In John Oswald's Buzz Tank blog, he captures the research that companies that deliver satisfaction are also more profitable. http://www.buzz-tank.com/2010/02/11/on-measuring-the-return-on-customer-experience/
Within the comments section is a challenge by Don Peppers, a principal at Peppers and Rogers, about taking these economic concepts down to the project level. These comments are below:
Financial success that seems to be correlated with better customer experience at a company is certainly welcome news, but it hardly helps a marketing executive during a debate with other executives at the firm about how much investment a company should make in which kinds of experience-improving services. It has become fairly easy to “prove” that good customer experiences have some kind of impact on a company’s results, but Martha Rogers and I have always been struck by the fact that all these indicators are inherently non-financial metrics. Using these kinds of indicators, you still can’t actually quantify the financial benefit of, say, investing an extra $25 million in contact center training, or installing software and re-engineering a system for $50 million, in order to do a better job of treating different customers differently more effectively.
And, if your marketing exec says, well if we want a good customer experience then we should just DO these kinds of things, then our question is: What if the cost is $100 million? Or $500 million? See the problem? At some point a balance has to be struck, but where? Simply saying that CXP leaders tend to have better financial results than CXP laggards won’t solve the hard problem of resource allocation. To solve this problem you need a metric for the benefits of customer-experience-management that can be converted to dollars and cents.
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Peppers and Rogers have developed a Return on Customer metric that uses many of the same principles as the Return on Satifaction metric in the Perfect Service construct. I will study the Return on Customer metric and determine its benefits/shortcomings for the financial/benefits industries.
My View
My comments on Buzz Tank blog in response to Don Pepper's post is as follows> (Shortened for convenience of readers....for full post, link is posted above)
Don/John:
I think the ultimate question for Customer Service specialists is the exact question you pose: how can I calculate a Return on Investment for ncreasing the satisfaction of customers. Ultimately, to improve experiences, a company must invest capital, and that capital must have return. As you state, in the macro, it all makes sense, but how about the micro…in the world of competing priorities…how do you get a customer satisfaction project funded? Productivity projects promise reduced expenses, feature enhancement projects promise increased sales and revenue. But what about satisfaction?
I have worked on this problem in the past and developed an ROI metric for translating increased satisfaction into financial return. While developed for financial and benefits servicing markets, I think it works in concept for others.
In short, for those clients impacted:
–Probability of retention of the prevent value of current profit margins--Probability of additional sales to that customer at the present value of current profit margins
–Probability of additional sales from referrals from that customer at the present value of current profit margins
The return on the requested investment is how many levels of satisfaction will be increased through the execution of a specific project.
One can quickly see how the math sorts itself out. By determining the clients impacted, the improvement in satisfaction metric from a 3 to a 4 will result in financial gain for the company. The more clients impacted, the better the financial return.
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