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Table of Contents
Defining and measuring Customer Success
In recent years, technological advancements and environmental shifts have radically altered the marketing industry. The sheer volume of data available in the modern economy has allowed businesses to gain a much deeper understanding of their customers, allowing for far more customization in marketing practices. On the customer side, the net effect of these developments has been a decreased dependence on the seller. With so much change happening in such a short period, it is prudent to have concrete definitions of the basic terms we use every day. This article aims to define some basic industry terms and consider what academics and industry have to say about these concepts in the context of the modern economy and most importantly, as a company, do we align with current industry thought? This article will briefly discuss the importance of customer success and what companies should consider when engaging customers. It will also focus on customer experience, customer expectations, lifetime value, and measuring success.
Let’s begin our journey of definitions with customer success.
Customer Success Management
Recent economic, technological, and environmental shifts have had a significant impact on customer management practices. According to Hilton (2020), buyer reliance on sellers is decreasing, prompting sellers to better align with customers’ value-in-use, which is the satisfaction the customers obtain from the use of products and services. Remaining competitive in this new ecosystem requires companies to develop long-term strategies to cultivate deeper and more meaningful relationships with customers by assisting them in achieving their goals. Customer success management is client management that focuses on delivering the value that the customer expects, builds trusted relationships, and aligns customer and seller goals through mutually beneficial outcomes. Customer success management builds on the foundations laid by previous management practices but pushes these ideas even further in the direction of increasing customers’ value-in-use. Customer success, in contrast to customer experience and customer engagement, is based on leading key performance indicators rather than more traditional lagging indicators. Focusing on leading indicators enables companies to better measure current customer value-in-use and predict future value-in-use. Customer success has become one of the most important functions for companies operating in the modern economy, and companies must innovate and adapt their management practices to keep pace with industry evolution.
For example, to cybersecurity customers, value-in-use is simple: if they do not feel secure, their perception will reflect that they are not receiving value. Consider how current your software is in terms of patches and updates, strengthening malware protection, reviewing your data breach response plan, re-evaluating encryption practices, and refining data collection strategies. These directly correlate to how secure your customers are and, by extension, the value they receive. When combined with a positive delivery experience, cybersecurity can be a simple vehicle for providing immediate value to cybersecurity customers. Hilton et al. (2020) identify three critical components of the customer success research stream. The first of these components is goal management, which refers to strategies that encourage customers to achieve their goals. Second, there is stakeholder management, which is the coordination of goal attainment across stakeholder groups. Finally, learning management entails onboarding customers and assisting them in acquiring the knowledge and skills required to fully utilize the seller’s offering in their goal pursuit. Companies looking to develop an effective customer success strategy should prioritize these components. In addition to understanding and increasing customers’ value-in-use, implementing an effective customer success strategy encompasses identifying poor-fit customers. According to Dauigoy (2021) of Gartner Research, companies must prioritize customers who provide the highest return and consider the value of poor-fit customers if the cost of retaining them exceeds the cost of acquiring good-fit customers.
Customer Experience
We briefly touched on customer experience as one of the foundational management practices of customer success, so let’s proceed by defining customer experience.
Customer experience is the sum of a customer’s interactions with a supplier of goods or services throughout their relationship. Customer experience encompasses all aspects of a company’s offerings, including customer service quality and other aspects of the relationship such as pre-sales activities, procurement, onboarding, engaging when there is an adoption barrier, or delayed responsiveness, or lack of understanding execution barriers.
An adoption barrier can be lack of leadership, limitations with current business processes, misunderstanding of risk/benefit assessment, budgetary and business priorities, regulatory guidelines, lack of skills, resistance to learning new technologies, resistance to change, time, costs, work stress, busy work schedule, lack of resources or any other unwanted blocks that can prevent the customer to extract the value expected from an investment.
Customer management practices do not remain static; they evolve in tandem with economic development, environmental shifts, and innovation. Hilton (2020) details how customer experience was built on the foundation of customer relationship management by utilizing customer databases that track customer interactions across time and touchpoints to evaluate customer responses and improve a company’s customer experience design. Recent innovations in technology and process enhancements have dramatically improved the customer experience but increasingly customers desire an emotional connection as part of the experience. Berry (2002) points out that to fully leverage experience as part of the customer-value proposition, companies must learn to effectively manage the emotional component of experiences. Considering the underlying psychology that shapes customer interactions are an important element in achieving positive outcomes. Chase & Desu (2010) provide insight into some of the key factors that can influence customer emotions toward a positive outcome. Responding to customers with empathy and being aware of previous interactions, expected outcomes, understanding their concerns, linking process flows and transaction history to emotions, and designing for trust are some of the key factors.
Previous interactions positive or negative will impact customers’ commitment levels and expected outcomes. The customer concerns need to be acknowledged to develop trust with the customer. A customer experience that considers trust will elicit feelings of security and this is a critical component to achieving positive outcomes with positive experiences. As pointed out by Convery-Pelletier (2018), it is no longer about delivering a world-class experience. It is about delivering a SECURE, world-class experience. For example, to cybersecurity customers that operate in an industry founded on the concept of TRUST, companies that design a customer experience that considers trust a core component will achieve greater alignment with cybersecurity customers. Building trust and loyalty combined with positive customer experience in the face of an increasingly insecure landscape is vital for success. When utilized in conjunction with customer success strategies, companies have an opportunity to use trust, security, and due diligence as competitive differentiators to generate positive outcomes and increase value-in-use for cybersecurity customers.
In terms of building trust Chase & Desu (et al. 2010) observe that consistent performance goes a long way, and the use of traditional operations management approaches can be an important driver. Although credentials, testimonials, and recommendations are often important trust factors, many customers base their decisions on other cues, such as a person’s behavior, problem-solving skills, ability to communicate clearly, and other surrogates, such as the ability to perform ancillary tasks. Other process variables, such as response time, are frequently used by customers as indicators of overall competency and professionalism.
Chase and Desu (et al., 2010) provide greater insight about the importance of emotions in the customer experience. When most people think of customer service innovation, they envision technological or process improvements that make service delivery faster or more efficient. Companies frequently quantify the outcomes of service interactions in concrete terms, such as on-time flight arrivals or the time it takes to resolve a customer’s call. However, subjective outcomes — emotions and feelings — are more difficult to articulate: Was the flight enjoyable for the passenger? Did the customer who called the technical service center with a problem feel better about the provider after hanging up? How pleased were they with your service? In the same way that a better understanding of system dynamics and process analysis has pushed companies to reengineer their operations to achieve explicit outcomes, findings from behavioral decision-making research, cognitive psychology, such as how the customer think, and social psychology, such as how the customer’s behavior is influenced, can point service providers to ideas for redesigning the psychological or implicit aspects of service encounters.
Emotions shape what we remember, how we rate interactions, and the decisions we make. We all have explicit memories about events that we can access, as well as implicit, or unconscious, emotional memories that characterize our emotions during those events. Chase and Desu (et al., 2010) observe that emotionally charged events (both positive and negative) are frequently remembered. They argued that different stages of the service cycle, as well as different service offerings and products, will elicit different emotions in the majority of complex service settings. In a general hospital, for example, the parents of a healthy new baby will be in a completely different emotional state than the relatives of a patient who has recently been admitted to the intensive care unit. Passengers flying to Hawaii for a vacation are likely to be more excited than business travelers flying from Chicago to Dallas.
Berry (et al., 2002) clarify that functionality will always be central to the customer experience. Delivering a car that starts when you turn it on, pairing a smartphone with the car, or making it simple to stack a pair of network switches are all critical components of the initial must- have experience. However, in today’s world, where customers increasingly value the emotional component of the experience, companies must consider and design for emotions when creating value in the form of experiences. Companies compete best when they combine functional and emotional benefits in their offerings, and competitors find it difficult to sever emotional bonds between companies and customers.
When studying the relationship between company products and the customer experience, Meyer (2007) discovered that successful brands shape customer experiences by incorporating the fundamental value proposition into every feature of the offering. “The Ultimate Driving Machine” is more than a slogan for BMW; it directs the company’s manufacturing and design decisions. Mercedes-Benz introduced a system in the year 2000 that automatically regulates the distance between a Mercedes and the vehicle in front of it. BMW would not consider developing such a feature unless it improved the driving experience rather than degraded it.
Customer Expectations
Creating value for customers in the form of experiences is critical, but to do so effectively, businesses must first understand and respond to customer expectations. According to Meyer et al. (2007), Customer Expectations are a set of outcomes that a customer expects or desires to achieve when engaging with a company. Customer expectations are influenced by a variety of factors, including previous experiences, market conditions, competition, pricing, service, and the customer’s personal situation.
Customer expectations evolve as technological advances or process developments improve, and service speed or efficiency change. While customers initially appreciate improved services, they are quickly adopted into what constitutes the adequate service level. Berry (et al. 2002) states that companies must exceed not only adequate service level expectations but also customer-desired service levels. Due to the magnitude of recent technological developments and process enhancements, modern customers have more expectations than in the past. Today’s customers want faster, more intimate, and more relevant technical support that leads to faster resolutions.
Lifetime Value
Customer expectations and industry management practices invariably evolve, but a company’s drive for improved financial performance remains constant. Customer lifetime value influences a company’s overall financial performance, making it an important metric in this endeavor. Customer lifetime value is defined by Gupta, S., and Zeithaml, V. (2006) as the present value of all future profits obtained from a customer throughout their relationship with a company. Customer acquisition, retention, and cross-selling all contribute to customer lifetime value. It is difficult to understate the value of customer success when talking about lifetime value. Companies that successfully develop and implement customer success strategies that provide value to their customers will not only be better able to cultivate long- term relationships but will also increase customer lifetime value and overall company growth.
Companies use metrics to determine what works and what does not. Measuring the performance of company strategies is critical for determining their success and allocating resources. Efficient resource distribution has always been critical, but in the modern economy, as stated by Gupta and Zeithaml (2006), as marketing expenditures have come under increasing pressure, the need to understand the relationship between customer metrics and profitability has never been more critical. Gupta and Zeithaml (et al. 2006) discuss how marketing decisions based on observed customer metrics, such as customer lifetime value, improve a company’s financial performance. Furthermore, they claim that observed customer metrics, particularly customer lifetime value and customer equity, provide a good foundation for determining a company’s market value.
As a result, companies that understand the relationship between customer metrics and profitability will be in a better position to improve financial performance. Customer retention is a key driver of customer lifetime value and, by extension, profitability. Customer retention is the likelihood of a customer remaining ‘alive,’ or purchasing from a company again. Customer retention not only increases customer lifetime value, but it is also beneficial to company expenditures because the cost of acquiring new customers is higher than the cost of retaining existing customers. According to Gupta and Zeithaml (et al., 2006), there is a significant positive relationship between customer satisfaction and customer retention. Customer satisfaction in the modern economy is increasingly dependent on a company’s ability to generate value-in-use, reinforcing the importance of customer success management in both retention and financial performance. Cross-selling is another important component for increasing customer lifetime value because it is a proven method for maximizing returns from existing customers. The sale of related products or services to existing customers is known as cross-selling.
Measuring Success
Measuring customer success or satisfaction helps businesses identify problems, understand overall satisfaction, understand the reasons behind customer satisfaction, and most importantly gain a better insight into the customer’s intent moving forward. Customer metrics are essential in the industry, but businesses must understand and weigh the individual merits of the metrics they employ. Companies must understand that the fact that a metric is widely used does not automatically justify its value.
Net Promoter Score (NPS) is a widely used industry metric, but current academic thought on its value does not match its prevalence. Net Promoter Score is a market research metric that is based on a single survey question that asks respondents to rate their likelihood of recommending a company, product, or service to a friend or colleague. Fisher and Kordupleski (2019) discussed some of the major issues with NPS as a metric. NPS provides no data on how to improve, NPS focuses solely on retaining customers rather than acquiring new ones, NPS is internal rather than externally focused, and there is no such thing as a passive customer. The concept of a passive customer is introduced by NPS theory, and while some customers may be passive in the sense that they are unwilling to speak favorably or unfavorably about a company, this does not imply that they are passive customers. These customers are not, by definition, loyal. They are open to considering competitors and will readily switch if a better competitive value is presented to them.
As the industry moves away from NPS, alternative metrics that provide more actionable insights must be identified. The Customer Effort Score (CES) is one such metric that meets this criterion. The Customer Effort Score is a metric that is based on the customer’s perception of the amount of time and energy required to interact with a company. According to Bryan and Clark (2013), CES is a more insightful indicator of customer loyalty than NPS. A customer who rates a company as ‘difficult’ is much more likely to defect than a customer who rates the company as ‘satisfied.’ Companies that incorporate customer effort into their strategies will be able to influence the customer’s perception of satisfaction and convenience more effectively. According to Bryan & Clark (et al.,2013), companies should consider customer effort in terms of how much mental energy is required, how much time it takes to wait, consume, and transact, how much physical energy is required to deliver, and how much negative versus positive emotional energy is required to deliver the effort.
Companies must consider the relationship between customer metrics and financial performance to generate maximum value and ensure the efficient distribution of resources. Furthermore, businesses must be selective in identifying only the relevant metrics that have a direct influence on the thing they want to assess. Companies cannot rely solely on traditional metrics; they must constantly ask themselves if there are better alternatives available and, if so, how to use them. Businesses that do so will gain a better understanding of how to improve their strategies.
Conclusion
The digital revolution has fuelled and will continue to fuel industry evolution. Companies that want to compete in the modern economy must evolve their practices and ways of thinking by taking into account industry and academic research. Companies that use research to assess and design their strategies will be better positioned to adapt to current industry conditions as well as predict and plan for future industry trends. Furthermore, businesses that work hard to understand how to best apply modern concepts, tools, and practices can take advantage of changing conditions to differentiate themselves from competitors in an increasingly competitive environment. Few industries operate in such a volatile and constantly changing environment. Companies that can provide a secure anchor by identifying and designing positive experiences with a customer success focus will have a competitive advantage.
References
- Hilton, B., Hajihashemi, B., Henderson, C. M., & Palmatier, R. W. (2020). Customer Success Management: The next evolution in customer management practice? Industrial Marketing Management, 90, 360–369. https://doi.org/10.1016/j.indmarman.2020.08.001
- Berry, L. L., & Carbone, L. P., & Haeckel, S. H. (2002). Managing the Total Customer Experience. MIT Sloan Management Review.
- Meyer, C., & Schwager, A. (2007). Understanding Customer Experience. gethuman.com
- Chase, R.B., Dasu, S. (2010). Designing the Soft Side of Customer Service. MIT Sloan Management Review.
- Berry, L.L., Parasuraman, A., Zeithaml, V.A. (1991). Understanding Customer Expectations of Service. Sloan Management Review.
- Gupta, S., & Zeithaml, V. (2006). Customer Metrics and Their Impact on Financial Performance. Marketing Science.
- Fisher, N., & Kordupleski, R. (2019). Good and Bad Market Research: A Critical Review of Net Promoter Score. Applied Stochastic Models in Business and Industry.
- Bryan, A., & Clark, M. (2013). Customer Effort: Help or Hype?. The Henley Centre for Customer Management.
- Revella,A., (2015). The Buyer persona Manifesto. www.buyerpersona.com
- Dauigoy, M., Director, S., Deborah, A., & Sr, A. (2021). Gartner for Customer Service & Support Leaders Top Predictions for Customer Service Leaders in 2022 and Beyond. Retrieved October 29, 2022, from https://www.gartner.com/en/customer-service-support/trends/top-predictions-css-leaders
- Convery-Pelletier, A., (2018). Cybersecurity & The Customer Experience: The Perfect Combination. https://blog.radware.com/security/2018/05/cybersecurity-customer-experience/
