Forget About The ROI of Customer Experience

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Instead of asking what's the ROI of customer experience, ask about the value of improving the customer experience and measuring its effectiveness.
Customer Experience

One of the most-asked questions in the world of customer experience (CX) is what's the ROI? CX professionals want the answer to convince their organizations to focus more on CX while executives ask the question to calibrate how much time and money they should spend in this area.

Stop Asking About the ROI of Customer Experience

On it's own, the CX ROI question is somewhat silly. It's like asking what's the ROI of hamburgers for McDonalds, claims processing for State Farm, or bedding for the Marriott. Customer experience is an integral component of every organization that has customers. There's no way to interact with customers without providing an experience.

Unless you're holding your customers completely hostage, you will lose some business if your customer experience gets bad enough and you will generate more business if your customer experience improves enough. In every business that we've examined, customer experience affects loyalty at some level.

Instead of asking what's the ROI of customer experience, I urge you to ask these three questions:

  1. What's the value of improving customer experience?
  2. What's the best way for us to make those improvements?
  3. How do we evaluate the effectiveness of those improvements?

Since this is a column and not a dissertation, I can't address all three of these questions here. But I'll take a closer look at the first question.

What's Value of Improving Customer Experience?

Temkin Group recently published the report, ROI of Customer Experience, 2014, that examines how a modest improvement in customer experience will increase customer loyalty across 19 industries. The study examines feedback from 10,000 U.S. consumers.

Amodest increase in customer experience at a typical $1 billion company can earn an additional $272 million to $462 million in revenues over three years.

Here are some other highlights from the research:

  • When we examined the customer experience and repurchase plans for customers of 268 companies, it revealed a very high Pearson Correlation coefficient of .83.
  • Net Promoter Scores of companies with very good customer experience ratings average 22 points higher than the scores of companies with poor customer experience, with a very high Pearson Correlation coefficient of .77.
  • Across all 19 industries, loyalty is highly correlated to the three components of the Temkin Experience Ratings: functional, accessible, and emotional. In almost all cases, the emotional element of experience has the highest correlation.
  • Auto dealers retain the most business from existing customers ($184 million over three years) when they improve customer experience, whereas investment firms retain the least business ($94 million over three years).
  • In four industries, typical companies generate more than $100 million of additional revenues over three years from word of mouth by improving customer experience: supermarkets, fast food chains, hotels, and retailers.

Make the Right CX Investments

Our research shows that there's an opportunity for many organizations to improve their business results by making improvements in customer experience. But that information on its own does not warrant writing a blank check to invest in this area. To capture the benefits, you need to answer the additional two questions and invest in the right improvements in the right ways.

Having a high ROI potential is not nearly as important as focusing on the right areas and making sure that your efforts make a lasting difference.

Note: Net Promoter Score, Net Promoter, and NPS are registered trademarks of Bain & Company, Satmetrix Systems, and Fred Reichheld.

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EXPERT OPINION
EXPERT OPINION