Customer expectations from companies and brands have never been higher. E-commerce giants, ride-hailing services and third-party delivery companies have set a high bar for a customer experience (CX) that is predictive, curated and frictionless.
COVID-19 has accelerated the focus on CX, with the pandemic exposing a company’s ability to acquire, convert and retain customers in an environment that, for many brands, has migrated almost exclusively online. Consumers don’t want next-day delivery, they demand it. Even ordering pizza has become a transparent and trackable journey from oven to doorstep.
The ubiquitous shock of the pandemic — and subsequent worldwide lockdowns — meant people initially empathized with companies that were caught off-guard (#InItTogether). As time passed, that empathy evolved into post-pandemic pressure on companies to adapt to the “new normal” and earn the share of wallet they previously took for granted. This expectation has even extended to traditional in-person environments such as car dealerships: consumers can now buy a car online and get it delivered to their home, in what will undoubtedly be a lasting change to a legacy business model.
Although private equity (PE) has not historically focused on CX, investors are now paying closer attention to it. More funds are eager to cultivate a superior CX across their portfolio, rather than risk losing revenue to customer-centric competitors.
Customer experience as a value creation lever
The stock market has disproportionately rewarded CX-driven companies over the last 10 years, and PE investors and operating partners should regard CX as a potent, proven, value creation lever. Conversely, poor CX is a potent, proven, value destroyer, especially in today’s highly competitive, recession-shocked global economy.
A scathing online review is a valuable data point for any buyer in their path to purchase. For consumers, such reviews can prevent disappointing or even fraudulent purchase decisions. For PE investors, enough scathing reviews can prevent potential deals from moving past the evaluation phase of the deal life cycle.
Shoddy CX will quickly attract negative attention. A bad review from a prominent social media influencer can go live instantly, quickly garner thousands (or even millions) of impressions and result in irrevocable damage to a company’s bottom line. Failing to quickly rectify this situation in this highly transparent environment carries significant financial and reputational risk for a company, as well as its investors.
Companies that are consumer-centric and strive to delight their customers with a differentiated experience at every stage of the sales funnel can create lasting customer loyalty. With products increasingly commoditized, CX has become an equal, if not greater, differentiator than the features and benefits of a product or service itself.