Forrester's Harley Manning: The Business Impact of Customer Experience

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Customer Engagement
Customer Experience
Customer experience improvements can be worth billions - yeah, "billions" with a "B."

Customer experience improvements can be worth
billions -- yeah, "billions" with a "B."

Forrester recently published a report by my colleague Megan Burns that models the business impact of an improved customer experience. I'm proud of this report because it:

  • Quantifies the correlation between a rise in a company's Customer Experience Index score and the corresponding increase in three loyalty metrics that every company cares about: purchase intent, likelihood to switch business to a competitor, and likelihood to recommend
  • Makes conservative but realistic assumptions about the business fundamentals of companies in 13 different industries
  • Produces eye popping projections of increased annual revenue as a result of a realistically attainable improvement in customer experience -- by industry.

And when I say "eye popping" I am not kidding. The increases range from a low of $40 million for large retailers to a high of $1.7 billion for wireless carriers.
What drives this potential windfall in revenue? It's a combination of three factors. First, an increase in the number of people who make additional purchases over the course of a year because they had a better customer experience. Second, the reduction in the number of customers who would have bought from a competitor if their experience had not improved. And finally, a rise in new customers -- people who heard about the good experiences that friends had and went on to buy.

The drivers behind the model are fascinating. Forrester client's can view Megan's report online, download the spreadsheet and see for themselves. For those who can't see the report, here are some of the findings that leap out:

Top wireless carriers have the most to gain from simply checking the erosion of current customers. Their extremely large customer bases -- combined with lower barriers to customers switching providers courtesy of number portability -- means that they'll see great swings due to small percentage improvements in retention.

Hotels, in contrast, have their numbers driven mostly by the high rates of change in loyalty that result from customer experience improvements (which makes sense, doesn't it? There's no switching cost: It's super easy to go back to our favorite hotels and avoid those that disappoint us. Or switch after one egregious problem at a former preferred property).

The implications are interesting. The most obvious one is that if you work in customer experience, what you do matters to the bottom line. Depending on your industry, it can matter a lot.

That idea doesn't just stem from an exercise in building spreadsheets. We know from our other research that the projects companies do to add value to their offerings, make it easier for their customers to do business, and add emotional engagement to interactions leads to additional transactions from current customers, new customers, and better customer retention. For example, one large wireless carrier stopped significant customer bleeding by tracking down a single (but hugely important) root cause of poor customer experience and fixing it.

If you find this discussion interesting you can join in at our online community. We want to hear your opinion as well as the assumptions you'd use for your industry!

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About the Author: Harley Manning is a vice president and research director at Forrester Research serving Customer Experience professionals. He blogs at http://blogs.forrester.com/harley_manning

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