"Regarding CX, don't bet all your chips on the same number..."
- Prof. Dr. Phil Klaus
Please note, regarding CX, prof Klaus makes a distinction between 3 types of companies based upon his research examine the CX management practices of over 1900 companies worldwide for the last 10 years:
- Preservers those are people, companies and firms who have a customer experience program. However when dissected in detail what this customer experience program is, it is nothing more than what was before called the customer service, the voice of the customer, the customer centricity whatever it was before. It is simply a rebranding exercise.
- Transformers, they are in between preservers and vanguards. What differentiates Transformers from Preservers, is that they not only know and believe in customer experience but they also put their money where their mouth is. You see their efforts normally around two main things: they try to listen and understand the customer better and they see customer-facing personnel as a key component for shaping their CX-programs. They are convinced that CX influences customer satisfaction, loyalty, recommendation, and brand perception.
- Vanguards: are as close to perfect customer experience practice as we can imagine. Why? Everything revolves around the customer. It is not a division inside the company, customer experience is everywhere. It is only present not only in the way your service employees are trained but with which skills you need, how you hire them, how are you remunerate them, how you advance their career, everything revolves around the customer.
Figure 1 CX Management Practice Typology, Klaus (2015
Dear Professor, thanks for freeing up your time for this interview. What has your extensive research shown regarding CX and organizations.
Prof Dr Klaus: when we look at those 1900+ companies we’ve researched, we examined that those companies that think of their business and customer relationships in a longitudinal way (and have of course the possibility to do so, because you need to have access to and use the resources and dynamic capabilities) the Vanguard companies outperform the others by sometimes more than 600% in terms of profitability. All companies we audit have a dedicated customer experience
program for at least 5 years. We soon will be publishing another scientific article that highlights this in even more detail, which might be of interest to your readers.
But from a management point of view these programs needs time. CX management programs need time, patience to be more precise, to gain momentum in the company. The CX program return on investment is not there instantly, because it requires organizational challenges etc. But the ones who design and execute CX programs according to what our work with clients over decades point out, are outperforming other significantly.
Every time I present the results of our study to CEOs and clients, I always get the same question from them: “How do I become a Vanguard”. Statistically speaking the chances to become a Vanguard are slim. This, however, is not the key message, it is that when you move towards a trajectory towards a Vanguard stage, you will become more profitable.
The vast majority of companies we examine are still in the Preserver stage: the lady or gentleman that was head of customer service is now the CX manager, they measure NPS and they put on their website that CX is on the agenda. This is pure window dressing – these companies are also the least profitable.
So, again, the question for me is not how to become a Vanguard (only 0.6% reach that stage)? The aim is to take the road towards it, you will become automatically more profitable. This is where we do most of work with clients globally, guiding them to towards the trajectory and increase their profitability in the process. There are certain practices that every company can apply. When you look at management practices for instance: you have scope, objective, aim, you have operations management, you have certain policies you apply… So you have different kind of dimensions on how you do management and how you manage the customer experience.
Some CEOs think that if they divide their effort over the 5 dimension I highlight, thinking that this will lead to a increase of their result. Unfortunately that’s not the case. The weighting is different: for example you can measure everything perfectly, have the perfect operations management, great policies… but if you don’t know what the aim and objective is, and there is no buy-in from the different stakeholders, all these efforts will be for nothing. Some clients think they are vanguards because they see that they do some things perfectly, but they’re not there – they’re only measuring things perfectly, like NPS, CSAT, but they’re not looking at the most important thing: what will predict and drive customer behavior.
It’s like betting all your chips on one number, and because we’re here in Monaco it’s unfortunately not a number between 1 and 36 on the roulette table – because this would give you more chances to win. If you look at NPS and customer satisfaction, they can only explain 2% of purchasing behavior. So betting everything on 2% will not get you there.
So where is the mistake then if they don’t focus on the 98%?
Prof Dr Klaus: There are three things why most customer experience programs do not generate profit:
First of all, the wrong things are measured. It’s like what Peter Drucker said: if you can’t measure it, you can’t manage it. You need to measure what matters for your customers and what can explain their behavior. It might look good on your KPI scores, but has it a real impact on your profitability?
When people call me and say: “Professor, we have a problem”, then I know it’s wrong, because problems need quick fixes. It’s better to call it a challenge, an opportunity. It also asks for a different
mindset. Customer experience is not about the “huffy puffy” stuff or emotions, but making sure that your customer buy more and more often from you versus your competition. And in order to do that you need to find out what matters most to them. And the only way to do it is by looking at their actions, and not what they would do in the future or by measuring their emotional state.
Let’s take three persons who are all exposed to the same service settings: one gives a 10, the other a 5 and the third one just 1. So you come back with an average of around 5 and then what? So the benchmarking is wrong: people look and measure what customers are doing, how they are doing it and when they are doing it. But they forget the most important question: ‘Why?’ – why are customers doing what they do?
I work a lot of time with clients’ data scientists. They’re very good at crunching data, but what companies are lacking are the persons that ask the right questions. Only those questions will get you the insights out of your data.
Is data the new oil then?
Prof Dr Klaus: No, I prefer the term energy, to fuel your processes/ your organization. And the only energy you need is your customer. So it’s imperative to know what matters most to them. And this you can only be achieved by looking at their actions.
But if you ask a customer what they want, through focus groups for instance, they will say that they want it faster, cheaper, more reliable and more convenient. You don’t need market research to find that out. It’s like Henry Ford said: “if you ask people what they want, they will say ‘faster horses’”.
So you need to look at customers’ actions and investigate from there what drives their behavior. Unfortunately most market research companies are not trained to do this, only scientists are. You need to dig deep to know what really drives your customers behavior. For instance if a person talks about convenience, a scientist can define what this means for a company. For instance: being convenient for a certain customer means that this, this and this action, will lead to a certain behavior. If you can’t translate insights into action, no manager will ever encounter the benefits of customer experience management.
This is also the reason why managers are obsessed with quick solutions and ‘silver bullets’ like NPS, because it sounds intuitively correct. The intuitive way to think about it is if I get this score, this will lead to the desired action. However, as decades of research points out, this simply doesn’t work.
Are you also saying that companies need more of an outside in approach then an inside out one?
Prof Dr Klaus: Well it needs to go both ways. First of all -you need to start with the client, your customers. Because with no customers there is no business. So look at what matters to your client.
Do you need to include prospects too? Theoretically yes, but practically no: because no-one can tell you about an experience they haven’t had yet. Only your own customers can judge. It’s difficult to imagine a buying and owning process if you haven’t done it. You need to talk with the people who did it, who went through it.
This is how we do it scientifically: we start with the client’s point of view – clearly pointing out what matters to them and what doesn’t matter to them. If you do this well, you will find that 3 to 5 things are responsible for our purchasing behavior. The other 20 things we’ll find are just hygiene factors: statistically irrelevant, people don’t really miss them if they aren’t there. My measurement of EXQ delivers exactly this data.
The clever CEO will not only look at the 5 drivers at the top, but he will also ask for a budget review of the other 20 points. If they’re not really influencing purchasing behavior, why do we invest more money than needed (if at all) in it? And profitability goes two ways. You need to invest in the drivers of purchasing behavior, but also cut the costs to initiatives and projects that make no difference whatsoever. And if you shift some of that freed budget to the biggest drivers, you will immediately increase your profit.
At the end of the day, the only thing we need to do is change the share of wallet of your customers. You don’t need to convince customers to buy something, you need to convince them to buy more, and more often from you versus the competition.
All this needs to be based on empiric research, science. When you look at more than a 1900 companies, you know what works and what doesn’t. That’s the great thing about science, it’s fact based, it’s evidence. So to go back at the beginning of you conversation: if companies follow these rules and apply the necessary resources and capabilities, they will get there. Some will go there faster, some slower. Theoretically speaking this should be executed perfectly, but are managed by human beings. And we are, by definition, flawed, and not always rational…
So now you’re talking about maturity, some companies get there faster others slower.
Prof Dr Klaus: The beauty of CX is that it’s complex, but on the other hand managers don’t like complexity. So you can give them two options: either you embrace complexity, like the vanguards who outperform you by 600%, or you ignore it and you will stay a preserver (and thus non-profitable). Please recall that 9 out of 10 CX programs are not profitable.
But this decision needs to come from the top-down and then you need to work accordingly. If you don’t practice what you preach, you will go nowhere. There are no quick wins in CX. If NPS scores improve but profitability doesn’t, then you know that the two are not working with each other. And if someone comes to me and says “yeah, but NPS assists us in creating awareness that the customer is important”. To that I reply: ”If you need some tool to makes your employees aware that your customers are important, then you might have bigger problems than just a measurement”.
People also needs to understand, that if I as a customer give you a 9 or a 10 it doesn’t make a difference to my life as a customer. It doesn’t influence any kind of behavior, so will I recommend you when I give a 9 or a 10? Evidence tells us this isn’t the case.
Do you think that there is a huge difference between large organizations and small ones regarding CX? Or are you saying that it’s a framework for all companies?
Prof Dr Klaus: Customer Experience applies everywhere. When I look at the 1900+ companies we’ve investigated, they range from software companies to companies that make nuclear powerplants. And it ranges from B2B, B2C, C2C, governments… The practices are all the same, because you deal with human behavior and this is quite constant.
Sometimes there can be context specific differences, though. We do a lot of research on billionaires/ ultra-high net worth individuals. For example: how they buy their super yachts, how they buy their private jets, art collection? There we find some things that we normally don’t find in the luxury industry, because the people who have everything, look at different things that drive their experiences. But funny enough it’s the same thing that works for all of us, but in a different way. As you can expect, the Maslow hierarchy of needs doesn’t really apply for people who have everything (laughs).
But at the end of the day, the companies that can change easily are the ones that are more agile: they don’t have outside pressure, they’re not publicly traded, don’t need to report quarterly to shareholders… They’re more flexible.
If you look at companies that do it well, they all did it well from the start. If you ask the founders and CEOs of these companies, how these companies came about: the all say they were dissatisfied customers, they were not happy. Look at UBER, for example when the company started, they wanted something better than just a taxi service business travelers experience worldwide until then. And it’s often like that, when dissatisfied customers create companies, they’re normally better from the start because they now exactly what they do not want. Which leads me to the point of expectation mismanagement.
When I hear people talking in the luxury sector about exceeding customer expectations, the delight, the wow… This is simply, based upon our evidence, wrong. The only thing a manager can do is to delight your company into bankruptcy. People make decisions based on “Who gives us less bad experiences”. This is the determinant factor. Furthermore, if you talk about delight – you raise expectation that you might not deliver.
So what you should do is focusing on avoiding bad experiences. And those ones following this credo are outperforming the others. Why? Because it’s very easy to look at bad experiences. When CEOs come to me and say that their customers talk about the bad experiences they are having with their company, I tell them: “That’s marvelous! Because you only tell people that something is wrong if you care and you believe they will fix it.” For instance, if you go to a restaurant and you didn’t like the service or the food wasn’t great, but you believe the staff cared and you would like to come back, you’ll tell them what was wrong. But most of the times, people don’t say anything – they will tweet to the world how bad it was or give a negative review on a restaurant site.
I also need to highlight the difference in impact between positive and negative word of mouth. Positive word of mouth will reach on average three customers. That’s not much, because it’s also difficult to explain a great customer experience -there is so much that’s involved in it – and you only share it with people that are very close to you (verbally). Now think about the negative word of mouth, which reaches an average of 300 people – everyone with an internet connection can see it for the rest of their lifetime, and perhaps beyond. So, successful, as in profitable CX management is about fix what’s broken. And if people tell you what’s broken, it’s so much easier.
So it’s delivering on your brand promises?
Prof Dr Klaus: What’s a brand other than a promise. Back in the 1950’s, 60’s and 70’s, managers could build a brand. But this notion is no longer accurate, these days brands are made by customers talking about their experiences. Take for instance the United Airlines case (red. Dave Carroll story, ‘United broke my guitar’), it just takes one customer to ruin you. So you’re not in control of your brand. People will check and customer experience is something you can’t fake. You might be able to fake corporate social responsibility, greenwashing, sustainability… but customer experience is something that we as customers feel in every interaction.
Look at today: the vast majority of all purchasing decisions are based on two things: the experiences of others or our own experiences. No one looks at marketing or advertising anymore. Why? Because consumers know that brands will say that they are the finest and the greatest. They all say the same thing: ‘We will exceed expectations’… So we will be looking at people just like ourselves, our peers, and that’s where I will get the information.
But companies are clever, they will pay people to say that they are the greatest and the best… the so called ‘Influencers’. But once it was exposed that these people are paid to make publicity, no one will touch these products because they feel manipulated. I see it with my students, they will not buy these products anymore because they feel manipulated, and they will let it know through their network. That’s why short term wins in CX management lead to long term destruction.
So delivering on your brand promises, you will deliver what your customer think what you will deliver. The only one who regulates the brand are the people. So people will say fix this and this and this… So if you fix it as a brand and you tell your customers, they will feel that you delivered. So if you take care of your customers, they will care of you.
So when companies ask me how to become a Vanguard, I say: “Compete for your customers, not against your competitors.”
I have one question left regarding the CX-Community. There are a lot of people who are striving for those accreditations, but what’s the best way forward: giving CX accreditations to consultants OR giving it to companies who are moving in the right CX direction?
Prof Dr Klaus: (Sighs)… Ah Customer Experience, such a beautiful construction, but I’m fearing that it will become the CRM of the 21st century. CRM was once considered the ‘silver bullet’ for everything but then it felt short. And if you ask a CEO today about CRM, he will say “don’t do it”.
I have the fear that because the CX-profession is so unregulated, we’re going to fall in the same trap. You can become a CX-expert just by saying that you’re one. Or you sign up from some association, pay a fee and off you go. There are too many ‘cowboys’ in this. It’s like with everything else, it’s a gold rush: everybody is jumping on this bandwagon.
But I see this problem as a challenge, and that’s why we’ve built our own Customer Experience Institute (red. Phil Klaus CX Institute). We have a certification that is scientific, evidence-based. And it’s not a one size fits all, we always tailor to the client’s specific needs. We have build a training program based on scientific methods and looking at all the components very rigorously. It’s labor intensive, but it will help you to do the right things in the right way. .
This certifications program has a simple foundation, but we make a distinction between all levels of an organization’s hierarchy, reaching from frontline people, over managers, all the way to the CEO. And we also tailor it for specific industries.
You also take into account cultural differences?
Prof Dr Klaus: Yes of course, we first speak to the people/employees to know what their perceptions are, and we also talk to the customers, to know what they expect from CX-professionals.
This helps the company, and in the end also the customers.
Many thanks for your time and this interview professor. We’re looking forward to welcome you in Brussels next year.
Prof Dr Klaus: And so am I. Thank you again for talking with me and giving me an opportunity to engage with your readers.
