Will a focus on CX lead to profits?

This is a question I asked quite a bit, often by business owners and senior leaders. The primary motivation behind the question is to understand how to justify the cost of upgrading CX. My short answer is this: Yes, a focus on CX will lead to profits, if you know how to do it. Offer the best customer experience in your class. The rest will fall in place.

However, a longer answer will require careful consideration of the caveat: how you execute it. There are a number of ways to do it right, and I've brought up a few below.

Use CX to reduce friction and encourage trial/adoption.

Customers might hesitate to make a trial or purchase decision when the product they're looking at has a strong experiential component, like mattresses, office chairs, eyeglasses or even clothes. You can offer a 90-day no-questions-asked return window for people to experience a mattress (IKEA does this!) or a chair (HermanMiller does this!). Sure, there's an additional cost component associated with this. But it allows people to try the product more confidently.

You could factor that additional cost into your product pricing. And you can use negative working capital (where you take money from a customer on day 1, but have a good line of credit with your suppliers) to make it work even in the short term. This requires business planning but the effort is more than worth it.

Offer basic CX, charge for higher convenience in CX.

This is a practical option that walks the middle path between offering the best CX and offering the best overall pricing. It's prudent to offer an acceptable level of service to all your customers. However, your entire customer base is not homogenous, and consists of people with different levels of affordability, expectation, and primary motivation.

The logical thing to do would be to price your base offering for the most price-conscious customer, and offer various ways for other customers to add experiences on to that base offering. The most common examples of this would be paid loyalty programs (like Amazon Prime) and everything-covered additional warranty programs (like AppleCare+). These brands offer basic CX (standard shipping, standard warranty) along with their base offering, and that serves the most fundamental needs of their customers. The add-ons allow CX-focused customers to opt-in and receive a much better experience

The add-ons also serve the purpose of more than making up for the cost of the CX upgrade. This is one way to use CX to reach profitability.

Use CX as differentiation to charge a premium.

To use a fairly recent example, Tesla is one company that has delivered excellent CX over the years. Almost everyone who has owned a Tesla can't help but notice and comment on the stark differences between them and other auto brands in terms of CX.

However, the vast majority of Tesla's cars are not cheap by any means. They are great automobiles fundamentally. Tesla's cars use software in a manner that other brands simply don't, yet. Tesla has also built a commendable supercharger network. No auto brand in recent times has had to build and maintain a network of fuel pumps! So Tesla owns a much larger part of the customer experience than any other auto-maker. That substantial initial investment in the right aspects of CX allows them to charge a premium.

Although it could take different durations of time in different industries, this is certainly one path where better CX leads to much higher profitability in the long term.

Use CX to create or deepen a moat.

In most industries, products undergo such a drastic change over time that they bear only the broadest of similarities to their original parents. The Nintendo Switch resembles the original Nintendo in that it is also a gaming console. The Salesforce Sales Cloud of today is also a CRM, but the similarities end there. Watches, computers, cars, microwave ovens, chocolate bars have all evolved from what they were originally.

When you consider a broad timeframe, the only "familiarity" that customers can develop is through CX. In all of those brands I've mentioned above, the offerings have drastically evolved but the customer experience helps establish the familiarity. It is the real moat that a business can build and is only clearly visible over a broad timeframe. There is an "iPhone killer" every year but the iPhone has only sold more and more, while many of those killers don't even exist.

Using CX to create a moat around your business is a smart way to ensure a disproportionately high margin for your business in the future, and relatively insulate it from the effects of competition.

All of these approaches I've outlined above help in using CX-focus to reach or improve profitability in your business. There could be many more such approaches. In any approach, one has to be mindful of the costs involved and find a way to manage them sustainably from day one.

Let me know in the comments and on Twitter what you think of these and if you have any other approaches in mind.

This is a response to Jeremy Watkin's #CXQOTD from here.

Photo courtesy: Karolina Grabowska