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CX Rx: Innovating and Competing on Customer Experience

CX Rx: Innovating and Competing on Customer Experience

Christine Moorman and Katherine Lemon

How to develop the proper build for a successful customer experience implementation journey

Critics say customer experience (CX) investments don’t pay off, pointing to a combination of media hype, weak skills and organizational complexities that paint a sobering portrait of returns. In October 2019, Forrester predicted that 2020 would be the year that CX needs to prove itself, noting that “customer experience professionals will either quantify their business impact and reach new levels of influence … or find themselves in a tenuous position.”

Even amid the coronavirus pandemic, we’ve seen that firms are more willing than ever to invest in CX. As a special COVID-19 edition of The CMO Survey shows, marketers have increased their CX spend by approximately 1.5% from February to June. The largest share of marketing budgets spent on CX can be found in the service consulting industry at 27.8%.

This increase comes despite an expected downturn in sales, profits and customer acquisition, with those polled reporting respective losses in those categories of 17.8%, 14.7% and 9.2% from April to June. However, each category expects subsequent growth in the next year of 4.2%, 2.6% and 7.1%, respectively.

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To explore the role of CX at firms prior to the COVID-19 outbreak, our research team took our questions about related challenges and payoffs to participants in the August 2019 CMO Survey, gaining insights from 341 marketing leaders.

Top Four CX Challenges Facing Companies

Managing the CX across all aspects of the customer journey can be daunting. The chart below shares marketing leaders’ challenges, ranking them by top, middle and bottom thirds. Of the four top challenges, few firms (20% or less) report that they believe they are doing well or better than their competitors on these issues—meaning most companies think they’re lagging.

chart indicating top three challenges faced by marketing leaders in managing customer experience

Challenge 1: Developing the necessary capabilities inside the organization to design, deliver and monitor the customer experience

A key reason for this challenge is that company leaders do not think of the CX as an organization-wide capability that enables the full strategic potential of other firm capabilities, such as product development or customer relationship management. This means that most firms fail to even consider the idea of CX capabilities, making associated investments unlikely. On the implementation side, managers may see the opportunity, but do not design and knit together the organizational processes that form the basis of any capability. This means that there may be a great deal of activity, but it’s not orchestrated around key processes that deliver the CX on a consistent basis.

Challenge 2: Coordinating disparate aspects of the organization to design, manage, deliver and monitor the CX

The inability of leaders to move beyond functional thinking when it comes to CX is a strategic blind spot. A successful CX needs to include all parts of the company that directly or indirectly touch the customer. The CX is too important to be left to any one department; it must be a shared responsibility. The implementation challenge is therefore to lead a cross-functional approach to managing the CX. This requires clear and consistent communication that creates teamwork among all involved. Shared language, similar design features and common metrics can help align groups that come from different areas of the company.

Challenge 3: Determining the contribution of each touchpoint to the overall CX and identifying critical touchpoints

There are two strategic blind spots connected to this challenge. First, CX designers may not want to think about experience from a contribution standpoint. Second, identifying critical touchpoints means focusing strategy and investments. This is challenging for many managers who are nervous about the customer or partner tradeoffs that such choices may create. However, every touchpoint involves costs, so drilling down into where the payoffs are and are not is critical to generating profits from CX over the long run. 

This step takes considerable marketing analytics and data prowess to ensure disparate data sets connect for actionable intelligence. As companies gather data across platforms, it’s imperative that these systems communicate so the data is synthesized and studied together, ensuring accurate and complete findings.

A senior executive of a major manufacturing firm shared a story about how one of its major customers defected to a competitor when critical touchpoints became a source of irritation. Although the executive learned that, according to this customer, her firm’s products, services and prices were better, its financing arm was very difficult to work with, requiring potential customers to jump through many hoops and navigate a bureaucratic maze of paperwork to complete the purchase. The competitor’s process was much simpler, so the key customer moved their business there.

Challenge 4: Integrating touchpoints seamlessly across the entire customer journey

Many companies do not have an accurate understanding of the journey from the point of view of their customers. There are many reasons for this strategic blind spot, but the most common is that managers tend to focus on the features of their products and services, not how customers experience them. On the implementation side, a failure to build a culture of customer focus can be the biggest barrier. When solving customer problems supersedes functional allegiance and even firm profits, the firm can count on groups that are critical to the CX to join forces around a shared vision of how to deliver an exceptional experience. A second significant barrier to implementation is assuring customer data privacy is compliant with recent privacy legislation such as the General Data Protection Regulation (GDPR) and California Consumer Privacy Act (CCPA).

The CX Implementation Journey: What is the Right Build?

We used these insights from firms excelling at the CX and reaping financial benefits, as well as those firms struggling to get a footing with their CX program, to determine critical elements of CX that all firms need to get right. We identify what is critical to accomplish early when improving the CX and what can and should wait until a firm’s CX efforts are more on track and maturing.

Step 1: Get the fundamentals right: Build basic knowledge and capture low-hanging fruit

What to focus on:

  • Map the customer journey
  • Determine the contribution of each touchpoint to the overall CX and identify critical touchpoints
  • Integrate touchpoints seamlessly across the entire customer journey
  • Ensure that your CX is compatible with your brand

Our advice: Begin simply. Firms who are behind on CX should take the smallest bites that will translate to quick wins. These operational aspects are critical in gaining a basic understanding of the customer’s experience from their point of view and to see the links between each touchpoint. Given the complexity of customer journeys, the first step is to map the most typical ways that customers learn about your products or services, decide to buy them, use them, talk about them and decide to purchase again. This journey will be different for distinct customer personas, segments or jobs to be done, but there will be typical maps of your customers’ journeys. The key is to identify the CX touchpoints and then determine which ones you can control and influence versus those you cannot.

Successful firms have found it easiest to begin with a small part of the organization. Find a group in your organization that has a critical need and do a pilot to secure quick wins and early proof of business value. Check that the signals you send throughout the customer journey are compatible with your brand. Interestingly, although CX compatibility with the brand holds a strong correlation with revenue and brand value, it was rated as one of the least significant challenges in the survey (less than 15% of respondents mentioned it as a challenge). Although most firms think they have this one handled, we recommend you check to make certain.

Payoff prospects: Do not expect immediate payback from these foundational efforts. Over time, they will positively impact financial performance. We found that mapping the customer journey is associated with higher market share. Integrating touchpoints seamlessly across the customer experience seems to pay off with higher revenue, higher marketing ROI, higher customer acquisition and higher customer retention. And when your CX is brand-consistent, your company should reap higher revenue and brand value.

Step 2: Learn what’s working and what’s not

What to focus on:

  • Link the CX to relevant KPIs and financial outcomes
  • Create optimal experiences across channels and devices

Once the foundational elements are working well, firms should begin to see positive financial impact from their CX efforts—but only if they determine how CX touchpoints and initiatives link to outcomes they care about. Many early efforts and CX investments failed or led to low ROI. We noticed an often-overlooked reason is an inability to attribute a change in some aspect of the CX to financial performance. Firms that successfully link CX measures across the entire journey to relevant KPIs and financial outcomes also report a higher marketing ROI and higher profit. The small-scale pilot approach mentioned above is the best way to begin to get a handle on these links.

Customers are in control. They want to interact with your company their way. You need to make sure your experience works for customers across all channels and devices. Customers expect to be able to search, learn about, compare, buy, ask questions, troubleshoot, return and repurchase your products and services through any channel and on any device and to easily pay. Once you have the foundational CX elements in place, you can create workable (if not yet optimal) omnichannel and omni-device experiences for customers.

What should you measure? First, measure those specific touchpoints that you can control or influence, which will give you a starting point of understanding your CX and what you can improve. Most companies measure net promoter score (NPS) or satisfaction once customers have purchased—but most customers don’t get to that point. Digital metrics (time spent on web or mobile sites, what was searched for or depth of search) can be quite useful for measuring how well you are doing while prospects are searching or learning. Post-purchase, multiple customer feedback metrics (satisfaction, NPS, social media sentiment) can be useful. By developing metrics that span each stage of the customer journey, you can develop attribution models to identify how distinct touchpoints influence CX and which contribute the most.

Payoff prospects: Identifying key links is associated with higher marketing ROI, but it’s also associated with higher profit. Getting experiences right across all channels and devices is also associated with higher marketing ROI and higher customer acquisition. There’s a significant downside if you can’t demonstrate these links. Gartner reported that although most organizations increased their CX investments in 2018, many organizations have had difficulty demonstrating value or ROI of their CX initiatives. The report notes that, especially for firms earlier on in their CX journey, “60% had CX initiative launches stalled due to lack of executive support, and 59% found it difficult to demonstrate value or ROI, which leads the CFO to question all future investments.” Gain the necessary executive buy-in by following the initiatives we’ve identified that are linked to positive marketing ROI.

chart depicting customer experience strategic blind spots and operational gaps

Step 3: Build capabilities and hard-to-imitate organizational processes

What to focus on:

  • Coordinate disparate aspects of the organization to design, manage, deliver and monitor the CX
  • Ensure a deep understanding of the CX across the entire organization
  • Develop the necessary capabilities inside the organization to design, deliver and monitor the CX

Our advice: Once the company has a solid understanding of the CX, it is now time to begin to extend CX expertise into the formation and operation of capabilities. A CX capability is the organizational equivalent of individual manager knowledge and skills—specifically, a firm-level bundle of knowledge and skills that support the enactment of key CX activities. Capabilities are critical because they ensure the firm can perform CX activities repeatedly over time—making capabilities an essential ingredient for competitive advantage. A second feature of capabilities is that they are deeply embedded in the fabric of the organization. They become sticky over time, facilitating retention. Embeddedness also makes capabilities difficult for competitors to observe and copy, boosting prospects for competitive advantage.

The downside of capabilities is that they are what economists call path-dependent—they take time to develop. To begin that process, make sure you have a clear vision of the processes that need to unfold throughout the organization. You should know who does what and when at each stage of the CX process. Next, determine how these activities knit together into a regularly occurring operation that is built into jobs, metrics, meetings, hiring, training and rewards. If hiring focuses on one skill set, but the CX requires another, the CX capability is being undermined by the mismatch. It’s unnecessary to invent this capability all at once; the most foundational parts can be worked out and then expanded over time when knowledge and norms are well developed. But don’t overlook the “What’s in it for me?” angle: Develop internal messaging and marketing that targets the motivations and information needs of key stakeholders, such as line of business leads, shared service heads and employees.

Metrics play a particularly important role as guardrails for capability-building. If the entire organization understands how their jobs influence CX and how doing their jobs influence CX indicators and thus KPIs, capabilities can be more easily developed and operate more efficiently over time.

Payoff prospects: Despite the challenge and required efforts, getting these organizational elements right will lead to higher marketing ROI, revenue, market share, customer acquisition and profit. Coordinating disparate aspects of the organization to design, manage, deliver and monitor the customer experience is associated with a 25% higher marketing ROI.

Step 4: Foster a culture of CX excellence

Organizational culture is the pattern of shared values and beliefs that help individuals understand company functioning and provides norms for behavior. When those shared values and norms reflect a belief in the importance of CX, a big part of the work to acquire and build CX knowledge and skills—both at the individual employee and company levels—is done. On the other hand, without a CX-focused culture, every step is a battle, including basics like budget and headcount. We list culture-building last, but the truth is that leaders should be building it with each step they take along the CX journey. 

Building a CX culture has not been the subject of a great deal of study, so we draw from research on culture related to customer-centricity to offer a few lessons. What leaders say and do shapes culture. They need to walk the talk and guide by example in key CX areas, perhaps elevating certain roles and initiatives that are important at different stages of the company’s CX evolution. Attracting and hiring employees who value the CX and are willing to work cross-functionally is a major ingredient in any culture build. Defining what a good CX looks like and rewarding it cements the culture into the company in a very clear way. Rewards need not be monetary, but instead can celebrate CX achievements—the key is that they are consistently rewarded and displayed.

Cultural beliefs should emphasize two key ideas. First, the customer is the reason the company exists. Second, there must be a shared view that the CX is an important means to competitive advantage and profits—not just another fad.

Our RX for CX

To get CX right, follow our taxonomy: Start small, control key foundational elements, determine the links to track financial performance and focus on organization-wide capabilities.

If you find CX challenging, you’re not alone. CMOs see both capabilities and operational execution as key challenges of CX. Few firms are doing everything well. However, investing in the CX is mandatory for any company that wants to succeed over the long term.

When you develop deeper CX capabilities, you create a strong platform to identify trends, execute with excellence and quickly scale results. Companies that master this playbook generate outsized results in the marketplace, whether it’s Zara’s ability to spot regional trends and take new fashions to market; Amazon’s ability to use Prime to anchor a far-reaching customer relationship or firms that enable mass customization at the point of purchase for greater engagement and higher sales.

Use our strategies and roadmap to develop the CX capabilities you need to get closer to your customers, build a business they love and win in the marketplace. 

Download the results from the August 2019 edition of the CMO Survey.

The CMO Survey is sponsored by Deloitte, The Fuqua School of Business Duke University and the American Marketing Association. Holly Larson contributed to this article.

Header image and graphics by Bill Murphy.

Christine Moorman is the T. Austin Finch Sr. Professor of Business Administration at the Fuqua School of Business at Duke University, is an AMA Irwin/McGraw-Hill Award recipient and AMA Fellow, founder and director of The CMO Survey and the editor-in-chief of the Journal of Marketing.

Katherine (Kay) Lemon is chair elect of the AMA Board of Directors, is an AMA fellow and holds the Accenture Professorship in the Carroll School of Management at Boston College.