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Yes Australia, There Is A Return On Customer Experience Investments too 08 Feb 2010

What a great way to start the year with rigourous research and resulting article from Jon Picoult of Watermark Consulting. Unlike staff cutbacks, the launch of a new product or generally more tangible management acts, Customer Experience improvement is often seen in similar company as culture or change management improvement. Because it is often seen as intangible, some company leaders are reluctant to investigate it. Just because you can't immediately see the the benefits on the bottom line like you can when you undertake other investments, dsoesnt make it any less valid.

It just means that those of us who work to improve the customers experience for the the purpose of increasing customer retention and hence revenue, need to work harder to communicate the message.

This is an excellent article and a proof that increasing focus on Customer experience through Service Design is not only valuable, but a requirement for leaders of businesses if they are to deliver on their mandate to increase shareholder wealth.

Lets keep spreading the news, in the "tipping point we trust".

Is The Market Rewarding Customer Experience Leaders?

To that end, Watermark Consulting recently conducted an analysis of stock market performance for customer experience leaders and laggards over the past three years, a time period encompassing the market's run up to its all-time high in late 2007, to its Great Recession-induced nadir in early 2009, to its more recent bounce back.

To identify the leaders and laggards, we used Forrester Research's 2007 Customer Experience Index study, picking the top ten and bottom ten publicly traded companies from Forrester's rankings. Then we compared the total return from investing in an equally-weighted portfolio of customer experience leaders to that for customer experience laggards and the broader market (as reflected by the S&P 500 index).

The results were quite revealing:

From 2007 through 2009, through the best and worst of times, the customer experience Leader portfolio outperformed the broader stock market, generating cumulative total returns that were 41% better than the S&P 500 Index and 145% better than the customer experience Laggard portfolio.

During each of the three years, the Leader portfolio always outperformed the index and the Laggard portfolio always underperformed the index. Looking at these data points, it certainly appears that customer delight and customer misery have very different influences on company stock performance.

In addition, while the Leaders portfolio declined in value during the depths of the recession, the decline was less pronounced than that for the broader market. As the recession abated in 2009, the Leaders portfolio also proved quite resilient, more than doubling the return of the S&P 500.

This performance profile supports the notion that customer experience leaders are somewhat cushioned from the most severe impacts of economic downturns, because they represent one of the last places consumers cut back and one of the first places to which they return.

What The Numbers Really Mean

There are plenty of criticisms that could be lobbed at this analysis: the three-year time period is too short, the Leader and Laggard sample sizes are too small, the Forrester study isn't a good measure of customer experience excellence, stock market returns aren't good indicators of long-term company performance, etc.

No analysis is perfect and this one is hardly meant to suggest that any company embracing a strategy of customer experience differentiation will outperform the S&P by over 40%. There are many variables at play, not the least among them pure execution (embracing a strategy and actually implementing it are two very different things).

Companies that successfully bring great, end-to-end customer experiences to the marketplace are rewarded—by consumers and investors.

These results are also not meant to preclude attempts to cost justify customer experience improvement efforts on a project-by-project basis. That rigor must remain; this data merely provides some much-needed air cover.

What this analysis does suggest is this: Companies that successfully bring great, end-to-end customer experiences to the marketplace are rewarded—by consumers and investors. Their operational excellence and attention to detail, their simple and straightforward communication, their well-equipped and genuinely helpful front-line staff—the sum of these parts pays off in the end, even if the precise impact of individual components is uncertain at best.

Hopefully, by framing the return on customer experience excellence in terms executives can easily understand (stock price and market value), this analysis will begin chipping away at the lingering doubts that some of them harbor towards experience-oriented investments.

And with that target of skepticism removed, all that's left to figure out is who eats the milk and cookies on Christmas Eve.

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