Does Customer Experience Really Drive Business Success?

For Customer Experience ProfessionalsDoes Customer Experience Really Drive BusinessSuccess?The Relationship Between Superior Customer Experience And Growthby Harley ManningJuly 15, 2015Why Read This ReportKey TakeawaysIt’s the age of the customer, when technologyand economic forces have changed the worldto such a great extent that an obsession withwinning, serving, and retaining customers isthe only possible response. Transforming thecustomer experience is one of four critical marketimperatives required for shifting companiestoward customer obsession. But how cancustomer experience (CX) professionals provethat to their executives? Not by pointing to thestock market gains that accrue to CX leadersbecause there’s too much noise in the data.Instead, the proof lies in comparing the revenuegrowth of companies with superior customerexperience to that of their direct competitors withcomparatively inferior customer experience. Thisreport details how we went about doing exactlythat and the surprising results we uncovered.Evaluating The ROI Of Good CX By Total StockMarket Returns Can Be MisleadingOver a multiyear period, the total stock returns ofa portfolio of CX leaders beat those of a portfolioof CX laggards. However, factors ranging frommarket bubbles to large corporations rolling updiverse types of businesses into a single tickersymbol can obscure the true relationship betweenCX and business success.Correlating CX To Revenue Growth RevealsThe Real Business Value Of CXCX drives three types of customer loyalty:retention, enrichment, and recommendation.Increased customer loyalty in turn tends to driveincreased revenue growth. But for these driversto affect an industry, customers must be freeto switch providers, and providers must offerdifferentiated CX.CX Drives Revenue Growth To DifferentDegrees Depending On Industry DynamicsCompanies with customers who have manyequally convenient and strongly differentiatedchoices -- like online retailers and investmentfirms -- see major revenue upside from superiorCX. Companies with trapped customers, likehealth insurers, or little CX differentiation amongdirect competitors, like traditional retailers, willsee less impact on their revenue growth.forrester.com

For Customer Experience ProfessionalsDoes Customer Experience Really Drive Business Success?The Relationship Between Superior Customer Experience And Growthby Harley Manningwith Michael E. Gazala, Bill Doyle, James L. McQuivey Christopher Mines, Peter Mueller,Sucharita Mulpuru, Corey Stearns, Dylan Czarnecki, Carla O’Connor, and Kara HartigJuly 15, 2015Table Of Contents2 Does Good CX Pay Off? You Can’t Prove ItWith Stock Market Returns4 Better CX Correlates With Higher RevenueGrowth In Most Industries13 The CX/Revenue Growth Equation16 Craft Your Customer Experience StrategyFor GrowthWhat It Means17 CX Leaders And Laggards Will Continue ToGo Their Separate Ways20 Supplemental MaterialNotes & ResourcesWe used Forrester’s US Consumer CustomerExperience Index (CX Index ), complementedby third-party customer satisfaction scores,to identify direct competitors with significantdifferences in the quality of their experience andthen analyzed their US Securities and ExchangeCommission (SEC) filings to build modelsthat compared their revenue growth. We alsointerviewed user companies, including AT&T,DirecTV, Humana, Southwest Airlines, and UnitedAirlines.Related Research DocumentsCustomer Advocacy 2014: How US ConsumersRate Their Financial InstitutionsThe Customer Experience Index, 2014The US Customer Experience Index, Q1 2015Forrester Research, Inc., 60 Acorn Park Drive, Cambridge, MA 02140 USA 1 617-613-6000 Fax: 1 617-613-5000 forrester.com 2015 Forrester Research, Inc. Opinions reflect judgment at the time and are subject to change. Forrester ,Technographics , Forrester Wave, RoleView, TechRadar, and Total Economic Impact are trademarks of ForresterResearch, Inc. All other trademarks are the property of their respective companies. Unauthorized copying ordistributing is a violation of copyright law. Citations@forrester.com or 1 866-367-7378

For Customer Experience ProfessionalsJuly 15, 2015Does Customer Experience Really Drive Business Success?The Relationship Between Superior Customer Experience And GrowthDoes Good CX Pay Off? You Can’t Prove It With Stock Market ReturnsOver an eight-year period from 2007 to 2014, the total returns from a portfolio of CX leadersoutperformed both a portfolio of CX laggards and the S&P 500.1 Forrester has been talking about thosefindings for years, and they’re true. But if you’re a customer experience professional, there’s somethingelse about that study that you need to know: When you crack open the two portfolios, you find somestock market losers among the CX leaders, and vice versa (see Figure 1).›› CX leaders like Borders and JCPenney tanked. Borders ranked No. 2 overall in Forrester’s2007 CX Index, even as it careened toward oblivion and its stock returned -50% for the year.2 Itsever-shrinking customer base apparently loved it even as it was preparing to shutter its stores.JCPenney shoppers also gave it high marks for CX in both 2013 and 2014; its stock returns forthose years were -43% and -54%, respectively.›› CX laggards like Cigna and Comcast soared. Both the health insurance industry and the cableindustry deliver famously bad customer experiences. But in 2010, CX laggard Cigna’s stockreturned 110%, and in 2013, Comcast’s returned 60%. Results like these make it hard to argue thatpoor customer experience drags on business performance. 2015 Forrester Research, Inc. Unauthorized copying or distributing is a violation of copyright law.Citations@forrester.com or 1 866-367-73782

For Customer Experience ProfessionalsJuly 15, 2015Does Customer Experience Really Drive Business Success?The Relationship Between Superior Customer Experience And GrowthFIGURE 1 Total Stock Market Returns For Worst-Performing CX Leaders/Best-Performing LaggardsWorst-performing CX leadersBest-performing CX eBorders(BGP(A )ET)om eBca ayst (EB(C AM Y)CComSAfo)rtInnC (CHig HBana )rn(CesI)&C Nab oble leCvihasi (BKrteon SrC(C )omVCm)un Taic rgat etions (TG(C T)HTRJC)C Peom nnca eyChast (Jrte(C CPM )rCCom JSAm CP)un enic neatio y (Jns C(C P)HTR)-50%Source: MorningstarWe Analyzed Revenue Growth To Determine The True Business Impact Of CXWhat’s going on? Does customer experience really matter to business success — or is CX just thelatest hype? To find out, we set aside the metric of total stock market returns, which gets distorted byfactors ranging from valuation bubbles, Federal Reserve policy, and the simple fact that a single tickersymbol often represents highly diverse businesses within a monolithic corporation. Instead, we settledon a metric that’s the No. 1 priority of global business leaders surveyed by Forrester: revenue growth.3Then we:›› Identified direct competitors with significant differences in CX quality. First we selected pairsof companies that compete directly for the same types of customers, where one of the competitorsis an industry leader in our CX Index and the other lags significantly behind. Furthermore, wecomplemented our own CX rankings with customer satisfaction scores from J.D. Power and/or theAmerican Customer Satisfaction Index (ACSI). 2015 Forrester Research, Inc. Unauthorized copying or distributing is a violation of copyright law.Citations@forrester.com or 1 866-367-73783

For Customer Experience ProfessionalsJuly 15, 2015Does Customer Experience Really Drive Business Success?The Relationship Between Superior Customer Experience And Growth›› Built models that compared the growth of leaders and laggards over time. Armed withfinancial data culled from annual reports and SEC filings like Forms 10-K and 10-Q, we isolatedthe revenue streams for specific lines of business within large corporations and calculated thecompound annual growth rate (CAGR) of their revenue from 2010 to 2014.4 This allowed us tocompare direct competitors and determine whether or not customer experience actually correlateswith growth.Better CX Correlates With Higher Revenue Growth In Most IndustriesIn all, we examined five industries with diverse competitive dynamics and revenue models. The onlynotable thing these industries have in common is that the end user of their products or services is aconsumer.Cable: CX Leader AT&T U-Verse Dwarfed CX Laggard Comcast By Double DigitsAT&T U-verse tied for the highest-scoring Internet service provider (ISP) in Forrester’s most recent CXIndex rankings. It also scored near the top of our television service provider rankings. Comcast’s Xfinitybrand was the lowest-scoring brand in both industries.The financials of U-verse are buried in the annual report of AT&T: a massive corporation that alsoincludes a giant wireless business. Similarly, Comcast’s cable operation is just one of five businesssegments in Comcast’s annual reports. We teased out the revenue and subscriber numbers for bothcorporations’ cable offerings (ISP plus video). When we compared them with each other, we found thatfrom 2010 to 2014 (see Figure 2):5›› AT&T showed surprisingly superior revenue growth. There was a stark contrast between therevenue growth rates of our leader and laggard. AT&T had a CAGR of more than 35%. During thatsame period, Comcast’s revenue grew less than 6%.›› AT&T also crushed Comcast in subscriber growth. To understand the reason behind thisdifference in revenue growth, we examined the customer growth of both providers. AT&T haddouble-digit growth among its both Internet and video service subscribers. Comcast had singledigit growth among its Internet subscribers and negative growth among its video subscribers. 2015 Forrester Research, Inc. Unauthorized copying or distributing is a violation of copyright law.Citations@forrester.com or 1 866-367-73784

For Customer Experience ProfessionalsJuly 15, 2015Does Customer Experience Really Drive Business Success?The Relationship Between Superior Customer Experience And GrowthFIGURE 2 Revenue Growth Rates For Two Competitors In The Cable IndustryCompound annual growth rates, 2010 to 2014CX leader: AT&TCX laggard: ernetsubscribersVideosubscribersSource: US Securities and Exchange Commission filings by AT&T and ComcastAirlines: CX Leader JetBlue Outgrew CX Laggard United On Three Key MetricsAccording to its Customer Bill of Rights, JetBlue Airways is “dedicated to bringing humanity back toair travel.”6 Since its first flight in 2000, the upstart airline has competed based on superior customerexperience. It was the top airline in Forrester’s CX Index in 2015 and tied for the No. 9 spot across allindustries. Additionally, it was the top-rated airline for 2015 in the ACSI. Conversely, United Airlineshas consistently been at or near the bottom of our CX Index and came in 21 points below JetBlue inthe 2015 ACSI rankings. To negate the effects of United’s 2010 acquisition of Continental Airlines, westarted our comparison of these two firms in 2011. We found that (see Figure 3):›› JetBlue’s revenue grew more than five times faster than United’s revenue. Over this three-yearperiod, JetBlue turned in a very strong revenue CAGR of 8.9%. In contrast, United only managed togrow its revenues by 1.6%. Because United does vastly more international business than JetBlue,we also calculated United’s CAGR for just its domestic routes. That tipped the comparison evenmore in JetBlue’s favor because it brought United’s CAGR down to 0.6%.7 2015 Forrester Research, Inc. Unauthorized copying or distributing is a violation of copyright law.Citations@forrester.com or 1 866-367-73785