The Value of Customer Experience Management
The Value of Customer Experience Management
The Value of Customer Experience Management
Customer experience management (CEM) has three major benefits: 1) Short term improvement in
retained business and customers; 2) improvements in customer loyalty for longer term gain; and 3) the
creation of competitive differentiation. This Strategic Analysis Report examines CEM and provides
insights to enterprises into how to design, implement, manage and profit from it.
Management Summary
CEM is part of customer relationship management (CRM) and the natural extension of building brand
awareness. Where brand gives the promise, CEM is the physical delivery of that promise and is vital in an
economy where a brand is increasingly built on value delivered rather than product features.
An enterprise's reputation — its brand — is no longer built solely via mass media. It is also built at
customer touch points. Whenever customers come into contact with an enterprise, they experience what it
is like to deal with that organization and form an opinion — good, bad or indifferent. The experience is the
ultimate conveyor of value to the customer and a primary influence on future behavior; thus, it has
potential value for the enterprise. Enterprises cannot avoid providing an experience, so designing and
managing it is an important ingredient of CRM. A poor customer experience is a step on the path to
defection, while a good one encourages loyalty. Customer experience is what ultimately creates the highly
prized relationship and brand.
Customer experience is delivered through touch points (e.g., salespeople, call center agents, advertising,
events, debt collectors, receptions, product brochures and Web sites). It is based on a customer’s
expectation of the value the enterprise will deliver, so managing expectations of the value proposition
through reputation and publicity is an important part of delivering a good customer experience. The
experience is designed based on expectations, translated into touch point processes to ensure
consistency across channels and managed via customer feedback.
Constant feedback is important in managing the experience and should be obtained as soon after the
experience as possible. Feedback, then, serves two purposes. It is used:
• By front-line staff to improve the experience and make changes to processes immediately
• As feedback to the customer strategy to ensure that customer objectives are on track
Feedback is an important part of the real time, adaptive enterprise that is able to react quickly to changes
in the environment.
This Strategic Analysis Report examines CEM and provides insights to enterprises to succeed in this
crucial effort. In doing so, the following Key Issues are presented:
Gartner
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The Value of Customer Experience Management
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CONTENTS
1.0 Introduction................................................................................................................................5
1.1 Customer Satisfaction and Customer Loyalty .........................................................................7
1.2 The Importance of Brand and Competitive Differentiation .....................................................8
1.3 Case Study: Disney .................................................................................................................10
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FIGURES
Figure 1. What Is Customer Experience Management?.........................................................................5
Figure 2. Customer Experience Is a Business Issue .............................................................................6
Figure 3. Stages of Customer Experience ..............................................................................................7
Figure 4. Impact of CEM on Customer Retention and Revenue............................................................8
Figure 5. Brand Differentiation ................................................................................................................9
Figure 6. Customer Experience Can Differentiate................................................................................10
Figure 7. Case Study: Disney Theme Parks .........................................................................................11
Figure 8. Mapping the Moments of Truth..............................................................................................13
Figure 9. Align Organizations and Incentives With the Customer ......................................................14
Figure 10. Design Experiences Around Customer Segments and Channels.....................................15
Figure 11. Capturing and Improving the Experience in Face-to-Face Contacts ................................18
Figure 12. Capturing and Improving the “E” in Web Sites ..................................................................20
Figure 13. Metrics of CEM......................................................................................................................21
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1.0 Introduction
Company
You
Customer value are CRM Building Blocks
proposition here.
Feedback CRM vision
CRM strategy
Customer Customer Organization
experience at experience collaboration
contact
CRM processes
Expectation CRM information
Feedback
CRM technology
CRM metrics
Customers
Source: Gartner Research
Figure 1. What Is Customer Experience Management?
Thus, it is extremely possible for the customer experience at a high-end store (e.g., Neiman Marcus and
Harrods) to be as good as that given to shoppers in "value for money" stores (e.g., Costco and Ikea).
Interestingly, these are often the same shoppers
Ultimately, the management part of CEM comes in two parts:
• The strategic design
• The continuous improvement
Important input to both parts includes customer feedback and an enterprise's response to that feedback.
Feedback can be explicit, as in a survey; or it can be implicit, as when an enterprise follows a customer’s
mouse clicks as the customer travels around a Web site. In designing and managing the customer
experience, it is important to aim to just exceed expectations at the touch points that really matter to a
customer, and just meet their expectations at the rest. This is the art of effective CEM that brings the
benefits.
CEM is not separate from CRM, as some vendors and service providers would like to portray it. Customer
experience is one of the key building blocks of CRM as shown in Figure 1. However, before an enterprise
can manage the experience, it needs to have a customer-centric vision and strategy as well as the right
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collaborative culture for delivery. Enterprises also need the support of customer processes, information,
technology and enterprise metrics to deliver it consistently.
It is important to manage the customer experience because enterprises cannot avoid providing one. In the
fight for the customers’ hearts as well as their minds, it is an ever-growing battlefield. Experience is the
ultimate conveyor of value and is a major influence on future buying behavior. A good customer
experience encourages loyalty, while a poor customer experience can put relationships at risk resulting in
reduced wallet share and defection (see Figure 2).
The Economics of a Poor Customer Experience
Case Study:
Enterprise with 2,000,000 customers
Revenue = $200,000,000/year At risk — 34% 2,992 customers
Average revenue per customer = $100/year issue not resolved $299,200
Complain Defect — 28% 2,464 customers
2% 8,800 $246,400
Poor experience customers
22% 440,000 Resolved — 38%
customers
194,040 customers
Defect — 45%
$19,404,000
In the case study illustrated in Figure 2, a retail store has $200 million in annual sales. Its average
customer spends approximately $100 per year. In research, it found that 78 percent of its customers were
having a positive experience, but 22 percent were not; however, only 2 percent of the people with bad
experiences complained. Of that 2 percent, 38 percent of the issues were resolved and the business was
retained. By contrast, of those that did not complain, 45 percent defected. Worse still, there was a much
less visible loss — 55 percent of the customers reduced their business. Unfortunately, as there was no
complaint from this group, none of the issues could be resolved.
The lost business from the noncomplainers with a poor experience alone accounted for $19.6 million in
lost revenue per year. The immediate remedy for this drain on revenue was to put in place operational
customer feedback and encourage complaints, allowing more of them to be resolved.
Resolving complaints and improving the customer experience via feedback will have an immediate effect
on business by reducing the level of defection and business at risk, as well as providing longer-term gains
in loyalty and competitive differentiation. Enterprises specializing in customer feedback technology (e.g.,
ResponseTek Networks, CustomerSat, Respond and ViewsCast) report that, on average, operational
feedback can help reduce defection by 2 percent to 3 percent per year.
Thus, the three main benefits of managing the customer experience are:
• Short-term improvement in retained business and customers
The graphic in Figure 3 shows the emotional values customers put on their experiences from feelings of
loathing to Zen. It provides a way to quantify emotions from a customer experience perspective, and it
shows the emotional values customers put on their experiences.
Ultimately, customer satisfaction is only the run-of-the-mill entry point. It is the degree to which customers
perceive their rational needs are being met and the relative value to them of what is supplied compared
with purchases from other enterprises. Loyalty is higher up the Zen scale. It is more qualitative and
subjective — it is a feeling of connection to, and a belief in, an enterprise and its proposition, created by a
“feel good” factor from the customer experience during interactions. Thus, a Zen experience can be:
• Drinking a Coke on a hot day — the classically shaped bottle
• Driving a Porsche down a winding road on a beautiful day
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enterprise can offer satisfaction without gaining loyalty, but not loyalty without satisfaction. Ultimately,
loyalty is the crucial measure in creating valuable customer relationships.
Recent studies have shown that enterprises with loyal customers can have profits up to 60 percent higher
than competitors, and they are twice as likely to exceed the forecasts of financial analysts (see Figure 4).
So, the basic tenet of CRM — that customer intimacy is good and valuable — is not wrong. It just needs
to be understood, managed and measured in the right way.
Relationship between customer
retention rate and customer duration:
20
Average 15
Customer 10
Tenure
(years) 5
0
50 60 70 80 90 100
Percentage Customer
Retention Rate
(annual)
Source: The Loyalty Effect
Figure 4. Impact of CEM on Customer Retention and Revenue
The dynamics of loyalty are not the same in all industries. Loyalty is far more likely where involvement
with the product or service is strong (i.e., the purchase is personal or important to an enterprise, and the
transaction is more complex than routine) and less likely when it is not. However, loyalty can be created
for what an enterprise represents and how it delivers, and this is the essence of creating a customer
experience with the brand.
1.2 The Importance of Brand and Competitive Differentiation
Brands are important in creating an image, and building mass-market brand awareness was important in
the supply driven markets of the past. However, in today’s demand-driven individualized markets, brands
are becoming less distinct (see Figure 5). What is the perceived difference between Visa and MasterCard,
or L’Oreal and Clairol? Increasingly, brands need to be distinctive from the competition. They need a
"personality" that can differentiate brand values that can be brought to life at the touch points in a
personalized customer experience.
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(More similar)
Brands are becoming less distinct.
Pairs of leading brands: +100
Similarity
Consumer services scores
*
Visa/MasterCard 45
Retail stores
Staples/Office Depot 40
Consumer goods
L’Oreal/Clairol 37
Catalog clothing
LL Bean/Lands’ End 36
Colas 0
Coke/Pepsi -7
Religious denominations
Protestant/catholic -7
Soap
Dove/Dial -9
Political parties
Democrat/republican -11
-100
(Less similar)
* Similarity scores: the higher the score, the greater
the perceived increase in similarity between brands.
Source: Copernicus Marketing Consulting
Figure 5. Brand Differentiation
Many enterprises have values — often focused internally and, in many cases, just taking up wall space
(e.g., "We will be honest and trustworthy."). Few enterprises:
• Base their values on what customers want
• Involve employees in developing the values
• Link the values to the brand promise
• Encourage staff to align their behavior with the values
• Reward employees for delivering the brand values
Brand values and the customer experience derived from them now need to play a greater role in creating
a common purpose for the enterprise. Brands need to:
• Define the promise to customers and potential customers about the likely customer experience they
will get by dealing with that enterprise, especially in relation to the competition
• Act to unify the enterprise’s operations in delivering a consistent customer experience
Increasingly, enterprises are moving to corporate unifying brands rather than a mass of product brands
(see Figure 6). If differentiated and distinctive customer experiences are to be delivered, this has to be
done by enterprise employees, who have to behave in a knowledgeable and consistent manner, paying
attention to the details.
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Understand
others
Confident
Proactive
Detailed contact
Solidarity
Proposition
Educate Up to date
Technically
Sense advanced
of purpose Inspired
Culture
Optimistic
drive
Figure 6 provides an example of a brand model in development. This company decided that its market
position was to be the definitive source for its product. It set out to establish from customers and potential
customers what values it had to enshrine in everything it did to ensure it built up customer loyalty. At the
proposition level, it set out more-detailed information on how the values were to be delivered to customers
so that this could be broken down by segment. Finally, it decided on the type of culture it would require to
ensure the values were met and the market position was achieved. All this was done in conjunction with
staff.
1.3 Case Study: Disney
Disney exemplifies the importance of enterprise employees to the delivery of a consistent customer
experience. In the Disney film “Who Framed Roger Rabbit?” there is a scene in which the real life
detective played by Bob Hoskins grabs the cartoon rabbit and pulls him up, repeatedly bumping his head
on an overhanging lamp. As the lamp swings back and forth, it casts a realistic shadow that covers the
people in the live frame and the animation in the cartoon and back again. Although Disney believes that
99 percent of the audience would not notice the shadow, it is Disney’s attention to detail that makes the
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animator’s work special — and time-consuming — in the delivery of the Disney experience. This is the
mantra behind the development and management of its theme parks and the “secret sauce” — to mix
metaphors — in its ability to create a world-class customer experience (see Figure 7).
“Bumping the Lamp”
• “Cast,” don’t hire.
• Associates embrace company culture,
traditions and mission.
• Align company mission with behaviors.
• “Guest-ology”: Know and understand
guest needs.
• Engage the mind.
• Exceed expectations.
Customer Cast Business
experience experience practices • Every opportunity to touch a customer
is a moment of truth.
Source: Gartner Research
Figure 7. Case Study: Disney Theme Parks
Disney's value proposition is built on three pillars: customer experience, business practices and
environment. Disney realizes that creating a positive experience for employees enables it to create a
positive experience for its customers. The Disney culture empowers employees and views every
opportunity to touch a customer as a "moment of truth." Thus, attention to detail includes making certain
that employees are comfortable (e.g., refreshment vendors standing on a rubber mat rather than
concrete), so they are pleasant to customers, which will make for a more positive customer experience.
2.0 Designing the Customer Experience
Key Issue: How will organizations create positive customer experiences?
The customer experience is not the same as a service, just as a service is not a tangible product. Service
is an activity that an enterprise provides, and the experience is a combination of stimuli (e.g., visual, tone
of voice, smell, care and attention to detail) that creates "feelings" in the customer. The customer
experience is a step beyond service in the "progression of economic value" and, like the product or the
service, needs designing.
Designing the customer experience means establishing all the customer touch points and determining
which ones matter most to different customer segments and, thus, can be capitalized on. Like the Disney
animation, exceeding expectations can be time consuming and costly, so it has to be done where it will
have the most effect. That is all part of managing the experience.
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The business traveler in this case study experienced every one of the negative moments of truth in one
journey, with little compensation on the positive side. The following is an excerpt from the actual complaint
and claim-for-compensation letter.
"This was a most horrendous experience. Without my persistence in trying to find my luggage, and
managing to find someone who had the sense and ability to help, I do not think I would have been
reunited with it for a few days. At the moment, I will never fly XXX again, unless I am forced to do so. The
whole experience from late planes to unhelpful staff has been very stressful. However, I would be grateful
if Ronald could be officially thanked for his help. He fully deserves it."
The customer went from a view of the airline company as “run of the mill” to loathing in one journey, and
even the helpfulness of one staff member did not compensate for the bad experience.
The heart of the complaint was not so much about the flight being cancelled and delayed and luggage
lost, but more about the poor attitude of staff and the lack of help in quickly putting things right. The staff
were more interested in sticking to their processes and procedures than providing a quality customer
experience.
Given the tough economic conditions and the competitive environment in which enterprises find
themselves, can any business — airlines included — afford such bad publicity, the loss of a valuable
customer and a claim for compensation? This case illustrates how staff plays such a valuable role in
customer experience and shows that a valued customer experience plays a great part in CEM.
2.2 Organizational Collaboration Improves CEM
Strategic Planning Assumption: Organizations without customer-focused management, metrics and
“behaviors” will be unable to deliver a consistently positive customer experience (0.8 probability).
It is difficult to talk about designing and delivering a good customer experience without talking about
organizational and cultural requirements for staff to be able to deliver it. Discussion of the one factor
naturally leads to the other. This is why organizational collaboration sits side by side with customer
experience on the eight building blocks of CRM. An enterprise's culture comes through loud and clear in
the experience, and the experience is determined by the culture. The beliefs, behaviors, attitudes and
values used in meeting customer demands are the differential competitive advantage. Imitating
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competitors via best practices is a waste of time in the game of differentiation. Products can be copied
and prices can be undercut, but culture cannot be replicated easily, which is why culture is so important
when creating a distinctive brand.
The tools for organizational collaboration include:
• Leadership and partnership
• Skills and competencies
• Knowledge and learning
• Organization
Unfortunately, many compensation systems focus exclusively on financial considerations, ignoring staff
and customer satisfaction. Incentives are often based on the “what” that is being delivered — objectives
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with direct financial goals. There is little alignment of enterprise goals with customer value and, therefore,
no alignment of staff incentives with delivering customer value and a good experience.
Incentive schemes that are trying to shift this state of affairs so that enterprise profits, customer value and
employee compensation are all aligned tend to look at the “how” of delivery — performance management.
With performance management, commission bonus, for example, could be based on customer experience
as well as sales. Leading organizations in the field of CEM are also paying great attention to creating a
customer value culture by fostering a community among staff. This community then becomes part of the
incentive of working for the enterprise.
Organizational structures also come into question when designing a better customer experience,
particularly when different segments are likely to need a different experience and resources. It is easy to
visualize the benefits of changing sales resources-to-account ratios, so that the largest customer
accounts have the most support, and greater customer spending is rewarded with greater attentiveness
(i.e., if this is what the customer wants) (see Figure 10). The chart in Figure 10 shows some of the
relationship models that enterprises are using when allocating their resources to improve the customer
experience.
>50% “Farmers”
Account teams
One:One
Few:One
Enterprise
Share
of Wallet
One:Many
eService
<10% Contact center “Hunters”
Low High
Value of Customer to Enterprise
Source: Gartner Research
Figure 10. Design Experiences Around Customer Segments and Channels
However, resource allocation is not so easy. The hidden danger is that customer movements across
segments are more dynamic than product changes in many vertical sectors. Consequently, the real
challenge of segment-based resource allocation is the ability to alter resources dynamically as individual
customers move among segments. Leading organizations are starting to design flexible delivery teams
pulled from “communities of practice” (i.e., similar skill pools) as required and when required.
The case for improving the elements of organizational collaboration is made by the following two case
studies.
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• Knowing how to articulate and drive customer awareness via an intervention program
• Training and providing scripting for agents
• Changing the call center agent metrics to allow more talk time and give credit for migrated customers
interacted with the company. Specifically, the current experience via the call center was of high value. It
was faster and easier to do the function via the call center than the Web. Thus, there was no perceived
value in migrating for the customer.
Consequently, the company's results included:
• The pilot was not expanded.
• The company is looking for higher-value customer tasks that could be candidates for self-service on
the Web.
• The company anticipates that use of these functions would increase use of others as well.
Unfortunately, as this company has learned, an enterprise can do everything right; however, changing
customer behaviors, especially when they are happy with the established experience, is hard to do.
3.0 CEM Applications and Technologies
Key Issue: What are the techniques and technologies that will enable organizations to drive CEM?
The techniques and technologies for continuously improving the customer experience are growing, as the
whole area of CEM becomes more important to enterprises. The growth in ill conceived Web sites that
damaged brand values and the appalling experience many customers, and staff, have had with call
centers have led to an urgent need to monitor and improve the customer experience through feedback
and analysis. This, in turn, has led to a growth in techniques and technologies for the job from three areas
of specialization:
• Call center quality management
• Complaints management
• Market research
In addition, there are the developing methods and technologies for business activity monitoring —
designed to increase the agility and adaptiveness of organizations — and enterprise performance
measurements that take account of more than financial metrics.
3.1 Capturing and Improving the Experience in Face-to-Face Contact
Every contact with a customer is an opportunity to deliver the brand values because experiences bring
value. It is the way the customer is treated that is important; and, more than that, it is the total experience
(i.e., via all five senses) that counts. Experience is a conveyor of future value, and human interaction can
be seven times more effective in delivering value than high-tech channels. However, as people can be
expensive, they need to be employed at key moments of truth and their effectiveness monitored.
Although enterprises collect customer feedback in varying forms, research shows that it is either not used
or it is misused in decision making and deployment. There is a lack of alignment between a desire to
listen to customers and the resulting actions. A once-per-year customer satisfaction survey may not be
very actionable by front-line staff (see Figure 11). In addition, although not given the same consideration,
staff feedback is just as important as customer feedback.
Many techniques are being used to better understand the customer experience, including:
• Regular reporting on customer acquisition and retention, as well as complaints and satisfaction
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50%
50%
30%
10%
0 5%
Collect Alert Uses Deploy Tell
feedback staff insight and customers
improve
Source: Customer Champions in European Companies: 2001
Figure 11. Capturing and Improving the Experience in Face-to-Face Contacts
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Desires: Methods:
Business savvy Front line
• Addresses business requirements Uncover problems; identify opportunities
• Multichannel integration Robotic agents
• Globalization/localization Identify “hygiene” and other issues
Ease of use Click streams and operations data
• Home page Identify areas to exploit and services to deliver
• Navigation Surveys
• Search and browse Collect large samples of feedback; inexpensive
• Accessibility Panels
• Aesthetics Can represent "target" customer
• Rock-solid site Page tags
Tracks real users in a natural setting
Experience Expert analysis
• Presentation of information Uncover “defects” early in the process
• Customer service and support Usability testing
• Build trust and loyalty Can be done at any stage of the process
• Privacy and security Field studies
• Personalization Understand customer's work and unspoken needs
Source: Gartner Research
Figure 12. Capturing and Improving the “E” in Web Sites
By appropriately using a combination of the nine approaches identified in Figure 12, enterprises can
measure the quality of their customer experience, take the emotion out of the evaluation (i.e., in most
cases), make improvements and measure again.
4.0 CEM Metrics and Measurement
Key Issue: How will organizations determine CEM readiness and take steps to get there?
In the past, enterprises have operated using operational cost efficiency metrics and top-level financial
performance metrics. For CRM and CEM, these operational and strategic metrics have to expand to
include customer value metrics. These show the value obtained from customer management both to the
enterprise and, most importantly, to the customer. Including metrics such as key performance indicators
focuses the business on achieving goals that are based on delivering customer value.
Metrics should be linked throughout the business at all levels in cause-and-effect chains via the business
balanced scorecard. This links metrics at the input level to operations, then to strategy and then, finally, to
the enterprise financial goals, plus market position and brand image targets — all of which are important
for CEM. In some situations (e.g., business-to-business), it will also be relevant to have individual service-
level metrics for customer contact (see Figure 13). Figure 13 shows the metrics at each level that are
most important for improving the customer experience.
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Metric:
• Brand image
Vision and goals
• Market position
• Customer acquisition
Customer relationship • Value (i.e., share of wallet and loyalty)
management strategy • Retention
• Strength of relationship
Effectiveness
feedback Business Balanced Scorecard • Brand experience dimensions
• Key attributes of brand image
Operational customer • Key attributes of product or service
experience management • Key service levels
• Satisfaction
Actionable
Customer value proposition delivery metrics • Complaints
feedback
• Individual service levels
Contact with the customer
• Resolution of problems
The most important metrics in CEM are the brand experience dimensions at operational level. These can
be monitored on a daily basis and can be used quickly in decision making to transform the customer
experience into one that is building up the value of the customer at each contact. Brand experience
dimensions should be those elements of the enterprise’s image and service that customers really care
about and which, if delivered well, build up that feel-good factor and loyalty. Each brand experience
dimension should have an owner, so that when it is shown to be falling below customer expectations,
there can be a fast analysis and reversal of the situation. Fixing a brand experience dimension will likely
involve processes in a number of functions, so an owner is needed to drive the necessary change.
CEM metrics require feedback channels to be opened and a feedback loop established — from the
operational part of an enterprise back into its strategy — to keep it alive and able to unify the organization.
At the same time, feedback provides the information to manage the customer experience at a more
individual and personal level. In the future, these feedback loops will be built into the organization’s
metrics systems (i.e., its business balanced scorecard and individual service standards).
4.1 Determining CEM Readiness
Several factors must be evaluated for enterprises to make the most of customer experiences. Enterprises
should consider the following issues and score each one.
Score 1 if you strongly agree with the statement; 2 if you mostly agree; 3 if you agree a bit; and 4 if you
are not there yet.
• Good correlation between brand values and customer experience
• Reward systems are aligned with customer experience
• Organization undertakes regular research into customer requirements
• Organization actively encourages customer feedback
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• CRM processes coordinated across lines of business and channels from the customer viewpoint
• Organization undertakes regular research into customer service requirements
• A formal process for handling all forms of feedback and all feedback are acted on in same way
• Ongoing research into customer expectations
• Ongoing research into the customer satisfaction situation
• Organization regularly implements improvements to its CRM processes on the basis of the findings of
its customer research goals
What the total score means:
• 18 or less: The enterprise is “bumping the lamp.”
• 19 to 25: World-class CEM
• 26 to 32: The enterprise's CEM efforts are salvageable.
• 33 to 40: Either a monopoly or the enterprise is going out of business
5.0 Conclusion
Ultimately, the customer experience is a business issue. A poor customer experience can put
relationships at risk and promote defections.
CEM metrics require that feedback channels be opened and a feedback loop established — from the
operational part of an enterprise back into its strategy — to keep it alive and able to unify the organization.
At the same time, feedback provides the information at the front line to manage the customer experience
at a more individual and personal level. In the future, these feedback loops will be built into the
organization’s metrics systems (i.e., its business balanced scorecard and individual service standards).
Therefore, enterprises should:
• Inspect to ensure that expectations and brand values are met across channels (i.e., face-to-face, Web
and call center) and marketing mediums (e.g., advertising and brochures); make certain that the
enterprise delivers on its promises to customers.
• Ensure that there is a feedback system in place; understand the sources of the feedback, the
frequency and how the information is used.
• Segment the customer base. This should be the basis to determine the level of investment in the
customer experience.
• Events should be mapped to channel delivery to ensure that there is a consistent experience that
makes the brand distinct.
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