How to implement and scale customer experience excellence through data-based empathy

Authors: Aaron Herbst, Philipp Kramberg

The paybacks for firms in delivering excellent customer experiences are overwhelming. Customers are willing to pay up to 16% more, depending on the industry, for an excellent experience (Clarke & Kinghorn, pwc) and on top of that, the perceived experience quality correlates strongly with customer loyalty (Temkin Group) and traditional brand KPIs along the AIDA model (Biedenbach & Marell).

Causality can be assumed, as these effects create a feedback loop: Experience excellence unlocks higher margins and marketing efficiency, thereby ensuring stable free cash flow to invest in further experience differentiation and monetization mechanisms (Gruca & Rego). Hence, many leaders already realized that customer experience is the differentiator needed to future-proof customer relation and business models. (Walker Information)

Yet, established companies struggle trying to adapt their processes, technology and culture to the democratization of customer experience excellence that customers are demanding. The result is often friction between customer touchpoints, bad experiences resulting in negative online word of mouth and the inability to create end to end experience excellence. (Salesforce Research)

Still, when looking at successful transformation cases, common enablers of customer experience excellence can be observed: Emotional customer connection on every level, flexible process excellence and the empathic use of adequate data.

The democratisation of customer experience excellence

In the past years, Google observed a worldwide trend in customers’ decision making. In the past the internet often served as a price comparison engine enabling customers to find the cheapest products. While online searches in this context decreased in relevance, a new factor increased and nowadays dominates: Access to the best solution for individual needs and use cases (Rennie, Protheroe, Charron & Breatnach, Google). For 84% of consumers, customer experience is at least as important as the product itself or its price in order to determine the best solution for their problem. (Salesforce Research)

Google trend comparison in various countries: cheap vs. best

Why? Companies such as Amazon, Netflix, Nike and Spotify have crafted convenient and exciting ways to meet explicit and implicit needs, just as it formerly was only known from luxury providers, e. g. premium hotels. They offer sharp, effective solutions for the mass market, bringing time-poor consumers instant gratification. These digitally infused solutions not only democratize excellent customer experience, but also raise new benchmarks for all industries:

74% of consumers raise their expectations to all industries based on an excellent experience with a single provider (Salesforce Research)
A bad experience leaves its mark and is shared: 87% of consumers share a good experience compared to 95% that share a bad one (Nielsen N.V.)
74% of consumers want providers to understand and anticipate their expectations and needs (Salesforce Research)

This formula of anticipation of needs in combination with flexible, individualized matching of needs can above all be solved with digital capabilities. Consumers often prefer to interact with digital interfaces because they are always available. Providers hope that the shift to digital will enable a closer relationship with the customer. (McKinsey)

Empirically proven models for customer experience excellence show how experiences depend on intertwined and complex mechanisms that impact organizations on every level. KMPG´s “Six Pillar” model is a prominent example: The highlighted mechanisms (“Integrity”, “Resolution”, “Expectation”, “Time and Effort”, “Personalization” and “Empathy”) depend heavily on digitized but flexible processes and actionable data. (KPMG)

Six Pillar model for Customer Experience Excellence

How brands can capitalize on the experience race by offering digitally infused excellent customer experiences

The demand for customer experience excellence does not only offer great opportunities for companies that have been digital from scratch, but also for established companies with complex integrated systems. Leading companies are already using digital enablers to interact empathically with their consumers through analogue and digital channels, creating immersive cyberphysical experiences.

Nike, historically a product- and lifestyle-driven brand, has assembled a digital ecosystem for its users that offers specific “companion-like” content and interaction hubs while encouraging product usage. As a result, Nike owns customer relationship and is relatively independent from retailers and physical shopping. This has recently been proven by their astonishing performance during the global lockdown imposed by COVID-19.

Since 2006, Nike has already been offering various devices for tracking runs. The initial chip in the shoe became the Nike Fuel Band and has nowadays evolved into the only co-branded Apple Watch. The “Nike Running Club” is today´s most used jogging app. Its main competitor Runtastic was acquired by Nike’s competitor Adidas in 2015 for €220 million. Besides Running Club there is the “Nike Training Club” as a workout companion and SNKRS, which offers over 4 million sneaker fans the opportunity to win the right to buy limited edition sneakers by lottery. All these apps offer relevant personalised content, learn about customer needs and are able to recommend relevant products and experiences.

All these apps are connected through the “Nike Pass” as ID for the Nike Plus membership program as well as enabler for physical experiences, such as paying in Nike stores and participating in special events. Nike Plus has more than 100 million members worldwide. On average, a Nike Plus member spends three times as much on Nike products per year as a guest customer. A Nike SNKRS user spends more than twice as much on top. (Heidi O´Neill, President Nike Direct, Adam Sussmann, CDO Nike)

The interactions of customers in those connected touchpoints enable Nike to have an excellent customer understanding and thereby anticipate its customers’ needs better than its competitors and distributors. In 2020, Nike opened a warehouse in Los Angeles filled solely on the basis of predictive analytics which should enable the continuous delivery of products on demand within 1-2 days. (Industry Dive)

With all these building blocks in place Nike was able to report impressive results in its Q3 Earnings Call in 2020, despite the effects of Covid-19 and associated store closures: Q3 2020 revenue only decreased by 1% compared to the previous year - this was made possible by an 82% increase in sales from owned digital channels (App+Web). (Nike)

Nike’s CEO, John Donahoe, said in the earnings call:

"We know that digital is the new normal. [...] In this world where consumers want a seamless digital and physical experience, they want to know who they are, they want consistent premium modern experiences.”

Setting up the backbone of excellent experiences

But how can these seamless digital and physical experiences be established? Can the necessary processes, capabilities, tools and systems be planned when the market environment is changing ever faster?

The mentioned cases and studies as well as empirical evidence found among rapidly growing and scaling companies in India (Agarwal & Weill) give us a hint. The integration of three relevant capabilities is key: 1) the establishment of a true emotional connection at eye level, 2) the empathic use of data and 3) the optimization of technology and processes.

1) Nurturing Emotional Connections

All of the observed companies have dedicated initiatives for exchange with customers, employees and partners. At Tata Motors, every factory employee regularly talks to truck and cab drivers to get direct emotional feedback from "heavy users". On top of that, Tata exchanges over 4 million text messages each month with customers and dealers. This not only strengthens brand perception, but also provides a data basis for optimizing and personalizing the entire customer experience. This connection happens for every single employee: The companies investigated not only exchange messages with employees transparently and across different levels, but also try to enable each employee to contribute to the customer experience. On the one hand, this strengthens the employee experience, which has been proven to correlate with the customer experience. (Yohn) On the other hand, it puts the entire organization under the obligation to adopt a customer-centric attitude. Once again, a look at the luxury hotel industry: At the Ritz Carlton, every "frontline worker" has a $2,000 budget that he or she can spend at will for the well-being of selected guests. (Inghilleri & Solomon)

2) Data-based empathy

In order to enable empathy even at higher management levels without direct customer contact, companies need contextualized data – quantitative as well as qualitative – but also tools to interpret it and translate it into actions in the interest of customers and financial KPIs. Tata Motors integrated customer complaint data and the 4 million monthly SMS mentioned before directly into performance analytics and business intelligence systems. In the 9 months following this initiative, their customer satisfaction level increased from 72% to 90%.The Indian telco provider Airtel enriches classic performance dashboards with data from the market (failures, weather, floods, ...) and from its customers (emails, social media interactions, ...) to encourage managers to make empathic decisions. Even though Airtel has outsourced many of its core processes to partners, the data about customers and product usage remains in clear and sole ownership of Airtel to gain competitive advantages over retailers, partners and competitors.

3) Business process optimization

In order for these forms of integration to be possible, but more importantly scalable, an adequate IT and process infrastructure is required. This is the next common feature of the companies investigated by Agarwal and Weil (2012): The combination of process-related excellence such as Six Sigma with local flexibility and decision-making rights wherever there is direct customer contact. If patterns can be identified in these process-related deviations, there is also the possibility of standardizing and automating these interactions if an adequate database is available.

The core points need to be embedded in an organizational culture that does not only strive for excellent customer support but also customer success as they are not the same. (Wixom & Piccoli)

Customer support means acting in a reactive way, letting the customer trigger a process and then handling that process, for example ticketing systems for bugs.

Customer success is the opposite of that, it means that a company acts proactively and gives customers a reason to stay loyal to that company.

It is imperative for companies nowadays to predict their customers’ needs and act proactively as customers tend to stay inactive until either something bad happens or they get action-inspired by some trigger or activity. Companies that work this way first use customer data to get to know customers’ needs and then activate the customers based on their needs by motivating them to take action for example through incentives or gamification.

Transforming into a digital-driven customer experience innovator

A prime example of a company that did an excellent job in transitioning to a customer experience innovator is Royal Philips. In recent years, it has evolved from a product-centric innovator in many areas (audio/video, lighting, health) to an enabler of improved living through healthcare innovation. With digitally-driven, integrated healthcare solutions, Philips aims to improve the lives of 3 billion people by 2025. This is to be achieved through digital offerings that support individuals, physicians as well as healthcare organizations. Martin Mocker et. al. (2019) examined this transformation in detail in their book "Designed for Digital". (Mocker, Ross & Beath)

To make this possible, in addition to an organizational focus, it was first necessary to clean up, standardize and modernize the IT backbone of Philips. In doing so, the product or tool was no longer the focal point, but was divided into 3 processes: idea-to-market, market-to-order and order-to-cash. Today, these standardized components are available throughout the company as part of the "Philips integrated landscape" and provide Philips with reliable data and transactions across all product segments. Based on this infrastructure, first digital products and services were developed. Early on it became clear that involvement of customers and partners at an early state dramatically reduces costs and risks. This led to Philips institutionalizing prototyping, testing and collaboration of senior management, experts, customers and partners within the Health Suite Lab. Successfully tested prototypes are implemented in the core organization in a setup of two "businesses": Component businesses, which develop reusable components, and solution businesses, which combine and aggregate these components into marketable MVPs. In order to increase the chances of success of upcoming ideas, the ones that are most likely to generate reusable components are implemented first. The components are then made available on a platform in repositories of data, business logic and technology. Furthermore, they are continuously enhanced and improved via a developer portal in the form of open source.

Transformational structure of Philips to enable Customer Experience Excellence

As part of this transformation, Philips is now developing more and more digital products and services, such as diagnostic software in the B2B area or the "midwife app" uGrow in the B2C area. Integrated digitally infused solutions (e.g. precision diagnostics or connected care) account for 37% of Philip´s revenue in 2020, which is growing in the double-digit percentage range, and the stock price is on a 15 year high. (Royal Philips)

Conclusion: Levers to implement and scale customer experience excellence

There are different ways to reach that ambitious but promising goal of delivering customer experience excellence and we studied several ways to get there. Here are the key learnings concluded into seven bullet points:

1. From product-centricity to need-centricity

Customer experience excellence can arise when not a product is sold, but a need is fulfilled and effectively managed end-to-end. For example, the experience champion of the American financial service industry, USAA (NPS 83 vs. 18 industry average), no longer sells insurances but rather life events (e.g. "Starting a Family"). This enables USAA to solve its customers’ challenges holistically, to build more intensive customer relationships, to reduce dependencies on third parties in the experience and to make novel up- and cross-selling potentials accessible. (Mocker, Ross & Hopkins)

2. Attitude and empowerment

Excellent customer experience is more than a shout for coffee cups. Experience champions make it tangible and perceptible for employees, for example through customer-empowering freedom of action and an equally excellent employee experience. Experience can also be mapped in personal and comprehensive KPIs: The Net Promoter Score can be measured as well as compared across all touchpoints and can be supplemented by more qualified metrics such as Customer Effort Score and Customer Satisfaction Score or impact metrics like customer lifetime value uplift, retention improvement and positive word of mouth.

3. Fault tolerance and experimental culture

The journey to customer experience excellence is not linear. Constant change is a given – still business need to zero-in on experience optimization. A culture of fault tolerance, a constant hunger for optimization and a clear attitude towards the customer and his experience dramatically increases the probability of creating excellent customer experiences. Providers of C/DXE understand relevance, develop relevant experiments and scale or automate the successful ones. But they also forgive mistakes, capitalize on experiments by deriving reusable benefits and thus encourage optimization by the individual.

4. Standardized IT components and open source

If components from technology, business logic and data are available for use, experiments can be brought to the customer much faster. Experience champions have a high degree of internal transparency regarding data, insights and solutions and share results internally as components, for example in the form of design systems or APIs. Even legacy systems that cannot be easily replaced can be encapsulated in their complexity in the form of APIs and made available within a uniform platform. This internal transparency can be substituted by enabling supervised collaboration with experts and partners (e.g. labs, hackathons) or even open source licensing of own software.

5. Contextual interaction analytics as foundation of relevance

A contextual understanding of the interaction with customers and customer segments not only enables more empathic decisions to be made, but also makes it possible to derive, implement and automate relevant experience components. The foundation for that lies in data collection and processing in compliance with data protection regulations as well as consistent data governance and integrability.

6. Exclusive data points as competitive advantage

Whether Nike, Airtel or the New York Times (Digiday Media): Exclusive customer, context and usage data enable insights for a differentiating experience and new data-based business models. Especially in the "post cookie world" it will be critical for success to be able to use your own data and touchpoints instead of 3rd party data for the relevant operation of customer touchpoints.

7. Data-based empathy

A combination of Big and "Thick" Data enables the understanding and tracking of the “What”, “How” and “Why” of the consumer. Experience champions combine quantitative data, which is somewhat a hygiene factor for data-based empathy, with qualitative data from customer interactions, expert discussions and contextual data sources. This increases the chances of empathically identifying starting points for optimization in today's existing experiences, cleanly measuring tests for optimization, and scaling only truly sustainable value drivers in consideration of economic efficiency.