Customer experience rankings show bottom-line benefit

Forrester's latest customer experience index is out, and Barnes & Noble, Marriott and firms in retail and hospitality got good news. It may mean future profits.

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Barnes & Noble, Marriott Hotels, and the retail and hospitality industries in general ranked among the most committed to the customer experience in a recent index compiled by Forrester Research.

And that commitment to the customer experience leads to customer loyalty and competitive advantage in the marketplace, research suggests.

Forrester surveyed more than 4,600 consumers about their interactions with companies across a variety of industries, compiling results for 133 companies. This is the third year Forrester has conducted the survey.

"There really hasn't been a good way to evaluate customer experience," said Bruce Temkin, vice president and principal analyst at the Cambridge, Mass.-based research firm and author of the report. "We wanted to actually measure that, so [we could measure not only] how individuals are doing against their peers but how companies are performing across industries and track that over time."

This year's survey, conducted in the fourth quarter of 2009, found that Barnes & Noble, Marriott Hotels & Resorts, and Hampton Inn/Suites scored the best for customer experience. Charter Communications ranked last for the third year in a row. From an industry perspective, retailers, hotels and parcel shipping firms topped the rankings, while health insurance firms, TV service providers and Internet service providers wound up at the bottom.

The index is based on responses to three questions asked of consumers who had interacted with a company in the past 90 days: How well did the company meet your needs? How easy was the company to work with? How enjoyable was the interaction?

Those responses correlate directly to customer loyalty, according to Temkin, meaning that customers are more likely to buy, less likely to switch to a competitor, and more likely to recommend a product or service to others. That, in turn, leads to more revenue.

"We did a model to look at the annual revenue that could be gained by a $1 billion company that improved its customer experience index -- $284 million was the average gain," Temkin said.

Some evidence is also emerging that improved customer experience positively affects stock price. A study of companies whose scores on the American Customer Satisfaction Index had risen over the past year outperformed the national average, gaining an average of 1.08% per month.

Similarly, Watermark Consulting recently evaluated Forrester's Customer Experience Index over the last three years and found that, when it came to stock price, the leaders far outperformed the laggards.

Based on this year's results, that's good news for Liberty Mutual Insurance, Comfort Inn, Sprint and Time Warner Cable, which saw significant improvements in their results. Given the economic conditions of the past year, improving the customer experience was not an easy task.

Survey responses, Temkin said, are influenced by factors such as the global recession.

"That's a lot of the reason you saw a huge decline in the financial sector,” he said. “Banks, credit card companies took a dive.”

The index can help companies that are listed and those that are not, Temkin said.

"Look at the state of your industry and recognize how much improvement there is -- there's a lot of opportunity to do good," he said. "For companies in the index, you have to look at how you are doing compared to competitors and decide if you are focused on the customer."

Companies that have improved their scores have typically implemented some sort of voice of the customer program and evaluated their company outside-in, from the customer perspective, according to Temkin.

"They look at the interactions customers have with them from the customer's point of view,” he said, “and map out the entire customer lifecycle.”

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