Every company aspires to become like Apple. Customers shall queue outside the store before the store opens, pay a premium price, wait eagerly for the next model, spread word of mouth, the product is a prestige symbol, huge company net worth, and mega market cap.
To become Apple one can’t, ignore what Steve Jobs believed and said in the following quote.
Customer Experience (CX) is in Vogue. Some early mover companies have realised its importance for the business and not only for the customers.
Yet many companies do not relate the impact of offering better customer experience on the bottom-line. They continue to fight in the red ocean.
Regina Paolillo, chief financial officer at TeleTech says; “The good news is that companies are beginning to measure improvements in the customer experience and then linking it to improvements in financial performance. We’ve all read statistics, like a recent one from Parature that documents how poor customer experiences resulted in an estimated $83 billion in lost annual revenue in the U.S.”
Companies that do not focus on improving CX face cut-throat competition, no product or service differentiation, lower customer loyalty, thin margin, indulge in heavy push marketing, advertising gimmicks, staff frustration and exhaustion, excuse driven management, and on the whole high become pressure organisation.
These companies keep complaining about low demand, low margin, staff attrition.
On the other hand, companies which offer and focus on superior customer experience enjoy healthier customer loyalty, better word or mouth, quick sales turnaround, higher margins.
Remember, all these market benefits do have a financial impact. Here are the key financial ratios that get impacted positively when a company shift from mediocre/undifferentiated customer experience to superior customer experience.
Quicker Cash Conversion Cycle (CCC)
Every business knows cash is king. How quickly a business converts cash is the sign of multiple levels of efficiency. Cash Conversion Cycle is perhaps the most important data to monitor but mostly ignored in favour of top-line data.
Customers of better experience creating companies pay in advance, resistless to buy, buys regularly.
CCC = DIO + DSO – DPO
Daily Inventory Outstanding (DIO), Days Sales Outstanding (DSO) & Days Payable Outstanding (DPO).
When a business receives advance payment or recovers sales outstanding quickly, CCC improves. When a business has quicker sales recovery, a cash-flush business can negotiate better with suppliers.
Apple is known for superior customer experience. Its CCC has reduced from negative 56 days in FY 14 to negative 87 days in FY 17.
Amazon is another company known for better customer experience. It also enjoys negative CCC of 15.06 in FY 18.
DIO = 27.5 + DSO = 21.02 – DPO = 63.58 = -15.06
Negative CCC indicates the creditors are more than the value of the stock on hand and debtors. The company is working on suppliers’ money.
Companies that are in the monopoly business or are offering superior customer experience enjoys lower CCC.
Lower Price Elasticity
“It’s easier to love a brand when the brand loves you back.” Seth Godin
Lower price elasticity indicates a higher price will not have much impact on sales. If Starbucks increases the price of the coffee there won’t be much change in the demand, but when Starbucks lower the price, sales will grow with higher demand.
This is the power of better CX. Brand loyalty is immense. But when the price is reduced other aspirational buyers becomes the consumers.
Secondly better CX also means fewer customer efforts. People won’t mind paying more if they can complete the transaction easily without hassle.
The effortless experience offers a chance to the company for better pricing. In times of lower demand, these companies can easily boost sales with competitive pricing.
Faster Sales Cycle
“Historically, our number-one growth driver has been from repeat customers and word of mouth.” Tony Hsieh
Better CX triggers word of mouth. This reduces sales efforts. It takes less convincing by the sales team and less time to decide by the buyers.
No one needs to be convinced about Starbucks coffee or Apple phone.
Make it absolutely easy for the target audience to deal with your company. Effortlessness is the key ingredient of superior customer experience.
When a company offers better CX and is easy to deal with sale cycle quickens. Faster sales cycle means more sales with fewer efforts. The sales team can sell more within the stipulated time.
This is more valuable when a company enjoys shorter CCC. Working capital requirement is curtailed, interest cost reduced.
It has an overall positive financial impact.
Higher Profit Margin
Customers are increasingly making buying decisions based on the quality of their experience with a vendor rather than pricing and products. According to “Customers 2020: The Future of B-to-B Customer Experience,” a Walker report.
Lower sales effort, more word of mouth, higher customer loyalty everything culminates into fewer sales and marketing expenses, lower working capital, the lower interest cost, and better pricing capability of the company.
The end result is a higher profit margin.
As per the report, the company realized $3 in benefits for every $1 it spent on improving customer experiences. Four out of ten respondents reported increased revenues, 38% said they achieved better financial performance than their competitors, and 37% said they improved sales cycles.
Respondents also reported that improving customer experiences produced increased levels of customer satisfaction (58%), increased customer loyalty (45%), and increased levels of customer acquisition and retention (41%).
Following data from Forrester research indicates CX impact on returns and stock price growth.
Return on investment would be better when the profit margin is higher, cash conversion is faster, the sales cycle is quicker, price elasticity is in favour of the company.
It makes all the sense to invest in better service design and better customer experience. To put it differently, it would be foolish for any entrepreneur not focusing incessantly on creating a better customer experience.
“They say 90% of the promotion of a book comes through word of mouth. But you’ve somehow got to get your book into the hands of those mouths first!” Claudia Osmond
Every company wants more and more word and mouth but it takes vision, efforts, mindset, and investment to propel word of mouth in the market place.
The key question to answer is how to create a sustainable customer experience which customer likes. It’s not a monumental task but its bare basic common-sense approach.
“Simple can be harder than complex: You have to work hard to get your thinking clean to make it simple. But it’s worth it in the end because once you get there, you can move mountains.” Steve Jobs
Better CX need not be a lips service.
My car service center always asks me to rate their services on NPS method i.e. on a scale of 1 on 10. 1 to 8 is Poor and thereafter it improves.
What is the point of 1 to 8 rank as poor why not just one point for poor? 1 to 8 is Poor means mostly customer who is reasonably satisfied would give 9. Because they (the person dealing with you) insist not to give anything other than 10. You see an unhappy face if you give 9.
Rather than a happy customer, we have to make service provider happy by agreeing to his repeated request.
Once I gave 8 ratings and I got 3 calls from the company to upgrade my rating to 10. This is how companies get data from the touch point. This is how they nudge customers to give their rating. Data are manipulated and unreliable.
Nothing can be done if the company is interested in lip service about their CX drive. But for the companies who wish to incorporate real elements of better CX in their product/service, I will cover the key attributes of superior customer experience in my next post.