The Future Of Customer Experience Relies On Operational Excellence

February 8, 2022
9 min read

In this article:

17% of customers quit on brands after one bad experience. Luckily, optimizing your operations can ensure that every experience is a good one.

In recent years, customer experience has become a primary focus for many direct-to-consumer (DTC) brands. And at first, the name of the game was to create as many touchpoints as possible.

But now, customer experience strategies are shifting from external communications to internal operations. That's because operational excellence inherently leads to great customer experiences.

For example, when someone wants to buy something, they ideally want that item to be in-stock, ship right away and arrive undamaged as soon as possible. 

But all that can only happen if your operations are in working order. Otherwise, you'll leave customers frustrated and drive them to shop elsewhere. (17% of customers will stop shopping at a brand after one bad experience, and 59% after multiple bad experiences.)

So, how exactly can operational excellence improve your customer experience and increase retention? Let's walk through it.

What is a customer experience, and why does it matter?

The customer experience (CX) refers to customers' holistic perspective of your brand. This perspective is based on every interaction and touchpoint a person's had with your company, including shopping on your website, talking to your support team, and the unboxing experience.

And brands that consistently offer incredible customer experiences are the ones who win in the long run. That's because consistently good customer experiences drive repeat purchases, so you retain customers longer. And because it's cheaper to keep an existing customer than attract a new one, you end up increasing your margins over time. 

Meanwhile, it takes 12 positive customer interactions to make up for a bad one. But in reality, most customers won't give you twelve chances to prove yourself once they're unsatisfied. And you'll be left spending hefty customer acquisition costs (CAC has increased by roughly 60% for DTC brands in the past five years) to attract new leads. 

So, the best practice is to ensure your customer experience is a great one every time.

The future of DTC emphasizes customer experience

Right now, two critical things are happening in the ecommerce landscape. 

  1. Ecommerce is growing ridiculously fast. During the pandemic, DTC saw five years of growth in less than five months. As a result, more brands than ever are selling more goods online, and there's no sign this trend will slow soon.
  2.  Bringing a product to market is easier than ever. In part, that's because there are more financing options now than ever. Plus, marketers have access to a goldmine of customer data, and operations teams finally have transparency around where they (and their competitors) source products. 

When combined, these factors create a crowded and hyper-competitive marketplace. One where consumers have plenty of options on where to shop and can easily compare brands. 

And the DTC brands that continue to stand out are the ones that offer a seamless, above-and-beyond customer experience. 

But this "above-and-beyond experience" means more than just quickly fixing problems your customers bring you; it means proactively ensuring that those problems don't arise in the first place. And that starts and ends with optimizing your brand operations.

How operations affects customer experience

Retail brands can't separate their operations from customer experience, especially if they want to grow. That's because marketing can do a great job generating demand, but if ops and fulfillment are off, the customer experience will be disappointing. And as a result, the brand won't turn that initial demand into growth. 

Historically, retail brands have primarily relied on external tools like social media ads to grab people's attention and drive demand. Then, they'd deal with fulfillment issues as they happened. But this approach became more challenging as brands started offering omnichannel experiences

Offering an omnichannel experience enables customers to shop with the brand on virtually any channel (in-store, online, via social, and so on). But it also makes the backend operations wildly more complex. 

As a result, omnichannel brands risk generating more demand than they can fulfill if they don't have their operations in order. 

While too much demand doesn't sound like the worst problem to have, it's a surprisingly expensive one, especially with rising customer acquisition costs.

That's because when the product is out of stock, shipping is delayed, or the order shows up damaged, it inherently leads to a bad customer experience. As a result, it'll be near impossible to retain the customers these issues impact, even if you set up back-in-stock notifications. But the demand you fail to fulfill and the customers you don't retain cost you as much (if not more) than the ones you do. 

Luckily, you can easily avoid these pitfalls by optimizing your operations.

What does it mean to "optimize your operations?"

On a recent episode of The Checkout podcast, we asked Greg Davidson, founder of modern baby and toddler brand Lalo, to explain what it means to "optimize your operations." And we think he put it best.

According to Greg, optimizing your operations means getting the best product into our customers' hands as quickly and efficiently as possible. And to reduce waste in the process.

For example, you might use an ops optimization tool like Cogsy to generate a more accurate demand forecast, so you only purchase inventory that will actually sell. No more, no less. This way, you don't risk a stockout and missing out on sales. And you aren't left with dead stock, which ties up capital you might need for other growth initiatives. 

Generally speaking, brands look at the below-the-line unit economics to identify where they can optimize their operations. That's because if your unit economics are off, you're going to spend more to earn every dollar. 

As a result, your brand isn't as profitable. Mark Riskowitz, the head of operations at Caraway, a fast-growing DTC brand in the home goods space, calls this "operating against yourself." 

The worst part? Most companies "operating against themselves" don't know they are doing it. Or if they do, they don't know how to fix it, making it an expensive mistake. 

If you're worried that might be you, the best place to start is by looking at your costs of goods sold (COGS). To calculate this, use the following formula: 

COGS = beginning inventory + purchases - ending inventory

That's how much it costs you to earn your revenue. The lower this number, the less you'll have to spend to grow. And the more working capital you'll have available to grow your brand, not just bigger, but better. (In the coming years, we're betting big that winning brands will do both.)

5 ways to optimize operations and improve your CX

Here are five ways to optimize your operations and improve your customer experience, so you can grow not just bigger but better: 

1. Maintain optimal inventory levels

For DTC brands, inventory is the biggest opportunity to optimize your operations. And as the source of your brand's revenue, it's also where costly operational snags tend to happen. That's why it accounts for two variables when you're calculating your COGS. 

But you don't want to just have inventory on hand; you want to have the right amount of inventory on hand. Too much inventory on hand, and you'll rack up holding costs and tie up capital. Too little, and you risk going out of stock and having nothing to sell. 

So, how do you find your optimal inventory levels? It starts by forecasting customer demand. That way, you know exactly how much inventory will actually sell. 

With Cogsy, brands can forecast demand and order optimal quantities more accurately with real-time data. The ops optimization tool keeps a 24/7 eye on your inventory levels, so you don't have to. 

When stock levels start depleting, Cogsy drafts up an optimized purchase order that's ready to submit and notifies you that it's time to restock. That way, you avoid a stockout and always have stock on hand when a customer is ready to place an order.

2. Lower your COGS

Lowering your cost of goods sold isn't as easy as it sounds, especially if you don't want to sacrifice product quality. So, reduce these costs where you have the upper hand: your supplier relationships.

Generally speaking, supplies prefer customers that order consistently–it makes running their business way easier. Not to mention that similar to your business, it's much cheaper for suppliers to retain an existing customer (that's you!) than acquire new ones. 

Because of this, predictability becomes your best bargaining tactic.

For instance, most suppliers will offer a bigger discount or reduction in unit price when you share your demand forecasts and commit to minimum future purchase orders. They might even decide not to increase their supplier prices under current market conditions simply because you’ve signed a long-term contract. Either way, you increase your margins, giving you more capital to work with. 

You can then pass these savings along to your customer, making your price point more competitive. You can invest in research and development for new product lines, which will increase your existing customer's lifetime value and attract new customers.

Or, you can reinvest that capital into your customer experience. For example, this might mean growing your customer support team or updating your marketing site to be more user-friendly.

3. Offer product bundles

Product bundling is a highly effective way to upsell and cross-sell. That's because, by selling products together at a slight discount, you can increase turnover and boost your average order value (AOV). 

Depending on your goal, there are a few ways to go about product bundling: 

  • Want to get rid of deadstock? Pair a unit of dead inventory with a best seller.
  • Looking to increase turnover? Pair a fast seller with a slow-moving SKU.
  • Prefer to increase margins? Pair a high-margin item with a low-margin item.

Any of these three options will improve the customer experience. For one, bundles can simplify this experience by grouping related products with the customer's needs in mind. And at the same time, customers save money compared to if they bought each item separately. 

For example, Harry's sells a razor, blade refill, and shave gel bundle at a lower price than if someone were to buy just the blade refill pack. This encourages customers to purchase the bundle and ultimately get the best product experience. As a result, this strategy increases customer satisfaction for the shaving company. 

Harry's starter bundle saves customers more than 50%.
Source: Harry's

Cogsy can help identify which products to bundle and forecast future purchase orders to fulfill those bundles. 

We recommend offering bundled products as virtual bundles, meaning they're set up on the front-end and are less operationally demanding. That way, your brand can better serve customers without adding unnecessary work or costs.

4. Reimagine your packaging

For ecommerce retailers, product packaging might be the first tactile experience a customer has with your brand. And if you want them to purchase from you again, it needs to be memorable... in a good way.

A whopping 58% of consumers said that damaged packaging deters them from buying a product. However, in DTC, customers don't know until it arrives whether or not their damage to the packaging. 

If there is, best case, they'll reach out to your support team and ask for a replacement. But this quickly becomes expensive between the cost of replacing the item and the hours spent handling claims. However, at least this option gives you the chance to save the relationship. 

Worst case, the customer will tell everyone they know how awful the experience was. This can seriously hurt your brand's reputation and cost you new customers. 

So, when designing your product packaging, the primary concern should be that the packaging gets the product to the customer undamaged. When you can guarantee that, that's when you should focus on lowering the packaging cost and making it feel "on brand."

5. Sell on backorder

Even the brands that manage their inventory near-perfectly experience a stockout from time to time. All it takes is one unexpected spike in demand or an unforeseeable supply chain issue. 

Historically, when these stockouts happened, it meant brands didn't have products to sell, and their revenue suffered. However, with Cogsy, ecommerce brands are empowered to sell on backorder, so they don't lose out on revenue.  

Brands that sell on backorder with Cogsy see a negligible drop in conversions compared to when the product is in-stock. (For reference, most brands use Shopify Back in Stock notifications, which convert at a dismal 5-15%). 

This means by selling on backorder, you can close more sales, generate more revenue, and increase customer happiness. 

Just be sure to over-communicate when customers should expect their order to avoid unnecessary frustration. (Email expert Samar Owais suggests reaching out once a week to keep customers in the loop.) 

Cogsy automatically does this work for brands by displaying the estimated shipping date all over the e-commerce store—on the product page, shopping cart, and email receipt. This removes any room for human error or confusion over when products will actually deliver.

Start optimizing your operations today

If there's one thing to take away here, it's that winning customer experiences start with operational excellence. And an ops optimization tool like Cogsy makes achieving operational excellence easy. 

Don't take our word for it. See for yourself--set up a quick demo today!

Want to build a successful operational strategy?

Request a live demo to learn how Cogsy reduces your stockouts so you always convert your customers' demand.
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