Businesses lose $75 Billion due to poor customer service, reads the title of a 2018 Forbes article written by Shep Hyken. What if there was a way to stop these losses? What if stopping these losses means your marketing advertising dollars can go further and gain you more market share? Would that be something your marketing team would be interested in? I believe so.
The truth is, it is not even marketing’s work to make that happen. This devil’s advocate paper focuses on the strength of brand building through excellent customer service and a customer centric mindset. This paper is also taking a look at the destruction of brand value through bad customer experiences.
Customer Experience in the era of the Internet
My hypothesis is that customer experiences, which I define as a mix of 3 elements. Online reviews, such as Yelp, Google, Facebook, Better Business Bureau (BBB) etc. Public crisis communications on social media channels or owned platforms. And actual customer service experiences, have a bigger impact on your brand equity than any advertising a company can buy.
Since the early 2000s marketing teams have embraced the swaying power of online reviews. Gone are the days where word of mouth recommendation was the only way to hear about a new product or a bad experience. With the emergence of the internet, and specifically social media sites in the early 2010s, the number of reviews has skyrocketed. Vandesta released a new study in 2019 stating that Yelp alone, receives 26,380 reviews every minute.
Inc magazine’s 2019 study found that 97% of all consumers look at online reviews before committing to a purchase. The same study established that 82% of consumers go to review sites specifically for information prior to purchase. In fact, a 2015 Moz survey found that one bad Google review can cause the loss of up to 70% of potential customers. Just one, single bad review.
Revenue influenced by Customer Experience
The impact of good and bad customer experiences can be felt across the company, not just in marketing. While the marketing team is growing brand equity, market share, or even brand awareness, ultimately all investments should result in higher sales or revenue. It is therefore understandable that, if we assume that Customer Experiences (CX) have just as much, if not more impact on brand awareness as advertising, then we can assume that CX also impacts revenues and sales.
Multiple surveys have studied this hypothesis in the market and in fact found a correlation between revenue and in some cases company stock performance, and customer experience levels. MCorp found that companies who differentiate themselves from the competition based on providing outstanding customer experiences have a 50% higher operating margin.
To make it even more tangible, there are two additional studies that looked at stock performance for companies with great and subpar customer experiences. The 2012 Forrester research looked at market performance between 2007 and 2011. They found that companies categorized as CX leaders, beat the S&P 500 Index by 24 percentage points. They also beat the CX laggards by close to 70 percentage points. That’s 70% more sales (or revenue) than your competitor, as long as your customer service can wow your customers.
As Jon Picoult of Watermark Consulting said in a 2012 Forrester interview, “First are the companies that do it (CX) because their hand is forced. Based on their own market position and/or broader competitive dynamics, they come to realize that most sources of business differentiation are rather fleeting. A really good, consistent, and intentional customer experience requires the careful coordination of lots of organizational ingredients — hiring practices, business processes, metrics, recognition programs, etc. For that reason, the experience can be a lot harder for a competitor to copy, compared with product and technology innovations.”
A follow-on study was published by Watermark consulting in 2019 examining similar data but with a 10-year horizon (from 2007 to 2017). In this study CX leaders outperformed the S&P 500 Index by 45 percentage points and CX laggards by 120 percentage points.
This means the gap has widened even further between 2012 and 2017, by a significant margin. This can be explained with two events occurring. First, customer expectations have shifted based on services like Amazon’s Prime delivery. Second, technology has evolved even faster in the last decade than ever before and consumers are adopting new technology faster than companies.
Companies do not have the luxury anymore to just catch up. To woo customers away from competitors, you have to leapfrog the competition. That is hard, expensive, and time and resource intensive. You are either all in, or you are all out. Which helps to explain the 120% spread between CX laggards and leaders.
Considering the significant upside of a customer centric approach, one would assume that companies have been investing heavily into building out more positive customer experiences. Yet the data says otherwise.
A 2012 MCorp study showed “that 93 percent of companies say customer experience is among their company’s strategic priorities, and 75 percent of respondents want to use customer experience to differentiate. Yet less than half of these firms have a clear customer experience strategy. If we had to guess, the majority of those without an experience strategy have yet to do the hard work of defining their brands.”
Satisfaction does not equal Trust
Accepting that assumption as a marketer is concerning. After all, setting a brand strategy for a company should be a marketers first priority. The brand is the baseline of your customer’s expectations. The brand needs an enterprise wide delivery to create brand authenticity in the market. Authenticity equals brand trust and raises customer loyalty. This trust is earned. As Shep Hyken wrote in his Forbes blog in 2018, “The company may define its brand promise, but it is the customer who decides whether or not the company delivered on its promise.”
A 2014 Gartner study stated that “by 2016, 89% of companies expect to compete mostly on the basis of customer experience, versus 36% four years ago (2010).” Additionally, Bain & Company’s research from 2005 stated that “when we recently surveyed 362 firms, we found that 80% believed they delivered a “superior experience” to their customers. But when we then asked customers about their own perceptions, we heard a very different story. They said that only 8% of companies were really delivering.”
The way we see companies adopting customer centricity is more apparent in product or content experience improvements. Gartner’s 2017 research showed that 50% of product investments will go into customer experience innovation, not the actual product.
The 7th Era of Marketing
Robert Rose stated in his book Experiences: The 7th Era of Marketing, that the next evolution of marketing is customer experiences. Furthermore, Bourlakis, Manika and Papagiannidis (2017) stated in their research “that satisfaction acts as an antecedent of brand loyalty.”
Based on all the studies, we can clearly see that companies recognize customer experience investments as a priority. They clearly understand the value in creating better customer experiences to kick start brand loyalty and brand recognition. We can also agree that customer satisfaction is simply a rating, satisfaction is not the same as brand loyalty. Brand loyalty is an emotional connection between the brand and the customer. The $75 Billion per year loss due to customer service issues (as stated in the Forbes article in 2018) is $13 Billion more than in 2016. It comes from the “lack of positive, emotional experiences that drive loyalty with your brand”. The same study said that in today’s market 67% of customers are serial switchers.
Marketing’s job is to create that positive emotional connection through advertising and marketing campaigns. But all that good will can be wiped out by one negative brand experience. Yet one positive customer experience is very hard to undo, and definitely impossible to undo with poor advertising.
Comparing the Forbes data on serial switcher behavior to the research that Kam Fung So and King (2010) published in their academic article (When experience matters) is staggering. Kam Fung So et al found that “…repeat customers account for approximately 40 per cent of the sales recorded in the global hotel industry (Horwath International, 1998).”
Kam Fung So et al’s (2010) research (as depicted below) shows the correlation the team found during their brand loyalty study. They looked at internal communication (employee to customer) and external communication (advertising) branches influencing customer behavior and sentiment. What Kam Fung So et al (2010) found, was that “in relation to customer experiences with a company, all the loadings were high with core service (0.93) loading the highest, with both servicescape and employee service loading the same (0.90).” Based on this study, there is a clear and direct correlation between customer experiences and loyalty.
Figure 1: Graphical depiction of the correlation strength between brand experiences and brand meaning to customers based on Kam Fung So et al research.
Kam Fung So et al (2010) also wrote “…that realizing hotel brand equity from an existing customer perspective is more about internal brand management than external brand management… The signiﬁcant ﬁnding of this study was the dominance of service experience to brand equity. In fact, it overrides brand awareness… Subsequently, these experience-based perceptions, rather than brand awareness, inﬂuence customers’ reactions to the marketing activities of the brand as well as their future purchase decisions (Berry, 2000; Berry and Seltman, 2007).”
Brand Loyalty During A Crisis
An additional study, by Bourlakis et al (2017) looked at the impact of public crisis communication, such as YouTube or social media apologies for service outages. The hypothesis is, that customers with existing relationships to the brand will have a different emotional reaction, than non-customers (prospects) do. The study looked at correlation in sentiment and in strength evoked by the crisis communication.
The study actually “suggests that the persuasiveness of the apology has a high and signiﬁcant positive relationship with satisfaction with the service provider after the social media service failure apology (b = .77, p < .01) and in turn satisfaction has a smaller size but positive and signiﬁcant effect on behavioral intentions to become or remain a customer (b = .24, p < .01).”
Plainly speaking, existing customers have a higher tendency to believe companies that they bought from before. They believe there is good will in the apology, and companies will strive to avoid service failures in the future. The intention to stay or become a new customer to such a “transparent” company still has a positive value. Existing customers will stay customers, and prospects may still buy the product in the future.
However, Bourlakis et al (2017) study also revealed that customer satisfaction findings for public apologies are widely different amongst age groups. “…this study found that younger adults (below the age of 41) were also more likely to have been exposed to the social media apology than older adults (41 years old and above). This ﬁnding may imply that older adults may not be so likely to be exposed to a service failure apology message on social media, and therefore, a managerial implication is that social media may be a better communication vehicle for the apology for younger adults than older adults and that the service/brand may need different communication vehicles for the apology messages for different audiences. Managers are advised to employ appropriate segmentation strategies as customers react differently depending on their demographic (and other) characteristics and select communication vehicles that will have a greater positive effect for these audiences.”
The Channel-less Support Model
I believe that there is room for more research and papers on this subject. As with everything else in marketing, word of mouth is not dead. It has just adapted to the 21st century technology and took the form of written or oral reviews on public sites seen by millions of users. Ultimately it does not matter how much money you pour into external communications, such as PR, Marketing, Advertising and the like, if the customer’s personal experience does not live up to those brand values.
As Kam Fung So et al (2010) wrote in their paper “…external communication, ultimately rests on employee-customer interactions and the consistency of service delivery that is … internally within the service firm”.
Customers expect a “channel-less support” system, as Jeff Nicholson (Pegasystems) said. Customers don’t care which channel your marketing team chose, they want you to be where they are. They want all interactions to be in one place, they don’t care about your teams’ silos and responsibilities. They want a consistent experience, which comes from consistency in your processes internally.
As Dan Ratner, Managing Director of Uberbrands put it in his interview with CMO Magazine in 2018. “If something breaks down in that process (customer to brand interactions) and it’s not dealt with well in a hyper-competitive world, you can damage the brand.”
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