!"#$%&'()*+,'(-'./')01.12'&'.$ !('1$-.2)3%415$4)-.)$6')*+,'(-'./')*/%.%&4 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 elsewhere. 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 media. 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 reality. 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 format: © 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 trustworthy. 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 customer. 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. !"#$%&'%()*#+%')%(,+')*#-%#./#-&#$(#0%1,'"%2'344)-5%6#37#%+3&5%&'%8#+'%9%% %:;&$5%3%$##5%3$5%4&77%&'<=% Contact Us: 1. Visit us at www. scantr on .com /su rveyso lut io ns/fu llser vice 2. Call 1-800-722-6876, ext. 7791 3. Email email@example.com © 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 Psychology. 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. 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