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Here’s Proof from Forrester that CX Drives Revenue. And 3 Cautions That It May Not 

Bob Thompson | Jan 27, 2017 1,387 views 7 Comments

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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.

Source: Forrester

Source: Forrester

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.



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.

Three Cautions

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.

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7 Responses to Here’s Proof from Forrester that CX Drives Revenue. And 3 Cautions That It May Not

  1. Andrew Rudin January 27, 2017 at 1:59 pm (194 comments) #

    Because the y-axis is labeled revenue potential rather than just revenue, I wondered how Forrester measures that variable. Since the term potential represents future, unrecognized revenue, has Forrester compared their findings once revenue has been booked, and is no longer considered potential?

    Put another way, it’s unclear to me whether a banking customer’s delightedness over CX actually translates into 4X the current revenue generated – or whether the customer just says they’re now prepared to generate 4X their current amount.

  2. Bob Thompson January 27, 2017 at 7:02 pm (219 comments) #

    Unless you believe that industry spending is infinitely elastic, the revenue potential is not something that every company can attain.

    Consumers might switch from vendor A to B if B make a CX improvement and A and other industry players do not. In this scenario, B captures the revenue potential.

    I’m not saying it’s a zero sum game. Consumers might spend a bit more on hotels if the industry collectively improves experiences. But generally speaking there are only 2-3 big winners in any industry, then lots of others treading water or worse.

    So the quantification of revenue gain only makes sense if the company improves CX at a pace significantly faster than others. That comes down to execution.

    To your “4X” question, it means that at high levels of CX quality, a 1 point improvement has a nonlinear (4X) impact on revenue. But I would argue that a high levels of CX quality, getting an additional point is very hard and expensive, which makes that revenue gain also costly.

  3. Chip R. Bell January 28, 2017 at 8:58 am (179 comments) #

    Bob…this is great work. And, so helpful to the profession. I have found that high touch industries (hospitality, health care, retail, entertainment, etc.) don’t need much revenue proof–they intuitively get it’s importance. Their decision is around how good is good enough for us. If I am a hospital, do I want pricy Ritz-Carlton service or can we be just as competitive with La Quinta or Holiday Inn Express good service. It is the organizations that have historically focused on non-service elements of their competitive strategy that need more bottom line proof (e.g., manufacturers, utilities, many B2B companies, home builders, etc.). No enterprise wants to be known for bad service but assuming okay service, is there a probable (some would say predictable) link to the bottom line. Your post makes a wise “it all depends” argument as well as important cautions regardless of the chosen go-to-market strategy. Just because we all love world-class, knock you socks off service, as advisors to organizations, we cannot assume it is right for everyone.

  4. Bob Thompson January 28, 2017 at 9:57 am (219 comments) #

    Yes, Chip. That’s a key insight from Forrester’s research. “Better” CX is not necessarily better for customers (they don’t value it) or the company (doesn’t generate profitable growth).

    That said, my perspective is that the real industry leaders don’t spend a lot of time trying to justify their strategy with research like this. It is the average companies and laggards that need a wake-up call, and this type of research may help — if the CEO (and board) are inclined to make the investment.

    Maxie pointed in my interview that even “just ok” customer service requires good execution. Delivering the intended CX means the organization has defined what that means and has organized the company’s people and processes to do so consistently.

  5. Gautam Mahajan January 28, 2017 at 8:56 pm (173 comments) #

    Bob,
    You have written a very meaningful piece. For many of us the obvious makes us believe date, however incomplete or misconceived.
    I still think that as long as experience is measured by satisfaction, we are dealing generally with hygiene factors. If satisfaction is very high, we can expect positive business results, otherwise not.
    On the converse, any increase in Customer experience will increase customer value and hence business results, but then value has to be measured.
    Lastly, for most companies the bottom line is not increasing value for the customer but for themselves. And so the focus is off the customer (or is secondary)…this then is why these programs become passe

  6. Howard Lax January 29, 2017 at 7:57 am (25 comments) #

    Thanks, Bob. Great piece. Your analysis, however, might be better than the underlying data.

    I haven’t seen this data set, so I can’t comment on it directly. In the past, however, I have seen Forrester models that were, for lack of a better term, silly. In exploring their hotel model one year, for example, the implied potential gain a hotel might realize from improving it’s scores implied an increase in room nights that exceeded the spare capacity of all but the largest of the large hotel chains. I imagine this is because their model is over-influenced by the biggest players and then they fail to adjust their algorithms for hotel size. Be that as it may, this type of sloppiness makes the data seem less-than-reliable: if the “average” potential gain exceeds the capacity of the “average” firm in the sector, the model isn’t very useful.

    Their models — and this is conjecture on my part so I wil be glad to be corrected — sem to imply that the impact of stronger loyalty scores on ACQUISITION are directly proportional to the impact of stronger relationships with EXISTING CUSTOMERS. This also is a veery dubious assumption.

    I think thay also fail to address the key distinction betwen customer EXPERIENCE and customer LOYALTY, which clouds their numbers further.

    I am a strident believer in the strong economic case for customer loyalty AND customer experience. (See:
    http://customerthink.com/new-customer-retention-a-fundamental-in-retail-financial-services/

    http://customerthink.com/david_vs_goliath_i_by_howard_lax/

    http://customerthink.com/david_vs_goliath_round_ii_challenging_fred_reichheld_on_the_economics_of_loyalty_again_by_howar/)

    But while the Forrester models have broad appeal, looking under the hood a bit further has tended to make me queasy.

  7. Michael Lowenstein February 1, 2017 at 7:00 pm (1274 comments) #

    This is great material, and absolutely conforms with all we have been learning in the industries cited, and beyond, over the past few years. And, your three cautions are right on point. Had we not been able to definitively evaluate functional and emotional elements of value that drive downstream customer decision-making behavior (multivariate modeling and not correlation analysis/simple regression), our assessments might have fallen into the same logic and statistical trap you identified.

    I’d counsel that, beyond good strategy and execution (which are “must haves”), it is the components of perceived value, and superior value delivery through people (part of execution) that keep the CX engine on track and chugging along..

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