Now There’s an IDEA – Customer Experience...
On December 20th, President Trump signed into law the 21st Century Integrated Digital Experience Act, otherwise known as the IDEA Act. The bill, spearheaded by Rep. Ro Khanna, is aimed...
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Why do companies spend so much money on branding?
When you ask executives this question, many say that branding is the best way to attract customers and foster loyalty. But there’s really more to the story. There’s actually a more effective way to attract and retain customers – and it has to do with the experience you deliver.
We at Medallia recently conducted a piece of research with two $1bn+ businesses, to track the impact of customer experience on future spending behaviour. What we found was that customers who had the best experiences can spend 140% more than those with poor experiences – and can remain customers for nearly six times as long.
These experiences don’t just impact those individual customers; those customers also tell their friends and family. As one study found, traditional marketing activities often can’t match the power of these word-of-mouth recommendations. If those results aren’t convincing enough, it’s worth noting that study was released in 2008. Since then, the rise of the internet, social media and mobile technology have led to dramatic increases in the accessibility of information about companies and the experiences they provide.
With this rise poised to continue, the return on investments that improve customer experience will likely continue to increase relative to the return on traditional marketing expenditures.
So why are these technological advances having these effects? One key reason is that they’ve made it easier than ever for consumers to access information about other customers’ experiences – and to share their own. The combination of social media and mobile technology has given everyone a mouthpiece to share this information from anywhere, as soon as the experience happens. Now, 88% of consumers read online reviews to determine the quality of local businesses, according to a recent BrightLocal survey. These reviews are also powerful; the same survey also found that 88% of consumers trust online reviews just as much as personal recommendations.
Mobile technology and social media have also increased the impact that one’s own experience has on future spending, by reducing the search costs and risk of moving to a competitor. A customer who’s had a bad experience will be more likely to let it influence future purchasing behaviour if they know how easy it is to find an alternative.
So how can companies adapt their marketing strategies to fit this new landscape? First, they need to broaden the way they define marketing and branding. Marketing departments can facilitate the communication of positive sentiment about their brand, but dominating communication channels is no longer a realistic goal. In order to build customer loyalty, companies must direct resources away from traditional advertising and focus instead on improving customer experiences and making it easy for customers to share them.
This customer-centric approach is something we worked on with hotel brand Best Western. According to a World Travel Market survey, over one-third of consumers will change hotel bookings after reading social reviews. So instead of using marketing resources to monitor these reviews, Best Western gives managers and frontline staff at individual properties the tools and freedom to respond to pressing reviews on their own. This way, properties learn directly from customers how they can improve and customers see that the brand is genuinely engaged with their comments. Both of these benefits translate to better social reviews – in Best Western’s case, increasing TripAdvisor scores for socially engaged properties by as much as 30%. Since high-scoring properties feature much more prominently in the site’s search function, satisfied guests are improving the brand’s visibility as well as its reputation.
Ride sharing company Uber offers another example of this approach. Despite the attention they receive for stunts like kitten delivery, most of their resources are spent developing and fine-tuning an app that is directly targeted to customers’ needs. Their persistent collection of user feedback after every ride allows them to continuously improve their customer experience. Again, a great experience allows them to leverage satisfied customers to be their marketing machine. During a period of particularly explosive growth, Uber calculated that every seven rides generated a new Uber user because of word-of-mouth recommendations.
The world of marketing is drastically changing, moving from awareness-building through branding and advertising towards the creation of loyalty through great customer experiences. Ultimately, this shift represents the democratisation of marketing, in which the size of your marketing budget doesn’t determine your ability to get in sync with customer needs and turn your customers into your marketers. Companies of all sizes need to understand and continuously improve their customer experience before they start losing ground to competitors whose voices they might once have been able to drown out.