{{title}}
{{byline}}
{{byline}}
The companies that don't invest in customer experience are the ones whose leaders don't understand the financial impact CX can have.
Several organizations are focused on building a world-class experience ecosystem for every business stakeholder. We have seen firsthand that companies with the strongest internal cultures are significantly less affected by economic instability.
How do companies outperform competitors and the stock market by significant margins in any economy? By being customer experience leaders in their industries. Make no mistake about it: There is a direct correlation between love, loyalty, and profitability.
From January 2006 through June 2024, the American Customer Satisfaction Index (ACSI) Leaders portfolio generated a cumulative return of 1,930% versus 534% for the S&P 500 and 601% for the Consumer Discretionary sector with corresponding annualized returns of 17.7% for the ACSI Leaders portfolio and 10.5% for the S&P 500.
According to Bain & Co., companies achieving the highest Net Promoter Scores (NPS), a customer satisfaction tool, in their industry consistently beat the stock market over the past decade with annual returns of more than 26%.
There's also a strong correlation between the overall customer satisfaction average and corporate profits over time. Customer satisfaction started to decline around 2013, and average corporate profit followed suit. A company's profitability often follows a change in its customer satisfaction.
Claes Fornell, chairman and founder of ACSI, states: "In competitive markets, firms are rewarded by treating their customers well and punished for treating them badly. The rewards/punishments show up not only in earnings, but also in stock prices and make equity markets better aligned with consumer utility, which, in turn, causes an upward shift in demand curves. As a result, consumer spending increases and so does economic growth. Investors in customer satisfaction don't just beat the market; they also contribute to a stronger economy."
There's a direct correlation between NPS and automaker stock market values. The higher the NPS scores, the higher the value of the automaker.
In his book Winning on Purpose, author Fred Reichheld shares an incredible comparison of two groups of companies. The first group comprised the 11 organizations Jim Collins focused on in his groundbreaking book Good to Great, which he identified as great based on financial criteria as the only competitive differentiator. These 11 were compared to the NPS leaders featured around the same time in Reichheld's earlier book, The Ultimate Question 2.0.
Bain teams examined the total shareholder return of the 11 great companies featured in Good to Great for a decade following the book's publication. Bain then performed the same analysis for the NPS leader companies from The Ultimate Question 2.0 for the decade after that book's release. Bain then compared both sets of companies to the median stock market return in the decade following each book's publication.
The Good to Great companies delivered only 40% of the median market performance while top-performing NPS organizations delivered 510% of the median return (see shareholder return graph). In other words, the firms appearing great through the lens of financial performance made their investors unhappy over the decade while investors in companies focused on delighting their customers also delighted their investors in the next decade.
So why did the companies labeled great in Collins' book not maintain that level? Reichheld explains it this way: "Those firms (like most companies today) gauged their success using the metrics of financial capitalism--primarily profits. When profits become the purpose, it becomes too easy for large and powerful firms to boost their financial performance by shortchanging their customer base and employees."
This is why organizations need to focus on being "brand eXperience" strong (BX strong), which is an entire experience ecosystem of how your organization intentionally interacts with and treats every one of its stakeholders. The companies that will dominate their industries for the next decade will be obsessed with evolving the experience at every level: employee, customer, vendor, and community.
John DiJulius III, author of The Customer Service Revolution, is president of The DiJulius Group, a customer service consulting firm that works with companies, such as Starbucks, Chick-fil-A, Ritz-Carlton, Nestle, PwC, Lexus, and many more. Contact him at 216-839-1430 or info@thedijuliusgroup.com.