Customer Experience vs. Profitability

Most teams are trying their very best to make customers happy. Some are more lucky than others to get some executive buy-in. Often times I get asked how they could convince their executive bench that improvements in the customer experience model is very important. Customers are requesting the same but executive are often too busy to focus on shareholder value discussion than on business execution.

We made a little test and ran some sentiment analysis across fortune 1,000 companies. The result shows a stunning correlation between customer experience and profitability. Customer focused businesses who create a positive customer experience are also profitable. To the contrary, those businesses who care less about their customers and have a largely negative brand reputation (measured by customer sentiment) are also not profitable.

 

In the above, randomly selected list of companies are a few interesting direct comparisons: Verizon is trying very hard to make their customers happy (I experienced it myself) and is doing pretty well. Sprint on the other side has more unhappy customers than any other provider and the result is accordingly. A similar comparison is Delta Airlines versus Southwest Airlines. Or take Wendy's versus Starbucks.

As you drill deeper and deeper, you find very flexible and engaged rental car organizations who don;t show up on the fortune 1,000 list and are not even public. The former market leader Hertz however has a very bad reputation and very negative sentiments – I'm a victim of their customer service myself – and the profitability is a reflection of it.

Why is that? Many market research results indicate that 60% – 80% to purchase decisions are based on recommendations. With the rise of social media the sheer volume of product recommendations are warnings not to buy has grown by order of magnitude. No matter how much advertising a company invests, the revenue is not coming if customers warn not to buy. At the same time employees in those organizations with a negative customer experience are way more busy to work on complaints and fix internal issues than those who work with customers who are generally happy.

Companies like Comcast did a great job with their social media based support initiative to develop a portative customer experience and create positive customer sentiments. Their profitability was at $2.5B between 2006 and 2009. In 2010 however it jumped to $3.5B. Now if you dissect customer sentiments you see a much more negative discussions around Comcast in previous years then 2009, which is the precursor to the revenue in 2010. And this is not an exception but the rule. You can do that analysis for yourself and for pretty much any company.

Certainly there are a few rare exceptions. As we analyzed AT&T for instance we recognized a very negative mood in the customer base. Once analyzed the details it can be seen that the monopolistic position of AT&T seem to be the reason why the company is very profitable despite the fact that the customer experience seem to be very negative.

To sum it up – a positive customer experience is a rather clear indicator for profitability or soon to expected profitability in cases where the customer experience has changed to a positive level. Negative customer sentiments reduce the number of customers, force the company to keep customers by selling at a lower price and typically have an increased support volume to deal with unhappy customers.


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