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How customer experience drives shareholder value

Submitted by on Wednesday, 17 February 2010No Comment

‘How can offering a superior customer experience add value to my company’s bottom line?’

Asked questions like this by our clients, we thought it would be useful to demonstrate how companies can link their customer experience to customer equity, and from there to shareholder value.

When embarking on initiatives companies, after all, need to be sure those initiatives will drive value.

For a long time companies have been vaguely aware of the importance of the customer experience, yet may be hesitant to embark on a realignment of their business around the customer experience when the benefits – financial at least – may be equally hazy.

This post will hopefully demonstrate beyond doubt that the customer experience not only impacts companies’ financial performance, but also does so in a big way.

Two views on customer behaviour

There are two views when it comes to the ‘customer experience’.

For one group of people, the view is that the customer experience is nothing more than a ‘nice-to-have’.

Customers buy on value (usually governed by the ‘4Ps‘) and that is that.

In this view, what matters is that companies simply deliver on the value proposition(s) and do so consistently. And that is the ‘customer experience’: getting something to customers as conveniently as possible, for the lowest price (and highest margin for the company). In this assumption, man is an ‘economic being’ who acts in his own self-interest.

Unfortunately for proponents of this view, an increasing body of research is showing that numerous customer segments aren’t behaving consistently with this definition!

Customer Experience Training

Among these segments, many value ‘the journey’ more highly than ‘the destination’. And, given that Aristotle held that ‘man is a social animal’ all those centuries ago, this kind of makes sense too. People of course value the interactions on their way to the destination equally or more than the destination itself. It’s quite natural to expect that customers will turn their back on a service provider if they feel they have been poorly treated, no matter how much they want (or need) the product on offer.

How to reward your shareholders… and your customers

The US-based firm Watermark Consulting conducted a study of whether customers’ perceived experience (based on Forrester’s methodology) had any impact on a company’s stock market performance. Their results are below and are interesting, to say the least:

From the scores above, it’s clear that a pattern has emerged, in the US at least: companies offering ‘top-quartile’ customer experiences generally deliver double the shareholder returns in a year than their bottom-quartile counterparts.

This has recently been brought up to date by Usable Markets and the results are not dissimilar.

What this means in $ terms

If the above charts make the value of customer experience clearer in terms of shareholder value, we must bear in mind the value to the enterprise itself.

Over on the Forrester blog, Bruce Temkin has calculated that a 10% increase on their (very simple) customer experience score equates to a near 3% increase in sales.

This is useful because it can help companies calculate whether investing in their customer experience makes sense.

It’s also worth bearing in mind that (as Temkin himself accepts) this is not a precise science. From the data it’s clear that there is also a ‘tipping point’ where customer experience increases and decreases magnify themselves in terms of stock market performance.

Is Asia different?

We could take the view that Asia is somehow different, but our work with companies in the region indicate otherwise.

If anything, because the focus of most companies is to ‘roll-out’ into these fast-growing countries, the customer experience gets left behind.

Companies taking this approach are paying a huge amount in terms of loss of customer equity when they do so.

Because of this, companies that take time to design and deliver deliberate customer experiences will discover a huge competitive advantage in terms of:

• Pricing power and profit margins

• Reduced costs of customer acquisition (driven by ‘Stay’ and ‘Say’)

• Innovation to meet customer needs (driven by customer and employee engagement)

Talent Technologies offers you a simple solution

If creating an outstanding customer experience sounds like hard work, it needn’t be.

We offer companies a simple solution that combines the strengths of your organisation, people and product or service offering so that your brand can consistently deliver a stand-out experience.

Simply contact us here and we will be delighted to send you more details!

Talent Technologies :: Taking your Talent to a Higher Level

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