added capability and/or features. Particularly in markets with a high degree of engineering, it is common to see each generation of products launched with more features than the last. Viewed from a strategic vantage point, incremental product development fails to deliver a sustainable competitive advantage. At best, most incremental product improvements offer a temporary edge and at worst they fail to catch on and essentially destroy capital. Taken too far it becomes something we call ‘Galloping Featuritis’.

WHEN INCREMENTAL PRODUCT DEVELOPMENT GOES TOO FAR

Since its foundation in 1901, Gillette has spent billions on developing products for the disposable razor market.¹ Gillette offered the first safety razor using the new disposable blade for sale in 1903. Various models with minor changes were developed until 1956, when the first ‘adjustable’ razor was produced which improved the shaving experience because the blade pivoted as it was used. The model, in various versions, remained in production until 1986. The Sensor twin blade family of razors (launched in 1990) utilises 29 patents and the triple-bladed Mach3 has 35 more patents. While Gillette has been historically successful with new product development, the firm may now be aware it is approaching the limits of value from adding new blades: the latest Gillette razor has five blades, but there is a market rival offering even more!

The Pace 7 by Korean razor manufacturer Dorco (launched in 2015)² boasts seven blades and patented ‘Venetian flow’ rinsing technology. This does seem slightly ridiculous. To attempt to put it into context we can compare with a similar line of overzealous incremental product development: the Rocky series of movies. In 1976 the first Rocky movie was released, then came a series of sequels each more dramatic than the last: Rocky II (1979), Rocky III (1982), Rocky IV (1985), Rocky V (1990), Rocky Balboa (2006) and Creed (2015). Comparing movies to blades, Rocky quickly took the lead with Rocky II in 1979, but the razor industry hung in there. Creed (aka Rocky VII) sees Rocky still having the edge over the razor industry as the Gillette ProFusion released in 2014 only has five blades. Given that Sylvester Stallone is now over 70 years old, it seems the razor industry will deliver a knockout blow in the contest if one of the players can just work out how to cram eight blades onto a plastic handle! Both razors and Rocky have created financial returns, but neither has created an enduring competitive advantage.

Perhaps, the Gillette versus Rocky scenario is tenuous: razor quality got better over time, Rocky movie quality got (arguably) worse. Today’s razor is the standard by which all razors are measured, whereas the original Rocky is the standard by which all future Rocky films are measured. But viewed through the customer experience lens it is hard to understand why the market has gone so far into adding on new blades … How much better can a seven-bladed razor be than a twin-bladed one? Gillette might argue their performance is better as a consequence of the technology. In the razor market, however, Gillette’s product development and patenting strategy has not protected it from market rivals. And recent results don’t seem to support the strategy into the future. In 2014, world-wide disposable razor sales contracted by 3.6%.³

The Gillette and Rocky examples above are specific examples of a management phenomenon described as ‘Marketing Myopia’ by Theodore Levitt in 1960⁴ and later expanded upon by Clayton Christensen in his book The Innovator’s Dilemma.⁵ What both of these strategy experts basically asserted is that the most important barrier to effective new strategy in an organisation is the effectiveness of the current strategy. For growing businesses, it can seem counterintuitive to invest in new strategies involving more systemic risk than business as usual. Especially when the new offering has the potential to cannibalise the firm’s existing offer. So, the more attractive option is to invest in an extension of the current strategy. In contrast, the best companies do innovate and are prepared to risk making their current cash cows obsolete. Intel presents a good example with its Pentium and Celeron microprocessors.

The Pentium/Celeron option strategy (see below) was clever because it provided Intel’s salespeople with two ways to gain customers’ orders: either on performance wit...