From Tokyo and London to Chicago and San Francisco, utilities worldwide are making massive investments in customer experience. It makes sense given where the industry is headed. But looking beyond satisfaction scores and loyalty measures, do investments in happier customers deliver a real, quantifiable return, in dollars and cents? New data suggests they do. In a study published on the Harvard Business Review blog, Medallia’s Peter Kriss dug into the data at two global, billion-dollar businesses — aiming to pin a numerical value on what positive customer experiences are actually worth. What he found was remarkable.
To determine how customer experiences impact subscription-based businesses — which are primarily concerned with loyalty, retention, and cross-sell, and for us might approximate a utility in a competitive market — Kriss explored how good and bad customer experiences affect membership over time. His finding were crystal clear: the better the experience, the longer a business will retain its customers. The analysis revealed that just 43% of the people who have the poorest experiences with a service provider are still members after a year. Compare that to people who have the best customer experiences, 74% of whom maintain their membership one year later.
The study used those results to build a model that predicts future membership based on past behavior. It estimates that on average, customers who have the worst experiences will remain members for little more than a year, while those with the best experiences will remain members for six years.
That finding is pretty intuitive — if you don’t like the service you’re subscribing to, it only makes sense to discontinue that service. But the magnitude of the effect is striking. In this study, turning a bad customer experience into a great one increased customer retention more than four-fold. The financial relevance of that statement is obvious. As customer satisfaction and loyalty increase, membership and revenues grow. Moreover, businesses can spend less money fighting churn and more money improving service — creating a virtuous and profitable cycle. But that’s not all.
In the HBR article, Kriss also highlights the widespread perception that investing in customer experience is expensive. Then he breaks it down. “Speaking to executives inside these businesses, we often hear the opposite,” he writes. “Unhappy customers are expensive — being, for example, more likely to return products or more likely to require support. Systematically solve the source of dissatisfaction, you don’t just make them more likely to return — you reduce the amount they cost you to serve.” That lesson applies to utilities in regulated and deregulated markets alike. And it explains why industry leaders like Mercury Energy, E.ON, and ComEd are making big plays when it comes to customer care. Kriss cites Sprint as the quintessential example of how investing in customer experience can deliver strong returns. In 2007, it was the worst company in telecommunications. Sprint’s call center volume was double that of its competitors. And crazily, the company once fired more than 1000 customers for calling client support too often. At the end of the year, Sprint brought on a new CEO who elevated customer experience as a corporate goal. The company turned to analytics to pinpoint what was driving negative experiences — digging deep into transactional data, call center escalations, and old processes, and ultimately identifying about 35 specific problems that fueled customer dissatisfaction. CustomerThink has a deep dive on how Sprint turned those problems around. But the bottom line is that when the company reinvested in customer experience, customers responded — reporting progressively higher levels of satisfaction for 12 quarters straight. And here’s the key: as satisfaction went up, the cost of customer care went down. All told, Sprint’s service costs fell more than 33% between 2007 and 2010.