When Should You Favor Customer Experience Over Profits? Never!

Last month, I was in Europe with a group of customer experience professionals from various divisions of the same large company. Although their expertise was at varying levels, no one was clueless, and everyone seemed highly motivated. About halfway through the all-day session, one of the attendees asked me a question that I’m going to paraphrase here.

After some preamble about the pressures the company was under to increase revenue and profits, he asked, “Given that, when should we put aside the need for profits and fund customer experience projects instead?”

His question surprised me. And I clearly surprised him when I responded, “Never.” I let that hang in the air for a moment so that it could sink in. Then I added, “You should never put aside the need for profits when you fund customer experience projects.”

I could see that people were a little confused, so I went on. “You should only fund customer experience projects that will produce profits. That’s why you do those projects in the first place. And if you have other kinds of projects that will produce better business results, do them instead. But if you take the time to create the business models for your CX projects, you’ll probably find that they’ll produce better ROI than most of the initiatives they’re competing against.”

To be clear, the guy who had asked the question seemed very bright and had a lot of expertise in his area (metrics and measurement). But he had fallen into the same trap that so many customer experience advocates fall into. He wasn’t thinking of improving customer experience as a path to achieving business results. Instead, he was thinking of it just as a generally good thing to do for customers (which it is, but that’s not why you should do it).

In our book, Outside In, my co-author Kerry Bodine and I describe numerous examples of companies that made money or saved money by focusing on customer experience. Here are just a few examples of the most obvious way to show ROI: finding and fixing customer experience problems.

  • A customer experience team at Fidelity found that some customers were having trouble logging into their accounts through an automated phone system. The team then worked with the people who manage the phone system to identify the root cause of the issue and fix it. The total cost of that fix was less than $20,000, and it saves Fidelity $4 million a year by averting calls to customer service. It was just one of more than 160 projects that came through Fidelity‘s experience improvement system in 2011. Together those projects accounted for more than $24 million in annual savings.
  • The same team at Fidelity piloted an improved model for helping high-net-worth customers when they ran into trouble. The program drastically reduced the amount of time to resolve problems. What’s more, the team found that clients who said they'd had a good experience put four and a half times more cash into their accounts than clients who said they'd had a poor experience. In total, this larger group of happy high-net-worth customers increased their investments with Fidelity by several billion dollars.
  • Sprint's customer experience team traced the root causes of problems that customers called to complain about. Then the team worked with the responsible department— like marketing, IT, or billing — to resolve the underlying issues. This strategy of reducing calls to customer service was a smashing success. Last year Sprint’s CEO reported that the cost savings alone added up to more than $1.7 billion per year as a result of fewer outsourced calls and fewer customer credits.

We see new examples of extreme ROI from improving customer experience on an ongoing basis. For example, in a recent report about the winners of our 2012 Voice Of The Customer Awards, we found that:

  • As a result of insights gathered through its voice of the customer program, Cisco consolidated ordering platforms and rules. Those changes resulted in savings of $20 million per month.
  • Armed with information from its voice of the customer program, a Vanguard client manager created an action plan for rebuilding a client’s trust in the firm. The plan worked, and he secured a $100 million account.
  • On a slightly smaller but still-significant scale, Barclaycard US employees are now formally responsible for reducing complaints year over year by 50%, a goal that's tied directly to compensation. These efforts contributed to a 28% reduction in customer attrition, for an estimated annual savings of $10 million.

I hope these examples make it clear: Customer experience leads to profits — if you treat it as a business discipline. With that in mind, I’d like to conclude with a couple pieces of advice.

First, get in the habit of always including a business case as part of your customer experience improvement proposals. It doesn’t have to be elaborate, but it must show how what you intend to do will save money or make money for your firm. Will you reduce calls to the contact center? Get incremental sales from existing customers? Retain customers longer?

Second, remember to always associate actual dollar figures with those benefits. How many calls do you plan to avert? Multiply that by the average cost per call at your company (a number that whoever runs your contact center will know). How many more sales do you plan to make? Multiply that by your average order value (a figure your marketing department can supply).

Finally, when you do these things, don’t get paralyzed by striving for precision. All benefits in every business case are estimates (and will remain so until someone learns how to accurately predict the future). All you have to do is make estimates that reasonable people won’t disagree with, and you can do that based on the results of past similar projects your company has done. Or look up the results that other firms have achieved, something that’s increasingly possible with the growth in research into customer experience as well as the seeming explosion of events and interest groups for customer experience professionals.

If you have your own tips or examples you’d like to share, please add your comments below!

Comments

customer experience is the path to profits

Harley,
I love this conversation. I once had an executive say to me "Linda, I'm not sure how much customer experience we can afford." The air in the room felt much as you described above.

Yes, the secret to revenue or loyalty performance is doing what customers will value to solve the need or desire that triggered them to act in the first place. The secret to profit is doing ONLY what customers value. Focus is our friend here. If we are clear about the target or ideal experience and purge all activity that gets in the way, we can - and must - measure the profit it produces.

An example is what health plans like CIGNA or HealthPartners are doing to remove jargon from consumer communications. The value to the consumer is an understanding of what they bought or how to use it. For the health plan fewer "I don't understand this" calls to member services are just one example of better financial performance.
LCI

Customer Experience and profits

Definitely agree. Especially today where technology plays such an important role in delivering customer experience, the CIO cannot justify the investments with ROI cases and business results improvement. As companies invest to differentiate, customer experience is one going to be one of the key vectors.

Show me the money

Great post! So true - and I think one of the biggest barriers to customer experience being adopted as a business discipline. Executives definitely talk about it in their strategies but when it comes to committing money or doing things differently - they shy away. We should be doing RoI calcluations right up front when proposing experience improvements. And if you are focusing on the right experiences for customers, the business benefits will be there.