Authors: Topher Mitchell & Jim Tincher
This blog is authored by Topher Mitchell, the creator of Qualtrics’ Value Advisory function, and Jim Tincher, the CEO and founder of Heart of the Customer. The article was originally published by Qualtrics.
Customer experience is good for business. You believe that, and so does your leadership team. Unfortunately, many CX programs still have a difficult time getting headcount and resources. Leadership gives tacit support but doesn’t listen when you ask for resources to drive change.
Effective teams – which we call “Change Makers” – show how customer experience drives a healthier business, with customers purchasing more, staying longer, and interacting in ways that are less expensive to serve. This distinguishes them from “hopeful” CX programs, which primarily report on survey outcomes, hoping this will lead to improved business outcomes.
Below, we lay out the typical disconnect between customer experience and business results and a path to connect the two.
A core problem: CEOs don’t prioritize customers
Despite years of customer centricity initiatives, customers still aren’t at the center of CEO priorities. This shouldn’t surprise you – CEOs aren’t rewarded for creating better customer experiences. They’re rewarded for business results.
When CEOs were asked to identify their top strategic business priorities, only 8% mentioned anything related to the “customer.” In contrast, priorities such as “cost management” (which was almost twice as common and showed a year-on-year increase) and “growth” (the most common) were given more importance.
But the paradox is that companies can’t grow organically without growing and retaining customers. And bad customer experiences often result in costs through product or customer service, lengthened implementations and re-work, high rebates and refunds, and more. Many of the CEO’s top priorities are linked to customers – but leadership may not make that connection. If you don’t connect your work to these outcomes, they won’t invest.
Making matters worse, CX programs often focus on customer outcomes without connecting to business outcomes
Customer outcomes represent value created for customers and often consist of things like time saved, customer satisfaction, net promoter score, and more. Business outcomes result in business value and consist of things like increased revenue and cost savings.
A superior customer experience can create both, but CX teams often focus exclusively on the former. And their inability to provide convincing evidence of the latter has been well-documented:
- A research paper from CustomerThink found that, “Despite much enthusiasm at executive levels and investments in CX teams and initiatives over the past decade, only one in four companies are “winning” – able to quantify CX benefits or achieve a competitive edge.”
- Research conducted by Heart of the Customer, the CXPA, and Usermind found that, “Only 22% of CX programs are Change Makers, able to prove that their work results in customers who spend more, stay longer, or interact in ways less expensive to serve.”
- Further, the XM Institute found in 2023 that of 6 measured CX competencies, organizations are the weakest in realizing value.
Change your approach to change your results
While “hopeful” programs merely hope that their business will see the connection, change makers generate evidence of the relationships between CX and CEO-relevant outcomes. Below are some tips to get you started.
1. Prioritize business value metrics: Identify business KPIs that represent your organization’s desired outcomes that you can likely influence. Here are four common KPIs we see for CX programs:
- Order velocity: In certain industries like retail, manufacturing, and distribution, customers have relationships with multiple providers, represented by share of wallet. In these cases, improving the customer experience can result in greater preference impacting purchase decisions and share of wallet, often resulting in faster ordering cycles. For example, when working with a B2B2C financial services organization, Heart of the Customer found that customers who felt supported by documentation and staff (as identified in surveys) placed more orders than other customers.
- Customer churn: High levels of customer churn are the death knell to growth. While some churn is structural, much of it is driven by poor experiences. In the same B2B2C study referenced above, Heart of the Customer found that the factors related to churn differed from those related to order velocity. Churn was most related to broken processes along the customer journey.
- Problem incidence: On the cost management side, many organizations find a relationship between customer experience and customer support costs. When customers are unable to resolve a product or service failure on their own, they often go to the company seeking assistance. In addition to being a bad experience for the customer, this results in unnecessary costs for the business. For example, the software giant UKG found that customers who found its communications to be clear were less likely to get frustrated and cost less to serve than other customers.
- Digital support containment: In today’s environment, nearly every organization is seeking to reduce costs through digital channels. Unfortunately, poor digital experiences are ubiquitous and they cause customers to switch to analog channels. Customer experience programs can help organizations understand what customers expect and identify where bad digital experiences are causing them to switch to social media, contact centers, or in-person support. For example, the material science giant Dow took a customer-first approach in designing its digital experiences. In addition to winning a Gold Award for its Digital Transformation in the 2023 US CX Awards, Dow reports that this focus plays an important role in achieving its EBITDA goals.
2. Take advantage of existing research: Many organizations have published research on the relationship between CX and business outcomes. This evidence can help you generate interest and support from your business stakeholders. Here are a few of our favorites:
3. Establish connections between your customer experience and business KPIs: Go beyond the external research and identify connections within your own organization’s customer data. This is an extremely impactful activity, but it can be daunting when your behavioral, operational, and experience data is sprinkled through multiple independent systems. Consider the following:
- In Thinking, Fast and Slow Daniel Kahneman claims, “What you see is all there is.” If you only have experience data in front of you, that’s what you focus on. Change “what you see” by gaining access to a broader field of inputs.
- Help your organization understand the value of a single platform with all relevant customer behavioral, operational, and experience data and build toward it.
- Don’t hold off on your work while waiting for the ideal data environment! Do a one-off analysis to build executives’ appetite.
- No need to boil the ocean. Heart of the Customer helped one organization see the importance of investing in customer experience headcount using only one year of CX data and one year of order volume and churn data. Use this approach to build a business case to have access to more data.
4. Calculate your experience value at risk: Now that you have identified the right business KPIs with supporting evidence on the role of CX, put it in terms that your business stakeholders know and love: cash flow.
- Establish a baseline for each KPI. For example, you might find that across your customer base, your organization loses 1.5k customers per year to churn.
- Estimate how much of each metric is impacted by CX. For example, you might estimate that 30-60% of your organization’s customer churn is due to poor experiences.
- Use your organization’s financial data to determine how much each KPI is worth. You might find that for each customer that decides to churn, your organization misses out on $10k.
- Run the numbers. Using the previous examples, you would find that 1.5k customers x 30-60% addressable x $10k per churn = $4.5M-9.0M value at risk each year due to churn from poor customer experiences.
Connecting CX to business KPIs at Dow
At the “Do B2B Better” conference in 2022, Dow’s Director of CX, Riccardo Porta, shared how he helped his leaders buy into the value of CX.
Coming out of a journey mapping initiative with Heart of the Customer, Riccardo built a measurement strategy that incorporated specific behavioral, operational, and experience data based on the results of journey mapping exercises.
Focusing on customer order data, inventory levels, and customer confidence in Dow as a supplier, Riccardo identified an important relationship. When inventory dropped below a certain level, customer confidence in Dow as a supplier dropped. This also resulted in fewer future orders from the customer resulting in lower EBIT for the company.
These findings helped Riccardo turn an either/or tradeoff (Do we want to optimize cash flow or CX?) into an AND approach (How can we improve CX while operating at low inventory levels?), gaining additional resources to drive change with CX. This contributed to Dow’s ability to operate at 7% lower inventory levels without negatively impacting CX (in fact, they increased scores by 8.5%) from 2021 to 2022.
Combining these data sets enabled Riccardo to engage his stakeholder in a productive discussion on why customer experience matters to the business. The outcomes ensure that Dow continues to invest in customer experience for the long term.
What to do next…
- Use this Experience Value at Risk calculator to create an initial estimate of how much bad experiences are costing your organization.
- Work with your finance team to prioritize 2-3 business KPIs to focus on, gain access to the underlying data, and refine your estimates of how much value is at risk for your organization due to inadequate experiences.
- Work with your organization to integrate relevant customer behavioral data into your experience data so you can monitor and assess these business KPIs on an ongoing basis.