ROI on UX – The Evidence is Mounting

By Lance Loveday
CEO, Closed Loop

It should not be news by now that investing in a good customer experience throughout a company drives better business results. Yet somehow, companies are still reluctant to fully commit to revamping websites, customer support, and other interaction points to create a more painless customer experience.

I’ve always been fascinated by the linkage between user experience and business performance. It seemed self-evident that providing a good user experience is good for business. But it’s so hard to measure that I never had any hard proof beyond the anecdotal examples like Apple. Or… Apple. However, three compelling studies in the past few years suggest that there is a strong link between good UX design and business performance:

UK Design Council Study

Study Results

Between December 1993 and December 2004, the UK Design Council tracked the share prices of publicly quoted companies that performed well in a number of design awards. The Council found that design-aware companies out-performed the FTSE 100 and FTSE All Share indexes by more than 200 percent.

This included a five-year bull market, a three-year bear market and the beginning of the recovery, which began in March 2003. The out-performance by the design-led companies persisted throughout.

Teehan + Lax Mutual Fund

Inspired by the UK Design Council report, Geoff Teehan and Jon Lax, founders of Canadian UX design agency Teehan + Lax decided to put theory into practice and created the UX Fund in 2006. The fund selected 10 companies, including Apple, Google, and Netflix, based on the criteria that each one:

1. Demonstrates care in the design of their products and Web site
2. Possesses a history of innovation
3. Inspires loyalty in their customer base
4. Fosters a positive experience when doing business with them
5. They invested $50,000, with the original intent to sell after one year. In that year, the fund matured +39.3%. Four and a half years later, the fund had matured +101.8%.

Forrester Research Customer Experience Index

Based on Forrester Research’s annual Customer Experience Index ranking, Watermark Consulting created two model stock portfolios comprised of the Top 10 and Bottom 10 publicly traded companies ranked on the index. From 2007 to 2012, a six-year period that spans the recession and recovery period:

•  The S&P 500 Index generated a return of +14.5% (cumulative total).
• The Top 10 customer experience leaders outperformed the S&P with close to triple the returns, at a cumulative total of +43%.
• The Bottom 10 generated a negative cumulative total return of -33.9%**

Clearly, there is good evidence that companies that invest in improving the customer experience can significantly and consistently outperform their competitors. But unlike most of the levers companies can pull to influence their profits, UX is hard to quantify and influences something that is equally difficult to measure directly: your customers.

However, customers do create valuable and measurable business results based on their actions. Some of the results that having a good customer experience brings are lower costs for customer acquisition and support services, increased retention, and increased market share – all of which makes for a healthier bottom line. I’m hoping that it won’t be too long before companies face up to the reality that the quality of their customer’s experience is the real driving force behind their success or failure, and invest accordingly.

In the meantime, I’ve been thinking a lot about Teehan and Lax’s mutual fund experiment. I like the idea of following their example and starting our own UX fund. Their criteria seem like a good start, but it requires a lot of analysis of each company’s practices and history. So far, I’ve got a few companies on my list, but I need to dig further to make sure they all belong:

Apple, Virgin, JetBlue, Southwest, Tesla, SolarCity, Google, Nordstrom, Amazon, Marketo, Tableau…

Like I said, I’m not sure all of these will make the final cut. This is just my initial brainstorm. I’m sure I’m missing some good examples.
What companies do you know of that are truly committed to great customer experiences? Which ones would you put in your UX fund?

About the Author

As Closed Loop CEO and founder, Lance helps organizations leverage user experience to maximize strategic advantage-especially finding the little UX details with the biggest impact. His work is guided by a few simple beliefs: Good user experience is good business. There’s always room for improvement. And companies that value design, UX, and the human element will outperform those that live and die only by the numbers. With Sandra Niehaus, Lance cowrote the breakout business strategy book “Web Design for ROI”. His educational background includes an exploratory tour of law school, preceded by a BS in Managerial Economics from UC Davis.