I wrote an article for the 1to1 Journal called “What If Customer Experience Has No ROI?” Rather than just drop a long article into my blog, I will publish pieces in different posts. Here’s the first installment…
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I’m often asked the question: “What’s the ROI of customer experience?” To some degree, that’s a silly question. It’s like asking what’s the ROI of technology for Google, products for Best Buy, movies for NetFlix, or cars for Hertz. Customer experience is an integral component of every organization that has customers. Think of it this way, what would happen to the financial health of your company if you just stopped interacting with your customers?
That doesn’t mean that the ROI question is a bad one. It just needs to be framed correctly. The question that should be asked is: “what’s the ROI of improving customer experience?” That’s not only a good question, but it’s an essential one for any company that is serious about customer experience.
Yes, Everyone, Customer Experience Improvements Drive Loyalty
At an aggregate level, my research at Forrester Research showed that improvements in customer experience are highly correlated to higher loyalty in consumer markets. In a report called “Customer Experience Leaders Garner More Loyalty,” for instance, we found that customer experience leaders have more loyal customers than customer experience laggards. The loyalty gap with consumers was 15% to 17% in three areas: willingness to buy more products, reluctance to switch, and likelihood to recommend.
Customer experience has a positive ROI as long as you don’t spend more than the value of the loyal customers you create. And since the value of adding 15% more loyal customers represents far more than what most companies spend on their customer experience efforts, there’s almost always a positive ROI.
Recognizing that customer experience improvements have good ROI is not the end of the story. In some regards, it’s just a prerequisite for getting to some of the more practical issues in customer experience efforts. I’ll take a look at three key questions: Do all customer experience efforts have the same ROI?; Who cares about ROI anyway?; And what impact does ROI have on the journey?
Do All Customer Experience Efforts Have The Same ROI?
If all customer experience efforts had the same ROI then life would be easy — you could invest in any customer experience project that came your way. Clearly there are enormous differences in ROI based on the size and value of the specific customer segment that you want to address with your efforts. I often hear the question: “What if we don’t have any clear customer segments?” If that’s the case, then don’t go ahead with the effort. Not only can’t you figure out the ROI, but you’re unlikely to satisfy the needs of customers if you don’t have a clear picture of who they are.
In addition to understanding the target customers, you need to look at ROI in terms of the type of value you are creating for customers. I always like to think of things in terms of the Kano Model, which identified five different types of value that customer perceive:
- Must-Be value: Customers gets no value from some things you do unless your efforts meet a minimal threshold. Think of the value of an airplane ride if the pilots aren’t fully trained or a call center that doesn’t answer the phone in 10 rings.
- One-Dimensional value: In some areas, the more you do of something; the more value clients get from it. Think of the value that customers get when a car salesman adds additional years to a warrantee or a busy apparel retailer adds new changing rooms.
- Attractive value: If the basics are in place, you can create enormous positive impact on customers with some unexpectedly nice touches. Think of the value that customers have when an electronics retailer throws in some required cables for free when the customer picks up her new monitor or when a hotel employee brings an unordered chicken soup to a guest who he knows is sick.
- Indifferent value: Some things that you do may have no perceived value like lowering the price on a hotel room to a business traveler on an expense account.
- Reverse value: Some things that you do may have negative perceived value like lowering the usability of your Website after a redesign where you’ve added a lot of new features.
Using these Kano descriptors, you get the most ROI from customer experience efforts when you invest whatever is required in “must-be” items, fund a good mix of “one-dimensional” items, add a few “attractive” items in areas where you already have some consistency, and stay away from investing in anything that creates “indifferent” or “reverse “value.
The bottom line: Look for the customer experience ROI