What does a company get by investing in a high-quality customer experience?
That was the central question behind Watermark Consulting‘s very first Customer Experience Stock Performance Analysis, conducted back in 2009 and described in the article “Yes, Virginia, There Is A Return On Customer Experience.“
Each year since, we’ve refreshed the analysis with the latest data, watching to see if customer experience Leaders would continue to outperform customer experience Laggards. Now it’s time to reveal this year’s results…
For those unfamiliar with our earlier studies, here’s how the analysis works:
We look at the cumulative stock returns for the Top 10 and Bottom 10 publicly traded companies in Forrester Research‘s annual Customer Experience Index ranking (Watermark defines these two groups as the Leaders and Laggards, respectively).
We compare the total return from investing in an equally-weighted, annually readjusted portfolio of customer experience Leaders to that for customer experience Laggards and the broader market (as reflected by the S&P 500 index).
For the five-year period from 2007-2011, the customer experience Leader portfolio outperformed the broader stock market, generating cumulative total returns that were 27% better than the S&P 500 Index and 128% better than the customer experience Laggard portfolio.
This pecking order of performance held true even on an annual basis. In all but one of the five years, the Leader portfolio outperformed the index, which in turn outperformed the Laggard portfolio.
The pattern evident from this analysis has been remarkably consistent. For five years running now, we see that companies which bring great customer experiences to the marketplace are being rewarded – by consumers and investors.
The customer experience Leaders are clearly enjoying the many benefits of consumer loyalty. They see higher revenues from better retention, greater wallet share, lower price sensitivity and positive word-of-mouth. They see lower expenses from reduced acquisition costs, fewer complaints, and the less intense service requirements of happy, satisfied, long-term clients.
And the customer experience Laggards? They erode business value by creating experiences that are rife with friction – stoking customer frustration, increasing attrition, generating negative word-of-mouth and driving up operating expenses.
Yet many business leaders still don’t get it. They pay lip service to the customer experience, but continue to harbor skepticism about the value of differentiating oneself along that axis.
For evidence of this, look no further than the many corporate debacles of 2011, where the misguided judgments of high-profile companies like Bank of America, Verizon Wireless and Netflix made it seem like CEOs were collaborating on a book titled “How Exactly Not To Do Things.”
Perhaps now, with half a decade of supporting data under our belts, the skeptics will reevaluate their position.
Of course, while they ruminate on that, lots of other companies (maybe even some of their competitors) will continue to take this strategy to the bank.