Apple launched the iPod in 2001 with the mission of “putting 1,000 songs in your pocket.” Fast forward two decades, and L’Oreal is taking a step toward transforming cosmetics by enabling women to carry 1,000 shades of lipstick in their purse. The key is a connected device that prints lipstick for its Yves Saint Laurent line. Customers upload a photo of their outfit to the YSL app, which generates a few colors to match. After using augmented reality to finetune the colors to get exactly the shade they desire, the customer presses a button, and the device prints a few drops of the lipstick.
What L’Oreal accomplished reflects more than engineering prowess. It reflects a deeper understanding of how the intersections of advanced technologies and customer touchpoints are creating powerful customer experiences (CX) that boost satisfaction in ways that were either unimaginable or unfeasible for most companies a decade ago.
Rethinking Customer Touchpoints
Despite all the buzz around the concept of omnichannel, most companies still view customer journeys as a linear sequence of standardized touchpoints within a given channel. But the future of customer engagement transforms touchpoints from nodes along a predefined distribution path to full-blown portals that can serve as points of sale or pathways to many other digital and virtual interactions. They link to chatbots, kiosks, robo-advisors, and other tools that customers — especially younger ones — want to engage with.
But the mere existence of these groundbreaking interactions is only part of the story. Our recent survey of 6,200 customers in China, France, and the United States uncovered seven CX factors that directly influence customer satisfaction. The first four — convenience, choice, navigation, and payments — are indispensable. That is, the presence or absence of these factors determines whether a customer judges a particular experience as good or bad. Think of them as table stakes. The remainder — ambiance, expertise, and touch-and-feel — amplify the baseline level of satisfaction. While their presence boosts satisfaction from “good” to “very good” 70% of the time, their absence turns a “bad” experience into a “very bad one” 89% of the time.
Alibaba’s Freshippo chain, which comprises more than 300 high-tech grocery stores, illustrates these effects. Launched in China in 2015, Freshippo provides fully automated stores that combine physical and digital experiences in a single environment. In-store shoppers “add” items to “shopping carts” using their smartphones. Within the carts, users can access information about the items, and they can pay for the items without support from a clerk. The stores are also fulfillment centers for orders that are placed entirely online. Some 36% of younger consumers gave the store the highest satisfaction rating, versus the average of 16% across all grocery stores.
Let’s take another look at L’Oreal’s lipstick tool to see how touchpoints and technology come together to drive a better CX. Each screen tap, each tweak, and each action by the customer is a touchpoint. L’Oreal captures data on all such interactions and funnels the information to product development, marketing, and other functions, allowing them to see what works and what they can improve. The amount of real time data generated is enormous. Each physical, digital, augmented, or virtual interaction links to information-rich networks that will recognize the customer and guide them along the purchasing path. These interactions give customers some agency over what they receive, resulting in deeper and richer personalized experiences.
B2B companies are also using connected touchpoints to add customer value. John Deere’s ecosystem of smart devices and intelligence helps farmers improve yields and profitability. The company’s cloud-based machine management system funnels telematics into an AI platform that allows farmers to monitor their equipment in real time, collaborate with ecosystem partners for insights, and use analytics to determine what crops to plant in which locations, and the optimal times for doing so — all managed through a convenient smart phone app.
These kinds of benefits are especially important for younger customers, those aged 40 and under. Their churn rate is twice as high as that of the average population, which underscores both the upside of meeting their expectations as well as the risks of falling short. One key point is that younger customers value autonomy when shopping, which means that they increasingly prefer to interact with technology instead of people. In retail settings, for instance, close to 60% of young buyers say they favor using self-service “scan-and-go” kiosks over human cashiers when given the choice, as opposed to 30% for older customers. Our research found that their interest in a tech enriched CX is about two times higher than those aged 50, and three times higher than those aged 60.
In some situations, though, young people can’t distinguish between human and virtual interaction. When Georgia Tech teaching assistant Jill Watson began dispensing valuable support and advice to computer science students in 2016, none recognized her true nature. She wasn’t a bright and friendly graduate student, as some assumed. She was a manifestation of IBM’s Watson AI platform, created by a team led by Georgia Tech professor Ashok Goel.
One inherent advantage of these high-tech touchpoints is that they are rapidly scalable and trainable. Jill Watson went on to serve as teaching assistant for 17 classes, something no human could manage. The original version of Jill Watson took about 1,500 hours to build, but recent versions take less than 10 hours, according to Goel. This is only one example of a broader trend. Until recently, the tools for next-generation interactions were either not commercially viable or too expensive for companies to deploy at scale. Today, it costs about 33% less to create an AI-based image classification system than it did four years ago, and training times have improved by 94%. Critical capabilities are easier to access, as the use of the cloud has grown dramatically. These changes allow more and more companies to engage with customers in increasingly sophisticated ways.
What Can Business Leaders Do?
We see three opportunities for business leaders who want to enhance their companies’ CX and drive greater satisfaction.
First, focus on frictionless commerce. Amazon Go stores serve as a unified, hyper-integrated touchpoint that allows customers to complete their entire shopping journey by doing nothing more than striding in, grabbing whatever item they like, and walking back out. Biometric identification, QR-enabled payments, and smart carts that scan items automatically are just some of the many technologies that will enable this type of journey.
Second, consider augmented experiences. H&M is equipping some of its fitting-room mirrors with RFID technology that can recognize the items, size, and color of clothes customers bring into a fitting room. It then displays personalized product and styling information on the mirror. Over the next few years, as augmented and virtual reality tools become more mainstream, we expect to see more innovative ways to embed these capabilities into the customer journey.
Finally, emphasize intuitive interactions. In Nike’s flagship stores, customers can try out gear in activity centers equipped with basketball hoops, treadmills, and other fitness options. Cameras capture a customer’s gait and movement, allowing sales staff in the store to make more specific recommendations. Digital assistants then keep the empathy going — through apps that allow customers to view and share footage of them playing basketball, bots that provide tailored communications, and automated push notifications that send individuals special offers designed just for them.
More broadly, however, there are at least six actions that business leaders can start taking today to enter the future of customer engagement with confidence:
Our research clearly shows that companies with the highest customer satisfaction scores have generated twice as much shareholder value over the last 10 years relative to the average score. The stakes are substantial, as are the benefits of investing in modern CX.
Many CEOs have already invested in improving CX but acknowledge slow progress. One reason is that companies have tied up significant scarce resources in the pursuit of incremental improvements. The marginal impact of solving pain points, eliminating inefficiencies, and making small CX improvements is slight. Those resources are better invested in bold moves.
Don’t underestimate the basics.
Companies should initially focus on two or three touchpoint initiatives at most. These initiatives should align strategically with the company’s brand and should target a high-value customer segment. For example, a company might choose to be a “convenience leader” or an “experience leader” and focus on touchpoints that can best deliver on that ambition.
Test, learn, and adapt.
As Jeff Bezos once said, “Our success at Amazon is a function of how many experiments we do per year, per month, per week, per day.” Companies don’t have to spend large amounts on experimentation, but they should set aside an annual budget and use those resources to incubate new use cases and refine, expand, and scale existing ones.
The direct-to-consumer company Interior Define, for example, has grown its budget for experiments from 5% to 15% of its total digital marketing spend. Not knowing which platforms and technologies might hold sway in the years ahead, they wanted to be ready for whatever bears fruit.
Experimenting with new ways to engage customers can pay off handsomely, especially during downturns. Leaders can look for “no-regrets” moves to make right away based on their business strategy and positioning and begin actively testing-and-learning other use cases. This process ensures that they will have initiatives that are ready to launch when the commercial and investment conditions improve.
Strengthen your data architecture and AI.
Companies may pursue two or three touchpoint use cases in parallel, but until they build the right data and analytics core, they should not move on.
One large telco, for example, built a unified master customer database in the cloud, which gave it a single source of truth for each customer as well as access to powerful cloud-based AI applications. One of the first campaigns focused on the prepaid SIM card segment. It started sending offers to customers on the days they received their pay checks, because its customer data and AI analytics show a greater likelihood for topping up their cards on that day. Over time, the self-learning capabilities of the AI engine allowed the telco to send communications using the touchpoints and formats customers preferred at the times they were most likely to respond.
Adapt the go-to-market plan.
Companies will need to experiment with different go-to-market structures that provide the necessary agility and knowledge sharing. Examples include hub-and-spoke constructs that feature a shared knowledge and analytics center and a mix of touchpoint-centric teams. Strategies should also factor in the enhanced role that human assistants can play. Digital and virtual interactions can automate many routine tasks, which allows companies to reimagine the ways that humans can add value to the customer journey.
The future of customer engagement looks bright. As the enabling technologies become more powerful, more desirable, and more affordable, the greatest limitation on how companies can satisfy customers is their own imaginations.
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