Chapter 2: Defining Customer Experience
As we have seen, digital transformation makes it possible for companies to reimagine customer experience. Many industries have been disrupted by a new wave of companies that redesigned customer experience through the whole value delivery chain. Think of Uber and Airbnb as perfect examples of consumer companies that completely redesigned customer experience in their industries, and raised the bar for customer expectation across the board. This trend has now shifted to the SaaS industry, where differentiation on features and pricing is no longer enough to be competitive. Customer experience becomes the key priority regardless of the organization’s guiding principles, culture, size, or budget.
So far, we’ve used the term customer experience without defining what we mean by it. In recent years, it has become a common term. But as with other concepts and ideas that seem obvious, we face the danger of misunderstanding if we don’t define precisely what we mean by customer experience.
2.1 What Are Customer Experience, Touchpoints, Interactions, and Engagements?
When most people talk about customer experience, they think about customer service, customer satisfaction, customer success, and customer engagement or interaction. It’s logical and makes perfect sense, but this is a narrow view. Customer experience is all of the above plus more — much more. It’s the totality of all touchpoints, interactions, and engagements with a company or brand.
Think about the last time you bought a product or service, whether it was through Netflix or Pandora’s subscription services, a book on Amazon, or SaaS. You likely remember vividly how the whole experience felt. You came into the buying process with certain expectations. The company either fulfilled this expectation, leading to positive emotions and customer experience, or underperformed, making you feel frustrated or angry.
The quality of the customer experience is evaluated based on the perception of how well the company satisfies expectations. Many companies focus on customer satisfaction and customer service. That’s good, but let’s not forget that if customer expectations are very high, even a great performance can fall short; and in most companies, marketing and sales set those expectations, as these groups are the ones interacting with prospective customers before those buyers experience the product.
With this idea in mind, we define customer experience as follows:
Customer experience (CX) is a customer’s perception about a company, brand, or product, based on all touchpoints, interactions, and engagements.
This definition is aligned with how Forrester explains customer experience1. Harley Manning, VP of Research at Forrester, asserts that customer experience is the perception of a customer that is based on all interactions between a customer and a company. While we agree with this view, we believe that customer experience is also shaped by word of mouth, ad impressions, and exposure to other corporate messages. Even if these do not necessarily lead to interactions, over time, exposure to a consistent message forms an expectation before a customer ever interacts with a company.
Experiences, as with perceptions, exist only in the mind of an individual who has been engaged on an emotional, physical, and mental level. Therefore, customer experience can’t be identical for any two individuals. It’s inherently a balanced relationship between what each customer expects, and what he or she gets.
This is why customer experience should include a whole universe of touchpoints, interactions, and engagement that a customer has with a company, brand, or product. This includes everything from conversations with your customer success team to newsletter e-mails, and even to how diverse and open your organization is as a public entity.
Naturally, the question surfaces: what do you mean by touchpoints, interactions, and engagement? “Touchpoint” is sometimes defined as an interaction, and “customer interaction” is often used interchangeably with “customer engagement.”
Let’s sort this out with an example. While driving on a highway, you notice a large billboard with a clever ad. Regardless of whether you formed any opinion about it or not, the message has registered, either in your conscious or subconscious mind. Is this an interaction? Hardly, since interaction is defined as reciprocal action between two or more parties; but you were exposed to a billboard ad in a passive way. This exposure is what can be best described as a “touchpoint.”
Touchpoint (customer touchpoint) is a single moment when a customer comes in contact with, or is exposed to, a company’s brand, product, employees, or message through any channel or device.
Customer touchpoints can take place online or offline, as we see with the billboard example. In the SaaS industry, the majority of touchpoints happen through digital channels, but even with extreme digitalization, we can’t completely avoid touchpoints in the real world.
Now let’s say you walk into a store, and notice a Nike shoe. That’s a touchpoint. When you pick up a shoe to feel the texture, or try it on, that’s an interaction. In a sense, interaction is a two-way “communication” that happens between a prospective customer and the company or product. (Note that this “communication” can be in the form of the product “transmitting” information, such as the shoe’s texture.)
Customer interaction is a two-way communication between a customer and a company’s brand or product.
The confusion arises when you think about how interaction is different from engagement. Customer engagement is another widely used term that is losing meaning, because businesses attribute a wide range of customer interactions and touchpoints to customer engagement. We believe customer engagement requires a stricter definition.
Let’s define what we mean by exploring the use of engagement in other contexts. Think about the traditional definition of “engagement” — a formal agreement to get married. In this case, engagement is commitment to action. Similarly, “rules of engagement” in the military are the directives that define the circumstances under which action or use of force may be applied. Here, too, “engagement” is a commitment to act, or to characterize the action itself.
Customer engagement is a commitment or agreement of a customer to act.
Other than long-term customer loyalty, the buying event is the ultimate customer engagement.Let’s look at a few examples of touchpoints, interactions, and engagements for a SaaS company.
We recognize that customer interactions and customer engagement are often used in the industry to mean the same thing, and while we provide a strict definition for each term in this book and believe the difference is significant, to accommodate industry acceptance of the terms being interchangeable, we will treat them as such.
So, in this book, we use “customer engagement” and “interaction” interchangeably.
To summarize, in order to evaluate and shape the customer experience, organizations must understand how customer perceptions change across touchpoints and how customers engage with their brand and product.
2.2 Evaluating a Customer Experience Strategy
Your company not only sells products or services, but also delivers customer experience. Every company does, whether as deliberately designed experiences or as a by-product of current processes, strategy, product delivery methods, employee training, and other factors. Even if your company has not defined a customer experience strategy, you are still delivering some kind of experience to customers. A person who is unaware of a law may not escape the liability for violating it; likewise, a company that is not aware of the customer experience it delivers may not escape the consequences.
It is true that companies can’t fully control how customers perceive the experience. However, it would be a mistake to use this as an excuse and not evaluate and design experience for your customers — just like your inability to control the odds in poker doesn’t mean you should forget about strategy altogether. Lack of a strategy reduces your company’s chances of improving customer experiences in any meaningful way. Conversely, actively designing and constantly evaluating the customer experience will significantly improve your odds of delivering great ones. Even non-digital natives and longstanding businesses are “fighting back” by focusing on customer experience. Note Hilton’s approach to the customer experience2 and survey to make sure they’re delivering on it (3).
That said, organizations face certain challenges when designing a customer experience strategy.
First, as stated earlier, even an ideal strategy doesn’t enable your company to be in full control of the customer experience. How customers perceive your company and what they expect can be based on individual biases, among other things.
Second, despite customers bringing their expectations from consumer products into their interactions with SaaS companies, the customer experience in B2B industry is still quite different. More complex products, longer sales cycles, and multiple stakeholders in buying decisions contribute to the complexity of overseeing how customers feel and think about a company. For example, the IT department could heavily influence the decision to buy a customer relationship management (CRM) system, even though the sales organization is the primary user and decision-maker.
Third, while focusing on individual touchpoints and interactions is important, customer experience has to be evaluated from end to end, through the complete customer lifecycle. Otherwise, a company runs the risk of designing individual interactions that feel disjointed, rather than designing and delivering a holistic experience.
The fourth challenge is that most organizations see customer experience through the lens of a specific part of the business, such as a department (e.g., billing, sales, or 1` Acustomer support). If your company doesn’t understand the experience throughout the entire customer lifecycle, and only focuses on touchpoints and interactions driven by specific departments, it will miss important insights.
For example, customers often want to interact less frequently with companies during the buying process. One way to satisfy this would be for organizations to eliminate superfluous steps in the process, but to confidently determine which steps could be removed, you would need to evaluate the entire buying process. That is challenging when the end-to-end process is really a series of patched-together steps handled by different departments.
Even the experience with support is part of the overall equation. Buyers can have a positive interaction with your marketing team and the content they provide; yet seeing the whole journey might help you eliminate some parts of this interaction completely. Just as importantly, a single department or team can only advance the customer experience so far.
Customer experience is not a department in the company. Rather, it’s a set of values and processes that spans the entire organization, and enables companies to keep customers at the center of everything they do. Successful companies think about customer experience as corporate, top-level strategy that impacts every part of the business.
Customer experience strategy is an ongoing process of assessing and managing customer experiences across the customer lifecycle.
Since customer experience revolves around a holistic view of all touchpoints and interactions, companies have to design journeys for multiple stakeholders and decision makers. The first step in customer experience strategy is to understand your target organization and buying personas. Then you need to map customer journeys, critical touchpoints, and interactions along the customer lifecycle for each persona in each target organization.
Among the challenges already highlighted, putting yourself in the shoes of a buying organization is hard. Consumers are different from one another in many ways, but understanding the complexities of the B2B buying process is even more challenging. Simply put, you are dealing with more unknowns when analyzing the experience from the standpoint of a buying organization. It is easier for us to relate to individual consumers than to organizations.
2.3 Why is Customer Experience Critical for SaaS Companies?
The SaaS and enterprise software market has become very competitive. It’s increasingly difficult to compete on features and pricing alone. Consider how the marketing technology (MarTech) market alone grew from roughly 150 companies in 2011 to over 5,000 unique companies just six years later in 20174. That’s 32 times the increase in just six years! If you have a unique technology that can’t be replicated or replaced by competitors, good for you. But most companies find themselves up against rivals offering comparable products at similar prices. Providing a unique customer experience is an opportunity to stand out and build strong relationships with customers.
The first major reason why customer experience is critical in today’s world is the fact that 30 percent of customers are willing to share bad experiences5. Secondly, 19 percent of customers will not trust a company again after just one bad experience6. We believe companies are at risk of going out of business if they can’t differentiate themselves by creating meaningful customer experiences.
As many successful SaaS companies, such as Slack, Dropbox, InVision, and Zoom.us, realized, customer experience provides a tremendous opportunity to differentiate yourself from competitors and increase growth rates.
Customer experience as a competitive advantage
No two companies can provide identical customer experiences. Your unique customer experiences are rooted in your culture, processes, and policies, and are manifested in every interaction that your customers have with your company and product. Customer experience is a competitive differentiator that’s almost impossible to copy. It’s the result of your overall corporate strategy and alignment across functions. In other words, it can’t be created or delivered by any one department alone.
Threats are no longer coming exclusively from the competition. We’re now in an environment where a blog post by an industry influencer can trigger customers to switch in minutes from one SaaS product to another.
Today’s connected customers expect a lot from brands, and are loyal when they consume quality products and experiences. Unfortunately, it’s easy for companies to deliver poor experiences and value. In turn, they are unable to prevent customers from switching to a competitor that appears to provide a better alternative.
Case in point: According to data in the 2015 Econsultancy and IBM report “The Consumer Conversation”7, either the product or the experience could cause a customer to switch to another provider. When asked about their reason for switching companies, 51 percent of respondents left a company due to experience, while 42 percent switched to a new company based on the belief there was a better product available.
A pleasant customer experience can deliver extra value for customers and strengthen your relationship with them. Customer experience is your company’s DNA: a combination of brand, marketing messages, product offering, pricing strategy, processes, policies, and vision.
Customer experience as a growth engine
The long-term economic success of any SaaS company is based on its ability to optimize Customer Acquisition Cost (CAC) and Customer Lifetime Value (CLV). In simple terms, a company needs to make more money from a customer over the lifetime of the relationship than it spent on winning her over. How can subscription-based companies become more profitable at a faster rate by increasing the difference between CLV and CAC?
It starts with the experience of a buyer. A study by Forrester has shown that B2B buyers prefer to self-educate, rather than talk to a sales representative to learn about a product, by a factor of three to one (8).
With more customers preferring a self-service option, companies can improve customer experience and increase profitability by providing options to try a product early in the buying process. Free trials and freemiums are great at showing the value of a product and bringing prospects to their first “a-ha!” moment. When done right, this strategy can not only improve the customer experience, but also shorten the sales cycle and reduce CACs.
Keeping customers longer and preventing churn will significantly increase revenue growth rate. Customer experience is a great predictor of customer churn rate.
Proactively assessing customer experience enables companies to reduce costs that are the result of a poorly designed customer journey. Eliminating touchpoints and interactions that aren’t necessary to evaluate a product or complete the purchase, such as by offering a self-serve way to experience the product up front, is one way to reduce the CAC.
A critical step for SaaS companies is to move prospects from free trials to becoming customers. At this stage, companies can engage them with more personalized experiences based on in-product behavior. Examples include relevant onboarding experiences tailored to the user’s role, and what that person is trying to accomplish with the product. Another example is a follow-up e-mail that encourages prospects to continue with the trial they started, but then abandoned.
Free trials and signups that are personalized for customers directly impact CAC and reduce the odds of inactivity or churn early in the customer lifecycle.
How much is an increase of, for example, 3 percent from trial to customer conversion worth to your organization?
The benefits of personalized customer experiences based on behavioral data do not end when prospects convert. As prospects become customers, organizations need to ensure that the product is delivering value to them on a regular basis, and behavioral data can show early signs of trouble in context as well as with more predictability. Lifetime value can only be sustained if customers continue to derive value from using the product. One way companies can help ensure customers experience value over time is to send an e-mail to a user who has not logged in for over a week, or who is clearly using the product less than in the past.
- Does your team proactively track customer segments with declining usage?
- Do you have built-in mechanisms to re-engage inactive customers in intelligent ways?
When organizations deliver personalized customer experiences, they receive invaluable, continuous feedback on how product features and updates affect customers during specific periods, and can identify longer-term trends. Companies can proactively discover what product or features to build next, and which customer segments will most likely be receptive to them.
This customer-focused experience should carry through the entire customer lifecycle. Increasingly, B2B buyers prefer an easier path not just to learn about and buy a product, but to find an easier way to get customer service. A study by Nuance Enterprise found that 75 percent of survey respondents said self-service is a convenient way to address customer service issues. Moreover, 67 percent said they preferred self-service to speaking with a company representative9. Self-service saves time, enhances the customer experience, improves retention, and builds loyalty.
Focusing on customer desires for self-service options to learn about, evaluate, purchase, and support their software product puts organizations in a position to satisfy customers and increase revenues and the user base. Personalizing the customer acquisition process can help customers realize the value of your product sooner, and stay with your company longer.
But what do we mean by personalized customer experience? In a nutshell, it’s about relevance and context. Are you reaching the right customer and customer segment? Is your message contextual, and sent through the channel that is most convenient for the customer? Does your SaaS product track where a user left off? Is your pricing model and customer acquisition strategy personalized for different types of customers? Answering these questions will help your company deliver a truly individualized customer experience.
2.4 Why is Personalization Intrinsic to Customer Experience?
Personalizing the customer experience is another trend that spills over to SaaS from consumer industries. We see consumer companies tailoring our experiences, and we expect enterprise software companies to follow suit. Amazon records what items we viewed, and makes recommendations based on our buying behaviors. Netflix does the same by suggesting TV shows and movies that match our tastes. We see personalization becoming the essential part of a great customer experience. SaaS companies that adopt personalization as part of their strategy will reap disproportional benefits.
Personalization is a process of tailoring a service or product, message, experience, price, or preferred channel to accommodate a specific customer.
The personalization concept can be applied to a customer acquisition or retention process as well as to customer journeys. Let’s see how it can improve conversion rates and shorten the sales cycle.
Customer experience is personalized when it is contextual. In other words, your organization needs to know enough about an individual buyer:
- Account or organization that is evaluating your product
- Company size
- Company location
- Preferred communications channel
- Activity to date on your website
- Engagement to date with your product
When we talk about behavior, we need to highlight two dimensions:
- Historical data that explains behavioral patterns of a customer
- Real-time behavioral data that can help your company experiment with and optimize interaction as it happens
We will further discuss how to create a personalized customer experience, but for now, it should be clear that effective personalization assumes a lot of knowledge about a prospect.
Today, the majority of conversations about personalization in the SaaS industry revolve around personalizing marketing interactions — website content, e-mails, and marketing ads, among others. Organizations tend to think about personalization in relation to marketing only. It’s just as important that the product, and everything else related to the customer experience, is personalized.
Let’s get back to our example of Netflix and Amazon. We know intuitively as consumers that effective personalization comes from understanding how we interact with the actual product. The compounding effect of behavioral knowledge is what makes Netflix and Amazon so successful. The more companies learn about customers over the lifetime of a relationship, the more successfully they can create meaningful experiences. With actual data from customer interactions with the product, companies can segment customers into meaningful groups to personalize how they experience their product. The goal is to interact with each customer in a way that seems specifically tailored to them, but at scale.
SaaS products are no different from consumer products in this way; customer interactions and behaviors with a product are fundamental to delivering a better customer experience. If customer interactions provide such valuable data, why not let prospects interact with your product early in the buying process, and use this data to nurture them accordingly?
This is exactly what many organizations figured out, and why we see a growing number of SaaS companies providing self-service freemium products and free trials. Opening the door to the proverbial store allows companies to watch how customers explore it, what products attract more traffic, and how to interact with them to find out what they want.
Going forward, delivering such a personalized experience will be crucial for every SaaS company. Such an approach enables companies to build a competitive advantage and optimize how they drive revenue, CAC efficiency, renewals, and intelligent product development decisions. SaaS companies taking a more personalized approach to creating customer experience will lead the pack in the customer experience era.
Personalizing the customer experience becomes as important to SaaS company survival as it is for a consumer company. Let’s look now at how SaaS companies can transform into customer-centric organizations.