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The challenge of convincing executives that investing in customers will yield a return is one many change-makers face in their efforts to push organisations towards customer-centricity.
One of the most difficult challenges faced by those trying to implement change within their organisations is getting buy-in from executives. Many decision-makers are hesitant to invest in initiatives that may not have an immediate ROI and as a result, customer experience often takes a backseat to other priorities.
However, those who have been able to successfully convince executives of the importance of customer centricity find that the investment pays off in both the short and long term. Not only does focusing on the customer experience help to build brand loyalty and "stickiness"; but it has been also proven to lead to increased sales and profits. In other words, when done correctly, investing in the customer experience pays off handsomely.
So what is the ROI of good customer experience?
Your customers' experience is the sum total of their perception of their interactions with your company. It includes everything from the first time they learn about your company to the post-purchase follow-up. In recent years, there has been a shift in focus from simply acquiring new customers to retaining and growing existing ones. And customer experience is a key driver of both.
According to a Bain & Company study, increasing customer retention rates by just 5% can lead to a 95% increase in revenue growth. When it comes to ROI, customer experience is a strategic investment that can have a significant impact on the bottom line. By definition, ROI is the measure of how much you gain from an investment relative to how much you put into it. And while traditionally customer experience can be difficult to quantify, with greater sophistication in CX, there are a number of material ways to measure its impact on revenue growth.
The ROI of customer experience is actually quite impressive. Consider this:
- 86% of customers are willing to pay more for a superior customer experience. These customers are willing to pay up to a 16% price premium following a positive experience.
- According to Deloitte, customer spending increases up to 140% following a positive experience.
- Improving CX can reduce customer support costs by up to 33%.
- 64% of customers are more likely to recommend a brand to others if it offers amazing experiences.
How do you make CX tangible?
When it comes to making the case for customer experience, it's important to be able to quantify the benefits in order to get executive buy-in. While there are a number of ways to do this, one of the most effective is by linking CX improvements directly to revenue growth. This can be done in a number of ways, including:
- Increasing customer retention rates
- Generating referrals and word-of-mouth marketing
- Upselling and cross-selling to existing customers
- Acquiring new customers
While each of these impacts the bottom line in different ways, together they provide a comprehensive picture of how CX can contribute to increased revenue.
Directly connecting NPS scores to customer revenue
For example, we have also had success directly connecting customer lifetime value to customer satisfaction scores or net promoter scores. We have proved across a number of organisations that the higher your NPS score (by individual) the higher their lifetime value.
What that means is that NPS moves from being just one score that you can report in your Management reports. It means that you can identify a group of your customers with similar characteristics and scores and proactively solve their issues and challenges and with a high degree of confidence, be confident that you will see an increase in revenue over ensuing weeks and months. in addition, new research has emerged that also proves a strong connection between engagement and lifetime value as well.
A US-based global B2B hardware & software company found that customers who described the organisation as a “trusted adviser” allocated 32% of their budget with them vs. 26% of those describing them as a “partner” and 22% as a “vendor.” That's a material difference.
I think, for the more progressive companies out there, the question of whether CX improves financial returns has been proven. The next question is, what is the best approach to make it as tangible and actionable as possible so you can accelerate your growth and business improvement?
Preventing Future customer and business issues
Investing in prevention will save you the costs of having to deal with unhappy customers and business issues down the road. By investing a little bit of time and resources into prevention, you can avoid bad experiences and keep your customers happy. There are many different ways to prevent customer and business issues, but some of the most effective methods we see start with truly understanding what it is that your customers want from you. We are amazed how few businesses and brands truly understand what makes their customers tick.
I mean they can tell their age, where they love, what coffee they drink etc, but they have very little idea what are the three most important things they as a supplier, can deliver to their client or customer to engage them on their terms, keep them longer and help them buy more off you.
Build Long-term Customers
Customer Lifetime Value (CLV) is the total amount of money a customer is expected to spend at a business over the course of their relationship. It's important to understand CLV because it helps businesses focus on their most valuable customers and prioritise retention strategies.
We often ask the question why leaders know that customer retention is the key to growing a business and study after study shows that it costs far less to keep a current customer than to acquire a new one. However, the majority of the focus is placed on customer acquisition.
Most companies could take 20% of their marketing costs and increase Net Customers at double to triple the rate of traditional marketing activity - just by understanding what is most important to 'shaky' customers, addressing their issues and keeping them for months or years longer.
Why if you aren't improving your experience, you're effectively going backwards Today's market is different to 5 or 10 years ago. CX was a nice to have. It certainly wasn't mainstream when we started our business and a lot of companies could take it or leave it.
Now, with so many things being commoditised, what is left other than experience to differentiate and compete? Brands make dealing with them hard for customers. Way too hard. It's the single biggest issue we hear back in customer interview after customer interview.
The ROI is in fixing the seemingly simple things...that never get fixed for customers...that leave them frustrated and result in them taking their business and your revenue with them.
It doesn't have to be that way.
- Interrogate your "customer insights" and ask yourself whether you really have an in-depth understanding of your own customers.
- Ask yourself if your customers can use your service effectively in a way that assumes little to no prior knowledge.
- Check whether dealing with you requires minimal steps and interactions to complete the outcome your customer is trying to achieve.
See you again next week.
PS If you come up short and would like to learn more, visit our newsletter home page where you can find lots more tips and ideas on how to understand your customers and grow your business.