Research Confirms That Bad Customer Experiences Cost Companies More

Your customers value a great customer experience. That’s one of those “no brainer” things that’s accepted in every customer-facing business. But what is it about the customer experience that’s most valuable? Is it a short wait for an agent? Good self-service options? The ability to move easily between channels? An option to reach you via less traditional channels such as social media and mobile app? Knowledgeable agents? First-call resolution?

The problem with “a great customer experience” is that it’s hard to quantify, and companies are often leery about investing in technologies if they don’t have hard numbers to chase down. While no doubt your contact center has a laundry list of needs when it comes to new technologies and services, it can be hard to tell which needs are most urgent, and which will deliver the best return on investment.

In a recent article for Harvard Business Review, Peter Kriss, a research scientist at Medallia and the Director of Research for Vision Prize, recently described a methodology developed to quantify the impact of good versus poor customer experiences in an effort to determine the value was in delivering them. The research involved collecting experience and revenue data from two global, $1 billion+ businesses. One of these was a transaction-based business; the other, a relationship-based subscription business. The researchers examined customer feedback, and future spending by individual customers.

“To see the effect of experience on future spending, we looked at experience data from individual customers at a point in time, and then looked at those individual customers’ spending behaviors over the subsequent year,” wrote Kriss. “While transactional businesses primarily care about return frequency and spend per visit, subscription-oriented industries focus on retention, cross-sell, and upsell.”

The team employed multiple regressions to account for other factors that might have been driving the outcomes other than customer experience, and arrived at the conclusion that customer experience actually has an enormous impact on revenue.

“What we found: after controlling for other factors that drive repeat purchases in the transaction-based business (for example, how often the customer needs the type of goods and services that the company sells), customers who had the best past experiences spend 140 percent more compared to those who had the poorest past experience,” wrote Kriss.

Similar results were found for the subscription-based business. While transaction-based businesses are interested in how often customers return, a subscription-based business is primarily interested in how long their customers remain loyal. The team found that members who rated as having the poorest experience has only a 43 percent chance of being a member a year later, compared to members who gave one of the top two experience scores: these customers had a 74 percent chance of remaining a member for at least another year.

While cost is often cited as a barrier to adopting processes and technologies that improve the customer experience, the team’s research actually found that a good customer experience leads to lower expenditures.

“Unhappy customers are expensive — being, for example, more likely to return products or more likely to require support,” concluded Kriss. “Systematically solve the source of dissatisfaction, you don’t just make them more likely to return — you reduce the amount they cost you to serve.”

Edited by Alicia Young

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