Forrester What is the Right Customer

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    Making Leaders Successul Every Day

    Septeer 28, 2010

    Wht Is The Right CsterEperiece Strteg? P Hge

    r Cster Eperiece Pressis

    http://www.forrester.com/
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    2010, Forrester Research, Inc. All rights reserved. Unauthorized reproduction is strictly prohibited. Inormation is based on best availableresources. Opinions refect judgment at the t ime and are subject to change. Forrester, Technographics, Forrester Wave, RoleView, TechRadar,and Total Economic Impact are trademarks o Forrester Research, Inc. All other trademarks are the property o their respective companies. Topurchase reprints o this document, please [email protected]. For additional inormation, go to www.orrester.com.

    Fr Cster Eperiece Pressis

    ExECuTIvE SummaRy

    Most companies lack a customer experience strategy. As a result, their leaders struggle with decisions

    about unding and prioritizing projects meant to improve customer experience at the enterprise level. o

    cra their strategies, customer experience leaders should start with their rms overall strategies, which

    dene competitive positions and set customer expectations o the brand. o illustrate this approach,

    we describe three customer experience strategies that align with Michael Porters generic company

    strategies: 1) sel-service optimization or cost leaders; 2) proactive guidance or product or servicedierentiators; and 3) tailored intimacy or segmentors.

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    mailto:[email protected]://www.forrester.com/http://www.forrester.com/go?docid=57479&src=57673pdfhttp://www.forrester.com/go?docid=57479&src=57673pdfhttp://www.forrester.com/go?docid=56604&src=57673pdfhttp://www.forrester.com/go?docid=56604&src=57673pdfhttp://www.forrester.com/go?docid=54121&src=57673pdfhttp://www.forrester.com/go?docid=54121&src=57673pdfhttp://www.forrester.com/go?docid=54121&src=57673pdfhttp://www.forrester.com/go?docid=54121&src=57673pdfhttp://www.forrester.com/go?docid=56604&src=57673pdfhttp://www.forrester.com/go?docid=56604&src=57673pdfhttp://www.forrester.com/go?docid=57479&src=57673pdfhttp://www.forrester.com/go?docid=57479&src=57673pdfhttp://www.forrester.com/http://www.forrester.com/mailto:[email protected]
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    A CuSToMER ExPERiEnCE STRATEGY DEFinES A PlAn FoR SERvinG TARGET CuSToMERS

    What is a customer experience strategy? o put this question in perspective, consider customers

    expectations o Costco Wholesale versus Apple. Costco customers expect barebones service in

    return or low prices, while Apple customers expect innovative products at relatively high prices.

    Tese rms deliver radically dierent experiences, yet they both delight customers. Should your

    company be like Costco or like Apple or something else entirely? Your customer experience

    strategy should answer that question and ocus the activities that turn your vision into reality.

    Forrester denes a customer experience strategy as:

    A plan that guides the activities and resource allocation needed to deliver an experience that meets

    or exceeds customer expectations.

    A customer experience strategy:

    Describes the intended experience. Te strategy paints a vivid picture o how the companywants customers to perceive it across the three levels o the customer experience pyramid:

    meeting customers needs, being easy to work with, and being enjoyable to work with.1 It should

    call out the aspects o customer experience that are most critical to a companys aspirations

    or dierentiating itsel those acets o the experience that are most important to target

    customers.

    Directs the activities and processes. Companies dierentiate themselves by perorming adierent set o activities than their competitors or by perorming the same activities dierently.2

    An eective strategy inorms customer experience proessionals decisions about what their

    rms need to start doing, stop doing, or do dierently.

    Guides the allocation o resources. When customer experience proessionals know the endgame, theyre better equipped to justiy unding and prioritize the projects that get unded. Te

    strategy should help them prioritize initiatives that directly support the strategy, while less

    essential eorts drop down their to-do lists.

    The Rght Cstmer Eperece Strategy Fws Frm oera Cmpay Strategy

    Because a customer experience strategy lays out a plan or meeting customer expectations, it should

    align with the overall company strategy that sets those expectations. o show how this process

    works, we started with Michael Porters generic company strategies: cost leadership, dierentiation,and segmentation (see Figure 1).3

    Cost leaders compete on low prices. Tese companies compete primarily on the ability todeliver the lowest prices on products or services. Teir strategic position depends on creating

    operational eciencies that drive down internal costs. Examples include Costco, IKEA Systems,

    Vanguard, and Southwest Airlines.

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    Dierentiators compete on innovation o products or services. Dierentiators delightcustomers with breakthrough product and service innovations that consistently wow the market.

    Tese companies do not merely add eatures to products or services. Instead, they leverage

    exceptional product and service design talent to continually amaze customers. Examples include

    Apple, Intel, Nikon, and Disney.

    Segmentors compete by ocusing on specifc market needs. Tese rms compete by oeringproducts and services that t a narrowly targeted customer segment extremely well. Narrow

    ocus allows segmentors to tailor their value propositions to unique needs o their customers.

    Examples include USAA, W Hotels, and imbuk2.

    Fgre 1 miche Prters Geeric Strtegies

    Source: Forrester Research, Inc.57673

    Product/serviceinnovation

    Price

    NarrowBroad

    Segmentationstrategy

    Differentiationstrategy

    Costleadership

    strategy

    TARGET CUSTOMER BASE

    FOCUS

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    THREE CuSToMER ExPERiEnCE STRATEGiES THAT AliGn WiTH CoMPAnY STRATEGiES

    Based on Porters generic company strategies, we outlined three corresponding customer experience

    strategies (see Figure 2). Although there are many possible combinations o company strategies and

    customer experience strategies, these examples illustrate logical approaches or rms seeking to

    meet customer expectations o the brand with:

    Sel-service optimization or cost leaders. Sel-service optimization delivers simple, ecient,and error-ree experiences. Far rom eeling cheap, this strategy oers an excellent experience

    through stores, interactive voice response (IVR) systems, Web sites, and mobile apps. Customers

    should perceive the combination o simplied oerings and sel-service as great value! and

    what a steal! Tey should never eel that the low prices are not worth the hassle or not worth

    the poor quality.

    Proactive guidance or dierentiators. Proactive guidance educates customers andpreemptively solves their problems during every interaction. Tis strategy helps customersrethink their previous behavior as they adopt breakthrough products and services that change

    their personal lives or businesses. Customers should eel that their new purchases oer high

    value in return or a reasonable investment o eort in learning how to use them and the

    company that made the products is authoritative and helpul.

    Tailored intimacy or segmentors. ailored intimacy creates deep connections with customersthrough highly attuned, empathetic, and personalized interactions. Tis strategy builds

    relationships through an intimate understanding o market segments liestyles and identities.

    Customers should perceive the companys products and service as tailored to my needs

    because they enhance their lives and eel just right. Segmentors customers should also eelthat employees go out o their way to meet the customers current needs and adapt as those

    needs change.

    Se-Serce optmzat Creates A Hgh-Tch Fee Fr Cstmers o Cst leaders

    By creating sel-service options that work exceptionally well, cost leaders can meet customers needs

    without orcing them to seek pricey human help (see Figure 3). Companies that adopt this strategy

    can satisy customers by making their experiences:

    Simple. Simpliying products not only reduces problems and increases the likelihood o

    customer success but also benets the bottom line. Te Flip video camera sacrices the bellsand whistles o other devices to better guide consumers to its most commonly used unction:

    shooting short videos or digital sharing.4 A simplication strategy can also apply to the

    activities that support a product or service. An event ticketing service tightened wordy prompts

    and removed irrelevant inormation in its IVR system to save customers 20 seconds o listening

    time and save the company about $175,000 in annual service costs.5

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    Automated. Omena Hotels requires no check-in or checkout. Instead o distributing room keys,it automatically generates door codes that incoming guests receive via email or mobile phone,

    allowing them to immediately access their rooms upon arrival. Tis creates a high level o

    customer convenience at a very low cost. At a more basic level, AppliancesDirect.com sends out

    automated emails to update customers about shipping status changes, giving customers peace o

    mind while reducing calls to customer care.

    Error-ree. Errors rustrate customers and require costly human intervention to x. A travelcompany realized that customers oen entered their names incorrectly in a checkout orm.

    By combining the rst- and last-name elds, the company lowered the number o errors that

    customers made, reducing rustration and saving 20 lost transactions per day which added

    $2 million in annual revenue. One o the worlds largest retailers automatically sends customer

    eedback about product problems to relevant suppliers and then monitors trends. Suppliers

    must x any ongoing problems or risk losing the retail giants business.

    Fgre 2 Cp Strteg Gides Epecttis Fr a Cster Eperiece Strteg

    Source: Forrester Research, Inc.57673

    Company strategyCustomer experience

    strategyCustomer expectation

    of the brand

    Cost leadership Lowest pricesSelf-service

    optimization

    Differentiation Innovation Proactive guidance

    Segmentation Fit Tailored intimacy

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    Fgre 3 Eeets o a Se-Serice optiizti Strteg Fr Cst leders

    Source: Forrester Research, Inc.57673

    Self-service optimizationCreate extremely effective high-touch self-service that is simple,automated, and error-free.

    Strategy focus Examples

    Simple An Indian wireless carrier condensed seven IVR menu prompts into four options andincreased self-service success by 13% on more than 1 million calls daily.

    An automobile parts retailer reduced its Web checkout process by two steps, saving timefor customers and increasing conversion rates by 2%.

    Automated Orbitzs IVR asks callers to enter a phone number before routing a call. If the caller callsback from the same number to confirm her reservation, the system only asks for a name,then immediately offers to confirm reservation details, allowing the user to avoidnavigating through full menu options and instead quickly complete the desired goal.

    Frances SNCF developed an entire service tailored to younger travelers in France callediDTGV. Costs and ticket prices are kept low because digital is at the heart of all salesand service interactions, including ticket booking and printing.

    Error-free Rather than just show no availability for specified dates, managers of a travel site addedcontent to show what dates were available at the target destination. This turned whatwould have been a frustrating error message into a suggested sell, increasing thelook-to-book ratio by 28%.

    Practe Gdace Deghts Cstmers o Deretatrs

    Dierentiators can help customers successully integrate new oerings into their lives by inusing

    education into all interactions (see Figure 4). Dierentiators that adopt this strategy should ensure

    that the customer experiences they provide are:

    Educational. raining customers to get immediate value rom products transorms thosebuyers into promoters. Apple store representatives educate new buyers on how to access

    relevant eatures to ensure that they have successul rst-time experiences. Similarly, a large

    media company trained installation technicians to demonstrate the two or three eatures each

    customer needed most and point customers to a Web site or urther instructions. Tis approach

    not only helped customers get immediate value rom the service but also reduced their anxietyabout teaching amily members to use product eatures later.

    Preemptive. o keep customers talking about the cleverness o new products and services rather than grumbling about problems dierentiators need to recover quickly rom the

    inevitable problems that come with cutting-edge oerings.6 Nikon alerted buyers about its high-

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    end D5000 camera when it discovered issues in an initial production run. Te company set up

    a Web site to help customers determine i their cameras were aected and established a service

    center to do one-day repairs. Despite the problem, the camera went on to be a top seller during

    the next holiday season.

    Social. Te groundswell o social media provides several benets to customers o dierentiators:1) an outlet or early adopters to share their shiny new toy with riends, amily, and

    colleagues; 2) a way to educate others on new uses or the product or service; 3) a channel or

    troubleshooting problems; and 4) a mechanism or providing eedback to product and service

    developers. o generate new product ideas, Dell gathers suggestions directly rom customers

    and employees through its IdeaStorm and EmployeeStorm online communities. Hundreds o

    ideas rom these two communities have been implemented to date according to the company.

    Fgre 4 Eeets o a Prctie Gidce Strteg Fr Dieretitrs

    Source: Forrester Research, Inc.57673

    Proactive guidanceEnsure customer delight by educating on innovations, solvingproblems preemptively, and connecting through social media.

    Strategy focus Examples

    Educational Nikerunning.com embeds education in its sites shoe selector. This tool poses the samequestions a running expert might ask in a store to uncover whether the shoes are for trail,road, or track; whether the runner has flat, medium, or high arches; and whether therunners stride underpronates, is neutral, or overpronates.

    Preemptive Sherwin-Williams ColorSnap app lets customers take photos with a cell phone and matchany color in the photo with one of its 1,500 swatches. The app anticipates a customersnext step by directing the person to the nearest Sherwin-Williams store.

    Best Buy bundles a full two-year Geek Squad membership with its Next Class brand PC,which offers students (and their parents) reassurances against technical problems.

    LG Mobile offers a community forum for consumers to get answers to their questionsfrom other customers as well as share their suggestions with LG through comments orthrough handset design contests.

    Social

    Tared itmacy Creates Cects Fr Cstmers o Segmetrs

    Segmentors can use their deep customer knowledge to create levels o intimacy and trust that

    less-ocused competitors cant match (see Figure 5). Firms that adopt this approach should create

    tailored intimacy by delivering experiences that are:

    Attuned. USAA pioneered interactive experiences that would never occur to most companieslike the ability to deposit a check via mobile phone because its employees understand the

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    rms geographically dispersed customers. o achieve this level o understanding, the company

    actively recruits military veterans and spouses to serve its target market o active-duty and

    ormer military personnel and their amily members. Te rm explains this approach in a

    message to employees on its Web site: [You] know our members better than anyone and youcan share your unique experiences through service to our members.

    Empathetic. eHarmony customers who call its contact centers have complex issues and oenwant to have in-depth conversations with agents. Recognizing this, the company stopped

    requiring agents to ocus on reducing call time. Te company also dened Daily Must-Have

    character traits that guide interactions with customers that include empathy, heart, and

    adaptability.

    Personalized. Gaylord Hotels recongures sta to deliver experiences tailored to delight thegroups coming to stay. It may hire magicians and clowns to make balloons or children waiting

    in line when expecting a heavy inux o amilies or gather 100 sta members to greet the arrival

    o a particular group that had a great connection with employees on its last stay.7

    Fgre 5 Eeets o a Tired Itic Strteg Fr Segetrs

    Source: Forrester Research, Inc.57673

    Tailored intimacyUse knowledge of target customers to create deep connectionsthrough interactions that are attuned, empathetic, and personalizedto client needs and aspirations.

    Strategy focus ExamplesAttuned Mandarin Orientals high-end clientele often find themselves with a few minutes to spare

    while sitting in a limo or an airport lounge, and thats when theyre likely to plan their nextexotic vacation. To better serve them, the hotel developed a simple mobile siteexperience that allows them to explore destinations without having to complete anend-to-end planning and booking process. Designers focused on highlighting detailsabout each hotel with high-quality graphics and built a Read me later feature that letsusers send a page link by email for future access from their desktop or laptop computers.

    Empathetic American Express shifted its recruiting strategy to ensure it hires employees for theservice centers who are passionate about serving others and fundamentally get service,not simply because they have call center experience. More and more, the company isrecruiting its new hires from industries such as sales, hospitality, and cruise lines who havethe ability to empathize with customers and build a personal, emotional connection . . .We teach our customer care professionals how to hug customers over the phone.

    Timbuk2 custom manufactures its bags based on customer selections of type, size,material, color of the logo, and even hand preference (left-handed or right-handed).

    Lego leverages the online environment with its Design byME to allow customers todesign their own unique box, name the set, and autogenerate and print a building guide.

    Personalized

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    START CRAFTinG THE RiGHT CuSToMER ExPERiEnCE STRATEGY FoR YouR CoMPAnY

    Its easy to lose sight o your companys overall strategy when planning customer experience

    initiatives, especially i that company strategy is in ux. When that happens, customer experience

    proessionals sometimes resort to merely imitating the practices o perceived leaders like Zappos.

    com or USAA without determining i the competitive positioning o those companies is relevant

    to their own business. o avoid this trap, start by ollowing a simple process to better understand

    where you stand today.

    Write down the key elements o your corporate strategy. Customer experience leaders should

    answer three questions that uncover the elements o strategic positioning: 1) Which products

    or services are most distinct, are most protable, and satisy customers the most; 2) which

    customers, channels, or purchase occasions are most protable; and 3) which activities in the

    value chain are the most dierent and eective?8 In answering, explicitly document those actors

    that will guide your thinking about customer experience.

    Envision the customer experience you want to deliver. Revisit your customer journey mapswith your customer experience strategy in hand. I your company promises low costs at

    reasonable quality to young amilies, how should those attributes maniest themselves during

    the purchase process? I your rm seeks to compete by oering dierentiated services to the

    mass afuent market, what would your customers expect when interacting with call center

    agents to resolve problems? Look or opportunities to wow customers with attributes like

    simplicity i youre a cost leader or empathy i youre a segmentor.

    Grade yoursel on how well you deliver today. Dont try to be precise. For your initial attempt,simply assign a pass or ail grade or the customer scenarios you envisioned. Is the purchaseprocess today simple (or educational or personalized)? Are your phone interactions error-

    ree and ecient or empathetic and personalized? Te results o your evaluation will help you

    connect with what your customers experience today and catalyze your thinking about the

    strategy or uture improvements you want to put in place.

    R E C o m m E n D a T I o n S

    AliGn METRiCS WiTH STRATEGY

    Fr the cp strteg, cster eperiece eders c ideti the ke perrce

    idictrs tht tter the st t the r.

    Cst eaders w cs perata efceces that wer csts ad mpre margs.These cpies wi se cster isights t iteiget streie prcesses t rther

    eerge their cst edership psiti. or the wi w the epe cpies ike

    aet, which hs iged its cster strteg, t drie csts t their sste s the

    c cstt deier higher e. The eectrics distritr ties its cster eperiece

    erts t three etrics: 1) perti csts s percetge grss prt, which he

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    decresed r 80% grss prts t 64.5% i tw ers thrgh its erts; 2) perti

    ice rgi, which icresed r 2.6% t 4.6%; d 3) retr cpit eped,

    which icresed r 6.4% t 12.5%.

    Deretatrs w cs creased reees. De itrs cersi rtes d

    reee per isitr t ssess the ipct cster eperiece erts. Itit ttches net

    Prter Scre trgets t ech ew prdct reese, derstdig tht derperrce

    wi rest i prtiit hit.

    Segmetrs w eed t k at yaty ad adcacy. oe siess-t-siess (b2b)

    ci serice r kws tht its csters c e wrth iis i reees, s

    the cp ps cse tteti t cster t d cster dcc, which re

    iprtt reee driers. Siir, whe CDW es cct t re psitie t

    ee, it rests i 6.4% icrese i reee, 6.0% icrese i rgi, d 3.3% icrese

    i the er rders pced.

    W H a T I T m E a n S

    CuSToMER ExPERiEnCE GETS BuSinESS DiSCiPlinE

    as cster eperiece strtegies tke hd etedig d shrpeig er cp

    strtegies their ew reece r eecties wi rest i icresed ersight d shrper

    eecti.

    Cmpaes w rght-sze ther cstmer eperece bdgets. as rs sidi theircster eperiece strtegies, eecties wi reize tht there is isiget etwee

    their strtegic itet d their dgets. Se wi drtic icrese thse dgets, tthers wi recte ds s the reize tht the re spedig ctiities tht dt

    tter t their csters d dt hep gi r hd dieretited strtegic psitiig.

    Frms w sharpe ther metrcs. With cser iget t their cp strtegies,cster eperiece eders wi he ke perrce etrics t destrte RoI

    ipreets. as cst eders destrte ipreets i perti efciec d

    segetrs ideti edig idictrs r t d reteti, these esreets wi

    icresig d thesees i their cpies bced Screcrds d ke perrce

    idictrs (KPIs).

    Majr strategy cstg practces w bd t cstmer eperece practce areas.as cster eperiece cties t gi trcti i the C-site, ig cstig rs

    ike mcKise, Deitte Deepet, d accetrewhich red he retiships

    d drie strteg t the crprte ee wi icresig pitch cster eperiece

    eggeets. Siir, rs ike Wipr Techgies, TCS, d Ibm wi dd eeet

    reshess t IT-he prcess tti d cster retiship geet (CRm)

    prctices with cs the ed-cster eperieces tht ipre whe ciets ridge

    perti sis.

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    SuPPlEMEnTAl MATERiAl

    Cmpaes iterewed Fr Ths Dcmet

    Adaptive PathAndrew Reise Consulting

    Barclaycard US

    Capital One

    Clarabridge

    Convergys

    Delta Air Lines

    EectiveUI

    Export Development Canada (EDC)

    FedEx

    HPKeyBank

    Party City

    Philips International

    RightNow

    Strativity

    ime Warner Cable

    USAA

    Walsworth Publishing

    EnDnoTES

    1 Te classic customer experience pyramid denes a hierarchy o useul, usable, and desirable. Forresters

    Customer Experience Index attempts to quantiy this model by asking customers o various companies

    three questions: 1) How eective were they at meeting your needs; 2) how easy were they to work with; and

    3) how enjoyable were the interactions?

    2 Competitive strategy is about being dierent. It means deliberately choosing a dierent set o activities to

    deliver a unique mix o value. Source: Michael E. Porter, On Competition, Updated and Expanded Edition,

    Harvard School Press, 2008.

    3 Porter introduced the concept o generic strategies cost leadership, dierentiation, and ocus. For clarity,

    weve chosen to characterize companies that compete based on ocus as segmentors. Source: Michael E.

    Porter, Competitive Strategy: echniques for Analyzing Industries and Competitors , Te Free Press, 1998.

    4 Te device even takes the complex step o building a USB connector into the camera in order to ensure

    consumers give in to the ocused uses the camera targets. Te result is a camera that became a market

    leader in two years. See the May 14, 2010, Mapping Product Features o Consumer Needs report.

    5 With low phone sel-service satisaction rates, theres lots o room to improve IVR systems. Our research

    uncovered ve low-cost techniques that improve routing, boost containment rates, increase automation,

    and reinorce the brand. o identiy which quick xes to make in their IVRs, customer experience

    proessionals should listen to real calls to understand user goals, use heuristic evaluations to spot aws,

    and match problems to the list o quick xes. See the June 23, 2009, Small IVR Investments Tat Pay O

    report.

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    2010, Frrester Reserch, Ic. Reprdcti PrhiitedSepteer 28, 2010

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    Fr Cster Eperiece Pressis

    12

    6 oyotas and Apples slow responses to problems (and initial denial) arguably kept people talking about

    the issues and hurt condence in the integrity o the companies. Rather than being on the deensive, both

    would garner more goodwill by immediately admitting and xing the problems. Te short-term hit in

    prots would strengthen the long-term trust that customers have in the companies to stand behind theirproducts.

    7 Concepts such as co-creation, smart customization, mass customization, match-to-order, build-to-order,

    and customization-on-demand all describe the idea o tailoring a product or service exactly to the needs

    o customers. Source: aylor Randall, Christian erwiesch, Karl . Ulrich, Principles or User Design o

    Customized Products, Harvard Business Review, August 1, 2005 (http://hbr.org/product/principles-or-

    user-design-o-customized-products/an/CMR318-PDF-ENG); Amy Wallace, Putting Customers in Charge

    o Design, Te New York imes, May 15, 2010 (http://www.nytimes.com/2010/05/16/business/16proto.

    html).

    8 Michael E. Porter suggests that a company ask these questions when trying to sharpen its strategy.

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