How did at-home fitness start-up Peloton build a fanatical following—convincing millions to convert living rooms and basements into workout studios? Where in the UK online banking market was there space for a rebel called Monzo to challenge the old guard in the name of giving power back to the people?Pet supplies, fitness, and retail banking aren’t top-of-mind growth sectors or ripe for disruption. So what did these new entrants do differently? Did they introduce more sophisticated product offerings? Develop breakthrough technology? Launch clever ad campaigns? Were they founded by geniuses? Or did they just get lucky?First, they changed the basis of competition in the category, so that instead of attacking established competitors head-on, they exploited dimensions of benefit that were important to customers but neglected by established players. Second, and more specifically, while they nailed essential features and functionality of their offerings, they made customer experience the core of the value proposition rather than a wrapper or interface around the value proposition.Unsurprising that no magic’s required, but still, it’s a finding that strains credulity. Investing in customer experience is hardly a new concept. For the past 30 years there’s been a steady stream of research and publishing on the “experience economy.” Data encouraging experience investing abounds. More than 60 percent of US and UK consumers will pay premium prices for superior experiences. ROI studies find a $3 return for every $1 spent on customer experience. Forbes reports 80 percent increase in revenue for businesses focused on customer experience. A Harvard Business Review published study concluded that customers spend over double with brands that make them happy. The list goes on…And yet, nearly half of UK consumers report having left a brand they’ve been loyal to in the last year due to poor experiences. Despite 80 percent of executives believing they offer superior customer experience (Euromonitor International Digital Consumer Industry Insights survey), only 8 percent of customers agree. Furthermore, over two in five companies surveyed admit they don’t review the customer experience process and its impact on business performance regularly. It’s as if executives see customer experience as important enough to elevate in their words, but not important enough to elevate in their decisions and actions. Why?Our current state: the performance focusWhile there are countless reasons executives might choose to prioritize features and functionality (“performance”) instead of experience, our findings reveal that most fall into one of two traps:01 | The differentiation trap
Many leaders believe that succeeding requires offering something unique. But this over-romanticization of unique product or service differentiation has led companies to leave customers on the sidelines by focusing on bells and whistles rather than higher-impact dimensions of customer experience. A common symptom of the Differentiation Trap is managers benchmarking versus competitors (a thoroughly untrustworthy source) who have similarly configured offerings under the flawed assumption that “competition” and “category” are best defined by products with similar attributes. But categories and competitors are reliably defined by buyers, not sellers. The yardstick that really matters is held by customers who are looking for help resolving problems, enabling progress, and fulfilling aspirations. “Difference” is far less important than relevance.02 | The performance trapMany leaders sustain a trajectory of continuous improvement of features and functionality that have served them well in the past—often the distant past. Fully depreciated assets, finely tuned processes, time-honored metrics, quarterly earnings pressure, and force of habit encourage continuity—even to the point of improving features beyond where their improvement is valued. In chronicling QuickBook’s rapid success, legendary Intuit founder Scott Cook cheekily described the offer as “half the functionality at twice the price” (Interview with Scott Cook for Competing Against Luck). QuickBooks did not offer better accounting software but a package so intuitive that non-financial small business owners no longer got the cold sweats every time they sat down to balance their books.More recently, Ford touted its real-time performance tracking in its 2024 Mustang. With this latest vehicle, drivers can access their performance metrics on a vibrant LCD digital instrument cluster or 13.2 inch center touchscreen, from an accelerometer displaying lateral and longitudinal g-forces, acceleration and lap times, to automatic and countdown starts. While a necessary feature for their likely tiny sub-audience of off-duty race car drivers, these new features are likely no more than party tricks for their core customer set.Once functionality reaches its “good enough” threshold, returns on incremental performance enhancement diminish, and the scales (and financial returns) tilt toward companies that prioritize experience. A common symptom of the Performance Trap is excessive reliance on data that says something about seller activity (i.e. margins, return on assets, market share) and very little about customer progress, preference, and connection to the brand.In addition to these two, pervasive traps, many managers find “experience” too abstract for comfort. Many understand the importance of experience conceptually but find it too hard to measure, especially when they hear words like ‘perceptions,’ ‘engagement,’ and ‘sentiment.’ So, notwithstanding the recognized importance of customer experience, 60 percent of surveyed executives acknowledge they’re not collecting enough pertinent data to make meaningful improvements toward an immersive experience. A vicious cycle ensues: to invert an old adage, what doesn’t get measured doesn’t get managedSo, what are brands celebrated for extraordinary experiences doing differently to break away from the pack?We’ve found that experience winners apply four core principles.01 | To understand customer choice, measure how customers feel not how products functionThe most valuable insights take the shape of stories, not statistics. Functional elements are just the beginning – in fact, we feel before we think, and we remember how a product or service made us feel long after we forget surface-level details. Emotional dimensions of customer criteria are central, not peripheral. Additionally, social considerations, such as how friends, co-workers, family members, and even strangers will perceive us make up essential dimensions of customer criteria. If companies are to design successful offerings, they must explore the full constellation of customer criteria and the context in which an offering is to be purchased and used.Take Peloton. While SoulCycle and FlyWheel focused on physical footprint and Fitbit on advancing their technology, Peloton recognized a troubling social and emotional truth; the existing fitness category left many on the sidelines. For starters, the Peloton founders were frustrated by the difficulty of getting a spot in desired workout classes and further annoyed by the requirements of planning their workouts around the gym’s schedule. That frustration provided the impetus for a brand that transformed home fitness from solitary drudgery to shared celebration. If you’re doing your first live ride, you might be surprised by how many encouraging high fives you receive from fellow riders, but I’ll bet you high five them back! The Peloton experience lives at the intersection of hyper-social, inclusive community and a personalized fitness safe space, in which everyone feels welcomed and celebrated. Peloton has nurtured a cult-like base that rates them above key competitors like Fitbit and Mirror (now lululemon Studio) in helping them feel part of something bigger than themselves and making them feel meaningfully happier (Lippincott Brand Aperture Study, 2023).02 | Remember: all products are actually servicesEvery day, each of us pulls particular products into our lives to enable progress—large or small—in the interest of resolving problems, satisfying obligations, or fulfilling desires. When managers see products as services that enable this progress, they create a much more accurate representation of how customers actually use products in their lives. If you’re already in the service business, there’s a more subtle pivot from service delivery to customer progress and fulfillment.A year prior to retaking the helm as CEO, Starbucks’ Chairman Howard Schultz declared in 2007 that standardized store designs and automatic espresso machines intended to “satisfy the financial side of the business” had removed “much of the romance and theater” critical to building Starbuck’s brand to date. Stores “no longer have the soul of the past…some people even call our stores sterile, cookie cutter,” he said. “We desperately need to look into the mirror and realize it’s time to get back to the core and make the changes necessary to evoke the heritage, the tradition, and the passion that we all have for the true Starbucks experience.” So, after taking over in 2008, Schultz made a bold move. He closed down all 7,100 U.S. locations for employee re-training – a $6 million three-hour customer experience training effort that re-calibrated their front-line on how to execute against the positive, warm, welcoming atmosphere referred to as ‘The Starbucks Experience.’ This decision certainly paid off, with Starbucks finding its financial footing and resuming expansion.03 | Configure capabilities to optimize customer experienceOur experience champions manage experience as the core of their value proposition, with both their internal capabilities and external features and functionality in service of building an intentional, exceptional experience. In other words, they don’t view experience as the wrapper, rather features and functionality are the delivery vehicles for the experience. Critically, this means assembling resources, processes, and metrics to energize the experience-led strategy, not just operational efficiency.Chewy built a customer-first service and experience engine dedicated to pet parents. The customer care team is the epicenter, not a cost center to be streamlined. From the outset, Chewy’s leadership team trained agents not only to address customer challenges autonomously through creative problem-solving, but also to do so in an empathetic, human way. This meant no scripts, escalation protocols, restrictive resolution options, or rules-based triage, but real people answering the phone within six seconds (a custom metric tracked closely, because pets are family and family matters are urgent), empowered with 360-degree customer data on pets, order statuses, and preferences.Chewy boasts the only ‘Wow’ team we’ve encountered – charged to surprise and delight customers with handwritten holiday and pet birthday cards, condolence flowers, or even small oil paintings of beloved pets. Leaders encourage agents to do whatever it takes, whatever feels right. Empathy is a better decision tool than efficiency at Chewy. So, while behemoth players like Amazon and Walmart scraped and clawed over market share by competing on faster delivery times and cheaper products, Chewy invested in a high-touch customer experience engine that resulted in selling $9.38b in pet supplies in 2022.While Chewy has dialed into the deeply emotional connection pet parents feel for their pets and Peloton transforms a solitary basement workout into a party with friends and fans, Monzo hones in on the power imbalance that many of us feel in relation to our bank —and consciously flips the script. For example, Monzo Labs, engages customers in conversations about their experience and ways Monzo could do more and better. This dynamic not only serves as real-time research, but it makes customers feel heard and builds connection with the Monzo brand. There’s a more subtle and powerful switch as well, with Monzo using the context of the customer as the essential unit for innovation and improvement—“how can we make this moment more successful and positive for our members?” This is uncommon. Most companies use the product as the basis for improvement and think about improving the product or service, rather than improving the critical moments in which customers are struggling to make progress.This approach also de-risks innovation massively. When – and how – Monzo introduces rapid-fire sign-up, low balance notifications, and shared savings pots to category-based budgeting, meal-splitting tools, and seamless peer-to-peer money transfer, the company can be confident in adoption and success. It’s no wonder why our data shows Monzo scoring 25 percent above average in how they put customers “effortlessly in control” (Lippincott Brand Aperture Study, 2023).04 | Establish the CEO as chief of experienceAtop every experience champion is a chief executive actively leading the charge. To do so, they first articulate a compelling vision in which customer experience is the source of competitive advantage and the north star that guides priority-setting, resource allocation, career advancement, and customer interaction. Second, they flow resources—even if scarce—to experience improvements, helping cultivate a culture that elevates customer experience over efficiency and narrowly defined profit measures. Third, they focus on experience metrics and performance in executive meetings, business reviews, and budgeting. Fourth, set an example, spending time on the front line. Experience chiefs take pride in interacting with customers directly rather than relying on vastly simplified analyses that reduce into columns and rows the richly complex realities of customer context, emotion, and language.Howard Schultz stands out in his willingness to talk about the “soul of the business” in the context of defining competitive advantage. His very public decision to close all stores for training was as much a message to customers and symbolic re-start for the organization as it was an instructional refresh. But that’s what sets Schultz and other like-minded experience-committed leaders apart.Legendary Southwest Airlines founder Herb Kelleher launched the company at a time when commercial air travel was predominantly an upper-class luxury. But Kelleher targeted the mass market with accessible fares and a mission of “dedication to the highest quality of customer service delivered with a sense of warmth, friendliness, individual pride, and company spirit”. Kelleher championed a ‘Servant’s Heart’ mentality that started at the top. Senior leaders serve employees, and all employees serve customers. Kelleher led by example; aboard airplanes, on tarmacs, at the gate—wherever Southwest employees and customers engaged—Kelleher was there observing, listening, and learning, looking for opportunities to better serve both audiences. Southwest has always followed his lead over the past several decades; from investing in speech analytics to extract customer experience insights from live-recorded interactions between customers and personnel to the iconic customer-centric experience captured in the 2022 viral video of a phone hand-off to a pilot so a customer wouldn’t leave their phone behind. Kelleher’s ‘Servant’s Heart’ mentality is clearly alive and well (Given the strength of the Southwest experience and brand, we predicted that the company would suffer minimal long-term impact from their highly publicized IT system failures in 2022, and the data has borne this out).Getting startedBy embracing the four principles above, leaders can begin the evolution to experience champion status. As companies continue their journey, there are a few key questions to ask that can help executives as they look beyond performance to move the experiential needle.Where are current customers getting stuck or frustrated? This is the key question that can help to sharpen an existing customer experience and drive innovation. The single best indicator of innovation opportunity is ‘energy for progress’. In other words, where are people exerting effort to resolve a problem or fulfill an aspiration? “Energy” is a much more reliable predictor than “need.” I may need to eat better, work out more, take all my medications, save more for retirement, and spend more time with family, but if I’m not actively expending energy to fulfill any of those needs, would-be innovators are likely to fail.Where is the nonconsumption? Measuring consumption is easy: it’s a byproduct of transactions. Measuring the number of would-be exercisers, neglected pet parents, or financially frustrated consumers is trickier, but can absolutely be done and is the foundation of building truly transformative customer experiences. For instance, what did Venmo compete with at the outset? Who did Starbucks or eBay steal share from in their early growth phase? What industry is Airbnb in? The answers to these questions lie in nonconsumption. While unlikely to be as outlandishly wrong as IBM President Thomas Watson’s infamous assessment that “I think there is a world market for maybe five computers,” looking at the exhaust of historical activity provides a sub-par guide for spotting future opportunity.As sellers converge on shared standards of category competition, where are margins shrinking? “Commoditization” is more often a symptom of imagination deficit rather than opportunity deficit. When categories converge around similar features, functionality, marketing tactics, and business models, opportunities for experience innovation expand. Amazon Web Services didn’t make better servers; they made computing available as a service. Spotify wasn’t the first to distribute music online; they curated the online music experience by utilizing personal data. And Casper didn’t invent comfortable mattresses; they simply used the internet and direct-to-consumer delivery to get them into your bedroom. The list goes on, and experience champions have the conviction to challenge accepted standards of category competition and create new ones.As individuals, each of us wants to make progress in our personal and professional lives.We all want to feel connected to something bigger than ourselves. Experience leaders tap into these fundamental human drives in the most mundane and most extraordinary moments. When growth slows, margins shrink, and competitors converge, leaders often look to cut costs, diversify through acquisitions, and accelerate the pace of incremental improvements. Before defaulting the well-worn playbook, pause. Are there customers and/or prospective customers who are frustrated, getting stuck, churning mechanically across brands? Consider placing customer experience at the core to unlock breakthrough growth and profit, hidden in plain sight.