Is CX tied to revenue gains? A case study by Idaho Central Union - Omoto

Is CX tied to revenue gains? A case study by Idaho Central Union

Quite a few organizations, even today, consider customer experience as a tertiary function. They assume that in the order of priority, it comes after customer acquisition. When I probed into the reason behind this, I understood that this belief stemmed from the idea that there is no concrete proof of whether CX is tied to revenue gains. Hence, unfortunately, when it comes to cost cutting or deprioritizing, customer experience initiatives are the first ones to face the brunt.

However, when I did my research on the connection between CX and profitability, I found some astonishing results. So, here I am, all set to bust the myth that there is no nexus between good CX and revenue gains. And I will do that by giving you evidence and solid numbers. Here’s a case study by Idaho Central Credit Union to further substantiate the notion that there, undoubtedly, is a link between the two.

What is Idaho Central Credit Union?

Idaho Central Credit Union (ICCU) is a community-based credit union founded in 1940. It has more than 286,000 members and close to 3.2 billion dollars in assets. Headquartered in Chubbuck, Idaho and employing close to 225,000 people, ICCU has consistently and diligently worked on its mission of “helping members achieve financial success.”  According to the Executive Vice-President and Chief Operating Officer of ICCU, Brenda Worrell, the company has just one rule when it comes to taking organizational decisions:

We have a strong culture of using financial data to justify and validate our key organizational decisions. We intuitively knew there was a link between the member experience and our financial success. However, we felt it was vital to prove the concept with our own results to get the buy-in from our entire team.

To justify the link between customer experience and financial success, ICCU collected 3,595 responses in the first 2 quarters of 2009 from its customers. It used the NPS question to find out the member (customer) experience with its brand.

So, here are the findings that will give you some wonderful insights:

NPS and Profitability

Good CX tied to revenue gains: Profitability by NPS category

One of the first encouraging correlations that were found was between NPS and profitability. The survey revealed a linear relationship between NPS and profitability. Once the customer moves from detractor to passive, the profitability increases by 10%. More encouraging is the fact that when a customer moves from passive to a promoter, the profitability jumps by 25%.

This finding leads to two major conclusions:

  1. It tells an organization what initiatives to focus on. Any organization must prioritize initiatives that would make its promoters happy.
  2. It also justifies the company’s efforts in loyalty-building initiatives.

But the underlining point is that member experience, which affects loyalty, impacts the financial returns of the company. Enhancing the customer experience would increase the number of promoters, in turn helping to increase the company’s financial returns.

NPS and Wallet Share

According to Investopedia, Share of wallet (SOW) or Wallet Share is a marketing term referring to the amount of the customer’s total spending that a business captures in the products and services that it offers. Increasing the share of a customer’s wallet a company receives is often a cheaper way of boosting revenue than increasing market share.
Isn’t it obvious that up-selling or cross-selling to an existing customer is easier than acquiring a new one? Hence, companies focus heavily on increasing the wallet share among the existing customers. But, do NPS and Wallet Share have any correlation?

Good CX tied to revenue gains: NPS & Wallet share

Yes, they do! We can clearly observe that the percentage of promoters that use more than five products are close to thrice that of the percentage of detractors who use more than five products. This helps us conclude that as the customer moves from Detractor to Passive, and Passive to Promoter, he gets more engaged with the brand. Thus, it becomes easier to up-sell and cross-sell the products and services that the company has to offer.

NPS and Referrals

The entire premise behind NPS is that if a customer loves a brand and is a promoter, he will spread the word among his kith and kin about it. According to a survey done by Neilsen Global Trust, 92% of the customers trust referrals from friends and family over advertising. Idaho Central Bank’s survey results brought to light some interesting findings of this behavior.

Good CX tied to revenue gains: NPS & Referrals

According to the study, the number of referrals by promoters are 86% higher than that by passives and 365% higher than that of detractors. Also, because the brand has been advocated by their friends, the referrals already have an affinity towards the brand. Hence, they were found to be a perfect fit for Idaho’s products and it was more likely that they purchased more products from Idaho. The referrals also tend to convert into promoters much quicker than do acquired customers. This leads to the network effect, whereby promoters spread the good word across their network about the brands they love.

Also, the profitability gained by the purchases made by the referrals was found to be larger than that from directly acquired customers. However, that can be attributed to fewer acquisition costs.

But, if the promoters are spreading the word of mouth by themselves, then doesn’t it make sense to encourage this behavior by rewarding these customers? Also, asking your promoters to share your products and services on social media platforms can also help increase the referrals (Omoto’s customers have a promoter activation feature, which prompts the company’s promoters to share their views about the company after they fill up the survey).

So, the above findings from a Central Idaho Credit Union justify that customer experience is directly related to financial returns. It is crucial for companies, irrespective of the size, to invest in customer experience. Gone are the days when organizations could think of customer experience and retention after they had acquired enough customers. Customer experience today is a growth engine and it should be part of every company’s DNA.

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Going Beyond NPS Survey

Going Beyond NPS Survey