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4 mins Read

Proving ROI: Increase Customer Loyalty with Data Backed CX

Published September 2, 2009

Four “experience investment” lenses to help you plan, measure and improve interactions with your customers, and prove significant ROI – before you invest.

In Proving ROI on Customer Experience Part 1, we discussed the background of Customer Experience, as well its critical nature of in business today.

CX-ROI-P2Because the process of improving customer experience has the potential to be both involved and resource intensive, most businesses wonder how they can prove ROI before they start. To assist you in this initial assessment, we have developed 4 “Experience ROI Lenses” to help you begin.

Future revenue is affected—either positively or negatively—at every single touchpoint (or interaction) between your organization and your customers.

While by no means exhaustive, these “Lenses” are all examples of – and point places where you can find – real world ROI. Looking at your organization through them will help you speak the “language of investment return” and should give you ample ammunition to begin thinking about – and planning – your own strategies for improving customer experience.

Experience ROI Lens No. 1: Increase customer loyalty (and reduce churn).

Increases in customer loyalty (and reductions in churn) are some of the most basic ROI models you can use. Armed with Net Promoter® (NPS) as a loyalty metric and Customer Lifetime Value to measure what a customer is worth, you can drive – literally – millions in savings for even a small to mid-size company.

Multiple studies have proven the value of loyalty, with benefits ranging from customer who spend more, cost less to service, and buy more over time. Both Loyalty and NPS are proven (and widely accepted) indicators of future revenue growth. Overall, the goals are to both increase retention, and reduce the cost of keeping the customer.

These are but a few of the ways that experience improvements can drive customer loyalty:

  • By establishing a line of sight between your customer experience and increased Net Promoter® (NPS) scores, you can directly boost satisfaction and loyalty.
  • You can pinpoint the individual customer touchpoints that affect loyalty, investing in those that improve it – and eliminating or modifying those that don’t.
  • What if better delivery of “post-purchase” experience could reduce churn by 5% a year? For some companies, this can translate to a 60%+ increase in annual profits.
  • Implementing a customer experience feedback loop could allowing you to deal with complaints more effectively, and improve delivery overall. In a $40M Retail Company, this could affect the $8M at risk from customers who have had a poor experience.
Experience ROI Lens No. 2: Reduce the cost of delivery.

Delivery cost can be reduced in several areas, including functional tasks, hard costs, and overhead. Ranging from reduction in marketing costs (or reallocation to more effective channels) to reductions in customer service staff or call center overhead, the potential is significant.

A few examples of the tangible benefits from reducing delivery costs can include:

  • Eliminating a redundant marketing tactic or program that is both costly and ineffective. For one client, eliminating a single printed touchpoint saved millions – with over $500,000 in postage alone. Or eliminate an entire series of programs that don’t drive desired results. (Eliminating an ineffective customer touchpoints = lower cost/higher satisfaction).
  • Reduce the cost of touchpoint delivery overall; by eliminating nearly 40% of all touchpoints. For another client, we were able drive up satisfaction and customer re-purchase as a result. (Fewer touchpoints = lower marketing/service costs).
  • Migrate customer-facing tasks from the call center to the web; adding a series of pages to your website could have the direct effect of reducing call center volume overall, decreasing handle time, and increasing first call resolution. (Decreased volume/increased speed = lower costs).
Experience ROI Lens No. 3: Speed movement through your Customer Relationship Lifecycle.

The potential for ROI in this area is huge. By understanding where experience can be improved in the “pre-purchase” stage of your lifecycle, you could boost your pipeline and conversions by 10%, 20%, or more. Improving experience in the “post-purchase” phase boosts satisfaction, loyalty and advocacy.

The benefits from measuring Customer Relationship Lifecycle improvements include:

  • See which marketing channels are most effective at driving brand awareness, and which are less effective. By shifting investment to the most effective channels, you boost awareness without increasing costs. (greater brand awareness = more prospects).
  • Understand where your marketing is NOT driving desired behavior, and boost consideration. (more prospects = more sales).
  • See where the sales process is bogging down to close more deals. (more customers = more revenue).
  • Learn which individual customer touchpoints are most effective at driving advocacy (or influencing prospects) to boost positive Word-of-Mouth. (greater advocacy = increased awareness/improved loyalty).
Experience ROI Lens No. 4: Increase Customer Lifetime Value.

Most organizations have a startling lack of knowledge when comes to the economics of individual customers. One study states that 85% of executives lack an understanding of acquisition or service costs, much less overall CLV (Customer Lifetime Value). Yet for virtually all organizations, their enterprise value springs entirely from their customers.

This value is driven by three things:
  1. The amount they spend on any given product or service;
  2. The amount of this budget that they spend with you, and;
  3. What they are willing to pay for your product or service. By looking at experience improvement as a way to boost CLV, you’ll be able to look at experience based on actual customer behavior, vs. intention.

Some of the benefits of looking at experience improvements through this lens can lead directly to increased CLV by:

  • Reducing the cost of sales leads: By driving down the initial cost of getting customers (lower cost through more effective marketing or sales touchpoints) you boost overall customer value.
  • Lowering service costs: By decreasing the cost of servicing customers (through web, call center, in-person or other touchpoints and channels) you increase CLV.
  • Reduced cost of acquisition: By having more leads at a lower cost, you indirectly affect the sales metric. If the cost of closing a deal can be reduced as well, you benefit twice over. More efficient contracts, environments, sales pitches and more – all designed around the experience of turning prospects into customers – reduce costs.
  • Increased purchase activity: A more efficient experience can be targeted towards getting existing customers to either spend more at each purchase, or purchase more often. The result? You guessed it. Increases in overall revenue (and value) per customer.
  • Improved retention: As discussed in Experience ROI Lens No. 1, above, increases in customer loyalty boost retention. The longer a customer stays with you, the greater their value.

Once you’ve developed a hypothesis around prospective ROI on customer experience, what next? In Part 3 of Proving ROI on Customer Experience we talk about ways to identify the touchpoints you have, and create a map of where you are today – helping you find out which touchpoints work, which don’t, and why. Then, improving them… (Continue to Part 3…)

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