“Our conclusion: superior CX drives superior revenue growth.”
– Harley Manning, Forrester
“Customers who had the best past experiences spend 140% more compared to those who had the poorest past experiences”
– Peter Kriss, Harvard Business Review
There is a lot of chatter happening in business circles about customer experience (CX) as a growth engine. It’s almost intuitive – you and I both understand how having a great experience affects us as customers. We all have businesses we love, products we’ll follow to the ends of the earth (in hopes they’ll finally go on sale), and websites we follow with almost religious fervor.
As CMO, VP of Success, or Head of Customer Support, you are constantly advocating for customer experience within your company. After all, from the very first moment the second blacksmith’s shop appeared in the village, creating competition for the first blacksmith’s shop, customer experience has been a deciding vote for who gets the business – just as much as price and quality. But as a business owner, or a professional marketer, you can’t afford to go with your gut. To win resources you need data to back up your argument that CX is the future (you know it is).
There is a correlation between CX and revenue growth, and we’ve compiled the research to back it up.
Why the effects of CX have been tricky to track
Customer experience has been treated as a ‘soft’ discipline, and I have a theory as to why.
We’ve grown up with it. Whether watching Santa send Macy’s store shoppers to competitors in Miracle on 34th Street, or walking into Nordstrom’s shoe department to be followed around by suited young men carrying piles of boxes to the nearest padded chair. We recognize great CX when we experience it ourselves.
However, it’s inherently subjective. Subjective issues – anything based on opinion or emotion – tend to be hard to track. One person’s “helpful” is another person’s “pushy.” Your “attentive,” might be my “stalker.”
Modern tools now quantify CX
But online buyers’ journeys are different than the sales experiences most of us grew up with. With modern tracking and customer surveys, you can tell (often in real-time) whether your efforts are coming off as too much, or too little. You can identify problems and preferences, which allows you to fine tune the end experience for your target customer.
Most importantly, for the first time in human history, we have the tools to track the actual, absolute effect that positive customer experience has on a business’s bottom line. This is transforming the discipline of customer service into the science of CX.
The science of CX starts with measurement. Read the article, A Primer on the 3 Most Important CX Metrics – NPS, CSAT and CES, and start measuring CX today.
It’s no longer just “the right thing to do,” it’s an engine for measurable growth.
“CX is no longer just a discipline; it is the basic ingredient for growth”
– Winning on the Battleground of CX, Forrester
Data that ties CX to Revenue
Transaction-based v. Subscription-based CX
“What we found: not only is it possible to quantify the impact of customer experience – but the effects are huge.” – “The Value of Customer Experience, Quantified,” Harvard Business Review
Harvard Business Review looked at the revenue data from two global $1B+ businesses – one was a transaction-based business, the other was a relationship-based subscription business.
“We looked at two companies with different revenue models — one transactional, the other subscription-based — using two common elements that are relevant to all industries: customer feedback, and future spending by individual customers. To see the effect of experience on future spending, we looked at experience data from individual customers at a point in time, and then looked at those individual customers’ spending behaviors over the subsequent year.”
Transactional business models rely on frequency of customer return and how much they spend per visit. Modcloth would be a good example – they want you to come back every day and buy (or at least Save to Wishlist), and come up with ingenious ways to incentivize that behavior.
Subscription-based businesses include Software-as-a-Service (SaaS), or even those recipe kits from Blue Apron. No matter what they’re selling, the model is the same. It relies on retention, cross-sells and upsells.
After controlling for other factors that drive repeat purchases…
- Transaction-based: Customers with the best past experiences spend140% more than those with the poorest past experiences.
- Subscription-based: Customers with the best past experiences have a 74% chance of remaining a member for at least another year; customers with the worst experiences have a 43% chance of being a member one year later. In fact, those who gave the highest CX scores were likely to remain members for another six years.
CX Effects Across Multiple Industries
On Harley Manning’s Blog at Forrester, Manning (Forrester VP and research director) discusses two studies, conducted one year apart, that compared five pairs of publicly traded companies “where one company in each of the pairs had a significantly higher score than the other in Forrester’s Customer Experience Index during the period 2010 to 2015.”
The Customer Experience Index measures each brand on a scale from “Very Poor” to “Excellent” in these six categories:
- Ease of use
Then, Forrester looked at the businesses’ revenue data and built models to calculate the compound annual growth rates for each of the ten companies over those five years.
The publicly traded companies studied ran the gamut of industry types, from cable to retail to airlines. But in terms of the CX effect, industry didn’t seem to matter as much as the reported CX scores each company received.
“In two industries, cable and retail, leaders outperformed laggards by 24 percentage and 26 percentage points, respectively. Even in the industry with the smallest spread, airlines, the CX leader enjoyed a healthy 5 percentage point advantage in global revenue. And when we compared the total growth rate of all CX leaders to that of all CX laggards we saw that the leaders collectively had a 14 percentage point advantage.” – Harley Manning, Forrester
Unlike the Harvard Business Review’s study, Forrester did not control for outside influences that could have driven revenue growth. But, they did conclusively determine that “customers who have a better experience with a company say they’re less likely to stop doing business with the company and more likely to recommend it.” They also observed that companies with superior CX saw increased growth in customers.
And, as Harley Manning points out, “Both of those factors should drive increased growth in customers and, in turn, increased growth of customer revenue.”
Essentially, as CX rises, so does revenue growth.
But there’s another interesting correlation that Forrester’s Customer Experience Index research uncovered. The top performing brands, including USAA, Barnes & Noble, Etsy, QVC and Zappos.com, “achieved a 17% compound average growth between 2010 and 2015 – which is no small feat with many of them already in the top revenue percentiles in their respective industries.” (Salemove.com)
Compared with the brands at the bottom, who only saw a compound average growth of 3%, that is a very wide gap.
To put a possible dollar amount on this, consider: “a one-point score improvement in the CX Index can lead to an increase of $65 million in revenue in the upscale hotel industry,” according to Forrester’s Harley Manning.
CX spending is on the rise
You may think companies still seem to feel more comfortable spending money on things that do not have a direct impact on customer experience, or that Support and Customer Success teams can still be the last area to receive investment. Think again. Per Forrester research, 71% of business and technology decision-makers reported that improving CX will be a high priority for spending in the next year.
Ready to join the CX revolution?
Now with modern survey platforms, companies of all sizes can measure and improve customer experience at scale. Forrester’s CX Index measured six attributes of experience and probably took months to collect, analyze and report. However, a lightweight approach to CX improvement using metrics such as Net Promoter Score (NPS) can get you 90% of the way there and not break the bank.
The key is to start small. Determine your “north star” metric. Get customer feedback, take action, repeat. Consistently repeat this process. As your company’s customer experience improves, so will your bottomline.
Start measuring Net Promoter Score for free with InMoment