Experience Design: Beyond a Simple ROI

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.

Joseph Pine, in his Ted Talk “What Consumers Want,” points out:

“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.

Supporting Ecosystems

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.

Employee Engagement

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.

The Net

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.