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The Next Frontier

January 1, 2014

From delivering the message to innovating the experience

By Rick Wise, Randall Stone, and James Wright [Lippincott]

Even with the deepest insight or most powerful “big idea,” results in today’s crowded media environment are harder to attain. Lippincott’s recent analysis of brands that have repositioned over the past four years shows brand favorability scores increased, on average, by a mere 0.5 percent, even in cases where media spend ballooned by over 30 percent. The painful truth is that marketers are charged with improving brand relevance and economic results, yet find it challenging to move the needle because they rarely wield the full influence required to do so.

The good news is that enlightened marketing leaders are achieving success these days by seizing ownership over the entire customer experience — shaping it, innovating it, branding it, and measuring it. They are mastering a new discipline Lippincott has coined “experience innovation”; that is, going beyond the product benefit and message to reimagine the whole journey and creating new ways to delight customers by taking a broader view of their lives and how they interact with your product, and delivering new, unexpected “signature” moments. Social ecologist Peter Drucker, hailed as “the man who invented management,” said “marketing is the whole business, seen through the lens of the customer.” Increasingly, marketing leadership is recognizing that its role is to architect and steer the entire experience between the company and the customer. Every part of this ongoing connection, big and small — each interaction, each memory, each post or tweet or share — is what drives brand relevance up or down.

The most innovative up-and-coming brands get this, and they are getting results. Car service Uber didn’t change the vehicles for hire or retrain the drivers; it fundamentally changed how the customer orders, connects with a driver, and pays for it. Airbnb didn’t redesign the travel portal or the hotel; it completely rethought how travelers can find the accommodations they need. New health insurance player Oscar is as much about the experience as the plan itself, selling health insurance the way Amazon sells books and lawn mowers. And while Gillette is looking at one more blade on the razor, innovator Dollar Shave Club arrives on the scene with a simple, low-cost mail subscription model, fueled by social media frenzy.

Even legendary product innovation leaders see they can increase sales by designing unique experiences. Nike Plus is innovating the fitness experience and the community, not the shoe. Tesla’s electric car is truly like none other, but the company also allows you to buy its vehicle with one simple eDocs digital signature, request home delivery, and service the car with roaming technicians who can remotely diagnose issues.

These brands that are moving the needle all share the same experience-innovation mindset.

A Harder Role, But a Greater Return

Experience innovation is not new. Virgin airport clubs, Nike flagship stores, Starbucks restaurants, and Disney Parks set the standard many years ago. These innovators show us that the experience isn’t just about marketing the planes, the shoes, the coffee, or the amusement rides — it’s about how we feel when we use the product or service.

But while companies may recognize this, very few deliver or approach it the right way. In a recent study, more than 80 percent of senior business leaders say their companies are focused on improving their customer experience. And yet, 85 percent of firms have no systematic approach to determining what a differentiated customer experience even looks like, let alone creating one.

Innovating the experience generally holds greater opportunity than advancing the core product. But it is also harder, for many reasons. First, within an organization, one owner typically manages the products, while many masters — all with separate goals and metrics — often manage the experience. After a strategy is forged, changing an experience can require mobilizing and energizing thousands of employees, a much more complex organizational task than aligning the few dozens who lead the design of a product. Second, experience innovation requires mastering competencies that many organizations lack. Improving the experience is usually thought of as an operational process, not one revolving around the marketers’ skills with ethnographic insights, creative ideation, and blue sky visioning. On the other hand, innovating the product is often a focused exercise — how do we make the thing we make better?

A Different Mindset

Experience innovation requires a new mindset and a new process, with several guiding principles:

  1. Create delight in the experience, not just better products

    When companies focus on winning in the customer experience sweepstakes, they often fall into one of two traps: Targeting specific touch points (such as customer call centers) instead of addressing the holistic end-to-end customer experience; or thinking in terms of operations and process efficiency instead of brand engagement, customer delight, and growth. Efforts can quickly devolve into mechanistic touch-point optimization exercises: Choose the most important touch points, benchmark the competition, pick key performance indicators, and execute and monitor operational improvement.

    Experience innovation is as much about how to delight as how to deliver, how to identify the true emotional drivers of connection and loyalty. You remember the first time you got picked up by Virgin Airlines, the first time you walked into an Apple or Nike Town store, the first time you rented a Zipcar à la carte for an hour to get groceries, the first time you ordered a tall latte at Starbucks. You remember because the experience was totally new and different and fun, and made the product or service more appealing than the competition. These experiences are emotional markers for these brands.
  2. Look at the whole customer ‘ecosystem,’ not just where you play today

    Finding innovation opportunities often requires looking beyond your narrow product category. Consider Apple, the poster child for product innovation. Apple’s innovation is not so much in the product realm as in its focus on building a lucrative array of services to surround its products, and that has been the major driver of its success and growth. The iTunes ecosystem envisioned the entire music experience — innovating how music content was purchased, organized, and managed. And taking a product company into the retail space allows customers to engage with the product and its people — to feel the energy of the brand — as Apple captures the retail margin. Thinking about the larger ecosystem — the opportunities to meet customer needs in the spaces surrounding your core product or service offering — allows you to expand your base and opportunities for growth.

    Nike and Starbucks also see the world this way. Nike has surrounded its performance products with fitness clubs, tracking apps, social media, and community give-back programs. Once the “third place” to drink coffee, Starbucks has now developed a larger ecosystem that extends beyond morning coffee into daylong “moments of connection” across multiple food and beverage categories. New formats include a wine bar concept, with mobile payment and reward apps to enhance loyalty.
  3. Be customer-focused, but not customer-led

    Experience innovators recognize that consumers can’t tell you about the things they really need but haven’t yet imagined. And consumers can’t articulate how they will do things differently in the future. When Delta brought the lounge directly to the gate, it created a new experience among frequent travelers who had never thought of the gate as a café and social destination. The space takes advantage of Delta’s ability to deliver on its essence of “21st-century graciousness” in a way consumers might never have articulated in a focus group — and provides an opportunity for a new revenue stream.
  4. Brand the total experience; don’t just deliver “a breakthrough idea”

    Finally, great experience innovation isn’t coming up with a single idea, but delivering a connected journey from one brand. The iTunes store, the Genius Bar and in-store education tie together to create a uniquely Apple experience. Disney delivers magic with bracelets that optimize your waiting time in the park, a reimagined cruise experience, vacation packages with a Disney twist in European cities, and carefully curated apps that bring the experience to life for kids. One distinct idea, even a big one, is usually not enough. Product innovation might rely on one-off improvement; experience innovation ties together multiple moments and experiences.

Experience Innovation Pays Off

Experience innovation may be more complex than product innovation, but the rewards can be significantly greater. Focusing on the experience can create returns regardless of your degree of ambition. At a basic level, you can create a series of connected unique brand moments — such as Starbucks’ barista’s ritual, personalized mobile app, and unique merchandising and store environment. Second, there is the opportunity to drive real preference with major signature experiences that differentiate and delight — such as BMW’s distinctive vehicle delivery service and exclusive driving school. Finally, and most impactful, taking a broader view of the customer can unlock entirely new avenues for growth and business models.

In our experience, the payoffs for experience innovators are clear:

  1. The differentiation is more meaningful

    Innovating the experience finds untapped sources of differentiation to drive loyalty, preference, and margin. Behavioral science research shows that buying an experience — such as a vacation or a concert — is more rewarding than buying a product alone. The more pleasurable the experience, the more people are willing to pay. And great experience innovations create meaningful switching barriers — witness Nespresso’s capsule subscription model or Uber’s automatic payment capability.

    It’s often much easier to find differentiation to drive loyalty from an experience than a product. With one of our recent technology clients, we found 50 percent of customer renewals to be driven by the software’s quality, ease of use, and functionality. But the other 50 percent was driven by the sales and needs identification process, the contracting, the education programs, and the ongoing service. These experience elements could be improved almost twofold with creative thinking and hard work, whereas product improvement had a ceiling of 10 percent or 20 percent.
  2. The business models are more efficient

    Investing in experience innovation does not mean higher costs. Many customer experience innovators reduce the cost to serve customers as they create better, more endearing experiences. When Progressive provides on-site accident support, it reduces its fraud losses by assessing damage at the time of the accident. Streamlining the process of buying glasses reduces selling costs for Warby Parker, allowing the company to offer more for less. Health-care innovators such as CareMore and Iora Health initially add costs by hiring wellness coaches who proactively engage patients to head off health problems. But this experience innovation saves orders of magnitude more than it costs by reducing downstream acute care costs.
  3. The opportunities for growth are more abundant

    Thinking about “end-to-end” customer ecosystems enlarges the “sandbox” in which a company plays and creates significant adjacent opportunities for new growth. The activities and services associated with using a product are often 10 times the size of the market for the product itself. In the Apple example, iTunes attracts millions of downloads a day, and iCloud and Applecare offer peace of mind for its customers. These ancillary services strengthen Apple’s customer relationships — and represent $12 billion a year in incremental revenue. Nike’s move into Nike Plus has opened up a whole new business beyond shoes and apparel. And Victoria’s Secret, which burst into the slow-growing intimates category a decade ago, has grabbed a 50 percent market share of a commodity business — building a $5 billion brand by integrating a destination shopping experience with ancillary clothing and fragrance offers and a signature annual fashion show on TV. Experience thinking can dramatically expand the addressable market.

Given these payoffs, the shareholder value gains from experience innovation can be significant. Lippincott’s 2013 study of more than 500 consumer-facing brands shows the stock price of experience leaders appreciated an average of 8 percent per year more than laggards between 2007 and 2012, significantly outperforming the S&P 500. By contrast, the experience laggards (as described by customers) saw their stock price decline by an average of 6 percent per year over the same period.

Experience Thinking — A Roadmap to Innovation

The process of designing a truly innovative experience is complex. It can neither rest on the “process excellence” of classic customer experience improvement efforts, nor the “creative brilliance” of the marketing team alone. Hard work, collaboration, and new tools and processes are required. In our experience, successful customer experience innovation needs to be grounded in these key elements:

Map your customers’ world, broadly

Start with a broad and detailed exploration of the customer journey — and how it could be different. Don’t ask customers what they need, but observe how they behave and what makes them happy or unhappy. Build a fact-based case, as you watch how customers behave and react at every step in the product experience, that helps you imagine new opportunities. Push yourself to think of new spaces where you could play.

Find points in the journey to change the game and make an emotional connection

Looking at the map of what people do (their most frequent touch points), assess what people could do. Think about what they will notice, and what they will remember. Look for the big moves — can you take entire steps out of the process, change the sequence, add new value in unexpected places? But also look for the little moves, as they can be surprisingly powerful emotional drivers. (Disney unexpectedly opens the park gates five minutes in advance; feeding off the “I’m about to be at Disney World” thrill.) Focus on defining signature experiences that deliver not just functional enhancements but also emotional connections.

Connect experiences to each other, and to the brand

Create an integrated vision for the future of your brand experience that is bold and forward-looking as a way of inspiring to inspire internal teams and setting a broad direction for innovation. Use a clear and ownable set of guiding principles to make sure every moment tells your story and connects to your brand in a unique way. Think in terms of a portfolio approach in executing — balancing simple changes that build momentum with longer-term investments that require more radical change and resourcing.

Engage the whole team

When broad-based, interdisciplinary teams take these steps together, surprisingly powerful results can ensue. Drawing on expertise across functions is essential to push the thinking on what is possible, and forge connections across operational silos to enable real world success. But beyond getting the strategy right, thoughtful organizational engagement is essential to execution. Successful experience innovation requires inspiring and training thousands of employees. The early involvement of leaders and front line champions begins a process that should expand to inspire and transform the company.

Experience Innovation Is a Differentiator

Experience innovation should not be viewed as a creative exercise or a new marketing gimmick. It is a new approach to business, with the aim of finding significant new avenues for differentiation and growth. Experience innovation gives you the opportunity to look at a spectrum of ideas — from category evolution to disruption — to maintain vitality and differentiation, as you redefine the ecosystem or restage your brand and drive new growth.

For many decades, the major focus of innovation efforts has been on the product. The persistent drive to add features, incorporate new technologies, and create niches has led to breakthrough innovations. The strongest product innovators in software, electronics, consumer products, and automotive categories has created billions of dollars of economic value. Such innovation has spawned service winners as well — the perfectly designed credit card rewards scheme, the simplest cellphone plan, the healthiest, hippest QSR menu.

Increasingly, however, companies are finding that certain returns from these product efforts are harder to rely on. While R&D spending rose 5.8 percent in 2013, revenue for the same companies increased less than 1 percent. Today’s product innovations, and the growth they create, are often incremental, narrow, and fleeting. Global competition and technology diffusion mean that competitors quickly match most improvements. And the radical transparency of digital and social media prompts consumers to quickly switch allegiance with each new alluring offer.

Source

"The Next Frontier." Rick Wise, Randall Stone, and James Wright. ANA Magazine Spotlight. January 2014.

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