[Editor’s Note: An updated version of the Customer Experience ROI Study is available here.]
What’s a great, differentiated customer experience 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 then are reluctant to invest in customer experience improvements.
As a result, companies continue to subject consumers to complicated sales processes, cluttered websites, dizzying 800-line menus, long wait times, incompetent customer service, unintelligible correspondence and products that are just plain difficult to use.
Admittedly, it can sometimes be difficult to quantify the return on customer experience improvements. What’s the dollar value of a better trained front-line staff? Or a streamlined sales process? Or a voice-of-the-customer program? The financials surrounding such initiatives are often less precise than those of hard-dollar initiatives, like the renegotiation of real estate leases or the consolidation of corporate functions.
Yet executives routinely make big investments in other types of initiatives that are notorious for their vague and questionable ROIs: corporate re-brandings, advertising programs, “synergistic” mergers, and even the hiring of highly compensated, star CEOs.
It suggests a double-standard, perhaps reflecting executives’ deep-seated skepticism around the benefits associated with customer experience differentiation.
It was this dichotomy that drove Watermark Consulting to elevate the dialogue – getting executives, even for just a moment, to focus less on project-by-project justifications and more on the macro impact of customer experience excellence.
We’ve accomplished this over the years by studying the total returns for two model stock portfolios comprised of the Top 10 (“Leaders”) and Bottom 10 (“Laggards”) publicly traded companies in Forrester Research’s annual Customer Experience Index ranking.
The results of our latest analysis are in, and they are, in a word, striking:
For the 6-year period from 2007 to 2012, the Customer Experience Leaders in our study outperformed the broader market, generating a total return that was three times higher on average than the S&P 500 Index.
Furthermore, while the Customer Experience Leaders handily beat the S&P 500, the Laggards trailed it by a wide margin.
Keep in mind, this analysis reflects more than half a decade of performance results. It spans an entire economic cycle, from the pre-recession market peak in 2007 to the post-recession recovery that continues today.
The Customer Experience Leaders in this study are clearly enjoying the many benefits that happy, loyal customers deliver: better retention, greater wallet share, lower acquisition costs and more cost-efficient service.
And the Laggards? They are being crushed under the weight of high customer turnover, escalating acquisition costs and an uncompetitive cost structure that is inflated by each customer complaint and avoidable inquiry.
In the pecking order of strategic business investments, customer experience often gets short shrift. Perhaps it’s that executives view these projects as less glamorous than other initiatives. Or maybe they just don’t intuitively believe that a better customer experience will drive business results.
Watermark’s analysis demonstrates that the ROI of a great customer experience isn’t soft and sketchy. Companies that excel in this regard are rewarded, by consumers and investors alike.
And that’s a finding that even the most skeptical executives should find hard to ignore.
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Jon Picoult is Founder of Watermark Consulting, a leading customer experience consultancy that helps businesses impress customers, inspire employees and improve brand loyalty. Prior to establishing Watermark, Jon led service, technology, sales and marketing for Fortune 100 companies. Learn more at www.watermarkconsult.net, or follow Jon on Twitter @JonPicoult.
The 2013 Customer Experience ROI Study analyzed the cumulative total stock returns, from 2007-2012, for the Top 10 and Bottom 10 publicly traded companies in Forrester Research’s annual Customer Experience Index ranking (Watermark defines these two groups as the Leaders and Laggards, respectively).
We compare the total return from investing in an equally-weighted, annually readjusted portfolio of Customer Experience Leaders to that for Customer Experience Laggards and the broader market, as reflected by the S&P 500 index. (The annual readjustment keeps these model portfolios in sync with the Top 10 and Bottom 10 companies identified by Forrester Research each year.)
For information on how Forrester Research calculates the Customer Experience Index for each surveyed company, please refer to Forrester’s Customer Experience Index report.