Dive Brief:
- Companies with the best customer experience outperform the S&P 500 stock index by over 400 percentage points, Watermark Consulting found in its annual ROI study, released Tuesday.
- Companies with the best customer experience generated 7.8 times higher stock returns than those with the worst customer experience. Watermark Consulting examined how the top 10 and bottom 10 CX performers, as identified by Qualtrics XM Institute, fared in producing shareholder value over an 18-year period.
- “The study is basically saying that the marketplace believes that companies that deliver a great customer experience over the long term are simply more valuable than those that are not,” Jon Picoult, founder of Watermark Consulting, told CX Dive.
Dive Insight:
Companies with strongest CX performance are widening their lead not just over CX laggards, but over the S&P 500, too.
“What you see is the leaders and the laggards are getting further apart from each other, and the leaders are extending their lead over the market index, while the laggards are falling even further behind,” Picoult said.
In the past five years, the CX leading companies nearly quadrupled their shareholder return advantage over the S&P 500 index, according to Picoult. Meanwhile, CX laggards have fallen even further behind, with their performance deficit increasing in size by nearly 3.5 times.
Picoult credits a flywheel effect for the leaders’ ability to cement their lead. “Once you get that flywheel moving and you're generating repeat business and referrals and you're enjoying all of the cost advantages of having happy customers, it just sort of continues building on itself and accelerates the performance advantage.”
At the same time, companies that have excelled in providing a good experience aren’t sitting on their laurels and just enjoying the tailwinds they created, Picoult said. They’re constantly innovating.
“The companies that lead are ones that have an intimate understanding of their customers and what their overt as well as unarticulated needs are, and they continue to innovate around that,” Picoult said.
The laggards, on the other hand, “are in a world of hurt,” Picoult said.
While Watermark Consulting cannot share the names of the companies, many, but not all, of the laggards are businesses that pursue low-price budget-focused strategies.
“A low-price budget-focused strategy is fine, but it can't come at the expense of customer experience fundamentals,” Picoult said. “So, for example, at the budget motel, the sheets still need to be cleaned. At the budget airline, the planes still need to take off mostly on time.”
Bad customer experience costs money, as complaints need to be addressed, and new customers need to be acquired. But providing good customer experience can boost a businesses’ profitability.
“Customer experience hits your income statement in two places,” Picoult said. “On the one hand, it helps you to lift revenues, but on the other hand, it also helps you to control, if not reduce, your operating expenses.”
“And so when you put those two things together, what you end up with is improved profitability, and improved profitability means that investors are going to reward that stock,” Picoult said. “They're going to bid it up, because they're expecting that the future cash flows from it are going to be greater.”
