Temkin Group Insight Report

(1)

Temkin Group Insight Report

ROI of Customer Experience, 2014

CX Highly Correlates to Loyalty Across 19

Industries, Delivers Up To $460M Over 3 Years

By Bruce Temkin

Customer Experience Transformist

& Managing Partner

Temkin Group September 2014

(2)

Executive Summary

To understand how customer experience corresponds to loyalty, we examined feedback from 10,000 U.S. consumers describing their experiences with and their loyalty to 268 companies. Our analysis shows a strong correlation between customer experience and loyalty factors such as repurchasing, trying new offerings, forgiving mistakes, and

recommending the company to friends and colleagues. We compared the consumers who gave companies a very good customer experience rating to those who gave companies a very bad customer experience rating, and we found that the percentage of customers who plan on repurchasing products is 18 percentage-‐points higher at organizations with

excellent CX ratings. Additionally, the Net Promoter Scores of companies with very good CX ratings average 22 points higher than the scores of companies with poor CX. We built a model to evaluate how customer experience impacts a $1 billion business’s revenue over three years in each of the 19 industries, and this model shows that CX has the largest impact on hotels ($461 million), fast food chains ($437 million), and retailers ($428 million). This report also includes a five-‐step approach for building a model that estimates the value of CX for your organization.

Customer Experience Is Highly Correlated With Loyalty

In a recent Temkin Group study, nearly six out of ten large companies reported having the ambition to provide the best customer experience (CX) in their industry.¹ Why do so many companies aspire to deliver first-‐class customer experience? Beyond simply being a “good” service to provide, many CEOs likely emphasize the importance of delivering excellent CX because they recognize the clear link between CX and loyalty. To determine how customer experience affects loyalty, we asked 10,000 U.S. consumers about their experiences with and their loyalty to 268 U.S. companies and then analyzed their responses² The results show that CX:

! Correlates with repurchasing. We looked at how likely consumers are to repurchase products from each of the 268 U.S. companies and then compared those numbers to each firm’s 2014 Temkin Experience Ratings score. We found a strong connection between the two datasets, with a correlation coefficient of .83 (see Figure 1).³

! Affects many aspects of loyalty. We split the companies into quintiles based on where their Temkin Experience Ratings scores landed them in relation to their industry averages (see Figure 2). When we compared the companies with the highest CX rating to the

1 See the Temkin Group report The State of CX Management, 2014 (April 2014).

2 For the CX ratings we used the 2014 Temkin Experience Ratings, which evaluates three areas of

(3)

of consumers who are likely to repurchase, a 13.3 point difference in the percentage of consumers who are likely to forgive a company if it makes a mistake, and an 8.1 point difference in the percentage of consumers who are likely to immediately try a new offering from the company.

! Also links to word of mouth. We also found that CX strongly correlates to Net Promoter^® Score (NPS^®) (see Figure 3).⁴ The average NPS for companies with the highest CX ratings is 11 points above their industry NPS, while the average NPS for those with the poorest CX ratings falls 11.5 points below their industry average.

! Plays an important role across many industries. In addition to comparing general CX with general loyalty, we also broke both of these areas down into their component parts and examined how they correlated on a more specific level (see Figure 4). We evaluated the connection between the three elements of the Temkin Experience Ratings—functional, accessible, and emotional—and the two areas of loyalty—the likelihood to recommend and the likelihood to purchase more—for companies across the 19 industries. We found a strong correlation between every combination we examined for every industry.⁵

Intriguingly, the emotional element of experience has the highest correlation to loyalty in almost every industry.

CX Improvement Results: Up to $461M In Revenue Over Three Years

To help translate the connection between CX and loyalty into tangible bottom line numbers, we built a model that identifies how a modest increase in CX will result in additional revenues for each of the 19 industries over a three-‐year period (see Figure 5).⁶ Our analysis evaluates how loyalty differs between the consumers who gave companies a “modest” CX rating and those who gave companies a “good” CX rating (see Figure 6). The results show that (see Figures 7 and 8):

! Revenues increase the most for hotels, the least for health pans. Hotels have the most to gain from improving CX ($460.7 million), while health plans gain the least ($271.8 million).

! Auto dealers have the most revenue to retain. Auto dealers retain the most business from existing customers ($183.5 million), whereas investment firms retain the least business ($93.7 million).

! Hotels have the most additional purchases to gain. The amount of new business from existing customers ranges from $193.5 million at the top for hotels down to $55.5 million at the bottom for health plans.

(4)

and bad comments on their volume of business ($107.8 million), while comments affect auto dealers the least ($73.5 million).

CX and Loyalty Across 19 Industries

As part of our analysis, we examined the how loyal consumers felt to companies in 19 industries based on how they rated their experiences with those companies (see Figures 9 through 28). When we looked at the averages across all of the industries, we discovered that CX influences the

customer’s:

! Likelihood to repurchase. While 92% of the consumers who gave a company a very good CX rating report being very likely to repurchase from that company, only 9% of those who gave a company a very poor CX rating say the same.

! Likelihood to recommend company. The percentage of consumers who are very likely to recommend a company to their friends or colleagues ranges from a high of 88% of

consumers who rate a company’s CX as very good, down to a low of 4% of those who give a company a very poor CX rating.⁷

! Likelihood to forgive a company if it makes a mistake. Sixty-‐seven percent of consumers are very likely to forgive a company for a mistake if they think it has very good CX, whereas only 9% of consumers are very likely to forgive a company with very poor CX.⁸

! Likelihood to try a new offering right away. Of the consumers who gave a company a very good CX rating, 57% of them report being very likely to try that company’s new

product or service immediately after it’s introduced. Meanwhile, only 6% of consumers who gave a company a very poor CX rating report the same.⁹

Build Your Own CX ROI Model

Remember, as with all industry-‐wide research, any single company’s results may vary considerably from these results. As such, we recommend that companies build their own models for tying loyalty (and revenues) to customer experience measures (see Figure 29). Here’s some advice to consider as you undertake this effort:

! Enlist your CFO. Even if you have the brightest business analysts in the world on your team, if you do not involve the CFO’s team, the finance leader will always question your financial models and assumptions.

7 We looked at consumers’ responses to the question: How likely are you to recommend the company to a friend or colleague? We included the percentage of consumers who selected either 9 or 10 on a scale from 0 (very unlikely) to 10 (very likely).

8

(5)

company already uses—it will make it easier for people to understand and will help you earn their buy-‐in.

! Be conservative. Resist the temptation to use the high end of estimates for potential benefits. While the results may seem more compelling, they will also be harder to defend.

! Create a simple story. People tend to remember very simple story lines, so make sure that you organize your results in a way that is easy for people to understand.

(6)

-35.0 -25.0 -15.0 -5.0 5.0 15.0 25.0

-25.0 -20.0 -15.0 -10.0 -5.0 0.0 5.0 10.0 15.0

Temkin Experience Ratings Correlates To Future Purchase Intentions

268 Organizations Across 19 Industries

Base: 10,000 U.S. consumers

Source: Temkin Group Q1 2014 Consumer Benchmark Study Consumers who are very

likely to repurchase minus industry average

(%-points)

2014 Temkin Experience Ratings

minus industry average (%-points)

Pearson correlation coefficient (R) = .83

(7)

Companies With Higher Temkin Experience Ratings Have More Loyal Customers

-10.7

-6.4

-3.1

-3.8 -3.6

-2.2

-0.5 -0.1

0.5

2.2 1.6

0.8

7.4 6.9

5.0

Bottom Quintile 4th Quintile 3rd Quintile 2nd Quintile Top Quintile Percentage of customers (above and below industry average) who are loyal in three areas (%-points). Companies are sorted based on how their 2014 Temkin

Experience Ratings score compares with their industry averages Very likely to try a new

product or service immediately after it has been announced Very likely to

forgive company if it makes a mistake Very likely to

purchase more from company

2014 Temkin Experience Ratings of companies compared with

(8)

-40.0 -30.0 -20.0 -10.0 0.0 10.0 20.0 30.0 40.0

-25.0 -20.0 -15.0 -10.0 -5.0 0.0 5.0 10.0 15.0

Temkin Experience Ratings Correlates To Net Promoter^® Scores (NPS^®)

268 Organizations Across 19 Industries

Company NPS minus industry average NPS

(%-points)

Pearson correlation coefficient (R) = .77

-11.5

-6.2

-0.2

3.3

11.0

Bottom Quintile 4th Quintile 3rd Quintile 2nd Quintile Top Quintile Difference between company NPS

and industry average NPS 2014 Temkin Experience

Ratings minus industry average (%-points)

NPS Versus Industry Average Based on Temkin Experience Ratings

2014 Temkin Experience Ratings compared with their industry averages

(9)

Correlations Between Loyalty and Three Components of Customer Experience for 19 Industries

Pearson correlations between loyalty and CX area

Loyalty: Likely to Recommend Likely to Buy More

CX area: Functional Accessible Emotional Functional Accessible Emotional

Airlines 0.58 0.64 0.72 0.59 0.64 0.65

Auto Dealers 0.60 0.64 0.71 0.57 0.60 0.65

Banks 0.56 0.61 0.69 0.54 0.59 0.62

Computers 0.58 0.64 0.68 0.55 0.60 0.63

Credit Card Issuers 0.52 0.56 0.67 0.50 0.54 0.61

Fast Food Chains 0.51 0.53 0.66 0.56 0.56 0.58

Grocery Chains 0.51 0.56 0.66 0.55 0.59 0.56

Health Plans 0.55 0.62 0.69 0.52 0.56 0.59

Hotel Chains 0.60 0.61 0.70 0.59 0.59 0.64

Insurance Carriers 0.60 0.63 0.69 0.58 0.59 0.63

Internet Service

Providers 0.58 0.66 0.75 0.56 0.63 0.69

Investment Firms 0.60 0.63 0.70 0.58 0.61 0.63

Major Applicances 0.59 0.63 0.70 0.54 0.57 0.64

Parcel Delivey

Services 0.55 0.60 0.70 0.57 0.58 0.61

Rental Car

Agencies 0.59 0.68 0.76 0.61 0.66 0.71

Retailers 0.53 0.57 0.66 0.56 0.60 0.60

Software Firms 0.58 0.64 0.71 0.57 0.61 0.64

TV Service

providers 0.60 0.67 0.75 0.58 0.63 0.67

Wireless Carriers 0.56 0.61 0.70 0.54 0.55 0.62

Average across all

industries 0.57 0.62 0.70 0.56 0.60 0.63

Bold numbers are above cross-industry averages

(10)

Elements Used in Model to Derive Revenue Impact Based on Improvement in Customer Experience

Revenue Area Description Retain existing

business

The amount of existing business that customers will continue to do with company. Influenced industry-level data on consumers’

likelihood to repurchase.

Save business after a very bad experience

Business that companies are able to save after delivering a bad experience. Influenced by industry-level data on percentage of consumers that experience a very bad experience, the willingness of consumers to forgive companies after a bad experience, and their change in spending after those experiences.

Sell additional products and services

Additional purchases that consumers will make above their basic relationships. Influenced by industry-level data on consumers’

likelihood to repurchase and estimate of how much add-on business is typical across industries.

Sell new offerings

Purchases that consumers make of new products and services offered by companies. Influenced by industry-level data on consumers’ likelihood to try new offerings from companies and estimate of how much business comes form new business that is typical across industries.

Word of mouth

Purchases that result from consumers telling other people about their experiences. Combines additional purchases from positive word of mouth along with lost purchases from negative word of mouth.

Influenced by industry-level data on consumers’ likelihood to recommend and estimates of how many people they tell about the experience and the influence that those comments have on decisions of other consumers.

Basic assumptions in model:

•  Companies have $1 billion in annual revenues

•  Examines revenue impact over three years

•  Revenue impact will differ across industries for each year based on factors such as ease of switching providers

•  Inputs to model include data from Temkin Group’s Q3 2013 and Q1 2014 Consumer Benchmark Studies (10,000 U.S. consumers in each) along with estimates based on Temkin Group's judgment

Areas of Revenue that Increase Due to Improvement in CX

(11)

Improvements in Customer Loyalty From Modest Improvements in Customer Experience

Industries Repurchase Recommend Forgive Try

Airlines 48 44 30 29

Auto Dealers 44 40 28 29

Banks 48 37 25 15

Computer Makers 45 46 32 27

Credit Card Issuers 43 39 27 21

Fast Food Chains 50 36 26 20

Grocery Chains 48 40 31 26

Health Plans 44 43 30 29

Hotel Chains 54 46 24 29

Insurance Carriers 48 46 29 27

Internet Service Providers 43 40 25 21

Investment Firms 51 50 32 28

Major Appliances 42 48 36 36

Parcel Delivery Services 46 42 24 15

Rental Car Agencies 47 43 36 31

Retailers 48 42 28 26

Software Companies 51 48 41 36

TV Service Providers 47 39 27 18

Wireless Carriers 48 44 30 29

Difference in loyalty between customers who rate a company as delivering “good” customer experience and those who rate a company

as delivering “mediocre” customer experience (%-points)

•  Repurchase: Customers who are likely to buy from company again in the future

•  Recommend: Customers who are likely to recommend company to a friend or a colleague

•  Forgive: Customers who are likely to forgive company if it makes a mistake

•  Try: Customers who are likely to try a new product or service from a company immediately after it is announced

Highest loyalty difference

(12)

Revenue Increases From Moderate Improvement in CX for Companies With Annual Revenues of $1 Billion

Source: Temkin Group Q1 2014 Consumer Benchmark Study $142.3

$140.1 $153.0 $112.5 $92.3

$183.5 $125.9 $100.7

$166.5 $148.3 $148.3 $142.9

$183.9 $147.2 $149.1 $143.3 $155.1

$160.6 $164.2

$55.5 $72.4

$68.2 $121.1 $147.0

$82.5 $142.8 $152.5

$106.9 $137.7 $125.4

$159.6 $111.5 $175.6 $177.5 $174.3

$171.9 $172.5

$193.5

$74.0 $76.0

$81.9 $79.1

$91.0 $73.5

$77.6 $103.2 $89.8

$83.3 $97.1

$87.7 $98.6

$97.5 $95.1 $107.8

$101.2 $104.4

$102.9

Health plans Wireless carriers Insurance carriers Internet service

providers Investment firms

Auto dealers TV service providers Parcel delivery services Major appliances Banks Credit card issuers Computer makers Software companies Rental car agencies Airlines Supermarkets Retailers Fast food chains Hotels

Retaining existing business Additional purchases New business from word of mouth Additional revenues over 3 years ($ million)

(13)

Revenue Increases From Moderate Improvement in CX for Companies With Annual Revenues of $1 Billion

Additional revenues over 3 years ($ million)

Industries

Retain existing business

Save business

after a very bad experience

Sell additional

products and services

Sell new offerings

Word of

mouth Total

Hotels $141.2 $23.0 $161.4 $32.2 $102.9 $460.7 Fast food chains $131.8 $28.8 $150.6 $22.0 $104.4 $437.5 Retailers $125.2 $29.9 $143.1 $28.8 $101.2 $428.1 Supermarkets $127.0 $16.3 $145.1 $29.1 $107.8 $425.5 Airlines $127.2 $22.0 $145.3 $32.2 $95.1 $421.8 Rental car

agencies $122.9 $24.2 $140.5 $35.1 $97.5 $420.3 Software

companies $152.9 $31.1 $49.7 $61.8 $98.6 $394.0 Computer makers $100.1 $42.7 $108.5 $51.1 $87.7 $390.1 Credit card

issuers $97.7 $50.7 $105.8 $19.5 $97.1 $370.8 Banks $107.2 $41.0 $116.2 $21.5 $83.3 $369.2 Major appliances $150.4 $16.1 $50.1 $56.7 $89.8 $363.2 Parcel delivery

services $85.9 $14.8 $137.5 $15.0 $103.2 $356.4 TV service

providers $70.3 $55.6 $114.2 $28.6 $77.6 $346.3 Auto dealers $156.9 $26.7 $52.3 $30.3 $73.5 $339.6 Investment firms $76.8 $15.6 $124.7 $22.3 $91.0 $330.3 Internet service

providers $64.5 $47.9 $104.8 $16.3 $79.1 $312.6 Insurance carriers $116.3 $36.7 $47.2 $20.9 $81.9 $303.0 Wireless carriers $101.6 $38.5 $41.3 $31.1 $76.0 $288.5 Health plans $119.5 $22.8 $21.6 $33.9 $74.0 $271.8

(14)

Consumers Are More Loyal To Companies That Provide a Better Customer Experience (Average Across 19 Industries)

Source: Temkin Group Q1 2014 Consumer Benchmark Study 6%

9%

4%

9%

8%

9%

6%

13%

16%

17%

12%

30%

29%

30%

27%

56%

40%

46%

54%

76%

57%

67%

86%

92%

Very likely to try a new product or service immediately after it's been announced Very likely to forgive company if it makes a mistake Very likely to recommend company to a friend or colleague Very likely to purchase more from company

Very good Good Okay Mediocre Poor Very poor Percentage of consumers who say they are very likely to demonstrate

loyal behaviors towards an organization based on the Temkin Experience Rating that they gave the organization

Temkin Experience

Ratings

(15)

Airlines: Consumer Loyalty Based on Level of Temkin Experience Ratings

9%

3%

10%

11%

10%

7%

14%

20%

12%

34%

37%

35%

32%

61%

49%

50%

56%

82%

65%

69%

88%

94%

Very good Good Okay Mediocre Poor

Very poor Percentage of consumers who say they are very likely to demonstrate

Ratings

(16)

Auto Dealers: Consumer Loyalty Based on Level of Temkin Experience Ratings

11%

8%

9%

11%

10%

11%

16%

23%

19%

33%

37%

35%

37%

59%

52%

51%

59%

76%

64%

72%

92%

94%

Ratings

(17)

Banks: Consumer Loyalty Based on Level of Temkin Experience Ratings

2%

6%

2%

5%

2%

6%

5%

8%

10%

14%

9%

21%

13%

20%

18%

44%

26%

39%

46%

68%

44%

66%

83%

88%

Ratings

(18)

Computer Makers: Consumer Loyalty Based on Level of Temkin Experience Ratings

12%

6%

11%

13%

8%

14%

18%

19%

16%

34%

35%

33%

35%

61%

45%

51%

62%

79%

64%

71%

89%

92%

Ratings

(19)

Credit Card Issuers: Consumer Loyalty Based on Level of Temkin Experience Ratings

4%

8%

4%

3%

7%

3%

9%

13%

10%

24%

23%

27%

23%

49%

34%

40%

49%

68%

50%

63%

82%

87%

Ratings

(20)

Fast Food Chains: Consumer Loyalty Based on Level of Temkin Experience Ratings

16%

5%

18%

7%

8%

5%

14%

16%

14%

9%

29%

25%

19%

58%

36%

39%

45%

79%

57%

64%

83%

95%

Ratings

(21)

Grocery Chains: Consumer Loyalty Based on Level of Temkin Experience Ratings

10%

17%

0%

12%

8%

7%

6%

17%

12%

16%

11%

35%

25%

28%

22%

65%

38%

47%

51%

83%

60%

69%

86%

96%

Ratings

(22)

Health Plans: Consumer Loyalty Based on Level of Temkin Experience Ratings

10%

3%

13%

6%

8%

6%

15%

14%

18%

13%

31%

28%

37%

30%

56%

43%

48%

56%

75%

58%

67%

85%

90%

Ratings

(23)

Hotel Chains: Consumer Loyalty Based on Level of Temkin Experience Ratings

5%

8%

7%

18%

10%

11%

6%

14%

23%

27%

16%

27%

39%

32%

30%

57%

52%

51%

61%

81%

66%

68%

89%

95%

Ratings

(24)

Insurance Carriers: Consumer Loyalty Based on Level of Temkin Experience Ratings

8%

2%

6%

7%

6%

10%

11%

17%

11%

29%

31%

29%

54%

37%

46%

57%

77%

55%

70%

89%

91%

Ratings

(25)

Internet Service Providers: Consumer Loyalty Based on Level of Temkin Experience Ratings

3%

6%

3%

6%

5%

7%

3%

6%

12%

13%

9%

24%

23%

26%

22%

46%

32%

38%

49%

67%

53%

63%

83%

88%

Ratings

(26)

Investment Firms: Consumer Loyalty Based on Level of Temkin Experience Ratings

5%

2%

4%

8%

12%

4%

13%

17%

19%

12%

32%

34%

29%

30%

56%

45%

51%

62%

83%

56%

67%

89%

92%

Ratings

(27)

Major Appliances: Consumer Loyalty Based on Level of Temkin Experience Ratings

12%

11%

7%

17%

12%

14%

8%

17%

23%

22%

17%

33%

44%

37%

35%

55%

59%

58%

65%

75%

74%

71%

91%

93%

Ratings

(28)

Parcel Delivery Services: Consumer Loyalty Based on Level of Temkin Experience Ratings

13%

0%

8%

5%

9%

5%

17%

11%

17%

7%

32%

17%

25%

23%

60%

26%

41%

49%

78%

49%

68%

85%

93%

Ratings

(29)

Rental Car Agencies: Consumer Loyalty Based on Level of Temkin Experience Ratings

8%

7%

2%

8%

14%

12%

6%

13%

27%

20%

18%

32%

41%

40%

30%

49%

58%

56%

61%

79%

69%

70%

90%

95%

Ratings

(30)

Retailers: Consumer Loyalty Based on Level of Temkin Experience Ratings

14%

7%

15%

7%

10%

7%

18%

17%

18%

12%

34%

29%

31%

28%

61%

42%

47%

54%

82%

58%

69%

87%

95%

Ratings

(31)

Software Companies: Consumer Loyalty Based on Level of Temkin Experience Ratings

14%

16%

10%

16%

10%

8%

14%

20%

15%

14%

28%

38%

32%

56%

62%

79%

72%

90%

93%

Ratings

(32)

TV Service Providers: Consumer Loyalty Based on Level of Temkin Experience Ratings

6%

1%

4%

6%

3%

9%

11%

12%

9%

20%

22%

26%

24%

46%

30%

39%

48%

67%

51%

62%

83%

87%

Ratings