The Business Impact of Customer Experience

Customer Strategy
Customer Experience
Once again the news is good for companies hoping to get a financial boost from their efforts to improve customer experience.

I just published Forrester's fourth annual report "The Business Impact of Customer Experience" using updated data from the 2012 Customer Experience Index. Once again the news is good for companies hoping to get a financial boost from their efforts to improve customer experience.

In all of the industries we modeled the revenue benefits of a better customer experience range from $31 million for retailers to around $1.3 billion for hotels and wireless service providers.
What's behind these impressive numbers? It's pretty simple, really.

- Companies with better customer experience have more loyal customers. We've shown through both mathematical correlations and actual company scores that when your customers like the experience you deliver they're more likely to consider you for another purchase and recommend you to others. They're also less likely to switch their business away to a competitor. These improved loyalty scores translate into more actual repeat purchases, more prospects influenced to buy by positive word of mouth, and less revenue lost to churn.

- We model the size of the potential benefit using data from real companies. In each industry we create an archetypal "ACME Company" that scores below industry average in the CXi. We then look at what would happen to ACME's loyalty scores if it went from below average in the CXi to above average for its specific industry based on the actual scores for companies in that industry.

- Benefits add up fast even with conservative estimates. To keep things realistic we moderate the amount of improvement we expect ACME to get. We assume ACME Co. will only close about 50 percent of the total gap that exists between leaders and laggards (75 percent if it's a really small gap). We also assume that only a fraction of customers who would consider a future purchase actually do buy again, and that only 2 percent of customers who hear a recommendation from a friend act on that recommendation to become a customer. All of these assumptions are documented in the model and are there for readers to play with if they want to try out different scenarios. But because of the scale on which most of these companies do business, even a small improvement in loyalty scores adds up to a big dollar value.

After four years of doing these calculations we're pretty convinced that investing in customer experience is worth the money, but we still love to hear real world examples of this dynamic in action. What have you done to improve customer experience and what kind of financial or loyalty benefit have you seen?

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About the Author: Megan Burns is a principal analyst at Forrester Research serving customer experience professionals.