Customer Experience Analytics: Generating an objective view of Customer Affected Value
Linking customer experience to customer value isn’t always straightforward. There are occasions when your happiest customers aren’t going to be your most valuable. Or, put another way, your most unhappy customers have behaviours that make them unhappy and valuable at the same time!
When defining the financial impact of customer experience it is important to account for this. We use a customer experience analytics technique called Customer Affected Value which isolates and quantifies only those behaviours that can be reasonably attributed to the quality of the experience they have received.
By generating the new measure of value in this way, we can form an unbiased picture of the financial benefits associated with investments into customer experience transformation programs – and importantly identify the likely returns on any customer experience investment.
Most initial attempts to link value begin in the same place, Customer Life-time Value (CLV) models. It makes intuitive sense to use the internal measure of value which the business places on individual customers as the benchmark to discover just how much more each Promoter is worth compared to a Detractor, however, this analysis can fail to isolate the true benefits of increased CX performance.
So how do customers become unhappy and valuable at the same time?
Let’s take the utilities sector as our first example. In such a homogenised market the decision to recommend an energy supplier is largely made on the perceptions of price, (which can, to a certain extent, be offset by the provision of a great customer experience). We would then expect those customers who were on a below market-average tariff to be largely made up of Promoters, and the customers who were on an above market-average tariff (specifically customers on pre-pay meters) to be largely Detractors.
If we then contrast this view with how a less sophisticated utilities CLV model would assign customers a value we can see the problem. Customer experience analytics reveal that those on a higher tariff would be allocated a higher value compared to those on a lower tariff – this data would generate an inverse relationship between value and NPS.
Similarly in Retail Banking, increases to CLV for a current account are often driven by the result of fees, interest and charges associated with a customer going overdrawn or overspending on a card. These actions which increase the internal value of a customer to the bank are likely to result in those customers becoming highly dissatisfied and unlikely to recommend that particular brand.
These examples seek to highlight that increased value to the company does not always result in a positive customer outcome, and that the simple use of CLV models may not necessarily show the benefits of improving the customer experience strategy and approach.
So how can companies generate an objective view of Customer Affected Value?
The answer is to see the question from the point of view of your customers, not your internal stakeholders.
This can be done by identifying all of the possible revenue and costs associated with each of your product/services and then identifying which elements a customer could reasonably impact as a direct result of the experience they received. A few general examples of what could be included in such a measure are shown below;
The function of CAV is to uncover the relative value of improvements to the customer experience, and not the absolute value of customers overall. This relative measure gives us a basis for the comparison of customer groupings, where we can reasonably expect to see the benefits which increases to the customer experience will yield. Because of this, it is entirely possible that in some markets the CAV may be entirely negative, being more heavily skewed towards the cost to serve particular customers rather than the customer affected revenue.
The application of a customer experience analytics CAV measure should help organisations to more clearly explain and quantify the financial benefits of an improved customer experience – which most companies currently hold to be intuitively true, if not factually validated. The customer-led approach has led to unprecedented improvements in how we design and deliver customer experience across most sectors, it’s time we used this thinking with respect to value.
For more customer experience insight, visit the KPMG Nunwood CEM blog.