CHAPTER 2

CREATING A COMPELLING CUSTOMER EXPERIENCE

One of the deep secrets of life is that all that is really worth doing is what we do for others.

—LEWIS CARROLL

Transforming the customer experience is at the heart of digital transformation. Digital technologies are changing the game of customer interactions, with new rules and possibilities that were unimaginable only a few years back.

Do you want to finally hear the voice of your customers and escape the narrow lenses of surveys and focus groups? Social media let you. Do you want your clients to continue their engagement with your brand on the move? Mobile computing lets you. Do you want to know where your customers physically are? Geolocalization lets you. Do you want to make better predictions to deliver a truly personalized experience? Customer analytics lets you.

For Digital Masters, these new technologies are not goals to attain or signals to send to investors. Instead, the technologies are tools that can be combined to get closer to customers. Digital mastery goes well beyond websites and mobile apps to truly transform the customer experience and how you steer customers effortlessly through it.

Delivered properly, an engaging customer experience creates value for both customers and firms. It drives retention and stimulates customer loyalty. But delivering a differentiated customer experience in large organizations is a complex task. Why? First, customer expectations have increased substantially; of the 150 executives we interviewed early in our study, 70 percent highlighted the ever-rising tide of customer expectations as a key driver for change.¹ Second, integrating new digital channels into existing operations can be organizationally challenging. Third, these digital interactions force an evolution in culture—new clock speed, new decision-making methods, new rules—that can run counter to the way large traditional companies have managed customer relationships. So, like our Beginners or Conservatives, you can choose to do only a few experiments here and there. Or, like our Fashionistas, you can invest in every new shiny object that’s available. But you would be missing the big prize.

Despite the challenges, huge benefits are available to those companies that create compelling customer experiences.

LEADING THE DIGITAL REBIRTH OF AN OLD ICONIC BRAND

In 2006, when Angela Ahrendts took the helm at Burberry, the company’s top-line growth was significantly behind its peers.² While the overall sector was growing at around 12 to 13 percent a year, Burberry’s growth was only 1 to 2 percent. The company was not keeping pace with the rapid development in the luxury goods market, neither in terms of innovation nor in terms of products and services. Burberry was up against tough competition from much larger French and Italian peers, each of which had multiple brands and many times the company’s own revenue and profit. Something had to be done to reverse this trend.

Burberry’s management team began by asking itself a fundamental question: “What is our vision?” From there, the team members began the development of a five-year strategy-making process looking at Burberry’s unique assets and strategic direction. Ahrendts explained: “What do we have that our peers don’t? First, we’re British. Second, we were born from a coat. Finally, our peers were all targeting ‘ladies who lunch’ and focusing mainly on the baby boomers. There was no way we could meet them head on with their much larger advertising budgets. We decided to go after the millennial customers.”³

This last strategic choice proved critical to Burberry’s digital journey. The company decided to target its marketing spending on millennial consumers—those in their twenties. They chose to focus on emerging economies, where the average high-net-worth customer is typically fifteen years younger than in traditional markets. To engage and communicate effectively with this population, Burberry had to use millennials’ mother tongue: digital. That’s when the digital vision became reality and the digital transformation started for Burberry.

Ahrendts identified that, to be successful, there had to be a pure, global brand vision. Christopher Bailey, the digital-savvy chief creative officer, became the “brand czar,” meaning anything that the customer sees goes through his office. Working together, Ahrendts and Bailey communicated this vision internally. Ahrendts explained: “We said we would no longer do what was best for a person or what was best for a region. We would do what was best for the brand. We talked about the ‘digital tsunami’ coming, and used this to drive home why and where we needed to focus, and how united and pure our global brand expression had to be.”⁴

With the top team aligned around this new vision, Ahrendts and Bailey decided to focus on digital marketing to target their customers. They hired a young, dynamic marketing team whose members mirrored the millennial customer. The company allocated a substantial portion of its annual marketing budget to digital media, shifting away from traditional media.

The company has excelled in digital marketing, launching several successful and innovative initiatives: revamping Burberry.com in eleven languages;⁵ launching a fragrance with innovative Facebook sampling; developing Tweetwalk, live-stream fashion shows, with Twitter; collaborating with Google to create Burberry Kisses, allowing users to capture and send their “kiss” to anyone in the world;⁶ and partnering with Chinese social media platform WeChat in the autumn/winter 2014 runway show to launch a series of mobile content experiences. Empowered by a closely connected, creative thinking culture, the company used digital technologies to share the excitement of key brand moments with its worldwide customers.

At the same time, Burberry’s retail investment was keeping pace—opening twenty to thirty new stores a year. How could the company use digital innovation to engage its customers seamlessly in its physical real estate as well as online? This is where Burberry’s retail-theater concept came into play. Ahrendts explained: “We began to partner with technology companies to make the ‘retail theater’ concept real, enabling us to broadcast our multifaceted content to our stores globally. We used technology to bring our brand to life in our stores: from the music to the rich video content on giant internal and external screens to the iPads carried by all sales associates that gave access to the full global collection regardless of what was available in-store. We invited our customers to watch our runway shows live in stores and enabled them to shop the collection on iPads immediately afterwards for delivery in six to eight weeks. In this way, we have developed our stores to showcase our digital innovations.”⁷

Prior to this wave of digital innovations, Burberry had spent several years implementing a backbone enterprise platform to consolidate its systems and make its global operations transparent. It was critical for the company to have a single view of the customer in order to improve the experience across all channels, media, and platforms. “Had we not put that in place,” Ahrendts said, “we would not have been able to do so much of the front-end digital innovation we have been doing.”⁸ The company also made big investments in customer service not only by training salespeople in stores, but also on its website, where customers can click to call or click to chat with customer service representatives 365 days a year, 24/7, and in fourteen languages.⁹

Burberry’s next challenge was analytics. The company layered on new communication and analytics tools. It promoted a chief customer officer to optimize insights from all physical and digital interactions. It launched a “Customer 360” program—a data-driven shopping experience that invites customers to digitally share their buying histories, shopping tendencies, and fashion preferences—to allow Burberry to profile and personalize the experience. Retail assistants can access customers’ digital profiles through tablets, knowing, for example, what a Brazilian customer last bought on a stopover to Paris and what she said about Burberry on Twitter.¹⁰

According to Ahrendts, “Our vision was that any person, any constituency, needing to interact with Burberry would come to Burberry.com and enjoy exactly the same experience as in-store customers. We wanted them to come into our world—Burberry World—and be able to visit all the different parts of the business as they would do in our HQ.”¹¹

Today, more people see the Burberry brand via digital than they do through any other medium. In luxury, 60 percent of people shop online and pick up in a store. As Ahrendts pointed out, “If the store doesn’t look or feel the same as it does online, are you truly behaving like a great brand?” In 2013–2014 Burberry was named by think tank L2 as the fashion brand with the number one “digital IQ” for the second year running, included in Fast Company’s list of the top ten most innovative retail companies globally for the second consecutive year, and named one of Interbrand’s best global brands for the fifth consecutive year.¹²

WHAT DO DIGITAL MASTERS DO DIFFERENTLY?

Burberry is an outstanding example of a company that blurs the lines between its digital and physical customer experiences. It is not an isolated case. Our research shows that Digital Masters transform their customer experiences through the sum of four related interventions. Together, these interventions fundamentally change the customer value equation. First, Digital Masters spend time understanding customer behavior and designing the customer experience from the outside in. A Digital Master figures out what customers do and why, where, and how they do it. The company then works out where and how the experience can be digitally enhanced across channels.

Second, Digital Masters use digital technologies to increase reach and engagement through smart investments in new digital channels. They provide user-friendly mobile apps, develop rewarding social media experiences, and rebalance their marketing spending to reinforce the engagement.

Third, they put customer data at the heart of the whole customer experience. They become more scientific, using metrics and analytics to inform the change—everything from understanding current usage of their products and services to segmenting the customer base and proactively offering personalized deals and designing predictive marketing campaigns.

Finally, Digital Masters work to seamlessly mesh the physical and digital experiences, not by replacing the old with the new, but by using digital technologies to enhance the customer experience by leveraging valuable existing assets.

DESIGNING THE CUSTOMER EXPERIENCE FROM THE OUTSIDE IN

Designing a good experience is, of course, based on a clear vision of what you are trying to achieve. As Gary Loveman, CEO of global gaming company Caesars Entertainment, pointed out, “The experience has to be what our customers want it to be.”¹³

Digitally engaged customers expect that products, services, and information will be timely and tailored to their specific needs. They want all of these at the precise moment they are looking, and on whatever platform they are using at the time. The more touch points you have, the greater the complexity of the interactions across channels and the greater the need to understand them in detail. So how can you define the kind of engaging experience your customers really want? You need to thoroughly understand both customer behaviors and the organizational requirements to deliver the new customer experience.

Take the time to systematically learn how people interact with your products, services, channels, brand, infrastructure, and employees—deep insights into customer decisions and usage journeys. How do customers behave before, during, and after an interaction with your company? Where are the pain points? How can you alleviate them? What part of the experience can be digitally enhanced? Which customers are more prone to engage digitally, and how?

Joe Gross, head of group market management at insurance group Allianz, pointed out: “We started by identifying touch points that digital impacted, and of course, these touch points spanned the entire spectrum of the value chain—right from the customer-awareness stage to distribution to actual sales, product offers to pricing, et cetera. Once we identified these touch points, we devised assessment criteria against each of them.”¹⁴

Adam Brotman, chief digital officer at Starbucks, adopted a similar approach. “We tend to look at what are the needs of our customers, what’s the strategy of our business, what are all the different digital touch points that are already in place versus ones we need to put in place, and then we’ll roadmap out how we want to prioritize our time and effort against this backdrop.”¹⁵

Behaviors across large customer bases are rarely homogeneous. Data and analytics should inform the segmentation of your customer base, defining targeted experiences according to specific behavior patterns. Burberry, for example, understood early that high-net-worth millennial consumers in emerging markets would require a different, digital-rich, experience than would traditional fashion consumers.

Similarly, Kirsten Lynch, chief marketing officer of Vail Resorts, realized that to improve the customers’ experience, she had to get a more granular understanding of skiers’ behavior: “For years we’ve had a CRM [customer relationship management] system that gives us basic demographic and behavioral data … Skiing is such a passion-based business that we need to go beyond basic data to understand why our guests come to the mountain.”¹⁶ She decided to use personae to segment her customer base.¹⁷ “We have the ‘Alpine A-Listers,’ who are hard-core about skiing and also passionate about the luxury experience,” she said. “Then there are ‘Village Sophisticates,’ who tend to care more about dining, shopping and spas than skiing. The ‘Shred Heads’ care only about making the most of their ski day—it’s not about luxury for them. For each segment, we know how many days they ski a year, where they ski and what they spend their money on. We can personalize what we talk to them about … We are piloting some new technology that pre-populates the agent’s screen with everything we know about our guests.”¹⁸

You also need to focus on delivery from the start. How big is your organizational challenge? What process, people, and technology changes are required to make the new customer experience work? What power needs to be in the hands of customers so they can use whichever technology they prefer to reach your company? For instance, self-service facilities can be used to track a package delivery, configure a complex industrial product online, or know precisely when a pizza will be delivered.

Unfortunately, too few companies do what it takes to succeed. Forrester Research reports that although 86 percent of customer-experience executives believe that customer experience is a top strategic priority, less than half of the companies have a companywide program to address it, and only 30 percent have a dedicated budget to fund the change required.¹⁹

Digital Masters do it right; they invest in designing a compelling customer experience from the outside in. They are also prepared to do what it takes to adapt the organization to deliver on the promise.

CREATING REACH AND CUSTOMER ENGAGEMENT

Digital transformation cannot happen without digital investment. Digital Masters make smart digital investments to creatively enhance customer experiences. The size of the investment is not important, but the impact is. To these companies, new technologies such as social media, mobility, and analytics are only tools to get closer to their customers.

Since opening its first location in Seattle in 1971, Starbucks has grown into one of the world’s most globally recognized brands. Starbucks has built a multi-billion-dollar enterprise on more than just coffee; it has succeeded in creating a unique “Starbucks experience” in its stores and online. But Starbucks has not always been a Digital Master.

Following a rapid expansion, Starbucks faced declining same-store sales in 2008, and its share price had been cut nearly in half over the prior two years. The picture wasn’t much better on the technology front. Unintuitive point-of-sale systems still ran on antiquated technology, and store managers had no access to e-mail. To turn the tide, senior leaders, under the helm of CEO Howard Schultz, took a number of strategic actions, key among them using digital technologies to engage customers in new ways. Adam Brotman, the company’s chief digital officer, explained: “Digital for Starbucks was not just about a website or a point-of-sales system, but about an ability to connect with customers and transform their experience and drive the company.”²⁰ The company decided to lead the way with mobile and social channels.

The first Starbucks foray into mobile was the company’s myStarbucks app, released in 2009, which allowed customers to locate the nearest store, learn more about the company’s coffees, and even build their own drinks. In January 2011, Starbucks took its loyalty program digital with the introduction of its Starbucks Card mobile app. This app allowed Starbucks customers to pay for in-store purchases with their mobile phones. App users could present an on-screen version of their prepaid loyalty card and could top up their funds online, on their smartphones, or in stores. This approach integrated easily with existing point-of-sale technology, which was already set up for reading bar codes. Since its launch, the program has been extremely successful, with 20 percent of all loyalty card transactions conducted via mobile in 2012.²¹

Keeping pace with advances in mobile technology, Starbucks has continued to expand its mobile payment capabilities. In 2012, it announced that customers would be able to make payments at the register via Square—an app-based mobile payment system—following a $25 million investment in the service.²² Starbucks has also enabled integration of its application with Apple’s native Passbook feature, which consolidates ticket, coupon, and loyalty card information on an iPhone or iPod Touch for convenient access.

Mobile payments at Starbucks have been a success for customer convenience, but they are proving to have financial benefits as well. Processing fees for transactions through its mobile app and Square have been substantially reduced. With over three million mobile payment transactions per week in 2012, the mobile-payments introduction has significantly reduced transaction fees.²³ The reduction benefits both coffee drinkers and Starbucks.

Starbucks has also built a leading presence in social media. By 2012, the company’s 54 million Facebook fans, 3.4 million Twitter followers, and 900,000 followers on Instagram earned Starbucks a number one ranking among socially engaged companies.

Digital Masters like Starbucks do not just invest smartly in technology and channels. They maximize these investments by optimizing their marketing media mix. Burberry took the plunge by redirecting a substantial portion of its annual marketing budget to digital media. Procter & Gamble, the consumer products giant, is investing almost a third of its media spending on digital, social, and mobile.²⁴ Not a small decision from one of the world’s biggest advertisers! Not all companies have to be that bold. Research firm Gartner estimated that on average, large US companies spend about 25 percent of their marketing budgets on digital.²⁵ Whatever the amount, a rebalancing is needed if a firm is to get full benefits from the increased channel reach.

The social media presence of Starbucks has earned the company more than just fans. The company also uses social media to fuel customer-driven innovation. Through its My Starbucks Idea site, Starbucks has collected more than 150,000 customer-submitted ideas to improve its products, customer experience, and corporate initiatives.²⁶ Once an idea has been submitted, the site’s customer community can vote the idea up or down, helping Starbucks identify and implement the best ideas. The company closes the loop with its Ideas in Action blog, where employees respond to ideas personally, and it lets customers know when they can expect to see their ideas realized in stores. For example, one community member suggested making it easier for customers to manage multiple orders—especially useful for people going on midday Starbucks runs for their coworkers. In less than a month, Starbucks introduced its Runner Reward program. The program provides runners with a convenient form to manage orders and offers them a fifth drink (their own drink) free of charge.²⁷

Brotman summed it up: “Everything we are doing in digital is about enhancing and strengthening those connections [with our customers] in only the way that digital can and only the way that Starbucks can.”²⁸

PUTTING CUSTOMER DATA AT THE HEART OF THE EXPERIENCE

The digitization of just about everything we do or use these days has created a deluge of information. Executives now have access to precious data that can substantially increase their insights into the customer experience. Data should be the lifeblood for designing compelling customer experiences. By adding science to the art, data helps companies move from guesswork to inspired predictions and continuous hypotheses testing.

Digital Masters rely heavily on data-driven insights. But making your customer experience more scientific requires difficult organizational learning. CEO Gary Loveman of Caesars explained: “When I showed up at Caesars, we were collecting a tremendous amount of transactional data about our customers who were anxious for us to do something useful with it. And we couldn’t figure out how to do that. The organization had a loyalty program that collected a bunch of information so that we could give customers certain things in return for their business, like free meals and hotel rooms and the like. But we couldn’t figure out how first to architect the data in a constructive fashion and then apply analytics against it that would allow us to get a guy named X to make an incremental visit under certain conditions and someone named Y to make a different visit under different circumstances.”²⁹

Today, the picture at Caesars is different. The company collects vast amounts of transactional, demographic, and game-play data through its loyalty program to create a detailed profile for each Caesars guest. Employees then use this information throughout the company to make better customer decisions.

For example, Caesars marketers can create and target special offers with precision. Meanwhile, the hospitality staff can use the same information to personalize nearly every aspect of a guest’s stay, from how he or she is greeted on arrival, to how the room is made up. Should a guest have an unlucky evening at the casino, managers on the floor can even perform a cost-benefit analysis and offer complimentary services to improve the experience.

While it is common across the industry to lavish this kind of personalized attention on big spenders (or whales, in industry parlance), most casino-goers receive a relatively undifferentiated experience. The Caesars data-driven approach, on the other hand, allows the company to scale its personalized touch to a far larger group of customers. Gary Loveman said, “You can’t just fail to service the tens of millions of people that constitute the middle of the market.”³⁰

Mobility and location-based data also play a key role in driving customer intelligence at Caesars. A customer’s mobile experience begins before he or she even walks through the door. Before arriving at one of the forty Caesars properties, guests who have opted into the company’s Texpress service can check in via SMS (short messaging service, or texting). This service enables them to bypass registration lines and pick up their keys at the bell desk. Texpress also combines mobile location data and SMS to deliver timely and relevant special offers. “If you’re at Paris, we could send you two free admissions to the Eiffel Tower ride or if you’re at Caesars Palace after 6 p.m., we could send you an offer for the Bette Midler show,” explained a member of the Caesars marketing team. “We might have some additional show tickets left over, so knowing where the customer is, is a great way to get those tickets pushed.”³¹

The digital world has multiplied the sources and volume of data available to corporations. There is a need to harness the wealth of structured and unstructured data from usage and social media. What’s more, the data can be enriched when it is meshed with location-based data from mobile devices. The key is your ability to integrate this data to make better decisions, increase the quality of the personalized experience, and create true competitive advantage.

US financial institution Capital One is known for its sustained growth in the credit card market. At the heart of its performance is an advanced data analytics capability. Capital One employs both internal and external data to effectively segment the market for credit cards.

The company’s Card Lab gives direct insight into every user’s individual preferences. The lab’s users have the freedom to modify the visual appearance of their card, and to select from a combination of rewards, interest rates, and fees.³² With its acquisition of data aggregator Bundle Corp, Capital One can track usage data from more than twenty million Visa and MasterCard branded cards.³³ In addition, the company has been able to combine banking services with coupons.³⁴ Capital One helps consumers get the best mobile-payment offers based on their geographical location and purchase history. And, of course, all this data mining helps Capital One understand consumers better.

With this mass of data, Capital One gets very granular insights into individual consumer preferences. But the story goes further. With its Digital Innovation Lab, Capital One continually finds innovative ways to use these consumer insights to improve the customer experience.³⁵ The company analyzes up to sixty thousand different product configurations every year and follows through on the most promising.³⁶ The digital contact centers can use the insights to predict requirements better, thus providing better customer support.

Capital One’s strategy has improved its financial performance. Its net profit grew at a compound annual growth rate of 19.3 percent between 2000 and 2010. And Capital One has continued to thrive after the financial crisis of 2009, achieving 10.7 percent growth from 2010 to 2013.³⁷

As the preceding examples show, the culture of Digital Masters is rooted in a common pursuit. Whether drawing on insights from demographic, mobile, or social media data, or good old-fashioned attention to detail, Digital Masters use information and advanced analytics to deliver a superior customer experience.

SEAMLESSLY MESHING PHYSICAL AND DIGITAL EXPERIENCES IN NEW WAYS

Companies with multiple channels to customers—physical, phone, mail, social, mobile, and so on—are experiencing pressure to provide an integrated experience. Delivering these omni-channel experiences requires envisioning and implementing change across both front-end and operational processes. Innovation does not come from opposing the old and the new. But as Burberry has shown, innovation comes from creatively meshing the digital and the physical to reinvent new and compelling customer experiences and to foster continuous innovation.

Similarly, the unique Starbucks experience is rooted in connecting with customers in engaging ways. But Starbucks does not stop with the physical store. It has digitally enriched the customer experience by bridging its local, in-store experience with attractive new online possibilities. Delivered via a free Wi-Fi connection, the Starbucks Digital Network offers in-store customers premium digital content, such as the New York Times or The Economist, to enjoy alongside their coffee. The network also offers access to local content, from free local restaurant reviews from Zagat to check-in via Foursquare.³⁸

Combining physical and digital to enhance customer experiences is not limited to just commercial enterprises. Public services are getting on the act. The Cleveland Museum of Art is using technology to enhance the experience and the engagement of visitors. “EVERY museum is searching for this holy grail, this blending of technology and art,” said David Franklin, the director of the museum.³⁹

Forty-foot-wide touch screens display greeting-card-sized images of all three thousand objects on display in the museum. Visitors touch an image; the screen enlarges it, arranges itself near similarly themed objects, and offers information like the location of the actual piece. By touching an icon on the image, visitors can transfer it from the wall to an iPad (their own, or rented from the museum for $5 a day), creating a personal list of favorites. From this list, visitors can design a personalized tour, which they can share with others.

“There is only so much information you can put on a wall, and no one walks around with catalogs anymore,” Franklin said. The app can produce a photo of the artwork’s original setting—seeing a tapestry in a room filled with tapestries, rather than in a white-walled gallery, is more interesting. Another feature lets you take the elements of a large tapestry and rearrange them in either comic-book or movie-trailer format. The experience becomes fun, educational, and engaging. This reinvention has lured new technology-savvy visitors, but has also made seasoned museum-goers come more often.

FACING A TALL ORDER FOR TRADITIONAL ORGANIZATIONS

This digital age has both informed and amplified customer expectations. In the last few years, many digital-savvy companies have set a high bar. Whether you are e-hailing a taxi through a mobile app or buying personalized insurance for your pet online, it’s simple, it works, it meets your personal needs, and it can even be a pleasurable experience. And the expectation gap is increasing. A study by Harris Interactive found that 89 percent of consumers in 2011 quit doing business with a company because of a bad customer experience, up from 68 percent in 2006.⁴⁰

Customers don’t separate their online experiences from their physical experiences. They see products and services as a whole; they search for objective advice and compare. They want to engage with brands that care, and they share feedback openly—good or bad. Forrester Research found that a quarter of American consumers who had unsatisfactory service interactions in 2010 shared their experiences through social networks, a 50 percent increase over 2009.⁴¹ Unfortunately, there is no indication that these rising expectations will slow down anytime soon. Get prepared.

Creating a compelling customer experience is one of the key pillars of digital transformation. Opportunities abound, but getting it right is organizationally complex. It takes a thorough understanding of customer behavior, smart channel investments, a grasp of customer data, and creativity in blending the old and the new. As we will show in part II, it takes strong operational capabilities and great IT systems. And it takes strong vision and leadership to create organizational change. Whatever stands in the way of delivering a compelling customer experience, fix it. In the long run, doing so will contribute to delivering good performance and changing your company culture from the inside.

In the next chapter, we’ll show how Digital Masters create the right kinds of operational capabilities to increase efficiency, flexibility, and customer satisfaction. Later, in part II, we will describe how to build the right leadership capabilities so that you, like Burberry, can transform your customer experience, and your company as a whole.