Key Issues:

1. While customer experience is widely recognized as critical for competitive success, most companies cannot measure it.
2. Without measurement, it's difficult for most companies to determine value. And it's difficult to justify investments in customer experience, if you cannot determine value.
3. There are several ways that forward-looking organizations can analyze customer experience improvements through a return-on-investment perspective.

Introduction:

Even before the “Four Ps” of marketing (Product, Price, Place and Promotion) expanded in the 1980s to reflect the impending shift to a knowledge-based economy (People, Process and Physical Evidence), there was widespread recognition that how someone feels about an organization is driven in large part by how they've been treated.

Introduced in the late 1990s, the concept of “customer experience” is the perfect framework to begin thinking about ways to plan, measure and improve how customers interact with companies.

This is important, because an organization’s ability to cost-effectively deliver an experience that positively differentiates it from the competition in the eyes of its customers boosts top- and bottom-line revenue through increased customer spending, greater loyalty, and reduced costs for service and acquisition.

What's not to love? From top-line revenue to bottom-line savings, let's start by counting the ways...

Experiences are defined as those places where companies interact with and “touch” customers. Their touchpoints.

There's no argument that understanding customer experience is critical. In fact, 95% of senior business leaders identify customer experience as the next competitive battleground¹. At the same time, over half state that lack of customer experience strategy is a significant obstacle to improving Customer Experience.²

ROI on improvements to customer experience can be elusive. Oftentimes, the discipline and data required to measure and understand what works is short-cut, and investments are made without a clear understanding of ways to measure return.

A typical organizational perspective—usually held by marketing leadership—tends to be framed with talk about “soft” metrics such as satisfaction and brand preference. Another—the financial view, more common in finance and operations groups—is rooted in profit and loss, short-term expense planning and cost containment.

That's why assessment is so critical. By looking at experience through the lens of ROI, organizations have the tools to reach the consensus needed to drive the top-down initiatives critical for creating customer experience change.

Measuring customer experience.

At MCorp Consulting, we call this assessment process Touchpoint Mapping^®. Essentially, we track aspects of the experiential “journey” your customers take through the Customer Relationship Lifecycle unique to your business, and the touchpoints and interactions encountered along the way.

Assessments are typically done through a variety of research and analytical methodologies, including in-person and phone interviews, surveys, and driver analysis to link experience to actual and desired behaviors.

ROI models are developed and validated through assessment, data analytics and business case development activities. Together, these help close the loop with links to desired business results prior to enterprise-wide implementation.

This level of rigor also means that the process has the potential to be both involved and resource intensive.

So how can you prove ROI before you start? While by no means exhaustive, these “Experience ROI Lenses” are all examples of ways you can understand and measure real world ROI.

Looking at your organization this way will help you speak the “language of investment return” and should give you ample ammunition to begin thinking about—and planning—your own experience improvements.

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

Experience ROI Lens No. 1: Increase retention, and reduce churn.

Increases in loyalty (and reductions in churn) are some of the most basic ROI models you can use. Armed with Net Promoter^® Scores (NPS)³ and Customer Lifetime Value to measure what a customer is worth, you can—literally—drive millions in savings for even a small to mid-size company.

Multiple studies have proven the value of loyalty, with benefits ranging from customers 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 both to increase retention, and to reduce the cost of keeping the customer.

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

• Establish a line of sight between customer experience and NPS. As a result, you can directly boost customer satisfaction and loyalty.
• Pinpoint the individual touchpoints that affect loyalty. Then invest in those that improve it—and eliminate or modify those that don't.
• Improve “post-purchase” experience. For some companies, a 5% reduction in churn can translate to a 60% increase in annual profits.
• Implement a customer experience feedback loop. This will allow you to deal with complaints more effectively, and improve delivery overall. In a typical $40M Retail Company, this could positively affect the average $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 MCorp clients have enjoyed from reducing delivery costs can include:

• Eliminate a redundant marketing tactic or program that is both costly and ineffective. For one client, eliminating a single printed touchpoint saved millions—over $500,000 in postage alone. Or eliminate an entire series of programs that don't drive results.
• Reduce the overall cost of touchpoint delivery. By eliminating nearly 40% of all touchpoints for another client, we were able drive up satisfaction and customer re-purchase as a result.
• Migrate customer-facing tasks from the call center to the web. Adding pages to your website could have the direct effect of reduced overall call center volume, decreased handle time, and increased first call resolution.

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, you can boost your pipeline and conversions by 20% or more. Improving experience in the “post-purchase” stage boosts satisfaction, loyalty and advocacy.

Ways to improve the Relationship Lifecycle improvements includes:

• Seeing which marketing channels are the most/least effective at driving brand awareness. By shifting investment to the most effective channels, you boost awareness without increasing costs.
• Understanding where marketing is not driving desired customer behavior to boost consideration. The more prospects actively considering your product or service, the more you can close.
• Identifying (and removing) dissatisfiers to increase post-purchase satisfaction. The more satisfied customers are immediately after purchase, the greater your opportunity to drive loyalty among them.
• Learning which individual touchpoints are the most effective at driving customer advocacy (or influencing prospects) to boost positive Word-of-Mouth. On average, it takes about 5 positive referrals to create a new customer.

Example of Return on Customer Experience Efforts: Improving Experience Boosts Revenue and Margins, and Reduces Costs

Background:

This mid-size financial services business has average gross revenue of $7,000 per customer, and keeps them for 3.5 years. Net margins are 20%. They have a close rate of 20%. Cost per qualified lead is $225. Examples are based on a 15% improvement as a result of customer experience management activities.

Lens 1: Increase Customer Loyalty

Retention improvements represent additional per-customer revenue of $3,675, driving nearly $3.7 million in additional top-line revenue per 1000 customers.

Lens 2: Reduce the Cost of Experience Delivery

By dropping the cost of serving customers, per customer savings total $840 per year. This translates to $2.9 million in cost savings over the average relationship for 1000 customers.

Lens 3: Speed Movement through Your Customer Relationship Lifecycle

Improving close rates drops cost-per close from $1,125 to $832, generating annual savings of $293,000 (and more customers) for every 1000 qualified leads.

Lens 4: Increase Customer Lifetime Value (CLV)

Accounting for increased retention and reduced closing costs, increased CLV leads to an additional $4.4 million in net revenue per 1000 customers.

ROI Lens No. 4: Increase Customer Value.

Most organizations have a startling lack of knowledge when it comes to the economics of individual customers.

One study states that nearly 85% of executives lack an understanding of customer acquisition or resolving customer complaints4, much less Customer Lifetime Value (CLV).

Yet for virtually all organizations, their enterprise value springs entirely from their customers. This value is driven by three things:

1. The amount customers 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 versus 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 (lowering cost through more effective marketing or sales touchpoints) you boost overall customer value.

• Lowering service costs:

  By decreasing the cost of servicing customers (through the web, call center, in-person or other touchpoints and channels) you increase CLV.

• Reduced cost of acquisition:

  By generating more leads at a lower per-lead 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 either to spend more at each purchase, or to 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, increases in loyalty boost retention. The longer a profitable customer stays with you, the greater their value.

Building an ROI Case: Measuring Customer Experience.

One: Focus on what can be directly measured.

There are many less tangible benefits (ranging from brand affinity and preference to employee satisfaction, to name a few), but the case for experience ROI should be made with a clear understanding of which measurable monetary and value levers can be moved—and how.

Two: Improve experience by looking from the outside in.

Improving experience starts with an understanding of customer perceptions of their relationship and interactions with your company. That's why the process of identifying, understanding, measuring and improving experience means that you need proven approaches for gathering, listening to and acting on the voices of your customers.

Three: Focus experience investments to drive differentiation, and profits.

Whatever approach you take, your customer experience strategy and implementation plans need to focus limited resources and help you use experience as a competitive differentiator. Ultimately, that's key to justifying—and prioritizing—your investments.

Touchpoint Mapping—a first step to creating more positive customer experiences.

Job number one is to identify the touchpoints you do have, and create a map of where you are today. These touchpoints are the places where companies interact with and “touch” customers, delivering value or driving customers away. Experiences are defined at these touchpoints, and the opportunity for mapping ROI is based on finding out which touchpoints work, which don't, and why. Then, improving them. In fact, most companies don't even have a complete picture of existing touchpoints—even the ones they control. So where do you start?

A typical process for experience improvement can include these steps:

1. Audit individual customer touchpoints across the Customer Relationship Lifecycle stages (from awareness through to advocacy).
2. Map out the key processes for each of the lifecycle stages.
3. Understand how individual touchpoints work—in sequence or alone—to move customers through the lifecycle and closer to your company, to discover:
• Gaps where touchpoints should exist—and don't
• Redundancies—where touchpoints do exist, and shouldn't
4. Identify the specific interactions where touchpoints drive value across different segments, with regards to:
• Customer loyalty
• Value to your business, and to your customers
• Revenue generation (or cost savings)
5. Determine the gap between desired and actual experience, and desired and actual results at these points.
6. Construct a specific plan for moving forward—one that sets priorities, maps out the costs and benefits, and provides specific metrics for measuring the results.
7. Articulate and codify the optimal experience, and begin the process of operationalizing it.

¹ Beyond Philosophy
² The State Of Customer Experience, 2011, Forrester Research, Inc., February 17, 2011
³ Net Promoter and NPS are trademarks of Satmetrix Systems, Inc., Bain & Company, and Fred Reichheld.
⁴ Strativity: The Economics of Customer Experience

About MCorp Consulting

MCorp Consulting is a customer experience and brand strategy consultancy that transforms the ways companies interact with their customers, strengthening brand and improving customer experience as a result.

Touchpoint Mapping^®—MCorp’s trademarked approach to quantifying customer experience—is a proprietary research and analytical model that helps companies understand, measure, prioritize and improve the customer interactions that drive value. A key input to customer experience strategy, design and implementation, it takes the guesswork out of decision making with proven, accurate and actionable data.

We invented this approach, and honed it by solving problems for some of the nation's biggest companies. Now, this expertise has been codified and systematized to offer big results to companies of all sizes, from 100 employees to over 10,000. Delivered through consulting engagements, customer and employee research surveys, audits and workshops, our methodology can help you measure and improve the touchpoints that drive brand, marketing and customer experience results.

How might MCorp Consulting help you?

If you’re interested in learning about ways in which we might help you better understand, measure and improve the brand, marketing and customer experience mapping between your organization and your customers, please give us a call at 1-866-526-2655 or contact us today.

MCorp Consulting © 2011, All Rights Reserved. Touchpoint Mapping^® is a registered trademark of MCorp Consulting.
Proving ROI on Customer Experience

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