Great Customer Experience Brands Outperform - in Any Economy!

“The companies that don’t invest in customer experience are the ones where their leaders don’t understand the financial impact CX can have.”

How do companies outperform competitors and the stock market by significant margins—in any economy? By being customer experience leaders in their industries, that’s how!

Make no mistake, there’s a direct correlation between love, loyalty, and profitability. According to Bain & Co., companies achieving the highest Net Promotor Scores (NPS) in their industry consistently beat the stock market over the past decade, with annual returns of more than 26%.

When brands decide to make the experience that they deliver their single-biggest competitive advantage, the results speak for themselves. Stronger revenue growth naturally follows. Sales, profit, brand loyalty, customer referrals, and employee morale all increase, while advertising expenses and employee turnover decrease. This approach is a proven relationship builder.

In his book, Winning on Purpose, Fred Reichheld shared an incredible comparison of two groups of companies. The first group consisted of the 11 organizations that 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. They were compared with 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 the decade following that 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—and 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 40% of the median market performance, while The Ultimate Question 2.0 NPS exemplars delivered 510% of the median return. In other words, the firms appearing “great” through the lens of financial performance only made their investors very unhappy over the decade, while investors in companies that focused on delighting their customers also delighted their investors in the next decade.

Why customer experience wins

So how did the companies that were 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 both their customer base and their employees.”

The focus is no longer on engaged employees creating positive experiences for loyal customers, or even new ones. It’s an approach that can affect the entire customer journey. This business model merely extracts value, rather than creating it. It does nothing to improve relationships with customers, much less exceed customer expectations. We know that even one bad experience can lead to negative customer feedback. When bad customer experiences occur over a time period ranging from months to years, the company’s investors can be the last to know.

CX counters downturns

No better point can be made than the following graph from Watermark Consulting’s Customer Experience (CX) ROI Study. The study analyzes the stock market performance of the top-rated customer experience companies versus the bottom-rated during the period of the last U.S. recession, from 2007 to 2009.

The worst CX companies, delivering poor customer experience, had a negative 57% ROI; many of them didn’t survive. The stock market struggled at a negative 16%, while the best CX companies providing customer experience excellence posted a positive 6.1% ROI.

In today’s competitive market it’s clear that when considering market share and revenue goals for their companies, business leaders must include customer service training among their top investments as an essential facet of their overarching customer service mission.

John R. DiJulius III, author of The Customer Service Revolution, is president of The DiJulius Group, a customer service consulting firm that works with companies including Starbucks, Chick-fil-A, Ritz-Carlton, Nestle, PwC, Lexus, and many more. Contact him at 216-839-1430 or info@thedijuliusgroup.com.