Economics of Customer Experience Analysis

By: Strativity  09-12-2011
Keywords: profitability

How do we build the business case for customer experience?

Customer experience investments regularly compete unsuccessfully against re-engineering initiatives, marketing campaigns, and technology enhancements. Despite the lofty and inspirational memos and speeches by CEOs, the commitment to customer experience seems to stop when companies are asked to write a check. The message shifts from “we are committed to delivering the best customer experience” to “we will do the best we can without investing additional resources”.
It has been our experience that customer experience investments among the highest financial returns on investment of the investment choices from which organizations can choose. The obstacle to securing the necessary investments, resources and commitments lies not in the lack of profitability, but in the failure of customer experience executives to speak the language of finance.

Strativity Group has developed the Economics of Customer Experience™ analysis to help customer experience executives build the financial business case for transforming the customer experience by quantifying both the cost [link to CEM benchmarking study] and revenue benefits of customer experience. To calculate the impact customer experience strategies will have on revenue, companies need to focus on the five P’s, the five key financial metrics that drive revenue:

  1. Preference of Company or Product – the number of new customers who purchase a company’s products or services
  2. Portion of Overall Customer Budget – the percentage of a customer’s overall budget that a customer spends with a company
  3. Premium Price – the ability of a company to charge a higher price than its competitors for a product or service
  4. Promotion of Company or Product – the number of successful referrals generated by existing customers
  5. Permanence of Overall Relationship Lifetime – the length of time a customer maintains a relationship with a company

Depending upon the information available within an organization, Strativity Group can develop financial models based either on internal data or through externally generated information to build the case for investments in customer experience. The business case combines both the opportunity to capture new business (business at growth) and the risk of losing existing business (business at risk). To learn more about our methodology for creating a business case for customer experience investments, to read our white paper.

Cost benefits

Ultimately, the inability to secure the limited investment resources available to implement customer experience improvements is understandable. Finance departments are responsible stewards of these precious investment resources. Shareholders depend upon Chief Financial Officers and their teams to select investments that will drive increased profitability. To capture investment resources, customer experience initiatives must be able to demonstrate not merely an increase in customer satisfaction or loyalty but increases in profitability, whether it come from increased revenues, reduced expenses, or both.

Keywords: profitability

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