In the customer experience space, return on investment (ROI) is a term often thrown around but rarely defined. That lack of clarity can be problematic, especially when businesses are considering different customer feedback programs or trying to make the most out of the one currently in use.
The purpose of this article is to help frame ROI analysis around specific measures and outcomes in order to quantify the fully loaded economics of customer centricity--increased sales to existing customers, lower staff turnover costs, increased brand value and more.
We'll flesh out a few different definitions of ROI as it relates to customer experience management (CEM) and offer examples of the ROI real companies have achieved using CEM programs.
- Reduce at-risk revenue. Recover potentially lost customers.
A CEM program should allow businesses to "close the loop" with customers, identifying those who are at risk of defecting in time to pull them back into the fold. Consider this example of a customer at an industry-leading luxury hotel.
During his visit, this businessman had a string of poor service transactions with one receptionist, from delays at check-in to a missed wake-up call. Frustrated and angry, the customer had decided not to stay at the hotel again if he could avoid it.
The day after his stay ended, a link to an online survey arrived in his inbox. Though he was busy, the customer took the time to fill it out, naming the offending employee. Not 24 hours later, he received a call from the hotel manager apologizing sincerely and offering him a free night's stay the next time he was in town. Delighted, the customer accepted the offer and renewed his loyalty to that hotel brand.
What the hotel chain lost in revenue from offering the customer a free night it more than made up in the ROI of future visits the customer is likely to make, as well as any referrals he may make to friends and family based on one outstanding act of service recovery.
- Engage existing customers as a sustainable engine for growth.
Good CEM programs allow businesses to identify their biggest customer fans and single them out for loyalty rewards and promotional offers. The ROI of these actions translates into more future visits and more money spent.
Data collected by Medallia shows that in a single transaction at a top apparel chain, the strongest brand advocates of the business spend 15 percent more and buy 15 percent more items than brand non-advocates. That activity is also an indication of future behavior--within three months of responding to the survey, fans will make 10 to 15 percent more visits and spend 10 to 15 percent more than those who were less thrilled with their shopping experience.
The bottom line is that fans of your business will spend more, and spend more frequently. Using CEM tools to engage them and market specifically to them further increases the ROI of these programs.
- Reduce the costs of new customer acquisition
When positive buzz about your company abounds, new customers tend to follow. Think Apple or Southwest. CEM can help businesses follow in the footsteps of these iconic companies and attract new customers almost effortlessly.
By tracking various CEM metrics such as likelihood to recommend, businesses can see how many "wow" customer stories they're generating over time, and compare that to the number of "ouch" stories circulating. One level deeper, businesses can identify the trends behind the numbers--using verbatim analysis of open-ended comments correlated with positive or negative scores, for example. Finally, businesses can facilitate fan word-of-mouth by pointing promoters to social media sites like TripAdvisor, Facebook and Twitter.
- Engage employees. Reduce staff turnover and cost of hiring.
Businesses can also use CEM programs to measure satisfaction and engagement among employees, and take steps to improve if necessary. Common metrics include employee satisfaction score and employee churn rate.
A body of research--as well as our experience--demonstrates that engaged employees are less likely to quit, even for more money, and more likely to refer friends and family to apply to work for their companies. This in turn reduces the cost of recruiting, hiring, and training new employees. For more information, see the research of Daniel Pink, whose book "Drive: The Surprising Truth About What Motivates Us" is a mainstay in our library.
- Reduce the cost of customer and employee feedback infrastructure.
Businesses are switching in droves from more traditional customer satisfaction programs offered by market research vendors to technology enabled real-time CEM programs. Market researchers are tasked with answering specific questions--would customers embrace a certain new product feature contemplated by the company, for example--and frequently focus on methodological purity. At core, market research is reflective and nonoperational in nature.
What's more, market research is more expensive than CEM. The average cost of a CEM implementation is approximately $250K, while market research projects can cost upward of $1M.
Traditional market research uses a behemoth of a questionnaire that's costly to develop, administer and analyze. To entice a statistically significant sample of customers to sit through the entire survey, rewards or sweepstakes are often necessary. By contrast, CEM surveys should be short and to the point, attracting customer response through ease of use. In addition, once implemented, the best CEM programs require very little support, and businesses can run their own analysis using the platform.
A final value-add offered by top CEM vendors is support from client services personnel. Periodically, these experienced analysts can correlate survey results to in-store sales, analyzing the practices of high-scoring branches versus low scoring ones, providing benchmarking reports to businesses, and sharing best practices among multiple clients in a particular industry.
To summarize, here are five ways businesses earn ROI from CEM programs:
- Recover potentially lost customers.
- Engage existing customers.
- Reduce cost of new customer acquisition.
- Engage employees and reduce staff turnover.
- Reduce the cost of the feedback infrastructure.
Although improving customer experience is its own reward, CEM programs offer committed users the added bonus of ROI across multiple business channels.
Nelson Pascua is Vice President of Client Services for Medallia, Inc., a CEM vendor headquartered in Palo Alto, CA. Specializing in retail and ecommerce clients, he is an expert in research methodology and advanced analytical techniques.
- Recover potentially lost customers.