Customer Experience Matters

I just published a report called The Business Impact Of Customer Experience that I think will have a significant impact on how companies think about customer experience. Here’s an excerpt from the executive summary:

Executives know that customer experience is important, but they can’t always tie it directly to business results. So we examined the correlation between the customer experiences delivered by 112 US firms (as defined by Forrester’s Customer Experience Index) and the loyalty of their customers. Our analysis shows that good customer experience correlates highly to loyalty.

Most of us already intuitively knew that good customer experience is good for business; that’s the basis for My Manifesto: Great Customer Experience Is Free. But there’s no longer a need to debate the issue. This research objectively shows a strong tie between customer experience and consumer loyalty. Here are some more of the specific findings in the research:

• For all 9 industries that we examined, there was a strong correlation between customer experience and loyalty.
• Bank customer experience was the most correlated with loyalty, followed by wireless carriers.
• Health plan customer experience was the least correlated with loyalty, followed by investment firms and retailers.
• Companies in the top quartile of customer experience have a much higher level of customer loyalty than do those in the bottom quartile: 15% increase in customers that are willing to make another purchase and a 18% decrease in customers that are likely to switch providers.
• Customer experience quality was most highly connected to the purchase plans of Fifth Third’s customers and the intentions to switch of Cablevision and Nextel customers.
• When we examined how this might affect the annual revenue of individual companies, we found that customer experience quality could cause a swing of $242 million for a large bank and $184 million for a large retailer.

In case you’re interested, here’s how we did the analysis:

• Determined the customer experience levels of 112 firms across 9 industries based on Forrester’s Customer Experience Index (CxPi) which examined responses from nearly 5,000 US consumers.
• Calculated the correlation between each firm’s CxPi and two measures of loyalty: 1) the willingness of customers to purchase another product from the firm; and 2) the likelihood that customers would switch business away from the firm.

What should you do now? Chart a path to Experience-Based Differentiation.

The bottom line: As my blog says, Customer Experience Matters. Really! 

Let me start by saying congratulations to the company that received the
#1 ranking in Forrester’s 2007 Customer Experience Index (CxPi)…

Forrester’s 2007 Customer Experience Index 

The 2007 CxPi ranks 112 firms across 9 industries: Banks, Credit Card Providers, Health Plans, Insurance Firms, Internet Service Providers, Investment Firms, Retailers, TV Service Providers, Wireless Phone Carriers. The CxPi is based on consumer evaluations across three areas: 1) usefulness; 2) ease of use; and 3) enjoyability (see the methodology section below).

Here are the full 2007 CxPi rankings…

Costco took the top spot in the CxPi rankings - just barely beating out Borders. At the other end of the spectrum, Charter Communications landed at the bottom of the CxPi rankings. Here are some additional insights about the overall results:

• Retailers take nine out of the top 10 spots. All but one of the top 10 firms in the ranking is a retailer - and the only non-retailer isn’t a single company but a segment of banks called credit unions. Interestingly, all three wholesale clubs - Costco, BJ’s Wholesale Club, and Sam’s Club - made it into the top 10. Another retailer, Walgreens, came in at No. 11 to round out the firms that received an “excellent” rating.
• Communications firms, health insurers, and banks dominate the bottom. Four organizations ended up with “very poor” CxPi ratings: Charter Communications (for both TV and Internet), Medicaid, Cablevision/Interactive Optimum, and Aetna. Two other health insurers (United Healthcare and Anthem), two large banks (Citibank and JP Morgan Chase), and Sprint filled out the bottom 10.

CxPi Results Across Industries

We also looked at the overall results for the 9 industries included in the CxPi. Here’s how they did across all three components of the CxPi …

Our 27 retailers significantly outpaced the other industries with an average overall score of 78%. Retailers owned the top spot in each of the three underlying customer experience categories as well, winning both ease of use and enjoyability by wide margins. 

Recommendations

One of the things that the CxPi rankings make clear is that firms have a lot of opportunity to improve their customer experiences. If your company wants to make improvements, here are some items to put on your to-do list:

• Get customer experience on the 2008 agenda.
• Look beyond your industry for best practices.
• Develop an outside-in approach. (Read about Scenario Design in this post)
• Assign an executive leader. (See Lessons Learned From Chief Customer Officers)
• Chart a course toward Experience-Based Differentiation (EBD). (Read these posts about EBD)

The CxPi Methodology

The CxPi is based on a survey of nearly 5,000 US consumers — and examines three areas of customer experience: 1) usefulness; 2) ease of use; and 3) enjoyability.

Here’s exactly how we describe the methodology in the report:

This analysis was based on responses from 4,758 US consumers during Forrester’s North American Technographics® Online Survey, Q3 2007. The Customer Experience Index (CxPi) was calculated as an average of the indices that came from consumer responses to the following three questions from an online survey:

1. Thinking about your recent interactions with these firms, how effective were they at meeting your needs?
2. Thinking about your recent interactions with these firms, how easy was it to work with these firms?
3. Thinking about your recent interactions with these firms, how enjoyable were the interactions?

Consumers selected responses along a five-point scale - ranging from a very negative experience (1) to a very positive one (5). The individual indexes were calculated by taking the percentage of consumers who selected one of the top two boxes (4 or 5) and subtracting the percentage of consumers who selected the bottom two boxes (1 or 2).

In order to limit consumer feedback to organizations that consumers are familiar with, we only asked consumers about organizations that met the following criteria:

• Firms that they’ve interacted with during the previous 90 days (banks, investment firms, credit card providers, and insurance firms).
• Firms that they’ve interacted with during the previous 30 days (retailers).
• Firms that are their primary providers (medical insurance providers, TV service providers, Internet service providers, and cell phone service providers).

While we received feedback on 175 firms, the CxPi only includes organizations that had at least 100 consumer responses.

The bottom line: There’s a huge opportunity to improve customer experience — especially for health plans, TV service providers, Internet service providers, and banks. Hopefully they’ll do better next year.