customerthink CX report

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CustomerThink Report

Best Practices to Prove the Business Value of Customer Experience

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Chapter 3

Develop an ROI Strategy to Link CX to Business Success

One popular method of CX justification is to compare the value of customers at different levels of customer satisfaction. Michael Hinshaw, the founder of McorpCX, advocates this basic approach for CX professionals:

  • Get an average “CX score” for the top (most value) and bottom (least value) customer segments. The CX score is based on the satisfaction/loyalty metrics being used (CX, NPS, etc.) Value can be based on revenue, profit, lifetime value, etc.
  • Calculate the differences between the top and bottom 20%, and divide the difference in average value by the difference in average CX score to find out the value of better CX.

Example:

Bottom 20%: Average CSAT of 46 and value of $120
Top 20%: Average CSAT of 72 and value of $260.

Difference: 26 Points on CSAT, and $140 in value (140 / 26 = 5.38)

Conclusion: 1-point CSAT increase drives $5.38 more value per customer, a 4.5% revenue boost.

Most sophisticated models can be used, but the core idea remains the same: customer value increases with customer satisfaction. Simple.

Except, in years of research, CustomerThink has found very few examples of companies able to quantify the value of an increase in NPS or other metrics. It’s an interesting exercise, and can certainly be used to stimulate interest in doing something. This is not sufficient to gain funding.

Customer satisfaction is the result of myriad interactions throughout a customer journey and over time. One key question must be answered: Which interactions, if improved, would cause a material increase in customer satisfaction and drive key business outcomes? This can be determined through a “key driver” analysis to determine which factors have the most impact on customer loyalty. Then a more compelling proposal could be developed for senior leaders for specific CX changes found to drive business value.

Selling to the Internal CX Buying Team

There’s another more fundamental problem with this approach. It’s a “product pitch.” The CX initiative is in effect a solution to be sold. “Here are the CX features and benefits, please buy it!”

Experts in complex B2B selling recommend a more consultative approach that starts with uncovering what executives care about.

Generally speaking, top managers want to grow revenue profitably, but every business is different. A fast-growing tech startup might value new customers and revenue growth and care little about costs, for now. A mature company is a stagnant industry might want to optimize costs while exploring new market opportunities. Subscription-based companies will probably be concerned about retention.

CX professionals need to spend time researching the company’s stated business strategy and interview key executives to learn the top priorities and identify areas where CX might help. If such access is not available, then the CX program will be “stuck” with justification at the operational level where the CX paradigm is much harder to sell.

Industry experts say the ideal CX sponsor is a senior leader with clout. For a mid-sized company, it could be a CEO. For large enterprises, perhaps a Chief Operating Officer or Chief Marketing Officer. They need to have a higher-level view of customer value that transcends functional silos, with the power to make investments and lead change.

The Wordlynx Wireless case is a prime example of a CEO-driven CX initiative (box). The business case was developed based on churn reduction, a critical KPI for wireless providers.

If a COO is a prospective sponsor, the CEO’s buy-in and support from the CFO are also essential. The CEO for setting the tone for the company, and CFO to sign off on the numbers. If technology plays a critical role (e.g. digital transformation) then the CIO will have influence, too.

Worldlynx Wireless Drives Growth with Improved Buying Experience

Worldlynx Wireless was formed in 2009 to acquire 10 Bell Mobility independent wireless dealers across Canada. The new firm initially operated via 53 independent retail locations and an SMB-focused sales force.

Each dealer had its own culture and operating practices. More troubling, however, was a lack of differentiation, according to then-CEO Matt De Iuliis. Bell controlled the product and pricing, leaving dealers to decide how else to win business. In 2014, De Iuliis made a big bet to differentiate on the in-store experience. This strategy was based on his prior experience at Virgin Mobile where he learned the Richard Branson ethos of a customer-centric culture driven by engaged employees.

That’s a great philosophy, but the business case for making this transformation was not based on happy customers or employees. Rather, the rationale to the board was about reducing churn, a key metric for the wireless industry. Ultimately, De Iuliis says the required investments (training, coaches, technology) were 30-35% of returns gained after cutting Wordlynx churn from 1.2% per month to .83% per month.

What about customer satisfaction? Sure, surveys were helpful to find common customer issues that needed attention. And yes, they ultimately did confirm that customer satisfaction was inversely related to churn. But the core business case to get approval for CX investments was based on churn reduction; something the board could easily understand was directly connected to better financial performance.

Source: https://customerthink.com/cx-roi-making-the-case-to-improve-the-buying-experience/

But wait, there’s more! Later on, executives from purchasing and H/R may get engaged and, if not happy, derail a CX program. Functional managers, if their jobs are affected, will have a voice too. Even if, say, the VP of Customer Service

Getting CX funding is not a “one-call close.” A coordinated effort is required to support the business goals of the lead sponsor while getting other influencers on board. B2B researchers find that it’s typical for six or more people to be involved in a buying team.11 That’s likely what CX professionals will find when selling internally.

Success Drivers of Operational Executives

If the CX initiative is to be sold at the operational level of companies, the ROI strategy must reflect the business priorities of those executives. Let’s take a walk along the customer journey and review what “success” looks like to organizations responsible for buying and service experiences.

Marketing: Prospect Engagement

Marketers want to stimulate engagement with prospective customers. Though quick to claim CX is part of the company strategy to differentiate, marketers are still mostly driven to attain operational goals. According to Harley Manning, VP of Customer Experience at Forrester:

Marketers seem to be largely disconnected from the power of CX to positively impact customer acquisition, retention, and cross-sell even though they will say that they are quite dialed into CX.


Before engaging with the marketers, CX professionals should answer this question first: Does your organization have “upstream” or “downstream” marketers?

Laura Patterson, founder of VisionEdge Marketing and author of Fast-Track Your Business: A Customer-Centric Approach to Accelerate Market Growth, believes marketers should work strategically to use customer and market insights to target customer segments. However, the majority of marketers are in a more tactical or “downstream” role to simply execute against marketing goals given by top management. Such goals are aligned with the core job of marketers: driving prospect engagement measured by traffic, clicks, leads, etc.

But some marketers operate in a more “upstream” leadership role, driving the customer acquisition strategy According to Patterson, upstream marketers are deciding “these are the customers we should keep and how (service, product, channels) and these are the companies we should go after.” These are better CX prospects.

Callout

If a CX initiative is to be sold at the operational level of companies, the ROI strategy must reflect the business priorities of those executives.

All marketers want to see (and get credit for) an impact on revenue. For example, one retailer uses a mobile app to present offers based on consumer interests. Some want deals, others are responsive to cross-sells. The goal is to increase customer engagement that leads to more loyalty (repeat buying) and revenue. The marketing leader at the company selling that technology has the same goal. In a B2B role, however, the key success factor is creating a demand and a pipeline (leads) for sales, as measured by Marketing Qualified Leads (MQL), a metric reflecting prospects more likely to become customers. In neither case is customer satisfaction a driving factor in the success of marketers, nor is “improving the buying experience” enough to justify spending.

To be sure, some marketing organizations are thinking more strategically. Matt Heinz, founder of B2B sales and marketing firm Heinz Marketing says the highest-performing teams use a combined revenue team of marketing, sales, and often customer success to focus on “winning together.” Unfortunately, that’s less than 20% of B2B marketers.

Sales: Revenue Productivity

The core job of sales professionals is to close orders and meet revenue goals. While customer satisfaction is understood to be a factor in the continued success of top-performing sales professionals, especially in key accounts, that’s not what directly drives their success.

Put another way: No sales professional will be lauded for high NPS scores unless customers are also buying!

When selling internally to the sales organization, consider the approach of external suppliers (tech vendors, consultants, trainers). A strategy that has gained strength in the past decade is “sales enablement” – the information, training, and tools that help salespeople engage with their customers more effectively. One tech firm provides sales training and coaching integrated with content management to “deliver the best buyer experience.” However, solutions are justified based on a productivity argument: helping sales reps use content more effectively to scale sales training and onboarding.

The core job of sales professionals is to close orders and meet revenue goals. While customer satisfaction is understood to be a factor in the continued success of top-performing sales professionals, especially in key accounts, that’s not what directly drives their success.

Put another way: No sales professional will be lauded for high NPS scores unless customers are also buying!

When selling internally to the sales organization, consider the approach of external suppliers (tech vendors, consultants, trainers). A strategy that has gained strength in the past decade is “sales enablement” – the information, training, and tools that help salespeople engage with their customers more effectively. One tech firm provides sales training and coaching integrated with content management to “deliver the best buyer experience.” However, solutions are justified based on a productivity argument: helping sales reps use content more effectively to scale sales training and onboarding.

Callout

No sales professional will be lauded for high NPS scores unless customers are also buying!

Customer satisfaction has little or no role in formal sales methodologies. Target Account Selling, a popular methodology initially developed about 20 years ago, is now available via a software application. The goal: “unlocking revenue growth by providing a better customer experience.” Justification is not based on CX, but rather on increasing “sales velocity” in key accounts. Sales teams can improve revenue productivity by pulling one or more of the following “levers” (which don’t include CX or CSAT):

  • Active Opportunities
  • Average Deal Size
  • Win Rate Percentage
  • Average Sales Cycle
  • None of this is surprising. Sales organizations are typically measured on quota attainment and revenue closed.

    That doesn’t mean CX is irrelevant to all sales organizations. Top-performing (“Level 3”) sales organizations are more likely to embrace customer experience due to a customer-centric culture and a good alignment between the sales process and customer’s buying path. Still, 71% of sales organizations are not at Level 3 and thus are focused more inwardly on selling processes and productivity metrics.

    Customer Service: Efficient Case Management

    The next stop on the customer journey is at the Customer Service department, charged with handling customer requests for information, complaints, product service requests, etc. Good customer service can have an important role in building loyalty, and it’s widely understood that bad customer service is a leading cause of defection. So far, so good.

    This study found that customer satisfaction has a higher priority with customer service than with marketing and sales, and thus is better aligned with the CX paradigm. Unfortunately, experts say there’s still a sizable gap between the priority proclaimed by senior leaders and the metrics driving most service organizations.

    Contact center consultant Bill Price of Driva Solutions says that while executives say they value customer satisfaction and efficiency about equally, those closer to the front lines give efficiency metrics like Average Speed of Answer and Average Handle Time about 80% of the priority.

    Customer service trainer Steve DiGioia agrees. He laments that the hotel industry has become focused on efficiency, with management upping the workload to the point there is little time for personal service. A BPO manager with years of outsourcing experience likewise confirmed that top management likes efficiency measures – until a customer situation blows up. Then resources are devoted to preventing client defection.

Callout

While CX may be a good way to engage with executives, efficiency and cost savings often come to the forefront when it comes time to make a business case to service executives.

Given the foregoing, it’s unsurprising how external vendors tend to justify their solutions: Efficiency!

  • A vendor of support software states that its solution “helps you build satisfaction and loyalty.” However, the firm’s ROI calculator displays only cost/efficiency benefits, such as fewer tickets, reduction in support hours, and costs savings. The CEO said that some customers do value increasing loyalty, but “it’s very difficult to assess the revenue impact.”
  • Speech analytics can be used to find common issues in call center recordings and other unstructured content. Fixing these issues can improve customer satisfaction and reduce the need for customers to call for help. According to one prominent vendor, however, business cases are often built based on compliance (risk of fines for not meeting regulations) or optimization (improving resource efficiency).
  • One chat solution provider says its solution can be used for “upgrading the customer experience.” It’s true that customers increasingly prefer chat or other digital channels for real-time help. But the firm’s ROI calculator is based on savings due to call deflection, not CX-based loyalty and growth.
  • Conclusion: While CX may be a good way to engage with executives, efficiency and cost savings often come to the forefront when it comes time to make a business case to service executives.

    Customer Success: Retention

    Customer service/support, which is often the most closely associated with CX, does not have a revenue mission. That’s a problem when the goal of CX is to… grow revenue! The emerging Customer Success job can provide a partner for CX to join the revenue team.

    To meet revenue goals, companies are investing in an array of marketing technology and sales enablement solutions to optimize revenue productivity, sometimes under the banner of “Revenue Operations.” In recent years, they are also launching specialized Customer Success Management (CSM) teams in B2B technology and other industries where subscription-based solutions are becoming more common.

    CSM expert Rick Adams, the founder of PracticalCSM.com, sees Customer Success as “responsible for the retention and advocacy stages of the customer journey,” including:

    • Onboarding to get a new customer acquainted with a purchased solution
    • Adoption to ensure end users are trained and supported to use the solution
    • Value Realization to help customer asset the value being generated by the solution

    The business case Customer Success is simple: If customers don’t use and get value (“success”) from a solution, they will cancel! Software-as-a-Service (SaaS) vendors realized that churn reduction was critical because it could take one to two years to recoup customer acquisition costs. In addition to improved retention rates, benefits can include expanded relationships (cross-sell and upsell), product improvements, and help with outreach to other prospects.

    This trend will continue to gather strength in B2B especially because achieving goals is a more powerful loyalty driver than easy interactions. A recent B2B CX survey found that, while customer service is a key differentiator, the solution (product or service) remains the most important loyalty driver. CSM is aimed at protecting that source of value.

Callout

Find out which metrics are used to judge management performance – driving bonuses, promotions, etc. – because this reveals the true strategies of the organization.

This is a golden opportunity for CX leaders to partner with Customer Success and become part of the revenue team which, truth be told, is a much higher priority in most companies than customer service.

Summing up, CX pros must research the “success metrics” that drive internal behavior. Find out which metrics are used to judge management performance – driving bonuses, promotions, etc. – because this reveals the true strategies of the organization. The approach to CX ROI must align with those strategies.