Customer loyalty and experience design in e-business

Design Management Review, Spring 2004 by Long, Karl

Digital environments have a reputation for being ephemeral, confusing, and in a constant state of flux, a world in which an enduring relationship is an oxymoron. Karl Long counters that it does not have to be that way. Based on a hierarchy of "experience design" parameters, he richly illustrates a framework for making Web encounters a platform for an ongoing exchange that consumers value and depend on.

Loyalty, like trust, is hard won and easily lost. It is built over time, over multiple interactions in which each party gains deeper knowledge of the other and acts accordingly. But enough about what I learned in relationship therapy. This truth about loyalty extends beyond interpersonal relationships and applies to business, as well. Frederick F. Reichheld (who is not my therapist at all, but rather the author of Loyalty Rules: How Today's Leaders Build Lasting Relationships) has come out with a definition worthy of Dr. Phil:

Loyalty means listening to your partner, creating mutual satisfaction.1

Gaining customers' loyalty is the Holy Grail of business-a way to reach eternal life or, in business terms, long-term sustainability. The value of customer loyalty is far greater for a business than the value of repeat transactions; loyal customers are less price-sensitive, require less marketing outlay, and are more open to providing feedback and more likely to refer friends. Here are some details:

* Wooing a new customer costs five to seven times more than retaining an existing customer.

* Reducing customer "churn" by 5 percent can increase profit by between 30 percent and 85 percent.

* Increasing customer retention by 2 percent is equivalent to reducing operating expenses by 10 percent.2 For e-businesses, where the interaction between a business and a customer is mediated by network technologies, competition is never any further than one "click" away. This makes customer loyalty more difficult to achieve (due to the low switching costs for customers), as well as more critical to business survival. The tools that an e-business has to drive customer loyalty largely depend on its Web site's functionality and design. This creates a design challenge for ebusinesses: How can the design of our Web site improve customer loyalty? Experience Design helps answer this question.

What do we mean by experience design?

Experience design is not a stringent methodology, but rather a more inclusive, humanistic approach to certain design problems. Because this approach provides a broader understanding of the customer experience-one that goes beyond simple transactions-it is ideal for creating designs that support richer interactions that can lead to loyalty. Although many design disciplines (for instance, visual design, information architecture, information design, and interaction design) can come under the heading of "experience design," I see it as an approach that is defined by context-rich research methods that rely on observation, generative research, and participatory design. The focus on contextual research methods is important in understanding the diverse needs and attitudes of various types of customers. It is these methods that create a foundation of understanding for designers that will help them to create customer experiences that lead to deeper relationships, essentially moving customers through the stages of what I call the "hierarchy of customer experience."

The hierarchy of customer experience

The hierarchy of customer experience is an adaptation of what psychologists call the "hierarchy of needs." This is the concept that the satisfaction of lower-order needs must come before those of a higher order can be fulfilled. The psychologist Abraham Maslow was the first to popularize this idea, and later Frederick Hertzberg related it to factors that influence employee motivation. Indeed, the psychology of human motivation is an appropriate lens through which to view customer relationships, because the increasingly valuable interactions that surround basic transactions often require active participation from the customers, and therefore motivation.

The hierarchy of customer experience has four levels of needs: trust, competence, autonomy, and creativity/relatedness. These levels are essentially cognitive states that should be supported to enable deeper, more meaningful interactions. Trust and competence are essentially the transaction drivers; autonomy and creativity/relatedness are the drivers of loyalty-the intrinsic motivators. Where online customer experiences are concerned, transactions are the foundation on which deeper interaction can be created, and therefore they must be enabled before loyalty can be built.

Experience design evolved specifically to provide a broader perspective on customer experience-to understand the broader context that might surround usage and transactions. Experience design methods and disciplines provide a suite of tools ideally suited to help drive loyalty in the customer relationship. The following paragraphs detail how experience design creates and supports interactions that can drive loyalty by supporting trust, competence, and autonomy and by encouraging creativity/relatedness.