The CEM Concept

Kinesis (Seattle, WA)


  1. Introduction

  2. CEM and the Loyalty Curve

  3. Categories of Customer Interaction

  4. What does CEM look like?

  5. Alignment

  6. Tools and Methods
    • Customer feedback
    • Performance audits and monitoring
    • Learning Management
    • Incentives

  7. Conclusion

Copyright © 2001 by Kinesis, Seattle, WA. All rights reserved.
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Just when companies are becoming comfortable with the idea of Customer Relationship Management (CRM), a new term has emerged: Customer Experience Management (CEM). The two are similar in many ways, not least in that they are both difficult to define. Neither can be identified with a unique product or a specific technology; rather, they both comprise a group of applications, technologies and analytics that orbit around a central premise. The premises of CRM and CEM are quite different, however, and are best understood when compared side by side.

The idea at the center of CRM can be stated in the following way: Every time a company and a customer interact, the company learns something about the customer. By capturing, sharing, analyzing and acting upon this information, companies can better manage individual customer profitability. CEM's premise is almost the mirror image. It says that every time a company and a customer interact, the customer learns something about the company. Depending upon what is learned from each experience, customers may alter their behavior in ways that affect their individual profitability. Thus, by managing these experiences, companies can orchestrate more profitable relationships with their customers.

In a sense, this is a classic nature vs. nurture argument. CRM uses profiling, micro-segmentation and predictive analyses to identify each customer's figurative genetic structure. CRM thus uncovers the preferences and propensities of customers so that they can be nudged towards optimal profitability. CEM, on the other hand, looks at the environment. It gathers and analyzes information about the dynamics of interactions between companies and customers. This information is fed back to the company in a self-calibrating system that (in theory) makes optimal use of every opportunity to influence customer behavior.

Obviously these are overlapping approaches, and both have merit if designed and applied intelligently. Up until now the spotlight has predominantly been on CRM, in part because it is technologically impressive (as well as astonishingly expensive). Unfortunately, CRM has not been nearly as effective as promised; according to some estimates, from 50% to 70% of CRM initiatives fail to achieve their goals.

As CRM is more widely used, its weaknesses become more apparent. Analysts have become fond of noting that there is no R in CRM (some go so far as to say there is no C, either). The idea of a "relationship" with customers seems hollow: CRM is very good at receiving, but not very good at giving. It asks customers to provide access and information without telling them what they will get in return. It pigeonholes customers based on past actions without informing them how to build a more advantageous profile. It prompts customers to become more valuable to the company without promising greater value from the company.

Furthermore, while CRM is fairly effective at measuring its own successes, it does not provide much information about its failures. It can record when customers respond positively to its automated prompting and prodding, but it doesn't give much insight when customers do not respond in the predicted way. CRM is thus unable to determine whether failures are the result of faulty assumptions, incorrect information or poor execution. It is also unable to tell how these "failed" interactions affect the customer relationship; it treats all failures as neutral, when in fact the fabric of the relationship may have been weakened or undermined by a poorly executed service encounter.

CEM's strengths lie in precisely the areas where CRM is weak. By focusing on the experiences of customers and how those experiences affect behavior, CEM examines both the quality of the company's execution and the efficacy of the result. It aligns customer needs with the company's ability to fulfill those needs, leading to business relationships that are mutually beneficial and that both parties — company and customer — are motivated to improve.


The notion that customer experiences can be strategically managed is consistent with the so-called "loyalty effect", which says that the longer customers stay with a company the more profitable they become.

Initially, customers do not reach positive profitability until they pay off their cost of acquisition, which in some industries may take a year or more. After that the profitability of individual customers tends to grow year after year. The major dynamic driving this loyalty/profit curve is the fact that long-term customers have more opportunities to learn about the company (and vice versa), so the relationship can become increasingly efficient. Long-term customers are cheaper to maintain because they tend to use support services less and to register fewer complaints, adjusting their expectations to a range that is realistic with the company's offerings and capabilities. They may also make more frequent purchases and buy higher-ticket items as their trust in the company and knowledge of its offerings grow. Furthermore, they are more likely to attract new customers to the company through positive word-of-mouth endorsements.

But the benefits of loyalty do not occur simply because customers have more experiences with the company over time. To move up the loyalty/profit curve they need to have the types of experiences that will add to their knowledge and influence their behavior. Some experiences impart little information, and some may even contradict information learned earlier. The proportion of experiences that positively influences a customer's relationship and profitability may be small or large, and these experiences may be random or planned. The goal of CEM is to move customers up the loyalty/profit curve faster by increasing the proportion of experiences that affect behavior in a positive manner.

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Such a strategy requires more than simply satisfying customers, or even delighting them. A well-designed CEM initiative should identify precisely the types of customer behaviors the company wishes to influence, and have a plan for providing experiences that influence those behaviors. It should also recognize how customer needs and expectations change at different points in the lifecycle of the relationship and account for those changes.

The mistake many companies make is to launch expensive, high-profile service initiatives with no clear idea of what they hope to accomplish and no calculation of return on investment. They create customer loyalty programs that make it more attractive for customers to stay (or more expensive for them to leave), but that seldom seek to influence other behaviors in a systematic manner. They may also raise the banner of "customer delight", believing that repeatedly delighted customers will become advocates or "apostles" for the company. But such a strategy is a blunt instrument, requiring a great deal of energy to obtain limited or uncertain results. CEM seeks a greater level of precision. It requires companies to define the customer behaviors they wish to influence, and to align their marketing message, performance standards, training content, employee incentives and measurement systems to encourage those behaviors.

It is impossible, of course, to plan every customer experience or to ensure that every experience occurs exactly as intended. However, companies can identify the types of experiences that impart the right kind of information to customers at the right times. It is useful to group these experiences into three categories of company/customer interaction: Stabilizing, Critical, and Planned.

  • Education
  • Competence
  • Consistency
  • Early
  • Middle
  • Establish realistic range of expectations
  • Validate expectations
  • Establish trust, reduce perception of risk
  • Educate customers about support services, feedback channels, etc.
  • Reduce early-phase customer turnover
  • Reduce service and support costs through more efficient relationships
  • Critical
  • Opportunity
  • Flexibility
  • Problem resolution
  • Early
  • Middle
  • Mature
  • Service recovery
  • Positive, memorable experiences
  • Reduce turnover due to unresolved problems
  • Promote positive word-of-mouth endorsements
  • Planned
  • Appropriate timing
  • Appropriate context
  • Middle
  • Mature
  • Up-sell products, services
  • Cross-sell products, services
  • Increase average purchase levels
  • Increase proportion of high-margin sales

    At it's most basic, a Customer Experience Management system captures information about individual service events and feeds it back to the organization. The information can be gathered from customers who provide their impressions of recent service experiences, as well as from objective observers who record specific details about service execution. More sophisticated systems integrate data from both sources so that company standards and execution can be continually calibrated with customer expectations and impressions. Unlike traditional market research reporting, which is delivered weeks after the data are collected, CEM systems feed back information within days or hours of the service event, allowing employees and managers to make small, effective adjustments on an on-going basis.

    Capturing and integrating data about service execution and customer impressions is important, but it is only the first step. These data need to loop back to training initiatives so that knowledge and performance deficiencies among employees are directly and continually addressed. Furthermore, CEM programs may extend the linkage to employee and manager incentives. Thus, front-line employees and supervisors continually receive feedback, training and rewards linked to their day-to-day interactions with customers.

    Finally, a comprehensive CEM program also incorporates key metrics related to customer behavior and profitability, such as retention rates, average purchase amounts, store sales, complaint and resolution rates, etc. The strength of a CEM system is in its ability to continually align company performance with customer needs and behaviors, enabling companies to make small, day-to-day adjustments as well as enterprise-wide changes.


    The concept of "continual alignment" is critical to CEM because it allows the system to function as a practical, front-line business tool that effects change on a daily basis. A truly comprehensive CEM system deals with many interlocking points of alignment. Among the most important are:

    Company message <--> Customer expectations
    The messages companies send through advertising, merchandising and public relations are typically intended to attract new customers and influence the purchasing decisions of existing customers. However, these messages often create expectations about service and support that the company cannot meet. Customers frequently complain about such "seduce and abandon" scenarios, in which the initial promises made (or inferred) fail to align with their experiences. To increase retention, particularly among new customers, it is essential for companies to repeatedly test the effect of their messages on customer expectations, as well as to ensure that operational staff fully understand and are equipped to handle the promises made to customers.

    Customer expectations <--> Company standards
    Even in the most sophisticated and progressive companies, standards of service delivery can be out of sync with customer needs and expectations. One reason is that customers are seldom involved in the writing of these standards. Rather, service standards tend to be the product of mid-management committees, resulting in a hodge-podge of ideas and opinions that are more a reflection of operational expediency than of customer expectations. Furthermore, service standards have a tendency to stay in place for years with no review or adjustment to account for changes in the competitive environment or in the capabilities of the company. CEM initiatives periodically review and calibrate standards against customer needs, expectations and experiences.

    Company standards <--> Training content
    Training should arise from standards, not vice versa. CEM initiatives bring training managers into the process from the beginning, ensuring that as standards are adjusted, training content will follow.

    Training content <--> Front-line execution
    The success of most training programs is measured in terms of the participants' ability to recall the content, rather than to apply the information on the job. CEM systems, on the other hand, identify specific deficiencies in service delivery and adjust training content to address those deficiencies. In some systems specific performance gaps can trigger appropriate training reinforcement in the form of short, targeted lessons delivered on-line. Thus, employees and managers are provided with precisely the information they need to improve their service execution.

    Front-line execution <--> Rewards and incentives
    The same mechanisms and decision rules that trigger knowledge reinforcement can also trigger incentives and rewards. At the managerial level CEM incentives tend to be in the form of quarterly bonuses linked to metrics such as customer satisfaction and service execution scores. But CEM goes farther: In some cases it can link day-to-day performance metrics to rewards at the individual employee level. For example, call centers agents can receive bonus points that are immediately redeemable at on-line redemption sites. Thus, employees receive quick, meaningful rewards that reinforce the specific skills that are needed to improve customer experiences.

    Through these interlocking points of alignment, CEM creates a system that is both flexible and enduring. Using constant review and recalibration, CEM avoids the boom-or-bust cycles that are typical of so many quality improvement initiatives — scenarios in which the entire organization becomes involved in a substantial outlay of effort and energy, only to see the initiative deteriorate into disjointed and ineffective programs in a year or two.


    Most companies currently claiming to be CEM solution providers offer on-line customer feedback systems. These are in the form of follow-up surveys to recent customers, typically conducted over the Internet, with "instant" results provided through on-line graphical reporting. Other CEM companies concentrate on customer experiences with web sites, incorporating both customer feedback and objective web assessment data.

    While these are certainly valuable tools, they address only a portion of the conceptual scope of CEM. Unfortunately, few companies now offer complete solutions (the same can be said of CRM, of course), so businesses generally must piece together tools from multiple sources. Most of these sources do not consider themselves CEM providers (yet), but nevertheless offer data collection, software or integration services that are consistent with the vision of CEM, and that can be applied to build a comprehensive CEM system.

    CEM tools and methods can be grouped into the following categories:

    Customer feedback
    Most companies conduct periodic customer satisfaction research to assess the opinions and experiences of their customer base. While this information can be useful, it tends to be very broad in scope, offering little practical information to the front-line. CEM takes a more targeted approach by obtaining feedback from customers about specific service encounters soon after the interaction occurs.

    Follow-up interviews can be conducted through a variety of media, including Internet, telephone and face-to-face. Advancements in database technology and widespread access to on-line media allow the results to be reported to the appropriate employees almost immediately after being gathered. Thus, front-line workers and their supervisors are able to review the effects of service interactions while the memory is still fresh in their minds, and to make adjustments as needed.

    Various market research firms and CEM providers offer quick customer feedback and on-line reporting. In service environments such as call centers, with universal access to computers and the Internet, it is possible to send electronic reports about specific service interactions back to individual employees. This is seldom possible in retail settings, however; in these cases the data may not be available on-line below the level of store or department managers, who then share the results with their teams. Some retail organizations do not yet have universal Internet access even at the store level, and thus require reports to be faxed or mailed to individual retail sites.

    Collecting follow-up data from customers requires that they be identified and contacted soon after the interaction. This is relatively simple when customers visit web sites or when the company is able to link service interactions with customer account information. But even in service environments such as retail stores and restaurants, where customers are more transient and anonymous, feedback can often be gathered and reported to the front-line quickly and efficiently. The most frequently used techniques for gathering interaction-based customer feedback are:

    It should be noted that any of these methods runs the risk of annoying customers, which is obviously contrary to the goal of building stronger relationships. It is therefore essential for companies to set expectations early in the relationship by educating customers about the nature and purpose of the feedback program, and by spelling out the benefits they will receive by participating.

    Performance audits and monitoring
    While customer feedback is essential to CEM, it only looks at one side of the equation. Companies also need reliable information about their service execution, including details about specific service skills and behaviors. They need to be able to make precise comparisons among employees, stores, regions and service channels to ensure that standards are consistently followed.

    Customer feedback should not be used to provide this level of detail. It is appropriate for customers to furnish information about their satisfaction, impressions and opinions, but they cannot be expected to remember specific service behaviors, the names of personnel, or details about the service environment. Trained, objective observers more appropriately provide this type of information.

    The two types of observational measurement commonly used in CEM programs are monitoring and performance auditing (also called "secret shopping" or "mystery shopping"). Monitoring involves observations of actual customer interactions, while performance auditing uses researchers who follow pre-determined service scenarios while posing as customers. Monitoring is commonly used at call centers and contact centers, and is most appropriate for interactions involving telephone, e-mail or live chat. Performance auditing can be used for any channel, as well for cross-channel scenarios and "lifecycle" studies that involve multiple interactions conducted over time.

    Both monitoring and performance auditing are widely used. Unfortunately, both are also widely misused. Call monitoring, for example, is ubiquitous among call centers, but its effectiveness is often limited by a shortage of training and resources. Most call centers conduct intermittent monitoring by unit supervisors, who may wait for many days or even weeks before sharing their observations with individual agents. While useful for ad hoc coaching, such a system has inherent problems of bias, inconsistency and lack of timeliness, and is thus inappropriate for an effective CEM program. The better systems assign in-house or outsourced quality teams, which use trained monitoring agents, random selection of calls, structured monitoring and scoring forms, and immediate reporting of results.

    Performance auditing programs have historically suffered from a lack of rigorous standards for selecting and training auditors (or "secret shoppers"), as well as from poorly designed measurement criteria and slow turnaround of data. Furthermore, companies employing these programs often fail to obtain sufficient acceptance from front-line managers and service workers. As a result, employees may expend more effort discrediting the program and "exposing" secret shoppers than improving their service skills.

    Fortunately, this situation is changing. Many secret shopping companies are now becoming more sophisticated and rigorous in their approach. A few have designed web-based programs for hiring, training, certifying and deploying secret shoppers, resulting in wider coverage, greater consistency and better quality control. These systems also provide on-line reporting within hours instead of weeks, making the data far more salient for service personnel.

    In addition, a few companies have begun employing cross-channel service scenarios that more accurately reflect the experiences of contemporary customers. Thus, secret shoppers may make a web-site purchase, send an e-mail request, track delivery of the purchased item, contact a call center with a question, and return the item to a brick-and-mortar outlet, all as part of a single scenario. Such an approach allows companies to assess service execution in separate channels as well as to test the exchange of information between channels.

    Learning Management
    The challenge of training employees has increased significantly in recent years. Such factors as high employee turnover, outsourced service functions and the proliferation of complex CRM tools has made it essential to train workers on a continuous basis. Unfortunately, it is seldom possible to remove busy employees from their jobs in order to provide classroom instruction.

    One response to this challenge has been the emergence of computer-based Learning Management Systems (LMS). Some of these systems are quite powerful, allowing managers to construct lessons and tests, build subject libraries, track employee progress and deploy specific lessons to the desktops of individuals and teams.

    Companies are finding that Learning Management Systems are not an effective replacement for classroom training because the essential social dynamic of the classroom cannot be replicated on-screen. Nevertheless, LMS's are proving to be valuable for reinforcing classroom lessons and incrementally adding to the knowledge base of employees.

    Learning Management Systems work very well with CEM, because lessons can be "tagged" to correspond to specific skill categories that are measured through customer feedback, monitoring and performance audits. Thus, the information that is deployed to employees on-line can directly address deficits in service delivery. These on-line lessons can be very short, allowing employees to receive focused knowledge reinforcement without appreciably interfering with their workflow.

    LMS's are valuable not only for their ability to reinforce specific behaviors, but also for the analytical capability they provide to training administrators. Trainers can see which lessons are being sent most frequently and can adjust their curriculum to emphasize those skills in initial classroom sessions. They can also see whether the lessons themselves are effective. Lessons that have been repeatedly triggered and sent to employees with little effect on performance can be quickly redesigned. As a result, training content and delivery can be evaluated on its effectiveness rather than on the post-class ratings or recall of participants.

    CEM provides rich metrics for rewarding managers and service staff at all levels of the organization. The data can be aggregated, weighted and scored, allowing comparison and benchmarking among incentive recipients. These scores can then be linked to periodic bonuses, recognition, or redemption services. The motivational power of CEM lies in the fact that the metrics it generates are relevant, easy to understand, frequently reported, and fair. Because the data are continuously viewable, managers and employees know precisely where they stand - there is no surprise at the end of bonus periods. And because the criteria are clear and achievable, incentive recipients know they have the power to affect the outcomes.

    At the managerial level, a sufficient amount of data can be aggregated within bonus periods to provide a fair assessment of performance. The immediate reporting that CEM provides allows managers to view their performance against goals on a day-to-day basis so they can take action quickly. Over the course of the bonus period managers can compare stores, units or teams under their span of control and target their improvement efforts appropriately.

    At the employee level, rewards need to be associated even more closely with day-to-day achievement. The emergence of on-line redemption sites now makes it possible to link performance data with incentives through a seamless electronic system. The same reporting tool that displays the results of customer feedback, monitoring and auditing can also display "points" earned, and allow employee to redeem those points for merchandise, cash or other relevant rewards. The return on investment in such systems tends to be high, as the behaviors and skills rewarded are directly aligned with customer retention, purchasing levels, word-of-mouth advertising and other profit-building activities.


    The idea that customer experiences can be strategically managed is not entirely new. In a sense, companies have always tried to influence and manage their customers' experiences through advertising, merchandising, store design, lighting, music and, of course, service. They have always tried to deliver a consistent set of cues, messages and human interactions that, taken together, create "the customer experience." Although the term may be new, customer experience management has for many years been a fundamental consideration in the way most companies do business.

    CEM is not, however, simply an old idea in a new wrapper. In recent years a number of fundamental changes have occurred in the business environment that have led to the emergence of CEM as both a strategic discipline and a fast-growing industry, complete with a wide array of tools and solution sets. The changes have been fueled by technological advancements, which have expanded the range of services available to customers, and simultaneously led to escalating customer expectations. The result is that there are now more services and products available than at any time in the past, yet customer satisfaction are on a downward slide. CEM can help reverse that slide by providing efficient business tools that make the interactions between companies and customers more rewarding for both parties.

    Copyright © 2001 by Kinesis. All rights reserved. Terms and Conditions.