Yes, Virginia, There’s Still A Return On Customer Experience Investments

About a year ago, I wrote an article titled “Yes, Virginia, There Is A Return On Customer Experience Investments.”
 
It was an effort to help executives appreciate the macro impact of great customer experiences, by describing the results of a stock performance analysis that my firm, Watermark Consulting, had conducted.
 
In that study, we analyzed the three-year stock returns for the Top 10 and Bottom 10 publicly traded companies ranked in Forrester Research’s 2007 Customer Experience Index.
 
The results were quite revealing.  Customer experience Leader firms outperformed the S&P 500 benchmark, which in turn outperformed customer experience Laggard firms.
 
As last year’s article explained in detail, the analysis – like any study of this kind – was far from perfect.  But it was intriguing.   And it generated quite a bit of interest from the customer experience community and business executives who saw it.
 
With 2010 now in the history books, it was time to update the analysis to see if the performance profile detected last year remained intact.  The short answer is – it did.
 
 

 
 
The Methodology
For this year’s analysis, we identified the Leaders and Laggards using Forrester Research’s Customer Experience Index studies, picking the Top 10 and Bottom 10 publicly traded companies from Forrester’s annual rankings.  We calculated the total return from investing in an equally-weighted, annually readjusted portfolio of customer experience Leaders to that for customer experience Laggards and the broader market (as reflected by the S&P 500 index).
 
The Results
For the period 2007-2010, the customer experience Leader portfolio outperformed the broader stock market, generating cumulative total returns that were 23% better than the S&P 500 Index and 121% better than the customer experience Laggard portfolio.
 
During three of the four years, the Leader portfolio always outperformed the index and the Laggard portfolio always underperformed the index. 
 
The Conclusion
With this Leader / Laggard performance pecking order now evident over a four-year time span, it’s hard to deny that there’s something interesting going on here.
 
The Leaders in this analysis are clearly enjoying the many benefits that great customer experiences and the resulting customer loyalties deliver:  better retention, greater wallet share, lower acquisition costs and more cost efficient service.
 
In many cases, the Leaders are accomplishing this not with lavish, awe-inspiring experience design – but just with a keen understanding of their target audience, exceptional attention to nailing the basics and a knack for making it effortless for customers to interact with them.
 
Though the execution may not be easy, the overarching concept is:  When you’re good to your customers, they’ll be good to you.  And as this analysis again illustrates, that’s a strategy that plays quite well – on Main Street and Wall Street.