happy woman holding a mobile phone

Why is customer experience important?

Industry leaders such as Apple and Tesla have recognized the importance of customer experience (CX) and turned it into a competitive differentiator. In fact, if you were to list the businesses you’re loyal to or admire, chances are good that they not only have high quality products at competitive prices, but that they have a certain something that sets them apart. That “something” is typically customer experience.

It may be a streamlined purchase process, retail locations that also serve as support hubs, or generous loyalty programs that distinguish these brands from the pack, but they all have one thing in common—they have figured out the answer to “why is customer experience important” and embedded it into their cultures and business strategies.

Those who excel at customer experience—which is the perception a consumer has about a company based on a collection of interactions and impressions—can expect numerous benefits including higher customer loyalty, reduced customer churn, improved brand reputation, and enhanced operational efficiency. In other words, they ultimately achieve stronger financial results.

Perhaps the most important reason why customer experience is important is because consumers expect consistently satisfying experiences from companies. In fact, Salesforce found that 88% of customers say the experience a company provides is as important as its products or services—the highest it’s ever been. We’re deep into the “experience economy” and brands that solve the CX puzzle will thrive.

The evolution of customer expectations

When exploring why customer experience is important, it’s paramount to emphasize evolving customer expectations. Driven by technological innovations and cultural changes, today’s consumers are informed, empowered, and perhaps the most demanding group of buyers ever.

Digital technology has transformed the way brands interact with customers and prospects. It wasn’t too long ago when companies relied on two or three non-digital methods to reach customers. Now, they can tweet, email, chat, text, and more. These technological advances have forever changed customer expectations.

Consumers value the speed and convenience of digital customer experience, but it isn’t enough for businesses to offer multiple interaction channels. Channels need to be effectively integrated so that customers can move across them seamlessly for omnichannel experiences. For example, people have come to expect retailers to offer “order online, pick up in store” services. And making a customer start over when they switch from chat to phone support could be viewed as positively medieval.

Smartphones, in particular, have fundamentally altered the consumer landscape. Websites are expected to be optimized for the mobile experience, and mobile apps allow people to easily access things like loyalty program features, conveniently make purchases, and access support with the click of a button.

Technology also allows people access information on demand, such as product or service reviews and competitors’ prices, making today’s consumers more knowledgeable than in the past. And these informed customers expect businesses to leverage technology to provide enhanced customer experiences, including instant responses and personalized interactions and recommendations.

In addition to technical factors, consumer expectations are being influenced by societal shifts. For example, some people will only do business with brands that are committed to sustainability and/or diversity, equity, and inclusion (DEI). And trust and transparency have also become elevated characteristics of satisfying CX.

Customer experience as a competitive differentiator

Businesses that understand and adapt to current consumer expectations can create a competitive differentiator through innovative CX. However, this is easier said than done.

Consistently providing superior experiences can be a difficult goal to achieve due to the number of moving parts. CX success requires organizational alignment and buy-in, modern technology, a customer-centric culture, repetitive innovation and improvement, and relentless customer experience management.

For businesses that have made customer experience a prominent element of their business strategies, the rewards, including market leadership, can be substantial. Let’s take a quick look at some brands that have effectively transformed customer experience into a competitive differentiator.

  • Amazon—Life would be so much less convenient without Amazon. They set the standard for all online retailers with a streamlined user interface, vast product selection, quick delivery times, personalized recommendations, and so much more. What began as an online bookstore has become the go-to choice of millions of people for products and entertainment. For an answer to the question “Why is customer experience important?” take a look at Amazon’s CX model, market share, customer loyalty, and financial results.
  • Warby Parker—Warby Parker is another business that found success by creating more convenience for customers. The process of choosing and purchasing eyeglasses was ripe for re-engineering. Warby Parker’s solution was to send several frames to people’s homes so they could try them on before making a purchase. They also added virtual “try-ons” for further ease of use. Add stylish and affordable frames to superior CX, and you have a recipe for business success.
  • Apple—Apple is known for its innovative products, but that’s only one element of their marketplace achievements. They also place a heavy emphasis on the user experience, from the design of their user interfaces to the layout of their stores, and everything in between. Apple’s focus on CX and innovation has earned them a highly loyal customer base.

The financial implications of customer experience 

The previously discussed brands, and every business that excels at CX, have positioned themselves for financial success by understanding what customers want and addressing their needs.

According to McKinsey & Company, enhancing CX leads to a 2-7% increase in sales revenue and a 1-2% bump in profitability. These financial improvements are often generated by a collection of factors, which can include the following:

  • Customer loyalty—When customers are satisfied and feel like a business knows and understands them, they become more loyal and less likely to churn.
  • Customer lifetime value (CLV)—Loyal customers are likely to spend more and stick around longer, leading to a higher average customer lifetime value.
  • Customer referrals—Happy customers are also more likely to refer friends and family to a company and its products. Not only is word-of-mouth the most effective form of marketing, but it’s absolutely free. This means that businesses with high referral rates enjoy a lower average customer acquisition cost. Organizations should consider this when allocating funds to acquisition marketing and CX programs. Both are necessary, but organizations may want to invest more in customer experience due to its impact on lower cost referrals.
  • Operational efficiency—Customer acquisition isn’t the only area where superior CX can help reduce costs. When the customer journey is constantly analyzed and improved, that can reduce costs related to customer service, product returns, and more.

How does customer experience impact customer loyalty and retention?

We’ve established that loyal customers are good for the bottom line due to higher CLV and referral rates, but how exactly does satisfying CX foster customer loyalty?

As in personal relationships, the first factor is trust. Positive experiences build trust. When a customer is consistently taken care of, they trust the brand to continue delivering on their expectations.

Closely related to trust is emotional engagement. Emotions play a significant role in consumer decision making. Feeling valued and recognized is important to customers, and businesses that can make an emotional connection with customers through methods such as tailored interactions and personalized offers can win customers for life.

Ultimately, the best outcome of great CX is stronger customer relationships. When businesses approach relationship-building through reliable customer experiences and personalized impressions, they can create the kind of customer loyalty that fuels business growth.

The ripple effect of customer experience on brand reputation 

Digital technology has amplified the impact customer experience can have on brand reputation. One person who posts a viral complaint can cause damage that's difficult and costly to overcome.

But it doesn't take a viral video to erode (or shore up) a brand's reputation. Product or service reviews are ubiquitous and very easy to find. You only need to Google a product or business to see what Yelp users and Amazon customers had to say about it. According to one study, "93% of customers will read online reviews before making a purchase." And not only do these reviews contain product information; brands such as Etsy encourage shoppers to provide feedback on customer service and shipping. In other words, most aspects of the customer experience can be included in a single review.

Another place people turn to when researching a purchase decision is social media. Social media "influencers" make a living off reviewing and endorsing products and can influence their followers to buy (or stay away from) specific products and services.

However, it doesn't require a well-known personality to sway a person's perception of a brand or product. Consumers seek social proof from people they know to validate their opinions of products and businesses, making it particularly important for businesses to nurture brand advocates and avoid creating detractors.

The speed at which brand reputations can be impacted make it Imperative for businesses to have a proactive and engaging digital presence. Actions such as candidly and humbly addressing a disgruntled customer's tweet can help repair that relationship and even strengthen the brand's reputation.

Employee engagement and customer experience

Businesses that want to be customer experience leaders should also focus on being employee experience leaders. Employees, especially customer-facing ones, can have a significant impact on what types of experiences people have while doing business with a company.

Specifically, businesses should focus on employee engagement. Engaged employees are committed to their employer’s business objectives and will go the extra mile to help the organization achieve its goals. From a CX perspective, this could mean that an employee takes the initiative to figure out how to improve customer survey completion rates, develop innovative website functionality, or arrange to send a dress to the bridesmaid who forgot to pack it.

There are several initiatives a brand can undertake to increase employee engagement and create a more customer-centric culture. Below, we'll discuss a few of them.

  • Share the answer to why customer experience is important—It's human nature to want to know the "why" of things. Employees should know the meaning of CX and how it impacts customer loyalty and financial outcomes. When they know why the business is focusing on CX, workers are more likely to get on board.
  • Explain to employees how their job responsibilities affect CX—Connect more dots for employees by helping them understand how their activities directly or indirectly influence customer experience.
  • Frequently share positive customer feedback—Everyone likes to be recognized and know that their work is making a difference. Sharing positive feedback from customer satisfaction surveys, social media, and other sources can keep people engaged and motivated.
  • Invest in employee development—Learning new skills or refining existing ones can be rewarding for employees and sends a signal that the business values them. In addition, having more knowledgeable employees will enable brands to develop more innovative experiences.

Measuring customer experience for continuous improvement 

Customer experience must be continuously improved; therefore, it must be continuously measured. There isn't a single metric that allows organizations to know holistically how they're doing on CX, so a collection of KPIs is the way to go. This collection of customer experience measurements can include the following:

  • Net Promoter Score (NPS)Net Promoter Score measures how likely a customer is to refer friends and family to a brand or product and is a top CX measurement.
  • Customer satisfaction (CSAT)—Customer satisfaction surveys are a great way to take the pulse of customers and can help identify sources of friction within the customer journey.
  • Customer effort scores (CES)Customer effort scores help organizations understand where and when they're making their customers work too hard.
  • Customer lifetime value (CLV)—Customer lifetime value indicates whether customers are sticking around longer and buying more, both of which are ideal outcomes of a customer experience strategy.
  • Customer churn rate—If a business can't hold on to its customers, it could indicate that there are issues with the customer experience.

The role of technology in enhancing customer experience

Advanced technology is essential for both providing exceptional CX and monitoring performance.

Digitally savvy consumers want to interact with businesses using modern technology in their preferred channels. For customer service, that might require businesses to offer self-service, chat, and email support in addition to traditional phone support.

However, providing multichannel customer service may miss the mark if the channels aren't integrated. When a brand provides omnichannel experiences, customers can move seamlessly across channels while seeking answers or resolutions. Removing the need to repeat information or start over in every channel reduces customer effort and enhances CX.

Advanced technology is also required for monitoring and measuring customer experience. These activities require a vast amount of customer data from multiple sources that need to be consolidated and quickly analyzed so brands can be agile in their responses. Analytics tools powered by artificial intelligence are best suited for the task of transforming large quantities of information into meaningful insights in real time.

AI can also be used in the contact center to analyze valuable unstructured data. For example, interaction analytics can analyze all customer service interactions and generate information about customer sentiment, emerging issues, and more.

Brands that master the elements of great customer experience, of which technology is just one component, can look forward to a variety of financial benefits. Using superior customer experience to strengthen customer retention and brand loyalty and reputation can increase customer lifetime value, referrals, and sales revenue. And by removing friction throughout the customer journey, businesses can realize a substantial reduction in customer service costs.

Successfully executing a customer experience strategy requires ongoing innovation. Read A CX Leader’s Guide to Total Excellence: Four Secrets to Success from Aberdeen Strategy & Research to learn how to take CX to the next level.