The Financial Impact of Improving Customer Experience

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Each week it seems you hear reports that more and more brands are focusing on “customer experience” as a way to differentiate themselves in a marketplace of increasingly commoditized products and services. And companies like Amazon, Zappos, and USAA are routinely, and rightly, cited as exemplars of customer experience management. This tilt toward customer experience management is only logical given the general and accelerating trend toward the Age of the Customer, which began in earnest in the 1990s and which has gotten a large boost from enabling technologies (think the ubiquity of the web and the array of devices to connect with it) that have given more control to the customer in how they interact with brands.

However, according to Forrester Research 90 percent of the firms they surveyed indicated that customer experience is a top strategic priority. Forrester also notes that nearly the same percentage of companies (86 percent) also declare that their companies do not actually expect to get much value from customer experience investments. These findings are hard to square. How can customer experience improvement be a top priority, while at the same time lack the business case for its adoption?

The breakdown may be that these companies have yet to see convincing evidence that investments in one will likely lead to gains in the other. For example, we believe it simply isn’t good enough to say that improvements in customer experience drive higher loyalty as represented by Net Promoter Scores (NPS) or more traditional customer satisfaction statistics. The business impacts of these investments need to be tracked beyond these intermediary measures to hardcore measures that would interest a CFO.

smiley face with dollar signsThe Effect of Customer Experience on ROI

To its credit, Forrester makes the same argument that companies need to understand the ROI impact of customer experience improvements. Its website even provides a simple model that companies can use to estimate the gains they might see in their own cases. Moreover, in survey research it has conducted Forrester shows that high CXi scores for a brand are correlated with a higher “intent” for customers to purchase again, remain loyal, and recommend the brand.

This is a good start, but of course what you’d like to see is a careful examination of actual customer data that shows these effects. We think companies should see all the vital linkages - that customer engagement with a brand affects customer experience which affects customer behavior which affects customer value.

For example: A customer has some contact or engagement with the brand. This could be a purchase or a non-financial interaction like an inquiry or a search event. The process and outcome of that engagement has an effect on the customer’s opinion about his/her experience with the brand. If the experience is a good one, one would expect that it would lead, more times than not, to some desired behavior or change in behavior, such as another purchase or even something as simple as a recommendation to a family member or a “like” on Facebook. That behavior will then result in a financial impact identified as increased sales or improved profit.

It's this chain of events that leads to a financial impact that will really get the CFO excited, as well as the CEO and other interested parties.

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Related Content:

Blog: ​A Framework for Influencing Customer Experience

White Paper: ​Measure the Value of Customer Experience Improvements