How to link CX to profitability

When CX Network conducted its Global State of CX survey for 2024, the results reinforced several established CX challenges: it is becoming increasingly difficult to secure buy-in for CX projects, in the majority of organizations there are a number of CX benefits that go unmeasured, and the pressure to prove ROI continues to grow.

In fact, Among the 282 practitioners who responded to the survey:

• 42 percent said demonstrating ROI was the top challenge for bringing their investments to life;
• The ability to align business objectives with CX initiatives was identified as the second biggest challenge facing practitioners at present;
• 63 percent said their brand benefits from CX in ways it is unable to measure.

For the practitioner, these challenges may seem insurmountable, but the reality is very different.

Overcoming the biggest challenges in CX

For the last 10 years, Prof. Phil Klaus has been helping organizations to measure their CX success, explain why customers behave in a certain way, and link it all to a company’s financial results.

Before his tenure as professor of customer experience strategy and management at the International University of Monaco, Dr. Klaus was a manager, CMO and business leader, and saw firsthand how CMOs, CXOs and CCOs are often pressed to demonstrate the financial value of their work to the wider business. In response he created the EXQ scale, a measurement of customer experience quality that can be applied to both B2B and B2C businesses.

Originally created in 2012, the EXQ scale was updated in 2014 to cover CX’s three stages: the brand (pre-purchase), the service provider (during purchase), and post-purchase experiences.

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“Nine times out of 10, clients approaching me face the challenge that they have great NPS and customer satisfaction scores, but they encounter customer churn and increased costs. Even if their efforts drive revenue and sales their costs increase, leading to a profitability decrease, the opposite of what they were aiming for,” he explains.

“When I talk with my clients about the measurements that drive the decision-making processes, they refer to satisfaction scores and NPS, but you cannot win with this method. To demonstrate the flaws of using NPS and customer satisfaction, I always show the CEOs and their board meeting with me when they come and ask for my guidance I show them an easy way to comprehend what and why things aren’t delivering the results they are looking for,” he adds.

Prof. Klaus begins by demonstrating how narrow the view of a customer’s purchasing behavior is when using NPS and satisfaction scores alone. “Even if you use both and you are very lucky, it will explain no more than five percent of consumer behavior,” he explains. In fact, Prof. Klaus says there is a higher chance of generating a return on investment by spending the CX budget in one of Monaco’s casinos!

He adds: “Instead of basing all your strategy and all your customer efforts on two things that explain five out of a hundred possible reasons, EXQ can explain 82 or more, for example.”

Ussing NPS, CSAT and other CX metrics

As CX’s original measurement scale, the Net Promoter Score (NPS) has been used by businesses around the world since it was created by Fred Reichheld. However, it is not without its issues and many CX analysts, authors and consultants have claimed it is no longer fit for purpose. Why? Because it is based on customer intent, rather than actual customer behavior. Furthermore, customer ratings are dependent on the customer sharing their views on an experience that was shaped by their own perceptions, meaning numbers are easily skewed.

“I am honest about what NPS can and cannot show you,” Prof. Klaus says. “People believe NPS is there to create awareness for everyone in the company that the customer is important. But one can argue that if you need a measurement to create awareness that the customer is important in your organization, you have bigger challenges than choosing the right measurement.”

The EXQ scale differs to the measurements used in most companies in that instead of asking how likely a customer is to recommend a company, it measures only when the recommendation is made and then links that back to what has caused the customer to make a recommendation.

“Because all these measurements are about the how, what, when and where of what we do, but they do not answer the why. This is why EXQ is superior; it shows you why people do what they do. You must connect what you measure with what matters most to people. If you don’t know the why, nothing else makes sense,” Prof. Klaus says.

EXQ can also be used to contextualize NPS scores and other CX metrics. “I often hear from companies that their CX efforts result in a change of NPS, but there is still no understanding of why the NPS has changed. You may also find customer satisfaction scores go down even though people are buying more. No matter what the scenario EXQ explains why these changes take place and how to convert these insights into actions,” Prof. Klaus says.

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Using EXQ to secure more budget

Many times, CX managers struggle to get the necessary airtime with the CEO and therefore, secure the budget, resources and capabilities required to drive change.

On how practitioners can make their pitch more compelling, Prof. Klaus says the trick is to speak the language of the CEO, not the CXO. “When you tell a CEO you intend to improve NPS, they can’t take that to the bank,” Prof. Klaus says.

He continues: “You need to give the CEO something that relates to the financial reality of their business, rather than talking about CX because, regrettably, they're sick and tired of it! You must talk to the CFO first because if you can convince them, you can convince the CEO. All my research links CX to profitability. If you cannot do that you will never have a place on the table, as a figure of speech. Or if you do have a place, it will be to tick a box so the organization can say it cares about customers.”

In doing this, practitioners can escape the trap of working to get their senior leaders and peers to back the intangible.  Prof. Klaus says: “CX was once seen as a strategic initiative, but that is not the case anymore. It is now a function, and in being a function suddenly it competes with marketing, intelligence and operations.”

His longitudinal research study with more than 3,000 companies around the globe demonstrated that, alebeit the smallest in numbers, the companies that do CX right outperform others by 600 percent.

“They are six times more profitable,” Prof. Klaus says. “If you do it right, it comes out right, but if you measure the wrong things, have the wrong mindset, or use the wrong tools, nothing is achieved. As a matter of fact, our research points out that nine out of 10 CX programs are not profitable. Wouldn’t you much rather belong to the other group?”

CX Network's Global State of CX 2024 is published on May 23, 2024. Click here to  find out more and ensure you receive notifications when it's live

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