WE know that customer lists can be considered an asset and we also know that the net present value of a customer can be used to assess the value of a company. I think there is more to the customer than being on a list or looking at its net present value. Of course, the net present value makes sense because that value represents real dollars. What I am suggesting is that the net present value might need some adjustments to incorporate some of the complexities of customers.
There are at least 4 tangible assets on the balance sheet; namely, facilities, equipment, inventory and cash.
There are at least three intangible assets; namely personnel skills, name in the market, customer data base.
The customer asset has the following characteristics:
1. Highly complex
2. Changes value with time
3. Changes value with the size of the customer
4. Changes value with the level of support needed for the customer
5. Changes value with the age of the products/services offered.
The Oxford dictionary defines asset as: property available to meet debts; any possession; any useful quality.
My definition of the customer asset is: TREASURE. By this I mean the customer is precious; something valued for its rarity as a beloved or highly valued person.
What makes the customer an asset can be defined using the Oxford Dictionary definition; namely, customers are a form of property that provide revenue to meet debts and customers represent a possession without which there is no business.
The bottom line is that we need a better value of managing customers and I believe that looking at the customer as an asset may give us some insight that will translate into better customer relationships, increased loyalty and increased revenue and margins.
I think by viewing the customer as an asset of the company, the customer will be viewed more strategically. This perspective should translate into increased efficiency and productivity within the company.
I would appreciate feedback on this approach to analogizing the customer to an asset.
Thursday, November 19, 2009
Wednesday, November 18, 2009
The Cost of Poor Service
A survey sponsored by Genesys Telecommunications Laboratories,Inc in collaboration with Datamonitor/Ovum has some very interesting results. The 28 question survey was conducted with a sample of 8,880 consumers from 16 countries. A minimum of 500 surveys were completed for each country. The countries surveyed were Australia, Brazil, Canada, China, Czech Republic, France, Germany, India, Italy, Mexico, Netherlands, New Zealand, Poland, Russia, U.K. and United States. The respondents were selected from all age and income groups. They were asked about the frequency of their interactions with businesses via the Web, through contact centers and with their mobile devices. The purpose was to determine the impact of their interactions with their purchasing decisions.
This survey was aimed at financials services, cable and satellite TV and a variety of telecommunications companies. The survey results indicate that these industries in these 16 countries lose about $338.5 Billion per year as a result of poor customer service when customers defect and/or abandon their purchases as a direct result of poor customer service. This translates into $243 per year per customer. Of this total 63% was lost to a competitor and 37% led to the transaction being abandoned.
These losses are broken down as follows:
1. Financial services lost $44 billion in revenue
2. Cable and satellite TV lost more than $37 billion in revenue
3. Wireless carriers and internet service providers each had $36 billion in lost revenue.
4. Land line carriers lost $33 billion in revenue.
The most frequent reasons the consumers mentioned for leaving (the apparent dissatisfiers) are:
1. Being trapped in automated self-service
2. Being forced to wait too long for service
3. Repeating themselves
4. Representatives that lack the skills to answer their inquiry.
The consumers were asked to identify the factors that have the greatest impact on improving customer satisfaction. The four most frequent responses are:
1. Competency
2. Convenience
3. Proactive engagement
4. Personalization.
There is a customer wish list which includes the following:
1. Provide better integration between self-service and assisted service.
2. Be able to start in self-service and then switch to an agent without having to repeat all the information previously entered (Don't ask me twice!)
The bottom line is that poor customer service is expensive. The good news is that this study appears to have some statistical rigor and thus has believability. The dollars of loss shown in this report should provide a wakeup call to companies in these industries. How can any company stand to lose $243 per lost customer and expect to maintain a viable business? Time will tell if these companies are listening.
As the authors of the report so wisely note "differentiating on service, especially in service-centric industries, such as finance and telecommunications, is how enterprises can retain customers in today's challenging business climate."
This survey was aimed at financials services, cable and satellite TV and a variety of telecommunications companies. The survey results indicate that these industries in these 16 countries lose about $338.5 Billion per year as a result of poor customer service when customers defect and/or abandon their purchases as a direct result of poor customer service. This translates into $243 per year per customer. Of this total 63% was lost to a competitor and 37% led to the transaction being abandoned.
These losses are broken down as follows:
1. Financial services lost $44 billion in revenue
2. Cable and satellite TV lost more than $37 billion in revenue
3. Wireless carriers and internet service providers each had $36 billion in lost revenue.
4. Land line carriers lost $33 billion in revenue.
The most frequent reasons the consumers mentioned for leaving (the apparent dissatisfiers) are:
1. Being trapped in automated self-service
2. Being forced to wait too long for service
3. Repeating themselves
4. Representatives that lack the skills to answer their inquiry.
The consumers were asked to identify the factors that have the greatest impact on improving customer satisfaction. The four most frequent responses are:
1. Competency
2. Convenience
3. Proactive engagement
4. Personalization.
There is a customer wish list which includes the following:
1. Provide better integration between self-service and assisted service.
2. Be able to start in self-service and then switch to an agent without having to repeat all the information previously entered (Don't ask me twice!)
The bottom line is that poor customer service is expensive. The good news is that this study appears to have some statistical rigor and thus has believability. The dollars of loss shown in this report should provide a wakeup call to companies in these industries. How can any company stand to lose $243 per lost customer and expect to maintain a viable business? Time will tell if these companies are listening.
As the authors of the report so wisely note "differentiating on service, especially in service-centric industries, such as finance and telecommunications, is how enterprises can retain customers in today's challenging business climate."
Wednesday, November 11, 2009
A Word about Trust
Thee was an interesting article by David Kiley and Burt Helm in Business Week in the September 17th edition. The first point they make is that trust is the most perishable asset. They point to a survey conducted a phone survey from May 26th to July 3rd by the public relations firm Edelman. The key statistic from the survey is that 44% of Americans said they trusted business and that statistic is down from 58% in the fall of 2007. This decline in trust has caught the attention of some major companies, such as Ford Motor and American Express.
Trust is what drives profit margin and share price according to Larry light, CEO of Arcature, a brand consultancy in Stamford, Connecticut. The poll indicates the consumers are becoming more suspicious not just in products and services but the companies as a whole.
Companies are beginning to understand that brand names are important. As I mentioned in an earlier blog that hyper-loyalty is what companies strive to achieve with their customer base. Companies such as In-And-Out Burgers and Federal Express have achieved some form of hyper-loyalty (customers not only recommend the company but will actually encourage others to use the companies products and/or services.
Trust and company reputation have become ever-more intertwined with customer loyalty and marketing. It appears to have permeated the entire corporate structure to the point that trust and reputation are no longer limited to the PR department. The idea that products and services are separate from the brand and reputation of the company doesn't work well anymore. Consumers at all levels are doing more research than ever before with the advent of the internet. With their research they can read reviews of products and services and discover what their peers are saying.
The bottom line is that trust is becoming more important when considering customer loyalty and market share. One of the words that seems to be descriptive of this enlightened customer approach is "authentic." When you think of In-and-Out or Federal Express you see an authentic company. I use the word authentic in the strictest form of its dictionary definition; namely, the company is being what it is represented or claimed to be. A good synonym is genuine or real. Companies that can attain this image in the market may find they have hyper-loyalty with their customer base. The question to be considered in future blogs is what is how does a company become authentic.
Trust is what drives profit margin and share price according to Larry light, CEO of Arcature, a brand consultancy in Stamford, Connecticut. The poll indicates the consumers are becoming more suspicious not just in products and services but the companies as a whole.
Companies are beginning to understand that brand names are important. As I mentioned in an earlier blog that hyper-loyalty is what companies strive to achieve with their customer base. Companies such as In-And-Out Burgers and Federal Express have achieved some form of hyper-loyalty (customers not only recommend the company but will actually encourage others to use the companies products and/or services.
Trust and company reputation have become ever-more intertwined with customer loyalty and marketing. It appears to have permeated the entire corporate structure to the point that trust and reputation are no longer limited to the PR department. The idea that products and services are separate from the brand and reputation of the company doesn't work well anymore. Consumers at all levels are doing more research than ever before with the advent of the internet. With their research they can read reviews of products and services and discover what their peers are saying.
The bottom line is that trust is becoming more important when considering customer loyalty and market share. One of the words that seems to be descriptive of this enlightened customer approach is "authentic." When you think of In-and-Out or Federal Express you see an authentic company. I use the word authentic in the strictest form of its dictionary definition; namely, the company is being what it is represented or claimed to be. A good synonym is genuine or real. Companies that can attain this image in the market may find they have hyper-loyalty with their customer base. The question to be considered in future blogs is what is how does a company become authentic.
Saturday, November 7, 2009
Happy Employees Do Not Make Satisfied Customers
There is some interesting research being done in the UK. Rosa Chun is a professor of business ethics and corporate social responsibility and Gary Davies is a professor of corporate reputation at Manchester Business School. They have been investigating the validity of the assertion that seems to stem from the 1994 Harvard Business Review article "Putting the Service-Profit Chain to Work" and the subsequent book by James L. Haskett that happy workers equal happy customers. The concept of happy employees equal happy customer has been a mantra of high profile executives such as Gordon Bethune, the former CEO of Continental Airlines and many other public, private, non-profit and governmental organizations.
These academics have created a survey of customers and staffs of 49 business units and 13 service organizations in the UK. The survey covers fields ranging from financial services to retailing.
They start out with the statement that they haven't seen any hard data that supports the idea that happy workers equal happy customers. In fact, their research failed to confirm that service businesses with more-contented staff also have more satisfied customers. They found a positive correlation between happy employees and happy customers in only one firm where the business units with employees with higher satisfaction also had happier customers. There were two firms in their sample that had negative correlation between happy employees and happy customers.
Perhaps one of the most startling outcomes of their study was the factors that apparently increased customer satisfaction seemed to decrease employee happiness. The researchers admit there is a great deal of evidence that there is a causal link between happy customers and higher profits but there are a great number of steps to reach happy employees equal happy customers (or loyal customers). It appears that using a happy employee in a service role is not enough to win customer loyalty.
The bottom line is this research is important and needs further verification because there are many companies that hold the belief that happy employees equals happy customers and that this new knowledge may well change their strategy of how to create satisfied and loyal customers. There are several areas that need further investigation; namely,
1. What is meant by happy and how is it measured? (These definitions may be answered in the full documentation of the research.)
2. Would either of the definitions of happy include the topic of compassion that was discussed in my blog from yesterday (April 14th)?
3. What is the satisfaction criteria that indicates a satisfied customer?
4. It is not clear how many actual employees and customers were included in the sample.
I look forward to further information about this very important relationship since there are so very many companies that are spending a great deal of their resources to create "happy employees" with the expectation that it will lead to satisfied customers and perhaps loyal customers.
These academics have created a survey of customers and staffs of 49 business units and 13 service organizations in the UK. The survey covers fields ranging from financial services to retailing.
They start out with the statement that they haven't seen any hard data that supports the idea that happy workers equal happy customers. In fact, their research failed to confirm that service businesses with more-contented staff also have more satisfied customers. They found a positive correlation between happy employees and happy customers in only one firm where the business units with employees with higher satisfaction also had happier customers. There were two firms in their sample that had negative correlation between happy employees and happy customers.
Perhaps one of the most startling outcomes of their study was the factors that apparently increased customer satisfaction seemed to decrease employee happiness. The researchers admit there is a great deal of evidence that there is a causal link between happy customers and higher profits but there are a great number of steps to reach happy employees equal happy customers (or loyal customers). It appears that using a happy employee in a service role is not enough to win customer loyalty.
The bottom line is this research is important and needs further verification because there are many companies that hold the belief that happy employees equals happy customers and that this new knowledge may well change their strategy of how to create satisfied and loyal customers. There are several areas that need further investigation; namely,
1. What is meant by happy and how is it measured? (These definitions may be answered in the full documentation of the research.)
2. Would either of the definitions of happy include the topic of compassion that was discussed in my blog from yesterday (April 14th)?
3. What is the satisfaction criteria that indicates a satisfied customer?
4. It is not clear how many actual employees and customers were included in the sample.
I look forward to further information about this very important relationship since there are so very many companies that are spending a great deal of their resources to create "happy employees" with the expectation that it will lead to satisfied customers and perhaps loyal customers.
Tuesday, October 27, 2009
Multiplicative versus Additive Customers
There was an interesting note in the October 22nd edition of the Philippine Daily Inquirer entitled "Customer complaints, dissatisfaction." While the article was aimed at showing that a focus on customer complaints and dissatisfiers is an excellent way to improve customer loyalty, the intriguing concept that was included in the article was that of multiplicative customers versus additive customers. Once the terms are defined, they are obvious and, I think, many of us wonder why we haven't considered customers this way before.
A multiplicative customer is usually highly demanding and who what to be satisfied for all of his/her expectations. You get a failing grade if any one of the expectations is not met. The final score is zero since the multiplicative customer "multiplies" all satisfaction scores together. A similar scenario is when the customer scores all aspects zero because one of the expectations were not met. This is often referred to as the "halo effect." In any case, customers will give extremely low scores when one or more of their expectations are not met and thus they "punish the company by giving an extremely low overall score. Thus, even though other scores on the survey are reasonable, one expectation not satisfied leads to a zero on the overall satisfaction score.
On the other hand there is the additive customer, most easily characterized as forgiving customer seems to have the ability to segment his/her response so that the final score may be averaged down due to one or more low scores but each of the other scores are considered when deciding the final score. For the additive customer, the final satisfaction score will probably represent some average of the individual question scores. In other words, this type of customer adds the scores to get a perspective whereas the multiplicative customer multiplies each score to get a measure for the overall score.
The bottom line is that everyone who is measuring customer satisfaction or customer loyalty should be aware of these two types of customers. The challenge is to figure out how to convert the multiplicative customers to additive customers. When the market is as competitive as it is these days the number of multiplicative customers seems to be increasing.
A multiplicative customer is usually highly demanding and who what to be satisfied for all of his/her expectations. You get a failing grade if any one of the expectations is not met. The final score is zero since the multiplicative customer "multiplies" all satisfaction scores together. A similar scenario is when the customer scores all aspects zero because one of the expectations were not met. This is often referred to as the "halo effect." In any case, customers will give extremely low scores when one or more of their expectations are not met and thus they "punish the company by giving an extremely low overall score. Thus, even though other scores on the survey are reasonable, one expectation not satisfied leads to a zero on the overall satisfaction score.
On the other hand there is the additive customer, most easily characterized as forgiving customer seems to have the ability to segment his/her response so that the final score may be averaged down due to one or more low scores but each of the other scores are considered when deciding the final score. For the additive customer, the final satisfaction score will probably represent some average of the individual question scores. In other words, this type of customer adds the scores to get a perspective whereas the multiplicative customer multiplies each score to get a measure for the overall score.
The bottom line is that everyone who is measuring customer satisfaction or customer loyalty should be aware of these two types of customers. The challenge is to figure out how to convert the multiplicative customers to additive customers. When the market is as competitive as it is these days the number of multiplicative customers seems to be increasing.
Saturday, October 24, 2009
Confusion Reigns
In my opinion there is no consistency in our market regarding customer loyalty, customer satisfaction and customer dissatisfaction. For example, I have on my desk a blog regarding hyper-loyalty, an article about creating customer loyalty, and article which focuses on customer dissatisfaction. The problem is they do not connect.
For example, Bill Self in his blog "Thinkinglikeacustomer" of October 21st he discusses the concept of hyper-loyalty. He points out some companies whose customers are "beyond loyal." These customers appear to have a passion for converting others to become "members" of a particular business. One business he uses as an example is In-N-Out Burger. When asked how this passion is created Mr. Self suggests that the secret to creating his passion goes much deeper than customer satisfaction. Stacy Perman notes in her book "In-N-Out Burger" that "the chain's regulars assumed the responsibility of bringing in a constant stream of new devotees, an act generally referred to as "the conversion." It had the feel of bestowing membership into a club that seemed at once exclusive and egalitarian."
As a side note, when I am teaching queuing theory I have my class measure the queuing performance of some business. Often the various teams in the class will focus on fast food companies. In-N-Out Burger also has the longest wait time; however, when I ask how many students go to In-N-Out Burger, there is rarely a time when there is a student who does not go to In-N-Out. In fact, the students fit the description of being "hyper-loyal."
Mr. Self continues by suggesting the hyper-loyalty comes by winning the hearts and minds of the market. He notes that when done properly it creates contagion and people will have an unconditional love for the services because they trust you. In other words, hyper-loyalty is the way to focus customer-centered efforts. What this translates into is that your customers believe you are the best and will keep getting better.
My concern is that not every product and/or service is capable of creating hyper-loyalty. Certainly, it can be developed with high ticket products and services such as automobiles (Lexus and Porche come to mind). Certain airlines seem to be close to being hyper-loyal (such as Singapore Airlines). One aspect of "hyper-loyalty" is that they do not appear to be operating loyalty programs. This implies that loyalty programs are not required to build hyper-loyalty. One could conclude that hyper-loyalty has a higher customer retention percentage than the current market loyalty programs.
I believe this is an interestin concept! I would like to see some more research on companies that have hyper-loyal customers. One aspect that hasnot been addressed is the cost to the company of implementing a program that could lead to hyper-loyalty. As a secondary question is how long it takes to achieve customer relationships that become zealous for the products and/or services.
I would like to appeal to the consultants in the market to look into hyper-loyalty and see if this phenomenon can be replicated. This is one of those great ideas that may become a Black Swan. In the meantime the question is do we stick to the loyalty programs that seem to be working or do we re-direct the loyalty program efforts to building hyper-loyalty? Until then confusion reigns.
For example, Bill Self in his blog "Thinkinglikeacustomer" of October 21st he discusses the concept of hyper-loyalty. He points out some companies whose customers are "beyond loyal." These customers appear to have a passion for converting others to become "members" of a particular business. One business he uses as an example is In-N-Out Burger. When asked how this passion is created Mr. Self suggests that the secret to creating his passion goes much deeper than customer satisfaction. Stacy Perman notes in her book "In-N-Out Burger" that "the chain's regulars assumed the responsibility of bringing in a constant stream of new devotees, an act generally referred to as "the conversion." It had the feel of bestowing membership into a club that seemed at once exclusive and egalitarian."
As a side note, when I am teaching queuing theory I have my class measure the queuing performance of some business. Often the various teams in the class will focus on fast food companies. In-N-Out Burger also has the longest wait time; however, when I ask how many students go to In-N-Out Burger, there is rarely a time when there is a student who does not go to In-N-Out. In fact, the students fit the description of being "hyper-loyal."
Mr. Self continues by suggesting the hyper-loyalty comes by winning the hearts and minds of the market. He notes that when done properly it creates contagion and people will have an unconditional love for the services because they trust you. In other words, hyper-loyalty is the way to focus customer-centered efforts. What this translates into is that your customers believe you are the best and will keep getting better.
My concern is that not every product and/or service is capable of creating hyper-loyalty. Certainly, it can be developed with high ticket products and services such as automobiles (Lexus and Porche come to mind). Certain airlines seem to be close to being hyper-loyal (such as Singapore Airlines). One aspect of "hyper-loyalty" is that they do not appear to be operating loyalty programs. This implies that loyalty programs are not required to build hyper-loyalty. One could conclude that hyper-loyalty has a higher customer retention percentage than the current market loyalty programs.
I believe this is an interestin concept! I would like to see some more research on companies that have hyper-loyal customers. One aspect that hasnot been addressed is the cost to the company of implementing a program that could lead to hyper-loyalty. As a secondary question is how long it takes to achieve customer relationships that become zealous for the products and/or services.
I would like to appeal to the consultants in the market to look into hyper-loyalty and see if this phenomenon can be replicated. This is one of those great ideas that may become a Black Swan. In the meantime the question is do we stick to the loyalty programs that seem to be working or do we re-direct the loyalty program efforts to building hyper-loyalty? Until then confusion reigns.
Saturday, October 17, 2009
A "Little" problem
A poll was recently commissioned by IM Shopping and conducted by Harris Interactive. The survey of 2,274 adults, ages 18 and older, measured customer sentiment on receiving human assistance while shopping online. The results seem to indicate that customers really would like to talk to humans even when buying online. Some of the statistics are:
1. About 74% of US online adults have purchased online in the last 6 months.
2. The most common purchases were:
44 percent purchased clothing
38 percent purchased books
28 percent purchased music
28 percent purchased health and beauty products
28 percent purchased travel related items
4 percent purchased automobiles
1 percent purchased real estate.
3. About 77 percent who have purchased within the last 6 months say they would be interested in getting help from a real person before making certain online purchases. More than half say they would want help before purchasing real estate
(56%), automobiles (54%),and insurance (51%). Other items that many would also like help from a real person to make the purchase include computer hardware/software, home appliances and mobile phones.
4. A significant point is that 82 percent say there have been times when they have not been able to get the help from a real person.
5. Perhaps one of the most telling statistics is that 52 percent who have not been able to get the help they needed from a real person say it affected their decision to not purchase the product (at least sometimes).
6. Automated assistance is not the answer. About 93% of those who purchased online say they have had a question about an online purchase and over half (58%) say the question cannot be answered from the information on the website at least sometimes,and 16 percent say their question almost always or often cannot be answered.
The statistics tell the story that people are important when in comes to selling even when the selling is online. Most companies know about VoIP and how to tie phones into their Internet site. Maybe these statistics will inspire the companies that have a large presence online to reexamine their online strategy.
The bottom line is that we have not yet achieved the ability to displace people in the sales cycle. Until the computers start acting more human or the population becomes more adjusted to online shopping, the successful companies will make sure that real, live people are available to their online customers.
1. About 74% of US online adults have purchased online in the last 6 months.
2. The most common purchases were:
44 percent purchased clothing
38 percent purchased books
28 percent purchased music
28 percent purchased health and beauty products
28 percent purchased travel related items
4 percent purchased automobiles
1 percent purchased real estate.
3. About 77 percent who have purchased within the last 6 months say they would be interested in getting help from a real person before making certain online purchases. More than half say they would want help before purchasing real estate
(56%), automobiles (54%),and insurance (51%). Other items that many would also like help from a real person to make the purchase include computer hardware/software, home appliances and mobile phones.
4. A significant point is that 82 percent say there have been times when they have not been able to get the help from a real person.
5. Perhaps one of the most telling statistics is that 52 percent who have not been able to get the help they needed from a real person say it affected their decision to not purchase the product (at least sometimes).
6. Automated assistance is not the answer. About 93% of those who purchased online say they have had a question about an online purchase and over half (58%) say the question cannot be answered from the information on the website at least sometimes,and 16 percent say their question almost always or often cannot be answered.
The statistics tell the story that people are important when in comes to selling even when the selling is online. Most companies know about VoIP and how to tie phones into their Internet site. Maybe these statistics will inspire the companies that have a large presence online to reexamine their online strategy.
The bottom line is that we have not yet achieved the ability to displace people in the sales cycle. Until the computers start acting more human or the population becomes more adjusted to online shopping, the successful companies will make sure that real, live people are available to their online customers.
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