Linking CX metrics to customer spending
The Unchanged Goal
As the age of customer experience management arrives at a period of full bloom, it is impossible to overlook the difficult path that CX practitioners have traveled over the past 20 years, championing a customer-centric view of markets and evangelizing it within the walls of their organizations.
Though there have long been customer advocates inside of every company – no one disagrees that a firm cannot survive without customers – there is a significant difference between customer advocacy and customer centricity, though oftentimes these ideas are confused.
When professional teams consider “customer experience”, their minds conjure metrics placed against performance. These CX metrics – such as customer satisfaction, the Net Promoter Score (NPS) and customer effort – have come to hold prominent positions on balanced scorecards in every senior suite of established firms.
But even such growing ubiquity, the two true goals of an organization have remained unchanged and CEOs prevail, undistracted, from their simple mission: to grow their firms and to increase their profits.
Yet in an era where sustainable competitive advantages and structural barriers are difficult to defend and even more difficult to erect, a concern over which metrics are used to demarcate the firm’s true-north compass is marching toward a crescendo. This story is not new.
Progress Reveals Untapped Potential
“Customer Experience” of today is the latest evolution on a philosophy that – like all good strategies – reinvents itself when the greenfield turns brown. Before CX was CX, it was customer loyalty (and still is for some firms ); before that we focused on customer delight, and before that we focused on customer satisfaction, and before that we focused on service quality…
And through each chapter of this evolution, the analytics and metrics changed with the strategy. One of the most crucial developments of the late 1990s and early 2000s was the creation of a perspective around customer pain and customer delight. Deriving originally from Kano’s management theories, practitioners of the customer arts began understanding differentiating activities and their unique pay-offs.
Rather than seeing drivers of customer satisfaction and loyalty as a single set of linear activities, they morphed into two sets of activities: “defensive activities” (to alleviate pain) and “offense activities” (to develop emotional, creative aspects to an experience). This simultaneously introduced the notion that there were boundaries and limits on customer-related activities, that there were diminishing returns on every set of activities… including making customers happy.
This new view of customer metrics was a significant step forward because it not only deepened the analytical potential of customer metrics, but it also rang truer to the customer world we all knew.
Despite these alignments, there remained a disabling challenge: even these metrics didn’t produce the growth arithmetic which firms seek. Traditional metrics have done a yeoman’s job in delivering modern CX to the mental forefront of every C-suite executive, but older metrics have failed to match the financial requirements of the business.
A Disruptive Innovation
For many students and practitioners of the space, this new view of pain and delight felt much closer to reality than previous iterations of the practice. The lack of financial predictability, however, remained a thorny yet unavoidable reality.
In a search for an underlying linkage, multiple research teams sought to make this connection. One such team – comprised of academicians and practitioners – conducted a multi-year, 12-industry study which yielded a new type of questions studies and data. It was this new perspective on measurement which unlocked a highly disruptive discovery of a mathematical formula called the Wallet Allocation Rule:
This new tool was disruptive in that for the first time, formulaically, there was an explanation of customer metrics which truly matched the real world in which customers were making decisions: in relative context with one competitive alternative.
While seemingly obvious, the deficiency which precluded an enlightened sightline to financial metrics was predetermined by how customer sentiment was being measured until this point. In prior iterations of gauging customer sentiment, companies would simply ask how customers felt about their relationship with the individual company. This, however, reveals a bias within the firm’s thinking: customers weren’t using only one brand, instead, they were using a number of brands to solve their category needs.
This warranted knowing which brands were being used and how they each would be rated. Additionally, to control for inter-rater biases, converting those ratings to rankings mimicked how customers examined brands: with respect to alternatives and a preference ranking among them.
With the application of strong, repeatable analytics to bolster a customer-centric view of the world, the Wallet Allocation Rule has come to be the most reliable and predictive method of estimating customer share of wallet and where that share goes among brands used.
Armed with both repeatable science and a formula which could predict individual- and firm-level share of wallet, ensuring strategy plays – and the metrics to accompany them – have become clear.
New Metrics, New Strategies
With the Wallet Allocation Rule, new capabilities and perspective – directly linking to financial metrics – have become available. Perhaps the single most important aspect of the Wallet Allocation Rule discovery is that the formula itself contains two unique variables.
These two variables – the number of competitors used by a customer and the relative ranking of each of those competitors – creates two new essential KPI for a firm to track. These two KPI, unlike their predecessors, do have direct financial linkage. They also have the unique qualities of being more equivalent to customers’ reality and their viewpoint on the marketplace.
To learn more about these metrics and the strategies to put them to work, register for my webinar.
Webinar: Linking CX Metrics to Share of Wallet