There is broad agreement, growing over the past decade, about the importance of improving and enhancing the experience of customers with companies, their brands, products or services. The journeys customers undergo, from shopping and purchasing through on-going service and support, should be streamlined and facilitated to make customer experiences more friendly and productive.
It is more difficult, however, to demonstrate the contribution of improved customer experience (CX) to better business outcomes, as such information would help to justify required investments. An initial objective would be to show how improved CX contributes to stronger customer loyalty, whereby the latter is expected to stimulate increased volume and value of business that customers do with companies. The relation of customer experience to loyalty is prominent as it reflects on the quality of the relationships of customers with companies and brands over time.
Qualtrics XM Institute (XM = Experience Management) conducted a study (in Q2 of 2020) aimed at evaluating the relationship between customer experience and loyalty across industries at the attitudinal level. That is, the study measures experiences as perceived by customers (the Customer Experience Rating Score) and their intentions to behave in ways that demonstrate loyalty. The XMI, directed by Bruce Temkin, interviewed 10,000 adult American consumers in respect of 319 US companies across twenty industries or sectors. The results are summarised, with charts, in XMI’s post titled “ROI of Customer Experience, 2020” (18 August 2020).
The researchers represent loyalty through four measured aspects: making more purchases from a company; recommending a company to others; forgiving a company in case of bad experience; and having trust in a company. They find that more positive experiences are associated more strongly with greater likelihood of making more purchases from a company and recommending it as manifestations of loyalty. These are more explicit, actionable forms of behaviour, compared with forgiveness and trust that are more subtle dispositions that may characterize the strength and depth of a customer’s relationship with a company.
The CX Rating Score is based on three components of experience: inducing more pleasant emotion, requiring lower effort to accomplish a task, and having success in achieving the customer’s goal. The researchers indicate that among the three components, emotion is the element that showed the larger impact in correspondence with all four measures of loyalty. Effort and success contribute also to expressions of loyalty.
Loyalty, particularly when measured as an intention or disposition of consumers, may be regarded as an intermediary factor, an antecedent of objective business outcomes. It is also noted that the study of XMI reports on correlation or correspondence between measures of perceived experience and loyalty inclinations (i.e., causality is not substantiated). Yet, the study provides some telling insights that shed light on strengths and weaknesses in different industries regarding the relation between experience and loyalty, and how the situation can be improved.
In the remaining of this post we will take a closer look at the Retail sector. Experience is so immediate and fundamental whenever consumers visit a store while shopping: It may include encounters with the in-store design, decoration and furnishing, display of products (visual merchandising), and interface with sellers or service representatives in the store (perhaps also with digital interactive screens for self-service). Sustaining the loyalty of consumers-shoppers becomes increasingly vital to large retailers in the highly competitive environment in which they act, whether they operate both offline and online (more likely), and moreover if they operate only brick-and-mortar stores. Enhancing customer-shopper experiences could be key to keep customers coming, and furthermore for business success.
The proportion of consumers stating that they are likely to purchase more from a retailer climbs nicely from 58% among those who perceive their experience as Poor to 78% if the experience is Okay and up to 90%-95% for Good and Very Good CX. The largest ‘leap’ in intention to purchase more occurs in moving from Very Poor to Poor CX: 25% to 58%, respectively. Overall, nonetheless, the proportions across all levels of CX with regard to retail are higher than on the cross-industry averages (climbing from 20% to 94%). The Retail sector is generally in good position; retailers should still be encouraged to make the extra push to improve from Okay to Good CX.
- Three notes: (1) The Grocery sector is presented separately, but the proportions are similar to Retail; (2) The proportions at the highest level of perceived CX are generally high (93%-96%); (3) There are several industries where the rise in likelihood to purchase is larger when improving from Good to Very Good CX (e.g., 8%-12% rise, as in Streaming Media, Electronics, and Fast Food).
When it concerns recommending companies, the Retail sector is essentially similar to the cross-industry average: ‘jumping’ from 16% when CX is Very Poor to 46% for Poor CX, then rising to 67% when CX is Okay, 83% for Good CX and 94% for Very Good CX. Overall, the willingness to recommend is not as strong as the willingness of customers to purchase more for themselves, which may indicate a problem or weakness, but the retailers are not alone in it: consumers are overall cautious about giving a recommendation to others than doing for themselves. Industries that seem to perform better in gaining recommendations, particularly between Poor and Good CX, include Automotive, Computer Makers, Software Firms, and Investment Firms. It should be noted that improving from Good to Very Good can be impactful for the retailers in gaining more recommendations.
In general consumers are not easy and quick to forgive a bad experience: even when CX is perceived as Very Good, the willingness of those customers to forgive reaches as high as 77% on average across industries. Yet the situation in the Retail sector on forgiveness is further more difficult: only 9% willing to forgive when CX is Very Poor (15% average), 17% for Poor CX (32%), 21% when CX is just Okay (47%), and 40% when CX is already Good (58%); only when we get to Very Good CX retailers can find 74% of their customers willing to forgive a bad experience, more similar to the average (77%). If retailers had doubt left in their minds how demanding customers-shoppers can be, this empirical evidence should help to remove the doubt — bad experiences can be detrimental in deterring upset customers, ready to leave and not return. (Note: The situation in the Grocery sector is not as bad, but the expectations from supermarkets and similar stores are possibly lower.)
A similar problem as above is evident with regard to the likelihood of trusting a retailer: The proportions of customers who say they are likely to trust retailers are considerably lower than the cross-industry average, except when CX is perceived as Very Good. In particular, when CX is perceived as Poor 21% state they are likely to give their trust (vs. 40% on average), 28% when CX is Okay (vs. 61%), and up to 52% if CX is Good (but compared with 73% on average); at a perceived level of Very Good CX 88% would trust the retailer (89% on average). The Retail sector is clearly in the worst position on customer trust of all sectors. It may already be considered satisfactory if a retailer receives a score of Good, but a gain of trust seems meaningful only when improving from Good CX to Very Good CX in the Retail sector. (Grocery is again more similar to the average.)
Forgiveness and trust are more implicit and subtle expressions of loyalty; changes in perceived experience (i.e., CX Rating Score) seem to have less impact on these two measures of loyalty. However, it would be critically wrong to excuse forgiving a company for bad experience and trusting as unimportant or of little consequence, because they are at the foundation of the relationship a customer develops with a company or brand. This applies particularly to trust, but forgiveness is also an instinctive and emotional indication of the depth of a relationship (i.e., it has been shown that strong brands enjoy greater willingness of customers to forgive occasional incidents of bad experience, if they do not repeat too often, and especially if the company acts quickly to apologise and correct any wrong done). In the case of retailing, where experience is direct and tangible, the results of the survey of Qualtrics XMI suggest that the significance of forgiveness and trust could be crucial, and nothing less than Very Good CX could be sufficient for success in the long run. Satisfactory levels of likelihood to purchase and recommend at present when CX is perceived Okay or Good may not be enough to protect a retailer in future.
The researchers of XMI present a specific metric which they suggest can give more concrete guidance on potential gains that may be won in ROI on customer experience. The metric takes the change (%-point of increase) in proportion of customers likely to manifest an aspect of loyalty when improving CX from Poor to Good (i.e., mid-range of CX Rating Score), a “modest” improvement as they describe it. The gains in loyalty for the Retail sector are about the cross-industry averages or a little lower: Purchase More 31% vs. 34%; Recommend 38% as average; Forgive 23% vs. 26%; and Trust 31% vs. 33%. The changes suggest that improving CX from Poor to Good can help most to induce more customer recommendation and less in gaining the consent to forgive; the Retail sector shows no exceptions.
On surface, these gains seem adequate in support of ROI on CX in ‘realistic’ conditions (i.e., by arguing that ‘Good is good enough’ and most companies would be able to improve from Poor to Good CX). But that could mislead companies because the levels of loyalty found at those levels of perceived CX may still be relatively low. Recall especially the proportions retailers obtain on forgiveness and trust when CX ranges between Poor and Good. It might leave retailers aspiring for mediocracy when they can and should aspire for excellence and achieve meaningful expressions of loyalty, foremost for the long run.
- Note: Continued research accustomed for each retailer (see additional suggestions made by XMI’s researchers) and effort to enhance customers experiences and their loyalty impact are necessary.
The Retail sector seems to do well on the more immediate and actionable manifestations of loyalty, purchasing more and recommending, where they may suffice in offering Good CX as perceived by customers. This may secure the position of retailers in the medium term. Retailers should be concerned, however, about the deeper manifestations of loyalty, forgiveness and trust, where Okay or Good CX may not be enough to provide them the kind of loyalty necessary to survive and succeed for longer years.