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.

Why doesn’t customer experience always correlate with revenue growth? And why does the correlation differ by industry? Let’s start with the fact that CX drives revenue by driving customer loyalty, something that Forrester determined with our Customer Experience Index (CX Index™) research. But CX-fueled customer loyalty only matters when customers have the freedom to switch their business among competing companies and some of those companies provide superior experiences — so customers can switch and there's a rational reason for them to switch.

Think of it this way: There are many investment firms out there eager to do business with high-net-worth customers, and there is a big difference between the experience provided by the CX leaders (like Edward Jones and Charles Schwab) and the CX laggards. Therefore superior customer experience drives substantial revenue growth for investments firms. 

In contrast, most Americans still get their health insurance from their employers, who subsidize 75% of their premiums. Sure, consumers with employer-sponsored health plans could abandon those plans, go to an exchange, and switch to a different provider. But that’s not happening today because consumers won’t willingly quadruple their costs, even for a significant improvement in CX quality. So right now, CX does not drive revenue growth in that industry (though, that will change over the next few years, and better CX can reduce cost of service even now).

Forrester clients can see our new report, "Does Customer Experience Really Drive Business Success?" on our website. And anyone with a browser can see video excerpts of the speech I gave about the report at Forrester’s CXNYC here and here

Comments

The financial impact of good CX

That’s a really compelling set of results Harley and it reinforces the financial impact of good CX. Another point to mention is that good CX actually lowers costs, as customer queries are dealt with quickly, efficiently and on the customer’s channel of choice. More on that and other financial metrics from good CX in this Eptica blog post http://www.eptica.com/blog/financial-benefits-better-customer-experience

Employer's Role In Health Insurance

It all makes sense. But one question: If employees are unhappy with the CX delivered by the insurance provider sponsored by their company, why aren't they creating so much noise that their company switches to another insurance provider that delivers better CX?

Harley Mannings Blog on CX correlation with growth

I am interested in the total sample size for this research. Is it based on 5 pairs of companies (10 in total)? If not how many and what statistical significance do you base on the results?