Forbes had an interesting take on how the concept is important to all businesses, including yours. More Customers are craving an adventure. They might even desire risk. This can culminate in trying a new food truck or shopping at a new pop-up store with no reviews to support its reputation. The idea is the adventure of discovery is worth the trade off in security.

The idea of creating a sense of adventure for Customers isn’t for solely no-name, pop-up stores either. Big names like Virgin Airlines, who is focused on creating a unique flight experience (not adventurous or dangerous for goodness sakes!), embraced the concept. The Ritz Carlton in Tucson, Arizona, leverages its desert landscape and the related activities it provides to enhance their guests’ stay.

Restaurants also recognize the importance of making something more out of the dining experience. Some restaurants provide you with an option to cook the steak yourself, guided by the chef. Others give you not one dish, but three little dishes at once. There are also those who invite funny chefs to make a show for you while they cook at the same time. Consider this hilarious video from Benihana:

What about this video regarding the “new assistant” for the KLM Lost and Found service:

Man’s (and forgetful man’s especially) best friend indeed!

The Experience concept is getting so much momentum there are even Death Cafés, establishments where people drink tea, eat cake and discuss… death! It’s not just a cafe, it’s an experience! They also sell memorabilia, as Pine and Gilmore suggested/predicted in their article nearly 20 years ago.

Movie theatres don’t want to be left out, either. Vienna’s old cinemas, struggling to compete with more modern theatres, tap into retro charm to create a distinct and memorable experience only they can. In London, artisan cinemas create experiences that stimulate not only the visual and audio senses but also taste. Why? Because the best experiences engage all the senses.

Even police can create a better experience–when writing you a ticket no less!

Take for example the fate of Michael Porter’s Monitor Group. Monitor, a consulting firm that ruled the business world in the 1980s founded by Harvard Business School’s Michael Porter, built their business on the concept that business is a matter of defeating the competition, not making a better product or experience for Customers. We studied Michael Porter in the b-school. He believed that your best strategy was to protect yourself from your business rivals. There were five forces involved in the image to the right:

Source: Forbes.com. “What Killed Michael Porter’s Monitor Group? The One Force That Really Matters.” 20 November 2014. Web. 29 January 2015.

The main problem was his basic strategy. It was about avoiding competition and seeking profits that were protected by barriers to entry into your industry. He was all about figuring out how to do these things without actually improving your product or service.

Porter’s strategy ruled for decades. Many of you reading this know it well. However, some things changed, and they made a big difference. A world economy took over, and the Internet changed the way we get our goods and services. As a result, barriers to entry were crushed, competitive pricing bottomed out, and Customer’s decided they would pay more for a better experience. The best product, yes, but the best experience, too. Monitor couldn’t adapt the way they consulted their clients. Not surprisingly, their Customers decided that the Monitor experience wasn’t worth it. And they filed for bankruptcy in 2012.

Whether you like it or not, the Experience Economy is here. Customers want you to add value to their experience, from outdoorsy activities in the Sonoran desert to tossing a freshly grilled shrimp in your mouth! Everyone down to law enforcement is embracing the concept. If you are not, you might be in danger of being left behind the Experience Economy.

The question is are you designing processes or experiences? Will you be left behind like the Monitor group by the Experience economy?

Zhecho Dobrev is a consultant and project manager for Beyond Philosophy. He has worked with a wide array of large corporate companies. Zhecho’s expertise inludes Customer behavior analytics, Customer loyalty, complaints management, and journey mapping. He holds an MBA and Master’s degree in International Relations.

Please follow Zhecho on Twitter @Zhecho_BeyondP

The post Could You be Left Behind by The Experience Economy? appeared first on Beyond Philosophy.

I like this post from Bruce Kasanoff. He shares with us the story of a skiing excursion he took with his client 20 years ago. He presents it as a story, an exciting one, to “show you—rather than tell you—how memory works.” He goes on to explain how stories are an essential way to lead others, raise money or sell an idea or product. I couldn’t agree with him more on this point.

We’ve seen that stories are powerful and can make executives move. Stories often have the power to get executives to do something—without having to bother with “fill a business case template and go through the company process of prioritizing ideas for the next budget year blah blah….” You know, all the stuff that gets in the way of getting things done!

Why do stories elicit this response? Unlike “data & stats” that people can argue about for days and contribute to death by analysis, stories appeal to the right brain. It is as the Canadian Neurologist Donald Calne said:

“The essential difference between emotion and reason is that emotion leads to action while reason leads to conclusions.”

I’m sure we can all agree action trumps conclusions when it comes to Customer Experience.

To make a decision, we often need to feel an emotion. Neuroscientist Antonio Damasio studied people recovering from brain injuries, in which only the part of their brain impaired was where emotions were generated. The result was in practice they found it very difficult to make decisions about where to live, what to eat, etc.

Stories could be the means to inject emotion into decision-making. A study from Princeton University, where a speaker would tell a story to a listener found “when the two people communicate, neural activity over wide regions of their brains becomes almost synchronous, with the listener’s brain activity patterns mirroring those sweeping through the speaker’s brain, albeit with a short lag of about one second.” So by telling a story you can portray the emotions from the story to the audience and make them empathetic to the Customer. In other words, you can make executives feel the same way as Customers.

This clip by Paul Zak explains how this works:

For this reason, as “evangelists” of CX inside the organization, Customer Experience professionals need to use stories.

Stories can also “sell”. Here’s a story credited with $2 billion of revenue. I am sure many of you reading this would rather be the president than the middle manager. If only you could have read this letter, huh?

Your Brain on Stories

So what makes a great story? According to Kasanoff, it needs to evoke emotion, spark mental images, be shocking and visual, it should tell a story, and it should exaggerate. Author Roger Dooley, consultant and entrepreneur, lists other attributes, including how you deliver the story (with pauses and pacing and what not), the imagery you create, as well as including realistic associations that have a universal understanding to name a few. You probably have a few tricks for story telling up your sleeve as well.

In our work with companies we often hear an anecdote, a story that circulates the organization by word of mouth and portrays the importance of CX. We heard such stories from FedEx, Orange, Caterpillar, and others we have worked with over the years. We use them all the time to illustrate for others the importance of what we are trying to achieve, and also to inspire them to commit fully to the principles we are teaching them.

As the CX champion in your organization, don’t forget the power of stories when you are trying to affect change. Using a powerful story might be the difference between getting assigned to a committee for death by analysis or getting swift action to accomplish your goal.

If you have great stories that led to change, we’ll be interested to hear them. Please share your STORIES in the comments below.

Zhecho Dobrev is a Senior Consultant at Beyond Philosophy. He has worked with a wide array of large corporate companies. Zhecho’s expertise inludes Customer behavior analytics, Customer loyalty, complaints management, and journey mapping. He holds an MBA and Master’s degree in International Relations.

Please follow Zhecho on Twitter @Zhecho_BeyondP

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“ Most of the time, what we do, is what we do most of the time”

This is former F1 champion Lewis Hamilton stopping in the wrong team’s garage to change tires. He had recently joined the team of Mercedes who were waiting for him but his decade long habit of seeing the McLaren (his former team) mechanics outfit (cue) and stopping in for a change of tyres (routine) kicked in. Check out the video:

I really love this video as it just shows the extent to which we are driven on autopilot by our habits (literally in this case).

We know that we are, in the well-worn phrase, ‘creatures of habit.’ This statement from the psychologists Townsend and Bever captures one of the great truisms of human behaviour – and one of the great challenges for marketers.

We know that those habits can shape the fortunes of brands and products. One study from Duke University estimated that habits shape 45 percent of the choices we make every day, not conscious decision making as you might have thought.

Yet benefiting from a habit is one thing; knowing how to create or change it is something else entirely. As neuroscience reveals more about what habits are, and how they come to direct our behaviour, it’s becoming clear that marketers cannot afford to ignore the habit-forming. After all, to get people to buy their new products they need to understand people’s routines (habits) and how they can change those.

Habits and Marketing

Charles Duhigg is a staff writer for The Times and author of “The Power of Habit: Why We Do What We Do in Life and Business.” In an article about habits for the New York Times in 2012, he writes,

“Over the past two decades, the science of habit formation has become a major field of research in neurology and psychology departments at hundreds of major medical centers and universities, as well as inside extremely well financed corporate labs.“

Duhigg goes on to say that understanding consumers’ shopping habits and personal habits for marketing is a priority despite the fact that most of us are hardly aware of those patterns ourselves. The statisticians know, however, and marketers want to know what they know. Andreas Weigend, the former chief scientist at Amazon.com said in Duhigg’s article, “It’s like an arms race to hire statisticians nowadays. Mathematicians are suddenly sexy.”

Target Knows When to Target Marketing

Target has always been the most successful company for defining and using these patterns. With their comprehensive inventory, which includes groceries, electronics, clothing, hardware and more, they have decided they want to be consumer’s one source for everything. Their primary goal in the marketing campaign is to convey this to consumers.

What they have discovered that this isn’t an easy task. The biggest reason: consumers’ shopping habits are deeply ingrained and difficult to change.

Target did learn that the birth of a child is a great time to change habits, however. So the statisticians determined some key behaviors that indicated that a woman was pregnant. When they saw these purchases in the customer’s history, they decided that they would begin the targeted campaign to these women. It has proven to be successful…so successful that there is a famous story where a father learned a couple of weeks after Target that his teenage daughter was expecting.

In this way, Target has used the natural tendencies of people to change their habits as the time to communicate that Target has everything they need. They are, of course, using a life event as a major trigger for changing habits and the one they chose is woman-specific. So while this is effective for them, it might not work for everyone.

The Power of Habit

The power of habit can be used in other ways, however. The research has applications outside of store purchases. Here are some great examples from different environments of working with natural tendencies to achieve a desired outcome:

• An American football coach named Tony Dungy propelled one of the worst teams in the NFL to the Super Bowl by focusing on how his players habitually reacted to on-field cues.
• Before he became Treasury secretary, Paul O’Neill overhauled a stumbling conglomerate, Alcoa, and turned it into a top performer in the Dow Jones by relentlessly attacking one habit — a specific approach to worker safety — which in turn caused a company wide transformation.
• Procter & Gamble learned the lesson that getting the habit wrong could mean the difference between fail and success of a product launch. When launching Febreeze initially they targeted people with odour problems at their homes. Only that after a while people get used to the smell and don’t notice it. When they observed the people who were actually using the tester Febreze bottles they had handed over they noticed that mums were using it after they had cleaned the rooms as the “finishing touch” to make sure the odor is taken care of as well.
• When the Marriot Marquis in Times Square, NYC introduced a new $11m smart elevator system to deal with elevator long wait times they ended up totally confusing and frustrating people. The new elevator had no buttons in it, instead people had to type first the floor they wanted to go to and then go to a designated for them elevator. However people’s habits are that we jump in the first open elevator we see. They had failed to think through of how to address this habit.
• The Obama campaign has hired a habit specialist as its “chief scientist” to figure out how to trigger new voting patterns among different constituencies.

The key takeaways from this are that habits are natural for humans, can be changed if the timing is right, and are integral to building brands. With nearly half of every decision decided by habits, the real question is how much longer can you afford to ignore the power of habits in your marketing efforts?

Watch out this space as in a subsequent blog we’ll give advice on the different ways to change a habit…

The post Do You Harness the Power of Habit in Your Marketing Yet? appeared first on Beyond Philosophy.

I realize that this is a debate between people who like words and people who like numbers.  So instead of writing philosophically about the importance of optimizing your Customer Experience to creating an emotional engagement that creates loyalty between your Customers and your organization like I usually do, I will limit this post to facts and figures.

Here are some of the most comprehensive facts and figures that I’ve come across:

1. 1. A recent study of the Value of Customer Experience amongst two $1 billion+ businesses published in Harvard Business Review (HBR) managed to quantify the effects of good customer experience. One of the businesses was transactional and the other was subscription based. What the researchers found was that “after controlling for other factors that drive repeat purchases in the transaction-based business (for example, how often the customer needs the type of goods and services that the company sells), customers who had the best past experiences spend 140% more compared to those who had the poorest past experience”.  Whilst the transactional business is more interested in repeat purchases and their   frequency, the subscription business is mostly interested in how long customers remain loyal. For the subscription business the researchers found that “a member who rates as having the poorest experience has only a 43% chance of being a member a year later. Compare this to a member who gives one of the top two experience scores — they would have a 74% chance of remaining a member for at least another year. We were also able to use this data to predict future membership length based on the quality of experience. The difference: on average, a member who gives the lowest score will likely only remain a member for a little over a year. Compare that to a member who gives the highest score — they are likely to remain a member for another six years.”
   2. Customer Satisfaction results in a higher share price. Whilst the above example is impressive and coming from HBR, this next example is bound to attract senior leadership’s attention as it links stock prices to customer satisfaction.  I have a whole post that looks into this relationship in more detail. The short version is that a study by the CFI group tracked the share prices of the leaders of the American Customer Satisfaction Index (ACSI) and the leaders National Customer Satisfaction Index, UK (NCSI) versus the broader markets. According to the study, “the cumulative return of a $100 investment in the ACSI fund from April 2000 to April 2012 was $490, a gain of 390 percent. By comparison, the S&P 500 returned only $93, a 7-percent loss. In the United Kingdom, the NCSI portfolio earned a return of 59 percent from April 2007 to June 2011, and the FTSE 100 had a negative return of 6 percent.” In addition, higher levels of customer satisfaction are tied to high levels of positive cash flows with low volatility, and positive earnings surprises.
   3. Keeping Customers results in a high increase in value. Focusing on customer retention with a better Customer Experience will benefit your bottom-line expenses. According to Bain & CO, retaining just 10% of the customers you already have will result in a 30% increase in the value of your company. Why is this? Because when it comes to retaining a customer, you will spend up to four times less annually in marketing to keep a customer than attracting a new one to take their place. Bain and company estimates that the amount spent to attract new customers as high as seven times more than keeping an existing customer. And the key to keep your customers is improving your customer experience because 68% of the customers that leave you do so because they are upset with the Customer Service they received. (Source: Bautomation.com.)

1. The amount of Customers that leave does not represent small amount of business. There is sometimes a misconception that customer churn doesn’t represent much business, but this isn’t true. JD Power and Associates reported that the annual premiums paid by customers that switch insurance providers amount to $7.6 billion. According to their 2014 US Insurance Shopping study, 28% of the Customers who switched auto insurance providers did so because of “poor experience.”
2. Your existing customers are far easier to upsell. According to Marketing Metrics, you have a much higher probability to sell your existing customers than a new prospect, at 60 to 70% versus 5 to 20%, respectively. That’s a much bigger chance that you are going to get to yes if you have a loyal customer base to ask for the order. Add to the fact that the profitability of each customer you retain increases over the time you have them (according to Leading on the Edge of Chaos by Emmet and Mark Murphy), you can see that keeping a customer improves your bottom line over time.

And to make the cross sell and upsell case more clear,  the majority of customers’ buying decisions are tied to how they feel about the experience. In an article about the moments of truth in customer service, McKinsey & Company revealed that 70% of customers at a bank reduced their commitment when they had a bad Customer Experience. That article also revealed that 85% of customers that had a good relationship with the bank increased their commitment. Consider how much business 70% of dissatisfied customers can send to another organization. Chances are its more than you think.

And if this wasn’t enough here is a link to 50 more facts about customer experience.

These are good, as they come from independent sources. But I didn’t need those, nor the “religion” I was accused of fostering before, as during our work we’ve helped a number of success stories, including:

• A Construction company increased its profits by 50% and moved from 4th  to 1st in market share by focusing and improving its customer experience

• A Global Shipping company increased its Net Promoter Score® (NPS®) by 40% points over 30 months. The company linked every 4% points improvement of their NPS® score to 1% improvement in shipping volume, thus increasing volume by 10%
• An Electrical Retailer reduced complaints by 20%, increased levels of trust by 10% and achieved a 3% increase in ‘like for like’ sales.

• An Insurance company reduced certain repeat calls from 76% to 6 % achieving millions of cost-cuts and also moved Customer satisfaction from 73% to over 90%

• A B2B Telecom reduced costs by 36% and increased revenues by 7%

So, there you have it. I have made my case, and I am prepared to hear the counterarguments. However, I think the time for debate has passed. It’s time to focus on improving and creating memorable and enjoyable experiences for our Customers with their experience.  Shall we?

Sources:

Digby, James. “50 Facts about Customer Experience.” Returnonbehavior.com. 26 October 2010. Web. 26 August 2014. <http://returnonbehavior.com/2010/10/50-facts-about-customer-experience-for-2011/>

“Startling Statistics on Customer Retention and Acquisition.” www.bautomation.com. Web. 26 August 2014. < http://www.bautomation.com/successes-resources/articles/startling-statistics-on-customer-retention-acquisition/489/>

“J.D. Power Report: Customer Switch Auto Insurers Because of Poor Service; However, Savings with New Carrier Often Isn’t Enough to Fully Satisfy.” www.jdpower.com. 24 April 2014. Web. 26 August 2014. < http://www.jdpower.com/press-releases/2014-us-insurance-shopping-study>

“The ‘moment of truth’ in customer service.”  www.mckinsey.com. February 2006. Web. 26 August 2014. http://www.mckinsey.com/insights/organization/the_moment_of_truth_in_customer_service

The Value of Customer Experience, Quantified

http://blogs.hbr.org/2014/08/the-value-of-customer-experience-quantified/

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 Some experts say that too many choices are one of the factors that can cause these feelings. Reducing choices isn’t the answer though, as customers are attracted by large assortments; i.e.. they like the feeling of having an abundance of choice. It is a paradox to be sure, and one commonly referred to as the Paradox of choice.

Resolving the paradox of choice should be a priority for most organizations that want to design a Customer Experience that creates a feeling of satisfaction instead of one of angst and remorse.

The Paralysis of Too Much Choice

The New York Times had an interesting article on the power of too many choices.  Both psychologists and economists agree that too many choices can paralyze consumers so they can’t make a choice at all. This concept was well illustrated by Columbia University’s Professor Sheena Iyengar’s famous jam study.

The jam study took place in a gourmet market in California. The researchers had set up in the store a free sample table of Wilkin & Sons jams. When they had only six options, only 40% of the visitors approached the table, but the ones that did were more likely to buy the jam e.g. 30% of those who tried samples.. When they had 24 jams to sample, more people came to the table (i.e. 60% of visitors) but fewer bought the jam (only 3%).  Professor Iyengar had this to say in the article, “The presence of choice might be appealing…but in reality, people might find more and more choice to actually be debilitating.”

Barry Schwartz, professor of psychology at Swarthmore College and author of “The Paradox of Choice” did a TED talk on this important concept.

Schwartz discusses how choices represent freedom, but that they imprison us with indecision because we want to make the perfect choice. When we feel that we haven’t done that, then we have buyer’s remorse. The conclusion was that he thought that we should stop looking for the perfect selection and instead be happy with “good enough.”

But how do you get to good enough? How do you help customers make a decision they are satisfied with and not one they wish they had done differently? These questions are good ones and perhaps best answered by the concept of “Choice Closures.”

What is a Choice Closure?

Buyer’s remorse is at its essence a feeling that we could have done better. It comes from feeling that you didn’t have all the information to make the perfect choice. It is common enough that I’m sure if you think about you can recall a time when you felt it, too.

Choice closure, a concept that helps minimize buyer’s remorse and maximize satisfaction with the decision, can help organizations create better outcomes for their customers. According to neurosciencemarketing.com, choice closure involves removing the choices physically from view to promote the eventual satisfaction with their decision. I found myself also to be removing the dismissed choices when I shop online. Because of the abundance of choice I narrow down my search by adding 3-4 items to the cart and then compare them just visually or by reading more information about them and then make a decision. 

Another example of this concept in action was closing the menu at a restaurant, which the authors compare to “closing off” a choice. Closing off the choice physically by closing the menu gave diners an emotional closure to their decision and led to their satisfaction with their order.

So helping your customers make decisions by giving them subtle acts of closure is one way that you can help reassure them that they are making the right choice. When they feel more confident in their choice, they will feel less remorse and be happier overall with their decision.

Wine Buying Closures

Wine stores play music to put their customers in a happy and relaxed mood. Research shows that classical music boosts wine sales the most, but an experiment showed that playing French or German music can have a huge boost on the sales of the wines originating from that country.

 Now, there are plenty of choices at most wine stores. The good news is here that if you have a bad case of remorse, you can always drown your sorrows with your purchase! All kidding aside, there are ways to help wine customers make decisions on which choice to make.

These could include:

• Price reduction in yellow on a big price reduction label.  Price tags in yellow, discounts, etc. are ways to ease the customer decision making. 

• Employing a reduction of choices in each category. By reducing the options within a category, you reduce the chances of overwhelming the customer, but still provide freedom of choice, e.g., Cabernet varietal, but one for a high price, medium price, and low price.

• Nice picture, packaging, quality of the label paper. Making the purchase seem more attractive empirically can appeal to some Customers, helping them feel satisfied they made the right choice.

• Including a long history of the producer, country of origin, etc. The right level of information is also a factor that eases decision making. For real wine connoisseurs information can appeal to their sense of tradition.

Each of these tactics represents a choice closure for the Customer, giving them relief from the idea that they are making the wrong choice or missing the perfect option. Each of these in their way gives the Customer a reasonable option to arrive at a decision that was “good enough.”

The circle of choice, or needing to have many choices available but not too many to create confusion and buyer’s remorse for their Customers, creates a paradox for many organizations in their Customer Experience design.

Understanding the power of choice and the pitfalls of it, however, can release an organization from this circle as well as help them define closures that can help consumers feel better about their decision. In this way, organizations can resolve the paradox of choice and create a Customer Experience that results in customers that make choices with them again and again.

Sources:

Tugend, Alina. “Too Many Choices: A Problem That Can Paralyze.” www.nytimes.com. Web. 27 February 2010. < http://www.nytimes.com/2010/02/27/your-money/27shortcuts.html?_r=2&>

Carvalho, John. “The Simple Way to Minimize Buyer’s Remorse.” www.neurosciencemarketing.com. 16 July 2013. Web. 19 August 2014. < http://www.neurosciencemarketing.com/blog/articles/buyers-remorse.htm>

“Does Music Influence Your Wine Buying?” www.winepleasures.com. 29 July 2011. Web. 19 August 2014. < http://www.winepleasures.com/2011/07/29/does-music-influence-your-wine-buying/

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Before I explain what I mean by that and how it has to do with Customer Experience, however, let me first tell you where I was born. I come from Bulgaria, which is the oldest European Country still using its name more than 1,300 years after fighting the remains of the Roman Empire for its right to be. Of those 1,300 years of national consciousness, however, almost 500 are spent under the rulership of the Ottoman Empire who conquered the whole Balkan Peninsula and even reached the gates of Vienna, Austria.

Needless to say, living under the Ottoman Turks (to be excused by the contemporary ones) was much different and quite harsh, to say the least, compared to living in the United Kingdom of Great Britain.  So in the late 19th century there was a national uprising. People fought hard under the banner, “Freedom or Death” and paid with their lives. Whole villages burned; men, women and children were executed.

If people had the right to vote back then I doubt many would vote against independence. I’m sure there would have been such people, and those would be the ones with good positions and wealth who had a lot to lose.

And here’s the key point, people hate losing much more than they like winning. I remember my professor of corporate finance in the business school saying, “If I’ve made people lots of money in a day on the stock market, I’ll barely get a few calls to thank me; but if it was a bad day, the phone won’t stop ringing from people asking what’s happening!”  Nobel Laureate for Behavioral Economics professor Daniel Kahneman calls this notion “Loss Aversion.”

Here are some abstracts from Wikipedia on Loss Aversion:

“Loss aversion refers to people’s tendency to strongly prefer avoiding losses to acquiring gains. Some studies suggest that losses are twice as powerful, psychologically, as gains… Note that whether a transaction is framed as a loss or as a gain is very important to this calculation: would you rather get a $5 discount, or avoid a $5 surcharge? The same change in price framed differently has a significant effect on consumer behavior…. The effect of loss aversion in a marketing setting was demonstrated in a study of consumer reaction to price changes to insurance policies.[2] The study found price increases had twice the effect on customer switching, compared to price decreases.”

The basic principle of Loss Aversion is that people hate losing much more than they like winning, and the ratio is somewhere between 2:1 and 3:1. An experiment was conducted with students to bet on “Heads or Tails”. If they would win they’d get $50. If they’d lose they would have to give $50. Not many people took that bet. So they offered the next group of participants $100 if they won vs. $50 to give away if they lost and as you can imagine more people took this bet. But when the stakes increased to $150 to win vs. $50, the majority would take the bet.

Here is also a video of Dan Ariely, author of “Predictably Irrational” and professor at Duke University who explains and provides more examples of Loss Aversion.

He gives an example supposing that you just took a job and your yearly salary is $50,000. Shorty after your employer says, “We are having a very bad year and need to of reduce your salary through no fault of yours.” In this situation, your reference point to judge losses and gains is not $0, but $50,000. In that case even a small reduction might seem like a big loss for you and you would be very upset.  But if your reference point was $0 and you were offered a job for $48,000 a year, you would probably still be happy to get the offer.

Here’s where the vote for Scottish Independence relates. You see, the same thing I believe happened with the Scottish.  The majority were judging the two options (vote “yes” and vote “no”) through the lenses of potential gains and loses. Some losses were certain; e.g. lose the current currency in circulation with all the uncertainty associated with that, lose EU membership, and for some people, lose their job as some companies said they’ll move their operations out of the country.  The gains were also certain; e.g., being independent, choosing their leaders, etc. The gains, however, didn’t look to be twice or three times better than what they currently had and had to risk. Furthermore, the living standards for most people were good enough to make them risk-averse.

I am not judging the Scots by any means. If people in Bulgaria were given the option to choose to be governed by European or even British politicians over our current ones,  I’m sure many would choose to do so.

How is this applicable to Customer Experience? Well, Loss Aversion is applicable to Customer Experience as well. We see it all the time. An example is the outrage that Netflix suffered from subscribers after removing close to 1,800 titles from its library. The reality was that these were titles that not many people were watching and so they were clearing them out to introduce new ones. Regardless, the public outcry was huge because Customers felt they were losing something.

Similarly a global charge card company (simply put, a card that you can pay with that comes with benefits for which you pay an annual fee) used to provide free parking for its customers in one airport. When they removed that benefit to replace it with another one, their customers were enraged and still talk with pain about that years later.

The loss aversion was in effect as well when several major US banks (e.g. Bank of America, Morgan Chase, etc.) were considering a $5 debit card fee. This led to a large public revolt and forced the banks to axe their plans.

If you are making a big change to your Customer Experience that requires a loss, the key to avoiding the negative effects of Loss Aversion is two-fold. First to recognize it could be a factor. Second, find out what they truly value (ideally 3 times more than what they’ll perceive as a loss) and emphasize those gains. By managing loss aversion, a charge card managed to increase its fees by more than $300 and still retain most of its customers. How? By focusing their communication on what their customer truly valued (even though some of the customers were not consciously aware of what it was they valued).

And since I mentioned Kahneman I can’t miss the chance to mention one of the most profound experience psychology principles that we’ve come across: the “Peak-End” rule.

What Kahneman says is that people don’t choose between experiences but between the memories of their experiences. These could be two very different things. Therefore, the memory of an experience is more important than the actual experience. What Kahneman’s research shows though is that what people remember is the “peak” moment (positive or negative) and the “end”.

If there ever was a good ending, then John Oliver knows it. So, for my ending I want to leave you with John Oliver’s video on Scottish Independence:

 Why did I include that? Because it’s truly funny, and I want you leave you with a strong ending.

So there’s the lesson, Loss Aversion is a heuristic process that should be taken into account by organizations and policy makers. However, by knowing its effects and the basic rule that the gains should outweigh the losses by a ratio of 3:1, changes in fees or changes to the value proposition could be successfully managed.

So yes, that…and make sure you end with bagpipes–really, really loud bagpipes.

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