Written by 1:00 am 10xInsight

Avoid the dreaded “leaky bucket”: Building a strong CX system

Few startups would debate the importance of customer experience, yet many struggle with how to transform Customer Experience (CX) thinking in their org to power growth. One of the reasons is that there are many misconceptions about CX that have firmly taken root as myths: “Customers are impossible to please”; “Great experience = Great cost”; “Cost of providing great experience is immediate, benefits come much later” are a notable few. In this article, we will bust some of these myths based on our work in CX across many startups and share a few insights to keep in mind when starting your CX improvement journey..

Myth Busting: Understanding what drives experience and what experience drives

Myth 1: Great experience is all about as cheap as possible, as fast as possible!

“Customers are impossible to please – they always want the best of everything and are willing to pay for nothing”

Not true! The relationship between service levels and experience is not linear. In every service, there is a range of experiences that can make your customers happy and you can decide where you want to play and what experience levels to offer.

Let us illustrate with an example, say delivery speed for fashion in Metros. Exhibit 1 shows how NPS1 varies with different delivery speeds. If customers are happy only with the fastest delivery, NPS should be in a free fall from Day 1, but that is not what the graph shows. There is a zone where the customer is “Delighted” and NPS here is highest, but very sensitive to speed2. Then comes a larger zone where the customer is “Happy”; here the NPS is good but not as sensitive to speed. Last comes the “Unhappy” zone where NPS declines dramatically with days to deliver. Depending on what your CX positioning is and what your business model allows, you can decide what delivery speed to provide (hopefully within the “Delighted” or “Happy” zones!)

Exhibit 1: Relationship between customer satisfaction and delivery speed

The line moves up and down for different cohorts; the zones stretch or contract for different cities or categories, but remarkably, the shape of the graph remains the same. So too the graphs for other elements of experience in other businesses: wait times for cab hailing, speed for food delivery, product quality, refund processing for e-commerce and so on. Understanding this relationship for your business will help you design the optimal experience balancing customer and business needs.

Myth 2: With great experience comes great cost

“We would love to delight our customers at every turn, but building great customer experience is expensive and our margins don’t support it!”

This seems obvious: Of course the more you spend, the better the experience you can provide! Looking deeper into what happens when experience is subpar and considering product solves for experience improvements will expose the fallacy behind this statement.

Exhibit 2: How total cost per delivery varies change with different days to deliver

Let us go back to our delivery speed example. What is the cost of delivery? The cost of moving products from your WH to the customer? Not just that. You get the true cost of service when you add on the cost of everything that breaks when the experience is sub-par. At the most obvious level, customer calls go up when there is a delay. Next, the longer you take to deliver, the higher the chance of customer returns and failed deliveries. Forward delivery cost might be lower on Day 5 vs Day 2 (maybe you use a slower carrier), but if you load on the cost of calls and returns, Day 2 delivery starts looking cheaper than a Day 5 delivery, as you can see in Exhibit 2.

Using product to solve for experience is another way to break the cost – experience tradeoff. Consider the cost of Day 0 deliveries – they look significantly cheaper than any other day! How is that possible? That happens when the item ordered is in the same city as the customer, a phenomenon called Regional Utilisation. These low cost Day 0 deliveries can be increased by keeping more items closer to customers (better demand forecasting) or making customers purchase what is already close to them (merchandising). Both become possible through product solutions.

This relationship between cost and experience is again something we have seen repeated in many contexts. So, providing the right experience to your customers is also the best way to achieve the lowest total cost of service. This is without even considering the lost revenue from providing a sub-par experience! And that brings us to the next myth.

Myth 3: Customer experience only matters in the long run

“Maybe great experience will help us win in the long run, but we have to do whatever it takes to get customers in the short term”

This is often the justification for making those decisions that you know hurt your customers in the here and now.

Exhibit 3: Relationship between repeat and customer satisfaction

A look at customer cohorts and their repeat behaviour will show that experience has an immediate impact on repeat and hence growth. As shown in Exhibit 3, repeat in a three month timeframe is highest for the happiest customers (Promoters)3. Infact, though not shown here, the shorter the repeat window, the higher the repeat difference between Promoters and Detractors because of recency effect.

So when you provide great experience to your customers, your business grows in the short term, not in some distant future. Conversely, providing consistent good experience is the only way to avoid a leaky bucket where you are losing customers faster than you can add them.

In summary, three key things to consider when designing experience for your product / service:

  1. Choose your CX position based on a deep understanding of what drives customer satisfaction and the degree to which each driver matters to the customer
  2. Optimise for the total cost of the service, including the cost of responding to and recovering from bad experience
  3. Measure the repeat loss from bad experience – this should help establish the cost benefit for spending on experience.

Institutionalising CX: Ingredients of a successful CX team

Once you understand the boost that CX can deliver to your growth aspirations, you might be keen to get started and institutionalise CX. While you are on that journey, let us share a few lessons we have learnt on how to do it. A strong CX team is obviously the starting point, but making them effective takes some thoughtful design. For starters, here are five ingredients of an effective CX team:

  1. Own Voice of Customer, not experience: Operating teams drive experience, while CX team provides insight into impact on customers
  2. Talk input metrics, not NPS, with operating leaders: Clear attribution on how input metrics impact NPS to hold operating teams accountable
  3. Establish revenue impact of experience: Establishing a revenue currency for NPS provides a framework for making experience vs cost/growth trade-offs
  4. Energize the org around customer experience: Evangelize CX throughout the organisation via hard (visible CX dashboard with attribution) and soft (CX immersion programs, CE week etc) tactics
  5. Set the “customer-first” tone first in CEO’s staff: CX scorecard and Voice of customer opens every CEO staff meeting

In summary, by thoughtfully designing the experience you want to provide your customers and setting up an empowered and effective CX team, you can use experience to drive growth.

1 While we use Net Promoter Score (NPS) as the measure of experience throughout the article, the insights shared hold good for any robust, voice of customer based measure of customer satisfaction

2 Eagle eyed observers might have noted that the NPS for Day 0 is lower than NPS for Day 1. Fun Fact: Unless they specifically asked for same day delivery, most customers don’t like it if you turn up on the same day for delivery because of many reasons (Ordered COD, need time to keep cash ready is one of the biggest) and ding you if you do!

3 Exhibit 3 shows Passives have a lower repeat on an average than Detractors and this is a repeating pattern across many companies. Another ‘Fun Fact’: Detractors have higher engagement and make a lot of noise to get their issues sorted, so tend to come back more than Passives, who don’t engage, don’t get any recourse and silently churn away.

(Visited 898 times, 1 visits today)
Tags: , , Last modified: January 6, 2022