How Customer Experience Programs Empower Price Premiums
- Customer Experience (CX) is the customers perception of the brand based on the totality of interactions. It’s important because CX directly impacts customer affinity, which is one of only four sustainable competitive advantages.
- Delivering superior customer experiences sounds like a good idea. But good ideas are a dime a dozen. Business growth strategies must demonstrate significant revenue growth to be adopted and continuous profitability to be sustained.
- To demonstrate profitability, it helps to know what customer experiences customers most want and are willing to pay for. It also helps to know just how much more they are willing to pay for superior customer experiences.
Research Shows the Price Premium Earned from Superior Customer Experiences
The Johnny Grow Business Growth Report found that companies who adopted customer experience strategies achieved price premiums for their products and services.
Good information but not quite complete. The findings triggered our wanting to know the amount of those price premiums. So, we first looked for other customer experience research reports.
- A Forrester research survey shared its results in a report titled, The Price Premium of Customer Experience. That research found that “Customers who gave CX scores that fell into the 'excellent' category had significantly higher willingness to pay premiums for those experiences compared to customers who gave CX scores that fell into lower categories like 'good' and 'OK'."
- A report from Capgemini's Digital Transformation Institute, titled The Disconnected Customer, found that "81 percent of consumers are willing to increase their spend with an organization in return for a better experience."
- And in the largest global study, research from Accenture found that 42 percent of customers are frustrated with brands, and those frustrated customers were far more likely than satisfied customers to pay a premium for a better experience (62 percent vs. 36 percent, respectively). The research also advised that 47 percent of all consumers said they are willing to pay more for an experience that exceeds their expectations. Laura Gurski, the head of Accenture's Consumer Goods and Services practice, commented that "With so many consumers willing to pay more for an experience that exceeds expectations, there is a potential pot of gold for those that get it right."
The body of research is consistent in finding that most customers are willing to pay higher prices for better customer experiences, but we found no research advising how much more.
It's easy to understand that delivering superior customer experiences has value, but how much value? If you cannot quantify the financial uplift, you don't know how much to invest before you over invest.
We couldn't let this question go unanswered so in April we launched a customer experience survey with the aim to validate and quantify the price premiums earned from superior customer experiences.
A summary of the results is shown below.
The data is helpful in building a clear link between the customer experience investment and payback. That's needed because no customer experience program is sustainable unless it can deliver a profit to the company. This data shows what the experience is worth to customers and how much additional revenue is earned by the company.
Price premiums are only one source of incremental revenue. Superior customer experiences also increase repeat purchases, referrals, customer lifetime value and retention.
But price premiums have a particularly unique financial impact. I'm reminded of an old study published in Harvard Business Review that continues to show the extraordinary link between price and profit. It found a 1 percent improvement in price resulted in an average profit improvement of 11.1 percent.
Or put into a different perspective, the article also points out the flip side that a "mere 1 percent price decrease would destroy 11.1 percent of the company’s operating profit."
The Johnny Grow customer experience survey was designed to discover two things. In addition to wanting to know how much more customers are willing to pay for improved experiences, it posed questions to determine exactly what experiences customers most want and are willing to pay for.