Taking a Measurable Approach to Customer Experience

Consumers' expectations have changed dramatically. Customers want things faster, better, cheaper, and with a higher degree of service—and technology makes this all possible. Technology has tipped the balance in favor of the customer, who now has more knowledge, power, and leverage than ever. In fact, technology-empowered consumers now know more than companies do about their products and services, pricing, or reputation.

To compete successfully, companies must find ways to differentiate. A company's knowledge of and relationship with customers is what will enable it to survive in the age of the customer. Your firm must become customer-obsessed—understanding, delighting, connecting with, and serving them.

Does such a strategy pay off? Yes. An analysis by Watermark Consulting of the seven-year stock performance for companies that deliver exceptional customer experiences versus those that deliver poor ones (as measured by Forrester's Customer Experience Index) showed that companies that lead in customer experience saw a 78 percent increase, versus an average increase of 52 percent and a 3 percent drop in stock price for their laggard customer experience (CX) counterparts.

Despite the return on investment of offering great customer experience, we found that a large gap exists between the kind of customer service companies aspire to and what they actually deliver. In a Forrester survey of more than 200 CX executives, 31 percent said that they want their company to "be a leader in their industry," 29 percent want their company to "be the leader in their industry," and 20 percent want to "be a leader across all industries." Despite this, only 11 percent of companies fall into Forrester's customer experience "leader" category—companies that consumers rate as delivering exceptional customer experience.

Why the disconnect? Customer experience requires sustainable discipline and investment with a repeatable system of measurement. It often requires significant investments in culture, organization, and technology.

At Forrester, we believe that true measures of customer experience must focus on and capture customers' perceptions of an interaction with a company. Measures such as overall satisfaction say little about the specific experiences a company must change to make customers happier. Likewise, it is difficult for companies to understand whether a customer's likelihood to recommend (or disparage) them comes from their personal interactions or from what they have heard on the news or from others.

Great customer interactions involve three core components: effectiveness, ease, and emotion. In any interaction with a company, customers must derive value from the interaction, they must get that value without difficulty, and they should feel good during the process.

But while measuring customer experience quality is critical, it's also a cold, hard fact that the ideal customer experience can't just be good for customers—it has to deliver revenue for the business, too. Forrester's Customer Experience Index reflects this reality, providing a metric that equates to how well a company delivers customer experience that creates and sustains loyalty.

Loyalty means different things to different organizations, so effectively measuring it can be a challenge. A common solution is to reduce it to a single metric, such as advocacy, retention, or satisfaction. However, in many cases, this provides a myopic view. Rather, three types of loyalty are critical to a quality metric for customer experience:

• Retention loyalty—the likelihood that a customer will keep existing business with a company.
• Enrichment loyalty—the likelihood that a customer will buy more from a company.
• Advocacy loyalty—the likelihood that a customer will recommend a company to others.

Because the Customer Experience Index is both a measure of the quality of a company's customer experience and the customer's loyalty to the brand, a higher score equates to a customer experience that effectively helps win and retain customers. Conversely, the lower a brand's CX Index score, the more money the brand leaves on the table.

But knowing your score is just the first step in understanding how customers experience your brand. Customer experience success will require discipline, and while it's important to measure results, what a firm does with this information will determine whether its customers remain loyal or turn to another brand.

Roxana Strohmenger is the director of Data Insights Innovation at Forrester Research.