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Why Firms are Getting Serious About Customer Experience

It's becoming the most important way companies can steal a march on their competitors

In what may seem like a surprising statement for a senior manager of one of the world’s biggest furniture retailers, Steve Howard, head of sustainability at IKEA made news at a conference earlier this year by declaring that the developed world had hit “peak home furnishings.”

He said that household consumption patterns are beginning to show signs of dramatic change within most advanced economies. And while IKEA still targets a doubling of sales over the next five years largely through growth in developing markets, the days of uncritical and overly-acquisitive consumer spending in the US and other countries has come to an end.

Howard noted that as a retailer operating in the rich world, IKEA is looking to introduce what the firm calls “circular stores,” where customers can return to the store to repair and recycle their products (pdf).

Macroeconomic data backs this up. According to the Federal Reserve, US personal consumption spending averaged 3.8% annualized growth over the past two years (by comparison, over the five years prior to Q4 2008, the average growth rate was 5.5%). But despite this solid, if unspectacular rise, a number of businesses now seem to be sensing the shifts indicated by IKEA.

The End of the Age of Abundant Stuff

Looking more closely at the trend helps explain why firms now seem to place a much bigger emphasis on customer experience. In fact, in a recent CEB survey of sales and marketing leaders, 70% said their company saw customer experience as a principal source of differentiation “at least sometimes,” and 40% reported doing so “often or always” (see chart 1).

How often do you highlight your company's customer experience as a principal source of differentiation alt

Chart 1: Q: How often do you highlight your company’s customer experience as a principal source of differentiation?  Self-reported frequency; n=236  Source: CEB 2015 Customer Experience Poll

Because if IKEA is right that consumers in many geographies no longer desire more “stuff” – even if it is well-designed and aesthetically pleasing stuff – then companies will increasingly have to recast what they offer customers in terms of the experience it provides, rather than it being a better variation of something they already have.

In competitive markets this will mean that firms will have to be much more innovative in their customer experience management. And many companies – from entrenched players to potential disruptors – are already doing just this.

While analysts and journalists often use the “business model” shorthand to classify these moves (such as the sharing economy, cloud services, open APIs, crowdsourcing, mass customization, and so on) it’s clear that any number of categories of products now fundamentally depend on their explicit experiential benefits.

However we end this age of abundant stuff, the importance of customer experience is clearly growing.

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