Since it was first published back in 2010, the Watermark Customer Experience ROI Study has generated quite a bit of attention in the business community, becoming one of the most widely cited studies of its kind. Over the years, we’ve fielded many questions about the study, with a handful coming up time and time again. Below, Watermark Founder Jon Picoult addresses some of the most common queries we’ve received about the analysis:
Is the Watermark CX ROI Study suggesting that customer experience is the key to business success?
Not quite. The Watermark study never suggested that CX was the only driver to business success. Indeed, I’ve personally been very vocal about reminding organizational leaders that, even with an exceptional CX, there are a whole host of reasons why your business might still fail.
Two cases in point: The 2011 bankruptcy of Borders Books (coming just months after it was ranked #1 in CX by Forrester), and the 2023 failure of First Republic Bank (long admired in the financial services industry for its CX — and its stratospheric NPS of 80).
Those two examples offer an important lesson: A great CX is a necessary — but not sufficient — component for fueling business success.
Borders and First Republic were both beloved by customers, but they were ultimately felled by business challenges that had nothing to do with customer experience. The key takeaway: Customer love is a great thing; it’s just not the only thing.
You can read more about those two examples in these articles: “The Limits Of Customer Love: A Cautionary Tale From First Republic Bank” and “Why Did The Top-Rated Company In Customer Experience Go Bankrupt?”
Why don’t you publish more industry-specific versions of the CX ROI Study?
We’d love to, but we also have pretty strict criteria for selecting third-party consumer research studies that can serve as the basis for an industry-specific CX ROI analysis. Among the characteristics we look for:
- The data needs to come from a reputable research firm that is widely viewed as a credible source for CX ratings in that particular industry.
- That firm needs to have several years of data for the industry — at least 3, but we prefer 5 or more.
- Their ratings need to encompass enough public companies so that we end up with a reasonable sample size when separating the firms into Leaders and Laggards (typically, in the industry-specific studies, that equates to the top and bottom third of the ratings hierarchy). So, if there are 10 companies covered by the ratings, but only 4 are public, that makes it impossible to get a good sample size for the top and bottom third.
Unfortunately, there aren’t many consumer research studies that satisfy all of these requirements, and so that in turn limits the number of industry-specific studies we publish.
Don’t you have to spend a lot to create a great customer experience, thereby restricting the competitive opportunity to just luxury brands?
Creating a distinctive, competitively differentiated CX does not necessarily mean you have to become the Hermes or Lexus of your industry. Aldi, Costco, and IKEA are great examples of value-conscious companies that have earned high CX marks from consumers. They key lies in creating an experience that strongly resonates with your target market. Hermes and IKEA are targeting very different consumer segments, but they’ve both enjoyed great success due, in part, to the product and service experiences they’ve created for the constituencies they focus on.
Also worth noting: Building a better CX doesn’t necessarily require increasing your costs. One big benefit of a great CX is that it actually helps to control, if not reduce, operating expenses. Imagine, for example, if a health insurer invests in creating a much clearer and more intuitive Explanation of Benefits (EOB). Sure, that’s going to cost money. But when that easier-to-interpret EOB helps preempt “dumb” avoidable questions to the insurer’s contact center, it helps to reduce operating expenses and the net result can often be that the CX improvement turns out to be self-funding.
The same dynamic applies with companies that invest in easier-to-assemble product designs or clearer operating instructions – these things reduce customer calls and return rates, saving money over the long run.
This isn’t a new idea, folks. It’s no different than the now-famous precept that quality management guru Philip Crosby introduced over 50 years ago: “Quality is free.”
You can read more about CX as an expense reduction tool in this article: “Need To Cut Costs? Deliver A Better Customer Experience.”
What value does the Watermark CX ROI Study offer if it’s not really showing a causal relationship between a better customer experience and higher shareholder returns?
This is a common question we get about the Watermark study; I call it the “causality conundrum.” Meaning – is a great CX really driving the Leaders’ financial performance, or is it just that they had strong financials which allowed them to invest in creating a better CX?
For those of you yearning for an answer to this eternal causation vs. correlation debate, my advice is this: Get used to disappointment.
Forgive me if that sounds cavalier, but demonstrating causation at a macroeconomic level for ANY business strategy (not just CX differentiation) is notoriously difficult. Take your pick of strategy: centralized vs. decentralized, vertically integrated vs. horizontally integrated, retail vs. wholesale, outsourced vs. insourced, organic expansion vs. acquisitive expansion – at a macro, cross-company level it’s near impossible to demonstrate causation between these strategies and their overall financial impact.
That’s because an iron clad argument for causation requires a controlled experiment, where you manipulate a single variable while keeping all others constant. There’s just no practical way to do that in a cross-company, real-world business study.
The Watermark CX ROI Study has never purported to show causation – only a connection between CX quality and shareholder return. The purpose of the study (dating back to its very first iteration in 2010) was to present an intriguing view of data that helps start a constructive dialogue with C-suite executives or Board members who harbor skepticism over the value of customer experience differentiation.
The study was never meant to live in a vacuum. I’ve long said that it deserves to be complemented with other company-specific analyses that help show the impact of a better CX in your own environment. Indeed, if you’re looking for evidence of causation between CX and financial performance, you need to look at that more granular level.
Consider, for example: The rollout of a more user-friendly billing statement that cuts billing-related calls in half (saving millions of dollars in contact center expenses). Or improved related-product training for retail store associates that boosts the average customer sale by 10%. Or an easier-to-assemble product design that reduces return rates by 5%. These are all examples of narrowly-focused CX enhancements where it’s more feasible to demonstrate a cause and effect relationship with subsequent financial improvements.
Would it be nice to prove a cross-company, cross-industry causal relationship between CX quality and shareholder returns? Sure, but it’s not going to happen anytime soon. That’s not a reflection on the ROI of CX, it’s just a reality given what’s required to demonstrate causation at a macroeconomic level, for any type of business strategy.
My advice is to not get hung up on that, though. Even with its shortcomings, I’ve found the CX ROI Study does what it was intended to do:
- Catch the attention of business leaders…
- Open their eyes to the idea that CX ROI might not be intangible after all, and…
- Get them more comfortable with the leap of faith that’s often required when embarking on big business endeavors for which a precise, high-confidence ROI can’t be realistically calculated – whether it’s hiring a multi-million dollar CEO, pursuing a large acquisition, divesting a non-core business, or, yes… creating a truly differentiated CX.
Jon Picoult is founder of Watermark Consulting, a customer experience advisory firm that helps companies impress customers and inspire employees, creating raving fans that drive business growth. Author of “FROM IMPRESSED TO OBSESSED: 12 Principles for Turning Customers and Employees into Lifelong Fans,” Picoult is an acclaimed keynote speaker, as well as an advisor to some of world’s foremost brands. Follow Jon on LinkedIn or Instagram, or subscribe to his monthly eNewsletter.