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Forrester Report: Good Customer Experience Trumps Price for Loyalty

How important is good customer experience? According to a new report from Forrester, customer experience (CX) is more powerful in driving customer loyalty than even the perception of value received for a given price. 

The report, “Banks and Retailers: You Cannot Price Your Way Out of Bad Customer Experiences,” found via an online survey of more than 7500 U.S. individuals that customer experience accounts for about 55 percent of customer loyalty to banks, and about 46 percent to retailers. The price-value perception can’t be ignored, of course, but the research firm said its key impact on loyalty is how it affects customer experience — that is, overall perception.

First, Meet Customer Needs

Many banks are not particularly good at delivering great CX, the report found, with “overly aggressive pricing or nickel-and-diming customers” creating a lasting, negative impact. For both banks and retailers, a great CX can provide some cushion against pricing challenges, and a superior CX gives a retailer more flexibility. But, on the flip side, companies can’t “price your way out of bad customer experiences,” Forrester says.

The research firm admits that it was “surprised” at how much more important CX was in driving loyalty than price-value perceptions. Its analysis found several reasons.

First, if the product or service is wrong for the customer — that is, the customers’ needs aren’t met — price doesn’t matter. Examples: a small business owner needing an ATM close to work or a shopper looking for trim-cut polo shirts.

The second factor: convenience. Amazon doesn’t always have the best online prices, but its one-click shopping is easy and reliable. Another component of the CX/loyalty relationship is the value of enjoyable interactions, such as a more pleasant shopping experience at Trader Joe’s or Costco than at lower-priced retailers.

Forrester Price-Value.png

Price Satisfaction

When the price-value connection is dissected for price satisfaction, there are several sub-layers that make the connection to CX clearer, including price fairness, price transparency, price reliability, price competitiveness and the tradeoff between price and quality.

Banks occupy a different CX position from retailers in the report, possibly because no one goes to a bank to window browse, hang out or ask the employees about the best way to make a dish using the new product.

Banks are all about the money, and the report noted that bank fees perceived as being too high can affect customer perception and lose customers. It cites the example of when Bank of America introduced a US$ 5 debit card fee in 2001. The resulting public outrage cost BOA hundreds of thousands of customers, who went to credit unions.

Compete on CX

Inherent in Forrester’s findings is that customer perception about a retailer or bank is central to customer experience, which is why meeting needs is included. Consciously or not, the customer is asking: is this company giving me what I need, on fair or great terms, and making the interaction easy and enjoyable?

In short, is this company making my life easier or harder? If the former, I’ll stay with them; if the latter, I need to find someone else. And the reason that pricing is not a stronger driver of loyalty, then, is that once a relationship has been boiled down to a given price for a given value, then I can go anywhere to find that same value at a better price. Other grocers may have lower prices on some items than Trader Joe’s, but it’s an enjoyable place to shop, I can trust the quality of their products, and the employees are informed and helpful.

While banks have challenges in providing great CX, retailers are naturals. Forrester notes that it’s hard for many retailers to stand out with truly superior CX, because good-to-great CX is typical for such brands as Marshalls or Amazon. On the other hand, retailers like Office Depot, OfficeMax and Staples could stand to improve their CX perception.

Given that customers can now quickly find alternative prices, even while standing in the store, the report wisely recommends that companies compete for customers based on experiences, not solely on price.

 
 
 
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