CX Economics Part 1

The 6 classic value drivers for the Customer Experience business case

Business case

26 November 2018

Customer Experience (CX) is now seen as a mission-critical enterprise capability. Witness the recent (November 2018) acquisition by SAP, perhaps the best known enterprise solutions vendor, of Qualtrics, a leader in customer experience management, for $8bn in cash. To them, CX is the new frontier which can only be unlocked by combining operational data with customer experience data.

SAP says:

The combination of Qualtrics and SAP reaffirms experience management as the groundbreaking new frontier for the technology industry. SAP already touches 77 percent of the world’s transactions. When you combine our operational data with Qualtrics’ experience data, we will accelerate the [XM] category with an end-to-end solution with immediate global scale.

CX is a mandatory enterprise capability that delivers value in at least three ways

  1. The classic value drivers, summarised below, generates 20% EBITDA growth or more. You can not afford to ignore this.

  2. The new value drivers, which we will cover in a separate article, amplify the financial and market impact of your operational decisions through CX. For many industries this is critical to survival and profitability.

  3. CX can be a key enabler of growth and innovation by helping you to understand your customers much better. We share the belief that every human voice holds value, every experience matters and that the best-run businesses can make the world run better.

CX Impact is our approach to accelerating the delivery of CX value and lifting CX to a core priority for the leadership team. Let us now at the six classic value drivers for CX: they are key to the business case and applicable across industries.

The six classic value drivers for CX

There are six classic drivers for Customer Experience Economics which can be measured and modelled across industries. We have worked with online and offline, B2B and B2C (and B2B2C), and almost any other business model across new and old industries to build financial models that earned the trust and commitment of the entire leadership team.

The classic value drivers for Customer Experience: Positively engaged customers (“Promoters”) spend more, use more, stay longer, refer more, cross-buy more, and cost less to serve.

Customers who have a positive engagement with your brand and products or services:

  1. Spend more: are more likely to buy more and higher-value products and services.

  2. Use more: use your services and products more, thereby deriving more value which in turn justifies higher spend (as price premium, more expensive produces, or higher volume).

  3. Stay longer: churn at a much lower rate. Many industries are moving to a subscription model and here retention is a critical value driver.

  4. Refer more: make more positive referrals and fewer negative referrals. A prospect with a personal recommendation is much more likely to convert than one attracted only by traditional marketing. Promoters can be converted to advocates who not only would recommend you if asked but who actively and unsolicited promote your brand.

    Think your brand or product is different and you can’t generate advocates? My favourite example is Simplehuman who makes garbage bins. They have thousands of rave reviews. The god of all trash cans.

    If a garbage bin can generate passionate advocates, then so can your product category. No excuses.

  5. Cross-buy more: hold a greater range of products and use a greater range of services. This is a strong driver of retention and price elasticity.

    If you haven’t done so already then plot customer retention and spend against the number of different products and services that the customer use.

  6. Cost less: typically cost less to serve; and offer more opportunities for selling through service.

Building a model for CX Economics that is trusted by the organization’s leadership team and gives them courage to make the right decisions and act on them, is critical for lasting success and impact from your CX programme. You should be achieving, and measuring, 20% EBITDA growth from CX.

Contact us for a conversation and a diagnostic of your financial model and CX Impact.