Bad News on Search for an NPS “Free Lunch”

Bad News on Search for an NPS “Free Lunch”

INSIGHTS
Bad News on Search for an NPS “Free Lunch”
JOURNAL

Bad News on Search for an
NPS “Free Lunch”

For CX success, credit card teaser rates don’t always belong on the menu.

As customer marketing and CX practitioners, we have long argued that shifting our thinking from immediate profitability to customer lifetime value (CLTV) is not just game-changing for enterprise value, but also challenging for organizations. The credit card industry offers perhaps the best illustration of this challenge. 

Short-term promotional tactics like teaser rates may be counter-productive to fostering the right long-term relationship.

On one hand, the acquisition marketing landscape for credit card issuers is extremely competitive, often fueled by aggressive bonus rewards or highly promotional “teaser rates” (i.e. lower-than-normal, sometimes even at 0% APR, for a short, introductory period). On the other hand, longstanding research has shown that the lifetime value of a credit card customer is highly correlated with their Net Promoter Score (NPS). Said another way, short-term promotional tactics like teaser rates may be counter-productive to fostering the right long-term relationship, if marketers don’t pay attention to managing these relationships at key points in the lifecycle.

To be clear, we are not making the case against aggressive acquisition offers. Teaser rates have been a staple of credit card marketing for over 20 years – the first US consumer protection legislation covering them was published in 1988. Their persistence suggests that they must work in converting desirable consumers to become new cardholders. That said, our collective experiences with credit card issuers in lifecycle marketing and NPS performance both suggest that the outcomes are not as clear cut. A lot depends on the way in which these two groups of customers behave over their lifetimes: Newly acquired customers via these promotions; and existing customers who didn’t. In this post, we’ll discuss the why, what, and how to mitigate.

The setup

A special deal for new customers is not only a practice of the credit card industry, it’s prevalent in telecommunications, mortgages and other industries. Interestingly, we have seen similar NPS results in telecoms, so it’s not unreasonable to assume that any industry experiences similar customer behavior once they promote an aggressive promotion, like a “teaser rate” as a boost to acquiring subscribers. Like any promotional discount in an industry with some price elasticity, this attracts new customers and the subscriber numbers rise. In particular, credit card teaser rates are often a targeted offer aimed at the most desirable prospects (e.g. those with high credit score and/or show high utilization, which further drives up the credit score)

In many ways, this is the first problem, not the solution. A company that doesn’t focus on CLTV often measures growth in terms of subscriber numbers, so, on the surface, they already have a winning strategy. Worse, to maintain subscriber growth, the company will now be pretty much obliged to continue the practice or risk a decline in the rate of new additions. It’s a gateway drug for marketing, as giving away anything at a reduced price tends to be.

 

CLTV success requires several factors

First, the new customers must survive the transition from the promotion period to the post-promotion, or full-priced, service relationship. Like trial customers, customers on a teaser rate promotion are either loss-making, or at the very least sub-performing in terms of profitability. The CLTV calculation is entirely dependent on what happens to the customer at the real, delayed, purchase point: When teaser rates end.

Tracking the NPS performance of the customer through this period is a useful technique to understand the likely long-term value. In the particular client study we conducted, the behavior of the customer went like this:

  • On initial consumption, they are a promoter! Who doesn’t like a good deal?
  • On conversion to “full price” interest rate, NPS drops, in this instance dramatically, among customers who stay. Those who unsubscribe were not even measured. The overall NPS of the brand is therefore inflated as a result of the promotion, as long as we keep buying customer happiness with free things, and unhappy customers leave.

At some point, as you can imagine, this starts to degrade. In the worst case, it’s like an NPS Ponzi scheme. By the way, it’s not a foregone conclusion that leavers are detractors, it may simply be the case they were happy with their free lunch but didn’t fancy the check.

For customers who do stay, the NPS was lower than the “control group” – other customers who never took part in the promotion. In parallel, issuers typically also observe a dramatic drop off in their utilization; in other words, many of their once most desired new customers were never fully onboarded, and their card was relegated to secondary or even tertiary status in the wallet as spend goes dormant. Consequently, their CLTV was lower; they tended to carry lower balances, had a shorter subscription lifespan (they ultimately left sooner than the control group) and, of course, they had lower word of mouth impact (maybe negative).

 

A downward push for NPS?

However, the story isn’t finished. Customers who didn’t take part in the promotion, saw a downtick in NPS when the promotion was launched; their response to being treated “worse than a new customer”. As these customers are the profit pool in this story, it doesn’t take much of a loss to damage the long-term corporate financial performance. American Express famously marketed that “membership has its privileges” – in this instance, membership has its penalties. And this year’s “promotion lottery winners” are next year’s unhappy, established customers.

Finally, it’s important to recognize that promotions, like all marketing discount programs, attract a different segment of customers. While it’s a generally good practice to customize experience design for different segments, it’s not generally the case that customization should just be discounting. Customers who value a different equation (i.e. other card benefits or rewards) likely won’t respond to the discount offer. And specifically in terms of credit cards, they may not carry a balance. So, this isn’t an apples to apples comparison of customer behavior in any case.

 

Do promotions work?

Purely from an acquisition standpoint, absolutely. This tactic appears to be quite successful in bringing the right target prospects to the portfolio, starting them off at high utilization, and brought instant gratification to the customer experience, as discussed above on new customer NPS. Viewed from another angle, however, the results of the analysis also showed a “fake” increase in NPS in the short term, buoyed by continuous influx of new, happy, promotional recruits, followed by a poor set of lifetime economics. As long as enough people join and unhappy recruits leave after promotional periods (but are not surveyed), NPS was sustained. It was just the profitability that suffered.

 

What should marketers do? Four lifecycle marketing tactics

First, don’t take this segment of newly acquired cardholders for granted by treating them just like any other new customer in your onboarding touchpoints. Everything from the welcome email to the card carrier package should not only celebrate the new relationship, but also set the right expectations on the teaser rate promotion. For example, messaging in the first 30 days should be explicit in the issuer’s desire to help the new customer make the most of their promotion, and that includes being radically transparent about important terms such as timeliness of paying minimum balance, exactly which transactions qualify for the teaser rate, and explicit reminders on when the promotional period ends. In other words, demonstrate that you are an earnest, responsible advocate early on this journey, and that you are doing everything you can to set your new customer up for success.

Second, issuers should be extra vigilant in their Early Month on Book (EMOB) strategy. Rather than being satisfied with an initial high balance, largely driven by large purchases or balance transfers likely fueled by the teaser rate, issuers need to work even harder in driving “regular” usage velocity during the first 1-2 statement cycles. For example, issuers should consider deploying additional reminders or incentives for assigning recurring billings to the card. A well-crafted and holistic EMOB communications strategy is critical to increasing the lifetime value of these customers.

Third, reinforce the value of the card around and after the end of the teaser rate promotional period. Help your new customers pivot their focus and perception of “value” from the teaser rate onto all the other card benefits they are entitled to, such as car rental or travel insurance coverage, targeted discount offers, and concierge service.

Lastly, don’t forget about your “control group” of existing customers, many of whom are reminded everyday that new cardholders are showered by teaser rates and other promotions and that they did not get an invite to the party. During periods where teaser rates are widely offered in acquisition channels, consider “surprise and delight” benefits that can enhance your value to existing customers who fall outside of promotional offers. In recent months, we have seen a rise in value-added subscription partnerships pursued by banks, mobile providers, and even some credit cards. These partnerships range from online shipping memberships like Shoprunner, to priority rideshare and food delivery memberships such Lyft Pink and Doordash’s DashPass, as well as streaming providers like Hulu and Netflix. These partnerships also offer an added benefit of creating additional “stickiness” in stemming attrition.

For additional practical, “no-free-lunch” insights on the research and insights we shared above, our teams at OCX Cognition and Pragmatic, respectively, would love to hear from you! Contact us with your questions.

ABOUT VINCENT CHEUNG

Vince is a customer experience transformation strategist with a focus on pragmatic, results-driven solutions for senior management teams at leading brands in retail, energy, financial services, and healthcare. Vince also serves as an advisor to several early-stage start-ups in mobile and SaaS/IaaS.

Vince brings a unique blend of operating and business advisory experiences in customer experience transformation, consumer insights- and analytics-driven strategy, and pragmatic, customer-centric solutions with measurable success.

Vince is a frequent speaker at the Direct Marketing Association annual conference, Ad:Tech, OMMA, Email Insider Summit, and the CRMC. 

ABOUT RICHARD OWEN

As CEO, Richard’s singular professional focus: Delivering financial value through CX. He co-founded OCX Cognition to combine technology and programmatic consulting in pursuit of that goal, and now leads the company’s coordinated efforts to deliver the right solutions for its clients.

Richard’s 30-year career has centered on transforming business operations with technology, and he is one of the best-known CX thought leaders. While CEO at Satmetrix, his team led the development of the Net Promoter Score® methodology with Fred Reichheld, creating the world’s most widely used CX measurement approach. With Laura Brooks, he co-authored Answering the Ultimate Question, the best-selling “how to” guide for NPS practitioners.

Richard transformed the supply chain and built what was then the world’s largest e-commerce business at Dell, and has led two software companies, AvantGo and Satmetrix, to successful exits. With an MBA from MIT Sloan Management School, he has served on several boards and committees at public and private companies and is an active venture investor and international business thinker. Richard has lived on three continents; he and his family now divide their time between Arizona and London.

ABOUT OCX COGNITION

OCX Cognition delivers the future of NPS. We ensure customer experience success by combining technology and data science with programmatic consulting. In our Insights section, we present a comprehensive and evolving collection of resources based on our research and expertise, collected for CX leaders committed to delivering business outcomes.

ABOUT PRAGMATIC COMMUNICATIONS

We are a digital and direct CRM marketing agency committed to solving our clients’ marketing problems. We do that by finding the shortest path from problem to solution. From strategy through execution, we deliver real-world solutions designed to deliver real results. All while acting with a great sense of urgency. Learn more at pragmaticcrm.com

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“You Say You Want a Revolution”… in Your Bank?

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“You Say You Want a Revolution”… in Your Bank?
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“You Say You Want a Revolution”
… in Your Bank?

Learning the NPS lesson in the buzz around Revolut.

The Financial Times was good enough to take a break from wall-to-wall Covid-19 reporting to pen an article on Revolut, the fintech startup from London. The thrust of the article was that Revolut needed to “grow up,” but what caught my eye was the lesson that many industries can learn: Competing on the basis of being the least hated company in your industry has its limits. There’s an NPS lesson in here too.

“You say you want a revolution? Well, you know, we all want to change the world.”

– JOHN LENNON, PAUL MCCARTNEY

For those of you who don’t know Revolut, they are a bank, sorta. While they don’t offer a full range of bank services, and have no branches, for millions of customers they offer all that is needed, as do their next generation competitors that include firms like Monzo and Starling (the random company name generator was obviously running dry by then). An account, debit card, mobile access. That might be all you need, if you are in their target demographic, which skews young as you might expect.

Banking is a heavily regulated industry. The theory, of course, is that such regulations are designed to protect customers, but often they simply stifle new entrants into the market. It’s hard to remember the time when cities regulated taxi-cab licenses to “protect the public” and NYC shifts changed at the customer-convenient time of 4pm in the afternoon. If it was raining. I’m not here to promote anarchy, brother, but we should certainly be clear on the reasons why open competition isn’t a good idea. From the success of these upstarts, it certainly looks like many people wanted something new.

“More than a decade after the financial crisis, most banks count themselves lucky if their customers view them with indifference rather than abject hatred,” claimed the article in the Financial Times. Concentrations of market share don’t usually work out well for customers. Regulation-driven concentrations are usually even worse. (They result in absurdities like the requirement that I have my tray table in the folded and upright position, in case in the “unlikely event of a crash” I experience the “unlikely event of surviving landing.” Is that because I’d feel pretty stupid dying because I’m pinned in by my tray table?)

But while they may fail to protect customers, many regulations succeed at creating significant barriers to entry. The presumption is that the public interest is better served by government rules than by crazy competitors offering new and innovative services. There are, no doubt, risks to the changes brought about by new categories of company – for example, AirBnB imposes social costs on neighborhoods – but we need competition and innovation to even understand these risks.

One of the fundamental principles of CX is that NPS performance is all relative. A score of 80 might be required to win in one industry, whereas a score of zero might make you a market leader in others. As the old gag goes about two hikers stuck in the woods in peril, you don’t have to outrun the bear, just the other guy. Not surprisingly, industries with low average NPS tend to be characterized by high capital or regulatory barriers to entry (think cable TV) low availability of substitutes, and very low levels of competitive differentiation. The retail banking industry in the UK checks all the boxes. Forty years ago, you had your choice of four brands and logo color was probably the biggest difference. You chose your bank based on your parents’ choice – and never changed. The problem with “winning” in a very low NPS industry, is that sooner or later some entrepreneur decides to take a swing at you with a radically superior customer experience. And then, it’s too late.

It remains to be seen if Revolut can win the day in retail banking, but from a customer perspective, the signs are already good. For a generation of customers, a bank isn’t a building on the corner of the high street with guys in suits who treat you like they are doing you a favor, it’s an app on a mobile phone. In parts of the world, most notably in Africa, the telco is to all intents and purposes a bank. You can conduct transactions through PayPal or Venmo, exchange currency through TransferWise. I don’t know the NPS performance of these companies, but startups usually show dramatically higher performance than incumbents (they don’t have the luxury of competing any other way).

The moral of the tale is this: If you are the leader in a low-NPS industry, fixing your sights on incremental change or matching your known, understood competition leaves you exposed. In an era where startups break rules, and governments are willing to let innovation play out before slapping down with regulation (polite applause) companies like Revolut don’t have to win for the customer to win. These industries will never be the same again. Talk about a revolution.

ABOUT RICHARD OWEN

As CEO, Richard’s singular professional focus: Delivering financial value through CX. He co-founded OCX Cognition to combine technology and programmatic consulting in pursuit of that goal, and now leads the company’s coordinated efforts to deliver the right solutions for its clients.

Richard’s 30-year career has centered on transforming business operations with technology, and he is one of the best-known CX thought leaders. While CEO at Satmetrix, his team led the development of the Net Promoter Score® methodology with Fred Reichheld, creating the world’s most widely used CX measurement approach. With Laura Brooks, he co-authored Answering the Ultimate Question, the best-selling “how to” guide for NPS practitioners.

Richard transformed the supply chain and built what was then the world’s largest e-commerce business at Dell, and has led two software companies, AvantGo and Satmetrix, to successful exits. With an MBA from MIT Sloan Management School, he has served on several boards and committees at public and private companies and is an active venture investor and international business thinker. Richard has lived on three continents; he and his family now divide their time between Arizona and London.

ABOUT OCX COGNITION

OCX Cognition delivers the future of NPS. We ensure customer experience success by combining technology and data science with programmatic consulting. In our Insights section, we present a comprehensive and evolving collection of resources based on our research and expertise, collected for CX leaders committed to delivering business outcomes.

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The Three Root Causes of NPS Failure

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The Three Root Causes of NPS Failure
BRIEF

The Three Root Causes
of NPS Failure

What more than 1,000 implementations reveal about most CX program failures.

In The New NPS Manifesto, we explored the ten problems behind the distressing fact most corporate CX initiatives produce nothing but metrics and scorecards. No actions. No meaningful financial results. Our extensive experience over the past fifteen years or so has given us a detailed understanding of the reasons. 

We know that corporate CX failure can be traced to three root causes. And we believe all three can addressed.

Well done is better than well said.

– BENJAMIN FRANKLIN

Source: OCX Cognition, The New NPS Manifesto.

Strategy

First, let’s consider the typical CX strategy. We used to believe that ‘best practice’ was for CX leaders from each business and function to come together and define the corporate customer experience strategy. We have facilitated such workshops. They tend to be intense, and highly satisfying to the participants. Each business and function leader presents what they are doing and this is aggregated in some way to provide an overall picture. In optimal situations, the resulting strategy statement and action plan are presented to the executive committee and approved. Great stuff, right?

Contrary to what we believed in earlier times, we now know strategies developed that way should be put in the trash right away.

The only acceptable way to create an enduring customer experience strategy is to start with the overall corporate strategy. The purpose of a CX strategy is to make the corporate strategy more successful.

Before you say your strategy is fully aligned with corporate strategy, here is a question. When people in your company talk about successful customer experience work, do they mainly talk about resolving complaints and dealing with escalations – in short, putting out fires? Or are the discussions about improving sales win rates, increasing contract renewal rates and providing differential experiences as you enter new markets? If your work is mainly firefighting, you have a major strategic alignment problem. If you think you don’t, we suggest you read your corporate strategy statement again, to find out how often it mentions customer complaints in the context of the overall business strategy.

Data & Analytics

Our ten problem statements point quite clearly to the second root cause of CX failure: traditional CX research data is woefully insufficient. It is not available on a real time basis and it is not integrated with the way the rest of your company manages its business.

Think of a situation where you have travelled to a country where the local population does not speak the same language as you speak at home. Whose problem is that, theirs or yours? The answer is clear: It’s yours!

 You may “speak survey,” but on its own, traditional survey data as the source of all insights and improvements is a foreign language to the rest of your company. That’s your problem, not theirs. CX professionals must speak the same language as the rest of the corporation. From a data perspective this means using the same operational data as everyone else, with the aim of improving the same financial results that are the goal of the rest of the corporation.

We haven’t always had a Rosetta Stone for moving between survey-driven insights, including NPS, and operational data. But recent advances in AI and analytics mean it is now possible to determine which operational data streams are most relevant to customers, and to create a new approach to NPS that honors that relevance. We can integrate the operational and CX data to understand which customers are likely to buy more and which are most likely to leave, creating a fundamentally improved approach: Spectrum NPS.

Linkage to financial data also matters. A crucial gap in current accounting standards is that there is no agreement on how much a customer is worth. Without an agreed methodology for determining the value of a customer and of your entire customer base it is impossible to gain agreement on the ROI of any investment the intent of which is to improve that value. Improving customer retention and upsell rates obviously improves customer lifetime value. How much is that worth? Nobody agrees. We have risen to that challenge and propose a customer lifetime value standard that is the subject of a separate article.

Organizational Model

To explore the third root cause of CX failure, let’s take an instructive example.

After her years as CEO of eBay and a failed attempt to become the governor of California, Meg Whitman took over as CEO of HP. A former Bain employee, Meg was familiar with NPS. HP’s recent years had seen massive top-line growth driven by mergers and acquisitions.

As Meg reviewed the various business and functions, she was surprised to discover that each had its own customer experience metrics and that almost all were metrics that did not exist in other companies. Understanding the metrics was challenging. Communicating them across silos was close to impossible. She wanted to impose brand-level NPS as the main metric and looked for the corporate CX leader to implement this. Surprise! There was no central leader or team. So she put one in place, with representatives from each business and major function. The first task was implementing NPS and training everyone on what it was and how to use it to drive improvements.

A central CX team is critical to corporate strategic alignment. Customers also have improvement suggestions that cross organizational boundaries. Without a central team, they cannot possibly get addressed.

ABOUT OCX COGNITION

OCX Cognition delivers the future of NPS. We ensure customer experience success by combining technology and data science with programmatic consulting. In our Insights section, we present a comprehensive and evolving collection of resources based on our research and expertise, collected for CX leaders committed to delivering business outcomes.

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Digital Rotten Scoundrels vs. NPS

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Digital Rotten Scoundrels vs. NPS

How automation without CX planning creates disaster.

In the catalog of “lessons we will forever learn from the pandemic”, one sage lesson just about everyone can agree on is that companies that are “less digital” should become “more digital” to enjoy future success, better NPS, and market dominance. And great news, operators are standing by to sell you “more digital”!

My point is that digital designs around the customer may still fail, due to scale and stress, but digital designs that are overly skewed to the interests of the business are bad CX policy and will bite the company.

But going digital without careful thought and planning is a CX disaster in the making, just waiting to do lasting damage to NPS and ruin customer relationships forever. Let’s take a look at some worthwhile lessons for customer experience in the subtle and not-so-subtle errors made in digital implementation. As so often, the challenges come from the risky combinations of customer experience intent, and humans.

The vast majority of “digital” customer solutions are actually hybrid solutions, meaning that the customer experiences some combination of technology and people. In the best designs, that’s because some tasks with high levels of ambiguity are well suited to people, and hence allocated to them, whereas other tasks support “friction reduction” and are well suited to software. In other cases, it’s the result of a “Wizard of Oz” strategy, where a digital veneer hides a lack of back office automation. It looks pretty, but people are still shuffling papers behind the scenes.

There is a third case however, which the current crisis has often exposed: Digital strategies that conflict with optimal CX choices. This can happen by design, or by incompetence. Anyone who has read more than one of my postings (thanks, family!) will know I’m a big fan of Hanlon razor, which suggests we should assume incompetence over malice. But now I’m not so sure.

For illustration, I’m going to the well. If Marc Anthony was paraphrased today, he might have said “I come here to bury airlines, not to praise them”. When it comes to CX, you can count on the airlines, the great CX laboratories, to explore all possible options, before arriving at the right one. They haven’t disappointed.

Faced with a herculean challenge and a (largely) sympathetic customer base, the airlines started off well enough. However, policies implemented based on years of questionable customer thinking have started to bubble through, with lessons for any business thinking that digital transformation is the simple path to great results.

Customers, at a scale never before anticipated, need to get refunds. Cue digital disaster.

Our soon-to-become robot overlords wouldn’t understand the problem. It’s a simple friction reduction exercise. The airlines don’t want us calling them, and in fact go to great lengths to warn us not to. So far, their interest, and that of their customers are well aligned; the customer wants a frictionless and technology supported solution to a simple transactional task (refund) and the airline wants people to self-serve online, thereby avoiding both cost and CX heartache. Win-win.

The binary fly in the digital ointment is that airline systems are not designed to automate all high friction tasks. In cases like this, they have either elected not to automate (hard to understand the cost/benefit there), botched the automation (thanks Hanlon) or chosen to make the task more difficult for the customer. It’s not hard to imagine the latter is part of the equation.

Back in the 1990s, AOL trained contact center staff on techniques to avoid customers cancelling the service. The tricks ranged from incentive (here’s a special offer) to confusion (it doesn’t look like you submitted the form) to occasionally subterfuge (drop the call). Think AOL wanted an online, automated path to easily cancelling?

Why do I need to phone my airline to redeposit my frequent flier miles for a cancelled trip, when their policy entitles me to do so at no charge? Is it because I may be considering donating my miles back to them? That’s absurd. Or because they simply failed to automate a solution like that? That raises questions about competence. Or perhaps they are hoping I’ll forget? That suggests skullduggery, and it’s the conclusion customers may well draw.

Don’t get me wrong, circumstances out of the control of business have pressure tested their operations like never before. It’s what inspired us to offer guidance on leading CX in extreme circumstances. And, of course, cracks will appear. My point is that digital designs around the customer may still fail, due to scale and stress, but digital designs that are overly skewed to the interests of the business are bad CX policy and will bite the company.

Can OCX Cognition help you think this through? Reach out.

ABOUT RICHARD OWEN

As CEO, Richard’s singular professional focus: Delivering financial value through CX. He co-founded OCX Cognition to combine technology and programmatic consulting in pursuit of that goal, and now leads the company’s coordinated efforts to deliver the right solutions for its clients.

Richard’s 30-year career has centered on transforming business operations with technology, and he is one of the best-known CX thought leaders. While CEO at Satmetrix, his team led the development of the Net Promoter Score® methodology with Fred Reichheld, creating the world’s most widely used CX measurement approach. With Laura Brooks, he co-authored Answering the Ultimate Question, the best-selling “how to” guide for NPS practitioners.

Richard transformed the supply chain and built what was then the world’s largest e-commerce business at Dell, and has led two software companies, AvantGo and Satmetrix, to successful exits. With an MBA from MIT Sloan Management School, he has served on several boards and committees at public and private companies and is an active venture investor and international business thinker. Richard has lived on three continents; he and his family now divide their time between Arizona and London.

ABOUT OCX COGNITION

OCX Cognition delivers the future of NPS. We ensure customer experience success by combining technology and data science with programmatic consulting. In our Insights section, we present a comprehensive and evolving collection of resources based on our research and expertise, collected for CX leaders committed to delivering business outcomes.

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Time for the CX leader to suggest how.

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Sorting Good CX Advice from
Bad in the Covid-19 Onslaught

Is it too late to use the crisis to inspire positive change?

If you are like me, your inbox is littered with invitations to learn more about how to cope with the extraordinary economic and health circumstances we all face today. Hopefully, some prove valuable. Hopefully, our own contribution, here, you would count amongst them. No doubt some others provide sage advice in the form of “the best solution to your Covid-19 emergency challenge is to spend more on our product” type wisdom. I suspect you will file them away appropriately.

Experience suggests that laggards are most likely to suspend their efforts to create leadership in CX during a period of economic stress.

Our perception (so far) has been that the CX leadership space has been largely debating two issues. First, whether we should continue to send out surveys (maybe, but probably not right now) and, whether our CX program be cut with the inevitable business contraction (statistically speaking, quite likely). Those are worthy topics, but perhaps we can reframe the debate a little.

We made the case in our piece that there are two phases to navigate, one of significant instability, then one that represents a relatively stable, “new normal.” Several people have pointed out we missed the most important phase, that which preceded the crisis.

The argument goes like this: By the time you are navigating a crisis, the outcomes you achieve will be largely dependent on the work that was done prior to the crisis occurring. Your reaction is limited by options of your own creation. As we can expect this not to be the last crisis we face, and it could be argued that the gap in economic shocks (2008 to 2020) has been long by historical standards, we should be spending a lot more time thinking about what we should have done differently before this event, so we can adjust our strategy going forward.

In case this sounds like a bad plot for a time travel movie, where we get to debate the impact of changing events in the past (never good, it seems), let me make it more practical with an illustration. One of the rhetorical tricks they teach pilots is to consider “the three least useful things in aviation.” These are, in no particular order: fuel in the tanker back at the airport, altitude above you and runways behind you. You don’t have to be a pilot to get the gist.

What has proven the equivalent in corporate CX right now? A formidable CX program you never invested in, a leadership NPS you never achieved, a digitally integrated experience that never got implemented, an evolving strategy for NPS measurement that goes far beyond surveys. Oh, and that diet you never stuck to. That last one was meant for me.

Companies that enter a crisis with an NPS advantage over their competition, in the profitable/high growth segments of their market, are likely to be at a considerable advantage over those who lag. Given the likelihood of a future crisis, the rational response to that is to commit the business to building that future leadership position, not back away from it. We explore strategies for that in our piece.

Similarly, companies that invested heavily in digital, customer friendly technologies find themselves best placed to sustain their NPS performance through the most volatile period of a crisis. I would add that not all digital transformation efforts have borne, and will bear fruit, but that’s a topic for a different day. And I would add (can’t resist) that digital transformation only serves two masters: better customer experience or reduced costs, otherwise it’s just “concreting the cowpaths” as Mike Hammer famously observed.

Finally, those who had the best foundation in terms of employee alignment, customer-centric “DNA” and engagement will capitalize on that asset.

Think of all these assets as shock absorbers for your business. A stress to the economic system sees an amplification of the gap between those companies in the best shape entering, and those who are most fragile. CFOs might (and will) think of this in terms of balance sheets, but the customer and employee balance sheet is likely to prove equally decisive in separating financial performance of leaders and laggards.

Here’s the gut punch. Experience suggests that laggards are most likely to suspend their efforts to create leadership in CX during a period of economic stress. Leaders tend to double down. That shouldn’t surprise us: The most forward-thinking companies don’t suddenly revert to driving backwards, and management teams that lack a good strategy for growth going into a crisis rarely develop one as a consequence. But corporations that are most bullied financially by this current shock absolutely should take this opportunity to examine the root cause of their disadvantage and commit to a path that both aids recovery and sets them up for the next challenge.

If there is a silver lining, the stress of such a shock tends to reduce barriers to change within an industry and within the company itself. Leadership is emboldened. Hopefully, the laggards of the past will not let a crisis go to waste.

ABOUT RICHARD OWEN

As CEO, Richard’s singular professional focus: Delivering financial value through CX. He co-founded OCX Cognition to combine technology and programmatic consulting in pursuit of that goal, and now leads the company’s coordinated efforts to deliver the right solutions for its clients.

Richard’s 30-year career has centered on transforming business operations with technology, and he is one of the best-known CX thought leaders. While CEO at Satmetrix, his team led the development of the Net Promoter Score® methodology with Fred Reichheld, creating the world’s most widely used CX measurement approach. With Laura Brooks, he co-authored Answering the Ultimate Question, the best-selling “how to” guide for NPS practitioners.

Richard transformed the supply chain and built what was then the world’s largest e-commerce business at Dell, and has led two software companies, AvantGo and Satmetrix, to successful exits. With an MBA from MIT Sloan Management School, he has served on several boards and committees at public and private companies and is an active venture investor and international business thinker. Richard has lived on three continents; he and his family now divide their time between Arizona and London.

ABOUT OCX COGNITION

OCX Cognition delivers the future of NPS. We ensure customer experience success by combining technology and data science with programmatic consulting. In our Insights section, we present a comprehensive and evolving collection of resources based on our research and expertise, collected for CX leaders committed to delivering business outcomes.

Bad News on Search for an NPS “Free Lunch”

Covid-19 Means Your Company Has to Cut Costs

INSIGHTS
Covid-19 Means Your Company Has to Cut Costs
JOURNAL

Covid-19 Means Your
Company Has to Cut Costs?

Time for the CX leader to suggest how.

Covid-19 is likely to dominate news headlines over the coming months and perhaps longer. The effect on businesses will be quite mixed. Companies that manufacture basic necessities are likely to increase their business, and particularly any home delivery service they may offer. In the world of B2B, companies that provide services to office-based workers are likely to suffer. Non-essential transportation, retail, food, and hospitality businesses will do badly. More broadly, business leaders will become quite paranoid and will want to prepare for the worst. This means cost reduction.

This sort of work may sound uncomfortable to many CX leaders. Please allow us to make you more uncomfortable.

There are only 3.5 ways to cut costs

And let’s face it, there are only 3.5 basic ways to cut costs: the first three are obvious: fewer buildings, fewer people, and paying suppliers less. The 0.5 is one-time accounting changes. As an example of the 0.5, health insurers in Switzerland have massive financial reserves. They can decide to drastically reduce the reserves and may change nothing else.

 

Fairness in cost cutting… fair to your customers?

Where cost reductions are inevitable, a CEO may take the easy way out, “In the interests of fairness, I am asking every department to cut their costs by 12%.” The people on the receiving end of the message won’t like it but at least the message seems fair. Right? Wrong, from a different perspective! It is completely the wrong approach from the point of view of your customers. This is where the customer experience leader has to provide guidance. At its simplest, the guidance is easy. There are things that customers care about and things they don’t care about. The CX leader needs to provide evidence-based suggestions as to which are which and strongly suggest that cost reductions should be limited to things customers don’t care about.

 

Evidence-based

Let’s talk about the evidence. You need to be strategic in where you make cuts. If you have been running a corporate CX program for some time, you may well have all the evidence you need, though probably not structured the way you need it to be. Basic corporate CX work tends to be about detecting an extinguishing fire, thereby improving loyalty. More advanced work tends to be about improving financial results by implementing improvements that even your Promoters and Passives are suggesting. CX-centric work on a cost reduction strategy is the opposite of both of these approaches. The foundation is the identification of things that never cause fires and that customers don’t want to see improved. If you don’t have such a framework in place, we suggest it should be your highest priority to get the baseline data now.

 

Overall intent

The overall statement of the intent of a CX-centric cost strategy is simple. Establishing the framework is a bit more sophisticated but it is far from the most complex aspect of the work. Many of the major costs that customers never see are deeply ingrained in your corporate culture. To pick one example, customers do not care at all about the location of your headquarters. You may be renting a location that costs far more than your competitors’ HQs while moving just a short distance may save you a lot of money without excessive inconvenience for employees.

It would be excessively simplistic to say that everything with which customers come into contact should be untouchable. Our suggestion is that things that customers rarely or never mention as improvement suggestions in their written answers to the open NPS questions are legitimate cost reduction targets. And that is the case even if something is a major customer touch point. To pick a possibly controversial example, if customers rarely or never mention your contact center in their overall brand-level feedback, then you should look at outsourcing the contact center while maintaining the current quality level. Target 20% cost savings.

 

If you are not worried, you should be

This sort of work may sound uncomfortable to many CX leaders. Please allow us to make you more uncomfortable. A large proportion of CX teams report to marketing. The core mission of the CMO is to generate demand and support sales. Customer experience work does not do either directly. So, if the CMO has to cut costs by 12% and does not want to reduce demand generation or sales support, where are they likely to look?

Let us try to make you even more uncomfortable: If your customer experience program is not explicitly and demonstrably 100% aligned with your overall corporate strategy, it is more likely to be cut. And in a totally rationally cost-cutting program, you and your team will be first on the chopping block if you have not been able to show a clear financial linkage between your CX work and growth or improved financial results. It’s that simple and this is at the heart of our New NPS Manifesto.

 

Where to start?

If you have a comprehensive customer journey map, that may be a good place to start. Go through all of the touchpoints and all of your survey data. Prioritize them based on the frequency of improvement suggestions. Low or no mentions equals high cost-reduction priority. You may also like to choose some item that seems to be a disaster and in need of a totally new approach, principally if it seems that a new approach needs to be much simpler than what your company currently does.

That’s our current Covid-19 update. If you are a CX leader in a company that will face cost reductions, please start now. If you would like to discuss it with me, please reach out here.

ABOUT OCX COGNITION

OCX Cognition delivers the future of NPS. We ensure customer experience success by combining technology and data science with programmatic consulting. In our Insights section, we present a comprehensive and evolving collection of resources based on our research and expertise, collected for CX leaders committed to delivering business outcomes.