By Andrew Birmingham and Tess Bennett

Research Links Customer Experience Spending To Better Profitability

Imagine how much easier life would be without customers. Especially those annoying contemporary digitally native customers who insist on taking their best experience in any situation and applying it to every situation.

Painful as it is, keeping up with these expectations is the lot of the modern company manager. No wonder many businesses are moving to place customer experience at the forefront of their strategic planning.

Just this month the Digital Trends 2017 survey, produced by eConsultancy and Adobe, revealed that customer experience is regarded as the primary way for companies to differentiate themselves from their competitors.

There is a fundamental reason why the business landscape is evolving into what Adobe CEO and Chairman Shantanu Narayen calls the “experience economy”. All the evidence clearly indicates that CX lead companies — those that outperform their peers — deliver higher revenues and profits, and capture more market share.

Of course the corollary is also true: poor performance will cost you a lot of money. In Australia, for instance, Accenture estimates that $122 billion a year walks out the door in the form of customers switching between brands.

While these results might seem self evident, for the business manager trying to convince a sceptical and digitally illiterate C-Suite or board of the need to invest heavily in customer experience, a little evidence goes a long way. Luckily, the last few years have produced a growing body of evidence linking great customer experience to better bottom-line outcomes.

Leaders versus Laggards

Back in the digital dark ages — 2014 — Harvard Business Review’s analytics group released a report called Lessons From the Leading Edge of Customer Experience Management. The report stated that CX leaders were more than twice as likely to record successful outcomes across a range of KPIs as the laggards in the survey. As we noted at the time, 60 per cent of the leaders said they were successful on the key measure of profitability, compared to 35 per cent of laggards. On customer retention, the gap was even more significant: 54 per cent to 20 per cent.

The researchers wrote that “Customer experience management is markedly more important to leading-edge companies. Seven out of ten say it’s a significant strategic priority. Nearly half of all lagging companies (45 per cent), by contrast, said that customer experience is not at all important.

“While there may be issues with linking customer experience management to corporate performance, seven out of ten (71 per cent) of leading-edge organisations believe that customer experience provides a competitive advantage compared to just around a third (35 per cent) of lagging companies. And that certainty in the business value of customer experience excellence often starts at the top.”

Perhaps the most interesting finding, though, was that both leaders and laggards recognised how difficult it was to tie customer experience to business outcomes. The difference was that the leaders had made the decision (and the investment) to commit.

More contemporary studies — such as one by Sitecore and Avande last year involving nearly 900 decision-makes in six countries — have also directly linked customer experience improvements to revenue growth. That study, called “Customer Experience and Your Bottom Line”, found that every dollar invested in customer experience generated three dollars in return. It also found that company which invest in customer experience increased the lifetime value of those customers by 22 per cent.

Across industries with a more aggressive digital posture, like banking or retail, there is also a growing body of evidence around strong ROI. For instance, a study by Kibo called the “2016 Consumer Trends Report” found that high digital demands and rising expectations were the defining characteristics of the modern retail experience.

Take the simple matter of delivery. The majority of consumers in the UK and the US said they would change to a rival retailer if their preferred delivery methods where not available.

Meanwhile, in the banking sector, a paper by Robert Schiff and Peter Kriss published in Which-50 in 2015 looked at the impact of CX investments in two billion-dollar businesses.

“After controlling for other factors that drive repeat purchases, we found that customers of a transactional business who had the best past experiences spend 140 per cent more in the subsequent year compared to those who had the poorest past experience. Even within great experiences, customers who gave a score of 10 out of 10 spent 26 per cent more than those who gave a score of 9 out of 10.

“For the subscription-based business that we examined, we found that a customer who rates as having the poorest experience has only a 43 per cent chance of being a customer a year later, whereas the customer who gives one of the top two experience scores has a 74 per cent chance of staying with the business for at least another year,“ they wrote.

Building a business case

Gartner Vice President and Chief of Research Jake Sorofman, in a recent report called “How to justify the business value of your customer experience investments”, argues that companies must accept the strategic imperative of customer experience investments.

“In concept, the customer experience imperative is obvious enough: Happy customers stick around, buy more and recommend your brand, whereas unsatisfied customers do the opposite. Although most stakeholders understand this, attracting and sustaining the investments and attention necessary to fuel a cross-functional customer experience initiative requires more than a simple truism. It requires a clear articulation of business value.”

The strongest business case focuses on the twin factors of profitable revenue growth and cost reduction or optimisation, Sorofman writes.

In the case of revenue, good CX equates to repeat business and higher orders. Decades of research has confirmed that happy customers tend to stick around and buy more, and many will pay a modest premium for a great customer experience.

In terms of cost reduction, unhappy customers tend to be expensive. Happy customers return fewer items and complain less, lowering the cost of customer support. It is also cheaper to retain customers than to acquire new ones. Sorofman recommends looking to both the cost of customer acquisition and the cost of support in making the business case for customer experience.