Watermark Graph

Proof That CX Pays

Watermark GraphAs a customer experience professional, you know CX pays. How could it not? Customer experience leads to loyalty – so if your customer experience is poor, you have to spend an inordinate amount of time replacing the customers you’re losing. You understand this, and you understand the ideas and practices that underlie CX and all the ways it can be utilized in order to maximize companies’ engagement with customers and profit margins. Despite this, though, your boss still doesn’t quite trust it. Or your internal customers don’t ‘get’ it, or wonder how effective it really is. “What is the customer experience stuff?” you keep getting asked. “Does it really work?”

You know it does and we know it does – so we’re here to help you out when you run into those who don’t.

There are a number of great resources out there that show the profitability of CX, but Watermark Consulting’s annual report is definitely the leader of the pack. Watermark looks at the cumulative total stock returns for two model portfolios – what they terms CX “Leaders” and “Laggards,” made up of, respectively, the top 10 and bottom 10 publicly traded companies in Forrester Research’s annual Customer Experience Index rankings.

Their latest report spans the last eight years (2007-2014). In this time the S&P 500 Index returned 72.3%, which isn’t bad. But the CX Laggards returned only 27.6% – less than 40% of the S&P’s returns!  In contrast, the CX Leaders returned 107.5% – nearly 50% better than the S&P. Watermark’s research is impressive in its span and scope, but it’s also impressive in how clearly it lays out the concrete returns of a strong CX strategy.

These numbers are great, but your boss or internal customers might wonder – how exactly do you get to those numbers? How does CX work to increase profitability? What are those mechanics?

Luckily, it’s pretty simple to explain. Those with a weak customer experience lose customers. A better customer experience improves loyalty, and loyalty means you can spend more time serving current customers than chasing new ones, resulting in cost savings. In “E-Loyalty: Your Secret Weapon on the Web,” Bain shows that a 5% increase in customer loyalty can result in a profitability improvement of between 25-90%. The reason is backed by no shortage of research – it’s cheaper and easier to sell to an existing customer than it is to sell to a new one. And the cost to acquire a new customer – while it varies by industry – is typically 5-20 times higher than to retain customers.

In addition, strong customer experience leads to referrals – the least expensive way of acquiring new customers. Whether or not you’re a fan of the Net Promoter Score (which measures likelihood to recommend the company), we can all agree – customers who have a better experience with you are more likely to refer you to others.

Unfortunately, it’s easy to trick yourself into thinking you’re a CX Leader, when in reality you’re really a Laggard. In their report “Closing the Delivery Gap,” Bain found that 80% of the 362 firms they surveyed believed that they delivered a “superior experience.” However, customers themselves reported that only 8% of companies were really delivering a superior customer experience – a statistic that’s likely to make anyone rethink how they approach their customer experience.

Watermark provides a concrete, easy-to-quantify way of understanding how CX pays. But the research supporting CX’s profitability is out there in droves, and if your boss or your customers or anyone else needs more convincing, there’s plenty more out there to convince them with. Another good study was put out by Medallia Analysis on HBR.org, showing that customers with the best experiences spend 140% more at the retail-based company they studied. They also profiled a subscription-based company, where they found that only 43% of customers with poor experiences were still members a year later, while those that rated their experience in one of the top two brackets had a 73% chance of still being a member after a year. In addition, customers with poor experiences usually only remained a member for slightly over a year, while customers with positive experiences were likely to remain members for a further six years.

As these reports show – and as you already knew – CX pays. So next time you run into someone who doubts its use or effectiveness, use these statistics to show the power. And use this as a way to start the conversation as to whether you’re really a CX Leader… or a Laggard

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