Costco Is Tops in Customer Experience

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Customer Experience
Customer Experience
Study reveals the impact of a clear value proposition

Warehouse club chain Costco took the top spot on Forrester Research's recently published Customer Experience Index 2007 (CxPi), tallied from some 5,000 consumer surveys about customer interactions with a variety of companies, gauging the usefulness, usability, and enjoyability of those experiences.

In addition, retail overall scored higher than any of the sector's eight competing categories (see sidebar).
"While Costco was above the industry average in all three areas of the CxPi, it made it to the top of the rankings based on its usefulness," says Bruce Temkin, vice president and principal analyst, customer experience, for Forrester Research and author of the report. "Consumers gave Costco a much higher score for 'meeting their needs' than any other retailer."

Indeed, Costco beat out its nearest competitor, Borders, by just .3 percent overall. "Costco was top rated because it most frequently met customers' needs," Temkin says. "Consumers have a clear set of expectations when they show their membership card and walk into a Costco warehouse. And, more often than not, they get what they expect. There's a key lesson here for retailers: Develop and communicate a clear value proposition and make sure that you consistently deliver on it."

Consistency has been key to the chain since the company launched in 1983, according to CFO Richard Galanti. Corporate policy mandates that markups be no greater than 15 percent, which, Galanti says, "keeps us honest, because we know we have competitors out there who are offering things that are just as good as what we sell."

Costco, which operates 529 stores in eight countries, is currently seeing the highest membership-renewal rate in its history, at around 86 percent, Galanti says. "We don't cut corners," he says. "Our members trust us emphatically about quality and value."
Galanti also credits low employee turnover as being an important factor in Costco's success. Annual turnover is around 20 percent, which, when adjusted for seasonal temporary hires, drops to about 17 percent, he says.

"It's not just about paying a good wage," he says. "That'll get you there, but it's not going to keep you there. It's more about empowering our employees, who are our ambassadors on the floor, to make them feel like they're part of a company that cares about them and its customers."
The Forrester report recommends that all companies make the customer experience a top priority. "On average, there's a lot of room for improvement," Temkin says. "Only 10 percent of the firms wound up with 'excellent' ratings, and 21 percent were 'poor' or 'very poor.' That's why firms should put customer experience initiatives near the top of their 2008 strategic plans and chart a course toward experience-based differentiation."

Among the report's recommendations:

Look beyond your industry for best practices. "While there are some customer experience best practices in every industry, firms should look for best practices across all industries," Temkin notes. "As a start, take a look at the firms at the top of the CxPi rankings like Costco and Borders. And if you're in an industry that didn't do well in the CxPi-like medical insurers, TV service providers, and Internet service providers-the search for best practices should predominantly focus on top retailers, investment firms, and insurance companies."
Develop an outside-in approach. With key decisions often made on limited or inaccurate views of customers, and with a focus on their own organizations' needs rather than the customers', a concerted effort to systematically incorporate the voice of the customer is crucial, Temkin says.

Assign an executive leader. Improvements need to encompass more than just frontline employees and customer-facing processes, with a dedicated executive leading the effort. "But before appointing or hiring a new customer experience executive," Temkin says, "firms need to make sure that they've established the right ground rules for this position."

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