Retailers today understand that providing a great customer experience is not just a nice-to-have but a must-have. It’s an important factor that can set their brand apart, build customer loyalty, boost sales, and reduce customer churn. However, proving the ROI of Customer Experience (CX) initiatives can be tough. Many retailers struggle to justify their CX investments to stakeholders because they lack clear, actionable data linking customer experiences to financial outcomes. Bad CX is reported to cost organizations $3.7 trillion annually, meaning it’s now more imperative than ever for CX teams to tie their initiatives to financial outcomes.
This article will explain why customer experience is important, what defines a good retail CX, the cost of bad CX and how to measure both the CX and its ROI. We’ll delve into specific ROI metrics, models, and calculation methods to help you make a compelling case for CX investments.
Why is customer experience important?
Customer experience directly impacts customer satisfaction, loyalty, and, ultimately, revenue. According to a recent article by CX thought leader Blake Morgan, customer-centric companies are 60% more profitable than those that don’t focus on customers. Morgan writes that a superior customer experience can lead to 5.7 times more revenue than companies with poor CX. Moreover, 84% of companies that improve their CX report an increase in revenue. These statistics highlight the profound impact of CX on the bottom line, underscoring its importance.
Customer experience encompasses every interaction a customer has with a company, from browsing products to post-purchase support. Positive experiences foster loyalty, increase Customer Lifetime Value (CLV), and reduce churn rates. Conversely, poor experiences can drive customers away, impacting sales and growth. Understanding and prioritizing CX is essential for sustaining competitive advantage and achieving long-term success.
What makes a good retail customer experience?
A good retail customer experience is about understanding and meeting customer needs at every touchpoint. This involves creating a seamless, personalized shopping journey that enhances customer satisfaction and encourages repeat business. Key elements of a superior retail CX include:
- Personalization – utilizing customer data to offer personalized recommendations and promotions.
- Convenience – streamlining shopping with user-friendly websites, mobile apps, and efficient checkout systems.
- Customer service – providing accessible, knowledgeable, and friendly customer support.
- Product quality – ensuring products meet or exceed customer expectations.
- Omnichannel experience – maintaining consistency across online and offline channels, allowing customers to transition smoothly between them.
The cost of bad customer experience
The benefits of a positive customer experience (CX) are evident, but the repercussions of a poor customer experience can be severe. A bad CX leads to dissatisfied customers and incurs significant costs for a business in various ways. Emphasizing these costs can help demonstrate the importance of investing in CX initiatives.
Lost revenue
Losing revenue is the most immediate and apparent cost of a bad customer experience. Customers who have negative experiences are unlikely to return, resulting in lost sales opportunities. A study by PwC found that one in three customers will leave a brand they love after just one bad experience, while 92% will completely abandon a company after two or three negative interactions.
Damage to brand reputation
A bad customer experience can severely damage a brand’s reputation. Customers can easily share their negative experiences online, influencing the perceptions of countless potential customers.
Increased customer churn
High churn rates are another significant cost of a bad customer experience. Customer churn refers to the rate at which customers stop doing business with a company. A high churn rate means the company must continually invest in acquiring new customers to replace those lost, which is much more expensive than retaining existing customers.
Lower employee morale and productivity
The effects of bad customer experience extend beyond external consequences; they also affect internal operations. Employees who must deal with frequent customer complaints and dissatisfaction can experience lower morale and productivity.
Operational inefficiencies
Bad customer experience often leads to operational inefficiencies as retailers scramble to address the fallout. This can divert resources from other critical areas, leading to increased customer service costs, a focus on reactive measures rather than proactive improvements, and a loss of focus on innovation. Instead of dedicating time and resources to enhancing products or services, organizations find themselves constantly reacting to problems, which is less efficient and more costly in the long run.
How to measure retail customer experience
Measuring retail customer experience involves collecting and analyzing data on various aspects of customer interactions. Traditional metrics like Promoter Scores and Customer Satisfaction (CSAT) provide a snapshot of customer sentiment. However, these metrics alone may not fully capture the financial impact of CX initiatives. To gain a comprehensive view, you should track additional metrics such as:
- Customer Effort Score (CES) – measures the ease of customer interactions.
- Churn rate – the percentage of customers who stop doing business with the company.
- Repeat purchase rate – the frequency of repeat purchases by customers.
- Average Transaction Value (ATV) – the average dollar amount spent per transaction.
- Customer Lifetime Value (CLV) – the total revenue a customer is expected to generate over their lifetime.
Collecting feedback through customer feedback, reviews, and social media can provide valuable insights into customer perceptions and areas for improvement.
With TruRating’s POS feedback solution, you can collect customer satisfaction insights at the point of purchase. With an average completion rate of 80%, this data can further demonstrate the success of your customer experience initiatives.
How to measure customer experience ROI
Calculating the ROI of customer experience initiatives requires linking CX improvements to financial outcomes. Here’s a step-by-step approach:
- Define objectives – clearly outline the goals of your CX initiatives, such as reducing churn or increasing CLV.
- Identify metrics – select relevant metrics that align with your objectives, such as CLV and sales growth
- Collect data – gather data from various sources, including customer surveys, sales records, and CRM systems.
- Analyze impact – assess the correlation between CX improvements and financial performance (for example, analyze how changes in CES relate to changes in revenue or customer retention).
- Calculate costs – determine the costs associated with implementing and maintaining CX initiatives.
- Calculate ROI – use the formula ‘Cost of Investment / Net Profit x 100’ to calculate the return on your CX investments.
Customer experience ROI model
A robust CX ROI model integrates various data points to provide a comprehensive view of the impact of CX initiatives. Here’s a simplified model to consider:
- Baseline measurement – establish baseline metrics for customer satisfaction, CLV, and other relevant indicators.
- CX initiatives – implement specific initiatives aimed at improving the customer experience, such as enhancing customer support or personalizing marketing efforts.
- Ongoing measurement – continuously monitor and measure changes in CX metrics post-implementation.
- Financial analysis – analyze the financial impact of these changes by comparing pre- and post-initiative performance.
- Attribution – attribute changes in financial performance to specific CX initiatives, considering other influencing factors.
This model helps identify which initiatives drive the most value and should be scaled or adjusted.
Embracing Open CX for real ROI
At TruRating, we call the next generation of customer experience Open CX, and we believe it’s how brands generate real ROI. Open CX is about more than just responding to complaints or tracking promoter scores. It’s about creating a holistic, transparent, and data-driven approach to CX that involves every level of an organization.
By collecting feedback at the point of purchase, you can gather a much larger and more representative sample of customer opinions. This enables more accurate and immediate improvements, leading to a better overall customer experience. Moreover, by easily linking this feedback to financial data, you can demonstrate the real impact of your CX initiatives on revenue and profitability.
As the retail industry evolves, retailers must embrace Open CX to meet customers’ needs, avoid bad CX and drive significant returns on investment. Retailers who embrace Open CX will be better equipped to adapt to changing customer needs, create personalized shopping experiences, and demonstrate the financial benefits of their CX investments.
Learn more about Open CX and our customer feedback platform, or book a demo with the team today.
Useful resources
- Predictive analytics in retail – examples and strategies
- Retail pricing optimization – strategies, models and examples
- Business intelligence in the retail industry – strategies and trends
- How to measure customer service – metrics and tools
- The difference between multichannel and omnichannel retailing
