Don’t Let Volatile Markets Block CX Investment
In 2016, U.S. stocks got off to their worst start ever. Oil prices have plummeted, taking oil company stocks with them—and neither looks to be fully recovering anytime soon. Of course, both these nightmares on Wall Street might pale in comparison to what a “Brexit” could do to volatility in foreign exchange rates. In the past, China might have come to the rescue. But that won’t happen: The Chinese economy just grew at its slowest rate in 25 years.
Companies that obsess over these developments might be tempted to panic and cut spending on customer experience (CX) improvement programs, despite the fact that many firms are sitting on piles of cash. But cutting these budgets is a terrible idea because CX is the greatest potential source of competitive advantage—especially in times of high market volatility.
CX leaders grow revenue three times faster than CX laggards. Forrester recently analyzed the correlation between customer experience and revenue growth for seven industries in the United States between 2010 and 2014. Companies with superior customer experience grew revenues faster than their competitors with inferior customer experience: On average the eight CX leaders had a compound annual growth rate of 15 percent; the eight CX laggards grew at an average rate of 2.5 percent.
Superior CX drives customer loyalty and purchase intent. When customers have a good experience, they want to stay with you longer, spend more with you, and recommend you. This relationship holds true for mass market brands like wireless service providers as well as high-end brands like luxury autos—and even banks, credit card issuers, insurers, and investment firms.
Companies with superior CX can charge more for their products. Customers are willing to pay a higher price in return for a superior customer experience. That’s what we found when we analyzed U.S. data from Forrester’s Customer Experience Index to determine the relationship between the CX Index score that customers give a brand and their willingness to pay a premium for that brand. And it’s especially true for customers who rate an experience as outstanding.
That’s just the upside.
The downside risk of not funding CX improvements is also high: Competitors that improve their customer experience while you stagnate will steal your customers and erode your margins. You’ll make it even easier for them if your employees become disengaged as a result of your CX flip-flop and start delivering a less satisfying experience.
Despite these harsh realities, it’s tough to stay focused when the world around you seems on the verge of panic. Here’s how businesses should stay grounded:
Connect with your customer pulse. Customers tend to have fast responses to volatility. But over time, the loyalty they show in response to superior customer experience stays evident—if you bother to look. Establish habits like regularly listening into contact center calls and reading customer ratings and reviews of your products and services (and those of your competitors).
Do the math. Knowing that improving customer experience increases customer loyalty, add up the financial benefit of a 1-percentage-point increase in customer retention for your company. Now try subtracting the financial loss from a 1-percentage-point drop if CX stagnates and your competitors start luring away your customers. Whether you run the numbers based on revenue or profit, this exercise will help you make a visceral connection with what’s at stake.
Look up at the CX leaders. Top CX performers stand out when it comes to business performance, too. As of this writing, top-ranked computer manufacturer Apple has the highest market cap of any company on the planet. Amazon’s trailing 12-month revenue of $107 billion beats Microsoft and Facebook combined. And in an industry where success means avoiding bankruptcy, 2015 marked the 42nd consecutive year of profitability for Southwest. Seeing the real-world correlation between CX success and business success will help you overcome lingering doubts as to whether this connection is real.
As 2016 progresses, you can’t count on the markets settling down. CX investments will allow you to connect your customers’ excellent experiences to revenue, profitability, customer loyalty, cost reduction, and pricing power.
Harley Manning is a vice president and research director at Forrester Research, serving customer experience professionals. Harley’s research, analysis, and opinions have appeared in The Harvard Business Review, Forbes, The Economist, and Fast Company.
Forrester Customer Experience Forum, Day 1: CX Imperative Equals 'Survival'
Organizations must continuously study their customers and prospects, and adjust their operations accordingly.