CX for the CFO

CX leaders are often challenged to convince CFOs that customer experience is worth investing in. As we enter a period of corporate belt-tightening, that is not likely to change.

However, reluctance to invest in CX is short-sighted and doesn’t account for the advantages good CX offers for customer lifetime value (CLTV), revenue growth and cost savings. Many organizations recognize this.?In the January 2023 pulse of the?EY CEO Outlook Survey , boosting customer loyalty through technology was among the top three most important actions for CEOs over the next six months.

Let’s look at an simple example of why good CX matters. Imagine an online subscription service:

• Customer acquisition costs: $55
• Monthly subscription: $15
• Monthly profit margin: $5
• Typical length of relationship: 5 years
• CLTV (before discounting to today's value): $245

In the example above, it would take 11 months to recoup customer acquisition costs, meaning that the customer is unprofitable for most of the first year. If there is a big focus on new customer acquisition, that will mean a significant investment up front. If there is high customer churn (often due to poor CX), then more investment will be needed up front to acquire customers to replace those lost.

Now consider the advantages good CX offers for the main levers you can pull to influence CLTV.

• Customer acquisition costs: CX leaders don’t need to spend as much on customer acquisition costs. That’s a major advantage right now — over the last five years customer acquisition costs have?risen by 60% . Customer acquisition through targeted advertising has been made more difficult by privacy features introduced in iOS 14.5 and the decline of 3rd?party cookies. Good CX can make up for this.
• Referrals: Happy customers refer their friends. According to?Qualtrics research , promoters are four times more likely to re-purchase.
• Loyalty: Good CX retains customers. This keeps costs down, because it typically costs six times as much to acquire a new customer than to retain an existing one.
• Promotional spend: With more revenue coming from returning customers, there is less of a need to attract new customers. Resultingly, there is less of a need to run one-off new customer promotions (that arguably drive nothing more than bargain hunters who take “first month free” promotions and then quit the service).
• Share of wallet: CX leaders build longer, deeper relationships with their customers.?Using the online subscription service example above, let's imagine that after one year, the company launched a new, higher-margin subscription that was cross-sold to the CX-satisfied customer. If the new subscription added $3 profit per customer per month and, by bundling the two services they managed to extend the length of the relationship by 3 years, CLTV would increase 176% to $677.
• CX leaders have a lower cost to serve: Brilliantly designed products and services tend to generate fewer complaints. Even when customers have cause for complaint, there's increasing research to show that a well-handled complaint can actually make the customer even more loyal.?
• Conversely, poor service can fuel customer attrition. When an angry customer makes a complaint, they are at their most vulnerable. From the customer’s point of view, a major complaint is the critical point in the customer experience. At that point in the customer experience, a customer service department can either fix the problem brilliantly and gain a loyal customer for life, or accelerate customer churn.
• Finally, CX leaders have an ever-increasing feedback flywheel, sensing problems and redesigning experiences and processes to quickly respond to sparks before they turn into fires. Because they are ultra-focused on the needs of the customer, CX leaders inherently have a lean approach to process design, removing unnecessary steps that add no value to customers.
• CX leaders can use their understanding of the customer to create products and experiences more closely aligned with customer desires. With better insights into the wants and needs of their customers, CX leaders can be more effective in creating new products and services. CX leaders have a finger on the pulse of the customer, always looking for unmet wants and needs. That’s a positive both for revenue growth, but also for preventing investments and initiatives that customers don’t want.

Investing in CX makes good financial sense in both bull and bear markets because CX leaders have a material financial advantage at each stage of the customer lifecycle. Companies who lead in CX tend to have lower customer acquisition costs (like digital advertising and promotions) lower operational costs (like customer service and repairs) combined with longer term customer relationships with deeper share of wallet.

Organizations should not let corporate belt tightening get in the way of building or maintaining good CX.

The views reflected in this article are the views of the author and do not necessarily reflect the views of the global EY organization or its member firms.