Measuring the effectiveness of CX strategies

A recent research by?American Express found that 86% of the customers are willing to pay more for a better experience. another study by Temkin group found?that companies that earn $1 billion annually can expect to earn, on average,?an additional $700?million within 3 years of investing in Customer Experience (CX). That's?a whooping 70% increase in revenue within 36 months! And then there is a third one which was concluded in May 2022, which confirms that businesses across the globe have agreed to prioritize and increase investments in CX strategies for the next 5 years.

All of this indicate that businesses have understood the benefits of having a CX strategy rather than continuing to focus on Products and Pricing. Data published by many businesses suggest that having -

Great CX strategies result in higher customer satisfaction (more loyal customers), reduced churn (more repeat buying), growth in revenue (larger basket size) and less returns/refunds (mainly for the online businesses)

However the next question comes to my mind is - How do you measure the effectiveness of these strategies? Is it sufficient to say that the strategy is working because the revenue numbers are growing, which I believe could be associated to some other business strategies? The benefits a business gets, could be misleading and one can't not say with certainty as to what made the growth!!!! So what does one do then?

Set Key performance Indicators (KPIs)

Along with focusing on having CX strategies, it's best to set up some Key performance Indicators (KPIs) to measure the effectiveness of the these strategies. This is necessary to measure the changes in various standard business parameters (revenue, profit, loss, churn, loyalty, best product/service etc.). This can be achieved by taking a feedback to understand what the customers think of a brand, organization, product or service. A couple of feedback mechanisms have been in vogue for long, let me elaborate them a little here:

A. Net Promoter Score (NPS)

What it is? - This method was first developed in 2003 by Bain and Company. It's used by millions of businesses to measure and track how they’re perceived by their customers ("Customer Perception")

How it's done? - A survey is conducted where customers are just one standard question:

“How likely is it that you would recommend [Organisation X/Product Y/Service Z] to a friend or colleague?”

How it's scored? - Respondents give a rating between 0 (not at all likely) and 10 (extremely likely). Based on the rating they are divided into three categories as follows:

How the score is reported? - To calculate the final NPS score – The percentage of detractors are subtracted from the percentage of promoters. The score is reported with a number from -100 to +100. A score above 50 is found to be a "Very Good" indicator that customers perceive the business as a great business. Tesla, Amazon, Samsung and Starbucks?are all examples of organizations that scored above 50?in recent NPS scoring.

B. Customer Satisfaction (CSAT)

What it is? - It measures customer's satisfaction with a company's products or services at the moment of purchase, during onboarding or after an exchange with support.

How it's done? - This also is measured through a survey in which customers are asked a simple question to measure their satisfaction with a service, product, transaction or interaction.

How it's scored? - The respondents chooses from a range of options such as :

• A numerical score from 1 to 3, 1 to 5 or 1 to 10 (1 Being the worst and 10 being the best)
• Verbal indicators such as very unsatisfied, unsatisfied, neutral, satisfied and very satisfied (Sample below)
• Symbols such as smiley faces or stars

How the score is reported? - To calculate the final score all you have to do is add the positive responses together, divide them by the total number of responses and times one hundred. The final figure represents the percentage of customers who are satisfied. A good score usually falls between 75% and 85%.

However; both the above methods don't :

• Measure the customers' reasons behind buying a particular product or service
• Guarantee whether a customer is loyal or not, which is what businesses would really love to know.
• Take into account the customer behaviour on social media channels which have become a prominent source of knowing your customers well and have to be captured somehow

These are some of the reasons as to why a newly devised, third more prominent method has come into being :

C. Customer Effort Score (CES)

What it is? - It's about measuring the amount of efforts customers put in to interact with the business including before buying, while using and also while dealing with you for post purchase service call. It actually captures the "Customer Sentiments" which are reflective of how "easily" they were able to interact with the business. As it suggests - It's conducted "after the purchase" or "after the service engagement"

How it's done? - It's could be captured in a survey asking the simple question "It was extremely easy to do business with us" (or a modified version based on the kind of interaction the customer had with the business) where the customers respond by ticking on a scale of 1-10 (1-Strongly Disagree, 10- Strongly Agree) or captured using analytics technologies to analyse various touchpoints, such as?a recorded service call, text or chat,?customer reviews on products,?posts on social media and others.?(Sample below)

How it's scored? - Both on survey and on online systems, the score is calculated by adding all the respondents' chosen ratings and then dividing it by the total number of responses. Any score which is below the half-way mark is a good score because it indicates that the customer did not have to put a lot of effort while dealing with the business

CES It's fast-emerging as a compliment to?and sometimes even a replacement for other methods?

So to summarise:

NPS - Measures the "Customer's perception" of the business

CSAT - Measures the "Satisfaction Levels" of the customer

CES - measures the "Customer's level of Efforts"

After analyzing all of the three methods above, it’s clear that in the modern day business landscape, its mandatory to not only measure the customer's satisfaction levels but also their behaviour across different shopping channels. CES seems to be one such method which could give better results over other traditional methods and It certainly is proving to be a successful measure of success. The ultimate success lies in using these metrics to make meaningful improvements?to the CX strategies to build a culture of "Customer Advocacy".

We'll discuss about the "Customer Advocacy" in the next newsletter. Till then enjoy reading this one and don’t forget to leave with your comment.

Thank You,

UMESH AGARWAL