You likely hear a lot about customer experience these days. Business media is full of articles about CX, and the data we collect at Gartner demonstrates that CX metrics are among marketers’ most important. In addition, business leaders tell us they are investing more in customer experience.
But why? Why is CX essential for your brand? What will improving CX do for your various stakeholders–not just customers, but employees, leaders, and investors, as well?
Can you answer those questions with something other than platitudes about the importance of happy customers? Because if you cannot define, in a very real way, why CX matters to your brand, then you cannot make others inside your organisation care, secure collaboration, obtain funding, or encourage any meaningful change.
Many Brands Have Clear CX Opportunities
Different brands have different potential benefits and expected outcomes in CX. There no single set of CX benefits or metrics that will fit every company equally. Understanding your brand’s unique situation, challenges, and opportunities is a good place to start when defining a CX vision and requesting necessary commitments from leaders and peers.
For some brands, improving their CX offers relatively clear and obvious advantages. For brands in contentious marketplaces with intense competition, fairly easy switching, innovative challenger brands, frequent repurchase actions, and a diverse set of customer selection criteria, the need for CX initiatives and investments can be easy to discern. Brands in these sorts of marketplaces–that is to say most brands–need to focus on CX because:
- Competitive differentiation improves demand: Brands are created through experiences–what the brand does, not just what it says. Through disciplined CX processes, you can understand what your customers value and work to meet those expectations better than your competitors.
- Strong experiences foster loyalty: Brands find it less costly to keep than to acquire customers, and they are more effective at cross-selling to current customers than gaining new prospects. Providing experiences that customers value builds relationships, diminishes churn, improves share of wallet, and generates higher margins.
- Powerful customer relationships generate robust word of mouth (WOM): Brands create the greatest breadth and depth of WOM by meeting and exceeding customer needs and producing elevated levels of satisfaction. In our ad-blocking and ad-skipping world where consumers are less trusting of brand ads and content, credible person-to-person brand advocacy between those in established relationships delivers greater awareness, consideration, inbound traffic, conversions, and sales.
Airlines and the Question of CX Relevance
But what if your brand is in a different sort of marketplace? One with high barriers to competitive entry, greater customer switching costs, less competition, perceived parity in offerings, sparse repurchase, or consumers obsessed with price. In situations like these, the standard and obvious benefits of CX are, well, less standard and not so obvious. Utilities with little competition, life insurance companies with infrequent repurchases, telecoms with significant perceived barriers to switching, and other brands may question the benefit of increasing (or risks in diminishing) customer loyalty and advocacy.
United’s customer incidents and PR crises provide an excellent lens to consider the CX challenges faced by air carriers. In the past decade, United Airlines has suffered two CX disasters so infamous that they each have their own Wikipedia entry: “United Breaks Guitars” in 2008 and this year’s widely circulated video of a bloody passenger being dragged from a flight. But while each generated an enormous amount of publicity, there is no evidence either situation severely affected the airline’s business in any significant or lasting way.
Some people claim United’s stock decreased in the days after April’s incident went viral, and they’re correct–but stocks move on a daily basis for all sorts of complicated reasons, and within a couple of weeks, United’s stock was trading no better or worse than its competitors. There is no indication this incident hurt the airline’s stock price, and even if it did alter the price for a few days, executives don’t worry about or base decisions on daily fluctuations of stock value. The same was true in 2008 when pundits claimed the viral video would damage United’s business, but in reality, the company’s stock outperformed the competition following that PR incident.
Nor is there evidence of a significant change in flyer preference or purchase behaviour. I wrote back in April that United’s well-publicised incident would not adversely impact demand for United’s flights, and it appears I was correct. For the three months ending in June, including the month of United’s passenger debacle, the company “boosted ticket sales even as fares climbed higher,” resulting in a lift in both revenue and profits. Customers did not abandon United after seeing the video of the doctor dragged from the plane, just as they did not quit the airline after seeing the funny music video about a broken guitar.
I am not suggesting these incidents didn’t cost the airline. As I wrote in April, this event elevated expenses for United, such as the value of the financial settlement offered to the wronged passenger and the lost productivity dealing with the sizable PR crisis. But in the end, United did not suffer lasting business or economic damage from the incident, despite the fact thousands of people swore in YouTube comments, tweets, and posts they would never again book a flight with the airline.
For Some Brands, the CX Opportunities Are More Difficult to Discern
Does this mean air carriers don’t need to worry about CX? Is there no upside to improving customers’ experiences or downside to repeated violation of customer expectations?
No, but the CX equation is different for brands in verticals with unique situations, such as:
- Low competition and high barriers to entry for new competitors. Many customers have little or no choice of airline because they must use whichever one flies the route they need. Moreover, this is not an industry that need fear it will be Amazoned or Ubered by a startup in the foreseeable future, given the highly regulated and capital intensive nature of the business. In short, it can be difficult for airlines to draw a correlation between customer satisfaction and purchase behaviour as is common in more competitive marketplaces.
- A great deal of perceived parity in customer experience. While a rare few air carriers stand out in terms of customer focus, most airlines are regarded as offering an undifferentiated product and service. They all fly from the same airports and same gates with the same planes offering the same seats and a seat pitch that may vary by just a couple of inches. In addition, every airline seems to suffer from identical customer problems and PR crises. Can you name all the airlines that have endured their own headline-producing customer disasters in the past three months? I can’t–the United episode is but one drop in a giant bucket of traveler inconvenience and misery. If airlines cannot find a way to differentiate their customer experience in ways customers notice and appreciate, they cannot expect to drive preference or loyalty.
- Competing within a marketplace where price (or reward program membership) is king. How do you shop for airfare? If you fly often, you likely gravitate to one carrier to accumulate points and status, and if you fly infrequently, the travel shopping sites you use default their search results based on price. When is the last time you decided to pay more for one airline over another purely on the basis of an air carrier’s customer experience and not the number of segments or flight times? And have you ever made a decision to choose a more expensive flight or a less convenient route because you’d seen a social media post about an airline’s mistreatment of a stranger? If price is king, it can be difficult for air carriers to justify investments in improving customer experience; for example, adding three inches of seat pitch would be very welcome to flyers, but if that increases the price $50 and drops the flight to the fourth page of search results, will this help or hurt the airline’s business outcomes?
Not every vertical will see equal benefits and risks associated with reputation, customer satisfaction, loyalty, and advocacy. Industries where that relationship is more difficult to spot still have CX opportunities, but they need to dig deeper to recognise and define the value. Rather than rely on measures of churn, share of wallet or brand advocacy, these brands must consider other benefits such as:
- Minimise customer service costs: Happier customers cost less to service. Airline brands that improve satisfaction can decrease call volumes and the costs to address customer complaints.
- Foster profitable direct relationships: Differentiated CX can decrease the importance of price in consumer decisions and encourage customers to bypass intermediaries. Airlines improve profits when customers avoid online travel agencies and buy direct, but customers won’t do so without a compelling reason to believe one carrier is consistently better than another.
- Reduce risk and cost of PR disasters: Every customer complaint has a cost, but some have considerably greater costs when they rise to become PR crises through the power of social media. Training gate agents or empowering them with more flexibility to do what’s right may sound costly until one considers the high cost of single, expensive PR event.
- Improve investor relations and stock price: Research suggests that brands with stronger customer satisfaction and reputation earn better stock market returns. Most airlines currently have a price-earnings ratio in the range of 10 to 13, but Alaska Air and Southwest–two airlines that are rated high for customer satisfaction–earn a premium PE ratio between 15 and 18.
- Diminish possibility consumers seeking other solutions: Even if direct competition is weak, unhappy consumers may choose other alternatives. Airlines must consider if they are losing customers to options that may be tangentially competitive or are pushing customers out of the market altogether. We all know people who claim they travel less because air travel has become so inconvenient, and I have a friend who opts for trains to avoid the experience of airports and air carriers.
- Increase upsell and new product possibilities: Stronger customer relationships improve success with new product development, cross-sell and upsell. Airline brands that enhance customer relationships improve their chances to upsell customers to better seats and to package related travel purchases.
Not every brand has an equally clear opportunity in customer experience, but no brand ever loses by improving customer satisfaction, loyalty, and advocacy. The stronger you can connect improvements in CX to the business results your leaders desire, the easier it becomes to secure money, time and attention. Fully explore all of the ways CX can improve your top and bottom lines to make sure your brand sharpens its focus on outside-in, customer-centric solutions that earn mutually beneficial relationships between you and your buyers.
*This article is reprinted from the Gartner Blog Network with permission.