The business case for Customer Experience (CX)
- Simon Norris &
- Alex Metcalf
A great customer experience (CX) is a modern business imperative for commercial success. It represents a key factor, and in some cases, the only factor in remaining commercially viable and relevant.
Conversely, a poor CX can erode the very foundation of a brand, and with it, customer confidence and sales.
“In the digital world people like sharing great experiences and shaming poor ones.”Simon Norris, Nomensa Founder & CEO
Often, organisations’ use of customer experience is little more than ‘theatre’, a soundbite from executives with no follow-through. However, organisations that take it seriously know it requires dedicated resources and focus. They know it requires thinking holistically about all the elements involved, not just a single interaction—no wonder that Gartner says “winners win before and after the interaction experience”.
If organisations still need convincing, here are five common factors that often drive investment in CX:
More easily measured and improved KPIs
- Extraordinary financial returns on offer
- Staving off the ever-present threat of disruption
- Becoming the disruptor and setting a higher customer value standard
- Knowing that digital transformation in itself is not enough.
[As an aside, there is also the basic need to be capable of remaining competitive. Gartner are predicting that by 2020 over 81% of organisations will compete on CX. And in a 2018 E-Consultancy Best Practice Guide on understanding customer lifetime value, 97% of respondents agree with the statement “a great customer experience is key to driving brand loyalty, and therefore repeat purchase”. Organisations now require the highest levels of CX capability, or risk enduring bleak years ahead.]
Let’s look at those five common factors in more detail—the factors that make the compelling business case for CX. For more information, download our latest whitepaper 'How to achieve customer focus.'
1. More easily improved KPIs
Most organisations use key performance indicators (KPIs) to measure their performance. At Nomensa, we believe CX is the primary factor affecting most organisations’ KPIs.
However, KPIs like Customer Lifetime Value (CLV), customer satisfaction, average order value, or simply visits and sales are all trailing indicators of the quality of your CX. They tell you the story of what happened previously. This makes it hard to make a business case for customer experience, because organisations struggle to link their trailing KPIs to potential CX investments.
Instead, savvy organisations understand the factors that drive those trailing indicators. Those factors are measured by UX and CX activities, and are immediate measures of experience such as customer interactions with your digital journeys, customer experience during a support request, and customer opinions about your value propositions.
Tracking and acting on these CX measures makes it easier to make a business case for CX investment, because the chain becomes clear: CX drives KPIs which in turn are linked to financial performance.
2. Capturing the extraordinary financial returns on offer
Financial performance has been shown by Forrester and others to be the ultimate trailing indicator of CX. A company delivering great CX simply outperforms others in the market.
“There is a correlation between a company’s CX quality and its stock performance — the top 20% of brands in Forrester’s Customer Experience Index had higher stock price growth and higher total returns than a similar portfolio of companies drawn from the bottom 20%.”
Forrester Research, “How Customer Experience Impacts Company Stock Performance”, February 2018
Excellent CX also saves money across the organisation in more direct ways. Support costs reduce, because the experience is intuitive and seamless, and customers do not need as much assistance. Marketing spend reduces, because customer acquisition costs reduce: your compelling proposition is supported by excellent word-of-mouth advocacy, so choosing your organisation is an easier decision.
Value propositions shift towards longer-term customer benefit, because short-term ‘hooks’ such as discounts and one-time offers are needed less often when potential customers know the quality of experience on offer.
CX is the opposite of an investment in niceties and abstract gain; it is a direct investment in the organisation’s financial performance and success.
3. Creating the antidote to disruption
Much disruption can be attributed to customers’ evolving needs. New technology raises customers’ expectations, setting a higher baseline for an acceptable product or service.
Blockbuster Video’s retail model failed in spectacular fashion after customers switched to Netflix and streaming video, a change enabled by rapidly-evolving technology.
Importantly, Blockbuster could not have “seen this coming”. It is broadly accepted that human nature and commercial imperatives make it almost impossible for organisations to see they’re being disrupted until it’s too late.
The antidote to disruption is therefore to avoid it in the first place. And to achieve this, you quickly iterate on your CX like many of the world’s leading disruptors.
Unicorn Business Club members like WeWork and Spotify proactively, and continuously, improve their organisation’s value proposition (the heart of any excellent experience) and service delivery to meet customers’ changing needs. Great experiences signal, very clearly to customers, that you value them and that you are listening.
“Companies rarely die from moving too fast, and they frequently die from moving too slowly.”
Reed Hastings, CEO, Netflix
Evolving your organisation’s offerings based on price, features, or geographical constraints is only a temporary measure. Our interconnected, global market allows any number of smart, differently-equipped organisations to make the same moves as you, and more efficiently. Someone else will do a better job. As an incumbent you are simply not equipped to compete in this way—and shouldn’t.
In contrast, a focus on CX is defendable. It has long-term commercial advantages, because it is intrinsically difficult to copy and can be deeply ingrained to all parts of your organisation.
“An advantage of focusing on customers: it makes it impossible to overshoot. Consumer expectations are not static: they are, as [Jeff Bezos, Amazon CEO] memorably states, ‘divinely discontent’. What is amazing today is table stakes tomorrow, and, perhaps surprisingly, that makes for a tremendous business opportunity: if your company is predicated on delivering the best possible experience for consumers, then your company will never achieve its goal. […] Owning the customer relationship by means of delivering a superior experience is how [Apple, Google, and Facebook] became dominant.”
Ben Thompson, “Divine Discontent: Disruption’s Antidote”, Stratechery
4. Becoming the disruptive force
Successfully executing on a strategic plan for experience excellence is a recipe for market disruption.
Leading disruptors embrace company cultures that are dedicated to CX, Design Management and Customer Focus. The needs of their customers represent the lifeblood of their operations, dictating market strategy, organisational structure, and management thinking.
“User Experience just needs to be baked into every aspect of what we do. From our digital products to our physical products to the way our members think about things like invoicing and billing. We want to ensure that our members are getting a consistent experience no matter where they go.”
Dave Fano, Chief Product Officer, WeWork
Why aren’t more organisations disruptors, when they declare themselves to be customer focused? Either they are paying lip service to the idea (knowingly or otherwise) without making any wholesale change—the ‘theatre’ we described earlier—or they treat customer focus as an activity within projects, and not as an organisation-wide mindset underpinned by strategy, targets and rewards.
5. Increasing the likelihood of digital transformation impact
Digital transformation, whilst having many important components, is nothing in and of itself. It is the equivalent of saying you will have better mansions by upgrading your hammers and saws. It's nothing in and of itself because ‘digital’ is a medium, not an outcome. Time and time again organisations talk about digital transformation as the panacea to all their digital woes. However, the louder their trumpeting, the more we should be concerned for their future.
Instead, digital transformation is an enabler. And we believe it must enable experience transformation, and specifically great experience design, for organisations to enjoy massive commercial impact.
When your digital capabilities are strengthened and you then implement a strategy for designing excellent customer experiences—only then do you have a recipe for practical returns on your transformation.
CX is not an add-on to an organisation’s strategy; it is the cornerstone. Without a transition to focusing on great CX, many prominent organisations will fail in the coming years.
In 2014 but even more applicable today, Exponential Entrepreneur Peter Diamandis said “40% of today's fortune 500 companies will no longer exist in 10 years. Are you investing in the wrong half?”
Our question is instead, which half do you wish to be in? From our perspective, the evidence is overwhelming that CX is the dividing line, separating the winners and the losers. And the pace of reckoning is quickening. If you are still unable to make a CX business case internally, your organisation’s future is far bleaker.
Customer experience has become 21st Century table stakes.
Download 'How to achieve customer focus' to find out more about how adopting customer focus can drive greater profitability and market differentiation.
Six Ways Forward
1. Embrace disruption and learn how it is being applied within the markets you are operating within
2. Develop a Unicorn Mindset—create a value proposition (or innovation side project) that sets a new standard and ensure it’s given the resources and structure to scale exponentially
3. Create UX and CX metrics that act as leading indicators for your KPIs
4. Aim for excellence and set a new bar on what should be expected for CX, not aiming to merely compete
5. Become strategic about CX, and quickly align your management’s ambition with CX and customer focus
6. Get in touch with us today – simply call 0117 929 7333 or email email@example.com
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