What If Customer Experience Has No ROI?

I wrote an article for the 1to1 Journal called “What If Customer Experience Has No ROI?” Rather than just drop a long article into my blog, I will publish pieces in different posts. Here’s the first installment…

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I’m often asked the question: “What’s the ROI of customer experience?” To some degree, that’s a silly question. It’s like asking what’s the ROI of technology for Google, products for Best Buy, movies for NetFlix, or cars for Hertz. Customer experience is an integral component of every organization that has customers. Think of it this way, what would happen to the financial health of your company if you just stopped interacting with your customers?

That doesn’t mean that the ROI question is a bad one. It just needs to be framed correctly. The question that should be asked is: “what’s the ROI of improving customer experience?” That’s not only a good question, but it’s an essential one for any company that is serious about customer experience.

Yes, Everyone, Customer Experience Improvements Drive Loyalty

At an aggregate level, my research at Forrester Research showed that improvements in customer experience are highly correlated to higher loyalty in consumer markets. In a report called “Customer Experience Leaders Garner More Loyalty,” for instance, we found that customer experience leaders have more loyal customers than customer experience laggards. The loyalty gap with consumers was 15% to 17% in three areas: willingness to buy more products, reluctance to switch, and likelihood to recommend.

Customer experience has a positive ROI as long as you don’t spend more than the value of the loyal customers you create. And since the value of adding 15% more loyal customers represents far more than what most companies spend on their customer experience efforts, there’s almost always a positive ROI.

Recognizing that customer experience improvements have good ROI is not the end of the story. In some regards, it’s just a prerequisite for getting to some of the more practical issues in customer experience efforts. I’ll take a look at three key questions: Do all customer experience efforts have the same ROI?; Who cares about ROI anyway?; And what impact does ROI have on the journey?

Do All Customer Experience Efforts Have The Same ROI?

If all customer experience efforts had the same ROI then life would be easy — you could invest in any customer experience project that came your way. Clearly there are enormous differences in ROI based on the size and value of the specific customer segment that you want to address with your efforts. I often hear the question: “What if we don’t have any clear customer segments?” If that’s the case, then don’t go ahead with the effort. Not only can’t you figure out the ROI, but you’re unlikely to satisfy the needs of customers if you don’t have a clear picture of who they are.

In addition to understanding the target customers, you need to look at ROI in terms of the type of value you are creating for customers. I always like to think of things in terms of the Kano Model, which identified five different types of value that customer perceive:

  • Must-Be value: Customers gets no value from some things you do unless your efforts meet a minimal threshold. Think of the value of an airplane ride if the pilots aren’t fully trained or a call center that doesn’t answer the phone in 10 rings.
  • One-Dimensional value: In some areas, the more you do of something; the more value clients get from it. Think of the value that customers get when a car salesman adds additional years to a warrantee or a busy apparel retailer adds new changing rooms.
  • Attractive value: If the basics are in place, you can create enormous positive impact on customers with some unexpectedly nice touches. Think of the value that customers have when an electronics retailer throws in some required cables for free when the customer picks up her new monitor or when a hotel employee brings an unordered chicken soup to a guest who he knows is sick.
  • Indifferent value: Some things that you do may have no perceived value like lowering the price on a hotel room to a business traveler on an expense account.
  • Reverse value: Some things that you do may have negative perceived value like lowering the usability of your Website after a redesign where you’ve added a lot of new features.

Using these Kano descriptors, you get the most ROI from customer experience efforts when you invest whatever is required in “must-be” items, fund a good mix of “one-dimensional” items, add a few “attractive” items in areas where you already have some consistency, and stay away from investing in anything that creates “indifferent” or “reverse “value.

The bottom line: Look for the customer experience ROI

About Bruce Temkin, CCXP
I'm an experience (XM) management catalyst; helping organizations improve results by engaging the hearts and minds of their employees, customers, and partners. I enjoy researching and speaking about these topics. I lead the Qualtrics XM Institute, which is the world's best job. We're igniting a global community of XM Professionals who are inspired and empowered to radically improve the human experience. To achieve this goal, my team focuses on thought leadership, training, and community building. My work is driven by a set of fundamental beliefs: 1) Everything starts and ends with human beings, so you need to understand how people think, feel, and behave; 2) XM is a discipline that needs to be woven throughout an organization's entire operating fabric; and 3) Building the XM discipline requires a combination of culture, competency, and technology.

5 Responses to What If Customer Experience Has No ROI?

  1. Ginni Bratti says:

    I am trying to answer the ROI question now, and in a particularly challenging scenario, so I’m wondering if anyone has experience with this. We are focusing on improving our experience by better aligning our direct marketing copy and tactics with our brand values. Customers have complained about our marketing for years, and we’re finally taking steps to address it. The challenge is that it has been extremely effective from a $ perspective, and changing some of our tactics is having a negative impact on our revenue. Our leadership team believes that this is a long-term pay off, but when we’re seeing sales decline, it’s a scary thing to stay committed to the long term, and not knowing when it will pay off. Any thoughts?

  2. raybrown99 says:

    Hi Bruce Tks for the thoughts on ROI very pertinent to many businesses. I’m reading Lior Arussy’s new book Customer Experience Strategy and he takes an interesting approach to ROI by looking at RON (return on nothing) strategy. He suggests a number of theoretical measures, increased customer attrition, fewer referrals etc and tries to create a what if model to value these “losses” if a business does not become more customer centric. In putting a business case the $ always carry weight and maybe the valuing of loss from inaction can create a chunky enough number to gain attention.
    Ginni, I would love to help but I’m puzzled by your sentence “The challenge is that it has been extremely effective from a $ perspective, and changing some of our tactics is having a negative impact on our revenue.” If you mean it’s helping the bottom line but adversely affecting the revenue line then you might still be on the right track. Better to “go deep” with a profitable customer base than “wide” with a less profitable customer profile (unless their are market size limits or a bigger strategic play). Not sure if I’ve got your point but good luck anyway.

  3. Pingback: Positive Customer Experience Increases ROI « Project Management Essentials

  4. Dennis Snow says:

    This is one of the most challenging questions I get when consulting on a customer experience improvement engagement. It’s hard to say if you invest x dollars you’ll get x return. So many factors impact return, not the least of which is the level of organizational commitment to the project.

    I wrote a blog post on the subject, “The Need for Top Management Commitment,” that you can check out at http://tiny.cc/4n7xu.

    Love your blog!

  5. Sam says:

    I have another question to pose…..

    How do you measure the ROI of collating Customer feedback?

    We know that this is fundamental to growing and sustaining any successful business and with customer insight you can create value and loyalty, but has anyone attempted to justify through a business case, what the ROI of capturing the VOC is?
    My challenge is that we have a number of different channels for feedback and i need to pull this together under one house so to speak, but with this there will be some investment needed.
    Has anyone done anything similar?

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