Companies are investing big into Customer Experience (CX) and Customer Insight (CI) programs. The Boston Consulting Group has defined this trend toward listening and understanding the voice of every customer as the ‘Introverted Company’. The idea that companies today are under more pressure than previous decades is not lost on the CXOs of 2020. Increasingly competitive markets and rapidly shifting customer preference means that a third of all public companies today won’t be around come 2025. That’s an alarming figure but one which can be solved by driving action from understanding what customers actually want. At Kapiche, we call these actionable insights. If your customer insights engine is able to collect, analyse and produce actionable insights which can be shared across departments and with the c-suite decision makers, the business stands a better chance of survival.
“The revenue impact from a 10% improvement in a company’s customer experience score can translate into more than $1 billion.” - Forrester
What makes this new landscape competitive is the willingness for customers to punish companies that transgress or fail to deliver exceptional experiences. In a study by American Express, 50% of Americans did not proceed with a purchase due to poor quality service. 33% also said they considered switching to a competitor after each instance of poor service. There are also clear benefits to delivering a better customer experience. In a study by Genesys, a third of customers were actually willing to pay more for a higher level of service. PWC identified that 63% of U.S. consumers were more likely to share their personal information with a company that offers a great experience. Despite what they think, most companies are not as customer-centric as they think they are. Consider this bold finding: 80% of companies believe that they deliver “super experiences”, only 8% of their customers agree. How do your customers feel about the experience your organization offers? Are you a CX laggard likely to disappear/struggle in the next five years or are you ahead of the game, uncovering deep and meaningful customer insights which can be turned into decisive action?
All companies have key business metrics which they measure, track and report on. These can include the obvious such as revenue, customer lifetime value and retention, but also average transaction value, the viral coefficient, NPS, CSAT, Knowledge Base Views, Leads, MQLs, SQLs, Opportunities, number of new customers/users, return visits, cart abandonment, average deal size, average sale value, average items per sale etc. The importance of these metrics are unique to each industry and department within the business. SaaS companies are obsessed with how fast they are acquiring new users onto their app/platform. Growing sales or new users can sometimes surpass the importance of profitability. Amazon is a prime (excuse the pun) example of one such growth strategy.
As you can see in the above chart, Amazon’s sales grew quarter-on-quarter but their net income remained relatively flat through most of that time right up to today. The strategic goal is less about turning a profit and more about market share dominance. Bank of America estimates Amazon’s market share to currently be at 44% of the US ecommerce market (up from 40% just two years ago).
What are the most common key business metrics?
- Sales Revenue
- Net Profit Margin
- Gross Margin
- Sales Growth Year-to-date
- Cost of Customer Acquisition
- Customer loyalty and retention
- Net Promoter Score
- Qualified leads per month
- Lead-to-Client Conversion Rate
- Monthly website traffic
- Employee Happiness
In addition to the above list, the following can be added depending on industry:
- Cart Abandonment rate
- Average items per sale
- Average transaction value
- ROAS (return on advertising spend)
- Market share per region
- New users
- The viral coefficient (referrals)
- ROAS (return on advertising spend)
- App store traffic / website traffic
- Average deal size
- Average sales cycle time (taking longer to close a deal can add to the cost when calculating ROI)
- ROAS (return on advertising spend)
- App store traffic / website traffic
The challenge of connecting the dots
While it sounds like a strange variant of the game connect four, connecting the dots between CX initiatives and these key business metrics is not a game you want to be playing, especially in a competitive landscape. There just isn’t the time, space or capital to invest in unproven initiatives when the best decision is to double down on what the business knows is working. If Customer Insights are doing their job at that elite level and the level of insights maturity is high, decision makers will know with a large degree of granularity what is and is not working. If the opposite is true, then poor decision making will occur. Proving the value of CX initiatives means identifying the return on investment (ROI) for each. The Customer Insights department are best placed to connect those dots if their level of insights maturity is high enough. If companies are investing big money into Customer Experience, they should expect to know if it is working.
Learn more about how to setup a customer insights department at your organisation.
Understanding the problem
What is ROI? In the context of customer insights, it’s quite hard to do if the right products and tools are not used.
“Return on investment (ROI) is a financial metric that is widely used to measure the probability of gaining a return from an investment. It is a ratio that compares the gain or loss from an investment relative to its cost. It is as useful in evaluating the potential return from a stand-alone investment as it is in comparing returns from several investments.” - Investopedia.
There are two ways to calculate ROI:
and the other approach is:
The main advantages of ROI are that is gives approximate measure of an investment's profitability and has a wide range of applications across many industries and departments. ROI is also a fairly straightforward calculation to make. The principle downside is that is has difficulty accounting for length of time since an investment was initially made.
Customer Insight vs Customer Experience
Before we continue, it’s worth briefly covering the difference between Customer Experience (CX) and Customer Insight (CI). Customer Experience is focused on improving the overall experience of customers. Many definitions liken CX to maintaining a good marriage, one between customer and company that covers every interaction. Why is this important? 73% of U.S. consumers say that customer experience is a very important factor in their purchasing decision, so much so that even if they love a company or product, 59% will still walk away after several bad experiences and 17% will walk away after just one bad experience (PwC). Customer Experience Managers and the Chief Customer Officer are principle players in this world.
Customer Insight on the other hand is focused on understanding and making sense of what customers say about a company and then develop actionable conclusions that other departments can use to improve their customer experience strategy. Customer Insight teams vary in levels of maturity. At Kapiche, we refer to this as the Insights Maturity Index.
What stage of Insights Maturity is your business?
Insights analyse inputs of customer feedback data (often qualitative) and make sense of it in such a way that customer needs are aligned to the key metrics that business is focused on. Due to the fact customer needs are constantly changing, it’s next to impossible to accurately predict what customers will do in the future. While you can’t build a solid house on shifting sands, you can move with it by closely hacking into what customers are thinking and feeling about your level of customer service, pricing and product quality. The closer to real time this can be, the better. Customer Insights plays a pivotal (and influential) role in this process.
Measuring the return on investment for your Customer Insights program can be hard, but not impossible. Level of Insights Maturity will determine the best approach.
Low/Medium Insights Maturity:
The goal for measuring insights ROI in a low/medium maturity level business is to establish what success should typically look like for all customer programs/initiatives. Irrespective of insights maturity, each business has a number of key metrics they consider important to work towards. Focus on just one that is the best low hanging fruit option. If your goal is to grow new users on your B2C mobile app by 50%, then map that goal to each CX project/initiative. Treat each as a learning exercise in what success should look like. Over time, this creates the clarity required to know at a top level whether a program was effective or ineffective at improving that metric. As the picture solidifies for one growth metric, move onto another metric until you have a better understanding of all growth drivers for your business. This won’t be perfect, but if you want perfection, you will need to improve your Insights Maturity.
Example: Business A (ecommerce) invested $445,600 last quarter to add a 24/7 live support team to shop front. The goal was to assist shoppers with their orders. After this initiative was rolled out, Cart Abandonment dropped -27%. Revenue before this change was $6,000,000 per quarter. After the change, it increased to $7,620,000. (1,620,000-445,600) / 445,600 = 2.63% ROI. We know this initiative is impactful but don’t know why. A/B test one initiative at a time per quarter, otherwise it will be next to impossible to measure the true impact of the change. As a fledgling customer insight team, your objective will be to prove the value of insights so don’t be afraid about a grilling on the why because there are products on the market to make your life easier (but we’ll get to that later).
High Insights Maturity:
At this stage of insights maturity, you should already know what levers to pull to generate a lift in growth for each metric. You’ve done A/B testing and run some standard ROI calculations with the next steps being quantifying the impact of specific changes. What high maturity insights departments need to do is quantify what each CX metric is worth to the business. According to London School of Economics, improving NPS +7 results in +1% revenue improvement. These marginal gains are less noticeable for low revenue businesses, however larger organisations will really feel the difference, especially if they are further along the business life cycle.
What about measuring CSAT ROI? The Institute of Customer Service found that a +10% increase in a company’s customer satisfaction score leads to a +12% increase in trust from customers. This is important because after building a relationship, customer spend grows alongside trust. CMO did some digging into this direct relationship and found that eventually, loyal customers spend 67% more than new ones. You can thus link CSAT directly to revenue by quantifying the relationship between trust and average spend.
Example: Company B (B2B software), increases the headcount of staff in their call centre for current customers and invests $5 million on a HR training program to ensure those support staff receive the best training and in-depth product knowledge. Total investment was $12 million for 2019 for this support initiative. After the first quarter, results come through to the Insights team and CSAT has improved +26%. We can argue this has a direct impact on trust of +24%. The insights team knows from their previous testing and in-depth analysis that each 5% improvement to trust is worth $202.81 per deal. If trust improved +24% then the impact on average deal size is +$973.48. From there, an ROI can be worked out. Highly mature insights teams will have closely mapped the value of all important key metrics.
Max Level Maturity:
At this level of the game, Insights teams are focused on producing conclusions that decision makers can use to make better decisions around strategy and whether to double down or kill off a specific initiative. This is only possible if you are able to deeply segment the core themes behind each NPS survey. Kapiche is a customer intelligence product that allows customer insights teams to gain these deep and meaningful insights at a segmented level.
Kapiche groups what customers say into themes and measures impact on NPS in segmented way
When calculating ROI, add an extra layer by reporting on what the return would have been if something different had occurred.
Example: If these customers complain about lack of vegan food options on your flight service were not complaining, overall NPS would have improved +11 for a +1.57% revenue improvement. The advantage with this approach is twofold. 1) Your insights analysis is deeper and builds maximum credibility within your organisation. 2) These insights are not only deep and meaningful, they are the definition of actionable. Insights should always lead to actions that can be taken to improve customer experience in a specific area of the business. Business decision makers will then know with confidence which programs to double down on and which to kill.
Everyone wants to do customer insights right but they're setting themselves up to fail if they rely on tools that automate what humans already do manually. That's just automation and isn't true innovation. Customer insights teams today are allowing technologies to reveal the areas that need the most improvement. This video shows you how it's done. 🚀