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Why go digital? Because it is all about the Value of Customer Engagement

Thursday, November 02, 2017

Customers with the best experience generate 140% more revenue. Digital transformation enables greater customer engagement, and therefore greater revenue.

What is the business value of an improved customer experience? CEOs have never responded well when chief customer officers (CCOs) say “Trust me, this is the right thing to do.” In fact, the average tenure of a CCO is only 27 months (recent CCO Council research). Why is this so low? One reason is that some customer executives struggle to demonstrate quantifiable ROI for customer initiatives. When the CEO and CFO are making priority decisions they simply can’t compare the returns for investing in CX improvements with hiring another salesperson.  Or worse, when the company hits a revenue road bump, the CCO’s initiatives and sometimes even the CCO herself are the first to be cut because their value cannot be quantified.

According to research published in HBR by Medallia, customers with the highest CX scores generate 140% more revenue than those with the lowest.

Medallia examined in depth two companies, one transactional and one subscription based. Transactional companies typically measure return frequency and average spend per visit. Subscription-based companies typically measure duration of repeat business, typically through retention, cross-sell, and upsell. They examined customer feedback and experience scores at a point in time, and then actual behavior for the subsequent year. This is important, as one of the downfalls of NPS measurement is that it measures nebulous intent and not actual behavior.

After controlling for other factors that drive repeat purchases such as affinity or natural consumption cycles, Medallia found a strong correlation between CX and revenue. Revenue generated by each customer increased significantly with higher CX scores. The customers with the best past experiences generated 140% greater revenue than customers with the worst past experiences.

For the subscription business, customers having the poorest experience stood only a 43% chance of being a member a year later, and were only likely to remain a member for a little over a year. Conversely, those with the best experiences were 74% likely to remain a member a year later, and were likely to remain a member for six years.

Done right, digital transformation promises improved customer engagement, a better experience doing so, and decreased costs to serve. And that’s a compelling argument.

How are you demonstrating the ROI of your customer initiatives and CX programs to your CEO?

P.S. Next question: Would it be valuable to have a discussion about where you need to go next in your digital transformation?

I've created a comprehensive digital assessment that benchmarks against the world's leading companies in six critical dimensions and gives you a prioritized roadmap going forward. I've partnered with Bob Taylor, former CCO of Samsung SDS and present CDO of from.digital, a digital transformation agency to bring this to you.

If you'd like to discuss, please call me at 978-226-8675 or email curtis@ccocouncil.org.


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Categories: Chief Customer Officer | Customer Centricity | Customer Engagement | Customer Insight | Customer Loyalty | Customer Retention

Has social media grown up enough to prove its own value?

Tuesday, July 16, 2013

This past March was published one of the very first quantitative analyses that I'm aware of that correlated the effect of customer engagement via social media with the firm's bottom line. In the article entitled, “The Effect of Customers' Social Media Participation on Customer Visit Frequency and Profitability: An Empirical Investigation", academics examined the effect of customers' participation in a firm's social media efforts and found that social media engagement resulted in not only a stronger bond between the brand and the customers, but also discovered that engaged customers visited the store 5.2% more often and generated 5.6% greater revenue than the control group with similar shopping history, identified before the social media effort began. As well, engaged customers as measured by frequency of posting had a stronger preference for premium products and lower price sensitivity, making them more profitable than their non-engaged counterparts.

The researchers examined a large retail wine seller and gathered information on customers' demographics and spending habits including wine purchased from other outlets. They created a control group consisting of customers with similar purchase habits and who are not participating in social media. One of the challenges that could easily get lost in a company's social media experiments is whether the relationship is actually growing or the firm has actually provided greater accessibility to promotional coupons. In this study, the researchers weeded out "price buyers" who were using social media solely for the purpose of obtaining coupons. The social media customers and the control group did not have significant differences in their purchase behavior prior to the firm's social media experiment. Thus, they effectively isolated the effect of social media on a material segment of their customers.

However, these results are sometimes masked by the law of averages. To duplicate these results in your company you should carefully segment customers, observe their behavior, and compare such behavior with an appropriate control group. Even more importantly, it appears that done properly, social media can be an effective tool for engaging customers.

As we see in this study, engaged customers spend more and more often, may have a higher predilection for premium products, and are therefore more profitable.

What can you do to engage customers in your business? How can you go beyond preaching at them or pushing coupons to engaging them in a dialogue, and truly understanding what they need?

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Categories: Chief Customer Officer | Consumer Spending | Customer Centricity | Customer Insight | Customer Loyalty | Customer Retention