Part 2: Keeping Up with Changing Customer Needs
Are you ever unsure of what your customers want? Would knowing what they expect help you drive business outcomes? If this sounds like you, read on as we explore the art and science of expectations in the second installment of this three-part series.
In Part 1 I described an expectations gap in which 84% of consumers say the digital tools and services they use fall short of what’s expected. If organizations are to resolve this dilemma, an understanding of the seemingly ambiguous nature of needs and wants is a good place to start.
Much has been written about COVID-19’s impact on customer expectations. Many changes born of a desire for enhanced safety also bestow convenience, especially when facilitated by digital. Clients tell us they’re eager to understand what the new expectations landscape means to their businesses. How can we quickly adapt to what customers need now? What new behaviors are likely to take root for good?
Quick Changes at Quick-service Restaurants
A look at changes in dining behaviors at quick-service restaurants shows just how rapidly the landscape can shift. Before the pandemic, customers utilized dine-in, takeout and drive-thru options in roughly equal measure (each about 30% of sales), with delivery sales contributing 7%. By April 2020, dine-in had shrunk to 3% of sales, drive-thru claimed 47% and delivery had ballooned to about 24%. Sales were down across the board, but just as important, they had shifted to new delivery channels almost overnight. What’s more, this shift allowed new entrants to steal mind- and wallet-share at the expense of the established restaurant brands. “The carnage in the industry overall was a boon to an emerging food service channel: delivery apps, or third-party aggregators as dubbed by the industry,” said Paul Briggs, eMarketer senior analyst.
Will these changes stick? No doubt many will, even as customers respond to new safety concerns and shift back and forth in dining behaviors. Once afforded new measures of convenience and choice, diners will expect them even after the pandemic subsides. Attending to these enhancements now while anticipating future needs will require retailers to develop even greater agility and innovation across their fulfillment models.
Anticipating Customer Wants and Needs
A few years ago Harvard Business Review published the Elements of Value Pyramid — a consumers-eye-view of Abraham Maslow’s hierarchy of needs. Elements of Value is a tool for anticipating customer expectations. It comprises 30 universal “building blocks of value” grouped into four hierarchical tiers. 14 Functional elements make up the base. Moving up, the next tier is Emotional, with 10 elements. Life-changing is next with its five elements, culminating with Social Impact at the apex of the structure. According to the authors, products and brands that incorporate multiple elements into their offers are more effective in meeting expectations. They enjoy greater customer loyalty and faster revenue growth compared to brands that deliver on only one or two elements.
Using Amazon Prime as an example, the authors determined that the popular service excels at no fewer than eight value elements across three of the pyramid’s tiers. (Coverage of multiple tiers is also good.) When it began in 2005, Prime offered Functional solutions covering the elements Reduces Cost and Saves Time. It later added streaming media, which satisfied elements in the Emotional tier, such as Provides Access and Fun/entertainment. Later innovations added more elements and increased tier coverage. In doing so, Prime was responding to its customers’ evolving needs. It was satisfying core expectations while setting the bar higher for rivals (and setting prices higher for members).
By understanding the elements that mean the most to their customers, designers and marketers can create more effective offers and messages. Including elements from multiple tiers, at the start or added over time, is another way to build value and defend against new entrants.
In the Tolerance Zone
Targeting customer expectations requires speed and innovation but not necessarily precise marksmanship. A study published by MIT Sloan Management Review found that expectations exist within a “zone of tolerance” — territory within which customers accept less-than-perfect performance. A shown in Figure 1, the zone is bounded by Adequate performance (at the low end of the zone shown in green) and Desired performance (at the high end). However, perceptions that fall short of the Adequate mark represent competitive disadvantage and will not satisfy customers. Perceptions that exceed the Desired mark are also not optimal, because they represent a surplus of delivered value. This is the realm of the “customer franchise”. For optimal results, CX leaders should therefore aim their promises and performance at the zone of tolerance.
Figure 1: Spectrum of customer expectations
The study also revealed that brands are better off “managing promises,” instead of overspending to achieve a precise performance result. “Firms will have a better chance of meeting customer expectations when their promises reflect the service actually delivered rather than an idealized version of the service.” Often, CX leaders can manage promises by simply communicating to customers in advance what they can expect from the relationship.
My takeaway from this study? Though you may have a firm grasp on your customer’s expectations, it’s important to tailor offers within segments. For example, offers and messages targeting first-time buyers should differ from those that target prospects with more buying experience. Novice buyers are typically more price sensitive. That’s because they have less experience and fewer points of comparison at hand. Price is an easily observable criterion so it often overshadows subtler, experience-based factors that may actually be more consequential. Plotting a range of expectations across the spectrum helps identify what matters to audiences in defining offers.
Prioritizing Attributes, the Kano Way
Perhaps the best-known framework for analyzing customer expectations and prioritizing product requirements is the Kano Model, introduced in the 1980s by Noriaka Kano, a Japanese expert in customer satisfaction and quality management. Product managers use this model to assess customer preferences for certain product attributes. By determining if an attribute is likely to delight, satisfy or dissatisfy, teams can prioritize the role that attribute plays in a product. Strategists at Perficient have recently adapted this approach for use in Perficient’s Now/New/Next methodology. We use Now/New/Next to help our clients benchmark their CX portfolios and digital products.
Meeting expectations hinges upon uncovering customer needs, ideating new solutions and creating the organizational conditions for success. As my colleague Jim Hertzfeld pointed out, “Understanding what customers expect and need, and then carefully deciding which of those to focus your attention on is the heart of the strategist’s dilemma.”
Up next: developing the organizational readiness needed to meet customer expectations.
