Let’s look at the example of the movie rental business. Customers rent a movie for many reasons, e.g. for entertainment; to spend quality time with their families; to increase their knowledge of a certain topic; to explore new ideas; to kill time, etc. Figure 6.4 shows a typical customer journey in renting a movie as a sequence of eight steps i.e., learning about a subject or movie; planning to watch it on a weekend or weekday, in the theater or online or on video, alone or with family and friends; browsing available titles on the subject; choosing the right movie based on other viewers or friends or movie marketing material; receiving or renting the actual movie and paying for it; viewing it in the comfort of your home; returning the movie; and paying the late fee if they are late.
Figure 6.4: Customer Journey in Media Rental
So how are movie rental companies at providing the experience in this customer journey?
The chart below in Figure 6.5 intuitively illustrates how traditional media rental companies like Blockbuster, Hollywood and other small media rental companies rank on the customer experience scale. The chart—provided by Tim Olgive of Peer Insight, a management consulting company—divides the customer experience into two broad categories i.e., "customer responsibility" or below-the-surface experiences and "media rental company" or above-the-surface customer experiences. To rank a company, the chart uses a simple three-grade scale i.e., negative experience (the customer is not happy with what she got for the price she paid); neutral (the customer is getting what she expected); and positive (the customer values the experience more than the price she paid).
Figure 6.5: Traditional Media Rental Company’s Customer Experience
As is apparent from the figure, traditional media rental companies believe that the most important draw for customers is the location of their retail rental stores. These companies assume that when a customer walks into their store, she already knows what movie she wants; therefore, in their world, customer awareness, planning, and choosing a movie is the customer’s responsibility. They don’t influence these steps. Overall, major traditional media rental companies provide a reasonably good customer experience at all the touch points that they have created. This particularly applies to browsing and renting touch points, where customers get the instant gratification of holding the movie in their hand, renting, and watching it right away. They provide a negative customer experience, however, when they punish their customers for not returning the movie on time. It is like telling them, "You are a bad person. You did wrong and you deserve to be punished."
Blockbuster and Hollywood were doing a great job. However, they were not properly aligned with their customers’ changing buying behaviors, so the customer experience became more bleak with every passing moment. This is where Netflix spotted an opening and created a business that threw Hollywood out of business and significantly affected Blockbuster’s market. The chart in Figure 6.6 shows the touch points that Netflix created, and how the company aligned itself with the customer journey.
Figure 6.6: Netflix’s Customer Experience
While traditional media rental companies were viewing learning and planning stages as the customer's responsibility and were relying on customers to do it themselves, customers were demanding easier ways to choose movies. By spotting this need, Netflix changed the equation of the media rental business by creating special touch points in the shape of online search and recommendation engines. This helped them engage customers from the start, which reduced their sales cycle time and improved customer retention and satisfaction, resulting in increased repeat business.
Netflix also noticed customers' frustration at the final stage of their journey i.e., late fees, and completely eliminated it. Netflix inspired customers to try its service with a simple message: “No late fee ever.” Instead of punishing customers with a late fee, their negative experience is this: If a customer is late, they don't get another movie to watch! This is somewhat like saying, "You cut it in half and I will pick the half."
How did this customer alignment work for Netflix? In 2008, Netflix posted a 45 percent increase in its profits. Its customer acquisition cost decreased to $26.67 per customer from $34.58 a year earlier, while they added almost 2 million new subscribers. This brought Netflix's total circulation to 9.39 million subscribers, up 26 percent from the 7.48 million customers it had at the end of 2007. Churn, or the rate of subscriber cancellations, was 4.2 percent in the fourth quarter, compared with 4.1 percent a year earlier.
So let's see how you can map experiences of your customers to grow your business.
Related:
- Table of Content
- Red Queen Effect – An Introduction
- The Billionaire Code
- Cracking the Code
- Implementation Plan
Reference
- Tim Ogilive – Peer Insight Consulting
Customer locations can make the difference between winning and losing. Business Market