CMO of ActionIQ.
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How do you measure customer experience? It helps to start by understanding what constitutes good CX. Brands need to know because 75% of consumers say they’ll spend more for it and 80% will switch to a competitor if it’s lacking.
Is it convenience? Reliability? Personalized interactions across online and offline channels? The truth is it’s all of the above—and much more. That’s why brands find it so hard to quantify. Results of our 2022 CX IQ Index revealed a significant gap between CX perception and performance, showing that while 61% of businesses rate customers as “very satisfied” with CX, only 23% of consumers feel the same.
But here’s a secret: If you’re wondering what metric will help you evaluate the performance of your CX strategy, look no further than customer lifetime value.
Cracking The CX Measurement Code
Imagine your business is a restaurant. If diners enjoy your dishes, service and ambiance, they’ll likely come back more often, bring their friends and place larger orders.
Take a customer’s average order value, multiply it by their predicted number of annual purchases and see how that adds up over the years. This is CLTV—and it’s driven by CX.
So if you’re asking how to measure customer experience, you’re really asking whether changes to your CX strategy positively impact CLTV. The key to diagnosing performance is holdout testing.
Let’s use a simple analogy. Maybe some tables at a restaurant get bottomless mimosas. Maybe others don’t. Holdout testing will tell you how this may impact CLTV.
By excluding specific customer segments from your CX initiatives—such as channel-specific marketing campaigns—you’ll create a test group (those not receiving it) and a control group (those receiving it). Examine how the test group’s CLTV changes over a set time period and compare it to the control group. The changes, or lack thereof, will tell you a lot about how that initiative contributes to your CX performance.
If you’re wondering about metrics such as website visitors and email click rate, they’re not key performance indicators. CLTV will tell you if the plane is losing altitude—metrics like time on page and call wait time will help you determine why.
Want to prioritize a metric beyond CLTV? Look to qualitative customer feedback, such as CSAT scores. Similar to CLTV, these will help you identify an issue within a given channel.
Putting CX Measurement Plans Into Action
Your first step is measuring CLTV for all your customers. This should be done in buckets based on how long an individual has been a customer of your brand.
This will also inform the steps you take to engage customers and personalize experiences for them based on where they are in the customer life cycle (e.g., messaging for a new customer should be different from messaging for a long-standing customer). The CLTV for each bucket will give you a baseline you’ll be aiming to increase hereafter.
Step two is running holdout tests. Start small and specific, conducting tests within each channel. With the right marketing technology, you can also suppress customers from all channels (email, push notification, text message, direct mail, paid ads, etc.) simultaneously to measure overall marketing impact. But in order to optimize, you’ll want to dig into each channel individually. The bigger and more randomized your test groups, the more statistically significant they will be.
And finally, step three: Determine which channels require a major strategy overhaul (those producing little-to-no return on investment) and which ones require only tactical adjustments (those producing moderate-to-significant ROI).
Say you want to understand how your approach to email marketing is impacting CLTV. Withhold emails from customers who have opted in to these communications for 30-90 days. Next, see how their CLTV has changed compared to your control group.
If the two groups drive the same results after multiple tests, it’s time to make changes to your entire email strategy (or reconsider whether email is even that important to CX for your brand). But if the control group that received emails performs better than the test group, only smaller tweaks to optimize performance are likely necessary.
Holdout testing isn’t a one-and-done affair—get into the habit of making it always on across every channel. You can’t make major business decisions off of one data point, after all. Confirm results through multiple tests before updating your strategy, and be ready to run tests again to validate the changes you made.
I’d recommend conducting holdout tests within all channels every six months for beginners (and every three months for more seasoned practitioners) to see if CLTV is rising or falling.
Prioritizing CX Measurement Insights
Don’t fear tests. I know depriving your consumers of marketing—even for a limited time—may feel like the end of the world, but I guarantee the globe will keep on spinning. You should be less concerned about a small audience not receiving your messaging and more concerned with consistently optimizing your CX strategy to improve the metrics that matter.
If customer experiences are falling short, you need to know. More importantly, you need to figure out why. Holdout testing will tell you whether you should continue investing in a channel or not. If results among test groups are worse than control groups (or even flat), it’s a red flag that you need to be doing something differently. Too many brands just assume their marketing works. Remember the gap between CX perception and performance in the CX IQ Index?
You can only ensure you’re providing the best possible CX if you can speak openly and honestly about the ROI your strategy drives. Not only will you be able to fix existing problems and build on successes, but you’ll also look like a rock star in front of your CMO. Say goodbye to staying in the dark and say hello to getting the funding you want because you can show the value your strategy is driving in dollars and cents.
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