Investing

Key to Revenue: Investors Start Looking at a Company's Customer Service Function

By Tom Goodmanson

When investors look at what drives future revenue and profitability, there are several common factors to consider including past financial performance, market potential, leadership qualifications, and product viability, among others. But one factor that tends to get overlooked and undervalued is how a company treats its customers. In fact, some companies that are reported to treat employees and customers poorly seem to have no issue getting investors, filing huge IPOs, and reporting high valuations. But often, these rewards are short lived.

As investors, it is important to understand long-term growth, ROI, and value—and one emerging indicator of future performance is how companies treat their customers.

Consumer Power Is at an All-Time High

Living in a consumer-controlled marketplace— where buyers make split-second decisions about brands based on everything from price to social media chatter to their own personal experience interacting with the company and its frontline agents. Loyalty is fleeting and every experience and interaction plays into how individuals perceive the brand. Some of this, of course, is out of a brand’s control. Maybe a product has an unknown issue requiring a recall. Or a social media campaign inaccurately lumps your brand in with others that support a controversial stand on a societal or political issue. These are business issues that most brands experience, and they are hard to predict.

But many factors of brand perception—including how companies respond to customer concerns and, more importantly, how they proactively build a customer-first culture—can be managed and controlled.

The recently released third annual State of the Contact Center report indicates nearly 100% of consumers acknowledge the contact center is impactful on their brand loyalty. As soon as customers start to feel frustrated, annoyed, or underwhelmed, loyalty starts to erode. This customer experience (CX) erosion may seem minimal but can have far-ranging consequences such as loss of near and long-term sales, a decrease in profitability and reduced value for investors and shareholders.

Just One Bad Experience Can Impact Loyalty

This domino effect—where waning loyalty from poor customer service impacts sales, which impacts revenue and profitability can happen quickly— is more impactful than most brands think. A vast majority (88%) of contact center managers agree that brand perception directly impacts overall company revenue, according to the report.

One negative service experience can significantly damage a consumer’s perception of the brand and willingness to engage in future transactions. The State of the Contact Center report digs deeper into this recency bias, stating that 60% of consumers have switched brands due to negative customer service experiences, and 50% will only allow up to two negative experiences before taking their business elsewhere.

With a margin of error this thin, brands hoping to protect investor and shareholder value need to pay attention and shore up customer service, all the way from in-person interactions to traditional contact centers, digital and social channels, and after-sales service and support.

The Contact Center as Brand Guardian

While all channels of engagement are important, the contact center has emerged as a primary brand guardian. Prompted by limitations on in-person activities during the pandemic, many customers that previously engaged with brands face-to-face shifted their interactions to the contact center—both via phone channels and digital channels such as text or chat.

Improving the interactions and creating a consistent experience regardless of channel continues to be challenging and not all companies are succeeding.

Identifying Better CX As a Driver of Revenue and Performance

When using CX as an indication of potential future performance, investors should be looking at a couple of indicators. First is customer reviews. Widely available, reviews can be beneficial but should always be taken with a grain of salt since customers typically post more reviews of poor service than reviews of good service. That said, reviews can be a helpful early indicator. In fact, Michael Luca, Associate Professor Of Business Administration at Harvard Business School, showed that each one-star increase in a company’s Yelp rating could deliver a 5-9 percent increase in revenue. So, the better the online reviews, the more potential for recurring revenue from happy existing customers and for future customer expansion.

Secondly, evaluating a company’s Net Promoter Score (NPS) can be another valuable indicator. Fred Reichheld, Bain Fellow, Bain & Company, believes that some of the most successful companies are the ones that put customers at the center, not shareholders. As the inventor of the NPS, Bain has both witnessed and measured the evidence: in industry after industry, he says, companies with the highest customer NPS experience better growth and shareholder returns. He believes this so much, in fact, that Reichheld created the F.R.E.D. Stock Index (FREDSI), which tracks total shareholder return for companies that achieve their segment’s highest NPS. It is reported to have annual returns of more than 26%, triple the stock market average over the past decade.

Lastly, look at how the company is modernizing its customer service function. Companies that elevate their customer service representatives as brand guardians, focus on employee performance, and believe in a customer-first mindset are more likely to have happier, more loyal customers who buy more. Forrester confirmed this—68% of customers will spend more money with a brand that understands them and makes them feel seen as an individual rather than one contact of many.

Brands looking to deliver long-term growth, ROI and value are also paying close attention to consumer preferences. The State of the Contact Center report indicates that many CX managers overestimate the importance of digital channels like apps, social media, and self-service knowledge centers when nearly 60% of consumers see phone interactions as the most impactful. Brands successfully elevating CX are acting on this kind of data and prioritizing the engagement channels their own customers prefer.

They are deploying sophisticated technology to create better experiences—tools like speech and text analytics to uncover moments of stress or dissatisfaction among customers, and workforce performance tools to improve training and agent engagement. They are listening to customers and employees and then acting on the input.

So, when forecasting the financial performance of any brand, look at the traditional metrics, look at how service and support the company provides to its customers. Are they running a modern, customer-first business, or are they disregarding their long-term financial health just to make the bottom line look good? You never have to dig too deep to find out, after all, you may already be a customer.

Tom Goodmanson is president and CEO of Calabrio, the customer experience intelligence company that empowers organizations to enrich human interactions.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.