Getting started on the ROI of Customer Experience

Value to the customer equals value to the organisation – but how can CX practitioners make this clear to their organisations?
21 October 2020
ROI of CX Kantar
Dr Susanne O'Gorman
Dr Susanne

Global Head of Customer Experience, Insights Division

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Back in 2008 a team of biologists and environmental economists calculated that mankind would have to pay over 150bn Euros per year if bees, butterflies, beetles and similar creatures were to charge a fee for the service of pollination. Environmentalists have recognised that the value of nature is often talked about, but rarely acted upon. As odd as it may seem, putting a price-tag on the importance of the environment creates a compelling argument for change and action.

Customer Experience (CX) is in a similar situation. Providing great experiences requires investment, and senior leaders often challenge how exactly those investments are going to pay off. The following three steps should help brands to get started on that journey.

1. Establish a compelling business case for CX

Many CX programmes fail because they lose momentum after a couple of years. Not because the belief in the importance has faded, but because it is hard to continuously activate organisational change. There are many roadblocks and challenges to becoming a truly customer-centric organisation. A clear vision to guide the programme is crucial, but it is also important to start the programme with a strong business case for CX.

In recent years, a number of academics have set out to prove the value of CX: in stock returns, in increased revenues, and even increased net operating cash. So it is clear that customer loyalty is only ever a means to an end. Brands need to establish which type of financial return a CX programme should provide. What is the outcome that the organisation ultimately wants to achieve? Growing revenues with existing customers, increasing cross-selling, decreasing churn, more advocacy or even saving costs and gaining efficiencies? How do we capture data for the desired financial outcome and at which level is it available - by geography, region, store or even at a customer level? A clearly defined vision on the outcome helps brands understand the baseline before CX initiatives are put in place and allows progress to be tracked. Tying CX to financial metrics right at the start of a CX programme will focus the programme around business impact, ensure the buy-in of senior leadership and ultimately guide investments.

2. Reduce complexity

It is safe to say that understanding the ROI of CX has many different facets. The experience a customer has with a brand will impact the likelihood to recommend, increase her share of wallet with the brand and limit the likelihood to churn. The financial outcome of this experience, however, is dependent on a number of variables, such as how strong the relationship has been and how much a particular experience contributes to improving or potentially destroying customer loyalty. It depends on how a customer implicitly or explicitly rates the performance of competitors and thus how likely it is that they will shift business elsewhere.

Before the complexity gets too overwhelming, it helps to focus on one journey or one customer segment to understand the impact of experiences. For example, tracking how the number of complaints evolves (and hopefully reduces) when customer feedback is used to adapt processes, then using average cost per complaint to get a ballpark understanding on how this has impacted the bottom line. Many companies are closing the loop with customers to “repair” the relationship when severe service issues have occurred. Especially when KPIs are tracked before and after this process, the impact on CX can easily be quantified. As a next step, CX metrics can be linked to the likelihood of churn and provide an estimate on the financial gains (if acquisition costs and financial value of existing customers are taken into account).

It is also helpful to look at financial and CX KPIs on an aggregated level. Track how revenues, profitability and churn rates have evolved over time and in different branches, stores or regions. Linking this to attitudinal KPIs will not only provide insights into how experiences link to financial performance, but also which actions (e.g. in different stores or branches) have been particularly successful and could serve as best practice examples.

3. Utilise technology platforms to link CX to operational and financial data

While the link to financial metrics is crucial to build a business case, it is much more than an exercise to demonstrate the value of CX. CX Analytics should be utilised to guide investment decisions. Many companies are working heavily on moving customers towards digital channels. Costs per contact are a lot less than telephone hotlines and offer much greater opportunities for automation, for example through chatbots or AI. However, this only works if the experience on digital channels is consistently monitored: are we able to deliver a great experience, or is a lack of service quality in digital channels potentially jeopardising customer loyalty? A link to operational data (e.g. first-time-resolution rates) allows brands to understand if the desired economic outcome will be achieved – or if customers need to get in touch with the organisation multiple times because their issue did not get resolved, jeopardising efficiency.

Linking attitudinal data to CRM data on customer value (e.g. profitability or revenue) helps brands to understand the impact of an improved customer experience on different customer segments. It allows brands not only to understand whether relationship strength differs between segments, but also which specific journeys and touchpoints contribute the most to increasing preference for a brand and minimising the risk of churn.

Technology platforms that bring the voice of the customer into the organisation offer a huge benefit in this area. Not only are they delivering relevant customer data to a multitude of internal stakeholders, they also allow the integration of experience with operational and CRM data. With dashboards that show all important KPIs, experience is less likely to be viewed in isolation of the financial metrics it is trying to achieve.

The case for the CXO

Being a relatively young discipline, CX is and will continue to be asked to identify the return on investment. Curiously, no one questions the fact that companies (at least of a certain size) need to have a CFO. Someone needs to be accountable for finances, analyse, plan and potentially course-correct, right? The case for a Chief Experience or a Chief Customer Officer is strangely less clear, but it shouldn’t be. While multiple parts of the organisation play a decisive role in creating great experiences, it needs senior-level accountability, a dedicated role to overcome silo-thinking between different departments and ensuring that the voice of the customer is front and centre to decisions being made. For CX practitioners, it is clear that delivering value to the customer means delivering value to the organisation. A clear focus on tying experiences to financial metrics that are relevant for the organisation will not only ensure the commitment of senior leadership, but also advance CX as a profession.

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