customerthink CX report

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CustomerThink Report

Best Practices to Prove the Business Value of Customer Experience

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Chapter 2

Learn What “Success” Means to Prospective CX Supporters

Let’s start by reframing the “ROI” issue to what it actually is: Internal Selling. Creating a spreadsheet showing the potential return on CX investments won’t work if the benefits don’t relate to critical business issues. Here’s an example to illustrate from a CX leader of a large technology firm:

My first justification for a CX program was turned down. When I went back to ask “why?” I found that I had not done my homework. One leader said that he didn’t want to invest in something that solved a problem he didn’t have. I had shown how great customer experience leads to higher customer retention rates. But the company was already experiencing very high retention and was focusing, instead, on how to gain new customers. Clearly, my argument was a good one – but not for that company!

As will become clear, the “success drivers” – key factors in the success of organization leaders – are often quite different from customer satisfaction and loyalty metrics at the heart of CX thinking. That’s a huge problem.

Increasing Customer Satisfaction is the Core CX Idea

There’s no real debate about what “success” means in the CX world. Increase customer satisfaction and over time companies will see higher revenue growth because “happier” customers are more likely to remain customers, buy more, and refer others. Forrester claims that increasing a brand’s CX Index™ (a measure of CX quality including effectiveness, ease, and emotion) by just one point can equal up to $1 million in incremental revenue.

The CX formula: Improve Customer Experiences > Increase Customer Satisfaction > Grow Revenue

Customer satisfaction (again, using the term generically) is reflected in virtually all CX definitions, including this one from Gartner:

“Customer experience management (CEM) is the practice of designing and reacting to customer interactions to meet or exceed their expectations, leading to greater customer satisfaction, loyalty and advocacy."

Now, just to be clear about what these terms mean:

  • Customer experiences are how customer perceive their interactions with a company (buying, usage, service, … anything). Perceptions are typically captured via surveys, although other techniques exist.
  • Customer satisfaction is a measure of how well customer expectations were met. Did the experience meet, exceed, or fall short of what the customer expected?
  • Loyalty refers to both retention (continuing a customer relationship) and advocacy (having a positive feeling about a brand), which may lead to referral behavior.

Satisfaction and loyalty tend to rise and fall together, but not always. It’s possible to have highly satisfied customers who don’t buy again due to change in circumstances. Or, customers may be unhappy but appear to be loyal (retained) because they have limited choices or are trapped in a long-term contract.

Success Factors Drive Behavior

In recent years, numerous studies have confirmed that CX is an important strategy to compete and differentiate. Research by CustomerThink, Gartner, Forrester, and other firms find that CX leaders outperform laggards. This has fueled interest in becoming one of those leaders.

With the vast majority of senior leaders claiming CX is a key strategy, one might expect that Key Performance Indicators (KPIs) would align. It’s true that customer-related metrics (e.g. CSAT, NPS, CES, and more) are widely collected and monitored by business managers. But that’s not enough to be a KPI (emphasis added):

“Key Performance Indicators (KPIs) are the critical (key) indicators of progress toward an intended result. KPIs provide a focus for strategic and operational improvement, create an analytical basis for decision making and help focus attention on what matters most.”

CX proponents believe CSAT, NPS or some other measure of experience quality are KPIs. This study, like many other surveys in recent years, finds enthusiastic support for CX initiatives. About eight in ten of the respondents (predominantly senior managers and CX professionals) report that improving customer experience is very important to their success, and a similar percentage agree that customer satisfaction is extremely important in measuring performance.

However, three dozen interviews with managers and experts in marketing, sales, and customer service positions revealed a different reality. For them, operational metrics play a much greater role in success.

Here’s a summary chart summarizing primary success drivers across the organization. CEOs strive to drive profitable growth through the combined activities of marketing and sales (revenue), and customer service (cost and efficiency). CX stands alone with its singular focus on customer satisfaction.

CustomerThink Report

Figure 3 – Primary Success Drivers by Function

CustomerThink’s survey found good alignment between Senior Management and Customer Experience roles, in terms of the objectives considered “very important” to their success. For both roles, “improving customer experience” was No. 1. Similar priorities were found in customer retention, employee engagement, efficiency, and cost reduction.

CustomerThink Report

Figure 4 – Objectives Important to Success

Some statistically significant gaps can be found in a few areas, however.

  • CX professionals naturally rank “improving customer experience” very highly at 91%, compared to a still leading 75% for senior managers.
  • Growth-related objectives received less weight by CX professionals: increasing sales, acquiring new customers, and growing existing customer revenue.
  • Senior managers were more concerned about reducing compliance risks.

The overall picture appears encouraging; senior managers support CX, and there is good alignment on several other business priorities. All good, right?

Not quite. Appearances (and surveys) can be deceiving.

First, consider the biases implicit in any survey like this. The survey sample in this case was drawn from CustomerThink.com community members. They become involved due to an interest in CX and customercentricity, hence they are not representative of all businesses.

Also, CustomerThink believes that professing the importance of CX is an example of “social desirability bias” – the tendency of research subjects to give answers they think are more acceptable to makes them feel good about themselves, rather than revealing their true feelings or thoughts.6 Put bluntly, it’s become trendy to say customer experience is a top priority. That’s “lip service” when it’s not backed up with action.

CX Goals Are Not Cascading

To overcome these biases, CustomerThink used qualitative interviews to better understand job responsibilities, success factors, and how investment decisions are made within companies. They suggest a serious disconnect between top management rhetoric and how most companies operate.

When top management sets goals and creates strategies, these must be translated or “cascaded” down the organization, to ensure alignment between the declared strategy and employee activities. According to performance management expert John Courtney

Cascading goals are goals that are translated from one level of the organization to the next. The point of a cascading goal is to get everyone from top to bottom completely aligned with the big picture organizational goal, and to make 100% sure they know exactly what to do by breaking that strategy down into clear tasks and deliverables that can be easily communicated and tracked.

For example, to achieve profitable revenue growth objectives set by the CEO:

  • Marketing is commissioned to promote the brand, stimulate demand, and drive prospect engagement;
  • Revenue goals are translated into quotas for the Sales organization; and
  • Costs are managed by driving efficiencies in Customer Service and other operations.

If “improving customer experience” is a key top management objective, we should see this reflected in operating units. Customer satisfaction – the heart of CX measurement – would be turned into a KPI for key stakeholders of the customer journey; namely marketing, sales, and customer service. At the very least, managers in these functional areas would see a connection between CX excellence and the objectives they are asked to achieve.

Interviews with experts and business leaders in marketing, sales, and customer service found a different reality, where the quality of customer experiences carries little weight. Customer satisfaction may be listed as a “key” metric but doesn’t drive strategy or impact the success or failure of operational leaders.

Summing up, yes there is interest in improving customer experiences, especially at senior management levels. Most everyone will agree that’s a good and right thing to do. That doesn’t mean executives will invest money to make it happen.