Customer Experience Correlates To Loyalty
February 18, 2009 37 Comments
I just published a report called Customer Experience Correlates To Loyalty that examines the connection between customer experience and three components of loyalty:
- Reluctance to switch business from a company
- Willingness to buy another product from a company
- Likelihood to recommend a company to a friend or colleague
The analysis is based on a survey of nearly 4,700 US consumers in October 2008. The results are compelling. Across all 12 industries we examined, there was at least a medium level of correlation between customer experience and loyalty; in most cases the correlation was much higher.
This chart shows the level of correlation between customer experience (as defined by Forrester’s 2008 Customer Experience Index) and the three elements of loyalty:
I also did the same analysis with consumer data from Q3 2007 on nine of these industries (we added airlines, hotels, and PC manufacturers this year). It turns out that the correlation between customer experience and loyalty has increased in every industry.
I wasn’t surprised to find the link between customer experience and loyalty; I’ve worked with — and studied — enough firms to know that there’s a strong correlation. But I wasn’t sure how the economic downturn had altered this relationship. So it was very interesting to find out that the connection has become stronger in the recession.
The bottom line: Don’t neglect customer experience during the downturn.
About Bruce Temkin, CCXP
Customer Experience Matters® 
Bruce, A great bit of work. Well done! It put more evidence behind what we intuitively feel/know. Customer experience works! We are seeing some of our clients saying “we have done this”. They haven’t it is just an excuse to cut costs. Short termism at it’s best! In a blog http://www.experienceclinic.com/?p=39 post in September 2008 I made the point about neglecting the CE in the recession. Keep up the good work!
Thanks Colin. Look out for a follow-on piece of research called “Customer Experience And Loyalty: A Closer Look” that should be published in the next several weeks.
Great research. Although it is kind of sad that such research even needs to be done. No matter what you are selling, be it a product or a service, it is all about customer service. More companies need to realize this.
Sid: Thanks for the comment. Hopefully by seeing quantitatively what they might intuitively believe, execs will make the appropriate commitment to customer experience.
Bruce – I just found your blog and am thrilled at having stumbled across it…The research you presented in this post is fabulous and highly insightful. I was wondering if when you looked at the numbers you were able to gain insight into who was increasing or decreasing spending on loyalty initiatives – and the degree to which that spending is being focused on developing engaged workplace cultures. This is in my mind the one area that companies have, for the longest time misseed – yet it may well have the greatest impact. The answer may be elsewhere on your blog and I’ll be poking about but felt an ask worth while
Hi Ken: I’m glad you found the blog; happy to have a new reader/participant! You’ll probably be interested in downloading my mini-book The 6 Laws Of Customer Experience. One of the laws is “Unengaged employess don’t create engaged customers.” So I absolutely agree that engaged employees are a key to customer experience. As a matter of fact, this concept is also central in one of the 6 new management imperatives that I’ve defined: “Invest In Culture As A Corporate Asset.” Having said all of that, I don;t have any data about the spending levels in this area versus other areas. But that could be an interesting area for me to research.
Bruce, Long time reader, first time comment. I’m the CMO of a pretty large real estate company and wonder why your index never covers our industry. In my mind, real estate is the quintessential customer relationship business that rises and falls on the quality of the experience we deliver. Yet, it is never mentioned.
God knows the industry has plenty of room for improvement. Being covered by your index would give us all a metric to aspire toward. Thoughts?
Regards,
Jan Edmondson
CMO
Windermere Real Estate
Jan: Welcome to the conversation! The data that I’ve been collecting are in industries where there are several national brands. In order to get enough data for specific companies (given our sample sizes), we need companies to interact with at least about 2% of the population. Another factor that goes into what I look at is the make-up fo Forrester’s clients. I try to concentrate in the areas where Forrester has its largest number of clients. The short answer is that I haven’t explicitly ignored real-estate. Okay, now for a bit of a sales pitch (feel free to stop reading here): I do a lot of consulting work across many industries; so maybe I could help out with some custom research or some training/workshops. Let me know if you;re interested.
Bruce, you are over the target. We share similar views regarding the impact that customer loyalty can have and the financial rewards a company can achieve. The trick is the balance of value proposition, service delivery and financial metrics. Fred
Fred: Thanks for commenting! The three things you list line up very closely with a model that I’ve been using for almost 20 years called “Real-Win-Worth It.” This framework looks at three questions: Is there really a demand for the product?; Can the company win in the market?; Would it be financially or strategically worth it?
Bruce, any data on industries in Europe or other regions? The US numbers are great but I’d be interested to see the the results in other regions.
Thx,
Kathy van de Laar
Hi Kathy: We have the data to look at this in the UK, but haven’t done the analysis yet. The reason we haven’t done this research more broadly is that it is very costly to collect the data. If money were not an issue, then I’d love to do a fully global analysis. Thansk for asking.
Bruce,
Thanks for putting quantitative analysis to this very important topic. I continue to do many customer visits each month and customer experience remains top of mind. The gaps are 1) how to get started, 2) the hard business case. Your work certainly helps with the second item. We find highly targeted pilots help with the first.
greg
Greg: Thanks for commenting. I hope that Right Now is faring well in this economy. I’m looking forward to hearing about your Q4 results from Jason in a couple of weeks. For those of you who don’t know, Greg just authored a great book: Eight to Great: Eight Steps to Delivering an Exceptional Customer Experience.
Bruce,
Like the other posts, I’m grateful to see quantitative, cross-vertical support for what many marketers know intuitively. Your fine work also raises many questions about the nature and drivers of good experiences. For example: the role of channels, personalization, percieved value for price, etc. Any chance we’ll see more on the topic here?
Lisa
Lisa: Great observation. Keep an eye on this blog (and my research) later in the year as I plan to dig deeper into some of the drivers.
Bruce: Thank you for the factual research behind your observations. Hospitality orhanizations have known for years that true guest loyalty is based upon the foundation of making our customers feel welcomed and appreciated. It is not about a transaction, a reservation or a stay. Rather, loyalty is a personal connection felt by those who stay and/or dine with us – a true cradle to grave realtionship that extends well beyond an individual stay or meal. We all have fond memories of returning to “Aunt Polly’s” house for the holidays. That sense of loyalty that drives our behavior to make that annuak journey in the same emotion envoked guests and consumers loyal to our brands, our businesses, and our products. Treating them like family and cherished friends, regardless of how much they spend or how long they stay, is the key. Encouraging our staff to adopt and exhibit this behavior will set us apart regardless of the economic events of the day.
Steve D’Erasmo
Travel & Hospitality Practice
BearingPoint Consulting
Steve: I agree. The hospitality sector (and a subset of the airline industry) has engrained the understanding that personal connections and good experiences play a critical role in the creation and maintaining of great brands. I’ve been a big fan of how JetBlue established a customer-centric culture from the beginning and am now intersted in getting more familiar with Virgin America. And there’s almost nothing better than a stay at a Four Seasons or Mandarin Oriental hotel. It would be great if some of that service-mentality rubbed off on other industries.
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Bruce-
Excellent work. It’s great to see quantitative data that validates the same values that we’ve seen surfaced in qualitative work on user experience. Very timely. And congrats on the press coverage your work is receiving. Kudos.
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The information supports our existing findings on creating belonging experiences (www.belongingexperiences.com). I would like to understand which consumer attributes you have used to determine how the experience builds brand loyalty. There are key attributes that based on our research varies by type of retailer. Specifically how does banks rank on key measures versus retailers and wireless providers?
Jean-Pierre: We use our customer expeirence index elements (meeting needs, ease of use, and enjoyability) to run correlations with three types of loyalty (buying more, not switching, and recpmmending to friends). And, yes, the profile is different across industries. The insights around some of that is what I spend time on with Forrester clients (unfortunately, there is some limit to what I can share for free on this blog). I’ll be publishing addiitonal research on this topic in the future and will add some more industry-centric insights. Thanks for commenting!
I believe that customer relationship management programs and especially loyalty programs shoud focus more on improving customer experience for A clients. We could imagine for instance that after a certain amount of time spent, or after a certain amount of money spent, the customers could get easier access to credit, specific cashier lines, maybe even specific parking places, or easier access to sales personnel.
Great study.
Nicolas: Thanks for the feedback. Companies definitely need to use customer experience as a lever to retain great customers!
Great to see the ‘hard evidence’ Bruce. Gut feel says it’s the same over here in the UK, but would love to see similar ‘evidence’. In the meantime, I’ll be referring clients to your very valuable information.
Interestingly, one of the things that interests me is the whole issue of customer ‘expectations’ in relation to ‘experience’.
I’ve just spent a week in Breckenridge CO (lucky me!) and was consistently impressed with the experiences I had as a customer and kept talking about it – probably too much judging from my American based friends’ reactions!
They were used to it and it was no ‘big deal’ to them. It shows therefore that customer experience can be a relative measure depending on customers’ expectations. It’s a constant battle for businesses to keep focussing and working to improve on this.
Because of your consistently great posts, my expectations of you Bruce are now high! Your challenge is to keep ‘delivering’. I have every confidence that you will, and look forward to reading more!
Bruce, great piece of research. I am a long time reader and first time commentator. I have been working and researching in the field of customer experience for just under 10 years now and have developed our own set of tools. Something we are currently working on is trying to describe the emotional impact of customer experience. I’ve got some interesting findings about the range of emotions that lead to customer perceptions of being loyal. As managing the customer experience is a lot about managing the feelings, do you have any view evidence of which feelings correlate most to loyalty?
Hi Joe: I agree that emotions are a key element to the overall customer experience. As a matter of fact, I am working with another analyst on our team at Forrester, Ron Rogowski, on a report called Emotional Experience Design. But we don;t have any specific, quantitative research around which emotions are most correlated with loyalty. But, it’s a great topic for research. So, maybe down the road…
Sorry I meant to say views or actula evidence.
thanks
Joe
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Really interesting article Bruce, and something I’ve been trying to prove for Prudential for a long time …. the tricky bit is actually issolating when an action is down to Customer Experience and not the many other factors that influence loyalty, not least the current economic climate.
Amanda: Organizations and customer interactions are very complex, so it is often difficult to isolate what causes what. I often recommend that companies try and do some sort of this analysis on their own — so that it matches their business and customer relationships. The first step is to agree on a metric for customer experience — some feedback that is a good proxy for how the customers view your firms (satisfaction, easy to work with, etc.). Then look at the loyalty behavior (size of relationships, renewal rates, etc) of the customers that give you high ratings versus those that give you low ratings. You can start to develop an understanding of the value of improving the metric. To get the most from the analysis, you probably want to do it by customer segment. Hopefully my research helps your cause; good luck!
Bruce.
This is brilliant research. It confirms one thing – customer experience is a matter of demonstratable ethics and accountability for a business to get customers to REWARD it with LOYALTY behaviours.
It will be interesting to know how the three LOYALTY behaviours correspond with EXPERIENCE characteristics.
this is good idea of research.. I will also do some related works like this. this could help other people. It is also a way for studying people.. I will bookmark this site.. Thanks for this..