5 Facts to End the ROI Debate on Customer Experience

by zhecho on November 10, 2014

For many years, there has been a debate whether you could assign a dollar amount to determine the return on investment for any Customer Experience improvements. At times (more in the “old days” but every now and then it happens in present times)  we’ve literally have been accused of “having religion;” i.e., believing in Customer Experience (CX) without proof and asked to show the value of CX. So, the debate continues. Let this post today end this ridiculous debate with a resounding, “Yes!

I realize that this is a debate between people who like words and people who like numbers.  So instead of writing philosophically about the importance of optimizing your Customer Experience to creating an emotional engagement that creates loyalty between your Customers and your organization like I usually do, I will limit this post to facts and figures.

Here are some of the most comprehensive facts and figures that I’ve come across:

  1. A recent study of the Value of Customer Experience amongst two $1 billion+ businesses published in Harvard Business Review (HBR) managed to quantify the effects of good customer experience. One of the businesses was transactional and the other was subscription based. What the researchers found was that after controlling for other factors that drive repeat purchases in the transaction-based business (for example, how often the customer needs the type of goods and services that the company sells), customers who had the best past experiences spend 140% more compared to those who had the poorest past experience”.  Whilst the transactional business is more interested in repeat purchases and their   frequency, the subscription business is mostly interested in how long customers remain loyal. For the subscription business the researchers found that “a member who rates as having the poorest experience has only a 43% chance of being a member a year later. Compare this to a member who gives one of the top two experience scores — they would have a 74% chance of remaining a member for at least another year. We were also able to use this data to predict future membership length based on the quality of experience. The difference: on average, a member who gives the lowest score will likely only remain a member for a little over a year. Compare that to a member who gives the highest score — they are likely to remain a member for another six years.”
  2. Customer Satisfaction results in a higher share price. Whilst the above example is impressive and coming from HBR, this next example is bound to attract senior leadership’s attention as it links stock prices to customer satisfaction.  I have a whole post that looks into this relationship in more detail. The short version is that a study by the CFI group tracked the share prices of the leaders of the American Customer Satisfaction Index (ACSI) and the leaders National Customer Satisfaction Index, UK (NCSI) versus the broader markets. According to the study, “the cumulative return of a $100 investment in the ACSI fund from April 2000 to April 2012 was $490, a gain of 390 percent. By comparison, the S&P 500 returned only $93, a 7-percent loss. In the United Kingdom, the NCSI portfolio earned a return of 59 percent from April 2007 to June 2011, and the FTSE 100 had a negative return of 6 percent.” In addition, higher levels of customer satisfaction are tied to high levels of positive cash flows with low volatility, and positive earnings surprises.
  3. Keeping Customers results in a high increase in value. Focusing on customer retention with a better Customer Experience will benefit your bottom-line expenses. According to Bain & CO, retaining just 10% of the customers you already have will result in a 30% increase in the value of your company. Why is this? Because when it comes to retaining a customer, you will spend up to four times less annually in marketing to keep a customer than attracting a new one to take their place. Bain and company estimates that the amount spent to attract new customers as high as seven times more than keeping an existing customer. And the key to keep your customers is improving your customer experience because 68% of the customers that leave you do so because they are upset with the Customer Service they received. (Source: Bautomation.com.)
  4. The amount of Customers that leave does not represent small amount of business. There is sometimes a misconception that customer churn doesn’t represent much business, but this isn’t true. JD Power and Associates reported that the annual premiums paid by customers that switch insurance providers amount to $7.6 billion. According to their 2014 US Insurance Shopping study, 28% of the Customers who switched auto insurance providers did so because of “poor experience.”
  5. Your existing customers are far easier to upsell. According to Marketing Metrics, you have a much higher probability to sell your existing customers than a new prospect, at 60 to 70% versus 5 to 20%, respectively. That’s a much bigger chance that you are going to get to yes if you have a loyal customer base to ask for the order. Add to the fact that the profitability of each customer you retain increases over the time you have them (according to Leading on the Edge of Chaos by Emmet and Mark Murphy), you can see that keeping a customer improves your bottom line over time.

And to make the cross sell and upsell case more clear,  the majority of customers’ buying decisions are tied to how they feel about the experience. In an article about the moments of truth in customer service, McKinsey & Company revealed that 70% of customers at a bank reduced their commitment when they had a bad Customer Experience. That article also revealed that 85% of customers that had a good relationship with the bank increased their commitment. Consider how much business 70% of dissatisfied customers can send to another organization. Chances are its more than you think.

And if this wasn’t enough here is a link to 50 more facts about customer experience.

These are good, as they come from independent sources. But I didn’t need those, nor the “religion” I was accused of fostering before, as during our work we’ve helped a number of success stories, including:

  • A Construction company increased its profits by 50% and moved from 4th  to 1st in market share by focusing and improving its customer experience
  • A Global Shipping company increased its Net Promoter Score (NPS) by 40% points over 30 months. The company linked every 4% points improvement of their NPS score to 1% improvement in shipping volume, thus increasing volume by 10%
  • An Electrical Retailer reduced complaints by 20%, increased levels of trust by 10% and achieved a 3% increase in ‘like for like’ sales.
  • An Insurance company reduced certain repeat calls from 76% to 6 % achieving millions of cost-cuts and also moved Customer satisfaction from 73% to over 90%
  • A B2B Telecom reduced costs by 36% and increased revenues by 7%

So, there you have it. I have made my case, and I am prepared to hear the counterarguments. However, I think the time for debate has passed. It’s time to focus on improving and creating memorable and enjoyable experiences for our Customers with their experience.  Shall we?

Sources:

Digby, James. “50 Facts about Customer Experience.” Returnonbehavior.com. 26 October 2010. Web. 26 August 2014. <http://returnonbehavior.com/2010/10/50-facts-about-customer-experience-for-2011/>

“Startling Statistics on Customer Retention and Acquisition.” www.bautomation.com. Web. 26 August 2014. < http://www.bautomation.com/successes-resources/articles/startling-statistics-on-customer-retention-acquisition/489/>

“J.D. Power Report: Customer Switch Auto Insurers Because of Poor Service; However, Savings with New Carrier Often Isn’t Enough to Fully Satisfy.” www.jdpower.com. 24 April 2014. Web. 26 August 2014. < http://www.jdpower.com/press-releases/2014-us-insurance-shopping-study>

“The ‘moment of truth’ in customer service.”  www.mckinsey.com. February 2006. Web. 26 August 2014. http://www.mckinsey.com/insights/organization/the_moment_of_truth_in_customer_service

The Value of Customer Experience, Quantified

http://blogs.hbr.org/2014/08/the-value-of-customer-experience-quantified/

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