Last week, at their forum for Customer Experience Professionals, Forrester Research presented an update to their Customer Experience Index (CX Index). Their original document detailed a strong correlation between leadership in CX and stock market performance, but they noticed some troubling anomalies that provoked deeper analysis. They sought to reconcile the fact that there are leaders in CX who perform poorly in the market, and laggards who greatly outperform the broader market. What’s going on here?
Harley Manning, Vice President and Research Director at Forrester, explained that the more reliable correlation is between CX performance and revenue growth (CAGR), and that even that correlation depends on two very important variables: freedom and differentiation.
The crucial link between the quality of a customer experience and an organization’s revenue is loyalty. I have written elsewhere on the difference between customer captivity and loyalty based on free choice, and Forrester also highlights the importance of choice: For loyalty to matter, and for CX to drive revenue growth, customers must be free to choose. They cannot be trapped by contractual or third-party-payer restrictions. The other essential component: their choices must be meaningful. That is, given the freedom to choose, the market should show CX differentiation, not parity.
Manning indicated where various industries sit on this matrix and presented a number of strategies for how a company can choose to play, depending on the dynamics of their industry. I notice a few more, one of which being: The CX laggards with strong financial performance may be pursuing a “jailor” strategy—that is, a strategy focused on attracting new customers over caring for current customers—and making it very hard to escape.
Having trapped customers may be a well-entrenched incumbent position in static industries, but it is very vulnerable. Jailors make themselves attractive targets for a disruptor who can acquire customers by setting the captive free: upstart competitors who intend to “Free your customers.”
It’s no accident that the industries with the lowest CX scores are those with the least consumer choice. Health insurance plans, TV service providers, and Internet service providers bring up the rear in Forrester’s index.
An example of a company that seems to be thriving by freeing a competitor’s customers is T-Mobile. They have blown up their business model and communicated a bold departure from mobile industry norms in their marketing, branding themselves the “Uncarrier” in early 2013. Before this strategic shift, the company reported two consecutive years of losses and declining revenue. Since then, revenue has grown, income is positive, and T-Mobile proudly reported that they were the fastest growing wireless company in the United States in 2014 with 8.3MM customers added.
It seems probable, though not yet conclusive, that this strong financial performance is correlated with an increase in customer satisfaction from improved CX. According to a Consumer Reports customer survey, T-Mobile improved in 2014, but still lags Verizon and AT&T. A Computerworld survey, however, scored T-Mobile highest in customer satisfaction.
Manning called out healthcare as the industry at the bottom of the trapped-to-free axis. For them, the strategy he recommends is to “Ride the Disruption.” We see ample evidence of disruption in healthcare, much of it seeking to offer freedom and convenience.
Health insurance is traditionally an opaque and trapped market. But the Affordable Care Act forced the development of exchanges, creating an opportunity for companies to use design and technology to transform the experience for new customers to the market. If a consumer has to buy insurance for the first time because of the new law, something like Oscar Health offers a much more open, inviting option. Investors seem to agree.
Freedom matters for care providers as well as insurance companies. CVS’s Minute Clinics provide care to customers who probably already have a “healthcare provider.” Why would patients choose CVS over their doctor? Because CVS has set them free from the bureaucracy and restrictions that can make a quick checkup extremely inconvenient. Customers’ perceptions are the objective reality of CX. Customers are only as free as they feel, and if one provider gives them a sense of agency, while another makes them feel boxed in, then that market has differentiated CX.
This strategy to free customers has the benefit of a strong emotional resonance. We know from behavioral psychology that the best-remembered moments of an experience are the peak and the ending. If you have been set free from a captive contractual relationship, the vivid last-thing you remember of that company is a joyful sense of release. The soundtrack to this goodbye is a great break-up song, whether liberated or gleeful.
The value of this strategy is that it strengthens the link between CX and revenue growth in both dimensions: It moves consumers from captive to free, and in doing so creates dramatic differentiation in experience. If I were a jailor, a company whose revenues depend on my ability to restrict choice, I would be working very hard on my plans for becoming a liberator.
The disruption that Harley Manning described is inevitable. But when he advocated that companies in this space “Ride the Disruption,” I think members of the audience may have heard two very different things. Upstarts received encouragement to be the disruptive force. Incumbents got a wake-up call. They were offered two choices: Free your own customers in order to retain them based on loyalty, or watch them be set free from you by a competitor.
Thanks to Yuhgo Yamaguchi and Brandon Tirrell for their help with this article.