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I once started a PhD in Organisational Psychology. I didn’t complete it because I eventually figured out that it was a useful qualification for a career in academia, but not worth much in business – and at that time I was not planning a career in teaching.

However, while I was doing that research I was focused on trying to quantify trust between organisations. For example, if one company outsources to another and the management teams have a high level of trust then is there a cash value to that trust? I concluded that it was difficult to measure precisely as every company-to-company relationship is different, but there was certainly a trust effect that had an economic impact.

I was reminded of that research when I read that the Harvard Business Review had published data on the value of the customer experience. Everyone knows that a great customer experience is important; if you don’t look after your customers then they will migrate to the competition. This has long been an accepted rule of business, but as customer service has become customer experience and now customer relationships, how can the real value be measured?

All the industry analysts, such as Gartner, Frost & Sullivan, and Ovum, have long stated that an improved customer experience is the number one strategic priority for most executives today. Most corporate leaders now rank improving the customer experience as a more important priority than reducing cost or increasing revenue. But how can you quantify what a better customer experience is really worth?

The HBR research looked at two very different companies, but both have revenue of over $1bn so they are significant case studies. The two companies have very different business models. One is transactional and therefore focused on spend per visit and frequency of visits, the other is subscription based and therefore more focused on retention, cross-selling and up-selling.

Regardless of the difference in business model though, the conclusion drawn by the HBR analysis is that a good customer experience is a major driver for future revenue.

For example, in the transaction based business the difference between future spending is directly linked to past experience of the brand. Those with good experiences spend 140% more than those with a poor experience.

The stats for the subscription-based business are equally impressive, even though for this type of business the target is really customer loyalty rather than frequent spending. A subscriber that has a poor customer experience has only a 47% chance of being a subscriber a year later. For those with a positive experience the same figure is 74%.

So in both types of business it is clear that improving the customer experience has a direct material effect on the business. But many managers are scared of major change programmes focused on improving the customer experience because they require enormous amounts of up-front spending to get off the ground.

This is where some feedback from the executives in this research is interesting. They suggested that in their experience they have got back more from making the customer experience better than they had to invest in doing it. A typical example is a contact centre that is endlessly handling unhappy customers. Fix the most common reasons why customers have a bad experience and your contact centre actually becomes easier to manage. Ongoing customer service costs can actually be reduced if most customers are having a better experience.

The HBR concludes by saying that the value in customer experience is no longer a philosophical argument that we just feel is the right thing to do, there is hard evidence out there to prove that your business needs to provide a great experience to succeed.

What do you think about actually measuring the cash value of the customer experience? Could you do that in your business? Leave a comment here or tweet me on @markhillary.

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