In today's highly competitive business environment, customer experience has emerged as the new battlefield for companies, with over 81% of organizations already citing CX as a competitive differentiator. Providing exceptional customer experience is no longer a nice-to-have but a must-have for businesses looking to differentiate themselves from their competitors. However, building a case for investing in customer experience can be challenging.
While the benefits of delivering great customer experience are well-known, it can be difficult to measure and quantify the return on investment – and that's where we come in. In this article, we’ll help you build a case for CX and its effect on ROI, and how you can measure, interpret, and analyze customer experience data.
Proving the ROI of customer experience
To build a case for customer experience, we must talk about ROI, which is complicated because quantifying ROI for each CX initiative is hard. It isn’t impossible though, because a good customer experience does positively correlate with revenue.
The role of customer experience in generating revenue
The role of customer experience in generating revenue cannot be overstated. Studies show that 58% of customers are willing to pay more for products or services if they receive a better experience. On top of that, they are also 38% more likely to return and recommend the company to others. This is because a positive customer experience not only meets customers' needs and expectations, but also creates an emotional connection between the customer and the brand. This emotional connection, in turn, creates loyalty and a sense of trust that encourages customers to choose that brand over its competitors.
So how does this translate to revenue generation? In short, investing in CX can improve your revenue by 10 - 15%. Deep diving into this, companies that focus on CX are also 60% more profitable, and when compared to their competitors, CX-focused companies are on average 4 - 8% better off than their competitors.
The impact of customer experience on customer lifetime value
Talking about CLV (customer lifetime value) is another way of looking at this. We already know that customers spend more when they are offered a good experience, but what does this reflect in terms of CLV? Several studies have shown that improving customer experience can have a significant impact on CLV.
For example, according to a study by Forrester, increasing customer experience scores by just one point can lead to an increase in CLV of up to 10%. Another study by Temkin Group found that customers who have a positive emotional experience with a company are 8.4 times more likely to trust the company, 7.1 times more likely to purchase more, and 15.1 times more likely to recommend the company to others.
Additionally, a study by Harvard Business Review found that customers who had the best past experiences with a company spent 140% more compared to those who had the poorest past experience. These numbers show that investing in customer experience can have a significant impact on CLV and ultimately lead to increased revenue for businesses.
Customer experience as the recipe for sustainable growth
Revenue can be misleading, especially if it’s only short-term growth. With sustainable growth being the new important metric to measure, companies are looking to improve customer experience to drive more customer retention which is the key to driving sustainable revenue – because a good customer experience is the key to retaining customers.
A study by Temkin Group, for example, found that companies with a good CX rating had a 16.7% advantage in customer retention compared to companies with a poor CX rating. Coupled with the fact that customers who had a positive emotional experience with a company are 6 times more likely to forgive a mistake and 12 times more likely to recommend the company to others and that leading companies in CX have a 17% lower customer churn rate than those that lag in CX, companies that want to stay ahead of competition must turn to improve their customer experience.
Measuring customer experience
Customer experience can be quantified – by both metrics to show the sentiments of your customers, and CX assessment tests that show where your business is currently at – company-wide – in terms of CX adoption.
Key metrics for measuring customer experience
CX is the sum of all experiences that a customer has with a brand throughout their journey, from the first interaction to post-purchase. There are several metrics available to measure customer experience – specifically about the sentiments of your customers at various points of the customer journey – but three of the most popular metrics are customer satisfaction score (CSAT), customer effort score (CES), and net promoter score (NPS).
Customer satisfaction score (CSAT)
Customer satisfaction score (CSAT) is a metric used to measure how satisfied customers are with a particular product, service, or interaction with a brand. CSAT is usually measured by asking customers to rate their experience on a scale of 1-5 or 1-10. A higher score indicates higher satisfaction. CSAT surveys can be conducted via email, phone, or web-based platforms.
CSAT surveys are useful for measuring satisfaction levels after a specific interaction or purchase. For instance, an e-commerce platform can send a CSAT survey to a customer after they purchase, asking them to rate their satisfaction with the product, delivery time, and customer service. A high CSAT score indicates that customers are happy with their experience and are more likely to become repeat customers.
Customer Effort Score (CES)
The Customer Effort Score (CES) measures how easy or difficult it is for customers to complete a task or interact with a brand. CES is measured on a scale of 1-5 or 1-10, with a higher score indicating that the experience was easier for the customer. CES surveys are typically used to measure how easy it is for customers to get support, resolve an issue, or complete a purchase.
For instance, a customer service team may send a CES survey to a customer after resolving their issue, asking them to rate how easy it was to get their problem solved. A high CES score indicates that the customer had a positive experience and found it easy to interact with the brand. Companies that prioritize customer convenience and reduce the effort required to interact with them often have higher CES scores.
Net Promoter Score (NPS)
The Net Promoter Score (NPS) is a metric used to measure customer loyalty and satisfaction. NPS is calculated based on a single question: "How likely are you to recommend our product or service to a friend or colleague?" Customers can rate their likelihood on a scale of 1-10, and the score is categorized into three groups: Detractors (0-6), Passives (7-8), and Promoters (9-10).
The NPS is calculated by subtracting the percentage of detractors from the percentage of promoters. The score ranges from -100 to 100, with a higher score indicating that more customers are likely to promote the brand to others. NPS is a popular metric because it is easy to understand and provides a clear picture of how customers feel about the brand.
CX maturity assessments
A CX maturity assessment is a comprehensive evaluation of a company's CX capabilities, processes, and technologies. The assessment evaluates the CX program's effectiveness, identifies areas for improvement, and provides actionable recommendations for enhancing CX maturity. Its goal is to help businesses understand where they stand in terms of CX maturity and what they can do to improve.
The assessment typically involves analyzing different areas of the CX program, including strategy, leadership, customer understanding, measurement, and culture. At the end of the assessment, you’ll get to know your CX maturity level and how you can work on improving your CX – both customer-side and employee-side – to basically “level up”. There currently are five levels of CX maturity:
Level 1. Ad Hoc
In this first level of CX maturity, the organization has no formal CX strategy, and customer interactions are handled in a fragmented and ad-hoc manner. Customer feedback is often ignored or not collected, and there is little alignment between different departments. In short, the organization recognizes that their CX could be better but they do little to improve it.
Example: An e-commerce company that does not have a formal CX strategy and only responds to customer complaints when they arise.
Level 2. Establishing
At this level, the organization recognizes the importance of CX and starts to implement some basic CX initiatives. The organization may conduct customer surveys or collect feedback through social media. However, the CX efforts are still siloed, and there is little collaboration between different departments.
Example: A retail store that sends customer satisfaction surveys via email after the purchase and responds to customer complaints on social media.
Level 3 Performing
At this level, the organization has a well-defined CX strategy, and CX is integrated into the core business processes. The organization may have a dedicated CX team, and customer feedback is collected and analyzed systematically. There is a strong alignment between different departments, and CX metrics are used to measure the effectiveness of CX initiatives.
Example: A food delivery company that has a dedicated CX team, collects customer feedback through multiple channels, and uses CX metrics to track its performance. Different departments collaborate to provide a seamless customer experience, and the company has a clearly defined CX strategy.
Level 4. Optimizing
Characteristics of this stage: In Level 4, the CX program is consistently funded and supported top-down across all departments. CX efforts focus equally on solving problems and generating innovative ideas to meet and exceed customer expectations.
Example: An airline that uses predictive analytics to personalize the customer experience based on previous travel behavior. The airline collects real-time feedback from customers and constantly improves its CX based on that feedback. They realize that CX is their competitive advantage and work on optimizing it to the best of their capabilities.
Level 5. Embedded
Characteristics of this stage: Level 5 is rarely attained and requires a top-down customer-centric culture that influences the day-to-day actions and decisions of employees at every level.
Example: A luxury hotel chain that has a culture of exceptional customer service that permeates throughout the organization. Every employee is empowered to deliver a personalized customer experience – which means functioning off-script and having the power to give judgment of their own. The company understands that CX is its differentiator and spares nothing to keep itself one of the leading companies.
Conclusion
The link between CX and ROI isn’t as apparent as one might expect – and therein lies the problem. It can be immediate or tangible, and easily influenced by various factors such as industry, customer segment, and business model. To see if CX is worth it for businesses, it might be better to look to your competitors and see if CX is their strategy which, if they’re performing well, chances are it is. After all, companies that lag behind in the CX race are poised to put their revenue at risk, and companies with superior CX can see themselves confidently scaling into the future.
