June 19, 2025 • 30 mins
What if negative customer experiences matter more than you think—impacting your bottom line far beyond any single complaint or glowing review?
In the latest episode of the Delighted Customers podcast, we dive into why negative experiences carry outsized influence on customer loyalty and business revenue. Many leaders mistakenly chase the most frequent irritants, but as our guest explains, it’s not about quantity—it’s about which problems have the greatest financial impact. If you're a CX leader struggling to prove the ROI of your work, you’ll want to tune in for innovative strategies that bridge the gap between customer insights and business results.
Why listen to this episode? Paula Courtney, President of the Verde Group, is a global authority on customer retention and quantifying the financial risk of customer experience missteps. With over 30 years of research published in BusinessWeek, Forbes, the Wall Street Journal, and Harvard Business Review, Paula brings a unique, science-backed approach to identifying the most consequential pain points in your customer journey. Her team’s methods have helped organizations around the world—across 35 countries—focus investments where they count and avoid common CX measurement pitfalls.
Here are three engaging questions Paula answers on this episode:
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Why do negative experiences have a disproportionate effect on customer behavior—and what psychological principles drive this phenomenon?
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What critical missteps do organizations make by relying on “applause meter” surveys and chasing the wrong metrics?
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How can leaders accurately quantify the financial risk of negative experiences and build a rock-solid business case for CX investment in the boardroom?
Don’t miss this essential conversation for anyone seeking to transform their customer experience—and get buy-in from the C-suite. Listen to the episode now and subscribe so you never miss insights from top industry leaders.
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Meet Paula Courtney
Paula Courtney is the President of the Verde Group, a global market research consultancy specializing in customer retention and the quantification of customer experience ROI. For over three decades, she has led the development of research methods that help organizations not only identify but truly measure the economic impact of customer experiences—especially the negative ones most likely to drive churn. Paula’s expertise has been featured in prominent outlets such as BusinessWeek, Forbes, the Wall Street Journal, and Harvard Business Review. Her work is rooted in psychology, utilizing principles like negativity bias and loss aversion, and grounded in data science to separate “noise” from actionable insights. An international leader, Paula and her team have supported customer-centric transformation in over 35 countries, providing business leaders with tools to prioritize investments and foster real, financially measurable change.
Learn more about Paula and the Verde Group at https://verdegroup.com
Connect with Paula Courtney on LinkedIn: Paula Courtney LinkedIn
Show Notes & References
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Verde Group: Website and Resources
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Monthly newsletter, research blogs, and case studies: Available on Verde Group’s website
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:08):
Welcome to the Delighted Customers podcast. I am so glad
you're here. We challenge conventional thinking about customer
experience because I believe that improving experiences isn't just good
for business. It's a powerful way to make a meaningful difference
in people's lives. Each week we feature thought provoking
conversations with industry thought leaders from a
(00:30):
variety of backgrounds, offering you unique perspectives and
actionable insights. Get ready to sharpen your
leadership and transform your approach to customer experience.
Let's dive in.
Welcome to the Delighted Customers podcast. I am so
excited for my guest today, Paula Courtney. Paula is the president
(00:53):
of the Verde Group, a global market research
consultancy specializing in helping companies improve
customer retention. And Paul leads the development of
new research methods for helping companies. And this is really what
got my attention. Helping companies quantify the financial
impact of their customer experience. In many ways,
(01:15):
this is what's perhaps amongst the most challenging
things for any change leader is to try and improve the
ROI of our work. So with that said, Paula,
welcome to the show. Thanks, Mark. I'm thrilled to be here
and looking forward to our discussion. Absolutely. And
so grateful that you could come on. And wouldn't you agree that this
(01:37):
is a tough nut for a lot of leaders?
Absolutely. And it shouldn't be because as long as money
matters, customers should matter because they're the primary source
of revenue. So if companies need to protect and grow
revenue, then they should worry about what customers are experiencing
and how those experiences drive economic behaviors.
(01:58):
Before we dive into this, And I agree 100%, could
you share a little bit more about what your
organization does and how you differentiate from
other people out there? Thanks. Well, I'd say that
our business at a very high level, one could say we are in
the business of helping organizations protect and grow revenue through
(02:21):
voice of customer insights. And what that means is
our belief is that as long as you follow the money,
then you are poised for transformation and poised
for, you know, investing in the areas that matter most to your
customers. And customers are an important input
into where to invest because they are the primary
(02:44):
drivers of revenue if they stay
with you, if they grow their product share with you,
if you get more customers. I mean, all of those drive revenue sales.
So it makes sense that what they experience and how those
experiences drive the behaviors that they
exhibit in the market, you know, is paramount for an organization to
(03:06):
understand. And unfortunately, I think that most
organizations fail in how they measure those
experiences. And so in the end, they're unable to make those
connections. And so they're left with a bunch of
applause meter surveys, or what we call you know, how much
do you love us? Surveys that really aren't
(03:28):
actionable and don't really provide input into
the economic imperative of what companies need to do differently.
And Paul, another thing that I was impressed with from your
organization was that you have done research on
the retail segment and been published
in BusinessWeek, Forbes, Wall Street Journal, Harvard Business Review.
(03:51):
Can you share a little bit about, at a high level, some
of the key findings from that research? So a lot
of the. This is where we get into what makes us different and what makes
us unique. Not only are we interested in
understanding how, you know, customer
experiences affect economic outcomes for companies,
(04:13):
but we have a particular focus, and our focus is on
negative experiences. And that's because negative
experiences have a disproportionate impact
on customer behavior compared to positive ones. So, and this is
really due in part to some of the psychological
principles such as negativity bias, loss aversion,
(04:34):
and social exchange theory. So our work is really based
on social science, and for 30 years we've been
measuring this, and it takes, I honestly
say, a lot of courage for organizations
to go to market with a purposeful and deliberate interrogation of
negative customer experiences. So a lot of the research that you
(04:57):
cited and the publications that we've had was really, really about sharing,
you know, the extent to which negative experiences occur in industry,
regardless of industry and regardless of country, because we work in 35
countries, so we're pretty global. So
our research is really focused on sizing up, you know,
how big is that financial risk as a result of negative experiences, which, by the
(05:20):
way, every organization creates friction for their
customers. The question is, are you able to identify,
you know, noise from signal, like, which experiences matter most,
which negative ones are really important versus chasing the tail of
every negative problem that, you know, customers
may experience, that some are innocuous and some really matter.
(05:42):
So I love that. I love this vantage point of looking at
the friction and understanding what really matters, what doesn't, what
we should focus on. But you mentioned negative bias. Could you, for
level set for the audience what you mean by that? So negativity bias,
which is basically a theoretical construct. Yeah.
And it basically is that people weigh negative experiences more
(06:05):
heavily than positive ones. So. So a single bad
experience can undo the goodwill
created by multiple good experiences. So it is
true that, you know, customers, when they encounter
friction, they are more likely to reduce spend, defect to competitors, and
discourage others from. Discourage others through negative word of mouth.
(06:27):
So these reactions are well documented in
multiple industries and in both academic and applied research.
Okay. So that Makes sense. And you know, you often hear bad
news travels faster than good news. Bad word of mouth
is just crushing when it comes to trying
to get referrals and trying to get business from referrals. And this just kind
(06:49):
of follows along that, that thought stream. So just to piggyback
off the weight of this, when it comes to leaders
in the, in the role of trying to make change, I, from my own
experience as a CX leader, one of the things that I wasn't
fully aware of, I try to take personally. I, maybe you could agree with
me that maybe those in that seat need to reframe
(07:11):
their thinking about the personal, I
guess, attribution that we take for not doing a good job is that
we're feeling like we need to prove the ROI of
customer experience. And that's kind of my point is like we're all these
baby birds chirping for the money, for the resources
in the organization. So we're not alone. Marketing, you know,
(07:33):
product, these other departments are also in the same boat. And if you're sitting
in the C suite, you've got a scarce, you know, limited amount of
resources that you've got to distribute. And so to
be fair, they're looking for, as you said earlier on, gee,
what's going to give us the best bang for our buck overall? Because we,
we have a business to run. Right? Am I thinking about that? Right.
(07:55):
Absolutely. So, you know, we have this saying at Verde
Group, and it says, if you don't know how much your current service experience
is costing you from financial risk perspective, then how
could you possibly know how much you need to invest to fix it?
So, and often, you know, I've spoke to one leading
bank in Canada and they said, you know, a few
(08:17):
years ago, the entire bank was obsessed with measuring
irritants and friction because some executive thought, you know,
that's important, which is great. I'm glad that that happened. But then what
happened is every part of the organization was measuring
just irritants. And they ended up with a list of like 500 irritants
customers could experience. And they didn't know what to do with that information. They didn't
(08:40):
know. Okay, so now that we know what the irritants are, what do we do
next? So here's the common, common,
you know, treatment of that data is you
take the biggest irritants, the ones that occur most frequently, or
perhaps the ones that occur most frequently with the customers that you
value the most, and you attack those. But that's
(09:03):
a mistake because frequency does not
necessarily dictate impact. You could have
a lot of noise in your system where
there's a lot of, you know, lots and lots of problems with
a particular area. Like maybe I don't understand the statement. And so I
cannot tell you how many, how many times banks have actually
(09:26):
redesigned statements, digital statements, because
one of the big problems complaints is I don't understand how to read
my financial statement. And that's really not the issue. The issue is
not I don't know how to read my statement. It could be something else that's
underlying that. So really I think that's where
there's a fail point in, in the measurement is do
(09:48):
we really understand the discrete
experiences that have disproportionate impact
on that negative market impact, number one. And can we
quantify that risk? Right. How big that
impact is? And then you've got an ROI model and
Verde group. We know how to do that. We know how to separate and tease
(10:09):
out the experiences that really
matter from those that don't and may be occurring
far more frequently. Thank you for sharing.
That makes a lot of sense. And I think it would be
a reasonable logic to go after the frequency, the things that
come up the most because that's what's going to be reported on, that's what you're
(10:31):
going to see. But to your point, which ones really have this
differentiated impact on the customer experience? So what would be some of
the steps that I might need as a leader
or it might be useful in my toolbox as a leader to
quantify the impact of these negative
experiences? So the first thing is do we really
(10:53):
know how to interrogate on negative experiences? So that's
the first side. So we always say if you're going to speak with a customer
and then you want to measure what they're feeling, make sure that
that instrument, whatever it is that you use, actually
uses the language that your customers would use to express
what they're experiencing with you. So speak customer number one.
(11:15):
And I see a lot of surveys out there that are like scary because they're
very technical and customers like I have no idea, you know, what I'm
answering or even, you know, so hire a professional is
my advice in terms of knowing how to create a measurement
instrument that really interrogates in a way that a customer
might comprehend and then, you know, leave no
(11:37):
stone unturned. Like you really want to cover the full
gamut, cradle to grave of that experience journey
from before a customer engages with you and buys from you. So the sort
of pre buy experiences which could include marketing
etc. All the way through to using your product and
service. And then all the peripherals that, you know, peripheral
(12:00):
business processes that your customers rely on in
order to use your products, your customer support, you know,
billing, invoicing, all those things right through to, you know, they've used the product
now, and what are you doing? How are you engaging with that customer? So it's
quite possible to come up with three or four hundred
unique experiences that customers may have.
(12:22):
And then it's about, okay, obviously we can't ask customers
about 300 things, but how do we nail that down? How do we narrow
that experience set down to discrete set of experiences
that we want to test? And so there's a bit of science with that on
how, you know, bring that list down. And then lastly, and the
way we do is we really apply a lot of data science to
(12:45):
how we analyze what matters most to customers.
Which experiences really do have that disproportionate
impact on market behavior. You know, we don't have a black box.
It's pretty straightforward statistics, but it is some modeling that we
would do to basically determine the problems that
matter most. And then if you know what the value is of a
(13:07):
customer, whether it's lifetime value or transactional value,
if you're a retailer, whatever, you can actually do the math and say, okay, how
many customers have this problem? How many customers are going to not buy
from us when they have this problem? What is the value of the customer? And
before you know it, you have the simple equation for sizing up
the cost of that problem. And now when you, you know,
(13:28):
stack those problems together, you can get a pretty
identifiable list of priorities for the business. So you mentioned data
science, and in the class I'm
teaching, as a matter of fact, as we're recording, I'm finishing up.
Tomorrow night's the last class for this particular cohort at msu, and it's
customer relationship management. And you mentioned pretty much the
(13:51):
customer life cycle at one point from end to end and making sure we don't
miss anything in differentiated experiences.
One of the things that came up in the class is this service recovery paradox.
Yes. And I'll just explain it, but then I want to get your feedback.
So there was a study done a while back that looked at
things like customer loyalty levels and the impact when something
(14:14):
goes wrong at a company. What happens? What's the risk? What's the
impact? And when things go wrong. And as you mentioned, there's always
something that goes wrong. No organization's perfect.
So when that happens, what do companies do about it?
And those if you can recover from that
failure and in a way that the customer feels good about,
(14:37):
then at the end of that the actual loyalty can actually rise above
the original trajectory. And so let me get your
feelings as it relates to the conversation we're having.
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(14:58):
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(15:20):
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(15:46):
Verity Group's been measuring that effect for 30 years. So without a
doubt, service recovery is an incredibly important
factor to mitigate risk that comes about from friction.
So an organization has an absolute chance they have
a shot at bat to recover the damage
from that problem with the recovery. But
(16:09):
here's the problem with that. So number one, it
assumes that when a customer has a problem, an egregious
one, a high risk problem, that they actually take the time
to contact the organization, giving the organization
the opportunity to recover. Okay? And
the actual fact is most people don't. So you have a
(16:32):
lot of risk simply in the creation of
friction. But when you do, when you
do get that opportunity to recover because the
customer had trust and trusted
you as an organization enough to contact,
however method they contacted online, whatever
(16:54):
the channel, to say, hey, I have
a problem now think about this. The reason
why there is potential
for greater loyalty after a customer contacts
and you have and you do an amazing job of recovery is all
based on social science. It's called cognitive
(17:16):
dissonance. So what this means is if the customer
has the trust, the belief that
calling you, contacting you to get resolution,
if that belief was validated because you actually
solved it, then they're entrenched. They're now,
oh my God, I was right. I was right to contact.
(17:40):
So now I love you more because I gave you a chance because
I had trust and you delivered for me.
That's what's happening here. So here's the
opposite of that. When the customer
chooses and trusts you enough to contact you with their
problem and you don't make it worth their
(18:02):
while because you make it really hard for them to contact you. First
of all, they might not know who or where or my God. Or they get
thrown around three or four times and then by the time they get to someone,
they don't have the ownership, the authority to solve your problem. And you're waiting. So
if that experience is anything but amazing,
you actually kill loyalty for the
(18:24):
same reason, cognitive dissonance. They trusted you, you
violated that trust. And now you're basically saying, you were wrong,
customer, you were wrong to contact me because I really
screwed up on the recovery. Not only did I create the
pain of the problem, but then I made it impossible for you to get
resolution. So now they hate you more. So now you may have lost
(18:47):
that customer forever. So the risk, and sometimes we see this,
we tell companies, shut down your call centers, shut down your contact channels
because you're doing such a horrible job of resolving that you're actually
killing all those customers. They have no chance of ever coming
back to you. And so that's the danger. And the
other thing that I honestly have seen, and
(19:09):
that is the effect that you've just
described, Mark, where oh my God, a customer has the trust, they
contact. The organization does an amazing job of recovery. And look, we
get a lift in loyalty. Those days are numbered and
they don't happen very often. The best that you can hope for today,
and I can tell you why, is to put the customer in the center, same
(19:31):
place that they would have been had they not had that problem in the first
place. That is what we're seeing as best case
scenario. We're rarely seeing companies
deliver incremental value or loyalty
or advocacy as a result of doing an amazing job of recovery.
Those cases are far and few between customers just have heightened
(19:55):
expectations. Organizations like Apple and Amazon have
created an incredibly high bar for
organizations to meet. And remember, I don't care if you're in aerospace
or you make widgets or you are a B2B or B2C. Every
single human that you are selling to is buying from
Amazon or Apple or some of these other stellar
(20:16):
performers when it comes to experiences. So that's your
competition. So anyone who says, we don't compete with Apple or Amazon, you all
absolutely compete with Uber. You compete with all of those companies because you're
humans that you're interacting with. They're using those services and
that's your benchmark. Yeah. And you're not suggesting that
they give up on aspiring to deliver
(20:39):
great experiences or recovering. You're just saying that
few and far between are actually doing it. We Recommend that
companies have an incredible, you know, understanding
of what I call the problem resolution machinery.
So it is a very sophisticated and complex process.
Resolving customer issues is like resolving world hunger.
(21:01):
It's massive. And it's not a department's responsibility.
It's an organization's responsibility. Companies that are really
good at it have it in their DNA that no matter
who touches anybody in the organization, it's everybody's job.
So as soon as you see, yeah, well, this
department is responsible for handling customer issues, then I can
(21:25):
tell you without a doubt that that company is failing. Let me
ask you, what comes to mind is a. I don't know if you know who
Lou Carbone is, but Lou is one of the
founders. Some people argue he's the one who came up with the term customer
experience management in one of his papers for Harvard
Business review, I don't know, 1994 or something like that. And Lou's been a guest
(21:46):
on the show and is a faculty member at MSU as well.
He wrote a book called Clued in, which was largely about
the psychology behind the experience and how to design an experience
based on how humans operate and how they think and what affects our
psychology. And one of the criticisms he has for customer
experience leaders is along these lines. And he says,
(22:10):
we often fall into a break fix mentality.
We're the repairman or woman, and that's. That's a trap. So I want
to talk about how what you're. What you're. Or help me
in the audience distinguish between the break fix trap,
as Lou calls it, and what we're talking about by understanding
friction and differentiating points.
(22:32):
So much to unpack in that question. I don't even know where to start.
First of all, when we look at behaviors that people and
organizations exhibit, you know, the problem
resolvers, like, you know, always fighting to resolve a customer issue. And
I have a client like that who every single executive is
just tuned for firefighting.
(22:54):
A customer can call the CEO, and that CEO is going to resolve that problem.
So we often say the firefighters are also arsonists.
So I think that the issue with that behavior,
to comment on Lou, and I don't know, you know, what he says about this,
but often we have to look at the intrinsic reward system
(23:15):
that is set up in an organization. Are our leaders
rewarding the heroic efforts that people take to
resolve customer issues? And it doesn't have to be a direct
reward. It could be an intrinsic one sort of not explicit reward.
They get, you know, called out in meetings. They get the email
that says, oh my God. That encourages that behavior
(23:37):
and it moves it, it keeps it at the hero
level and, and prevents it from getting to
the systemic level. Which is what I'm suggesting organizations need to do
is they need to have a system of resolving customer
issues. They need to address problem resolution at a
systemic level in addition to having
(24:00):
a process for understanding where friction is
occurring and a process for, for fixing the friction
that matters most for the customers that matter most.
And that's really important because I see a lot of organizations
measuring customer experience and thinking that customers are
this ginormous, homogeneous group of characters and they're not.
(24:22):
Customers are very heterogeneous. You've got customers with different
life stages, product life cycles in your. Whatever you're trying to
sell. Their aptitude for embracing digital channels
versus in person might be different. So recognizing
that all your customers are really unique and having
a process improvement plan that addresses
(24:46):
customers at a segment level is really critical and very rarely done.
Love it. I love it. You know, that was. I apologize for the
complex question I asked, but you did a good job of unpacking
it and explaining why we're not talking about traditional break fix
and the traps that organizations can fall into. Look, I love what
you said. And going back to the top, I want to kind of end on
(25:09):
this point, which was the ROI of cx, the ROI of the
experience and the case, the business case we're trying to make for executives
and looking at risk, looking at revenue at risk and
looking at the most impactful parts of the
experience where we're causing friction and
just summarizing for the audience the negativity bias that we have as
(25:31):
human beings makes the risk associated with bad
experiences or parts of their journey with you.
High, high risk, opportunity for churn,
customer churn. And at least the very least an erosion of loyalty.
Right. And so, and you talked about looking at that,
understanding what that costs you
(25:55):
as an organization so you can begin to make the
business case. And what I love what you said was you're looking
at CLV as one of the potential
ways. And I think traditional business accounting metrics,
what Fred Reichel calls capitalistic accounting, gets us
into a trap of not understanding the value of a customer and customer lifetime
(26:17):
values. Just one. There are many ways that you can do it. I don't know
from your experience, but from my experience, I'd love to get your thoughts on this.
My experience is there isn't necessarily
a one size fits all in terms of the financial
measurement you want to use. The best metric to use is
(26:37):
what your financial group will agree to as one
that's valid. Love it. And Mark, that is bang
on true. That is exactly what we would recommend. You are so right there.
And you can tie those, you can tie to those, can't you?
Yes. So you're absolutely right. Choose a financial metric as your
dependent measure that has standability in the boardroom that no one will
(27:00):
question. Well, how did you get that number and what does that really mean? So
you want a generally accepted of, you know,
quantifying finance for your business, quantifying the
value of a customer. So that's, that's critically important. Otherwise you know,
you're going to get questioned and then people are just going to not believe any
of the insights that you might bring to the table. What
(27:21):
a terrific conversation. I could talk to you all day,
Paula, but we've got to land the plane. I want to finish with
one question and then talk a little bit about how people can connect with you
if they're interested and they'd like to learn more. So the question is, this should
be easy for you. What delights you as a customer, you personally?
That's a great question and it's an easy one to answer.
(27:44):
I get delighted. Not by, you know,
surprises or anything out of the ordinary. I
get delighted when what a company promises to do, they
actually do it. So it's, it's just the consistency of their
value proposition. It's consistently executing
on what you say you're going to do that delights me. So
(28:06):
it's like if you say you're going to do this and you do it, yay
happy, I'm engaged. I'm an advocate. But if you say X and you
deliver Y and you do that more than once, I'm not going to come back.
Well said. I don't think you're alone in that thinking. So the last part of
it is, boy, you've got, you and your organization been at this a long time.
You've got a tremendous amount of expertise. You do great research
(28:29):
and if you just listen to our conversation and you want to know
more and you want to be able to get a hold of Paula. Paul, what's
the best way for people to reach you if they want to learn more?
Absolutely. So the best way, all the links and,
you know, abilities to contact any of us at our team is
through our website. So we are@verdegroup.com and
(28:51):
that's the best way. And we have a lot of case studies, a lot of
material. People will find copies of our newsletter, which we publish every month. And
there's a lot of great research in our monthly newsletters. We publish
blogs every month, so we're constantly out there
publishing, writing, researching, sharpening our tools. But our
website is the best source and there's a link in there or a little button
(29:13):
you could push and someone will reach out if you want information. So I think
that's the best way to reach me or anyone else in our firm.
Excellent. And as always, we'll have all that in the show Notes.
Paula, thank you so much for being a guest today. Thank you for the great
questions, Mark, and the incredible, yeah. Insight that
you bring to the table as well on this topic. Definitely appreciate
(29:34):
it. Thanks. I hope you enjoyed this episode.
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(29:57):
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here next Thursday.
Welcome to the Delighted Customers podcast. I am so glad
you're here. We challenge conventional thinking about customer
experience because I believe that improving experiences isn't just good
for business. It's a powerful way to make a meaningful difference
in people's lives. Each week we feature thought provoking
conversations with industry thought leaders from a
(00:30):
variety of backgrounds, offering you unique perspectives and
actionable insights. Get ready to sharpen your
leadership and transform your approach to customer experience.
Let's dive in.
Welcome to the Delighted Customers podcast. I am so
excited for my guest today, Paula Courtney. Paula is the president
(00:53):
of the Verde Group, a global market research
consultancy specializing in helping companies improve
customer retention. And Paul leads the development of
new research methods for helping companies. And this is really what
got my attention. Helping companies quantify the financial
impact of their customer experience. In many ways,
(01:15):
this is what's perhaps amongst the most challenging
things for any change leader is to try and improve the
ROI of our work. So with that said, Paula,
welcome to the show. Thanks, Mark. I'm thrilled to be here
and looking forward to our discussion. Absolutely. And
so grateful that you could come on. And wouldn't you agree that this
(01:37):
is a tough nut for a lot of leaders?
Absolutely. And it shouldn't be because as long as money
matters, customers should matter because they're the primary source
of revenue. So if companies need to protect and grow
revenue, then they should worry about what customers are experiencing
and how those experiences drive economic behaviors.
(01:58):
Before we dive into this, And I agree 100%, could
you share a little bit more about what your
organization does and how you differentiate from
other people out there? Thanks. Well, I'd say that
our business at a very high level, one could say we are in
the business of helping organizations protect and grow revenue through
(02:21):
voice of customer insights. And what that means is
our belief is that as long as you follow the money,
then you are poised for transformation and poised
for, you know, investing in the areas that matter most to your
customers. And customers are an important input
into where to invest because they are the primary
(02:44):
drivers of revenue if they stay
with you, if they grow their product share with you,
if you get more customers. I mean, all of those drive revenue sales.
So it makes sense that what they experience and how those
experiences drive the behaviors that they
exhibit in the market, you know, is paramount for an organization to
(03:06):
understand. And unfortunately, I think that most
organizations fail in how they measure those
experiences. And so in the end, they're unable to make those
connections. And so they're left with a bunch of
applause meter surveys, or what we call you know, how much
do you love us? Surveys that really aren't
(03:28):
actionable and don't really provide input into
the economic imperative of what companies need to do differently.
And Paul, another thing that I was impressed with from your
organization was that you have done research on
the retail segment and been published
in BusinessWeek, Forbes, Wall Street Journal, Harvard Business Review.
(03:51):
Can you share a little bit about, at a high level, some
of the key findings from that research? So a lot
of the. This is where we get into what makes us different and what makes
us unique. Not only are we interested in
understanding how, you know, customer
experiences affect economic outcomes for companies,
(04:13):
but we have a particular focus, and our focus is on
negative experiences. And that's because negative
experiences have a disproportionate impact
on customer behavior compared to positive ones. So, and this is
really due in part to some of the psychological
principles such as negativity bias, loss aversion,
(04:34):
and social exchange theory. So our work is really based
on social science, and for 30 years we've been
measuring this, and it takes, I honestly
say, a lot of courage for organizations
to go to market with a purposeful and deliberate interrogation of
negative customer experiences. So a lot of the research that you
(04:57):
cited and the publications that we've had was really, really about sharing,
you know, the extent to which negative experiences occur in industry,
regardless of industry and regardless of country, because we work in 35
countries, so we're pretty global. So
our research is really focused on sizing up, you know,
how big is that financial risk as a result of negative experiences, which, by the
(05:20):
way, every organization creates friction for their
customers. The question is, are you able to identify,
you know, noise from signal, like, which experiences matter most,
which negative ones are really important versus chasing the tail of
every negative problem that, you know, customers
may experience, that some are innocuous and some really matter.
(05:42):
So I love that. I love this vantage point of looking at
the friction and understanding what really matters, what doesn't, what
we should focus on. But you mentioned negative bias. Could you, for
level set for the audience what you mean by that? So negativity bias,
which is basically a theoretical construct. Yeah.
And it basically is that people weigh negative experiences more
(06:05):
heavily than positive ones. So. So a single bad
experience can undo the goodwill
created by multiple good experiences. So it is
true that, you know, customers, when they encounter
friction, they are more likely to reduce spend, defect to competitors, and
discourage others from. Discourage others through negative word of mouth.
(06:27):
So these reactions are well documented in
multiple industries and in both academic and applied research.
Okay. So that Makes sense. And you know, you often hear bad
news travels faster than good news. Bad word of mouth
is just crushing when it comes to trying
to get referrals and trying to get business from referrals. And this just kind
(06:49):
of follows along that, that thought stream. So just to piggyback
off the weight of this, when it comes to leaders
in the, in the role of trying to make change, I, from my own
experience as a CX leader, one of the things that I wasn't
fully aware of, I try to take personally. I, maybe you could agree with
me that maybe those in that seat need to reframe
(07:11):
their thinking about the personal, I
guess, attribution that we take for not doing a good job is that
we're feeling like we need to prove the ROI of
customer experience. And that's kind of my point is like we're all these
baby birds chirping for the money, for the resources
in the organization. So we're not alone. Marketing, you know,
(07:33):
product, these other departments are also in the same boat. And if you're sitting
in the C suite, you've got a scarce, you know, limited amount of
resources that you've got to distribute. And so to
be fair, they're looking for, as you said earlier on, gee,
what's going to give us the best bang for our buck overall? Because we,
we have a business to run. Right? Am I thinking about that? Right.
(07:55):
Absolutely. So, you know, we have this saying at Verde
Group, and it says, if you don't know how much your current service experience
is costing you from financial risk perspective, then how
could you possibly know how much you need to invest to fix it?
So, and often, you know, I've spoke to one leading
bank in Canada and they said, you know, a few
(08:17):
years ago, the entire bank was obsessed with measuring
irritants and friction because some executive thought, you know,
that's important, which is great. I'm glad that that happened. But then what
happened is every part of the organization was measuring
just irritants. And they ended up with a list of like 500 irritants
customers could experience. And they didn't know what to do with that information. They didn't
(08:40):
know. Okay, so now that we know what the irritants are, what do we do
next? So here's the common, common,
you know, treatment of that data is you
take the biggest irritants, the ones that occur most frequently, or
perhaps the ones that occur most frequently with the customers that you
value the most, and you attack those. But that's
(09:03):
a mistake because frequency does not
necessarily dictate impact. You could have
a lot of noise in your system where
there's a lot of, you know, lots and lots of problems with
a particular area. Like maybe I don't understand the statement. And so I
cannot tell you how many, how many times banks have actually
(09:26):
redesigned statements, digital statements, because
one of the big problems complaints is I don't understand how to read
my financial statement. And that's really not the issue. The issue is
not I don't know how to read my statement. It could be something else that's
underlying that. So really I think that's where
there's a fail point in, in the measurement is do
(09:48):
we really understand the discrete
experiences that have disproportionate impact
on that negative market impact, number one. And can we
quantify that risk? Right. How big that
impact is? And then you've got an ROI model and
Verde group. We know how to do that. We know how to separate and tease
(10:09):
out the experiences that really
matter from those that don't and may be occurring
far more frequently. Thank you for sharing.
That makes a lot of sense. And I think it would be
a reasonable logic to go after the frequency, the things that
come up the most because that's what's going to be reported on, that's what you're
(10:31):
going to see. But to your point, which ones really have this
differentiated impact on the customer experience? So what would be some of
the steps that I might need as a leader
or it might be useful in my toolbox as a leader to
quantify the impact of these negative
experiences? So the first thing is do we really
(10:53):
know how to interrogate on negative experiences? So that's
the first side. So we always say if you're going to speak with a customer
and then you want to measure what they're feeling, make sure that
that instrument, whatever it is that you use, actually
uses the language that your customers would use to express
what they're experiencing with you. So speak customer number one.
(11:15):
And I see a lot of surveys out there that are like scary because they're
very technical and customers like I have no idea, you know, what I'm
answering or even, you know, so hire a professional is
my advice in terms of knowing how to create a measurement
instrument that really interrogates in a way that a customer
might comprehend and then, you know, leave no
(11:37):
stone unturned. Like you really want to cover the full
gamut, cradle to grave of that experience journey
from before a customer engages with you and buys from you. So the sort
of pre buy experiences which could include marketing
etc. All the way through to using your product and
service. And then all the peripherals that, you know, peripheral
(12:00):
business processes that your customers rely on in
order to use your products, your customer support, you know,
billing, invoicing, all those things right through to, you know, they've used the product
now, and what are you doing? How are you engaging with that customer? So it's
quite possible to come up with three or four hundred
unique experiences that customers may have.
(12:22):
And then it's about, okay, obviously we can't ask customers
about 300 things, but how do we nail that down? How do we narrow
that experience set down to discrete set of experiences
that we want to test? And so there's a bit of science with that on
how, you know, bring that list down. And then lastly, and the
way we do is we really apply a lot of data science to
(12:45):
how we analyze what matters most to customers.
Which experiences really do have that disproportionate
impact on market behavior. You know, we don't have a black box.
It's pretty straightforward statistics, but it is some modeling that we
would do to basically determine the problems that
matter most. And then if you know what the value is of a
(13:07):
customer, whether it's lifetime value or transactional value,
if you're a retailer, whatever, you can actually do the math and say, okay, how
many customers have this problem? How many customers are going to not buy
from us when they have this problem? What is the value of the customer? And
before you know it, you have the simple equation for sizing up
the cost of that problem. And now when you, you know,
(13:28):
stack those problems together, you can get a pretty
identifiable list of priorities for the business. So you mentioned data
science, and in the class I'm
teaching, as a matter of fact, as we're recording, I'm finishing up.
Tomorrow night's the last class for this particular cohort at msu, and it's
customer relationship management. And you mentioned pretty much the
(13:51):
customer life cycle at one point from end to end and making sure we don't
miss anything in differentiated experiences.
One of the things that came up in the class is this service recovery paradox.
Yes. And I'll just explain it, but then I want to get your feedback.
So there was a study done a while back that looked at
things like customer loyalty levels and the impact when something
(14:14):
goes wrong at a company. What happens? What's the risk? What's the
impact? And when things go wrong. And as you mentioned, there's always
something that goes wrong. No organization's perfect.
So when that happens, what do companies do about it?
And those if you can recover from that
failure and in a way that the customer feels good about,
(14:37):
then at the end of that the actual loyalty can actually rise above
the original trajectory. And so let me get your
feelings as it relates to the conversation we're having.
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(15:20):
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(15:46):
Verity Group's been measuring that effect for 30 years. So without a
doubt, service recovery is an incredibly important
factor to mitigate risk that comes about from friction.
So an organization has an absolute chance they have
a shot at bat to recover the damage
from that problem with the recovery. But
(16:09):
here's the problem with that. So number one, it
assumes that when a customer has a problem, an egregious
one, a high risk problem, that they actually take the time
to contact the organization, giving the organization
the opportunity to recover. Okay? And
the actual fact is most people don't. So you have a
(16:32):
lot of risk simply in the creation of
friction. But when you do, when you
do get that opportunity to recover because the
customer had trust and trusted
you as an organization enough to contact,
however method they contacted online, whatever
(16:54):
the channel, to say, hey, I have
a problem now think about this. The reason
why there is potential
for greater loyalty after a customer contacts
and you have and you do an amazing job of recovery is all
based on social science. It's called cognitive
(17:16):
dissonance. So what this means is if the customer
has the trust, the belief that
calling you, contacting you to get resolution,
if that belief was validated because you actually
solved it, then they're entrenched. They're now,
oh my God, I was right. I was right to contact.
(17:40):
So now I love you more because I gave you a chance because
I had trust and you delivered for me.
That's what's happening here. So here's the
opposite of that. When the customer
chooses and trusts you enough to contact you with their
problem and you don't make it worth their
(18:02):
while because you make it really hard for them to contact you. First
of all, they might not know who or where or my God. Or they get
thrown around three or four times and then by the time they get to someone,
they don't have the ownership, the authority to solve your problem. And you're waiting. So
if that experience is anything but amazing,
you actually kill loyalty for the
(18:24):
same reason, cognitive dissonance. They trusted you, you
violated that trust. And now you're basically saying, you were wrong,
customer, you were wrong to contact me because I really
screwed up on the recovery. Not only did I create the
pain of the problem, but then I made it impossible for you to get
resolution. So now they hate you more. So now you may have lost
(18:47):
that customer forever. So the risk, and sometimes we see this,
we tell companies, shut down your call centers, shut down your contact channels
because you're doing such a horrible job of resolving that you're actually
killing all those customers. They have no chance of ever coming
back to you. And so that's the danger. And the
other thing that I honestly have seen, and
(19:09):
that is the effect that you've just
described, Mark, where oh my God, a customer has the trust, they
contact. The organization does an amazing job of recovery. And look, we
get a lift in loyalty. Those days are numbered and
they don't happen very often. The best that you can hope for today,
and I can tell you why, is to put the customer in the center, same
(19:31):
place that they would have been had they not had that problem in the first
place. That is what we're seeing as best case
scenario. We're rarely seeing companies
deliver incremental value or loyalty
or advocacy as a result of doing an amazing job of recovery.
Those cases are far and few between customers just have heightened
(19:55):
expectations. Organizations like Apple and Amazon have
created an incredibly high bar for
organizations to meet. And remember, I don't care if you're in aerospace
or you make widgets or you are a B2B or B2C. Every
single human that you are selling to is buying from
Amazon or Apple or some of these other stellar
(20:16):
performers when it comes to experiences. So that's your
competition. So anyone who says, we don't compete with Apple or Amazon, you all
absolutely compete with Uber. You compete with all of those companies because you're
humans that you're interacting with. They're using those services and
that's your benchmark. Yeah. And you're not suggesting that
they give up on aspiring to deliver
(20:39):
great experiences or recovering. You're just saying that
few and far between are actually doing it. We Recommend that
companies have an incredible, you know, understanding
of what I call the problem resolution machinery.
So it is a very sophisticated and complex process.
Resolving customer issues is like resolving world hunger.
(21:01):
It's massive. And it's not a department's responsibility.
It's an organization's responsibility. Companies that are really
good at it have it in their DNA that no matter
who touches anybody in the organization, it's everybody's job.
So as soon as you see, yeah, well, this
department is responsible for handling customer issues, then I can
(21:25):
tell you without a doubt that that company is failing. Let me
ask you, what comes to mind is a. I don't know if you know who
Lou Carbone is, but Lou is one of the
founders. Some people argue he's the one who came up with the term customer
experience management in one of his papers for Harvard
Business review, I don't know, 1994 or something like that. And Lou's been a guest
(21:46):
on the show and is a faculty member at MSU as well.
He wrote a book called Clued in, which was largely about
the psychology behind the experience and how to design an experience
based on how humans operate and how they think and what affects our
psychology. And one of the criticisms he has for customer
experience leaders is along these lines. And he says,
(22:10):
we often fall into a break fix mentality.
We're the repairman or woman, and that's. That's a trap. So I want
to talk about how what you're. What you're. Or help me
in the audience distinguish between the break fix trap,
as Lou calls it, and what we're talking about by understanding
friction and differentiating points.
(22:32):
So much to unpack in that question. I don't even know where to start.
First of all, when we look at behaviors that people and
organizations exhibit, you know, the problem
resolvers, like, you know, always fighting to resolve a customer issue. And
I have a client like that who every single executive is
just tuned for firefighting.
(22:54):
A customer can call the CEO, and that CEO is going to resolve that problem.
So we often say the firefighters are also arsonists.
So I think that the issue with that behavior,
to comment on Lou, and I don't know, you know, what he says about this,
but often we have to look at the intrinsic reward system
(23:15):
that is set up in an organization. Are our leaders
rewarding the heroic efforts that people take to
resolve customer issues? And it doesn't have to be a direct
reward. It could be an intrinsic one sort of not explicit reward.
They get, you know, called out in meetings. They get the email
that says, oh my God. That encourages that behavior
(23:37):
and it moves it, it keeps it at the hero
level and, and prevents it from getting to
the systemic level. Which is what I'm suggesting organizations need to do
is they need to have a system of resolving customer
issues. They need to address problem resolution at a
systemic level in addition to having
(24:00):
a process for understanding where friction is
occurring and a process for, for fixing the friction
that matters most for the customers that matter most.
And that's really important because I see a lot of organizations
measuring customer experience and thinking that customers are
this ginormous, homogeneous group of characters and they're not.
(24:22):
Customers are very heterogeneous. You've got customers with different
life stages, product life cycles in your. Whatever you're trying to
sell. Their aptitude for embracing digital channels
versus in person might be different. So recognizing
that all your customers are really unique and having
a process improvement plan that addresses
(24:46):
customers at a segment level is really critical and very rarely done.
Love it. I love it. You know, that was. I apologize for the
complex question I asked, but you did a good job of unpacking
it and explaining why we're not talking about traditional break fix
and the traps that organizations can fall into. Look, I love what
you said. And going back to the top, I want to kind of end on
(25:09):
this point, which was the ROI of cx, the ROI of the
experience and the case, the business case we're trying to make for executives
and looking at risk, looking at revenue at risk and
looking at the most impactful parts of the
experience where we're causing friction and
just summarizing for the audience the negativity bias that we have as
(25:31):
human beings makes the risk associated with bad
experiences or parts of their journey with you.
High, high risk, opportunity for churn,
customer churn. And at least the very least an erosion of loyalty.
Right. And so, and you talked about looking at that,
understanding what that costs you
(25:55):
as an organization so you can begin to make the
business case. And what I love what you said was you're looking
at CLV as one of the potential
ways. And I think traditional business accounting metrics,
what Fred Reichel calls capitalistic accounting, gets us
into a trap of not understanding the value of a customer and customer lifetime
(26:17):
values. Just one. There are many ways that you can do it. I don't know
from your experience, but from my experience, I'd love to get your thoughts on this.
My experience is there isn't necessarily
a one size fits all in terms of the financial
measurement you want to use. The best metric to use is
(26:37):
what your financial group will agree to as one
that's valid. Love it. And Mark, that is bang
on true. That is exactly what we would recommend. You are so right there.
And you can tie those, you can tie to those, can't you?
Yes. So you're absolutely right. Choose a financial metric as your
dependent measure that has standability in the boardroom that no one will
(27:00):
question. Well, how did you get that number and what does that really mean? So
you want a generally accepted of, you know,
quantifying finance for your business, quantifying the
value of a customer. So that's, that's critically important. Otherwise you know,
you're going to get questioned and then people are just going to not believe any
of the insights that you might bring to the table. What
(27:21):
a terrific conversation. I could talk to you all day,
Paula, but we've got to land the plane. I want to finish with
one question and then talk a little bit about how people can connect with you
if they're interested and they'd like to learn more. So the question is, this should
be easy for you. What delights you as a customer, you personally?
That's a great question and it's an easy one to answer.
(27:44):
I get delighted. Not by, you know,
surprises or anything out of the ordinary. I
get delighted when what a company promises to do, they
actually do it. So it's, it's just the consistency of their
value proposition. It's consistently executing
on what you say you're going to do that delights me. So
(28:06):
it's like if you say you're going to do this and you do it, yay
happy, I'm engaged. I'm an advocate. But if you say X and you
deliver Y and you do that more than once, I'm not going to come back.
Well said. I don't think you're alone in that thinking. So the last part of
it is, boy, you've got, you and your organization been at this a long time.
You've got a tremendous amount of expertise. You do great research
(28:29):
and if you just listen to our conversation and you want to know
more and you want to be able to get a hold of Paula. Paul, what's
the best way for people to reach you if they want to learn more?
Absolutely. So the best way, all the links and,
you know, abilities to contact any of us at our team is
through our website. So we are@verdegroup.com and
(28:51):
that's the best way. And we have a lot of case studies, a lot of
material. People will find copies of our newsletter, which we publish every month. And
there's a lot of great research in our monthly newsletters. We publish
blogs every month, so we're constantly out there
publishing, writing, researching, sharpening our tools. But our
website is the best source and there's a link in there or a little button
(29:13):
you could push and someone will reach out if you want information. So I think
that's the best way to reach me or anyone else in our firm.
Excellent. And as always, we'll have all that in the show Notes.
Paula, thank you so much for being a guest today. Thank you for the great
questions, Mark, and the incredible, yeah. Insight that
you bring to the table as well on this topic. Definitely appreciate
(29:34):
it. Thanks. I hope you enjoyed this episode.
The delighted customers podcast. It would mean so much if you would take
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(29:57):
it if you leave a five star review. I look forward to seeing you back
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