Customer Experience Management has matured immensely since the first customer-focused initiatives in the 80s and is no longer a universal magical phrase to big investments. Nowadays telecom executives expect to see clear, significant and measurable financial impact as part of the CX initiative pitch, which makes advanced analytics tools like Predictive NPS® invaluable in making sound decisions and getting internal buy-in. Vesela Nedkova, Commercial Research Director & Group Telecom Sector Lead
Failing customer expectations is probably one of your scariest nightmares, and yet, something you need to deal with on a daily basis. In fact, every second customer globally says brands are failing their expectations. CX professionals know the golden rule by heart – happy customers equal stronger bottom line. Yet, you are not alone in your struggle to get buy-in for key initiatives aimed at customer satisfaction. Unsurprisingly, linking CX initiatives to ROI is one of the top three challenges that customer experience practitioners face around the world, alongside “building a client-first culture” and tackling “competing priorities”.
Individually, these challenges might be daunting, but together, they form a vicious circle. If you don’t know which initiatives will have the highest impact on business results, you will have a hard time setting priorities. Then, if you cannot prove the value of customer-centric improvement, you don’t have a fighting chance against the scepticism of senior management and front-line employees alike. Ultimately, the result is always the same: your customers are frustrated by multiple frictions along their journey with your organization, and your company loses their loyalty.
Better experience leads to higher customer lifetime value, but how much higher exactly?
Historic research demonstrates a clear correlation between lifetime value and customer satisfaction. Happy customers are worth 3 to 8 times more than disappointed ones across sectors.
Satisfaction ultimately impacts the 3 key variables of customer lifetime value (CLV):
- Retention – how long your customers stay with you
- Average Revenue per User – how much they spend on average
- Cost to serve – the costs of truck rolls and service calls
But is there a way to calculate exactly how much more your organization will earn if you invest in specific CX initiatives to improve satisfaction? Also, which initiatives fall into the “sweet spot” of delighting customers without exceeding the potential value it can generate? There are two crucial elements to this question:
- Present: Understand how unhappy customers are currently impacting revenue.
- Future: Estimate the future increase in top-line revenue caused by improvement initiatives
Present: Understanding the current state
One of the key objectives of CX initiatives is improving retention. Still, studies suggest that 90% of CX professionals cannot confirm whether their NPS programs had improved retention rates, even though the tools to make and quantify this connection are available.
We analysed an emerging market for one of the top 10 mobile operators in the world and, not surprisingly, found out that the least happy customers (NPS 0-1) were 3 times more likely to leave the company than the happiest ones (NPS 9-10). But the most valuable finding was that the most dissatisfied ones could be saved and the solution was as simple as calling them, understanding the root cause of their dissatisfaction, making improvements and letting them know about the changes.
A simple solution, powerful of impact – estimated at an additional revenue of 32.5 million per year – yet, impossible without being able to predict who those most satisfied customers are.
Working with another company from a similar subscription-based industry, we found that the average cost-to-serve of disgruntled customers was just over twice that of highly satisfied ones. Happy customers spent on average 49% more per month compared to highly unhappy ones, and 24% more than neutral customers. Increasing the satisfaction of customers amounted to an opportunity to augment revenues by $12.5 million per annum.
Future: Predicting the ROI of improvement initiatives
As was the case with our mobile operator client, we built a model to estimate the return on investment of CX initiatives, taking into account the following data:
- WACC (Weighted Average Cost of Capital) and Gross Margin
- Call Centre Effectiveness – what is the average number of clients the call centre force can save per day through targeted calls
- The difference generated from improving satisfaction for unhappy customers – what will be the increase in their CLV and rate of retention
- The retention rate of strategic improvement initiatives at scale
We calculated how much more customers the company will be able to retain by increasing their NPS score, how much their CLV will increase and what’s the total revenue the customers saved by those initiatives will bring to the company. Combining all previous aspects and assumptions, we estimated the net present value based on total retained revenue for the next 5 years to a total of 5 million.
Although some would argue you can’t put a price tag on flawless customer experience, you should get there by investing wisely. Manage by metrics. Generate an accurate estimation of the potential benefits and all the costs accrued across the organization. Arm yourself with data-backed proposals to get easy internal buy-in and, ultimately – generate real business value.