The Link Between Business Success and Customer Engagement
You know that customer's feedback is important for your business, but how do relate feedback to the customer experience and the bottom line? Should you conduct Customer Satisfaction analysis? Or look at loyalty? The best metric to follow is Customer Engagement, which has been tied to business performance time and time again. This article reviews yet another benefit of consistently high Customer Engagement: higher company stock performance. Learn how to whip your customer engagement strategy into shape.
“You get what you measure. Measure the wrong thing and you get the wrong behaviors,” Organizational change and measurement expert John H. Lingle tells us. Most business leaders would agree that it’s nearly impossible to succeed without dependable, accurate metrics. The tricky part is figuring out what to measure. This is especially challenging in customer relations, which are notoriously difficult to quantify. Customer Satisfaction analysis, Customer Loyalty studies, and Net Promoter scores are different methods businesses use to figure out how well they’re treating customers. However, the research that connects these statistics to the bottom line is inconclusive. There is one metric, Customer Engagement, that has been linked to higher profits, ROI, and share-of-market. PeopleMetrics Most Engaged Customers (MEC) studies have established this relationship over a number of years. This year’s study revealed yet another significant correlation between Customer Engagement and business outcomes: companies with highly engaged customers see higher growth in stock value.
Just what is this powerful customer experience metric? Well, Customer Engagement is defined according to four customer behaviors: Retention, Effort, Advocacy, and Passion. In the 2010 Most Engaged Customers study, PeopleMetrics interviewed over 5,000 consumers to establish Customer Engagement scores for 67 different brands. In describing their emotional connection to a brand, respondents were asked to use a 5-point scale, where a 1 means “strongly disagree” and a 5 indicates “strongly agree.” Consumers report a number for each of the following statements:
the choice, I would do business with [Company] again.”
Overall, PeopleMetrics compiled statistics for brands in twelve different industry sectors. Next, PeopleMetrics compared engagement levels with business performance statistics. The same method was used in the 2008 Most Engaged Customers study to establish a connection between Customer Engagement and business performance measurements including Return on Assets, Return on Investment, Revenue Growth, Price/Earnings Ratio, and Earnings per Share. For instance, it was found that companies with high Customer Engagement enjoy Earnings per Share 87% higher than their industry’s average, while companies with low Customer Engagement see Earnings per Share 22% lower than the industry average.
Thanks to three years of engagement statistics, in the 2010 MEC study PeopleMetrics was able to show how Customer Engagement and financial performance interact over time. Retailers whose Customer Engagement scores increased at least 5 percentage points since 2008 exhibit 56% cumulative share price appreciation since that time. On the other hand, retailers who suffered drops in engagement levels of 5 or more points saw their share prices appreciate an average of just 22%. In other words, retail companies that significantly improved their engagement levels saw twice the increase in stock prices.
Customer relationships are the heart of any business. To realize long-term success, businesses must gather and act on customer feedback to improve the customer experience. Customer Engagement is one customer relationship metric that consistently correlates to improved business outcomes. Therefore, a strong Customer Engagement strategy is key to a thriving business.
Quality guru H. James Harringon writes, "Measurement is the first step that leads to control and eventually to improvement. If you can't measure something, you can't understand it. If you can't understand it, you can't control it. If you can't control it, you can't improve it." By measuring Customer Engagement levels, companies can understand and improve the customer experience. And once their customer base is highly engaged, companies can expect higher stock prices as well.
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ABOUT THE AUTHOR
Kate Feather is the Executive VP of PeopleMetrics.
PeopleMetrics' 2010 Most Engaged Customers study, an annual report providing customer satisfaction analysis for 12 industries, reveals why the top brands succeed. Contact PeopleMetrics to learn customer engagement strategy tips for your industry.