Understanding Customer Experienceby Christopher Meyer and André Schwager

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Understanding Customer Experience

by Christopher Meyer and Andre Schwager

harvard business review page 1

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Companies that systematically monitor customer experience can take

important steps to improve it—and their bottom line.

Anyone who has signed up recently for cellphone service has faced a stern test in trying tofigure out the cost of carry-forward minutesversus free calls within a network and how itcompares with the cost of such services as push-to-talk, roaming, and messaging. Many, too,have fallen for a rebate offer only to discoverthat the form they must fill out rivals a homemortgage application in its detail. And thenthere are automated telephone systems, inwhich harried consumers navigate a mazelikemenu in search of a real-life human being. Solittle confidence do consumers have in theseelectronic surrogates that a few weeks after theWeb site www.gethuman.com showed how toreach a live person quickly at ten major con-sumer sites, instructions for more than 400 ad-ditional companies had poured in.

An excess of features, baited rebates, and apaucity of the personal touch are all evidenceof indifference to what should be a company’sfirst concern: the quality of customers’ experi-ences. In the first example, the carrier offered ajumble of phone services in part to discourage

comparison shopping and thus price wars.In the second, the company offered a hard-to-obtain rebate to stimulate a purchase. And inthe third, the goal was to slash staffing costs,despite soothing claims of 24-hour self-serviceavailability. Unfortunately, such cunning makesfor customer experiences that engender regretand then the determination to do businesselsewhere.

Customer experience encompasses everyaspect of a company’s offering—the quality ofcustomer care, of course, but also advertising,packaging, product and service features, easeof use, and reliability. Yet few of the people re-sponsible for those things have given sustainedthought to how their separate decisions shapecustomer experience. To the extent they dothink about it, they all have different ideas ofwhat customer experience means, and no onemore senior oversees everyone’s efforts.

Within product businesses, for example, prod-uct development defers to marketing when itcomes to customer experience issues, and bothusually focus on features and specifications.

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Operations concerns itself mainly with quality,timeliness, and cost. And customer service per-sonnel tend to concentrate on the unfoldingtransaction but not its connection to those pre-ceding or following it. Even then, much serviceis rote: Otherwise, why would service reps ask,as they so often do, “Is there anything else I canhelp you with?” when they haven’t even dealtwith the original reason for the call or visit?

Some companies don’t understand why theyshould worry about customer experience. Oth-ers collect and quantify data on it but don’t cir-culate the findings. Still others do the measur-ing and distributing but fail to make anyoneresponsible for putting the information to use.The extent of the problem has been docu-mented in Bain & Company’s recent survey ofthe customers of 362 companies. Only 8% ofthem described their experience as “superior,”yet 80% of the companies surveyed believethat the experience they have been providingis indeed superior. With such a disparity, pros-pects for improvement are small. But the needis urgent: Consumers have a greater number ofchoices today than ever before, more complexchoices, and more channels through which topursue them. In such an environment, simple,integrated solutions to problems—not frag-mented, burdensome ones—will win the alle-giance of the time-pressed consumer. (For moreon making the buying process simpler, seeJames P. Womack and Daniel T. Jones, “LeanConsumption,” HBR March 2005.) Moreover,in markets that are increasingly global, it isdangerous to assume that a given offering,communication, or other contact will affectfaraway consumers the same way it does thoseat home.

Although few companies have zeroed in oncustomer experience, many have been tryingto measure customer satisfaction and haveplenty of data as a result. The problem is thatmeasuring customer satisfaction does not tellanyone how to achieve it. Customer satisfac-tion is essentially the culmination of a series ofcustomer experiences or, one could say, the netresult of the good ones minus the bad ones. Itoccurs when the gap between customers’ ex-pectations and their subsequent experienceshas been closed. To understand how to achievesatisfaction, a company must deconstruct itinto its component experiences. Because agreat many customer experiences aren’t the di-rect consequence of the brand’s messages or

the company’s actual offerings, a company’s re-examination of its initiatives and choices willnot suffice. The customers themselves—that is,the full range and unvarnished reality of theirprior experiences, and then the expectations,warm or harsh, those have conjured up—mustbe monitored and probed.

Such attention to customers requires aclosed-loop process in which every functionworries about delivering a good experience,and senior management ensures that the of-fering keeps all those parochial conceptionsin balance and thus linked to the bottom line.This article will describe how to create such aprocess, composed of three kinds of customermonitoring: past patterns, present patterns,and potential patterns. (These patterns canalso be referred to by the frequency withwhich they are measured: persistent, peri-odic, and pulsed.) By understanding thedifferent purposes and different owners ofthese three techniques—and how they worktogether (not contentiously)—a companycan turn pipe dreams of customer focus intoa real business system.

What Customer Experience Is

Customer experience is the internal and subjec-tive response customers have to any direct orindirect contact with a company. Direct contactgenerally occurs in the course of purchase, use,and service and is usually initiated by the cus-tomer. Indirect contact most often involves un-planned encounters with representations of acompany’s products, services, or brands andtakes the form of word-of-mouth recommenda-tions or criticisms, advertising, news reports, re-views, and so forth. Such an encounter couldoccur when Google’s whimsical holiday logospop up on the site’s home page at the inceptionof a search, or it could be the distinctive “po-tato, potato” sound of a Harley-Davidson motor-cycle’s exhaust system. It might just be an e-mail from one customer to another.

The secret to a good experience isn’t themultiplicity of features on offer. MicrosoftWindows, which is rich in features, may pro-vide what a corporate IT director considers apositive experience, but many home usersprefer Apple’s Macintosh operating system,which offers fewer features and configurationoptions. A customer’s experience with an Appledevice begins well before the purchaser turnsit on—in the case of the iPod, perhaps with

Christopher Meyer

(cm@fastcycle.com) is the chairman of Strategic Align-ment Group, a consultancy based in Portola Valley, California, that specializes in innovation and time-based competi-tion. He is the author of

Fast Cycle Time

(Free Press, 1993).

Andre Schwager

(aschwager@customersenseconsulting.com) is a former president of Seagate Enterprise Management Software and a founder of Satmetrix Systems, a custom-er experience software company based in Foster City, California.

Understanding Customer Experience

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the dancing silhouettes in the TV advertise-ments. The origami-like (and recyclable) pack-aging enfolds the iPod as though it were aFabergé egg made for a czar. A small sticker,“Designed in California, Made in China,” com-municates the message that Apple is firmly incharge but also interested in keeping costsdown. Even Windows users appreciate the de-vice’s intuitive, Mac-like feel and find thatdownloading tracks from iTunes is easier thanbuying a CD on Amazon. Every Apple prod-uct is designed with the overarching purposeof making the time one spends with Apple anenjoyable experience.

A successful brand shapes customers’ expe-riences by embedding the fundamental valueproposition in offerings’ every feature. ForBMW, “the Ultimate Driving Machine” ismuch more than a slogan; it informs the com-pany’s manufacturing and design choices. In2000, Mercedes-Benz introduced a systemthat automatically controls the distance be-tween a Mercedes and the car in front. BMWwould not consider developing such a featureunless it amplified rather than diminished thedriving experience.

Service quality and scope matter, too, butmostly when the core offering is itself a service.For example, the tracking and shipping sup-port FedEx provides on the Internet and byphone is as important to customers as its fun-damental value proposition—on-time delivery.

In their concern with logistics—how some-thing is provided, not just what is provided—business-to-business companies take afterconsumer-service companies. For both, thegoal is to provide a positive experience to theend user. The business partner or supplier ofa B2B company helps the latter do that firstby understanding where in its direct custom-ers’ value chain the B2B can make a meaning-ful contribution, and then when and how.Those are different undertakings from cap-turing and parsing a given human being’sinternal, ineffable experience. A business’s“experience,” one might say, is its manner offunctioning, and a B2B company helps itsbusiness customers serve their customers bysolving their business problems, just as an ef-fective business-to-consumer company fulfillsthe personal needs of

its

customers. In a B2Bcontext, a good experience is not a thrillingone but one that is trouble-free and hence re-assuring to those in charge.

Thus, a supplier satisfies the purchasing de-partment of its business customer by providinga balance of costs and benefits; it satisfies oper-ations by offering products or services that areeasy to use; and it satisfies a customer’s execu-tives by expanding capacity at the same rate asthe customer and in general evolving alongsideit. Accordingly, sales and marketing do notnecessarily monopolize points of contact withcustomers: Operations people at the first com-pany deal directly with their counterparts atthe second, and so forth. The functional natureof the relationship—indeed, the fact that it is atrue relationship—creates a pervasive aware-ness of experience issues and priorities.

Whether it is a business or a consumer beingstudied, data about its experiences are col-lected at “touch points”: instances of directcontact either with the product or service itselfor with representations of it by the company orsome third party. We use the term “customercorridor” to portray the series of touch pointsthat a customer experiences. What constitutesa meaningful touch point changes over thecourse of a customer’s life. For a young familywith limited time and resources, a brief en-counter with an insurance broker or financialplanner may be adequate. The same sort of ex-perience wouldn’t satisfy a senior with lots oftime and a substantial asset base.

Not all touch points are of equivalent value.Service interactions matter more when thecore offering is a service. Touch points that ad-vance the customer to a subsequent and morevaluable interaction, such as Amazon’s straight-forward 1-Click ordering, matter even more.Companies need to map the corridor of touchpoints and watch for snarls. At each touchpoint, the gap between customer expectationsand experience spells the difference betweencustomer delight and something less.

People’s expectations are set in part by theirprevious experiences with a company’s offer-ings. Customers instinctively compare eachnew experience, positive or otherwise, withtheir previous ones and judge it accordingly.Expectations can also be shaped by marketconditions, the competition, and the cus-tomer’s personal situation. Even when it is thecompany’s own brand that establishes expecta-tions, the customer can be set up for disap-pointment. For example, Dell transformedbuying computers over the Internet from arisky to a reliable experience. When it ex-

Understanding Customer Experience

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tended that set of procedures to the selectionand purchase of expensive plasma HDTV sets,however, it disappointed. Dell did an effectivejob of creating positive customer expectations,but they turned out to be better fulfilled by thein-person sales force at Best Buy.

Ideally, good design makes both themost routine and the weightiest customerexperiences—checking a price, getting aquestion answered, or placing a multimillion-dollar order—pleasant and efficient. How-ever, even when dissatisfaction or warinessarises, artful control of consumer experi-ence can overcome it.

In its development of a new AIDS drug,Gilead Sciences provides a good example ofhow a failure to understand the experienceand expectation component of a consumer seg-ment’s dissatisfaction can turn into a failure toreach that segment. Upon releasing the newmedication, which had demonstrated advan-tages over existing ones, Gilead noticed thatwhile sales to patients new to therapy were ro-bust, sales to patients already undergoing

treatment were growing far more slowly thanexpected. For HIV/AIDS patients, switchingmedications, Gilead discovered, is very differ-ent from choosing an alternative cold remedy.Switching requires ending a trusted relation-ship in the hope of reaching an uncertain im-provement level. The company also learnedthat HIV-positive patients are far more inter-ested in the potential adverse effects of a newdrug than in its supposedly superior efficacy.With this new understanding, Gilead decidedto emphasize in its marketing the new drug’slower incidence of serious side effects. It alsosegmented the patients’ physicians by theirwillingness to prescribe a different medicationfrom the ones they knew. Once Gilead madeit easier for patients to switch drugs, the mar-ket share of the company’s main competitordropped 33%.

Why the Neglect?

CEOs may not actively deny the significance ofcustomer experience or, for that matter, thetools used to collect, quantify, and analyze it,

CEM Versus CRM

Customer experience management and customer relationship management differ in

their subject matter, timing, monitoring, audience, and purpose.

Customer

Experience

Management

(CEM)

Customer

Relationship

Management

(CRM)

What

Captures and

distributes what

a customer thinks

about a company

Captures and

distributes what

a company knows

about a customer

When

At points of

customer

interaction:

“touch points”

After there

is a record

of a customer

interaction

How Monitored

Surveys, targeted

studies, observa-

tional studies,

“voice of customer”

research

Point-of-sales data,

market research,

Web site click-

through, automated

tracking of sales

Who Uses the Information

Business or

functional leaders,

in order to create

fulfillable expecta-

tions and better

experiences with

products and

services

Customer-facing

groups such as

sales, marketing,

field service, and

customer service,

in order to drive

more efficient and

effective execution

Relevance to Future Performance

Leading: Locates

places to add

offerings in the

gaps between

expectations and

experience

Lagging: Drives

cross selling by

bundling products

in demand with

ones that aren’t

Understanding Customer Experience

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but many don’t adequately appreciate whatthose tools can reveal. Three forces in themain conspire to preserve this gap.

Too much money already lavished onCRM.

Having spent millions of dollars on cus-tomer relationship management software,many CEOs consider their problem to be not alack of customer information but a superfluityof it. Before investing more time and money,executives justifiably want to know how cus-tomer experience data are different and whattheir value is.

To put it starkly, the difference is that CRMcaptures what a company knows about a par-ticular customer—his or her history of servicerequests, product returns, and inquiries, amongother things—whereas customer experiencedata capture customers’ subjective thoughtsabout a particular company. CRM tracks cus-tomer actions after the fact; CEM (customerexperience management) captures the imme-diate response of the customer to its encoun-ters with the company. Employees accustomedto reading the marketing department’s dryanalyses of CRM point-of-sale data easily graspthe distinction upon hearing a frustrated cus-tomer’s very words. (For a detailed account ofthe difference between the two approaches,see the exhibit “CEM Versus CRM.”)

Moreover, many CEOs don’t sufficiently ap-preciate the distinction between customer sat-isfaction, which they believe they have heavilydocumented, and customer experience, whichalways demands further investigation.

Lack of attunement to customers’ needs.

Leaders who rose through customer-facingfunctions, such as Cisco Systems CEO JohnChambers, are more likely to act with refer-ence to customer experience than those whohave not. When competing new technologiesare difficult to choose among, Cisco defers itschoice until key customers have registeredtheir reactions. Because the company knowsthere will be a market for the choice it finallymakes, it can afford to commit itself later thanits competitors.

In contrast, executives who rose throughfinance, engineering, or manufacturing oftenregard managing customer experience as theresponsibility of sales, marketing, or customerservice.

Fear of what the data may reveal.

It’s easyto say one’s business is customer-driven whenthere are no data to prove otherwise. Once

data start flowing, the bogeymen come out ofthe closet. Can we afford to do what customersare asking for? How do we choose betweenconflicting preferences? Can we accept whatcustomers say they are experiencing withoutfirst telling them what they should be experi-encing? Corporate leaders who would nevertolerate a large gap between forecasted andactual revenues prefer to look the other waywhen company and customer assessments di-verge, as they do in the Bain survey.

Executives also hesitate to act on findingsbecause experience data are more ambiguousthan customers’ actions—the orders theyplace, for instance. However, statistical analy-sis has developed to the point where it candependably quantify both the relative impor-tance of each touch point and the experienceit provided. It can also isolate key transac-tions, accounts, regions, customer segments,and so forth, and then parse the resultingdata. About ten years ago, companies startedcollecting experience information electroni-cally. Now they can instantly combine it withdata collected from CRM systems and othercustomer databases, conduct analyses of bothindividual and aggregate responses in realtime, and then automatically route and trackissues needing resolution.

Squishier are observation studies and ver-batim comments, which for that reason don’tget the attention they deserve. Approached,however, with the requisite empathy and in-sight, they can be in their own way more re-vealing than concrete findings. For one thing,even consumers sharply aware of a product’sor brand’s deficiencies can’t quite picturewhat might replace it. That’s why Henry Fordsaid that if he asked his customers beforebuilding his first car how he could better meettheir transportation needs, they would havesaid simply, “Give us faster horses.” Properlyunderstood, the currents beneath the surfacethat direct the flow of customer experiencedata will indicate the shape of the next majortransformation.

All Hands on Board

Many organizations place responsibility forcollecting and assessing customer experiencedata within a single, IT-supported customer-facing group. Doing so accomplishes at leastthree things: It saves money; it protects cus-tomers from redundant and annoying solicita-

Corporate leaders who

would never tolerate a

large gap between

forecasted and actual

revenues prefer to look

the other way when

company and customer

assessments diverge.

Understanding Customer Experience

harvard business review page 6

tions; and it permits direct comparison of cus-tomers on the basis of their location, choice ofproduct, or some other criterion.

But it is a mistake to assign to customer-facing groups overall accountability for thedesign, delivery, and creation of a superiorcustomer experience, thereby excusing thosemore distant from the customer from under-standing it.

In contrast to this common pattern, Palmdrew on customer experience to make the Treoone of its most successful products ever. Acombination of cell phone and Palm Pilot, theoriginal Treo used the same built-in recharge-able battery as the Palm organizers. When

used as a cell phone, the device consumed farmore power than it did when used as an orga-nizer. So customers who were heavy users ofthe cell phone feature found that their Treoswere often losing power—and often at an in-convenient distance from their rechargers.Complaints about this problem began showingup in Palm’s customer-service transaction sur-veys. But the customer service departmentcould offer the Treo’s unhappy owners onlyminor power-saving tips.

Dissatisfied with the status quo, customerservice vice president Dan Gilbert, showingunusual initiative, distributed the experiencedata his department had collected to product

Tracking Customer Experience: Persistent, Periodic, Pulsed

Companies can monitor various patterns of interaction with customers to gain a better under-

standing of the customer experience they are providing. Depending on the precise information

a company is seeking, it may choose to analyze past patterns, present patterns, potential patterns,

or a combination. Each pattern requires a distinct method of generating and analyzing data and

will yield different types of insights.

Pattern and Purpose

Past Patterns: Captures a recent experience.

> Intended to improve transactional experiences

> Tracks experience goals andtrends

> Assesses impact of new initiatives

> Identifies emerging issues

Examples: Post-installation orcustomer service follow-up, new-product-purchase follow-up

Present Patterns: Tracks currentrelationships and experience issues with an eye toward identifying future opportunities.

> Keeps a consistent yet deeperwatch on state of relationshipand other factors

> Looks forward as well as backward

> Used with more critical populations and issues

Examples: Biannual account reviews, “follow them home” user studies

Potential Patterns: Targets inquiries to unveil and test future opportunities.

Examples: Ethnographic designstudies, special-purpose marketstudies, focus groups

Owner

Central groupor functions

Centralgroup, businessunits, orfunctions

General managementor functions

Data Collection Frequency and Scope

Persistent:> Electronic surveys

linked to high- volume transactionsor an ongoing feed-back system

> Automatically trig-gered by the comple-tion of a transaction

> Focused, short-cycle,timed data collection

> Feedback volun-teered by users inonline forums

Periodic:> Quarterly account

reviews

> Relationship studies

> User experiencestudies

> User-group polling

Pulsed:> One-off, special-

purpose driven

> Interim readings oftrends

Collection and Analysis Methodology

> Web-based, in-person,or phone surveys

> User forums andblogs

> Web-based surveyspreceded by preparation in person

> Direct contact in person or by phone

> Moderated user forums

> Focus groups andother regularly scheduled formats

> Driven by specificcustomers or uniqueproblems

> Very focused

> Incorporates existingknowledge of cus-tomer relationship

Discussion and Action Forums

> Analyzed within functions, centralsurvey groups, orboth

> Cross-functional issues directed togeneral managers

> Strategic analysisand actions directedby general managers

> Initial analysis bysponsoring group

> Broader trends andissues forwarded togeneral managers’strategic and operat-ing forums

> Deeper analysis ofemerging issues atthe corporate, busi-ness unit, or locallevel

> Centered withinsponsoring group,with coordination byand support fromcentral group

Understanding Customer Experience

harvard business review page 7

development, which went to work on the prob-lem. The next-generation Treo came with abattery that users replace. In 2005, sales were71% higher than the previous year.

Typically, however, a vigorous reaction to in-telligence gathered on customer experience re-quires general management to orchestrate aresponse to customer problems. Intuit learnedthat when it tried to address the trouble cus-tomers were having installing a new release ofTurboTax. The solution turned out to be cross-functional, but no one who had been asked todeal with it was senior enough to “own” the en-tire installation process.

Obtaining the Right Information

There are three patterns of customer experi-ence information, each with its own pace andlevel of data collection. (For a detailed break-down of the three patterns, see the exhibit“Tracking Customer Experience: Persistent,Periodic, Pulsed.”)

When companies monitor transactions oc-curring in large numbers and completed by in-dividual customers, they are looking at

pastpatterns.

Enterprise Rent-A-Car is supposed toask every driver returning one of its vehicles,“Would you rent from Enterprise again?” Anynew service a France Telecom customer re-ceives is followed by a brief questionnaire onthe quality of his or her experience. As thesetwo examples demonstrate, each attempt todetermine the quality of the experience di-rectly follows the experience itself. So compa-nies receive by this method an uninterrupted,or “persistent,” flow of information, which theythen analyze and communicate internally. Al-though surveys are the tool used most oftenfor gathering data on past patterns, customersare sometimes approached through online fo-rums and blogs. Companies are mostly guidedby assertions that win customers’ strong agree-ment, but sometimes customers’ failure toreact strongly to some feature or service can bejust as telling. For this reason, the employeesevaluating results must be attuned to areas ofcustomer experience that a survey or othertool does not directly address.

Analyses of

present patterns

are not simplyevaluations of the meaning and success of a re-cent encounter. They envision a continuing re-lationship with the customer. Consequently,questions may extend to the customer’s aware-ness of alternative suppliers, new features the

customer might desire, and what it sees as chal-lenges to its competitiveness. Given the broadscope of the inquiry, this type of monitoringshouldn’t be triggered solely by a customer-initiated transaction. Instead, information on acompany’s key products and services shouldbe gathered at scheduled intervals, or “periodi-cally.” Hewlett-Packard and the consulting firmBearingPoint, for example, approach everykey customer annually. By initiating contactwith different customers at different timesthroughout the year, BearingPoint has createdan almost persistent data flow that does not de-pend on the completion of a given transac-tion, while permitting comparisons amongcustomers on a range of issues. BearingPointlearned in this fashion that the best practicesit had established in one vertical-marketgroup had not migrated to other groups.

Present patterns are collected through sur-veys or face-to-face interviews, studies tailoredto the subject, or some combination thereof. Ithelps to prepare customers for the inquiry bytelling them the purpose of the survey, howthey will hear about the findings, and whatrole they might play in addressing them. Ac-cordingly, Hewlett-Packard rewards its accountmanagers on survey-participation rates as wellas results.

Potential patterns

are uncovered by probingfor opportunities, which often emerge frominterpretation of customer data as well as ob-servation of customer behavior. Like thestudy Gilead conducted, such probes are out-growths of strategies usually involving the tar-geting of particular customer segments andare therefore unscheduled, or “pulsed.” Thefindings are often used to inform the productdevelopment process.

Most companies apply a single summarymetric to data on past and present patterns.The customer experience metric Net Pro-moter, for example, registers customers’ expe-riences in aggregate—that is, their positiveones minus their negative ones. Intuit’s founder,Scott Cook, uses Net Promoter scores for goalsetting and engaging the organization’s atten-tion, though he recognizes that a rising orfalling score doesn’t begin to reveal what isdriving the trend.

As relationships with customers deepen,companies tend to collect data with greater fre-quency. The patterns that emerge suggest fur-ther areas of inquiry. For example, present-

Understanding Customer Experience

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relationship studies may indicate that on-siteservice experience is wanting. After improve-ments are made, it’s common to use a transac-tion survey following each service call to assessprogress. A subsequent, more comprehensivesurvey may show good experience with ser-vice response time but low overall ratings,triggering a special study to identify custom-ers’ priorities among a range of service experi-ence factors.

Low cost and ease of modification make sur-veys the overwhelming favorite for measuringpast and present patterns. E-mail–based sur-veys are superior to paper-based ones becausethey can be more easily shared; they allowrapid distribution; they give the surveyor theflexibility to extend or abbreviate the question-ing according to the wishes of the respondentor the substance of the response; they mini-mize delays in analyzing the results; and theylead to quick action, such as a referral to a gen-eral manager should scores fall below a prede-termined level. E-mail surveys can also bemore easily tailored. For example, the surveysMarvin Windows and Doors sends to its dis-tributors are different from those sent to archi-tects who buy its products.

A well-designed survey is not simply onethat elicits the desired information. It must it-self avoid becoming an unfortunate aspect ofthe customer experience. Hence, it shouldn’tbe onerous for the taker or deny him thechance to communicate the special nature ofhis experience. One way of keeping surveysmercifully brief is to avoid asking about mat-ters like recent purchases that the company al-ready has a record of. Nor should they be trig-gered by the transactions of regular customerssuch as purchasing agents. Such customers are,after all, among those a business can least af-ford to annoy. By the same token, corporatesanctions imposed on dealers who receive lowscores shouldn’t be so harsh that retailers try todiscourage customers from responding by of-fering to fix any problem on the spot. The indi-vidual customer may be placated, but wide-spread resort to this practice keeps generalmanagement from obtaining a broad pictureof systemic problems.

Surveys do have their limitations, and focusgroups, user-group forums, blogs, and market-ing and observational studies can yield insightsthat surveys cannot. (For more on listening tousers, see Dorothy Leonard and Jeffrey Ray-

port, “Spark Innovation Through EmpathicDesign,” HBR November–December 1997.) In-tuit, for example, is a leader in “follow themhome” studies. Company representatives visitcustomers where they live or work and observehow they use Intuit products such as Quick-Books. It was from watching the smallest busi-nesses struggle with QuickBooks Pro that thecompany recognized a need for a product likeQuickBooks Simple Start. These tools lendthemselves to the measurement of present andpotential patterns, for they entail more time,preparation, and expense than transaction-based surveys.

Acting on Experience Information

Let’s take a look at a company we’ll callHiTouch—which is actually a composite ofcompanies—as it struggled to create a systemfor managing customer experience. HiTouch,a business-to-business global financial servicesprovider, received a shocking wake-up callwhen a top customer shifted half its business toan archrival. HiTouch executives had just com-pleted a quarterly account review classifyingthe relationship with this account as “superior.”The stunned executives wondered what theycould have missed.

From their efforts to salvage the account, Hi-Touch executives learned enough to initiate acompanywide effort to improve the experienceof all other major accounts. After conducting amini-audit of existing customer-experienceprograms, responsible parties, and results, itdiscovered that its vertical-market groupshardly went further than tracking leads andanalyzing buying patterns. Most employeesassumed customer experience was the job ofmarketing or sales. The company’s only CEMmetric came from a mailed annual customersatisfaction survey whose wording hadn’tchanged in three years.

HiTouch engaged consultants to help withthe initiative. Rather than spending a lot oftime establishing formal customer experiencegoals or a detailed plan, the consultants ar-gued for a “fast prototype” relationship surveyof top customers. HiTouch’s leaders identi-fied the touch points they knew had disap-pointed their most important customers. Pre-venting further customer defections, theyrealized, would require customer experiencegoals for every stage of the value chain. Thesehad to serve every vertical market’s financial

A well-designed survey is

not simply one that elicits

the desired information.

It must itself avoid

becoming an

unfortunate aspect of the

customer experience.

Understanding Customer Experience

harvard business review page 9

objectives while being compatible with thecompany’s branding.

As the issues piled up, it became clear thatthe effort needed an executive leader, a bud-get, and dedicated resources. HiTouch’s topsales executive, having become a believer inthe process, stepped up. To ensure a good re-sponse rate, he asked sales account executivesto prep customers receiving the survey. A fewshowed a predistribution draft to customersso that they could help refine issue selectionand tone. Of the various questions settled on,two key ones were “How important to yourpurchasing decision was HiTouch’s brand andthe service promise it seemed to make?” and

“Do you believe HiTouch delivers the experi-ence promised by its marketing and salesforce?” The pilot survey included a summarymetric that permitted HiTouch to compareresponses by location, service platform, andvertical market.

The sales executive noticed that meetingsabout the pilot survey, in which salespeoplefed customer experience information back tothe customers themselves, differed from thetypical sales call by shifting the dialogue awayfrom the individual transaction and towardrelationship development. They also providedan excellent opportunity to introduce to thecustomers HiTouch’s nonsales employees who

Rating Customers

The matrix in this exhibit organizes the cus-tomers of HiTouch (a composite of actual companies) on the basis of the level of atten-tion they require. The vertical axis shows billed revenues (products and services pro-vided and paid for). The horizontal axis shows an aggregate score indicating level of customer satisfaction. Customers with low

billings but high customer satisfaction, for ex-ample, represent growth opportunities for HiTouch. The bubbles on the matrix classify HiTouch’s customers according to a third di-mension: forecasted revenues (orders placed but not paid for as well as potential orders), indicated by bubble size. Letters inside the bubbles serve strictly as identifiers. So, for ex-

ample, customer A has the second-highest billings and the second-highest forecasted revenues, but its business is “at risk” because its satisfaction scores are low. Customer B’s low billings, high satisfaction, and high fore-casted revenues suggest unexploited poten-tial business for HiTouch.

At-Risk Model

GrowthDangling

$25,000,000

$20,000,000

$15,000,000

$10,000,000

$5,000,000

0

Bill

ed re

venu

es

Customers with billed revenues above $10M are consideredhigh-value

bubble size represents forecasted revenues

low highCustomer satisfaction

A

B

Understanding Customer Experience

harvard business review page 10

were in a position to fix customer problems asthey arose. In this fashion, salespeople beganto view their jobs less as a functional responsi-bility than as an organizational process.

Data from the survey began to flow within24 hours of distribution. Many of customers’verbatim comments were blunt. Some execu-tives became defensive and tried to explainaway what the data were saying rather thanunderstand the concerns behind them. Somenever quit demanding yet one more datapoint. Others strained to launch company re-sponses before fully understanding what wasbeing said.

With 60% of the responses in, it becameclear which experiences were critical to overallsatisfaction. However, they were different ineach vertical market, with few exceptions.For each, summary scores were comparedwith customer revenue. On that basis, financeplaced every customer in one of four quad-rants (see the exhibit “Rating Customers”).

•

Model customers:

good summary scores;good revenue.

•

Growth customers:

good summary scores;higher potential revenue. Candidates for crossselling and upselling.

•

At-Risk customers:

low scores; good reve-nue. Demanding decisive intervention.

•

Dangling customers:

low scores; low reve-nue. To be rescued or abandoned.

Auspiciously, the Growth segment had threetimes as many customers as any of the others.But on further examination it emerged thatsome of those customers didn’t buy as much asthose in other quadrants. In fact, one of thelargest remaining customers was squarely inthe At-Risk quadrant.

The results of the initial survey coincidedwith the start of the strategic-planning cycle.By the following quarter, every vertical-marketteam, having shown some customers the find-ings and described what the team planned todo about them, was ready to send out transac-tion surveys of customers’ experiences withservice installation and repair. Every team hadalso set experience goals for itself and sched-uled relationship surveys.

A year later, current experience data had re-placed ill-informed opinion at HiTouch. Atmonthly operations meetings, vertical-marketgeneral managers reviewed key customer ex-perience issues, and actions taken, before re-viewing financials. A rolling summary of rela-

tionship issues unearthed by customer surveyskicked off quarterly executive strategy discus-sions. Defections within each vertical-marketgroup dropped by an average of 16%.

Not everything worked as hoped. The com-pany set up an executive dashboard to keeptrack of installation experience issues, but thedisclosure of high-volume transaction infor-mation so upset the managers responsiblethat they never got around to resolving theunderlying issues. The dashboard was pulledin favor of automatic triggers that channeledproblems to specialists or general managers,who began to make good progress in solvingthem. Increased analyst staffing and simpli-fied reporting helped the general managersidentify new opportunities, an area they hadbeen neglecting.

The Employee Experience

Customer experience does not improve until itbecomes a top priority and a company’s workprocesses, systems, and structure change to re-flect that. When employees observe seniormanagers persistently demanding experienceinformation and using it to make tough deci-sions, their own decisions are conditioned bythat awareness.

Not long after breaking every software-industry growth record, Siebel Systems (nowpart of Oracle) saw its satisfaction ratings beginto drop. An adopter of customer experiencemanagement, the company had gathered datarevealing that customers found a large dispar-ity between actual and expected costs of own-ership of Siebel 6, a sales-force automationtool based on a client-server architecture. Theproposed solution, a shift to a Web-based ar-chitecture in Siebel 7, would require forgoingthe development of other major features—andthe revenues they generated—for two years.Yet Siebel’s leadership went ahead with theshift anyway. Satisfaction levels soon returnedto their formerly lofty levels, and employeestook heart as management placed experienceahead of revenues.

Once persuaded of the importance of experi-ence, every function has a role to play.

Marketing

has to capture the tastes and stan-dards of every one of its targeted market seg-ments, circulate that knowledge within thecompany, and then tailor all consumer com-munications accordingly.

Service operations

must ensure that pro-

Understanding Customer Experience

harvard business review page 11

cesses, skills, and practices are attuned to everytouch point. (Present-patterns surveys aregood for tracking high-volume touch pointssuch as call centers.)

Product development

should do more thanspecify needed features. It should also designexperiences after observing how customers useproducts and services, learning why they useofferings as they do, and figuring out how exist-ing products might be frustrating them. Ide-ally, product developers will identify customerbehavior that runs counter to a company’s ex-pectations and uncover needs that haven’tbeen identified.

Information technology

that can collect, ana-lyze, and distribute CEM data, integrate the in-formation with that generated by CRM, andmonitor progress must be in place. As the dataflow stabilizes, the form of presentation and itsdegree of detail should be keyed to whicheverinternal audience the data are meant for. Alevel of detail that is appropriate for an analyst,for example, can easily overwhelm a line man-ager. CEM is a play within a play, so to speak;just as customers must have a good experience,employees need to have a good experience di-gesting information about themselves.

Human resources

should put together a com-munications and training strategy that conveysthe economic rationale for CEM and paints apicture of how it will alter work and decision-making processes. Since the front line deter-mines the bulk of customer experience, itwould be a good idea to study those employ-

ees’ individual capabilities, work processes,and attitudes. As for performance manage-ment, of course customer experience resultsshould affect compensation. But as we havelearned in recent years, incentives that are toopowerful are more likely to distort behaviorthan channel it productively.

Account teams

must progress from annualsurveys to detailed touch-point analysis,then translate present patterns of customerexperience and issues gleaned from recenttransactions into action plans that are sharedwith customers. Not every significant impli-cation is readily apparent. Leaders need topress the data to precipitate customers’ con-cealed longings.

• • •

Customer dissatisfaction is widespread and,because of customers’ empowerment, increas-ingly dangerous. Although companies know alot about customers’ buying habits, incomes,and other characteristics used to classify them,they know little about the thoughts, emotions,and states of mind that customers’ interac-tions with products, services, and brands in-duce. Yet unless companies know about thesesubjective experiences and the role every func-tion plays in shaping them, customer satisfac-tion is more a slogan than an attainable goal.

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The Zurich HelpPoint Perspective

How is “customer experience management” different from “customer relationship management”?At every turn, our customers are assessing how our performance as an insurance provider matches their expectations. To best assess our customers’ satisfaction, we must capture their service expectations and impressions of our organization and how we do business — in other words, we must manage customers’ total Zurich experience.

Once we understand the experience of a customer, we can begin to manage the relationship according to their needs, priorities, challenges, etc. Customer relationship management is absorbing all we know about a customer’s experience and using that knowledge to strengthen our relationship with them, thereby creating even better experiences. Our relationships with customers truly transcend to an alliance aimed at mutually reducing their cost of risk. We do this by understanding their risks, identifying loss trends and creating solutions to help drive better claim outcomes. Customer experience management and customer relationship management are at the very center of our strategy of customer centricity.

Why should customer service be everyone’s business — not just that of sales and customer service?We rely on our front line to be the face of Zurich, but customer centricity is a cornerstone

for all of us. From claims to underwriting to operations, distribution, etc., every employee has a role in our value chain. At Zurich, we have a branding statement, “We deliver when it matters.” This is embedded in our culture and permeates all levels of the company, providing a consistent and meaningful experience to our customers.

One of my favorite lessons on customer service comes from the story of a company that, after seeing a decline in business, tried to solve its problems by finding a new ad agency. When company executives went to the offices of a potential ad agency, they were greeted by an unkempt individual, asked to wait in a disorganized conference room and ignored for a significant period of time. When the executives asked about the status of their meeting, they were given no answers. Finally, the agency representatives arrived. Imagine the shock of the company executives when it was explained that the treatment they had just received was based on feedback from the company’s customers! The ad agency advised that advertising was not the problem at the business — it was customer service.

The key here is that the multiple roles we have at Zurich are all integrated into a system that functions to help benefit our customers. Reducing the quality of just one piece of this system can significantly affect the customer experience.

What is the best way to track customer experience? How do you know you are asking the right questions? At Zurich, we track customer experience through robust tools aimed at both customers and distribution channels. By evaluating customer satisfaction survey results and narrative feedback and reviewing our metrics, we can get both subjective and objective measures of how well we are serving customers and how this relates to the bottom line of both the customer and Zurich.

Customer expectations and experiences are constantly changing, and frequent checks on their satisfaction allow us to identify potential issues that may lie ahead and tailor our actions accordingly. In other words, this allows us to

look ahead, rather than in the rearview mirror.

We know that our methods are working when we receive testimonials from satisfied customers and brokers that we developed products and services that help address their unique needs. We also track customer retention where we actively engage Claims and our customer service account executives. We are proud to say we have a 90% retention rate on these customers as of December 2010.

How has information from tracking customers changed the way you look at business and/or the way you do business? A true assessment of customer data requires a willingness to accept critical feedback, even if it means acknowledging that a customer’s needs are not being met. We must choose to approach each situation as a challenge to improve and an opportunity to deliver on our value proposition. The regular tracking of candid customer feedback supports our organizational philosophy of continuous improvement. It is our obligation to frequently realign with customers’ business needs and work with them to help reduce risk, create solutions and provide best-in-class service.

While customer centricity will continue to be the overarching principle that governs our day-to-day business practices, we will continue to build meaningful and specialized relationships that bring success to our customers and, as a result, to Zurich.

Zurich in North America is a part of Zurich Financial Services Group (Zurich), an insurance- based financial services provider with a global network of subsidiaries and offices in North America and Europe as well as in Asia Pacific, Latin America, and other markets. Founded in 1872, the Group is headquartered in Zurich, Switzerland, and employs approximately 60,000 people serving customers in more than 170 countries, including more than 9,500 employees in North America. www.zurichna.com

STEVE HATCH CHIEF CLAIMS OFFICER ZURICH NORTH AMERICA COMMERCIAL