• Mikko Peltola

The Business Case of Customer Experience, Part 2

In the first part of the series, we concluded that CX leaders deliver superior results in sales, profitability, customer, and employee satisfaction regardless of the industry. We also focused on the meaning of great CX and the importance of building CX culture. This is the second part of the series where we look at the challenge of justifying the customer experience investment in product development.

Financial markets reward companies for predictability and CFO’s encourage the same values to organizational decision making. Most investments can be budgeted as quarterly cash flows. Estimating the costs and returns of superior CX is challenging, and splitting cash flows into quarters is nearly impossible.

Justifying CX investments

‘What’s the Return on Investment of CX’ is like Bruce Willis asking ‘Head or Gut.’ It’s going to hurt either way if you get dragged into this line of questioning. CX has no value in isolation. Conversely, if an activity doesn’t ultimately serve your customer’s needs, it's futile. The suggestion is to link CX to an investment-specific activity it benefits or to a disruption that presents an opportunity.

Investment-specific CX cost would be, for example, continuous customer research and validation during the development of a new product. This is a time-window business. If you budget it early on, the activity sounds self-evident. If you try to introduce it later, be prepared to answer unpleasant questions. ‘What were you planning to build earlier, a mediocre product?’.

Generic CX costs often require a catalyst to get approved. ‘CV-19 has changed customer behavior so much that old data cannot be relied on.’ ‘Remote working culture is opening up new opportunities that should be studied.’Both of these are plausible conversation starters to justify customer studies and further investment in CX.

Ultimately, CX means doing things right. One shouldn’t be hesitant to invest in digging deeper and finding fact-based, recent customer insights. Too often, product managers are assumed to possess this information just because they’ve experience or skills. Secondly, using outside experts is often the best use of resources. Establishing best practices, balancing peak resource demand, and keeping the existing organization focused are excellent reasons to bring in the experts.

The opportunity cost to the rescue

Opportunity costs represent the potential benefits a business misses out on when choosing one alternative over another. (Investopedia). Instead of starting the conversation with a cost-benefit angle, zoom out to a more strategic view. Instead of asking can we afford to invest, ask can we afford not to. Knowing that companies across industries invest more on CX and the results show with a delay, aren’t we disadvantaged if we get left behind?

If you choose not to study customer preferences, one of the following could happen:

  1. You end up implementing every feature out of fear of missing out. Instead of launching a product with three features in three months, you spend six months and lose the first quarter’s sales.

  2. You make wrong feature choices or address the wrong market segment. What’s the cost of losing 1% or 10% of sales?

  3. With all the inefficiencies, your product costs 10% more to make than the competition. They can now choose whether to show better results than you or to go to a price war and steal market share from you. You became a passenger while your competition drives the train.

Or if positive examples resonate better:

  1. How much sooner can we generate revenue if we focus only on the top 3 features?

  2. What if our CX investment could continuously validate we’re on track to deliver the correct features for the right market?

  3. Imagine the opportunities if we reach a cost base 10% below our competitors.

Tying back to the first part of the series, a strong CX culture enables discussing CX investments with the right tonality. And the other way around: building a business case and getting it approved drives the right kind of cross-functional collaboration and customer-focused culture.

In the third and last part of the series, we’ll look deeper into the strategic opportunities or real options that good CX opens up. Let us know if you liked this and we'll notify you when we post more on the topic.


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