We first met Bruce Temkin at Oracle OpenWorld 2012 where he talked about understanding the customer and how to easily avoid some common customer experience mistakes. Today, we'd like to share Temkin's impressive study on the return on investment of customer experience.
5 Steps to Measure ROI of Customer Experience
Temkin doesn't offer platitudes. He's a hard nosed researcher with 14 years of experience at Forrester in the B2B, e-Business and customer experience practices. His Temkin Group performed two studies early in 2012 that were then combined and analyzed to come up with the ROI of Customer Experience report.
There are five steps for calculating the ROI of Customer Experience, Temkin reports.
- Establish core customer experience metrics
- Establish loyalty objectives
- Group customers based on their customer experience metrics
- Analyze relationship between customer experience and loyalty
- Calculate value of loyalty change from customer experience.
The data Temkin based his calculations on were from his group's findings in the 2012 Temkin Experience Ratings and 2012 Temkin Loyalty Ratings reports. It's worth noting here that Temkin obviously puts plenty of weight on customer loyalty as a cornerstone of customer experience. The ROI of customer experience report shows a high correlation between positive customer experience and high customer loyalty.
Temkin arrived at this measured result by measuring customer experience from 10,000 US and 3,000 UK consumers, and by cross referencing that with customer feedback on 206 US companies and 66 UK firms. A regression analysis was then run on the results of these surveys to find the high correlation between the two.
Companies that offered positive customer experience found more loyalty via more recommendations, more purchases and a reduced chance of consumers shifting business away to a competitor.
ROI of CXM: A How To
The five steps listed above are dependent on several definitions and agreed upon metrics for any company wishing to use them. However, Temkin admits there is another key step in finding ROI. That is the involvement of the company's CFO. Without that person's support, even the best analysts in the world will be questioned on their financial models and assumptions, the report says.
A detailed look at the five steps shows that there must be agreement upon metrics like Net Promoter score or satisfaction that can be measured by the customer. That's step one. Step two will only work if there is agreement on how to actually define customer loyalty and making sure there is a financial impact component. It needs to also be measurable by the customer and could be things like churn rate, additional purchases or share of wallet, for example.
Step three is more self explanatory, but it does help to break the results out by customer segment. The fourth step involves a couple of options. Regresssion analytics are one way to see the connnection between customer experience and loyalty, and the results can then be used to decide on the CXM metric needed to see the impact that metric has on loyalty. The other option is to simply calculate the average loyalty for each customer experience level in order to see how much increased loyalty comes from each group when the ratings are moved.
Finally, step five can show how loyalty metrics will change based on a 1 percent increase in customer experience metrics. Translating the change in loyalty metrics to a dollar value will then calculate the dollar value for a 1 percent change in customer experience metrics.