I have a great book on my desk called 101 Things I Learned in Engineering School, which I picked up during our client conference from the library at the Institution of Civil Engineers (they have a shop, I didn't nick it!). I'm not an engineer, but I find it interesting to learn a bit about other disciplines and think about how their approaches might apply to customer experience and insight.
Today I was struck by the chapter "Few customers will pay for a perfectly engineered product", which introduces the idea that the cost of improving product quality tends to curve upward (i.e. each incremental improvement will cost more) while the value of improvements (i.e. the impact on customer perceptions) shows diminishing returns. As the chart below shows, the theory dictates that optimum quality is when the slopes of the two curves are equal.
This raises an important challenge that we often face in customer experience: is it always worth improving, or is there an optimum point beyond which trying to improve will cost us more than it's worth?
Before we try to answer that question, it's important to realise that the chart above is talking about cost versus value at the design stage. In other words, it's about our proposition, not about our delivery of the proposition.
This is well understood in the world of quality control, which from the 1950s developed the concept of the cost of quality. Simply put this says that although there are costs associated with improving quality (such as investment in training, systems development, testing and inspection), these will often be outweighed by the cost of failures (rework, complaints, liability).
For a long time the assumption was that the total cost would be a U-shaped curve, as in the chart below, with the optimum quality coming at the point that the cost of failures balances with the cost of prevention and appraisal.
Does that represent a good model for customer experience? No. In fact, I'm not even sure it's a good model for quality. Deming and others have argued that this view underestimates the long-term costs of failure leading to lost customers. This "quality is free" model suggests that it is cost effective to continue to improve quality right up to the point of 100% conformance (zero defects).
That, to me, looks like a much better starting point for understanding the true long term costs (never mind benefits) of investing in the customer experience. But can we prove it? What we can learn from the cost of quality is that we in customer experience need to find ways to talk in the cost accounting terms that businesses understand.
Customer lifetime value is probably our best tool, and I think it makes a lot of sense to approach that with the same understanding that costs are a balance between the costs that come from creating good experiences and the costs that come from dealing with bad experiences.