The value of Customer Experiences – 2024 reflection

How Customer Experience impacts organizational value

As 2024 comes to a close, I wanted to take a moment to reflect on the articles I wrote this year about Customer Experience (CX) and its vital connection to financial outcomes. Over the past months, I explored various facets of CX, from its evolving role within organizations to its potential as a driver of competitive advantage. Each post has been an opportunity to delve deeper into how CX can shape not only customer loyalty but also business success.

In case you missed any, here’s a quick recap of the journey we’ve taken together:

• Granularity in the definition of CX: Why a nuanced understanding of CX is critical for sustainable success. Revisit the article here

• Is the board ready to embrace Customer Experience?: Examining CX’s growing importance at the highest levels of decision-making. Read here

• Towards a Customer Context-driven organization: How understanding context transforms CX strategies. Link

• CX – from Marketing to a Board topic: The shift of CX from a tactical initiative to a strategic imperative. Revisit article here

• CX as a driver for Competitive Advantage: Leveraging CX to differentiate and win in competitive markets.

• Upstream CX – Incorporate CX in development of products and markets: Exploring how CX can inform product and market development. See my article here

• Identify and address the real needs and motivations that drive Upstream Customer Experiences: Insights into the psychology behind CX decisions. Read article here on Substack

• How to overcome the CX Paradox: Addressing the challenges of balancing customer expectations with financial realities. Link

Through these posts, I’ve aimed to bridge the gap between CX strategies and measurable financial outcomes. Let me briefly share some of the highlights and learning through these articles.

Customer Experience (CX) has become a widespread topic, often criticized as a cliché. Yet, its relevance as a management and board-level priority remains undeniable. Despite 93% of leaders agreeing on its importance for business performance (according to HBR), many organizations struggle to connect CX with financial outcomes. This challenge stems from factors like organizational maturity, alignment, and the lack of a clear and actionable definition of CX.

CX is a multidimensional construct – let’s untangle

My first article explores CX as a multidimensional construct, emphasizing the distinction between live, conscious experiences (happening in the present) and memorized experiences (stories stored in the subconscious mind). Key points include:

1. CX Framework: CX is shaped by four elements—individuals, experience partners, touchpoints, and customer journey stages. These building blocks provide a consistent framework for organizations to discuss and measure CX.

2. Customer Perspective: CX is inherently subjective and must be understood from the individual customer’s point of view. Measuring CX requires collecting data that accounts for personal perceptions and aggregating insights across upstream and downstream experiences.

3. The Role of Memory: Memorable CX is shaped by peak moments and endings. Rehearsing experiences (e.g., through summaries or follow-ups) helps reinforce positive memories, which are critical for influencing future behavior and building loyalty.

The article encourages organizations to create consistent, meaningful, and memorable experiences by aligning CX strategies across touchpoints and focusing on what customers will retain. Ultimately, mastering the “CX memory game” is essential for driving customer loyalty and long-term success.

But this is not easy. Organizations face with challenges associated with embedding customer-centricity in organizations, emphasizing the critical role of Customer Experience (CX) in driving growth and competitive advantage. I wrote about how “dominant logic”—the prevailing mindset in organizations—as a key barrier to prioritizing CX. This logic, often rooted in short-term financial goals and operational efficiency, can obstruct long-term investments in customer satisfaction.

My second article of this year was about the discussion highlighting three perspectives of organizational logic:

1. Goods-Dominant (G-D) Logic: Focuses on internal processes and value-in-exchange, emphasizing one-time transactions and tangible outputs.

2. Service-Dominant (S-D) Logic: Advocates for value co-creation through ongoing interaction between providers and customers, emphasizing relationships and context-specific value.

3. Customer-Dominant (C-D) Logic: Prioritizes customer needs, preferences, and experiences, making the customer the central driver of value creation and organizational agility.

“The piece underscores that organizations face trade-offs between enhancing customer willingness-to-pay and managing fulfillment costs. To succeed, organizations must move toward C-D logic while balancing efficiency and customer value. Realigning organizational priorities and adopting a customer-first mindset is presented as a strategic imperative for sustainable growth in today’s competitive landscape.”

Mindset shift required for organizations to remain competitive

My next article delved into the interplay between dominant logic and economic value, emphasizing the progression from commodities to goods, services, experiences, and ultimately transformations. This journey reflects the increasing value of offerings tailored to customer needs and the premium organizations can charge when their offerings integrate deeply into customers’ lives. The idea of a transformation economy resonates strongly here, with customers seeking authenticity, meaning, and personal growth through the businesses they engage with.

A key argument is the shift in mindsets required for organizations to remain competitive. Goods-Dominant Logic (G-D Logic), often seen in traditional businesses, focuses on product quality and reliability. Service-Dominant Logic (S-D Logic) emphasizes the co-creation of value and relationships with customers. Customer-Dominant Logic (C-D Logic), however, takes this a step further, positioning the customer as central to the process by embedding services into their lives rather than merely delivering them.

The ride-hailing industry provides a compelling example of these shifts in action. Traditional cabs operate with G-D Logic, prioritizing product availability and quality. Ride-hailing apps like GetTaxi introduced efficiencies through digital connections, reducing wait times and payment friction while adhering to S-D Logic principles. Uber took this further by orchestrating a virtual fleet, increasing utilization rates and creating seamless, intuitive experiences. BlablaCar then disrupted this model by leveraging peer-to-peer carpooling, reducing costs for passengers while maximizing vehicle use.

These examples illustrate how companies that lower costs while increasing customers’ willingness to pay can gain a competitive edge. However, the article cautions against complacency, noting that innovations often inspire imitators and markets evolve rapidly. This is why the mindset of a business—its dominant logic—must adapt to market conditions and customer expectations.

To shift toward Customer-Dominant Logic, organizations are encouraged to deeply understand their customers, involve them in co-creation, and personalize interactions. By focusing on seamless, authentic, and holistic experiences, they can differentiate themselves while fostering trust and loyalty. The article emphasizes that this is not about choosing a “better” logic but aligning the right mindset with the competitive advantage sought by the organization.

The concluding message is clear: businesses must not only focus on their products or services but also integrate into their customers’ lives, creating lasting value and deeper engagement. The transition to Customer-Dominant Logic offers a pathway to achieving this, but it requires a conscious and strategic effort to reimagine the organization’s relationship with its customers.

CX is a board room topic

Midyear I decided to write some more ‘disruptive’ articles why CX is a board room topic. Currently (2024) I am conducting a research on the exact relationship between CX and the financial outcomes like revenue, sales growth, profitability and it is quite striking to realize that many organizations are having hard times to connect the investments of CX to financial outomes. The first article I wrote about it, emphasized the strategic importance of Customer Experience (CX) for organizations, particularly its ability to drive financial outcomes and long-term success. It begins by explaining that CX is the sum of all interactions a customer has with an organization, consciously or unconsciously, and that CX is always occurring—even if an organization does not actively prioritize it. However, many organizations still perceive CX as a “nice-to-have” rather than a strategic necessity.

The argument against this mindset is illustrated with a striking analogy: If sales performance dipped for a quarter or two, the board would never suggest eliminating the sales function. This highlights the flawed reasoning that often places CX initiatives among the first to be deprioritized during challenging times, despite research showing their direct impact on financial results (e.g., Wetzels, 2023).

The article references literature that underscores CX’s financial impact, such as its ability to improve customer loyalty, reduce acquisition costs, decrease price elasticity, and secure future revenue streams (Fornell, 1992; Rust et al., 1994). It also cites McKinsey & Co.’s 2016 insight that companies must articulate the tangible value CX improvements generate to gain C-suite buy-in.

A recurring theme is that CX is not just a marketing concern but a “financial affair.” Boards and senior leaders, particularly CFOs, should actively champion CX initiatives. A 2020 Harvard Business Review survey revealed that 58% of finance leaders participate in CX discussions, reflecting the growing recognition of CX’s financial implications.

The piece then introduces the concept of Experience-Led Growth, a strategy that places CX at the heart of business operations. According to McKinsey, organizations that adopt such strategies—by personalizing customer interactions, leveraging analytics, and maintaining a long-term growth mindset—achieve significant financial benefits. These include increased cross-sell rates, improved customer satisfaction, and enhanced customer loyalty, all of which contribute to sustainable growth.

The article also distinguishes between downstream and upstream CX efforts. Downstream CX focuses on immediate tactics like advertising, brand-building, and customer interactions. Meanwhile, upstream CX takes a long-term, strategic approach by identifying customer needs, understanding market opportunities, and aligning business models with growth strategies.

CX initiatives require discipline and performance metrics to succeed, but the article cautions against relying solely on oversimplified measures like Net Promoter Score (NPS). While NPS provides a single headline figure, it often lacks actionable insights and excludes perspectives from non-customers or ex-customers. Effective CX measurement, therefore, must go beyond superficial metrics and account for broader business factors like customer lifetime value (CLV), which encompasses acquisition costs, retention rates, and contribution margins.

The article concludes by highlighting ongoing research involving interviews with senior executives to explore how CX initiatives impact profitability and long-term success. These discussions aim to reinforce the idea that exceptional CX is a key driver of competitive advantage, market differentiation, and financial growth. By integrating CX into their core strategies, organizations can achieve meaningful and lasting business outcomes.

CX as a Competitive Advantage – A must read!

The quality of the experiences a customer has directly shapes their perception of value, making CX a vital strategic element. Despite this, many organizations face challenges in defining, measuring, and understanding the true value of CX. This creates obstacles when developing impactful CX strategies.

A key insight is that customer perceived value acts as a critical link between CX and competitive advantage. Customers’ interactions with a brand at every touchpoint—before, during, and after a purchase—shape how they perceive the value of their experiences. Prof. Dr. Phil Klaus (2015) emphasizes that organizations must not only deliver excellent experiences but ensure these experiences are perceived as valuable. Perception is everything: high perceived value leads to greater satisfaction, loyalty, and advocacy, creating a sustained competitive advantage.

Joe Pine’s seminal work, The Experience Economy, highlights that we are transitioning from a service economy to an experience economy, where unique, memorable experiences drive value. In this landscape, goods and services serve as mere vehicles to deliver those experiences. Pine argues that companies capable of designing transformative experiences can achieve lasting differentiation. Looking ahead, Pine’s latest focus on “Transformation” suggests the future lies in helping customers achieve meaningful, life-altering outcomes through CX.

For organizations, CX offers a path to break free from the commoditization of goods and services. Differentiation through CX builds emotional connections with customers that competitors struggle to replicate. While products and prices can be matched or even surpassed, a carefully curated CX strategy fosters loyalty and resilience to market pressures. Loyal customers are less likely to be swayed by lower prices or rival offers and instead see value in the relationship with the brand.

Recognizing the importance of this, the CX-Led Profitable Growth Flywheel was introduced in late 2023.

Fig. 1 CX Led Profitable Growth Flywheel

This framework illustrates how exceptional CX not only improves customer loyalty but also drives profitability and growth. By focusing on the emotional and practical value delivered to customers, organizations can create a feedback loop of positive outcomes: satisfied customers stay longer, recommend the brand, and contribute to long-term financial success.

To achieve this, organizations must adopt a systematic approach to understanding and managing customer value. This is where Customer Value Management (CVM) becomes essential. CVM provides a framework for organizations to measure, compare, and enhance the value they deliver to customers relative to competitors. By identifying key drivers of customer value—such as product quality, price, service, and brand reputation—organizations can align their CX strategies to meet customer needs effectively.

CVM involves several critical steps: collecting customer data through surveys and feedback, benchmarking against competitors, segmenting customers by value perceptions, and measuring the financial impact of customer value. Tools like the Customer Value formula (perceived worth of your offer divided by that of a competitor’s) enable organizations to assess their competitive standing. A score above 1 indicates an advantage, signaling that customers perceive higher value in their offerings compared to rivals.

A central feature of CVM is its ability to link CX to financial outcomes. Metrics such as Customer Lifetime Value (CLV) highlight how delivering superior experiences translates into long-term profitability. Organizations that leverage these insights can invest in improvements that enhance perceived value, whether by raising quality, optimizing pricing, or improving customer interactions.

However, while CX is a powerful driver of competitive advantage, it cannot exist in isolation. Organizations must adopt a holistic strategy, integrating CX with other critical elements such as innovation, operational excellence, and a compelling value proposition. By combining these elements, businesses can create a sustainable edge in an increasingly competitive marketplace.

Ultimately, customer perceived value amplifies the benefits of CX. It transforms satisfied customers into loyal advocates who return, recommend the brand, and pay premium prices. In markets where products and services are commoditized, the ability to deliver superior perceived value becomes a decisive factor. Organizations that consistently exceed customer expectations through exceptional experiences secure not only customer loyalty but also a sustained competitive advantage. This focus on value ensures long-term success in a dynamic business landscape.

CX Paradox – the complex interplay

Organizations often encounter challenges in achieving the desired outcomes, giving rise to the CX paradox. This paradox, as highlighted by Zha et al. (2023) and EY (2024), encapsulates the tension between escalating customer expectations, perceived value, and the financial outcomes of CX initiatives.

Rooted in seminal concepts like Pine and Gilmore’s Experience Economy (1998), CX aims to foster emotional engagement and personal relevance. However, rising customer expectations, paired with diminishing returns on incremental improvements, complicate the delivery of meaningful experiences. Kahneman and Tversky’s (1979) concept of diminishing marginal utility illustrates how excessive investments in CX may yield minimal satisfaction gains, creating inefficiencies and potential customer dissatisfaction.

A critical aspect of the paradox is the trade-off between cost and value. Organizations often invest in enhancements that customers either do not notice or do not value, leading to wasted resources. Zeithaml (1988) frames perceived value as the balance between experiential benefits and costs—highlighting the need for organizations to align their offerings with customer priorities. Misalignment risks creating experiences that customers view as irrelevant or overpriced, thereby eroding trust and loyalty.

IKEA provides a compelling example of successfully navigating this paradox. Through its self-service model, operational efficiency, and innovative tools like the IKEA Place AR app, the company balances cost and value effectively. IKEA’s approach demonstrates the importance of customer-centric strategies that emphasize both functional and emotional engagement while maintaining financial sustainability. By integrating online and offline experiences and simplifying processes, IKEA achieves profitability without overextending resources.

Addressing the CX paradox requires organizations to adopt strategic practices:

1. Understand Customer Priorities: Leverage tools like the Kano Model and customer journey mapping to identify what truly matters to customers.

2. Optimize with Data: Use analytics and AI to prioritize initiatives with the highest ROI.

3. Simplify Experiences: Reduce complexity to enhance satisfaction and lower costs.

4. Pilot Innovations: Test and iterate on new technologies before scaling.

5. Focus on Consistency: Meet expectations reliably rather than chasing fleeting “wow” moments.

6. Foster Cross-Functional Collaboration: Align teams across departments to design balanced CX solutions.

7. Commit to Continuous Improvement: Treat CX as an evolving process, adjusting to changing customer needs and market conditions.

The CX paradox underscores the delicate balance between delivering exceptional experiences and maintaining profitability. Successful organizations recognize that CX is not solely about delighting customers but about creating sustainable, value-driven interactions. By addressing the cost-value tension with thoughtful strategies and ongoing refinement, companies can turn the CX paradox into an opportunity for innovation, differentiation, and long-term growth.

2025 and ahead

As we step into 2025, I invite you to revisit these articles and share your thoughts. Let’s continue to challenge the status quo, innovate, and make CX a core driver of success!

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References

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