For the past seven years my friend Jon Picoult, Founder & Principal at Watermark Consulting, has been demonstrating the connection between Customer Experience (CX) maturity and stock performance. (A complete copy of the study’s results is available here.)
I recently spent some time thinking about the implications of the data and finally wrote my thoughts on a piece of paper and arranged some time to talk with Jon.
The connection between CX and share price
The first things to do are look at Watermark’s data and explain the methodology. Here is the 2014 chart with data from 2007 to 2013:
The data come from two sources; Forrester Research identified the CX leaders and laggards every year and the share price data is from the stock exchanges.
When Watermark started this process in 2012 they decided to look back to 2007 and move forward from there. They took the top 10 companies from the 2007 Forrester CX leaders list and the bottom 10 from the laggards list. Watermark then made a hypothetical purchase of $10,000 worth of stock in each of the 20 companies and sold them on the last trading day of 2007, after reinvesting all dividends. They “invested” the leaders and laggards funds in the new Forrester names retroactive to the first trading day of 2008 and continue this process every year. The data in the above chart is for CY 2013, since Forrester does not publish its list until later in the next year.
Over a seven-year period, the leaders fund grew by 77% while the laggards fund declined by 2.5%. Over the same period the S&P 500 index grew by 51.5%. The lesson learned is that being a CX leader is worth lots of money to shareholders! And being a laggard is not a fun place to be.
When I spoke with Jon, I asked him if it was possible that some factor other than CX was driving the share price. I suggested new products, acquisitions and/or divestment, operational excellence, or new markets. Jon’s answer helped me connect the dots around a subject I have been aware of for a long time.
Jon said, “All those items are part of the customer’s experience”. As an example, lets look at great inventory management (an area of operational excellence). We discussed it and agreed that eliminating late deliveries or backorders will improve the customer’s experience. Dropping unprofitable businesses will also improve the experiences of the remaining customers since the business will not be pouring good money after bad and can concentrate efforts on the growing businesses.
And then the light bulb became brighter – the reason that businesses focus on removing silos is because everyone is responsible for the customer’s experiences. Unless goals and metrics are aligned around that common area there will always be dissatisfied customers who will leave or reduce their purchases. So, in order to live long and prosper, it is necessary to look at CX in its broadest sense and not as just being the responsibility of the support or services department.
Sam Klaidman is the Principal Adviser at Middlesex Consulting. He applies the methodologies and techniques associated with the Services Marketing and Customer Experience professions to assist his clients achieve their growth objectives by designing and commercializing new value-added services and the associated business transformations. Sam also utilizes his 20+ years hands-on experience in Engineering, Manufacturing, Consulting and General Management to help clients grow their services business and win Customer Loyalty. Prior to his career in consulting, Sam was Vice President of Customer Support for Oxford Instruments, a leading global scientific instrumentation manufacturer and Global Vice President of Customer Service at Bytex Corporation, a high-end data communications equipment manufacturer serving Fortune Global 100 organizations like the New York Stock Exchange, British Airways, AT&T, British Telephone, Visa and MasterCard. Sam is a Life Member of the IEEE.
Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinion or position of Service in Industry or its owners