What gives your company its competitive advantage?
Inside most organizations, the assumed answer still falls into one of these four categories:
But as marketers debate which of The 4 Ps will deliver their big break, the marketplace is pointing toward an inconvenient truth:
Sooner or later, every business will have to compete on customer experience.
Customers Take Control
Customers from previous generations were not more gullible or less curious than we are today, businesses simply held the informational advantage. Their patrons had to make the best buying decisions they could with what limited insights they could gather from brand advertisements, staff recommendations, and personal endorsements.
Now the dynamics of power are entirely different.
Interruptive advertising has been replaced by inbound marketing, policies of secrecy have been traded for pledges of transparency, and small local communities have been connected into massive global networks.
As a result, today’s customers are swimming through a bottomless sea of product details, descriptions, ratings, and reviews before they ever surface at a point of sale. And it’s that last item on the list that’s really turning the tide.
Eighty-four percent of people now trust online reviews as much as a personal recommendation, and their influence is only growing stronger as faith in government, business, and media continues to erode.
Simply put: customer advocacy is a priceless marketing asset.
And customers know it.
With the threat of public shaming in one hand and the promise of free promotion in the other, they have more than enough leverage to push for superior customer experiences. And instead of struggling against the current, smart businesses are positioning themselves to deliver delightful interactions.
Switching Costs Crumble
The information economy has also given customers greater power of choice. Buyer’s guides, comparison sites, recommendation engines, and Google searches can quickly surface dozens of viable options for the discerning customer. And as access to these alternatives has expanded, many of the barriers to embracing them have contracted.
At a sociological level, there’s less stigma around switching these days. We’re experiencing a generational shift away from long-term job placements, religious affiliations, and (yes) romantic partners. Change and novelty are not only normal, they’re desirable.
So it should come as no surprise to see today’s customers setting expectations higher and ending relationships sooner:
90% of retail customers will leave after a single bad experience.
47% of customers will switch to a competitor within a day of a suffering poor service
24% of users will ultimately abandon a mobile app after just one use
There are also fewer financial restrictions to stop them from acting on their instincts. More and more businesses are offering try-before-you-buy promotions just for the privilege of presenting their value to these empowered customers. And even when money finally does change hands, it’s often in the form of a one-time transaction or month-to-month subscription.
As both attitudes and economics continue to make retention a more difficult mission and a more essential mandate, it only makes sense for brands to demonstrate their commitment to customer experience early and often.
Differentiation Grows Difficult
Unless you were brilliant enough to create a brand new market, chances are the one you’re in is getting crowded. Take marketing technology, for instance. There are now 4,891 companies competing to help me address just two basic tasks: producing and promoting content.
If any one of those vendors has any hope of grabbing my attention (nevermind my business), then they’ll need to offer me something I haven’t seen from their legion of competitors. But differentiation is a difficult riddle to solve.
Branding yourself as the faster or cheaper solution is always a dangerous game for your balance sheet, and it’s only getting harder to achieve as technology irons out inefficiencies and welcomes emerging markets into the global economy. Of course, convincing customers that your solution is better is no easy feat either.
Customer preferences are constantly shifting, so what’s considered top-quality today may no longer be relevant according to tomorrow’s criteria. You can also be sure that your competitors are working round-the-clock to close the gap and set a new standard. The pace of innovation really is accelerating these days.
So where can companies find a consistent advantage in an age of ruthless efficiency and continuous improvement?
Perhaps the answer lies in something more personal. Because even as replicating the features of your product becomes increasingly easy, replicating the emotions of your people will always be one thing your competition can’t do.
Disruption Looms Large
There will always be a few companies that carve out a position that’s basically immune to competitive threats. They perfect their approach, corner a market, and provide customers with a solution that has no suitable alternatives.
I’m sure that’s exactly how Blockbuster Video, Barnes & Noble, and Yellow Cab felt before Netflix, Amazon, and Uber came along and turned their respective worlds upside down.
These are three famous examples, of course, but they’re indicative of a broader trend. At the top end of the market, big corporations aren’t enjoying the endless reigns they were accustomed to a generation ago. The average S&P 500 company in 1965 could expect to remain on the index for 33 years. By 2026, that average tenure is expected to shrink to just 14 years.
At the other end of the spectrum, fewer than half of small businesses survive their first five years. Surely one contributing factor is the more than 6 million new businesses added to the playing field every year in the U.S.
With the potential for swift and dramatic change hanging over every corner of the marketplace, only brands with a durable source of competitive differentiation will be able to keep themselves in the conversation over the long term.
The Fruits of Customer Commitment
Reorienting your entire business around customer experience won’t be easy, but the sooner you take action the more dramatic the benefits may be.
An excellent experience makes customers 4.5x more likely to pay a premium price — which is one reason companies perceived as customer experience leaders grow revenues 5.1x higher than their lagging competitors. Loyalty is another major contributor.
For transaction-based businesses, shoppers with the highest customer experience score will spend 2.4x more over the course of a year compared to their counterparts reporting the lowest customer experience scores. For subscription-based businesses, the difference between delighting and disappointing a member is nearly five years of recurring revenue.
At the other end of the profit equation, there are several costs to consider. Disgruntled customers increase the demand for support services and drain the morale of employees along the way. The personal anecdotes and public criticisms they share can also cost you future customers.
But perhaps best of all, committing to customer experience improvement will give you one competitive advantage you can’t put a price on. If you listen closely enough, customers will tell you exactly where the market is heading and where your business needs to be.
Published on September 7, 2023.