If you want your CX efforts to be taken seriously at budget time, in the C-Suite, or the Boardroom, you must be able to quantify in some way the value of improving the customer experience for your company. This is non-negotiable. If you can’t or at least don’t try to do that, in fact, you probably deserve to see your budget cut.
If you aren’t showing some incremental value, however measured, how can you seriously expect your firm to invest in CX? You wouldn’t expect leadership to greenlight investments in an acquisition, new products, opening new markets, or whatever without at least some data on the expected return. You can’t rely on urban legends about the cost of acquiring new customers versus retaining existing customers or textbook models and frameworks with footnotes and arrows pointing to increased revenues and savings. Yes, there is a place for making the initial business case using theory and third-party data. But the compelling proof is in your pudding, in your company’s data, not in someone else’s numbers.
This doesn’t mean you need to build some fancy ROI model. Few companies actually have the data to support a true ROI model, so they end up relying upon numerous assumptions that usually render the model no more convincing than the urban legends. Instead, work with the data you have or can collect to build your case illustrating that improving the customer experience creates value for your organization.
The Economic Rationale for CX
Customer behaviors are not random. Given the need for a product or service – and the ability to afford it – customer behaviors are a reaction to their experiences when researching, shopping for, buying, and using those products and services. A logical corollary of this is that changes in those experiences will lead to changes in customer behavior.
This, in turn, is the seed of the value proposition for CX: delivering the experiences that induce customers to engage in those behaviors that create value for the company. This is the promise of the Science of CX:
- gauge how customers react to the experiences with an organization,
- identify and quantify the drivers of their delight or disappointment,
- then use that insight to curate and deliver experiences,
- that motivate behaviors that generate value for the organization.
How do customers create value for a firm? First and foremost, by continuing to be a customer, as well as buying more and purchasing more expensive goods and services. Those are the drivers that boost customer lifetime value (CLTV). Since most firms count on more than 90% of next year’s revenue being generated by customers retained from this year, retention, cross-selling, and upselling are priorities. While more difficult to quantify, customers also create value by recommending the firm to others.
Using the Data You Have or Can Collect
Depending on the experiences you are tracking and the data your company has (and to which you have access) and when and how it is collected, the exact economic case you can make will vary – and that’s OK. Here are various examples of real results from actual clients (which are nameless, of course) reflecting these differences. For the sake of simplicity, let’s focus on B2C.
Mass Market Retailer. Tracking customer spend over the course of a year we found for this chain that customers who reported having the best experiences shopped at the store monthly and spent over $1,300 during the year, on average; at the other extreme, customers recording the worst experiences spent some $170 annually spread over five visits.
Luxury Retailer. Best vs worst experiences show the extremes. In a comparison of the six-month spend of shoppers who said they had great experiences relative to all other shoppers (the majority of whom still had good or very good shopping experiences) we see a less extreme but still dramatic experience premium: in this instance customers with the outstanding experiences spent some 85% more on average than all other customers.
Supermarket. It may be mundane, but we all buy food – and for the supermarket in this example the ROI on experience was clear: the monthly spend of customers who recorded experiences in the top quarter was 3.3 times as much as those in the bottom quarter.
Big Box Store. Here we grouped stores into quartiles based on their customer experience scores. We then looked at quarter-over-quarter increases in sales: stores in the top two experience quartiles saw quarter-over-quarter growth 2% greater than stores in the bottom quartile. Two percent may not sound like much, but that translates into a differential rate of growth of 8% annually and more than 17% over two years.
Hotel. We see the same positive “store” level impact for hotels. For this client we also placed properties in quartiles based on the customer experience at each hotel: those with ratings in the top quartile saw 15% higher occupancy rates and 14% higher REVPARR (revenue per available room) than the bottom quartile.
Retail Banking. For this client we compared revenues and profitability for Promoters and Detractors. Promoters generated more than five times the revenue as Detractors and were 67% more profitable.
Credit Cards. Cardholders who rated themselves least loyal were TEN times more likely to churn within two years of issuance than those scored as the most loyal.
Mobile Phones. People often say they will do something, but how often do they actually do it? In this instance we looked at whether people bought the same brand device again: those with highly favorable experiences with their mobile were about 50% more likely to repurchase the same brand than users with less gratifying experiences.
Your Company’s Data
You can cite these and other numbers to help substantiate your claim that improving the customer experience yields a positive payoff in general. But to really prove your point to leadership you need to plug in the numbers for your customers and your company. Use the data you can get – revenue, profitability, renewals, customer tenure, repurchases, actual referrals, share of wallet, number of products purchased, increases in any of these year-over-year – whatever is available or you can collect to make the specific case for your firm.
In all the above examples I looked at the revenue side of the equation, but you also should look at the cost side. For example, in the banking case cited we found that Detractors had higher delinquency and default rates than Promoters (but I can’t share that data). But be wary, as the cost side can be tricky: the most loyal banking customers probably show an above average predisposition to using branches, the most expensive delivery system and frequent customers may get showered with all types of discounts and incentives that increase costs. And, of course, I haven’t factored in the actual cost of improving the customer experience, as this is highly variable and, in most instances, exceptionally difficult to track.
If you want leadership to take CX seriously, you must make the business case and prove that a better customer experience creates value for your company.