Everyone knows the adage, “You can’t improve what you don’t measure.” That quote, often attributed to Peter Drucker, is not entirely true, but I think it needs a vital and new corollary: “You can damage what you don’t measure accurately.” After decades in Customer Experience, I’ve come to believe this is, in fact, the primary issue that impairs most organizations’ CX efforts and undermines their customer loyalty.
The goal of CX is to strengthen relationships and increase customers’ loyalty to the brand. But what is loyalty? It isn’t a business metric but an attitude. One can feel loyal to a person or product. That sense of affinity or faithfulness can then manifest in behaviors. And those behaviors are measurable.
That chain of attitudes-behaviors-measures goes unexplored by business leaders, and it leads to bad metrics for loyalty and poor business or CX strategy. To too many executives, loyalty merely means purchases: “If we get more sales from customers, they must be loyal.” But are they?
With bad measurement of loyalty, customer marketing can look a lot like customer experience. Both are focused on existing customers, but where customer marketing creates efforts to maximize revenue from customers, CX is about strengthening relationships. Both lead to sales, but they are critically different.
Let’s say you have a truly loyal customer. You launch a campaign for a new product line, and being loyal, that customer makes a purchase. That’s a customer marketing success, but is it a CX one? Not yet. That additional sale didn’t create loyalty but earned you the chance to strengthen loyalty. Whether you do or do not improve that customer’s loyalty depends on the CX your product, service, and organization provides.
If that product fails to deliver value or disappoints the customer, it can weaken your relationship and damage loyalty. If that happens, you will have raised short-term revenue, but damaged long-term loyalty, which can lead to churn, diminished sales, a decreased lifetime value, and negative WOM and reputation.
This isn’t to say there’s anything wrong with customer marketing or that short-term sales to existing customers is a poor metric, but customer marketing isn’t CX and short-term sales are a poor measure of CX success. Customer marketing and CX are two different disciplines with different sets of metrics. If we confuse them and measure CX badly, we may not simply undermine our CX performance but actively damage our brands’ loyalty.
In my job as an analyst and advisor, I see a lot of this. Companies expend a great deal of time and money to “improve CX,” set awful goals and metrics, and, as a result, hurt rather than enhance their customer relationships. This can take many forms–do any of these sound like your organization’s CX efforts and measures?
- “We improved CX by implementing self-service tools on our site, leading to a decrease in call volume and reduction of call center staff.” Great business results, but did those new self-service tools help customers or frustrate them? Did they gain the answers they need or leave your site to find answers elsewhere? Did it improve satisfaction for all customers, or did it annoy some customers and damage their perception of your brand? If you don’t measure the experience from the perspective of the customer, it’s not CX, because you can’t know whether you’ve strengthened relationships and improved loyalty.
- “CX is improving because we saw greater revenue and earned growth from existing customers year-over-year.” Terrific news, but did you earn those new sales by discounting prices and lowering margin? Earning strong loyalty means you keep and grow customer relationships, lifting margins without affecting perceptions of price fairness. This is how, for example, Apple can command 80% of the operating profits in the smartphone industry while representing just 40% of the sales. And it is why Starbucks’ stock has outperformed the S&P 500 by 75% in the past five years while charging 2.5 to 5x what it costs to make a cup of coffee at home.
- “We improved our CX by implementing personalization tools on our website, lifting conversion rate by 20%.” Congratulations, but did your customers get the value they anticipated from your product? Were they satisfied? Did they become repeat customers, or was your cost of acquisition greater than those customers’ fleeting lifetime value? A higher conversion rate is a measure of sales, marketing or ecommerce success, not a way to quantify loyalty (at least in the absence of additional data points).
In the CX world, we talk about the difference between behavioral loyalty and attitudinal loyalty:
- Behavioral loyalty is measured in ways such as frequency of purchase, organic sales growth, retention, and lifetime value. But, are all of those really measures of loyalty? Certainly, some share of repeat purchases are derived from customers who feel loyal to your brand, but many purchases likely come out of habit, because you’re cheaper or more convenient, or because switching costs are high. But if any of those conditions change, your brand can rapidly and painfully discover how little loyalty it actually earns.
- Attitudinal loyalty measures customers’ perception of and intent toward your brand–their Net Promoter Score (NPS), satisfaction scores (CSAT), or their likelihood to repurchase. But while behavioral loyalty is what is reflected on this quarter’s income statement, it is attitudinal loyalty that drives next year’s financial results. Behavioral loyalty is a lagging measure of what people did, but attitudinal loyalty is what they’ll (probably) do in the future.
It is that parenthetical “probably” that causes so many bad CX metrics and decisions. I hear people discount attitudinal measures, saying things like, “Many people who are promoters don’t buy, and many detractors keep buying.” Funny, but I never hear a marketer suggest they shouldn’t measure brand awareness, even though people who know the brand don’t buy, and many newly acquired customers often didn’t know the brand prior to consideration.
More to the point, not only does decades of research tell us that attitudinal measures of loyalty are strongly associated with behavioral loyalty actions, business leaders can and should measure this themselves using their existing data. Gartner research demonstrates that firms that know the relationship between customer satisfaction and business results are a third more likely to say they exceed expectations for improving customer perception. And firms that establish the correlation between customer satisfaction and financial outcomes are 29% more likely to report CX budget increases (while being a third less likely to report decreases). Gartner clients can learn more in our report, “Prove the ROI Business Case of Customer Experience Programs While Staying Customer-Centric” (subscription required).
Business leaders measure customer loyalty badly because they measure what they most value–dollars–but you can damage what you don’t measure accurately. That means counting dollars while ignoring decaying attitudinal loyalty is an extraordinarily effective way to damage your brand over time. Business history is littered with examples of brands who were confident that their longstanding, profit-building, market-share-commanding behavioral loyalty was more important than customers’ attitudinal loyalty. But had Kodak, Circuit City, Borders, Sears, taxi companies and dozens of other dead or sagging brands been listening, their futures were written in the attitudinal loyalty data they collected.
Change your CX metrics, change your future. It’s as simple as that. If you fail to show how leading, customer-centric measures of attitudinal loyalty create future value for stakeholders, your brand will fall into the trap of mistaking purchases for behavioral loyalty. Today’s sales are today’s dollars earned, but it’s your customers’ attitudinal loyalty that tell you whether you’ll earn or lose tomorrow’s customers, purchases, and dollars.
Don’t just earn dollars. Earn loyalty. Measure it properly, and your brand can soar. Do it wrong, and you’ll waste a lot of efforts on “CX programs” that damage rather than enhance your customer relationships.
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