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Using the Right Metrics to Measure the Customer Experience—and Predict the Future

By: Larry Freed
Last updated 11/13/2013

With the rise of the “Super Consumer,” who can switch brands with the click of a mouse or the swipe of a finger, all while broadcasting his or her experiences to hundreds, if not thousands, of others via social media--the business landscape has changed irrevocably. To level the playing field, executives need a tool just as potent as the ones consumers wield. They need a precise and reliable technology that not only measures the customer experience but also predicts what impact their satisfaction, or lack thereof, will have on the future success of a company. Companies also need to be aware that consumers are fully immersed in multiple channels, using web, mobile, store locations, contact centers, email, and social media at will, and the experience a customer has in one channel can greatly affect the overall experience with the company as a whole.

Academic research over the past two decades shows that when measured properly, customer satisfaction is a predictor of future success at both macroeconomic and microeconomic levels. At the macroeconomic level, this means that customer satisfaction predicts consumer spending and gross domestic product (GDP). At the company level, this means that satisfaction predicts a company’s future financial performance, revenue, and even stock prices.

Achieving a true customer-centric enterprise requires metrics that track customer behavior in a way that is credible, reliable, accurate, precise, actionable and predictive. These data also need to be continuously gathered, and organizations need to act on the results. If any of these elements is missing, organizations cannot enact the appropriate customer experience improvements that will positively impact the bottom line.

It has never been easier to collect voice-of-customer data, but the challenge is putting that information into a scientific context that helps companies know how to predict and shape customer behavior in the future. In today’s multichannel world, it is also important to understand the customer experience within and across every relevant channel. From customers’ perspectives, they see only a single brand, not a channel-specific version of a brand. As a result, every channel must be measured and managed to deliver a customer experience that supports the global objectives of the brand.

When evaluating metrics, it is important to understand that any measure worth tracking should meet all of the following criteria:

● Credible: How widely accepted is the measure? Does it have a good track record of results? Is it based on a scientifically and academically rigorous methodology? Can we trust it to make decisions? Will management trust it?

● Reliable: Is it a consistent standard that can be applied across the customer life cycle and multiple channels? When all factors remain the same, are the results the same with every measurement?

●.Precise: Is it specific enough to provide insight? Is it specific enough to allow us to make business decisions based on it? Does it use multiple-related questions to deliver greater accuracy and insight? (Remember that a watch without a minute hand may be accurate but it’s not precise. Likewise, customer experience data need to be precise to be useful.)

● Accurate: Is the measurement correct? Is it representative of the entire customer base or just an outspoken minority? Do the questions capture self-reported importance, or can they derive importance based on what customers say? (For example, most customers say price is important to them, but in practice price reductions typically do not inspire them to make purchases. Other factors—such as product information— usually have a much greater impact on purchasing behavior.) Does it have an acceptable margin of error and realistic sample sizes?

● Actionable: Does it provide any insight into what can be done to encourage customers to return, buy again, or recommend? Does it prioritize improvements according to the biggest predicted impacts? A score without actionable insights helps keep score but does not help with improvements.

● Predictive: Can it project the future behaviors of customers based on their satisfaction with the experience? The goal is to focus an organization’s efforts on those things that will yield strategic value. The organizations that make the best investments in improvement will be in an advantageous position to win the competitive battles. Without predictive capability, organizations are left to shoot at targets in the dark. They are left to a strategy of trial and error.

Metrics that do not have these qualities will do more harm than good. The only thing worse than having bad data is to have bad data and think that it is good data. Bad data will provide a false sense of security that will lead organizations to make bad decisions.

At the highest level, the customer experience is simply the comparative measure between customer expectations and actual experience: How did what you actually got compare to what you were expecting to get? However, myriad variables go into understanding expectations and experience. Experience with competitors and other organizations, external factors (from the weather to the economy), and customers’ intent when they engage the organization all play into their expectations and experience. Because of this, measuring the customer experience can vary with each interaction on the basis of specific customer needs and perceptions at any given time.

Effectively measuring these variables will provide an accurate account of the customer experience. Organizations can understand why customers behave the way they do and also predict how they will behave in the future. They can make business investments based on accurate customer experience analytics that will materially improve the customer experience and, ultimately, the bottom line.

This article is excerpted with permission from the publisher, Wiley, from INNOVATING ANALYTICS: Word of Mouth Index—How the Next Generation of Net Promoter. Copyright © 2013

About the Author(s)

Larry Freed , author of Innovating Analytics, is president and CEO of ForeSee, a customer experience analytics firm with many Fortune 500 clients.  He is the author of the 2011 book Managing Forward:  How to Move from Measuring the Past to Managing the Future, as well as more than 100 articles, white papers and other research reports.  For more information about Innovating Analytics, please visit: http://wordofmouthindex.com/womi-news/womi-book