New operating models: The cost vs CX conundrum

I. Introduction

The retail industry is constantly striving to attract and retain customers while keeping costs under control. However, in recent years, the industry has faced a significant challenge in balancing the cost vs customer experience (CX) conundrum. Retailers need to reduce costs to remain competitive, but they cannot compromise on customer experience, which is crucial for building customer loyalty and driving revenue growth.

And while the consumers have moved their retail spending towards online channels during the Covid-19 pandemic (Source – Link), high inflation is squeezing real incomes and constraining retail spending across Europe.

As a result, retailers are shifting their focus to building online channels for retaining their existing customers and also attracting new ones to survive. In addition to these challenges, retailers are also facing the issue of failure demand, which refers to the requests or interactions that customers are facing as a result of something going wrong or not meeting their expectations. Failure demand can be a significant drain on resources, as it requires retailers to invest time and money in resolving issues that could have been avoided in the first place. In the context of the retail industry, failure demand can arise from a range of issues, such as product defects, delivery delays, poor customer service, or inefficient internal processes. By effectively managing failure demand, retailers can not only improve the customer experience but also reduce costs and enhance operational efficiencies.

II. Balancing Cost Reduction and CX

The cost vs CX conundrum is a situation where businesses are faced with the challenge of reducing operational costs while maintaining high levels of customer experience. In retail, organizations often try to cut costs by reducing staff, limiting customer service options, and minimizing investment in CX initiatives. However, this can result in poor customer experiences, which can lead to lower customer loyalty and revenue growth.

To achieve cost reduction without sacrificing CX, retailers must adopt a strategic approach – a new operating model that involves evaluating customer journeys, using data to identify areas of improvement, and implementing practical digital solutions.

1. Evaluating Customer Journeys:

Evaluating customer journeys for concerns like failure demand can be an effective way to identify and address issues that may be impacting customer satisfaction and loyalty. Failure demand refers to the requests or interactions that customers have with a company as a result of something going wrong or not meeting their expectations. By analyzing customer journeys, (the best way to do this is to go through the journey oneself), businesses can identify where failure demand is most common and take steps to address the underlying issues. This may involve improving communication with customers, addressing product or service issues, or streamlining internal processes to reduce the likelihood of failure demand in the future. By focusing on the customer journey and addressing failure demand, businesses can improve customer satisfaction, reduce costs, and increase customer loyalty over the long term.

2. Using Data to Identify Areas of Improvement:

Using data to identify areas of improvement for failure demand is a crucial step in improving the customer experience. By analyzing data from customer interactions, retailers can identify patterns and trends in customer requests and complaints, as well as areas where internal processes may be causing issues. This data can then be used to pinpoint the root causes of failure demand, and develop targeted strategies to address them. For example, if data shows that customers frequently contact customer service with questions about a particular product feature, then retailer can invest in improving the user interface or providing more detailed response. Alternatively, if data indicates that customers are frequently experiencing delays or long wait times, then retailer can focus on streamlining internal processes or increasing staffing levels. By using data to identify areas of improvement for failure demand, retailers can make targeted improvements that will improve the overall customer experience, reduce costs, and increase customer loyalty.

3. Using Practical Digital Solutions:

Using practical digital solutions is a key way for retailers to improve the management of failure demand and ultimately enhance the customer experience. By leveraging technology, retailers can provide customers with more convenient and efficient ways to interact with their brand, while also improving internal processes to reduce the likelihood of failure demand. For example, retailers can implement self-service kiosks or mobile apps that allow customers to quickly access information, make purchases, or resolve issues without having to interact with a sales associate or customer service representative. Additionally, retailers can use data analytics to track customer behavior and preferences, enabling them to offer personalized recommendations and promotions. This not only enhances the customer experience, but also helps to reduce failure demand by proactively addressing customer needs before they arise. By implementing practical digital solutions, retailers can improve customer satisfaction and loyalty, while also driving operational efficiencies that can lead to cost savings and increased revenue.

Examples of Successful Cost Reduction Initiatives that also Enhances CX:

Example 1 - A renowned British multinational retailer specializing in clothing, footwear, and home products sought to stay ahead of the competition in a rapidly changing market by creating a seamless, personalized, and consistent customer experience across all channels. To achieve this goal, retailer partnered with EXL to provided best-in-class operations, digital transformation, a mix of humans and AI, and automation of data insight generation and decision-making. EXL helped the retailers to reduce operating costs through a Flexi-staff model, optimize operations through RPA, and improve resolution and customer satisfaction by up to 5% over 6 months to 1 year time period.

Example 2 - An established print catalog retailer partnered with EXL to transition to a pure-play digital e-tailer, enhance the online customer experience and increase sales. EXL created a digital platform to analyze website performance, sales, and customer journey using dynamic analytics, machine learning, and propensity models to craft targeted messaging for each customer segment, set up experiments at scale to identify messaging delivering the greatest value, and developed customized abandon cart messaging to entice shoppers to complete their purchase transactions. EXL improved retailers CRM by identifying optimum message timing, frequency, and channel, creating a continuous loop of data aggregation, analysis, and improvement, and improving customer loyalty.

III. Conclusion

In conclusion, the cost vs CX conundrum is a significant challenge facing the retail industry today. However, by adopting a strategic approach that involves evaluating customer journeys, using data to identify areas of improvement, and implementing practical digital solutions, retailers can achieve cost reduction without sacrificing CX. Furthermore, partnering with a right vendor, can help retailers gain industry expertise, data analytics, and digital expertise, enabling them to optimize CX and reduce costs simultaneously. By implementing these strategies, retailers can not only survive but thrive in today's highly competitive retail environment.

Written by:

Alok Dalvi
Senior Assistant Vice President - Products and Solutions

Nazima Chauhan
Vice President, Business Development, EXL Service (UK & Europe)

Jo Moran
Non-Executive Director, ex Head of Customer Service M&S