Customer Experience Drives Revenue Growth, 2016

In 2015, we explored whether customer experience really matters to business success or whether CX is just the latest hype. Our conclusion: superior CX drives superior revenue growth in industries where customers are free to switch business and competitors deliver a differentiated customer experience.

This year we repeated our study to see if the results held true across an additional year of data. To do that we compared five pairs of publicly traded companies where one company in each of the pairs had a significantly higher score than the other in Forrester’s Customer Experience Index during the period 2010 to 2015. Then we gathered financial data from company SEC filings like Forms 10-K and 10-Q.

The tough part was normalizing the results. We focused on isolating revenue that could be traced directly to consumer behavior; we also backed out revenue from mergers and acquisitions, revenue from sale of assets, and other windfalls.

Once we normalized the revenue data we used it to build models that calculated the compound annual growth rates (CAGR) for the ten companies from 2010 to 2015. We found that the CX leaders in all five pairs of companies outperformed their relative CX laggard counterparts.

In two industries, cable and retail, leaders outperformed laggards by 24 percentage and 26 percentage points, respectively. Even in the industry with the smallest spread, airlines, the CX leader enjoyed a healthy 5 percentage point advantage in global revenue.  And when we compared the total growth rate of all CX leaders to that of all CX laggards we saw that the leaders collectively had a 14 percentage point advantage.  

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Don’t Let Volatile Markets Scare You Away From Customer Experience Investments

If you like horror shows, forget The Walking Dead and check out global markets: In 2016, US stocks got off to their worst start ever. Oil prices are in the toilet — taking oil company stocks with them — and neither looks to fully recover any time soon. Of course, both of these Nightmares on Wall Street might pale in comparison to what a Brexit could do to volatility in foreign exchange rates (and therefore your profit and loss).

In the past, you might have expected China to ride to the rescue. But that won’t happen: The Chinese economy just grew at its slowest rate in 25 years

Companies that obsess over these developments might be tempted to panic and cut spending on customer experience improvement programs, despite the fact that many firms are sitting on piles of cash. But cutting CX budgets is a terrible idea because CX is the greatest potential source of competitive advantage — especially in times of high market volatility. For example:

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Better Customer Experience Correlates With Higher Revenue Growth In Most Industries

Does customer experience really matter to business success — or is CX just the latest flavor of hype? Recently, Forrester completed a six-month research effort aimed at answering that question by examining the relationship between superior customer experience and superior revenue growth. 

Why did we pick revenue growth as the measure of business success? Because it’s the No. 1 priority of global business leaders recently surveyed by Forrester.

So with that in mind, here’s what we did: Aided by some long-suffering research associates, some of our top industry experts and I picked pairs of competitors where one of each pair had significantly higher customer experience quality than the other (as rated by their own customers). We did this for five very different industries: cable, airlines, investments, retail, and health insurance. Then we built models that compared the compound annual growth rate in revenue of the CX leaders to the CX laggards between 2010 and 2014.

The results were intriguing. There was a clear correlation between superior customer experience and superior revenue growth for cable companies, airlines, full-service investment firms, direct investment firms, and retailers. However, the magnitude of the difference varied widely by industry, with cable coming out on top: 35.4% for the CX leader versus 5.7% for the CX laggard. Even more interesting, the results were a virtual draw for health insurers — superior CX didn’t seem to matter much when it came to revenue growth.

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Book Mini-Review: "Customer Experience: What, How, And Why Now"

Over the weekend, I read the manuscript for Don Peppers' upcoming book, Customer Experience: What, How, and Why Now.

Because Don is a talented writer, and because I love customer experience, it wasn’t hard for me to start reading it. It was, however, hard to stop reading it. If you’re also into customer experience, you’ll no doubt have a similar reaction when it comes out.

What I like most about the book is that Peppers consistently grounds customer experience in business fundamentals. For example, he points out that the decision to focus on customer experience should never be binary: You don’t have to be customer-centric or product-centric, nor does spending to deliver a better CX mean wasting money. The reality is that focusing on customer experience can lead to new and better products and help create an even more profitable business — provided that you understand it.

Of course, learning to understand the practical aspects of customer experience can be hard work — much like attending a particularly tough business class. But that’s not the case here. Peppers makes the nuts and bolts of customer experience engaging and even visceral. To see what I mean, check out two of my favorite quotes from the book:

  • "If you think about it, a customer is really just a bundle of future cash flows, with a memory. And these future cash flows will increase or decrease based on how the customer remembers being treated, today."
  • “Customers don’t necessarily stay because they’re satisfied, but they often leave because they’re not.”
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When Was The Tipping Point For CX? It Looks Like It Started "Tipping" In 2010!

Last week, I stumbled across "The Behavioral Economics Guide, 2015" (which you can find here).

I’m kind of a Daniel Kahneman/Dan Ariely junkie so I immediately started scrolling through it looking for articles of interest. And there, on page 8 . . . big score! A graphic that plots the relative Google search frequency of the term “customer satisfaction” against the search frequency of the term “customer experience.”

Here’s why this chart floats my boat: For two years — from 2008 to 2010 — we see the terms coexisting as if people couldn’t quite make up their minds as to whether they were really different or not. Then in 2010 — pow! “Customer experience” starts shooting up like a rocket, while “customer satisfaction” takes a deep dive.

(Coincidentally, in 2011, the attendance at Forrester’s CXNYC shot up to more than 1,300 people on-site, from just more than 800 people on-site in 2010. That led us to add a CX Forum West — now CX San Francisco — and CX Europe starting in 2012.)

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US Cab Companies: To Beat uberX, Improve Your CX

About two years ago I stopped taking cabs from my home in the suburbs of Boston to Boston’s Logan airport. I wasn’t drawn away by uberX; my local cab company pushed me away with its awful customer experience.

Here’s what happened: When I first started using my local cab company years ago, I’d call for pick up and a clean cab that seemed well maintained would arrive at the requested time, driven by a polite, professional cabbie. The price of the ride seemed fair. 

Over time the cabs that came to pick me up got dirtier and dirtier, and the drivers looked sketchier and sketchier – even as the price went up until it was close to that of a car service.

The last straw was when my driver – a woman of indeterminate age wearing cutoffs, sandals, and a tank top – showed up late in a filthy cab that I didn’t want to get into while wearing a suit (sadly, I didn’t have much choice at that point unless I wanted to miss my flight). All the way to the airport all she talked about was how she was qualified for better jobs than driving a cab but that she kept getting fired from those jobs unfairly.

Really? I’m paying you to drive me while you tell me how you’re too good to drive me? If you can’t take pride in your work – like a cabbie in London or Tokyo would, and cabbies in the US used to do – then at least spare me (your customer) the endless stream of complaints.

To be clear, I wasn’t expecting white glove service. My requirements were pretty minimal: Show up on time in a clean cab, don’t dress in a way that makes me wonder whether you stole the cab, get me to my destination without acting like a lunatic, and charge me a reasonable price for your services. That’s a pretty low bar.

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Customer Experience Q&A with Roland Boekhout, CEO ING-DiBa

Have you ever heard of a bank that’s as popular with its customers as Amazon is with Amazon’s customers?

Me neither – at least not until we ran our Customer Experience Index study in Germany this year. That’s when I found out about ING-DiBa.

So what does ING-DiBA do that makes it so special? Attendees of Forrester’s Forum for Customer Experience Professionals EMEA are going to find out in London on November 17 and 18 because that’s when Roland Boekhout, CEO of ING-DiBa, is going to tell us.

Personally, I can’t wait. Which is why I’m delighted to offer up Roland’s answers to some of our pressing questions – right now.

I hope you enjoy what he has to say and I look forward to seeing some of you in London!

Q: When did your company first begin focusing on the customer experience?Why?

It is always important to us that our customer experiences DiBa in the way that we promise it. We want to turn our customers into fans, and this is something that we work on everyday – for over 8 million customers. We would like to make satisfied customers feel inspired, and unsatisfied customers inspired once again.

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Q&A with Olivier Mourrieras, Vice President, Customer Experience Centre of Competence, E.On, Part 2

You know what the Holy Grail is for an analyst? It’s results data – especially financial results data. And that’s especially true for analysts who cover customer experience because all too often CX professionals don’t track – or won’t share – their results.

That’s why I’m especially pleased with what I am able to share with you today.

Last week I posted part 1 of Forrester’s customer experience Q&A with Olivier Mourrieas of E.On, one of the world's largest investor-owned electric utility service providers. Olivier will be speaking at Forrester’s Forum for Customer Experience Professionals EMEA in London on November 17 and 18, 2014, and he was kind enough to share some thoughts with us in advance of his appearance.

This week I’m posting part 2 of Olivier’s answers, in which he tells us the tangible business results that the E.On CX program has achieved.

I hope you enjoy what he has to say and I look forward to seeing some of you in London!

Q: How do you measure the success of your customer experience improvement efforts (e.g., higher customer satisfaction, increased revenue, lower costs)? And have you seen progress over time?

There are hard and soft benefits which we are continuously demonstrating:

Hard Benefits:

  • Churn reduction: Increasing Net Promoter Score (NPS) leads to increased loyalty. This will help to stabilise the Private Household and SME customer base.
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Q&A with Olivier Mourrieras, Vice President, Customer Experience Centre of Competence, E.On -- Part 1

Here’s an objection I sometimes hear when I talk to people about how improving  customer experience can boost business performance: “Sure, it sounds great for glam industries like automotive or fashion.  But I sell widgets.”

Okay, it’s fair to say that the business value of CX is more obvious for industries that advertise in magazines with slick, glossy paper. But the reality is that focusing on CX can also do a lot for less sexy industries.

That’s why we invited Olivier Mourrieras of E.On to speak at Forrester’s Forum for Customer Experience Professionals EMEA in London on November 17 and 18, 2014. E.On is one of the world's largest investor-owned electric utility service providers. And even though utilities don’t exactly captivate their customers, E.On has made huge, measured advances in the customer experience it provides, resulting in corresponding improvements to business results.

Olivier recently responded to our questions about what E.On has been doing and how it’s evolved. He gave us such amazingly detailed insight that I’ve broken his answers into two parts, with Part 1 appearing below.

I hope you enjoy what he has to say and I look forward to seeing some of you in London!

Q: When did your company first begin focusing on customer experience? Why?

Prior to 2009, customer focus had not been a crucial part of E.ON’s strategy. Customer satisfaction scores were often lower than market average scores across the group resulting in high customer churn.

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Customer Experience Q&A With Andrew Murphy Of John Lewis

I get just as excited as the next analyst about the latest and greatest startup. But you know what? There’s something extra cool about a brand that’s been around since 1864, and yet runs neck-and-neck with Amazon in our UK customer experience rankings.

That’s why we invited Andrew Murphy, retail director of John Lewis Department Stores, to speak at Forrester’s Forum For Customer Experience Professionals EMEA in London on November 17th and 18th, 2014.

As we near the event, Andrew graciously answered some of our most pressing questions about the why and how of John Lewis’ famous service experience — which is all the more impressive given its brand promise: “Never Knowingly Undersold.” (Translation: Great customer experience doesn’t have to mean high prices.)

I hope you enjoy his responses, and I look forward to seeing some of you in London!

Q: When did John Lewis first begin focusing on customer experience? Why?  

A: John Lewis has had a long-term focus on what we would previously have termed “customer service,” dating back to our founding principles from 1864. More recently, the advent of omnichannel retailing with all of its inherent demands has caused us to revisit these principles and redouble our efforts to provide a truly world-class customer experience.

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