Creating Loyalty in the Experience Economy

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Creating Loyalty in the Experience Economy Powered By Docstoc

                             By Margaret Henry, Ph.D.
         Senior Research Analyst, Scantron Corporation

                                          July 1, 2011

Executive Summary

As you lead your organization to adjust to an “Experience Economy,” it is important to
understand providing quality products and services along with stellar customer support is not
enough to gain loyalty, and thereby, the growth and retention of customers.

It has become a priority to improve the experiences of your customers – and Customer
Experience Management requires the knowledge of not only the behavior of your customers,
but also their motivations, expectations, needs, values and perceptions.

Are you aware of the Experience Economy?

If you are not aware of the Experience Economy, the future of your business may be dismal.
Having a great product or service and great customer service has become a minimum
expectation and is no longer enough to guarantee the retention of your customers. Today’s
customers are looking for a great experience and are expecting you to fulfill this need.

It is this need for a great experience that has driven the “Experience Economy”. Since 1999,
when the concept of the “experience economy” was first described in a book published by B.
Joseph Pine II and James H. Gilmore, titled "The Experience Economy", a significant
paradigm shift has been occurring within the business world. For decades, businesses had
been able to provide products and services that satisfied their customers. Yet, businesses were
still enduring very costly defection rates among their customers – even among those who
reported being “very satisfied” with the products and services they were receiving.

It became apparent that many customers held no particular allegiance to the companies with
which they conducted business. If another company offered a better price, more convenient
hours or any other benefit they deemed valuable, they would readily take their business

                                                             Furthermore, as competition among
                                                             businesses grew and the sources for
                                                             similar products and services expanded,
                                                             customers began demanding higher
                                                             levels of customer service. Following
                                                             this lead, most businesses shifted their
                                                             focus to providing the highest level of
                                                             customer service possible. Even this
                                                             endeavor did little to halt the customer
                                                             attrition rates. This issue became an
                                                             enormous concern among all industries
                                                             since the basic key to the success of any
                                                             business is the retention of customers.

© 2011 Scantron Corporation. All rights reserved.   Page 2

It quickly became clear that merely providing quality products and services along with stellar
customer support was not enough to gain the loyalty of customers. At this point, major
conversations surrounding loyalty began to occur:
        •        What is loyalty?
        •        What drives loyalty?
        •        What customer needs and expectations are we not fulfilling?

As these queries advanced to an investigative stage, it became apparent that loyalty was not
only the key to customer retention, but also a powerful attachment that any business could
facilitate among their customer base. Where satisfaction is more of a logical issue – “Did the
product satisfy my need?” - loyalty is more of an emotional issue – “How do I feel about
doing business with this company?” The latter, of course, forms the foundation of a long-
term relationship.

Taking this a step further, it is not the quality of a product or the quality of customer service
that a business provides, but the quality of the interactions with their customer that promotes
the loyalty – THE EXPERIENCE. The experience bridges the gap between customer
satisfaction and customer loyalty. Thus, the move into the “Experience Economy”.

The Experience Economy has opened the door to many opportunities to improve customer
relationships, engagement and retention. This focus on the customer experience has become
known as the current “competitive battlefield of today’s economy” within the business arena.
It is a significant differentiator that can increase customer retention, increase profits and lead
to higher shareholder value.

There are a multitude of factors involved in the Experience Economy and creating the
ultimate experience for your customers.

When it Comes to Customer Experience, Perception is Everything

Insofar as “beauty is in the eye of the beholder”, an experience is in the mind of a customer.
This is not merely an analogy, but a relevant and highly significant proposition for the
ongoing success of businesses in the current experience economy.

Without question, the importance of retaining customers to increase profits and lead to
higher shareholder value is top-of-mind for many organizations. Given the power of
customers through social media, combined with the abundant choices available to them, it
has become a priority for organizations to work to improve the experiences they provide their
customers. This priority has been underscored by the recent development of numerous
Customer Experience Management programs and the increased focus on customer
experience research.

© 2011 Scantron Corporation. All rights reserved.      Page 3

The basic motivation for the shift to the customer experience focus is clearly the desire for
customer retention and growth. Organizations are able to differentiate themselves from their
competition by improving the experience for their customers. If they are not successful,
there is a strong possibility that a customer may defect, spend their money elsewhere and
even share negative messages about the organization to all they are able to reach via social

Additionally, customer experience plays a significant role in the development of loyalty since
the experiences shape the customers’ attitudes and have the propensity to strengthen their
attachment to the organization. Customer loyalty is an outgrowth of the experiences a
customer has with an organization.

Understanding customer experience is multi-dimensional and rather complicated. That
being said, the core of customer experience is relatively simplistic. An experience is, by
definition, a particular instance of personally encountering or undergoing something.
Customers have an experience with your organization at every touch point that meets this
definition. Therefore, a customer experience is based, primarily, on the interaction between
the organization and the customer.

It would appear that managing the customer experience would be obvious and
straightforward, and that any organization can readily develop procedures and processes
leading to the best possible experience. This, by no means, is the case. Unlike Customer
Relationship Management and the ability to predict future behavior based upon data
gathered from past behavior, Customer Experience Management requires the knowledge of
not only the behavior of a customer, but also their motivations, expectations, needs, values
and perceptions. And, these attributes are not necessarily rational or predictable, but rather
emotionally and psychologically driven.

What is most important is not what the
organization thinks about an interaction,
but rather how a customer interprets and
perceives the interaction – how the
customer feels about the interaction.
Perception is the hidden side of a
customer’s experience and is shaped by
their emotional and psychological needs.
For customers, their perception IS their

Although an organization can develop what they deem as the “ultimate experience”, it may
not be perceived by the customer in the same manner. Meeting the emotional and
psychological needs of a customer requires an insightful and ambitious approach to truly
understanding the customer. It is not always readily apparent as to what may make a

© 2011 Scantron Corporation. All rights reserved.   Page 4

customer feel appreciated, what is needed to develop and sustain trust for an organization,
what might lead to feelings of apathy or, worse, feelings of insult.

In no uncertain terms, every communication and every touch point is an opportunity to
provide a positive experience. And, every customer experience should be psychologically and
emotionally fulfilling – from the perception of the customer. While it is a challenging task to
understand the perceptions of customers, the first step is clearly just to ask them – frequently
and consistently. And, although perceptions may vary among customers, there are a number
of emotional needs shared by all that would serve as a solid foundation in the attempt to
obtain this crucial information.

Understanding Customer Needs – Back to Basics

Providing the best experience for customers is at the top of the priority list for most
organizations. In the current “experience economy”, the customer experience is viewed as
one of the most powerful differentiators between businesses. Understanding the dynamics of
this area is no longer a mere interest, but has become a necessity for the continued success
and growth for organizations.

Like most important areas, customer experience is a multi-dimensional and rather
complicated concept. When we talk about the customer experience, we are talking about the
perception a customer has of their interactions with an organization. If these perceptions are
to be positive, then the needs and expectations of the customer must be met.

Again, this is a highly complex issue. Identifying and understanding the needs and
expectations of customers is an intricate task. When faced with such a task, the best
approach to addressing it would be to start with the basics. Since we are dealing with the
needs of human beings (the customers), the springboard should be the field of psychology.

Psychologist Abraham Maslow provided the most popular theory of human needs and
motivation in 1943. He maintained that all humans are motivated by needs on five different
levels. He further asserted that not only were these needs ubiquitous, but that they were in a
hierarchical order whereby the lower level needs must be met before the higher level needs
even become important. This theory is known as and is frequently displayed in a pyramid

© 2011 Scantron Corporation. All rights reserved.   Page 5

Maslow’s Hierarchy of Needs sets the foundation for the customer experience since it clearly
defines the fundamental human needs that can be applied to the business world. Each of the
five levels of human needs can be understood and translated into the needs of a customer:
    1. Physiological needs: These needs are the requirements for survival and are basic needs.
       From the position of the customer, this need can be seen as the product or service they have
       come to your organization to attain.
    2. Safety needs: These needs involve trust, security and well-being. A customer is not likely
       to continue to conduct business with an organization they feel is neither secure nor
    3. Belongingness and love needs: This level of needs addresses the desire of a customer to feel
       that they are not only appreciated by an organization, but actually have a relationship with
       the organization as well.
    4. Esteem needs: These needs involve respect and feeling valued. Customers need to be treated
       in a manner that clearly communicates these attributes.
    5. Self-actualization: This level of needs deals directly with the drive to reach one’s full
       potential, to be successful in life and to help others succeed. As a customer, these needs
       involve being informed, being empowered and making the best purchase decisions.

Since these are fundamental needs that motivate behavior and are shared by all individuals,
they are very important to address when considering how to create the best experience for a

More detailed information regarding the advanced needs required for developing satisfaction
and facilitating loyalty and advocacy among your specific customer base can readily be
obtained through Customer Experience survey research projects.


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                                       2.       Call 1-800-722-6876, ext. 7791
                                       3.       Email

© 2011 Scantron Corporation. All rights reserved.                         Page 6

                                                    About the Author

                                                    Margaret Henry, Ph.D. | Senior Research Analyst and Consultant

                                                    As a psychologist, Dr. Henry brings a unique blend of knowledge,
                                                    insight and understanding to the diverse challenges facing
                                                    businesses and organizations. Her training in research, combined
                                                    with her clinical and business experiences enables her to provide
                                                    comprehensive recommendations based upon in-depth assessment
                                                    and analysis of data findings.

Dr. Henry earned her Ph.D. in Clinical Psychology from the University of Detroit Mercy,
an APA accredited private university. She practiced clinically for over a decade. Her work
included clinical, academic, career and forensic assessments, treatment planning, providing
individual and group therapy to diverse populations, consulting with academic and clinical
organizations, research and supervision. Her clinical interests and research were focused on
Emotional Intelligence, Self-Improvement and Empowerment, Attachment and Positive

Additionally, Dr. Henry spent seven years as a part-time adjunct faculty member teaching
courses in psychology and mentoring both undergraduate and Master-level students. The
courses she taught included Personality, Human Adjustment, Assessment, Industrial and
Organizational Psychology, Life Span Development, Social Psychology, Group Dynamics,
Research, Experimental Design, Statistics and Therapeutic Approach. She has also
conducted didactic training seminars for a variety of organizations. The topics have included
Stress Management, Emotional Intelligence, Leadership Styles, Interpersonal
Communication and Diversity.

While still working as a Clinical Psychologist and instructor, Dr. Henry began consulting for
research firms. She immediately identified how organizations could benefit from insight into
the complexities of human behavior. She has been working as a full-time Senior Research
Analyst and Consultant for over seven years. Her work with organizations has been
multifaceted and has addressed:

    •      Consumer Psychological Profiling                                     •   Customer Satisfaction and Loyalty
    •      Employee Engagement                                                  •   Market Analysis
    •      Employee Assessment and Evaluation                                   •   Product Positioning
    •      Leadership Consulting                                                •   Advertising Consulting
    •      Loyalty                                                              •   Organizational Development
    •      Customer Experience                                                  •   Corporate Culture
    •      Emotionally Intelligent Communication                                •   Strategic Planning

© 2011 Scantron Corporation. All rights reserved.                      Page 7

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