- By Shaun Smith
- Jun 08 2009
The solution to measuring the ROI of customer experienceThe art of improving customer experience has covered many column inches, but the science less so.
Let’s recap on the art. We believe that organisations with more satisfied customers grow faster and generate long term better returns. We know that there is a correlation between satisfaction and recommendation and that only the most satisfied customers are advocates. The Net Promoter Score (NPS) has its limitations, but the evidence is that organisations with a higher NPS grow faster. In all this we remember that the experience which creates satisfaction has many facets including people engagement, brand affinity and, increasingly, on line capability. We also know that value is a real arbiter; it is the value a customer pays for the experience which generally drives the buy decision.
But what of the science? How do we make the case to the CFO that a better experience will lead to a better bottom line? How do we prepare the business case?
The smith+co Customer Experience ROI Model™ attempts to codify the effects of an improving customer experience on financial performance. It takes the primary direct effects of improved customer experience and in conjunction with the NPS, provides the basis for a business case for investment. Of course there is a range of indirect positive effects from an investment in CEM, not least brand affinity, lower marketing costs and improving the customer mix. Here we focus on what can be directly measured.
Let us assume that ‘OldCo’ has a net promoter score of -20. Over time the customer base will decline as the retention rate falls and acquisition also declines through the word of mouth effect of dissatisfied customers. The value of each customer will decline as they buy less and complain more. The results over a 5 year period will tell a sorry tale, the company is in decline.
OldCo decides to transform itself with an investment in a Customer Experience technology and improvement programme. It is now ‘NewCo’.
NewCo finds itself growing faster, customer value increases, costs per customer decline and agent costs fall. Its NPS improves over time to +50. The smith+co Customer Experience ROI Model™ provides a mechanism for measuring these effects and enables users to undertake detailed ‘what if’ scenario planning.
Smith+co will publish its approach to the model in a forthcoming ‘White Paper’. However, should you wish to get an early insight into it, do join us at an event to be hosted by Cincom and IBM at IBM’s Innovation Centre in London on 25th June. We will be discussing how CEM can make a positive impact on the customer experience and improve the bottom line. You can find out more about this event here: Achieving a realistic and sustainable return on Customer Experience investment in the contact centre
Posted by Peter Simpson on behalf of Smith+co