7 minute read 4 Dec 2020
High angle view of woman on sofa with laptop

Why customer experience should matter more to private equity firms

By Susanne Vanner

EY-Parthenon Partner, Transaction Strategy and Execution, Ernst & Young LLP

Customer Competency Lead. Focused on value creation in transactions across sales, service and operational functions.

7 minute read 4 Dec 2020

PE firms are realizing customer experience (CX) is one of the most compelling value creation levers available to them.

In brief
  • Being responsive to today’s customer demands requires flexibility.
  • Customer experience is one of the strongest differentiators in the market today.

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.

Cost management will remain critical as CEOs reposition their organizations to serve customers and differentiate themselves in this new environment.

Factoring in CX during due diligence

PE firms must identify the challenges a portfolio company faces and examine the subsequent impact on the customer experience. Specifically, difficulties could revolve around the customer journey, pricing, the migration from old to new digital platforms, or an operating model that unintentionally makes their CX more arduous.

Although industry benchmarks, customer satisfaction scores and Net Promotor Scores® (NPS) are all good indicators of customer sentiment, it’s crucial that investors understand the overarching narrative that underpins these scores and their potential impact on a company’s competitive positioning and growth. Although it can be difficult to obtain this data from private companies, EY can uncover the insights needed through research and interviews in a commercial due diligence process.

Primary research is a core part of this analysis and can include interviewing a portfolio company’s customers, as well as its competitors’ customers, to fully understand how and why the levels of customer satisfaction differ across the competitive landscape. Incorporating social media monitoring can illuminate and segment key conversation topics, measure consumer sentiment and affinities, and expose pain points — all of which reflect the quality of a company’s CX in real time and the impact on its online reputation over the long term.

Another aspect of due diligence concentrates on a company’s operating model. PE firms should look out for “red flag” excesses of personnel, lack of automation or high cost to serve. Essential diligence questions for portfolio companies may include:

  • How does the business view its customer segmentation? What are the key use cases? How do needs and behaviors vary by size, type of customer or use case?
  • What is the functionality and feature set that customers seek? How does that overlap with your competitor’s product offer?

Improving a portfolio company’s CX post-acquisition

To improve CX, it is critical to first understand if and how it has adapted to today’s digital landscape. A thoughtful CX road map can help to:

  • Map end-to-end touchpoints between a company and its key customer segments
  • Listen to and assess customer sentiment
  • Design a digitally enhanced, end-to-end “future state” for the customer journey
  • Develop, prioritize and plan the initiatives required to improve the CX

These steps will help to drive revenue by optimizing the CX for conversion, improving customer satisfaction and brand loyalty — as well as increasing efficiency and agility by simplifying, standardizing and automating back-end processes.

For example, a PE-backed European telecommunications company needed to improve its operating model to keep pace with the rapidly changing telecom market in Western Europe. To accomplish this, they wanted to better understand exactly what their customers needed from them. EY performed a rigorous data collection and modeling exercise using data from all customer touchpoints that enabled the company to:

  • Increase customer retention rates
  • Identify areas of the business requiring more resources and technical upgrades to better fit customer needs
  • Set discount rates for customers with high churn propensity
  • Discover almost US$2m in revenue losses and improve efficiency and timeliness in the company’s call center
  • Develop and implement a marketing strategy to drive ROI, competitive differentiation and customer loyalty

This example demonstrates how the combination of a customer-centric philosophy, data-driven approach and digital aspiration can transform how a company thinks about, interacts with and serves its customers.

COVID-19-era CX: key considerations for PE firms and Portco CEOs

Many portfolio companies are grappling with the work and costs involved in improving CX. CEOs can begin by preparing a road map as described above; however, the most important aspect of any strategy in today’s environment is flexibility.

Over the next 6-18 months, much of what was considered normal economic activity — dining in restaurants, going to the salon, traveling — is now dependent on the threat (and resulting restrictions) posed by the pandemic. Companies must remain alert to customer pain points and adapt their services accordingly. If people must stay home, the product must go to them. If they can visit a business, they must feel safe doing so.

Cost management will remain critical as CEOs reposition their organization to serve customers and differentiate themselves in this new environment. While the pandemic does serve as a forcing mechanism for experience-led transformation, this necessary pivot may be detrimental to profit margins, at least in the short term. Now, investors will need to scrutinize the impact of this shift across the portfolio and determine whether their new cost-to-serve model is sustainable over the long term.


As the pandemic rages on, investors who recognize CX as a lever for long-term value creation have a unique opportunity to drive differentiation and customer loyalty across their portfolio.

About this article

By Susanne Vanner

EY-Parthenon Partner, Transaction Strategy and Execution, Ernst & Young LLP

Customer Competency Lead. Focused on value creation in transactions across sales, service and operational functions.