Executives want to know the return on investment (ROI) for the products and solutions their company creates. They typically want to know the ROI for user-experience efforts, too. However, while many UX leaders would love to be able to create a reliable ROI model to justify their team’s resource needs and communicate its value, a product’s user experience is so pervasive that trying to determine isolated UX metrics is futile. It’s always difficult to come up with atomic ROI assessments, but this is especially true for the user experience, which, in fact, represents the entire product.
For example, even if a call-center application’s user experience were outstanding and saved five minutes per call, it would not be possible to isolate the direct impact of the UX team that designed the application. Engineering and Product Management have also contributed to the application’s excellence, so what percentage of that savings would it be logical to attribute to User Experience? Conversely, if the intended user experience of that application had instead degraded during development, making calls take longer, to what team should you assign the additional cost of calls?
Nevertheless, as I’ll describe in this article, if you look at some broader statistics that define a company’s financial value, you can identify evidence-based data that defines the value of user experience. In this article, I’ll also explore some less tangible factors of the value of user experience—such as brand value and employee engagement. Executives care greatly about these factors, and some are starting to quantify these intangibles. In many cases, presenting examples from experience-centric companies can convince your executives that user experience matters and is worthy of investment. READMORE
Superior Financial Performance
Research from the UK Design Council (1995–2004) and the Design Management Institute (DMI) (2005–2015) proves companies that differentiate on the experience outperform the S&P 500 by 211% or more.
The annual DMI study compares the performance of sixteen publicly traded stocks for design-centric companies to the overall performance of the S&P 500. DMI determines what companies to include in its index of sixteen companies by how well they uphold certain design best practices. This index includes the stellar digital-product companies Apple, IBM, and Intuit.
About eight years ago, Intuit started their Design for Delight (D4D) practice. The company invested in developing their employees’ innovation skills. Suzanne Pellican, Intuit’s Vice President of Experience Design, says, “We’re a design-driven company…. Leading this kind of cultural change [took] time, and you get your bruises.” But this effort has paid off enormously for Intuit, which earns $4.53 billion in annual sales.
The Innovation Premium
Forbes offers another way of looking at a company’s financial success: the innovation premium, which they define as “the difference between a company’s market capitalization and the net present value of cash flows from existing businesses. The difference between them is the bonus given by equity investors on the educated hunch that the company will continue to come up with profitable new growth.” Forbes uses a proprietary algorithm from Credit Suisse Holt to calculate a company’s innovation premium. The Forbes article “How We Rank the Most Innovative Companies 2016” provides a detailed explanation. Digital-product companies that differentiate on the experience have the highest innovation premiums, as Table 1 shows.
Table 1—Innovation premiums
While, historically, Salesforce had not provided the best user experience, they have invested heavily in creating their Lightning Design System, which they launched at Dreamforce in 2014. Lightning lets Salesforce and the companies that form their product ecosystem deliver great experiences, and as a result, the company is garnering solid returns on its investment.
In their UXmatters column “The Future of UX Leadership: Radical Transformation,” Jim Nieters and Pabini Gabriel-Petit described the competitive advantage period (CAP), which refers to the period of time over which the stock market expects an innovative company’s differentiated products to sustain its competitive advantage in the marketplace, positively impacting its stock price. Expected future earnings determine a company’s stock price. Both depend on this CAP.
A Compelling Brand
Marketing professionals talk about the importance of brand, and user experience plays a large part in determining whether a brand is compelling. Experience-centric companies are profoundly authentic—from their marketing, to their products, to product support. They provide a positive, consistent experience across every touchpoint. In today’s market, consumers have become accustomed to being able to choose products that provide value and to which they can connect in a meaningful way.
“We are shifting to an Experience Economy, where experiences are becoming the predominant economic offering…. Authenticity is, therefore, becoming the new consumer sensibility—the buying criteria by which consumers are choosing who are they going to buy from and what they’re going to buy.”
If your product experience does not meet or, ultimately, beat those of competitors, you’ll lose revenue to them. Compelling brands depend more than ever on the experience.
Excellent experiences yield stronger brands. The innovation-premium winners I mentioned earlier, all have extraordinary brand equity. A research project that was headed by Stanford Graduate School of Business professor Seenu Srinivasan quantifies the value of brand equity, using a mathematical model. In determining the impact of brand equity on consumers’ choices, Srinivasan says, “Samsung … earned $127 million per year from brand equity, topping the chart of companies that compete in the cell-phone market in Korea.”
In contrast, consumers often equate the brands of cable companies such as Comcast XFINITY, AT&T U-verse, and Time Warner Cable with a feeling of being trapped—getting little value at great expense and horrendous customer support. Instead, people are turning to experiences such as Hulu, Amazon Prime, and Netflix, whose services provide a richer, more fulfilling experience. Much like the telecoms before them, people are abandoning cable brands because these companies have breached their trust. Over the next ten years, it’s likely that these cable companies will lose significant market share to streaming TV competitors that make their user experience a top priority.
Companies that excel on the experience often engender business ecosystems that support their financial success. I mentioned Salesforce in this regard earlier. Airbnb is another example: Dozens of companies have emerged to support the Airbnb ecosystem. Interestingly, none of them support Homeaway, which was the leader before the experience-centric Airbnb took over the vacation-rental market—primarily because they differentiate on the experience. Here are just a few examples of companies that support Airbnb, making it even easier and more worthwhile for people to use Airbnb:
Airdna—This member of the Airbnb ecosystem provides data and analytics.
Pillow—This property-management company supports the Airbnb rental process.
Smart Host—Using this company’s dynamic vacation-rental pricing data, property owners can best determine the right price for their rental.
Increased Customer Loyalty
Companies that put user experience at the core of their business and product strategy garner high customer loyalty. Everyone knows that keeping loyal customers engaged makes a big financial impact. But how can we quantify that? There are two key trends that are making the impact of loyalty especially important.
First, while in the past, valuations were based on profitability, startups are now receiving valuations that are based on user adoption—the number of users a service has. For example, look at Facebook’s purchase of Instagram for $1 billion, a mere 18 months after Instagram’s launch. At the time of their purchase, Instagram had no revenue, but did have about 30 million users. Thus, Facebook paid about $33 per user. But Instagram’s users alone did not represent the full value of the acquisition. As Mark Zuckerberg said regarding the Instagram experience in a press release:
“For years, we’ve focused on building the best experience for sharing photos with your friends and family. Now, we’ll be able to work even more closely with the Instagram team to also offer the best experiences for sharing beautiful mobile photos with people based on your interests.”
Second, there are companies that rely on the sheer volume of users they command. Let’s look at the behemoth Amazon, for example. From an experience standpoint, the company excels. With features from wish lists to product suggestions and services from Amazon Prime to Amazon Video, they know what moves customers—and their customers are deeply loyal to Amazon.
At the end of 2015, the number of worldwide, active Amazon customer accounts was 304 million. For Amazon, their user base is critical because they have low margins. The company posted a profit of $857 million for the second fiscal quarter of 2016, based on revenue of $29.56 billion. That breaks down to just $97 of revenue per customer on average, but Amazon is a multibillion-dollar business because of the high volume of engaged customers who are loyal to the company.
Many studies have quantified the high cost of companies’ failing to retain employees. Therefore, tremendous financial savings can accrue from employee retention and engagement. In their article “There are Significant Costs to Replacing Employees,” (PDF) The Center for American Progress quantified this value:
“Very highly paid jobs and those at the senior or executive levels tend to have disproportionately high turnover costs as a percentage of salary (up to 213 percent), which skews [cost-of-turnover] data [upward].”
So, how does this relate to user experience?
When a company commits fully to user experience, it gives employees a focus that aligns them at a deep level. Everybody wants to work for market leaders—not just because they’re market leaders, but because working for industry leaders that focus on the experience satisfies a deeper desire to be part of something extraordinary. It is very hard to hire employees away from companies such as Apple, Tesla, and Slack.
A second, but more intangible factor is that the work of employees who are not engaged in their work does not attract engaged customers. So how can user experience flip that equation and indirectly lead to customers who affect the financial success of your company?
In experience-centric companies, leaders and individual contributors alike optimize for the product experience of their customers. They share a common vision and a commitment to greatness. People dedicate themselves to the higher purpose of creating an extraordinary experience. Teams bond at a tribal level. Employees are highly engaged.
While you may not be able to prove the ROI of a single product or feature, looking at user experience broadly—across companies and industries—is starting to get traction as a way of mathematically calculating financial results that derive from user experience. By focusing on the aggregate value of product and service experiences, communicating the various types of value that User Experience generates, and leveraging the examples I’ve provided in this article, you should be able to convince most CEOs and executives that User Experience provides business value and should have a seat at the strategy table. Once you demonstrate the value that User Experience provides, you should be able to get your company to invest in UX teams that are large enough to impact the overall direction of the company and its products as well.
Corinne has led the design of experience-first, cutting-edge products and services for twenty-five years, most recently at Apple. Currently at Experience Outcomes, Corinne defines and designs experiences that customers love—experiences that make companies #1 in their industry. She had previously built a successful design consultancy that startups and Fortune-100 companies engaged to lead UX strategy and design for market-disrupting products. These market disruptors included HP’s first Internet Café device, Schwab’s first mobile-trading application, and Citibank’s first color ATM display. She is a co-author of several design patents. Corinne holds two degrees from MIT—one in engineering, the other in film. Read More