Recently I was involved in a discussion where the question was whether is it possible to create competitive advantage with customer experience. I was challenged by a statement that the potential sources of competitive advantage are already well known and companies just have to choose to which core competence they want to build their success on (for example knowledge, technology or skills). From this viewpoint CX is a result of the chosen elements – not an element itself. As a CX consultant I of course disagreed on this and my argument was that for example in a situation where product features and price are exactly the same, CX can be the part which differentiates the company from its competitors. CX which creates competitive advantage is much larger concept than good customer service or smooth UI when ordering products online. In this case customer centricity is so deep in the company culture that customer comes first in everything the company does.
Building the right company culture takes several years, so creating competitive advantage with CX is very much based on loyalty of the customers. In his new book “Winning on purpose”, the inventor of NPS, Fred Reicheld talks about good profits and bad profits. Bad profits are profits which are gained by acquiring new customers by using discounts and other short-term ways of appealing to customers. For example in highly competitive markets this is a common way of getting customers since churn is usually high and companies need to replace the lost customers with new ones. Good profits are the profits which are obtained when happy customers stay with the company longer, buy more or expand their purchases to other product groups. This means that the business case of CX is always built on loyalty because (as we all know) it is cheaper to keep existing customer that get new ones. Loyalty means competitive advantage since customers are not willing to change to competitors. If the customer’s will to stay is based on CX, not only on price or loyalty program bonuses, the relationships is on a more solid base and CX is the source of competitive advantage.
Customer experience includes two words “customer” and “experience”. “Customer” refers to a situation where a person has bought something (for example a new PC) or is a permanent customer of a company (buys all IT equipment from the same retailer). This means that there can’t be an experience without some interaction with the company in a certain touchpoint. This differs CX from the concept of brand which can exist also without the interaction (for example non-Apple users know the Apple brand and relate certain attributes to it, although they have never used or bought any Apple products). Brand is a wider concept than just advertising and it can also be a source of competitive advantage through differentiation and segment focus as Michael Porter stated in the 1980’s (branding is part of marketing and after Philip Kotler added “people” and “processes” and “physical evidence” to the 4 p’s the role of marketing became already quite close to the areas of CX development. BTW: A fresh update to this is the new 4 P’s of Eka Ruola: “people”, “purpose”, “platform” & “passion”).
“Experience” means emotions, which means that CX can exist only for people (a company does not have experiences). Emotions are related to the expectations we have before the interaction and we estimate the experience by comparing it consciously or unconsciously to our expectations. An experience which goes over expectations is considered positive. In addition to creating a positive memory it results in referring the good experience to colleagues and friends. We all know that especially in cases where the product group is not familiar to us (for example computers) we tend to rely more on a friends referral rather than trying to find out about all the details and making a rational decision based on that. In best cases the referral leads directly to buying which means that the competitive advantage is so strong that competitors don’t even get a chance to get their product under consideration.
A good CX is based on effectiveness (value to the customer), ease and emotions and it is important to recognize which of these elements is the hardest one to copy by competitors – and especially which element is mostly valued by our most important customers. Usually effectiveness and ease come before emotions, but we all know that even in the case where a company has delivered the product or service according to expectations there might be something missing. For example calling to a IT service desk has often left me a feeling that I am bothering the employee’s day rather than getting him or her interested in my problem (they say that you can hear if a person smiles in the phone). In this case the price and content of the service might be just right, but I’m starting to look for other options because I value the feeling that the employee is eager to ensure that I’m happy with the solution and I can see that the employee enjoys his/her role in solving my problems. Another company that can offer this to me already has the competitive advantage and I’m just waiting to hear a referral on their services.Tags: competitive advantage, customer experience, CX