In the last 30 years…
The traditional sources of competitive advantage have slowly eroded both from a cost perspective in favour of a commoditized market (manufacturing, distribution networks, IT), and from a differentiation advantage perspective in terms of marketing, which has started to yield lower and lower returns due to increased brand mistrust (fewer than 30% trust brand-sponsored content, ads, or communications from companies or brands)1.
To cope with the diminishing return, companies have started to discover that the secret source to some of the most successful companies seems to be user experience.
Calculate Return on Experience
It’s important to understand the benefits and the cost of the user experience in order to adequately calculate the Return on Experience.
1. Projected revenue increases:
UX has proven over and over again to be capable of generating a higher revenue growth (59% of higher revenue growth for companies that lead with a customer-need-first approach)2 by increasing customer retention and loyalty, consequently resulting in a higher cross-sell and upsell due to the consumers buying additional products and services from the brand, and recommending it to friends.
On average, when companies deliver a good service experience by solving customer problems quickly, their customers are 2.4 times more likely to stay with them, reducing the de facto customer churn.3 Better customer experience means loyalty, which results in referrals. Referred customers are at least 16% more valuable than non-referred customers because they have an increased spending level of 2.7 times more 4, and they churn less.5 Customers who have exceptional experiences are the most valuable. The average revenue per loyal customer is 50% higher than the average among all other customers, and for airlines, hotels, and retailers, it’s more than 100% higher.6
2. Projected cost reduction
Through referrals, UX has also been conducive to lowering the costs of acquisition by reducing traditional marketing and advertising costs.
Furthermore, higher quality experiences result in fewer customer issues, translating into fewer calls to customer care and a subsequent reduction in call centre costs. Fixing the issues that cause customers to be unhappy saves money later on for the company, and it improves the return on experience while reducing dissatisfaction and frictions. Virgin Money performed root-cause analysis of customer complaints related to the opening and closing of accounts. The brand then implemented a targeted process by creating a “fairness policy” and staffing changes, resulting in a drop in customer complaints related to account openings and closings.7
A great experience is fundamental to both customers and employees, and it’s important to estimate time savings and increased efficiency impact on cost when it comes to employee experience. The impact of the improvement of a single task over a large array of employees will result in reduced costs.
3. Cost of Inaction
The third, more ambiguous category has to do with the tradeoffs of inaction. To be able to estimate this, multiple questions need to be answered such as: What is the impact of not investing in user experience given the consumer or employees expectations? What is the level of user experience provided by the industry competitors? How could you leverage loyal consumers to increase return on experience and expand the business? How does the new experience edge against risk?
4. Estimate the size of required expenditures
Properly calculating the costs of research, design, technology implementation, training and upscaling at the right time will help forecast the investment required.
Ultimately, after the implementation, keep measuring the return on experience by tracking the right KPIs for the project (increased satisfaction, reduced customer churn, design scorecards, etc.), and adjust your initial assumption to meet the reality and the changing environment.
A few best in class companies from a UX standpoint
At times, user experience can be quite a consistent investment, but at other times, it can be as easy as empowering your team to address customer matters fairly. Let’s see a couple of examples.
- Apple is one of the few companies that has managed to apply the human-centric layer, from its aesthetically pleasing products to its store experience, such as being able to take free classes while waiting, to its philosophy, to making a product simple enough that a 5-year-old would understand it. It is in Apple’s DNA that technology alone is not enough — it’s technology married with liberal arts, married with the humanities, that yield us the results that make the heart sing.8
- American Express spends 70% of the time focused on actively listening, assessing customers’ moods, and helping customers understand the value of their relationship with the company. All that time and effort has paid off, resulting in:
1. Customer satisfaction being tripled
2. Expense and service margins being decreased.
3. Customer handling time being lower for the best agents and the most satisfied customers.
4. Card member spending increasing by 10%.
5. Card member attrition becoming 4x lower.9
- Ritz-Carlton empowered their employees to spend up to $2,000 per incident to ensure that their guests are satisfied because the lifetime value of a customer is higher than $2,000, and this would result in an advocate customer for the company, thanks to the fast resolution.
- Netflix personalizes its movie posters according to the viewer by using their in-house machine learning algorithm based on what each subscriber watches, clicks, and searches. With this technology, Netflix is able to turn this data into the ideal thumbnail personalized for each of their subscribers to click. Customizing thumbnails means that Netflix subscribers do a lot less scrolling, and ultimately do what they came for… stream, resulting in higher satisfaction.
- Nike has made the impersonal online experience more by offering customers the chance to design their shoe. Nike By You is a service to customize sports shoes, offering an opportunity to personalize a product for that unique customer experience. 100,000 personalized animations were generated and tailored for specific locations, weather conditions, and movement data. Nike By You fidelized a key group of consumers and paved the way to Nike+, a membership experience that gives users an app that includes customized recommendations, guided workouts, and tailor-made training based on the member’s interests and ambitions.