Why revenues depend on the customer experience you provide?
One of the most common questions I hear from senior leaders is that how we can build a business case from customer experience improvement efforts. And that is a valid question since even though it is only logical to make more money from serving clients better, we need to see the hard evidence. There are several components in customer experiences that are highly appealing to clients and yet the highest impact comes through emotions. Let’s test this assumption. Imagine you want to buy a new pair of shoes. You find two exactly the same fitting pairs of shoes that both are technically same and offer the same benefits. Now, the other one is under Poundstrecher label and the other one is Jimmy Choo. They even have the same price! I bet you would go for the Jimmy Choo’s since the feeling you get from being associated to that brand and the expectation it sets is much higher than Poundstretcher.
This story already highlights some of the power that customer experiences hold. Actually, if one company is able to offer considerably better customer experience than another, the clients will choose it even it would offer inferior product or service over the other. Good example of such behaviour is an official car brand service. White label car service companies are many times cheaper and can provide same quality of service, but many people still choose the official brand service and pay more for it to get the experience that comes with it (e.g. clean car, official parts, nice sales rep and so on).
This puts some of the companies in awkward position. As Forrester Research has depicted, we have shifted from having a competitive advantage in manufacturing, distribution and information to having it in customer experiences (Source: http://bit.ly/1zMdB3e). The Age of Customer empowers buyers demand a new level of customer obsession. And that is why today our revenues depend on the customer experience we provide instead of traditional advantages (Source: http://bit.ly/1QnJG5t).
What comes to relationship between organisation’s revenues and customer experiences, there is a positive correlation. Loyal customers are, based on my own research, spending 6-7 times more money over their lifetime, while some sources report even 10x more (Source: White House Office of Consumer Affairs). You can do simple calculations of your own to see how much that number is in your business. Also, positive Word of Mouth will decrease sales and marketing costs (Source: http://bit.ly/1EXU7Zq). It has said that regular reporting on customer experience initiatives will have positive impact on share price also. In other words, organisations who focus on customer experiences are seen to be more valuable by the owners, too.
There is one more thing to note on why revenue and customer experiences are connected to each other. When proper customer experience initiative is put in place, it will not affect only revenue, but also cost effectiveness of the organisation. Optimising the operations from customer perspective will lead to much more impressive operational effectiveness than traditional approaches, which are focusing mainly on the internal issues. As the picture below shows, having a customer experience improvement in place will first affect the cost efficiency and therefore indirectly profitability level. Then once the revenue starts to increase due to customer experience improvement, also the profit starts to increase faster. There is a time lag between the improvement initiative and revenue increase due to customers slowly picking up on the changes that are made.￼
As a summary, revenue depends on the customer experience you provide, because customers are the source of revenue. According to American Express, 7 in 10 Americans said they were willing to spend more with organisations they believe provide excellent customer experience (Source: American Express, 2011). Working on matters that make customers more engaged and loyal to your business through better customer experience, will have positive impact on the revenue. There will be a time lag between the initiative and revenues starting to increase, since customers are quick to anger and slow to forgive. That is why customer experience should be in the heart of any business who is looking to thrive in a competitive market environment. And due to time lag on the impact of such efforts, it is better to start sooner rather than later.
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