Just how much does satisfying today’s customer reduce the cost of acquiring tomorrow’s? That’s the question headlining a recent article in Harvard Business Review. We know that satisfied customers lead to higher revenues. But how to quantify that to show senior executives the value of building a customer-centered culture?
We assume that happy customers reduce ongoing service costs and lower sales/marketing costs through referrals, viral word of mouth, positive ratings, and raving social media fans. “However, that assumption lacked credible empirical backing — until a team of researchers recently decided to test it. The researchers gathered nearly two decades’ worth of data from 128 publicly listed U.S. companies. Their analysis showed that on average, each one-point increase in the American Customer Satisfaction Index score lowered a firm’s future Cost of Selling by almost 3%.” That money goes straight to the bottom line.
This study aligns with others showing the outstanding financial returns of high customer satisfaction. American Express found that when Net Promoter Scores (based on whether a customer would recommend the company to a friend) are high, “we see a 10% to 15% increase in spending and four to five times increased retention, both of which drive shareholder value. In fact, our operating expenses associated with service have gone down because we’re more streamlined, and we limit friction points and errors.”
A study co-authored by Disney Institute and McKinsey & Company reports that “companies offering an exceptional customer experience can exceed their peers’ gross margin by more than 26 percent. Emotionally engaged customers are typically three times more likely to recommend a product and to repurchase it themselves…. companies that had a 1-percentage-point lead over their peers in key customer journeys typically enjoyed a 2-percentage-point advantage in revenue growth. In addition, companies that deliver excellent customer journeys increase employee satisfaction and engagement by 30 percent.”
Customer service levels sink or soar on the strength of the organization’s culture. In high service cultures, leaders serve the servers. IBM draws a direct link between employee engagement and customer service. Senior Vice President of Human Resources, Diane Gherson, said, “We’ve found that employee engagement explains two-thirds of our client experience scores. And if we’re able to increase client satisfaction by five points on an account, we see an extra 20% in revenue, on average.”
Many companies entice buyers with special offers, social media campaigns, branding, and other expensive sales and marketing programs. That brings customers in the front door. But many customers are forced to use unfriendly systems that seem to say, “we will dictate to you the terms upon you will have the ‘pleasure’ of doing business with us.” Does that bring any painful encounters with, say, communication, technology, entertainment, or insurance companies to mind?
Indifferent or unfriendly staff add to the dubious ‘pleasure’ of the experience. So many new customers slip quietly out the back door, never to return. Leaders then pump even more money into attracting more buyers in the front door…
How are your customer service systems and culture? How much money in sales and marketing are you wasting? How do you know?