Most of us understand that customer experience is something highly relevant for a business. Improved customer experience is equal to improved retention, decreased churn, and improved competitiveness, which leads to revenue growth.
Although it’s evident that customer experience is a good thing to focus on, why is it still such a struggle to link improved customer experience with revenue growth and other operative metrics?
In this episode, we try to sort out why many organizations struggle to see actual proof of the linkage and what you should do to see the link more clearly.
How to establish a link between customer experience metrics and other operative metrics:
Most important feedback for an organization to do that wants to become more customer-centric:
Remember that customer experience is not rocket science. It’s about understanding your customers better and showing interest and empathy to find ways to make their lives easier.
Joahnna Sinkkonen, CEO and co-founder of Lumoa. Johanna has a history of working in big corporates like Nokia and Microsoft, working with business strategy and development, which lead her into the customer experience field. She knows what the CX-related challenges organizations are facing since she has been there herself.
Sofia: Hello and Welcome, everyone. I’m Sofia Ohlson and I am the host of Inside CX by Luma. Thank you for watching. Today we’re going to talk about linking cx with business outcomes. Joining me for the first episode is my colleague, co-founder, and CEO of Lumoa Johanna Sinkkonen. Johanna has a long history of working in CX, she has worked in well-known companies such as Nokia and Microsoft before founding Lumoa. Welcome, Johanna to the show.
Johanna: Thank you, Sofia.
Sofia: So, as I just said, you have a long history in cx. And now you’re one of the founders of Lumoa. But how did your cx journey start? How did you end up working with cx in the first place?
Johanna: I actually did most of my corporate career in business-related roles, strategic planning, strategy, development, business development, business planning, etc. But then I was also a part of the program/team that started, at Nokia, this sort of continuous feedback gathering, Net Promoter Score measurement there. And that was obviously, many, many years ago.
But in that situation, and environment, it was sort of a revolution. Because before those times, we had been dependent on tracking, like, customer experience and consumer experience with sort of these traditional surveys, product, and brand trackers, that took a lot of money, and many, many months to get any results. So to get to the situation where we could actually in real-time, follow what the customers think about us and our products, etc. That was an incredibly big change. So I was very happy to be part of that.
And that kind of started my huge, sort of enthusiasm minute when it comes to customer experience, and customer experience management.
Sofia: Right. So it’s sort of gradually just, became part of your work, sort of naturally, that yes, since it was the way to go sort of.
So you have worked at Nokia and Microsoft working with customer experience. But what happened? Why did you then move on to found your own business together with your co-founders?
Johanna: Yeah, I think it was a combination of a few things. First of all, we felt that we had built something very meaningful, learned many good ways to analyze customer feedback that we could actually also teach to other companies. And from that we wanted to then build a product, and “productize” our learnings and thinking, but personally, it was also a need, and sort of a preference to have a change.
So I obviously worked on for a long time in those companies, 12 years altogether. So to be in a big company, a big corporation for such a long time. It’s, it’s a lot in a way, and I wanted to have more direct impact on the business and the world, myself, so I wanted to start building something on my own. And that’s why I wanted to be a part of starting this company.
Sofia: Okay, so coming back to the topic of today’s episode, which is linking customer experience with business and business outcomes.
Just starting off, really simple question, I guess most of us already knows this, but is customer experience relevant for a business, and if it’s relevant, why is it relevant?
Johanna: Good question.
Let me start by saying that yes, it is relevant. So of course, there are some exceptions. So if you are a monopoly, with no fear of anybody else entering the market, or if you are selling a total commodity in a commodity market, then maybe, customer experience is not so relevant for you. Because you basically don’t need to differentiate from anybody.
But there are not so many industries and companies who can say that they are in that kind of situation. So for anybody else, customer experience is extremely important, because you have to differentiate from others to be able to survive in this world. So, globalization we can nowadays buy services, products, etc, from anywhere in the world.
So basically, the only way you can, in the end, keep your customers happy, is to provide them with a good experience somehow, it can be that your product is better, it can be that your product is not so much better, but your services is extremely good.
Something, there needs to be something, some reason for that your customers stick with you and not to your competitor.
Sofia: Yeah, exactly. So it’s used, mostly seen as a way of standing out from the crowd. And as, standing out from the crowd and like, differentiate from the competitors.
So, linking customer experience to business or business outcomes, is as I have understoodit, pretty hard to do for businesses, to get like some concrete facts or results that actually show you this cx improvement actually have made our business better or grow, or we have received more revenue, whatever.
So what is it with customer experience? Why is it so hard to link customer experience initiatives to any kind of business-related outcomes or goals or results?
Johanna: Yeah, I would claim that it’s difficult only if you are searching for some sort of universal truth.
So if you want sort of universal truth, saying that when any company increases their cx metric, for instance, net promoter score, or customer satisfaction, by this much, their revenue will increase this much, you will not find it. Because there are no such universal truths.
The reality is that the importance of customer experience always depends on your industry. So if you’re selling a commodity product, like nearly commodity product, it’s much less than if you’re selling a highly differentiated experience.
For instance, if you’re a telco selling us, like cellular access, or if your utility company selling electricity, the level of customer experience that is kind of a hygiene level is obviously that the electricity keeps flowing, and that your price is not insane, that it’s on par or lower than the competition, similar for like mobile network access or whatnot.
So if you achieve that hygiene level, then you can try to differentiate from your competitors with, sort of, better digital services like easier invoicing very good and easy to read customer service, sort of agents.
But you can normally count on that some of your consumers or customers are lazy enough that they even, if your queues to your customer service, or to get long, or something like that, they won’t switch because they don’t bother to switch.
But then of course, if you are in an industry which is say for instance, in hospitality, you run a restaurant or hotel, basically the only thing you have is a great customer experience. So, if people hate your food, hate your service, they will never come back and you cannot basically survive with that without really focusing on investing in customer experience.
So there is no ”one” single truth to this NPS versus revenue, or NPS versus growth, or customer satisfaction versus growth.
But you always need to consider it from your own industry, and all company point of view, because in different countries, you might have different competitive situation.
So even in industries, where you normally, if you run a restaurant in a small village where there are no other restaurants, then maybe you’ll survive with your bad food, etc. So the competitive situation is, is highly important.
But saying all this, then when we get to your individual, kind of, is it difficult for you, in your individual company to understand the relevance of customer experience to business metrics, like financial metrics?
It shouldn’t be too difficult, you should understand, basically, that, that whenever my customer satisfaction goes down, it means that I start to lose customers, and starting to lose customers has a very clear financial impact.
Sofia: Yeah, so like, that means that, if you’re measuring your customer experience, you should, see the start of the correlations between the customer experience, and whatever metrics like customer churn,or retention, and how they correlate to each other. And then obviously see that impact, if I understood it right?
Johanna: Yeah. Yeah.
So, ideally, now, we’re maybe walking away from this topic a bit, but ideally, how, according to you, how should a customer experience management look like, in a company, if you want the customer experience to be actually a core function in the company that is driving business growth?
And so that it’s not just a nice thing to have? Just because it makes your brand look good? Or just because that your competitors are doing it? and so on? How should you implement customer experience into your business? Have any thoughts about that?
Johanna: Yeah, yeah, I think there are a few general good practices that apply almost universally like it’s very difficult to make it work without this.
First one being that there needs to be clear ownership for a customer experience in the leadership team level. So it cannot be done. Only somewhere, sort of down there in the organization. If there are no management buy in, and and strong owners ownership and interest in top management, you should have a metric for that a metric that people understand, not too many (metrics), so that people get confused.
But one customer experience metric, that you also link them to the most critical financial metric, it actually drives, we have now mentioned several times the linkage between the customer experience metric, and retention, retaining your customers, that’s the most typical, sort of route through which the good or bad customer experience actually hits yourbottom line, hits your revenue growth, hits your profitability. So you should have that metric and understand how it actually drives your financial metric.
And then you should have targets for an actual customer experience metric, because obviously it motivates people hugely. If they know where they should get to,
Then the leadership team should understand what drives that metric. So kind of just having a number and following it can be actually extremely frustrating for the organization. Because it’s when people get your customers get unhappy, you just see a number go down. You don’t know why it’s going down. It’s just huge frustration. It doesn’t really help. So the leadership and the rest of the organization should understand:
And when you have that, then you are in a much stronger position to also start looking at ”Okay, do we want to invest more in this”, ”do we want to fix this problem”. And then obviously, with any decision of investment, the companies always have very similar criteria.
So, customer experience is no different from any other field in a company. So, of course, you need to only invest in initiatives that have a meaningful a good business case. And they need to be compared to your other potential things that you want to do.
But, kind of starting from the top line of ownership, measurement, targets, and good overall understanding is always what is needed first.
Sofia: Right. Right. So to summarise,you said:
So let’s say, it’s beginning of a new year,or the beginning of a new quarter, whatever, and you have a new set of business goals/ OKRs that has been set, and you work with customer experience.
And you know what the overall business goals are. And you are now wondering, ”okay, how do I align ”my work” that I’m doing with customer experience with the overall business goals?”
Have you any, tips on how a person should think about that problem? Or how to approach it?
Johanna: Very practically, I would recommend, sort of, with the core team, that for instance, now works in customer experience, team or however your organization look like to build a hypothesis on “What is the behavioral or linkage between the customer experience metric, and then the financial metric”.
So your hypothesis could be that ”most likely, the biggest impact from my customers getting happier would be that they, it’s easier to retain them, they don’t switch to competitors”.And therefore we can grow our business more. so revenue grows, or that’s like the basic case.
But your hypothesis can obviously also be that, ”most likely we increase the satisfaction of our customers, they recommend us more, we can start to see that we get this viral effect going on. And we get new customers a bit easier”.
So build these hypotheses, and then test them see what actually holds true. See if you have a group of detractors that gave you that bad feedback a year ago. How large part of them you have you lost? Have they churned? See if you had promoters a year ago? How large partof them have you lost? Have they churned?
In any normal business, you’ll see that there is a difference. You have most likely lost a lot more of those detractors that you had lost promoters, happy customers. And that’s where you start to see that there’s a difference. If you if your customer experience metric increases your retention increases as well.
Sofia: Right right. So is there a way to somehow estimate the impact of customer experience in a business. Can you like beforehand, somehow estimate that “Well, what, if we improve these things X, that is related to customer experience, then we know that we’re going to get this much in revenue” and so on, or whatever it could be.
Johanna: Yeah, so. Understanding the linkage between your CX metric, and the behavioral change that he drives, that has a direct impact on revenue should give you this insight.
But I’m not sure what you mean, when you say, in advance, do you mean in advance of making a decision or on some specific, like customer experience improvement initiative, or in advance before you have even ever measured your customer experience?
Sofia: I guess, when I say advance, I mean at the point when you’re already measuring/following some cx metric, and so on. So you’re not totally new to this field, the work sort of. But I guess this has something to do, or like what you just said that, when you have already started to see, like, a correlation between customer experience and for example, customer retention, you get start getting in some real numbers on that you can actually estimate or start using that statistics and use them to estimate future.
Johanna: Yeah, yeah, that certainly helps in that business case building.
When you know, that general linkage between those metrics in your case. obviously, if there is no history, and you haven’t ever measured customer experience, you’re just starting that, then it’s much more difficult. Then maybe you need to just start small, like start measuring, start investigating what happens to those customers that continue to be unhappy.
Or, if you managed to, with some relatively affordable means to increase your customer satisfaction level, you can also start to see if it starts to correlate with positive changes in the churn rate.
But normally, yeah, it gets more easy. It gets easier if you have any data from the history to back this up.
Sofia: Yeah. Right. Okay, so thank you so much for your answers. Before we finish, we have one last question. And this is a question we’re gonna ask all of our guests.
So at Lumoa, we’re a company that really likes feedback. So obviously, we need to get some feedback from you as well.
So as a last question, what is the most important feedback you would give to any organization that would like to become more customer-centric?
Yeah, don’t need to be a super-advanced answer. First thing that comes up into your mind.
Johanna: Yeah, first thing that comes to my mind is that keep in mind that it’s not rocket science. So we are talking actually about what real people out there your customers are feeling, thinking? And what do they say about you, to use yourself, but also to their friends and family and all of that.
So kind of what really helps in sort of understanding them. And what really helps in then improving your customer experience is just to have a normal empathy towards them.
So being curious and wanting to understand what they actually thinking and saying, like listening to them because of that, because you actually want to understand whether they like your product, and why they don’t like it if they don’t like it, and what would they like to see changed that curiosity and then empathy, if they had a bad experience, and they complain about that?
As a human to human how can you actually help them? Could you do something to make their lives a bit easier, their day a bit better. And I think that takes you a long way.
So it’s not only about or even primarily about a kind of analyzing a complex relationship between metrics or whatnot, we have now focused quite a lot on that.
But actually just keeping your ears open, listening to your customers, and then trying to sort of use your intelligence to think, Okay, how can I, how can I now fix this situation? How can I help this person? How can I going forward, make it a continuous process so that not only I help them, but I also improve the chances of my business succeeding because of that.
Sofia: Right. So it’s truly important to remember, that we’re working with just normal human beings. And we’re not any we’re not any robots. And we just want to make life easier for a human being or somebody else.