Ann All spoke with Lior Arussy, founder of the Strativity Group, which provides proprietary research tools, strategic analysis, business planning and customer experience innovation design to help its clients operationalize profitable customer experience strategies. Arussy co-authored Strativity's 2009 Customer Experience Management Benchmark Study. The interview is presented in two parts. Part two, featuring Arussy's insights on boom-and-bust cycles of customer experience spending and companies' challenges in executing customer experience strategies, among other topics, will be published next week.

All: Your report shows quite a bit of disparity in how much of their revenues companies invest in  improving customer experience. The biggest numbers seem to be bunched at the high  and low ends of scale, with not as much representation in the middle. Why is that?
Arussy: There are a couple reasons for this. First of all, companies have different business models. If you are business to consumer, you probably pay a greater percentage of your revenues in customer service, vs. companies in a business-to-business environment. Also, there is a difference between product-centric and customer-centric companies. What this report illustrates is that there are companies that put the most effort into improving the product itself, as opposed to the total experience. Their investment in the total experience is proportionately smaller than those who understand they live in a commoditized environment and whatever product differentiation they have, it won’t last for long.

The portion of the investment is often representative of the depth of understanding of what the customer experience is about. You have companies that only pay lip service to customer experience and might do a few training sessions for their employees vs. those that are taking a more strategic approach. They spend more because they are trying to create differentiation as opposed to giving lip service.

All: Companies often say they have trouble determining ROI for their customer service initiatives. Yet your numbers seem to show a strong correlation between increases in spending, with increases in customer referrals and satisfaction rates and declines in customer attrition. You point out that this results in lower cost of operations (fewer problems to fix), lower cost of sales (from selling to repeat customers), and lower cost of business development (from referrals). Why aren’t more companies cognizant of these connections?
Arussy: Companies will say, “We heard that good customer experience is good for business. Smiling people are happier than those who are grumpy.” But most companies start from a product-centric approach. So for them, everything else is secondary and ancillary. There’s no core understanding. Companies analyze technology to death in a scientific manner. They do not apply the same discipline to their customer relationships.

My background is working at HP. My Web guys there believed the intellectual property of HP resides in the lab. They did not understand that the intellectual property is shifting to the customer relationship. Therefore, no comparable level of discipline was transferred to understanding and analyzing the customer experience. I agree that we all heard the fairy tale stories about how it’s important but because it is not something typically managed internally, we cannot see a clear correlation between investments made in customers and how it affects the company.

The whole foundation of economics of customer experience is missing. Here’s an example. You go to a company and ask how they can reduce the costs of manufacturing. They will clearly describe how they will manufacture in China, fabricate in the Philippines, and save three cents on the product. They cannot say the same thing about customer relationships. They don’t have that financial platform to make those determinations. They default to what they’ve done in past.

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