Does the Customer Experience make a difference to your bottom line?
Ten years ago, a major US Hotel chain approached Tuck Business School with three questions: how many new restaurants should we open in our New York City hotels? How many should we reformat? And perhaps, most critically, How can we generate more profit from all of them?
These are questions many companies ask week-in, week-out. In the case of this client, Tuck Business School embarked on an in-depth study lasting over a year into every restaurant, eatery and even hot dog stall in New York City resulting in a data set that came to over 1,700 different outlets.
Tuck then mapped this data against a range of criteria including the 4Ps of Product, Price, Place and Promotion.
The findings could not have been more remarkable.
For one thing, the time-honoured adage (in retail) that success was about three things – Location, Location, Location – flew out of the window. The type of cuisine (‘Product’) also had little to do with profitability, which also came as a surprise to the hotel’s management team, and Price itself was only a very minor factor in overall outlet profitability.
From the findings it was clear that outlets could increase sales by cutting prices… but that did not make customers keep coming back. The inevitable consequence of this strategy was that their competitors’ did too, and profitability was eroded.
The findings also showed that customers were swayed most of all by one thing – the quality of the experience. When submitted to the hotel chain’s management, the findings raised more than an eyebrow:
Location accounted for 2.5% of the price variation
Cuisine accounted for 3.5% of the price variation
Customer experience (comprising decor, taste of food and service) accounted for 73% of the price differential
With the comparisons done on a like-for-like basis, it made the hotel chain’s decision for their strategy clear – whatever we do, we must create an experience, consistently
How you can profit from this study
Ironically, ‘price wars’ are the reality most companies are trapped in, especially in Asia.
They think that, in order to meet their sales numbers, they should cut prices, which in turn means they cut internal costs so that they can maintain their profit margins, and so on until they are in a death spiral where they ultimately erode the value of their brand.
Service becomes ever more lousy (because management hires by the numbers not by the kind of people the customers want); customers defect (because they have been mistreated); companies cut prices to woo them back (in fact creating fickle customers); companies blame customers for being fickle; customers blame companies for not caring – and so on… until the brand itself is finally commodified and pricing power is entirely eroded.
But it does not have to be this way. And not in an ‘ivory tower’ state of mind. But in reality.
This is because there are companies operating in Asia who refuse to be commodified and insist on taking a longer view (read 1-2 years) on creating a more deliberate customer experience and, through it, build relationships (especially loyalty and advocacy) which blow away considerations of price.
‘The purpose of business is not to make a sale, but to make and keep a customer’
Some high-end designer stores have cottoned onto this, but the example that really stands out is The Apple Shop. To take just one aspect of their strategy, the practice of hiring ‘slightly better’, training and developing their staff to a level the customer can relate to, leads to a markedly better human interaction where larger percentages of customers feel comfortable to come back to the stores.
Apple, in turn, do not dilute their brand value and continue to be able to command price differentials of as much as 140% against similar hardware and peripherals offered by their competitors!
A counter-example are the car dealerships, whose customer touch in Thailand especially has been so uniformly woeful. It’s little surprise in this instance when a consumer chooses one car over another based on the difference of 5,000 Baht, or blind chance that they have got a person to serve them at all.
Companies can profit from this market situation by creating a deliberate customer experience encompassing all the touchpoints customers encounter on their service journey.
Making the Experience happen
At Talent Technologies we have made this easy by separating the customer encounter into the dimensions of Stage, System and Service; and the Customer behaviours into Say (Advocacy), Stay (Loyalty) and Spend (Sales); the latter three based on researched emotions into customer behaviour.
Using this simple framework (even frontliners can understand, which is important), we are able to facilitate the brand experience that management wants to deliver on, outside-in.
Companies may not wish to use our approach. Nonetheless there is a growing realisation that the source of competitive advantage is not a new CRM system or loyalty card programme, both of which may help yet, as research has shown, deliver relatively marginal returns on the capital committed to them.
The real difference companies make, both to their customers and bottom lines, is to deliver a consistent experience going beyond the blandly functional that is so prevalent in today’s uninspiring marketplace.
Talent Technologies helps companies create outstanding customer experiences in Thailand and South East Asia. If you would like to find out more about creating great customer experiences, please check the box giving us your name and email here