Management Perspectives

1. Imagine dealing with a business that offers products that always work, deliveries that arrive as promised, instructions that are clear and understandable, and self-service that’s easy to use. Their customers never have to contact them for the wrong reasons. They’ve created a frictionless customer experience.
   
   Frictionless companies work hard to reduce customer service issues in every aspect of the business, so it is no coincidence that they are market leaders in their categories, such as Amazon in retail and online services, Apple in consumer electronics, Dyson in household appliance production, USAA in financial services, and Xero in SaaS accounting software.
   
   These successful companies have long worked out that becoming frictionless has four undeniable benefits:
   
   1. Being frictionless reduces cost
   
   For many years, the media has promoted the view that companies that want to cut costs will offer lower or inferior service by cutting staff or slashing hours. While it is true that having fewer checkout staff or a lower contact center headcount saves money, doing so creates queues that quickly impact a business’s reputation.
   
   In contrast, a frictionless strategy cuts costs in ways that are more sustainable by removing the need for customer contacts in the first place and reducing processing times.
   
   For example, if order processes are streamlined and effective, customers will receive what they want accurately and on time; they won’t need to call or email the company about delays or errors, and the cost per transaction will fall.
   
   When companies reduce friction, they save a huge amount of money because they have:

• Streamlined processes so they take less time.
• Reduced returns and refunds, thereby saving effort and costly make-good concessions.
• Met customers’ expectations, cutting the need for queries and contacts.
• Built more effective websites, apps, and other channels that reduce contacts, complaints, and queries about how these channels work.
• Replaced assisted contacts with self-service channels that customers want to use.

Yes, there is a cost to reducing friction. For example, an organisation may have to build the functionality to allow customers to track their orders and be notified of major changes to a delivery schedule. However, that cost will be repaid many times over if it prevents customers from having to ask for help or express their frustration.

2. Being frictionless drives customer and revenue growth

Studies have shown that customers who have good experiences buy more. It seems intuitive that customers who have had on-time delivery from a company, when and where they expected it, are far more likely to place another order with that company, while customers who had to chase their orders or received them late will probably shop elsewhere next time.

According to one study by the Temkin Group, “77 per cent of customers would recommend and provide a referral to a company to a friend where they’ve had a great experience.” The growth of Amazon is a testament to this. It could not have been achieved if Amazon’s processes did not work so well.

Amazon’s ACSI scores remain some of the highest, and being frictionless has meant that customers have turned to Amazon for an increased range of products and services.

 

3. Being frictionless delivers a true competitive advantage

Companies that reduce costs through less friction create a sustainable advantage via low cost and high recurring revenue. In contrast, organisations that reduce service levels (such as speed of answer, speed of delivery, or length of checkout queues) put themselves in a difficult place, since customers will leave and revenues will likely fall.

The lower costs delivered by becoming frictionless also drive other advantages. Amazon, at one point, compared its CPO (contacts per order) with that of another major online retailer and found its own to be 75 per cent lower. This meant that the cost of each transaction enabled the company to reinvest these savings in lower prices (to drive more revenue) and greater marketing benefits like free shipping. A strategy that delivers both revenue and cost savings is clearly a winning one.

Yet being frictionless is not just about cost. Frictionless businesses have created new ways to share value with customers.

One example is Netflix, which, like other digital media sites, offers a different experience from traditional TV. With Netflix, deciding what you watch and when to watch it is a lowfriction and more controlled experience. The customer can select the viewing device and tailor the watching experience—no more cable and antenna constraints.

Netflix’s flexible experience enabled the company to invest heavily in original content, further deepening its must-watch reputation with millions of subscribers.

4. Being frictionless enables business survival

One of the impacts of digital disruption and the emergence of digital-only innovators is that low-friction business models are now essential. Older-style businesses are burdened with highcost physical networks and clumsy processes, and they face possible extinction if they do not reduce this friction.

Consider these examples:

• Zoom has gobbled up market share from Cisco’s WebEx by being simple to use.
• Many regional high-touch banks are now challenged by new ‘fintech’ players.
• Amazon has forced many conventional retailers, including BestBuy, Target, and Walmart, to add online channels (with various degrees of success).
• In insurance, disruptive businesses are emerging that price risk more precisely to each customer’s need and offer low-cost channels and self-service.
• In wealth management, digital or robotic advice models are emerging that undermine high-cost financial advice models.
• The airline industry was disrupted by low-cost carriers with simplified business models and self-service facilities, forcing incumbents to adopt innovations like selfserve check-in and online booking.

The outlook is clear: being frictionless is key for a business to survive. Will your business embrace these changes and thrive, or be left behind?