The last few years have brought disruption after disruption to bear on the ways companies and customers interact. Arguably, the company-to-customer connection has been more disrupted than supply chains or operations, and more affected by disruptors like Covid and technology than any other key relationship. Think of the rise of e-commerce — which hockey-sticked during the pandemic; or the sudden (or seemingly sudden) ubiquitousness of self-checkout kiosks at grocery stores and pharmacies; or the ever-greater prevalence of voice response systems, to which you must listen closely because the “menu options have changed.” Or, recall the Covid-19 shutdowns and subsequent bounce-back, which altered everything from how diners eat to how sales reps call on B2B customers.

These trends and sudden swings have created significant difficulties for middle market companies and — as we will see — a very important challenge and opportunity for their growth ambitions.

With all of this change has come a dramatic upsurge in customer dissatisfaction. Actually, that’s understating it; we’ve seen an upsurge in customer rage. The newest edition of the Arizona State University W.P. Carey School of Business survey of customer rage found that last year 74% of customers said that they have experienced problems with a product or a service — up from 47% two decades ago. The survey goes on to note that customers are getting angrier and angrier about how they are treated when they deal with companies — and are far less reluctant to express their rage not just to companies, but on social media for all to see. Some of that rage may reflect a rise in general incivility, rather than any specific company failure. But companies bear a good share of the blame; after all, the #1 customer frustration is being unable to talk to a person when they have a problem — and the #2 complaint is that they can’t even find out how to contact the company at all.

From Leaders to Laggards — How Most Companies Are Failing Their Customers

Why? Our analysis suggests that many companies have fallen victim to what they see as a zero-sum game between high-quality service and low cost. Indeed, according to a nationwide survey we conducted, just 15% of companies successfully combine both — i.e., high levels of efficiency and advanced data and analytics combined with high levels of proactive outreach and service — and we call them “Leaders.” Amazon, Amex, and Apple come to mind, and get an “A” in our book.

Go too far in one direction, and you are a “Big Spender,” putting more money into customer service, support, and success than you are getting back in terms of profitability and loyalty. Go too far in the other, and you’re a “Miser,” penny-wise and pound-foolish, frustrating and ultimately losing customers because you don’t connect with them on a level that matters to them.

Surprisingly, 41% of the companies we surveyed fall into the unfortunate “Laggard” category, where they see customer support as a downstream cost center requiring minimal investment, and suffer from low customer satisfaction ratings and high customer churn.

Addressing this tension between cost efficiency and customer intimacy is important for companies of any size, but it’s especially important for midsize companies, particularly those upper-middle-market companies with ambitions to rise to the top of their industry. In many cases, they built their brand, and their differentiation from the big guys, on the idea of personalization — of being closer to their customers than their multinational rivals can be — while also offering more sophistication, a broader offering, and more underlying service capability than small businesses can.

Herein lies the core challenge: to grow, they need to build customer capabilities that are scalable, but if they do that at the expense of proactive connection with customers, they will lose their identity and a big piece of their competitive edge.

Escaping the Zero-Sum Game Approach

We don’t think service and scale are a zero-sum game. On the contrary, we’ve seen company after company make it work, often realizing results in the first year. For example:

• A mid-market payroll solutions provider (with ~2,000 employees) working in a niche part of the industry reduced their servicing cost by 30% and set-up a “Customer Success” team to nurture client relationships and enhance loyalty. The result: a 650% increase in their net promoter score and a substantial increase in wallet share, helping them to gain an edge over the competition in just one year.
• A $500M revenue data storage and protection company reduced its customer-service operating costs by 20% by eliminating duplicate systems and reducing complexity and cost-to-serve by improving the alignment and communication among sales, renewals, and services teams. Revenues rose by 10% in the first year after implementing a Customer Success program that was laser-focused on proactive customer contact, improved wallet share, and improved loyalty.
• A cybersecurity company with ~1K employees increased its use of automation to reduce support costs by approximately 15%; but the same system improved call routing to serve customers better and faster, resulting in a substantial increase in its customer satisfaction score. NPS nearly doubled and customer attrition dropped by 5%, increasing Net Retention Revenue (NRR).

How do they do it? By undertaking three things simultaneously and with a get-stuff-done sense of urgency:

Have a strategic point of view about who you want to be to your customers.

There can be reasons to spend big on personal touch (for example, in a new industry or for a luxury product or service), and reasons to under-invest (e.g., you are in a commodity business where price and availability are more important than anything else). But most companies should seek a competitively advantaged sweet spot where the right kinds of hands-on, proactive attention meets the right kinds of automation and efficiency. You need strategic clarity about what that sweet spot is — and to back that up with the right measurements and incentives.

Do the research to understand your customers’ biggest frustrations and pain points.

What is your brand promise that customers expect you to deliver? Is it a high-touch white glove service (think a Four Seasons hotel) or is it transactional support focused on saving you time (like a Motel6). How do customers perceive the value of your brand, what do they expect to be delivered, and where are your failure points? Use that knowledge to identify a handful of key initiatives that can make a difference in the next six months. For example, rather than forcing self-service or automation on all of your clients, you might be able to meet them in their preferred channel of choice e.g., self-service for tactical queries (or digitally-savvy customers), vs. white-glove customer care for others.

Update your understanding of the art of the possible.

Advances in AI and machine learning in just the last three years have transformed customer relationship management, just as they have rendered (on the upstream side of things) a lot of old ERP systems obsolete. You can now quite inexpensively get real-time customer data at a granular level and build individualized profiles of customers’ needs. It is also easy to route the most valuable or unhappy clients to the most senior or tenured customer care specialists. And the landscape continues to evolve quickly with newcomers like ChatGPT.

Midsize companies especially need to continually explore these options for two reasons: First, because these evolving digital enablers give companies the edge they need to move up from “Laggards” to “Leaders” with more customer insights, views into Customer Lifetime Value (CLV), propensity to churn (improving loyalty), and customer sentiment. Second, your competition is using it, and the bar is rising for everyone.

It Can Be Done: How Winning Companies Are Realizing Tangible Value

As companies continue to navigate this uniquely disruptive environment, we are seeing more leaders protecting their customer base by optimizing customer experience and loyalty. For midsize companies especially, when acquiring new customers or expanding market share becomes increasingly unpredictable, investing in enhancing customer experience, Customer Lifetime Value (CLV) and Net Retention Revenue (NRR) becomes a powerful way to preserve and expand revenue.

Investing in systems and processes won’t be enough. We have found that to win, companies need to focus on three key things to achieve real change:

Elevate customer success to be a core part of the business strategy.

Increasingly, customer experience is seen as a competitive differentiator, especially as more companies stumble in their attempts to shift to digital solutions. Investing in experience and loyalty can drive topline growth, but only if leadership agrees that customer success should have a seat at the table, right next to sales and marketing in terms of strategic importance to your brand’s growth.

Manage technology investments through the business first, not IT.

It is critically important to view digital solutions as strategic business investments, and not technology investments. Time and again we see winning companies frame their core challenges, solutions, vendor selection, and even operationalization as top-down, strategically aligned efforts where IT provides implementation support, rather than acting as the gate keeper. Don’t fall for the latest shiny object — remain true to the brand promise and core objectives.

Appoint a Customer Success leader to take ownership of measurable impact.

Real change will require a change in mindset, and most important, sustained commitment over time to implement needed initiatives, lead training efforts, integrate systems changes, and track financial impacts. Appointing a dedicated leader is critically important to have real ownership to keep Customer Success top of mind as a strategic imperative for growth, even in the most disrupted markets.

In this uniquely disruptive and uncertain environment, it makes sense for companies to invest in protecting their customer base by optimizing customer experience and loyalty. When acquiring new customers or expanding market share becomes increasingly unpredictable, investing in enhanced customer experience, Customer Lifetime Value (CLV) and Net Retention Revenue (NRR) becomes a powerful tactical lever to preserve and expand revenue.

It can be done. And, with rapidly evolving digital solutions, it can be done faster and more inexpensively than ever. More winning companies are converting this time of disruption into an opportunity to implement customer success solutions to expand revenue and gain a competitive edge. The only question now is: As we emerge from disruption, will you be a Leader, or a Laggard?

Companies spend billions of dollars every year to gain information about their customers, buying data from market research firms, running study after study, and using big data and sophisticated analytical models to make sense of it all. However, most of this data is likely available to your competitors and not living up to your aspiration of gaining meaningful behavioral understanding of your customers.

To truly differentiate and stay ahead on an ongoing basis, you need to implement a system of privileged insights — unique and relevant information you gain about your customers that only your company is privy to.

Unlike market research, privileged insights provide intel on your customers’ real needs, desires, and experiences. These insights can be gained in a variety of ways. Generally, it requires engaging with customers in ways that directly build trust and value. This might include offering services and solutions that go beyond products, creating a more robust and engaging customer service experience, integrating customers into product and service development, and observing and interacting with customers while they use your products.

For our recent book Beyond Digital: How Great Leaders Transform Their Organizations and Shape the Future, we’ve researched more than a dozen companies that have undertaken significant transformation to position themselves for success in the digital age, including Adobe, Cleveland Clinic, Citigroup, Eli Lilly, Hitachi, Honeywell, Inditex, Komatsu, Microsoft, Philips, STC Pay, and Titan. It isn’t that these companies necessarily use technology better or were first to build a consumer data lake — it’s that they’re incredibly focused on wiring a deep understanding of customers into the heart of their business models, their operations, and how they make day-to-day decisions. They passionately focus on increasing value for their customers, all while absorbing and leveraging a wealth of information that their competitors don’t have. By doing so, they’re able to further differentiate themselves and remain relevant.

How can you go about building such a privileged insights system that fuels your company’s success? Here are some lessons learned from the companies we studied and more that we have worked with.

Establish a foundation of trust and value

Be clear about how you earn customers’ trust to engage with you, and the benefit they gain from doing so. This goes to the heart of how customers trust you to consistently deliver outcomes they value. Customers that see their lives or businesses intrinsically linked and improved because of what you offer are much more likely to engage with you and more willing to exchange unique information and insight into their core needs and challenges.

Building a foundation of trust also includes having impeccable clarity on your values, principles, and governance around how you will treat customers’ data. Will you use the data to only advance your own commercial position, or to improve the customer experience and benefits? Will you take responsibility to not misuse the data? Will you have strict enforcement if an issue happens? Leaders must ensure that people across the organization understand that it’s not about extracting data from people and making people the product — it’s about making customers an integral partner in the value chain.

Ashley Still, senior vice president and general manager for Digital Media at Adobe, is absolutely clear about the company’s guiding principle for how it uses customer data: “We are committed to data privacy and sensitive to how we use data. Responsible use of customer data can create greater experiences, but the second we start using it to gain tactical advantage, we’ve missed the mark.”

Together with the trust and value that is embedded in their users’ experience and the value proposition Adobe offers, these practices lay the foundation on which the privileged insights system is built.

Integrate how you collect privileged insights into your day-to-day actions

Make the collection of insights a byproduct of your engagement and relationship with customers, not a separate process. This will allow you to gain customer insights while you create value for them, be it through your physical or digital interactions.

This should start with all your existing customer touch points (e.g., customer service, warranty support, product delivery, etc.) and extend to many new opportunities to engage and improve your value proposition. The ultimate question you will need to answer is whether customers feel positively impacted by the information you are collecting.

Consider fast fashion company Inditex, owner of the Zara brand. Its retail employees are trained to serve as its frontline eyes and ears, tracking data, observing customers, and gathering informal impressions — all while helping customers find the styles that suit them best. The stores compile information about the choices customers make, their inquiries about missing items, and their suggestions. Are shoppers looking for skirts or trousers? Bold or subtle colors? These impressions are sent directly to a group of designers and operational experts at headquarters, together with detailed daily data on exactly what is selling and where.

The combination with deep insights from what people are searching for and buying online puts them at a clear advantage over online-only fashion companies. All these insights are rolled up, aggregated, scaled, and analyzed almost in real time and turned into designs for new garments or into improved production, logistics, and marketing practices.

The key is in the flexibility to adapt to customer preferences and the precision to create and produce what customers are asking for, at the moment they are asking for it. At the end of the year, Inditex’s more than 700 designers will have come up with 60,000 different creations, and the stores worldwide will have received new waves of collections twice per week.

Wire your privileged insights into how you work

Put your privileged insights to work by connecting them into your operations — changing structures, processes, incentives, metrics, information flows, etc., to enable every part of the business to make decisions that are based on your unique insights.

The most obvious (though not always well-executed) example of this involves wiring privileged insights into your company’s innovation process, by using them as the basis for ideation and looking for many ways in which customers can be integrated in the actual development process (for example, in beta pilots). But privileged insights need to be linked to many areas beyond innovation, including the determination of investments in tools and technologies that facilitate ongoing experiences, the interaction of your selling and customer teams, and your forecasting and strategic planning. Be prepared for those insights to materially change the fundamentals of your business, not just lead to incremental changes or a new feature in some of your products. And rethink how you measure the impact of your privileged insights capability; the metrics that most companies use today don’t go nearly far enough, and more innovative measures like, for example, return on experience (RoX), should be considered by companies pursuing this capability.

Consider Salesforce. From its inception, Salesforce has been acutely aware of the need to build its business on trust — not surprising given the sensitivity of the data customers share on the platform. This values-based relationship with users allows the company to gain deep insights into what works well, what needs improvement, and additional services customers would like to get.

These insights directly feed into and fuel Salesforce’s product development strategy and allow the company to extend its value proposition. With a customer success orientation at the heart of the relationship Salesforce builds with its customers, the company has established a unique platform that allows it to leverage insights from customer usage data to inform strategies that enhance long-term customer value and thereby drive customer retention and growth. These insights enable Salesforce to more effectively co-develop solutions with partners and customers, tailor them to various industries, and offer them as part of their platform as new industry clouds. This unique system of product development and innovation fueled by proprietary customer insights is one of the key factors that has made Salesforce the fastest-growing software company of all time.

The power of a privileged insights system stems from its self-reinforcing nature: The more customers trust your company and derive value from the your products and services, the more likely they are to open up and engage with you. The more they do so, the more insights you’ll be able to gain about what customers want and need; and the more insights you have and the better you are at wiring those insights into everything you do, the more you can improve your customer experience, products, and services and build additional trust and connection with customers. It’s a true flywheel.

For the flywheel to work and fuel your company’s success, you need to work on all three of these areas, starting with a brutally honest assessment of the real gaps you may have across each area and realizing that creating a system of privileged insights will not come without meaningful transformation.

It’s easy to see how neglecting one area is going to keep the whole system from working. Indeed, if customers don’t trust you, they’re not going to open up. If providing insights is a one-way street, it may only appeal to the most loyal and passionate of your customers. And if you’re letting your customers down and don’t act on the feedback, you will most probably not get a second chance to get it right.

This is a big task and requires a fundamentally different way of thinking about data, research, and the entire cycle of touch points with customers. But it’s one that any company in any industry needs to take on to stay relevant. We can think of no other capability that is so universally needed.