First of all, let it be said that it is notoriously difficult to prove the link between cost and customer experience (CX). Random cost cutting is likely to have some deleterious effects on CX. Similarly, targeted investment in informed areas of focus is likely to accrue positive effects on CX. The relationship is far from clear cut. Many service providers like to promote their solutions as reducing cost while maintaining or improving CX – a bold claim. You can either measure the actual effect or rely on bold claims of the true impact. Ultimately, it is an uneasy balance and one that logic and common sense suggests is improbable. So, let’s discuss lowest cost to serve or great customer experience and if it can be both.
Cost to serve
Cost to serve is a simple framework to calculate the true cost of ‘serving’ a customer. This typically refers to the after-sales element such as the cost of handling calls and resolving issues. Ideally, cost to serve enables businesses to identify the accumulation of costs in supplying your goods and services through to supporting them afterwards. The challenge comes where there is much variety in the products or services and how they are supplied. In our opinion, this is why many operational or service teams tend to focus on the back-end customer service aspect.
A lower cost to serve means supplying your product or service, including all peripheral services, support and contact, at a reduced rate per customer. Most businesses try to avoid an increasing cost to serve, which may indicate a loss of control over costs, increased taxes or other inflationary pressures. Ultimately, it is easier to sell the CEO a vision of a reduced cost base that delivers the same purchase or post-purchase experience. Nobody is likely to market and sell something that increases the cost to serve, unless the strategy is differentiation, perhaps moving to higher-spend customers.
Lowest cost to serve
There are financial measures and ratios that can imply that your cost to serve is lower than others. A simple ratio of SG&A costs versus a competitor, suggests that you may be more efficient in operating. Another might be to take some chunky departmental budgets and divide them by the number of customers, calls, contacts or other volume measure. This would provide a simple ratio of the budget spent per interaction. Chasing these numbers in themselves can lose focus on the customer experience. For example, an overworked function staffed with low-paid employees is perhaps conducive to great CX. Similarly, a team that handles high volumes of calls may appear to have a lower cost per customer but customer issues may not be fully resolved.
Enter the big consulting word, ‘transformation’. If a business can implement a new system, rework processes and serve customers in a different way at a lower cost, why wouldn’t they? Common examples might include using online chats rather than telephone calls. Others include queuing systems rather than email, automated chatbots rather than human responses and more. We like to use this analogy often, but the big elephant in the room is whether this truly maintains or improves CX. Some people refer to this as the opportunity cost or the CX dilemma. The loss of loyal customers costs you more than tweaks to the CX journey. Similarly, expectations increase while costs increase and budgets shrink. So, where do we go from here?
Removing inefficiency and increasing productivity
In truth, most CX transformation programmes are actually about removing inefficiency. The result of reducing friction in processes, automation and simple good tracking is to serve more with less. If a customer service advisor can do everything they need on one screen, it saves time and effort. If a resolution workflow is initiated at the click of a button, it removes unnecessary handoffs and the potential for omitted steps. In some cases, these also benefit the employee in reduced frustration, helping them to better help more customers.
As we enter a new era of AI and machine learning, it seems inevitable that much of the administrative burden will move from humans to software. Furthermore, the tools and technologies will improve to solve a greater number of issues automatically. If you have ever observed an online chat from the side of the employee, you realise that multiple conversations are ongoing at any one time. That’s right, the employee is multi-tasking across a queue of customers awaiting a reply. This boost to productivity is good for employers, reducing the cost to serve and the number of staff required to pay for, hire, fire and manage. But, what about the customer perspective?
Great customer experience at lowest cost to serve
It may help at this point to begin with an analogy. Delivering a great customer experience at the lowest cost to serve is a little like claiming that climbing Mount Everest on your own is the best and the cheapest way. It doesn’t take a genius to realise that not everyone might agree. Aside from the risk, it is the approach that takes the most research, training, planning and effort. Sure, it might be cheaper than taking a team, but all the work is on you.
Now, translate that experience to a modern-day supermarket. You bring your own bags, find a trolley, grab your own goods, scan them at a self-checkout, bag them yourself, pay and take them home. A convenience store of yesteryear might see you read aloud a shopping list to an assistant who collects the goods for you, bags them for you and carries them to your transport outside. Similarly, the process of taking out insurance is largely ‘self-serve’, with you giving a system all of the information it needs to make a decision and offer you a price. Even the documents are automated and available electronically when you login.
The customer’s point of view
Unfortunately, customers may not agree that this represents the best experience. Why else would Booths supermarket shun self-checkouts? Why is Asda rolling back the number of self-checkouts? Other examples may include Evans Cycles shunning chatbots or American Express offering concierge services. Despite music streaming services, there is a renaissance in vinyl and other forms of physical media. Others are calling for a return to physical media for gaming, given the rental rather than ownership policies of some platforms. Furthermore, many get frustrated at not being able to speak to someone.
Sometimes, customers cannot find the answer, login or solve their issue with an FAQ list or automated chatbot reply. Such customers may not stay with you, prompting churn. Others have followed the ostrich and buried their head in the sand by no longer reporting CSAT or NPS. Perhaps, this is indicative of the reality that great CX and lowest cost to serve are mutually exclusive in some contexts.
Great customer experiences that you understand
Given time and investment, anyone can drive the cost to serve to a low level. The real question is whether you unbalance the opportunity cost of improving CX against the risk of reducing loyalty. In general, it costs about 6x as much to acquire as to retain a customer. That makes cost-cutting in your CX a risky prospect in the medium-to-long term. In summary, organisations that are serious about enhancing CX actually do so. Those who cut costs, slacken SLAs and automate interactions are pursuing lowest cost to serve. The real question is whether you understand customer sentiment and how your changes are going to impact upon it.
If you would like to speak about the dichotomy of CX, simply email us and we will be in touch. Alternatively, select our research services online and request a free initial introduction.
Finally, why not read a related article about measuring your CX and what to do when revenue is declining.