Michael Porter, a leading authority on business strategy and the competitiveness of nations, regions, and companies, says there are three ways to achieve competitive advantage: price, monopoly, and sustainable differentiation.
While competing on price for a limited time may be possible, there is always someone either bigger than you or newer (with no legacies to worry about), so achieving a sustainable advantage based on price is extremely difficult. Plus, while competing on price, you are in a race to the bottom — and nobody wins that race.
A monopoly is complex for a hardware manufacturer because, with the internet, there are few sustainable secrets. It is even more difficult to sustain because of anti-monopoly laws.
One strategy for achieving long-term growth is to differentiate your company by providing above-average customer experiences. This approach works because it is both memorable and difficult to copy.
For most OEMs, the business unit that interacts most with customers is the service, or aftermarket, group. Interestingly, the aftermarket can generate as much as 80% of annual revenue at a higher margin than product sales. For these reasons, the aftermarket should be an OEM’s primary target for improving the customer’s experience.
An above-average customer experience is the gift that keeps on giving.
An Introduction to Experience-Led Growth and Sustainable Differentiation
Experience-led growth, a relatively new buzzword, is a differentiation strategy focusing on exceptional customer experience to drive business growth. It’s not just about providing a good product or service but about creating a memorable and positive experience for the customer at every touchpoint.
Great customer experiences have several attributes aligned with expectations that are increasing exponentially. The below list has been adapted from Strategic Customer Service by John A. Goodman and Scott M. Broetzmann:
- Speed and respect for customer’s time
- Ease of obtaining information
- Overall ease of doing business
- Flexible suppliers and employees
- Consistent processes no matter who the customer is interacting with
- Consistent outcomes
- Be a partner, not a vendor
Below is an example of data highlighting the value of providing an exceptional experience by solving a problem on the first call to the call center. Goodman wrote:
“Completely resolving a customer’s problem on the first call leads to an average of 20 percent increase in satisfaction and at least a 50 percent decrease in cost, compared with second-call resolution… A second contact results in an average 20 percent drop in satisfaction, and a third contact causes an additional 10 to 20 percent decline.”
Loyalty, or the likelihood of recommending the business and repurchasing from it, tracks satisfaction and drives repeat purchases and referrals.
Related articles about sustainable differentiation
Your Post-sale (Aftermarket) Service Has Become an OEM’s Greatest Differentiator
How Much Are Great Customer Experiences Worth?
Jon Picoult, founder of Watermark Consulting and a long-time friend, started to answer that question in 2009 and recently published his 16th answer.
Picoult developed a unique methodology to evaluate the macro impact of customer experience (CX) on company valuation. He accomplished this by studying the cumulative total stock returns for two model portfolios — comprised of the top 10 (“Leaders”) and bottom 10 (“Laggards”) publicly traded companies in customer experience — based on consumer feedback ratings compiled from independent research surveys.
Here’s how it works: Picoult identifies the publicly traded CX Leaders from third-party ratings in any given year. He then assumes that an investment should be spread equally across those companies (with an effective date of January 1, the year before the ratings were published). The calculation assumes that all dividends are reinvested. At the end of the year, the holdings are liquidated, and the proceeds are used to invest in the following year’s top 10 CX Leaders (again, spread equally across the ten companies). That process gets repeated yearly, and a total return for the portfolio is then calculated. The same approach is used for the bottom 10 CX Laggard model portfolio.
After 16 years of doing this, the cumulative results are striking:
- The value of the CX Laggard portfolio grew by 98.4%
- In the same period, the S&P 500 index grew by 273.8%
- The value of the CX Leader portfolio grew by 534.5%
The CX Leaders achieved a total return that was, on average, 5.4 times greater than the CX Laggards—a result fueled not just by higher revenues but also better-controlled expenses, both of which are key benefits of a better customer experience. The data is compelling: it is indisputable that the CX Leaders significantly outperformed the CX Laggards and is a sustainable differentiation.
Standard Processes Improve Customer Experiences
According to Joseph Juran, one of the original quality experts and star consultants, “A company must commit to doing the job right the first time. The company must consistently provide products and services that meet customers’ expectations.” This means implementing standard processes that ensure consistency and quality in every customer interaction.
The critical takeaway is that your business must consistently provide above-average experiences to everyone who interacts with your company, no matter where they are located and how much money they spend with you.
Everyone uses Facebook, X (formerly Twitter), Instagram, TikTok, WhatsApp, LinkedIn, and many other social media platforms. Although unhappy customers may not tell anyone in your company, they will undoubtedly tell friends, associates, and strangers on their feeds. They will also share highly positive experiences, although less often.
The challenge for any business that wants to consistently treat its customers to outstanding experiences is that expectations are constantly changing. Whenever Amazon improves a process, consumers worldwide expect all their business partners to copy Amazon’s outcomes. Some even expect their business partners to outperform Amazon.
To quantify this observation, Salesforce Research conducted an extensive survey in 2018. When the responses were analyzed, 82% of the respondents agreed with this statement: “I want the same experience as when I’m buying for myself.” Also, 73% agreed that “My standards for how companies interact with me are higher than ever.”
To make matters worse, with all the changes, you must determine the new experiences essential to your customers. This constant evolution of customer expectations underscores the need for continuous improvement and innovation in your customer experience strategy.
You can focus on only some of the possible improvements, so you must collect customer feedback, analyze the comments, and identify the critical few that customers will notice and make a difference.
Keep working hard on this effort, as it can directly impact your company’s valuation, among other things.
About Middlesex Consulting
Sam Klaidman is the founder and principal adviser at Middlesex Consulting. He assists his B2B product manufacturing clients in growing their aftermarket (service) revenue and profitability by applying methodologies and techniques associated with value creation and customer experience. He aims to help clients design and commercialize new services and the associated business transformations. You can contact Sam here.
Image Credit: Image by Ben Kerckx from Pixabay