About the Customer Experience ROI Study
What’s a great, differentiated customer experience really worth to a company?
Over a decade ago, we launched the Customer Experience (CX) ROI Study in response to a sad but true reality:
Many business leaders pay lip service to the concept of customer experience – publicly affirming its importance, but privately skeptical of its value.
We wondered… how could one illustrate the influence of a great customer experience, in a language that every business leader could understand and appreciate?
And so, our CX ROI Study was born, depicting the impact of good and bad customer experiences, using the universal business “language” of stock market value.
It’s become one of the most widely cited analyses of its kind, and has proven to be an effective tool for opening people’s eyes to the competitive advantage accorded by a great customer experience.
This year’s study provides the strongest support yet for why every company – public or private, large or small – should make differentiating their customer experience a top priority.
Thank you for the interest in our study. I wish you the best as you work to turn more of your customers into raving fans.
Founder & Principal, Watermark Consulting
Author, From Impressed To Obsessed
(Follow me on Twitter, Instagram, or LinkedIn)
The Business Challenge
What’s a great, differentiated customer experience (CX) really worth to a company?
It’s a question that seems to vex lots of business executives, many of whom publicly tout their commitment to the customer, but are actually unsure about the ROI of customer experience — leaving them reluctant to invest in customer experience improvements.
As a result, companies continue to subject their customers to complicated sales processes, cluttered websites, dizzying 800-line menus, long wait times, incompetent service, unintelligible correspondence and products that are just plain difficult to use.
To help business leaders understand the overarching influence of a great customer experience (as well as a poor one), we sought to elevate the dialogue.
That meant getting executives to focus, at least for a moment, not on the cost/benefit of specific customer experience initiatives, but rather, on the macro impact of an effective customer experience strategy.
We accomplished this by studying the cumulative total stock returns for two model portfolios – comprised of the Top 10 (“Leaders”) and Bottom 10 (“Laggards”) publicly traded companies in customer experience. (A full description of the study’s methodology is available in the white paper describing the results.)
As the graphic in the next section vividly illustrates, the results of our study were quite compelling.
Thirteen years of customer experience rankings were available for our analysis. The graph below shows the cumulative total return across that period for the Customer Experience Leaders and Laggards.
Customer Experience Leaders outperformed the broader market, generating a total return that was 108 points higher than the S&P 500 Index.
Customer Experience Laggards trailed far behind by an almost identical margin, posting a total return that was 110 points lower than the S&P 500 Index.
Customer Experience Leaders generated a total cumulative return that was 3.4 times greater than that of the Customer Experience Laggards.
The Backstory: Customer Experience Leaders vs. Laggards
It’s worth reiterating that this analysis reflects well over a decade of performance results, spanning an entire economic cycle, from the pre-recession market peak in 2007 to the post-recession recovery that continued through 2019.
While there are obviously many factors that influence a company’s stock price, the results of this study indicate that, over the long-term, a great customer experience helps build business value, while a poor customer experience erodes it. That’s an important takeaway, for public and private entities alike.
What creates that enhanced value? Answering that question requires understanding the economic calculus of a great customer experience. When a company consistently delivers an impressive experience to customers, it triggers behaviors that influence business financials in two important ways:
Revenue growth. When most people think about the economic benefit from a great customer experience, this is where their heads go. And that’s entirely appropriate, because revenue growth is indeed one clear advantage of customer experience excellence. Why? Happy, loyal customers have better retention, they’re less price-sensitive and they’re more willing to entertain offers for other products and services – all helping to raise revenue. Plus, because they love you so much, they spread positive word-of-mouth and refer new customers to you – lifting revenue even higher.
Expense control. This is the part of customer experience economic equation that most businesses fail to appreciate. (It’s also why using revenue growth, alone, to demonstrate customer experience ROI is misguided.) When you have happy, loyal customers, it helps to better control – if not reduce – your expenses. For example, due to all the customer referrals you’re getting, you can spend less on new business acquisition – which reduces expenses. In addition, happy customers tend to complain less, putting reduced stress on your operating infrastructure (e.g., lower call volumes), thereby also helping to keep expenses in check.
Of course, these economic dynamics cut both ways. Customer Experience Laggards struggle to raise revenue (e.g., poor retention, high price-sensitivity, limited cross-purchasing, negative word-of-mouth) and they’re burdened with higher expenses (e.g., to acquire new customers, and to deal with the existing unhappy ones). This weighs on their long-term profitability and makes them less valuable in the eyes of the market.
Learn From The Leaders
How do Customer Experience Leading firms create such positive, memorable impressions on the people they serve? It doesn’t happen by accident. They all embrace some basic tenets when shaping their customer experience:
They aim for more than customer satisfaction. Satisfied customers defect all the time. And customers who are merely satisfied are far less likely to drive business growth through referrals, repeat purchases and reduced price sensitivity. Maximizing the return on CX investments requires more than just satisfying customers, it requires impressing them.
They leave nothing to chance. The Leading companies have a keen understanding of the wide array of live, print, and digital touchpoints that comprise their customer experience. They design each of these touchpoints very intentionally, carefully choreographing the interaction to create an experience that consistently nails the basics and also delivers pleasant surprises.
They shape memories, not just experiences. How people remember the customer experience is arguably more important than the experience itself, as it’s those memories that ultimately drive repurchase and referral behavior. The Leading companies recognize this, and they use cognitive science to engineer experiences that people enjoy in the moment but also remember in the future.
They infuse the experience with emotional resonance. People’s affinity toward a business is ultimately shaped by how they feel after interacting with the company, its representatives, and/or its products. CX-leading firms appreciate this, and so they engineer experiences that don’t just focus on customers’ rational requirements, but also address their emotional needs.
They focus on both the customer and the employee experience. Happy, engaged employees help create happy, loyal customers (who, in turn, help create more happy, engaged employees). The value of this virtuous cycle cannot be overstated, and it’s why the most successful companies address both sides of this equation – obsessing not just over their customers, but also over the employees who serve them.
The competitive opportunity implied by this study is compelling, because the reality today is that many sources of competitive differentiation can be fleeting. Product innovations can be mimicked, technology advances can be copied, and cost leadership is difficult to achieve let alone sustain.
But a great customer experience, and the internal ecosystem supporting it, can deliver tremendous strategic and economic value to a business, in a way that’s difficult for competitors to replicate.
And, as this study has demonstrated, it’s those great customer experiences that are ultimately rewarded by both Main Street and Wall Street.
(Want more? Check out Watermark’s industry-specific Customer Experience ROI Studies here.)
Ready to Turn Your Organization into a CX Leader?
Watermark is a customer experience advisory firm that serves some of the world’s leading brands. We help companies impress their customers and inspire their employees, creating raving fans that drive business growth.
What’s your challenge?
- We need to make the case for CX at our company. Our executive education programs will help demonstrate the value of customer experience excellence to company leaders, and show them how time-tested CX design techniques could be applied to your business.
- We don’t really know what customers think of us. Our Consulting Services include quantitative and qualitative tools which help bring the voice of your customer to the forefront, revealing game-changing insights that will drive your business forward.
- We need to rally our employees around CX. Watermark founder Jon Picoult is an acclaimed keynote speaker. Invite Jon to your next all-employee meeting, sales conference or corporate event – he’ll inspire your team to deliver CX excellence, and show them exactly how to do it.
- We need to improve our CX, but we’re not sure where or how to start. Our Consulting Services, including Watermark’s proprietary “Customer Experience Reality Check” will evaluate your current CX and develop a detailed roadmap for turning it into a competitive differentiator.
Through our Customer Experience ROI Studies, we’ve uncovered the techniques that top companies use to turn everyday people into loyal brand advocates. Let us help you apply the same techniques to your business. Contact us to start the conversation.
October 18, 2021