Customer Experience Boosts Revenue
June 25, 2009 26 Comments
Earlier this week I published a research report called Customer Experience Boosts Revenue. In the report, I analyzed consumer data to figure out how a change in customer experience affects loyalty and how that can affect revenues. It built off of my earlier analysis about how customer experience correlates to loyalty. Here are a couple of slides that I used to introduce the research at Forrester’s Customer Experience Forum:
Here are some of the key findings:
- The difference in loyalty between companies in the top quartile of customer experience (when measured against industry averages) and the companies in the lowest quartile:
- 14.4% more customers willing to buy another product
- 15.8% more customers reluctant to switch
- 16.6% more customers likely to recommend
- I also examined the revenue change from a 10 point increase in a firm’s Customer Experience Index. It results in a $284 million change for every $10 billion in revenue (average across 12 industries):
- Additional purchases: $65 million
- Reduction in churn: $116 million
- Word fo mouth: $103 million
- Here’s some of the industry-specific data:
- Five largest revenue changes: Hotels ($311 million), credit card providers ($308 million), banks ($305 million), wireless carriers ($305 million), and TV service providers ($302 million)
- Most change in additional purchases and reduction in churn: Hotels and banks.
- Most increase from word of mouth: Airlines and wireless carriers
The bottom line: Customer experience is a great investment.
About Bruce Temkin, CCXP
Customer Experience Matters® 
Bruce,
This is great research. Its fantastic to have some data to back up our intuition that a customer is a terrible thing to waste! Touche I hope everyone reads this post and starts investing more in customer loyalty programs.
Bill
Bill: Thanks for the feedback!
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Hi Bruce,
Curious to know if our company can share your research with our customers? We have a monthly eNewsletter that goes out to about 7500 B2C companies and they could benefit from this insight.
Of course we will recognize the contribution with copyright.
Joyce Foster
Marketing Communications & PR Specialist
AstuteSolutions
Hi Joyce: If you’d like to share the content in my blog — go right ahead (I’d love to spread the word!). If you’re looking to share the actual research report, however, you’ll need to buy it from the Forrester site. Getting access to the research reports is one of the advantages of being a Forrester client.
Hello Bruce,
I’m a strong believer in the customer (service) experience. That’s why I want to get to the bottom of the relation with experience to loyalty to profits. Hence my questions on this post: I’m not sure how to interpret your numbers:
1st: the total of the three loyalty effects (add. purch + churn reduction + WOM) = $ 465 million. How does that fit with your total of $ 284 million as you mention it.
2nd: how do I read the % difference between top and bottom quartile? is it 14,4 point-% more customers willing to buy other product (i.e. bottom quartile has 20 % customers willing to buy other product, thus top quartile = 34,4 % cust. willing to; or is it 20 % bottom quartile +14,4% (of the 20 %), thus 22.9 % for top quartile?)
3rd: revenue change compared to what? last year? or is it revenue “difference” between top and bottom quartile within the research group?
Last, but not least: did you also research differences in profitability (EBIT as a % of revenue) between top & bottom quartile? That would be the most interesting part if we want to link customer experience to loyalty to profits..
Thx for the insights!
Wim
Wim: Thanks for taking a close look at the information. Here are some answers to your questions
1st: You caught a typo. The WoM was supposed to read $103M, not $284 million. I’ve changed it.
2nd: All of the numbers relate to industry averages. So the 14.4% difference for willingness to buy another product means that the companies in the lowest quartile of customer experience had 7.7% less than their industry average number of customers that were willing to buy another product. Companies in the top quartile had 6.7% more loyal customers than their industry averages. 14.4% = 6.7% + 7.7%
3rd: The revenue change was based on a model that I built that calculates the revenue impact for the changes in loyalty across 12 industries.
4th: I did not look at profitability in this research report. But, given basic economics, I would expect that the additional revenues generated by additional purchases, churn reduction, and word-of-mouth would be considerably more profitable than overall revenues. Why? Because the marketing and sales expenses related to these revenues are likely much lower than average sales.
Hi Bruce,
Thx for the quick reply, although not completely answering all of my questions:
1st: thx for clarifying. Assumed so (but we know what that makes us)
2nd: I understand better now, yet the core of my question remains. Could you get into that part too?
3rd: is there more detail about this model in the full report? would be a reason for me to buy 😉
4th: I am tempted to follow your thought here. But do you agree that it’s not the incremental costs of sales that matter, but the entire costs to develop and execute the experience? In other words:
The experience is there for all customers and as a result part of the customers become more loyal,
thus –> the costs (of sales) have been made for all customers and as a result part of the customers spend more, stay longer (or return) and go positive WOM,
thus –> total revenue minus total costs can be the only good equation to compare real monetary effect of the experience.
Unless of course you can tie an experience, specifically designed for a certain segment of customers, to increase of revenue for that specific group (and cross-checked with a reference group). Then you only need to factor in incremental costs over the incremental sales..
I truly believe it is important to link the customer experience efforts to profit advantages. This is what we need to make the required shift in paradigm at the highest levels of corps, where the decisions are made on how to spend their limited resources well.
Please share your thoughts.
With highest regards,
Wim Rampen
Wim: Sorry about that; I thought I caught all of your questions the first time. I don’t quite know what else you’re looking for in the 2nd question. As for the model, there are more details about it in the actual report, but we have not yet made the model itself available.
I agree that the entire financial model should include the cost to deliver the better experiences. From my experience, however, I find that companies do the analysis like I’ve shown to demonstrate the potential for incremental revenue and profits as the basis for deciding how much they can spend on improving the customer experience. As this type of analysis goes through more operational steps (my analysis only looked at a “generic” company), it is essential to go deeper into detials like the types of investments that will be made, the specific customer segments that will be addressed, etc.
My analysis was not meant to replace a deeper look by individual companies. It’s purpose is to provide some ballpark estimates to frame the potential of a customer experience initiative. And, no matter how you slice it, there’s definitely an opportunity for most firms.
Hi Bruce,
Thx again for your quick answer. I never suspected you intentionally did not answer completely.
I should have phrased better and read your answer better. After re-reading the thread I believe it is in there: Your numbers refer to difference compared to average. The one piece of information I lack now is what the average actually is (i.e. what percentage of customers has the intention to buy more etc..), in order to assess where a company is compared to the averages.
Would be great if you can share that piece of information too..
I also agree that most companies will look at these decisions from the “improvement” angle. The question (in general, not to you ;-)) of course remains what investments need to be done to go from the bottom quartile to the top quartile. Your research does provide a good framework to calculate potential benefits. These are required to determine what a company would be willing to invest to achieve the result.
“No, matter how you slice it, there’s definitely an opportunity for most firms..” –> could not agree more.
Keep researching and spreading the word. I will too.
Wim: Glad that I was able to answer some of the questions. There’s a lot of data that went into the analysis that, unfortunatley, I can’t share in this blog. While I can talk about overall findings, the details of some analysis are reserved for Forrester clients. I expose the industry averages for loyalty in the Forrester report called How Loyal Are Consumers? Not Very. That report also shows the companies with the largest positive and negative variance from their industry averages. Hopefully this helps!
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Hi Bruce –
Great stuff. I met your colleague Jonathan Browne last week at an event we organized for clients around the Dutch customer experience index. He mentioned you presentation at the Forrester event in NY. Being a Forrester customer, he gave me some more insight in the research. Very happy with this as it makes the case for great customer experiences so much more real.
@Wim Rampen: thanks for your critical questions and remarks. That did paint me a clearer picture as well.
Kind regards,
Matthijs Rosman
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Another great post Bruce, this confirms that the strategic changes I’m implementing in my company are the right ones.
Posted a link on my (humble) blog – http://120ms.blogspot.com/2009/06/effect-of-customer-experience-on.html
Customer experience is surely a great ivestment. Thanks for showing the analysis and proving it.
Registry Cleaner: My pleasure…
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agree that the entire financial model should include the cost to deliver the better experiences. From my experience, however, I find that companies do the analysis like I’ve shown to demonstrate the potential for incremental revenue and profits as the basis for deciding how much they can spend on improving the customer experience.
“Customer Experience Boosts Revenue” – couldn’t agree with you more. It can also retain the customer which is much better than a loss followed by the recruitment costs.
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