Posted by Harley Manning on April 26, 2013
As an avid personal investor I’m often appalled by cable shows that report on the markets as if they were non-stop sporting events. Seriously, how many people care how the NASDAQ or the Dow are doing on any given minute of any given day? But apparently there are enough day traders out there that noon reports from the floor of the New York Stock Exchange are as compelling as half-time reports during the NFL playoffs.
I have to confess that there is one piece of financial analysis that I do look forward to – though in my defense, this is an annual occurrence and not an hourly update. The analysis comes from Jon Picoult, a gentleman who runs Watermark Consulting.
For a while now Jon has been taking the data from Forrester’s Customer Experience Index (CXi) and using it to do a thought experiment. In this experiment he looks at what would have happened if, back when we first published the CXi, an investor had taken two equal buckets of money and created two U.S. stock portfolios. The first portfolio would have consisted of the top 10 publicly traded companies in our index (the customer experience leaders). The second portfolio would have consisted of the bottom 10 publicly traded companies in the index (the customer experience laggards).
In Jon’s model the investor would have held each portfolio for a year, then sold them both and taken his profits (or losses). He would have then used the proceeds to purchase the new year’s leaders and the new year’s laggards, continuing this cycle of selling and buying for all six years that the CXi has been in existence.
Intriguing, right? Even those of us who believe in the business value of customer experience (or in my case can prove it through research) don’t normally look at the impact on stock performance.
Here’s what Jon reported this year. If his hypothetical investor had simply invested in the S&P 500 Index, he would have been sitting on a return of 14.5% at the end of 2012. That’s not great but keep in mind that we’re still working off the karmic burden of 2008 (a year that all investors would probably love to forget).
In contrast, our investor’s portfolio of customer experience leaders would have done much better. It would have given him a total return of 43%.That’s a nice premium for investing in what’s essentially just a different kind of index fund, i.e., no active management required.
Sadly, our investor’s portfolio of CX laggards would have all but wiped out his gains: It delivered a whopping negative 33.9% return. Ouch!
Jon and I have discussed what this model says about the business impact of customer experience, which is that your customers aren’t the only ones who reward a truly superior experience (with their willingness to buy more of what you sell, and their determination to stick with you even in hard times). The markets also respond to what the power of customer experience does for your company – and particularly for your business results.
If you’re interested in reading Jon’s analysis in his own words, and seeing his results in graphical form, you can check them out here. And for those of you interested in learning more about the power of putting customers at the center of your business, you can visit the site dedicated to our new book here.
As always, I welcome your comments.
- Adele Sage (22)
- Allegra Burnette (7)
- Daniel Brousseau (1)
- Deanna Laufer (6)
- Harley Manning (97)
- Jennifer Rice (1)
- Joana van den Brink-Quintanilha (2)
- John Dalton (8)
- Jonathan Browne (23)
- Kara Hoisington (1)
- Kerry Bodine (77)
- Leah Buley (1)
- Maxie Schmidt-Subramanian (19)
- Megan Burns (31)
- Michael Gazala (2)
- Moira Dorsey (5)
- Nicole Dvorak (1)
- Qaalfa Dibeehi (1)
- Rick Parrish (16)
- Ronald Rogowski (29)
- Sam Stern (22)
- Thomas Husson (1)
- TJ Keitt (5)
- Tony Costa (9)