Forrester Research recently uncovered a direct connection between the quality of customer experience (CX) that businesses provide and their revenue growth.
The research, which applies Forrester’s CX Index data to model how CX improvements drive revenue growth across 13 industries, found that for banks, a one-point improvement in CX Index scores could result in $124 million in increased revenue. For mass market auto manufacturers, which derive higher per-unit revenue due to the high cost of a single vehicle, a one-point improvement in their CX Index score could result in $873 million in increased revenue. Even the credit card industry, which has the lowest revenue potential related to CX Index scores, had an advocacy revenue potential that is five times greater than other industries, accounting for 15 percent of companies’ total CX-driven revenue potential.
Forrester’s research also found three distinct patterns in the relationship between revenue potential and CX quality. The first occurs when revenue potential and CX quality exhibit a sustained correlation. In this scenario, each one-point CX improvement yields the same increase in revenue. Industries that exhibit this linear relationship include TV and Internet service providers, big-box retailers, rental car providers, and auto and home insurance providers.
According to the study, there is a business benefit to improving all experiences in these industries, whether those improvements are focused on fixing problems to raise low scores or investing in innovation to raise high scores even higher.
The second pattern is when increases in revenue potential from improved CX get progressively smaller. For example, wireless service providers see the effect of improved customer experiences on revenue taper off strongly at the higher end of their CX Index score range; airlines and credit card providers see similar, though not quite as dramatic, diminished returns. For these industries, it is more beneficial to focus on fixing poor and mediocre customer experiences rather than improving those that are already satisfactory or excellent.
The third pattern is when increases in revenue potential from CX improvements get progressively bigger. The Forrester report identified banking as the industry where this happens most often. Other industries where this relationship holds, albeit not as strongly, include upscale hotels and auto manufacturing.
“Firms that focus on CX need to get savvier about the relationship between CX and revenue. That’s because it isn’t always linear,” says Maxie Schmidt-Subramanian, senior analyst serving customer experience professionals at Forrester.
“CX and revenue upside move in lockstep in some industries, but in others, like banking, the effect of improving CX is exponential. The sky is the limit, because the increase in revenue from better CX gets progressively bigger.”
As noted, not all industries should consider this the key takeaway. For wireless providers, for example, “increases in revenue from better CX get progressively smaller. They face diminishing returns of CX, so it makes most sense to focus on unhappy customers,” Schmidt-Subramanian says.
Forrester used a number of methods to determine these relationships. Customers were asked about their intentions to stay with, buy more from, and recommend companies to calculate the revenue associated with their retention loyalty, enrichment loyalty, and advocacy loyalty. A combined revenue number was then calculated for retention and enrichment loyalty. The revenue number associated with advocacy loyalty was calculated separately, and the two were added together to determine the total revenue associated with each customer’s loyalty.