Connecting CX to value - How a data-driven CX strategy can help you build the business case for CX

I’m making here some edits to an existing article I wrote for the CIO Applications Europe magazine, back in 2019, about connecting CX to value.

Four years down the line, despite more and more companies putting in the hard work to establish a solid digital foundation and then following that up with increasingly important steps to become data-driven organisations, the same challenge remains for most CX management programmes: it is still very hard for most companies to prove that their CX improvement initiatives produce any tangible business results.????

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“Mind the gap”

Recent research, be it from Forrester , S&P Global , 贝恩公司 , NICE or 麦肯锡 , has shown that strategies focused on delighting customers allow companies to earn greater value from their current customer base—which results in concrete financial outcomes.

That is why there is such a strong correlation between companies’ CX ratings and their revenue growth.

In the United States, for example, a recent McKinsey analysis has shown that companies that are leaders of CX achieved more than double the revenue growth of “CX laggards” between 2016 and 2021. The revenues of CX leaders also rebounded from the COVID-19 pandemic more quickly than those of other companies.

In contrast, many CX measurement programmes are still failing to establish a clear link between high level CX metrics, such as NPS, and financial performance.

“Mind the gap” indeed! Let’s explore what is missing and what could be in that space.

In the remaining part of this article, I will shed some light on how to make sure your CX measurement programme proves the return on CX. Stay tuned ???

Proving the return on CX

Back in November 2018, I was amongst the speakers at the Forrester CX Europe annual conference in London. I had chosen to speak about data-driven CX and how to link CX to value – one of my favourite CX-related topics and also an area we had been focusing on at Kindred Group, my former employer.?

There were about 300 people in attendance that day; mostly customer experience practitioners, from a large spectrum of industry sectors.

To start my presentation off with a bang, I got everyone to stand up and asked participants to keep standing up if they could answer positively to my questions.

My first question was whether their company was tracking Net Promoter Score, or not. Expectedly, almost everyone kept standing up at that point.

I then fired off my next question: “Assuming you’re measuring NPS because you believe that it correlates with customer loyalty, keep standing if you have data that shows this is the case.”

At this point, 80% of the audience sat down, which came as a shock. I couldn’t refrain from challenging the audience about the reason why they were measuring NPS in the first place if they didn’t even know whether their NPS was driving loyalty or not.

I carried on: “Please keep standing if you understand what aspects of your customer experience drive your NPS”. Almost everyone else who was still standing sat down.

I kept going as I was starting to really enjoy this game, but also because I hadn’t made the final point I wanted to get to… “Keep standing if you could say what ten points of NPS would be worth to your business”.

This is the point where, I dare to say, only the 3 members of my team who were present kept standing! 3 CX practitioners out of 300. About 1% of the audience!

I’m not writing this story to look smart (well, perhaps a little). I’m mostly mentioning this anecdote to reflect on the harsh reality of most CX management programmes: they fail to understand clearly what a superior customer experience is worth and exactly how it will generate value!

The problem is that if CX leaders are not able to quantify the economic value of improving CX, their efforts might end up having very tangible costs to the company but unclear short-term positive financial outcomes.

The risk being that such efforts that always involve challenging business processes & priorities and investing in innovation might get stopped before they even get started.?

The good news is that by investing early in a scientific & analytical approach, most companies can prove the financial return on their CX efforts.

I will now shed some light on how we were doing this at Kindred Group plc , an online gaming/gambling operator, in 3 steps:

Step 1:

To start, we established early on, through data analysis, that NPS, amongst other high level CX metrics such as overall CSAT, was the best metric to use to measure customer loyalty.

As we were doing this, we considered the three types of loyalty – retention (stay longer), enrichment (spend more) and advocacy (recommend more).

The results were crystal clear. Over long periods of time, promoters were showing significantly higher retention rates (retention loyalty) compared to detractors. Their life time turn-over was also higher (enrichment loyalty). And so was their life time value, as promoters were showing significantly bigger gross win compared to detractors (enrichment loyalty).

The promoter score of multi-product players was also higher than that of single product players (enrichment loyalty). Promoters were also significantly more likely to refer a friend (advocacy loyalty). Last but not least, promoters were also using our brands as their primary provider as opposed to detractors (enrichment loyalty), which we traditionally refer to as share of wallet.??

Step 2:

Once we demonstrated that our NPS was driving loyalty, we focused on answering the next big question: what drives our NPS?

To answer this question, we conducted Key Driver Analysis (KDA), a statistical analysis that tells you the derived importance between potential drivers and customer behaviour.

This provided us with a clear view of what matters to customers, where to focus, and how to keep the customer experience high on the list of strategic priorities.

Step 3:

We built a model to calculate the return on CX: “The NPS Revenue Simulator”, an algorithm that gives very clear insights on the estimated value of improving the customer satisfaction of each touchpoint in Kindred’s VOC programme.

From a high-level point of view, the methodology behind aimed to answer:

Which drivers do customers perceive as the most important?

It looks at which of the touch points within our CX surveys are most relevant in terms of driving NPS, and therefore loyalty. As such, the model uses the learnings from our Key Driver Analysis as its main input.

Which drivers will lead to customers becoming promoters?

It works out how much the estimated probability for a customer to be a promoter will increase if driver X, Y or Z is increased.

How will increasing promoters affect retention?

Since we know that promoters have a higher retention rate than detractors, the simulator looks into what extent increasing the number of promoters will affect the growth in overall retention.

What is the financial impact of increasing an NPS score?

By looking at the estimated increase in promoters and the resulting ways in which retention is affected, the simulator is able to generate financial simulations based on hypothetical variations of the performance of different NPS drivers. Whilst this sounds extremely complicated, it is simply looking at how changing the score of a particular driver could affect retention and therefore how much money we would make based off of this.

Make no mistake, however: building an unambiguous link between CX and value is easier said than done and it requires a mix of hardcore analytical skills, hard work, and patience.

It is easy to skip these steps for the sake of speed, but that is simply a mistake every time. Patiently and scientifically building a business case for CX is the best way to fund your company’s CX efforts, to secure buy-in, and build momentum.

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Summary

20 years after NPS was introduced back in 2003 by Fred Reichheld in conjunction with 贝恩公司 and Satmetrix , and subsequently became one of the most popular KPIs used by businesses all over the world, most companies are still tracking their NPS without even knowing if it drives customer loyalty or not.

Proving the link between CX and value is hard, but it can be done. It starts with a disciplined scientific and data-driven approach that clearly understands the relationship between high level metrics, such as NPS, and business performance.

Ultimately, more than the score itself, what is key is to understand what aspects of your experience drive your NPS and why.???

In order to build a strong ROI case for CX, CX teams need to team up with data analytics teams within their organisations so that they can quantify the quality of experiences and their link to the organisation’s overall metrics.

Has your organisation become obsessed with the notion of customer centricity but still struggles to demonstrate clear business performance improvements? Is your CX measurement programme failing to connect the dots between CX metrics such as NPS and business outcome metrics such as retention rates, ARPU, LTV? Feel free to share in the comments.

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