In the past decade, businesses have grown to get accustomed and have witnessed the rise of customer experience.
The talks and research around the benefits of effective customer experience and how it holds the potential to change a business’s growth story inside out continues to populate the internet and the board rooms. But, while on paper, in theory, customer experience has proved to be a boon for business, its effectiveness in numbers has always been doubtful.
In this article, we are going to look into the financial impact of customer experience and how its improvement benefits the financial bottom line of any business.
A Forrester report outlines that there are three ways in which customer experience impacts the business finances:
ï¬ Retention – Keep the customers hooked to your organization
ï¬ Enrichment – Ensures that the customers keep coming back for more
ï¬ Advocacy – Customers recommend your services or products to people they know
Let’s see how these ways turn into actual financial benefits.
Several studies have validated how revenue growth gets impacted by customer experience models. The Forrester report named ‘Customer Experience Drives Revenue Growth’ showcases that the leaders in customer experience achieve compound annual growth rates (CAGR) of 17% in revenue in the span of five years. However, the laggards in customer experience achieved only a growth of 3% in the same time chart.
Another research conducted by the Bain & Company’s team back in 2015 showed that the leaders of customer experience grew their revenues by 4% to 8% above the market. It also concluded with the stance that the reason behind the revenue impact of customer experience is because it helps in strengthening customer loyalty, which turns them into brand evangelists who not just stick with the brand but also promote it to their friends.
The profit growth is mainly influenced by the impact of good customer experience on bettering customer loyalty. It is evident that loyal customers are precious for businesses. If Customer Experience statistics can be believed, it is five times costly to search for new customers than keeping the present ones. The chances of selling products or services to a new customer or client are 5% to 20%, while the fate of selling it to a current customer is about 60-70%.
A report by Murphy & Murphy accounted that an increase of 2% in customer retention can have a similar impact on the profit as much as a 10% cost-cutting. And thus, for a number of companies, better customer retention is given a prime place in the customer experience betterment strategies.
US-centric McKinsey research highlighted showed that by enhancing customer experience, a significant financial benefit could be brought. The report states, “Across industries, satisfied customers spend more and stay more loyal over time. In banking, customers are seven times more likely to increase their deposits and twice as likely to open an additional account if they rate a bank as excellent rather than average. Similarly, pay-TV customers who rate their provider as excellent tend to stay with it for up to twice as long as they would with a provider that they rate as average or below.”
Customer retention and experience are directly linked. But how strong the link varies from industry to industry. There are some industries where customer experience plays less impact on the overall return on investment, while somewhere the effect is much greater.
As a result of the varied switching (or customer retention) barriers, customer experience can lead to great returns on investments in sectors like automotive, hospitality, consumer products, and retail.
But in the domains like banks, utilities, etc. the link is weak because of high switching costs.
Usually, in those sectors, a lousy customer experience tends to have an ill effect on the revenue, and it becomes all the more difficult to change the impression after the first bad interaction. People take little to no time in leaving out a brand when they face a terrible experience and even lesser when wooed by their competitors.
While it has been made evident over the time that customer experience has an impact on revenues and profit margins. But what does it exactly mean for the stakeholders? Is there any long term impact of having a good customer experience?
Well, the answer is that it is there. But it isn't effortless to prove.
The shareholders' returns on good customer experience can be significant. More often than not, the return is many times higher when shareholders are part of a company with above-average customer satisfaction when you look into it from five or ten years' period graph.
Here was everything that you need to know about the financial impact of improving customer experience. Now that we know what they are, it is essential to touch upon what business needs to do to get started with customer experience strategies that result in returns on investment.
The primary thing that a business will need to know is to understand their customers’ journey and look at the points where customer experience strategies can be applied - ones whose impact can be seen in numbers and business profit lines. Indeed, there are some low hanging fruits by which customer experience can be improved, and we recommend using an omnichannel customer experience approach. By listening to your customer channels across multiple channels (Call, Chat, Social, Email, etc.), the business is accessible to customers. Also, with an omnichannel solution, your agents or customer service reps can view the customer journey and their previous interactions across channels and provide a better and quicker resolution. Companies running CSAT surveys after deployment of omnichannel have noticed a bump in their CSAT scores. This is the first step towards observing financial benefits.
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