As customers, we want the best possible experience for the money or effort that we put into any transaction for goods or services. However, when these concepts do not align, expectations are missed, and there’s an opportunity for a negative customer experience: customer friction.
In microeconomics, this is referred to as a reservation price — the price consumers set in their mind as the highest price they’re willing to pay for goods or services given the utility or value they expect to receive. If a seller sets their price above a consumer’s reservation price, customers will be turned off. If they price items too low, they’re leaving money on the table.
The idea of reservation price can be extended to the discipline of customer experience. It turns out that most customers are willing to endure some degree of friction in exchange for, say, a lower price or faster delivery time — whether this is a real value or a perceived one.
For any company focused on customer experience, the opportunity lies in finding the right balance between the cost of delivering a superior customer experience and the benefit to the customer. This tradeoff is illustrated by the Customer Value Curve. As customers, we want the least amount of friction and the most benefit from each transaction that we perform with any company. However, there is always a reservation amount of friction we are willing to experience based on the perceived benefits we expect to receive. If a company exceeds benefits or reduces customer friction, the customer is satisfied. When this is not true, there’s an opportunity for improvement.
At NTT DATA, we analyze customer friction as a way to measure and understand the customer experience. We’ve been looking at industries as varied as automotive manufacturing, software, retail, airlines, and consumer package goods to gain insight into the customer experience in each. We recently partnered with the Hotel Electronic Distribution Network Association (HEDNA) on a study focused on hotel guests and their experience making a hotel reservation across multiple channels.
Online Travel Agencies v. Hotel Sites
It turns out that the hotel industry is no exception to this rule. As a customer, I’m willing to put in more time to shop around for the best hotel room deal (especially when traveling for pleasure), but if a website isn’t responding well to my phone or tablet, I’m quickly off to find a site offering a more seamless experience.
Our team recently conducted a Customer Friction Factor℠ (CFF℠) Assessment with HEDNA, to put ourselves in the shoes of potential travelers booking travel on a mobile device.
The study showed a relatively high amount of friction on online travel agency (OTA) sites when compared to hotel-branded sites. On OTA sites, our evaluators frequently had to reenter previously provided information; wade through ads, pop-ups, and cross-selling opportunities; or dig for buried information.
The interesting thing here is that travelers generally believe they’re getting the best possible deal when they use an online travel agency (OTA). Essentially, they’re willing to put up with more customer friction because they believe they’ll receive a benefit in the form of a lower room rate. But as customer expectations continue to evolve, either the benefit to the customer or the experience needs to improve. Both OTAs and the hotel chains should look for ways to change the customer’s calculation by lowering friction and delivering additional benefits. Here are a couple of recommendations based on findings from the CFF study:
- Simplify the customer interaction and allow the customer to accomplish their steps with as few steps and decisions as possible.
- Focus on the customer’s goal and upsell via binary options or through targeted emails prior to arrival and/or post-transaction.
- Leverage customer data to guide the transaction for individual customers based on known preferences and past stays.
- Connect room booking to a tailored on-property experience by recommending additional itinerary items and unique experiences.
Shifting the Curve
The Customer Value Curve holds true in virtually every industry. Companies need to understand the benefits customers want to achieve and the level of friction they’re willing to endure to receive it.
Every time a company delivers additional capabilities, it shifts the curve a bit. If it can deliver more benefit with less friction, it becomes a disruptive player. Think of companies like AirBnb, Uber, Warby Parker, and Dollar Shave Club that became successful by creating greater customer benefit with less friction.
If your benefits are high but friction is also high, you’re delivering a good service that’s challenging for customers, so it’s time to look at incremental improvements in how your customer experience.
If your perceived benefit is high but friction is low, your goal is to maintain that by investing in innovation. If your perceived benefit is low and friction is high, you need to rethink your business model and how you approach the market, since your customers are feeling significant pain without experiencing any benefit.
As companies look to transform themselves, their goal should be finding ways to disrupt their own business so they’re shifting the curve toward the left. In fact, when businesses consider new business models, they are — whether they realize it or not — working to change the balance between perceived benefit and customer friction to deliver better value.
Post Date: 8/14/2017