Forrester just released an excellent new report “Drive Revenue with Customer Experience, 2017” co-authored by Maxie Schmidt-Subramanian, Dylan Czarnecki, and Laura Garvin Tramm. Forrester was kind enough to provide a copy to me, and Maxie was equally generous with her time discussing the research.
For those struggling to justify CX, this report may help. Here’s the big conclusion, quoting from the report:
Forrester built models that demonstrate how CX improvements drive revenue growth through increased loyalty. This report shows the revenue potential from improving CX for 13 of the industries we cover in Forrester’s Customer Experience Index (CX Index™). CX pros can use this data to make the case for investing in customer experience.
And this chart shows the relationship between CX and revenue varies depending on the industry.
For example, the middle group shows that airlines, wireless providers, and credit card providers get a better bang for buck by getting rid of bad experiences. There’s a point of diminishing returns, making “delight” not the best strategic choice.
On the other hand, “the sky’s the limit” for retail and direct banks, because increasing already excellent CX index scores “drives revenue potential four times as much as increasing a poor CX score.” This is the “exponential relationship” depicted on the right.
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This is a key insight: your industry makes a difference in how CX improvements will translate into revenue growth. The good news is that 10 of the 13 industries discussed in the report have a linear or better relationship.
Value of 1 Point CX Quality Improvement
The report goes on to quantify the value of increasing CX quality by 1 point. “CX quality” is Forrester’s CX Index: a consumer’s assessment of the brands’ effectiveness, ease, and emotion, with each factor weighted by the impact on loyalty.
Forrester then estimated how much improved loyalty (retention, enrichment, and advocacy) would impact revenue. I’ll spare you the details, but after quizzing Maxie about this, I was convinced they did a solid job here.
A revenue potential (for that +1 point CX Index) ranged from $5M for credit card providers to $873M for mass market auto manufacturers. This is based on the average number of customers per company.
So there you have it. CX drives revenue. 120K consumers can’t be wrong, can they? Before you whip out your checkbook, you might want to consider the following.
First, this is a correlation analysis. It doesn’t prove cause and effect, because the data was collected at the same point in time. So it’s theoretically possible that the relationship works the other way: as companies grow faster (due to other factors besides CX quality), they invest more in the customer experience and improve loyalty.
Maxie points out that there are other studies (e.g. leader/laggard) that show the leaders deliver better experiences. I’ve seen the same thing in my work, but it’s still a correlation. I’m surprised that with the CX industry not exactly in the formative stages anymore, there hasn’t been stronger evidence of cause and effect (beyond anecdotes and cases studies.)
Second, the revenue potential assumes that competitors are standing still. And of course, they are not. With the vast majority of companies claiming that CX is a strategic priority, won’t most of your competitors also be investing in CX and trying to get that revenue potential?
The race to growing revenue and market share goes to the competitor that gets a better return on CX investments. Maxie points out, and I wholeheartedly agree, that even if you don’t get an edge, it’s important not to fall behind. That suggests to me that CEOs should understand what is a minimum CX investment just to keep up.
Third, CEOs don’t invest based on industry studies. I’ve never found a senior executive that would fund any initiative based on a generalized study. It’s good for drawing attention to the opportunity (and possible downside too), but each company needs to develop its own CX strategy with a business case that makes sense. I explored this topic in depth in 3 Strategies to Sell the CEO on Customer Experience Management (CXM).
Execution is the Key
Yes, you need the right CX strategy. One that will drive real business benefits for your company.
Maxie points out that the CX strategy for a regulated utility could be about cost savings and avoiding government intervention. The “dont’ suck” strategy. Other companies in highly competitive industries may find they need to invest a lot just to keep up, and even more to get ahead.
Let’s take a leap of faith and assume you have a solid CX strategy, and the CEO gives the green light. Do strategies produce results? No. Only execution does.
Frankly, I see a lot of companies making similar bets on CX strategy. And getting no real change in competitive position. This leads to a situation of “better sameness” which I discussed in Are You Competing on Customer Experience to Keep Up, Get Ahead, or “Leave a Dent”?.
Winners are those that execute better. That requires CEO leadership beyond lip service, and institutionalizing the right practices. Read Top 5 signs you’re doing a REAL Customer Experience Management (CXM) initiative for more on this.
Forrester did an outstanding job on this industry-level research. Now, it’s up to you to translate the opportunity into a real competitive advantage.
Further reading: Drive revenue with great customer experience, by Maxie Schmidt-Subramanian.