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Wednesday, March 17, 2021

Rate of Return: The ROI on Customer Experiences is Hard to Measure but Present Throughout

Your customer experiences (CX) have a significant impact on the bottom line, though the costs and benefits are baked into adjacent data points, and therefore might not be readily apparent. For example, it costs five times as much to acquire a customer as it does to retain an existing customer, according to Forbes. And PwC found that nearly one in three customers (32 percent) indicated they would be willing to abandon a cherished brand after a single bad experience, with this number rising to 59 percent in the United States after multiple bad experiences.

Thought: Rate of Return: The ROI on Customer Experiences is Hard to Measure but Present Throughout
Rate of Return: The ROI on Customer Experiences is Hard to Measure but Present Throughout
Thought: Rate of Return: The ROI on Customer Experiences is Hard to Measure but Present Throughout

Daniel Ryan focuses on helping others see the value of CX and deciphering the expected return on investment (ROI) so clients know how to quantify their savings—even if the data is qualitative.

Here, Dan answers our questions on how to measure the ROI of CX, pitfalls in evaluating the effectiveness of CX initiatives and steps clients can take to start improving CX and increasing ROI.

Why do you feel ROI is difficult to measure for customer experiences?

People usually think about ROI as a financial metric, so it's most often tied to costs and revenues. And CX doesn’t have a direct, one-to-one relationship to any of those things—it’s not easily cut-and-dry. So, connecting the dots between CX investments and revenue streams, and ensuring you’ve been measuring impacts the right way, is a challenge for a lot of organizations.

Part of that challenge is cultural, too. Company leadership has to appreciate that customer experience overall can be a differentiating factor for the organization and care enough to measure it. This leads to impactful experiences, which then have to be optimized.

What are some data-collection approaches worth considering?

Rightpoint partners with many of our different clients on how they measure their experiences to make sure they're capturing the right information and the right data. It's not always quantitative: Sometimes, the best approach is qualitative.

We generally take a top-down approach or a bottom-up approach to this—start with understanding a sample of your population, or by understanding your population at a broad level and getting increasingly specific over time.

The approach that focuses on a sample of the population can be easier to manage from a data collection and analysis perspective, and from there you can reasonably extrapolate total performance from what’s observed with the segment. The broad population approach tends to rely heavily on market research data, which also requires buy-in on assumptions. We often recommend employing both approaches together and thereby triangulating what’s really happening with your customers. 

When measuring CX, the highest impact KPI is what you will see over the longer run an increase in customer lifetime value. This is really the return portion of the investment in customer experience, but of course, the tail to measure that is far longer than most executives expect when trying to understand the ROI story!

What are the first steps to understanding the impact of CX investments?

It’s important to start with acknowledging that a customer’s experience, as well as their perceptions of them, can vary based on a variety of factors. Therefore, the first step is to build a measurement plan to evaluate experiences both in terms of how they are delivered and how they are perceived.  For example, you might have a policy of issuing a 20 percent off promotion as remediation for a bad experience, and you might track how often those are issued and redeemed, but just because a customer uses the offer doesn’t mean their opinion of the brand or experience has changed. 

Because of the variance in perceptions and experiences, you need to develop an approach for a holistic customer understanding. This means having mechanisms to infer what each individual person values and then identify the levers of customer experience that will resonate best. This requires a personalization strategy that’s powered by data, and then, honestly, it's a lot of testing and learning. Are there strategies causing lift in CX KPIs? Is there a downstream financial impact we can associate to that KPI lift? Ultimately, ROI is function of lift across several KPI dimensions both where the association is strong and where it’s based on proven assumptions. 

What mistakes have you noticed companies making when it comes to measuring ROI of CX?

There’s always going to be short-term financial pressures to not offer an optimal or competitive experience. Examples of financially driven experiences that counter great customer experiences are limited refund windows, not providing free shipping or a rapid cadence of loyalty program points. Building a business case that articulates the longer-term gains from short term financial “costs” is one of the keys to driving impact from CX that we see our clients struggle with. 

You can't focus directly on financials the whole time—expecting to see change right away. If companies discontinue CX initiatives, it confuses customers and doesn't let the organization realize their full value.

A related challenge is setting expectations for how long it will take to realize ROI and how it will be measured. We see clients under pressure to show impact right away when an initiative inherently has a lag between program start and when benefits are realized. This leads to initiatives being discontinued – and sometimes confusion for customers. In order to realize the full value while allowing for that longer tail to show impact, we always recommend having a plan to measure leading indicators of ROI – quantitatively and qualitatively – to understand if an initiative is working well as the story plays out. 

Overall, I believe the answer is in taking a diverse approach to measurement. Focusing on one or two target KPIs across a full audience isn’t enough to extract true insights. Instead, segmenting audiences into groups with different profile attributes and anticipated expectations – and measuring multiple KPIs at that level – is going to unveil more interesting insights and opportunities to optimize the ROI of experience investments. 

How do you know when to adjust or pull the plug on CX initiatives?

Look at the different ways that a positive or negative experience might manifest in terms of numeric, quantitative patterns. Simply saying, “Our customer satisfaction didn’t change, this is a failure,” doesn’t address the root cause. Maybe your churn rate is 30 percent lower with individuals in this initiative, or they’re spending 25 percent more as a result of the initiative. Perhaps it’s a matter of tweaking target audiences and messaging rather than scrapping the entire effort.

It’s important to dig into root causes, leverage segmentation, and think critically about correlation versus causation to really gauge success or failure. Further, it’s important to look at external variables. For example, many CX initiatives underperformed in 2020 not because they were the wrong investment but rather COVID-19 completely changed the dynamics on which the original initiative was based.

Are there any trends you have noticed in CX over the last year that are likely to continue moving forward?

I hate to say part of this is to wait and see, but as you start to understand what customers are demanding in their experiences, you need to be able to incorporate that into your offerings.

For almost all industries, there are individuals that want to get back to normal so badly that they're going to really crave those types of in-person experiences again. But you can’t assume every consumer feels this way. This last year has been such a jarring experience and fundamental shift in the way we perceive things that individuals want: Now they want more content, they may not want to interact with strangers on an ongoing basis, etc. And that's all something we’re all going to need to find out over the coming months. One trend that does continue to hold true, even more so now, is having a plan to measure customer experiences and expectations both quantitatively and qualitatively is an investment worth making.