CX is NOT a Panacea . . . but it’s D@#n Important


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That’s the sound of leading customer experience companies going belly-up or being acquired by companies with less-stellar CX credentials.

We heard a massive sucking sound in the wake of the last financial crisis when Wachovia Bank and Washington Mutual – once gold standards for CX in banking – became insolvent and were acquired by Wells and JP Morgan Chase, respectively. The previous year, Commerce Bancorp – with accolades for its CX standards and the moniker “America’s Most Convenient Bank” – was acquired by TD Bank after Commerce’s CEO was embroiled in scandal and ousted – and all of a sudden TD became “America’s Most Convenient Bank.”

In 2011, Forrester Research cited Borders as the best company in CX in the US across all industries. Later that year, Borders filed for bankruptcy. Blockbuster, Circuit City, EF Hutton, MCI, TWA, Pan Am, Radio Shack, and Tower Records all join Borders on the long list of recognized CX leaders who ultimately shriveled up financially.

But how can this be? CX is everything, the mantra goes. So how can CX leaders fail or be acquired by companies with weaker CX creds? And how can some CX Neanderthals – we all know they’re out there – continue to thrive?

What else is there?
Obviously, CX is not everything. There is a host of other factors that affect a company’s financial performance. For example, CX does not compensate for external factors such as adverse macro-economic trends, interest rates, political decisions (tariffs anyone?), public policy, seasonality, or weather; or internally sourced factors such as a weak balance sheet, scandal, failed business models, and other strategic miscues. Add product, pricing, and placement to the list of potential issues.

For many businesses, location still matters and can trump CX in spite of the Amazon-ization of the world. For others, “Everyday Low Prices” has allure – even if it means messy, crowded, sterile stores with too few and often disengaged clerks. Monopoly status also helps. Government agencies, utility companies, and even cable and cell carriers virtually always bring up the rear on any CX rating.

So what gives? Is CX simply the business theme du jour soon to be replaced by the next trendy idea?

Just how important is CX?
Quantifying the impact of all of the factors that affect a company’s performance is a daunting task. Meta-analysis suggests that CX and relationships explain roughly 20% of the overall sales of a company (technically it’s the variance in sales, but that makes for a geeky and awkward distinction). This doesn’t seem like much, so why not focus on the other 80%?

Simple. Up to half of the impact on sales stem from those external factors a company can’t influence. This dramatically shifts the calculus – CX and relationships are estimated to account for perhaps 40% or more of the impact among the variables a company can directly influence. As such, CX is possibly the most important factor over which a company can exert influence (dare I say control?) in driving its financial performance.

For most companies, the majority of their revenues – probably more than 95% – in any given year are generated by existing customers. This means that virtually all businesses are based on relationships as opposed to single or even multiple disconnected experiences.

Sure, you might go on a lark and take a flight on a hot air balloon once, or pop-in on a traveling circus you happen to pass on the road, but the overwhelming majority of companies depend on their existing customers for repeat business and referrals. Relationships are the key to the kingdom.

Relationships are more than the simple sum of all experiences, but make no mistake – each and every customer experience has the power to reinforce the relationship, leave no impression, or worse – weaken relationship bonds. That means that every single customer touchpoint needs to be viewed as both an opportunity to bolster, and a risk of undermining that 95%.

Top line, bottom line
Delivering great customer experiences and building strong relationships is all about motivating customer behaviors that create value for a company – and demotivating behaviors that destroy value. In this sense, CX is more directly focused on the top line than the bottom line. (I’ll leave the debate regarding possible savings generated by dedicated customers for another day, but let’s just say that the verdict on that claim is highly suspect.)

And this brings us full circle: CX is the fuel for the engine at the heart of a company. However, while nurturing the customer base and building revenues fuel profits, there is more to managing a company than simply maximizing sales – just ask your CFO. That explains how some companies leading in CX have – and others no doubt will – vaporize.

The big-name CX leaders erased from the marketscape are the exceptions that prove the rule – for every one company that was once a CX leader and went kaput, there are countless other company failures caused, at least in part, by inability to deliver customer experiences that nurture strong relationships.

Ask yourself: would you rather manage your company and its bottom line with a strategy to retain and grow sales among existing customers, or work to reinvent your customer base anew year after year? THAT is why CX is so d@#n important.

Howard Lax, Ph.D.

Supporting better informed decision making with technology, research and strategy. With a focus on CX/VoC/NPS, Employee Engagement and emotion analytics, Howard's domain is the application of marketing information and SaaS platforms to solve business problems and activating CX programs to drive business objectives.


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