Tuesday, December 30, 2008

Companies Know That Customer Experience Counts

A white paper was published by Verint Consulting in the UK and was based on international research by Ventana Research. Although they didn't mention the sample size and the countries they surveyed in their summary (which was all the information I received), their results are very interesting. Some of the key findings from the research are:

1. 81 percent of the organizations surveyed agree that the customer experience impacts loyalty and advocacy.
2. 73 percent agree that the customer experience impacts satisfaction and the amount they spend.
3. Less than 33 percent of the companies use analytics to understand what is happening in their customer interactions
4. More than 50 percent rely on subjective, irregular and delayed feedback from agents and customers.
5. More than 33 percent of the companies lack documented processes to govern telephone calls. This percentage rises to 65 and 66 percent for web and IVR-based self-service, respectively.
6. 28 percent of the companies have documented processes for handling a single interaction across multiple channels.
7. 61 percent are making a correlation between customer experience and customer loyalty, 56 percent with levels of complaints, 43 percent with customer lifetime value and 39 percent with customer advocacy.
8. 20 percent of the companies have already deployed analytics and/or business intelligence tools.
9. 42 percent of the companies noted they will begin using analytics next year.

The bottom line that jumps out of this research is that most companies know that the customer experience is important. Unfortunately, the companies either don't know how to manage the customer experience or haven't given it the priority. I think the real issue is that most of these companies don't realize that there are analytics that will provide them with some guidance for management.

Friday, December 19, 2008

The Case Against Customer Service

It is not often that I see an example of a business being successful when the underlying business strategy is to not adopt customer service. Michael O'Leary, CEO of Ryanair is a skeptic about the value of customer service and when given the opportunity to turn around Ryanair Airline as he took over the helm, he looked at the business model for Southwest Airlines, an airline he believed was successful, and then bench marked Ryanair against Southwest. Once he saw how Southwest had succeeded, he adopted their model except that he chose NOT to include customer service. His view which he backed by research suggested that the primary factor and almost sole driver for customer choice of an airline in the European coach and economy segment is low, low fares.

Since he has instituted this philosophy Ryanair has posted record growth and a reasonable profit over a sustained period of time. When he was interviewed by the Wall Street Journal in 2004, it is reported that his comment was that in head-to-head competition, low prices will always beat out "value services."

The bottom line for Ryanair is their business model that seems to be working is "low price versus competition is the driver to business success and profitability; not satisfying customer service for building customer loyalty." While this might not be the formula for success for other businesses or even other airline market segments, Mr. O'Leary has found the primary, and possibly the only driver for success in his market segment. This is a lesson for those of us who believe that we must always have a strong customer service component to achieve business success.

Car Loyalty

JD Power just released a survey conducted between November 2007 and May 2008 on 147,238 new car buyers. The purpose was to measure the percentage of new car buyers who repurchased the same brand when they bought their new car.

The survey results show the following:
1. The industry average is 48 percent of customers repurchased the same brand as the car they are replacing.
2. Honda had the highest repurchased percentage 64.7 percent followed by Toyota at 63.2 percent, with Lexus third with 60.4 percent and Mercedes Benz fourth at 58.6 percent.
3. The three lowest were Jaguar at the bottom with 26.2 percent, Pontiac next with 27.2 percent and third from the bottom is Mitsubishi at 28.1 percent.

Apparently the Korean auto manufacturers are not happy with the repurchase percentage of their brands since both Hyundai at 46.7 percent and Kia at 32.5 percent are below the industry average. They apparently believe that because they are building a high quality automobile their repurchase percentage should be higher. Some experts have suggested the reason for the Korean automobiles having such low repurchase scores is not their cars but the purchase process and after sales service.

These same experts note that Honda's feat of coming in first was not so much a result of product quality as customer satisfaction with the after sales service.

The bottom line is after sales service (repair and parts sales) is both the highest margin component of the dealership, it is also one of the most important aspects of retaining customers.

Saturday, December 13, 2008

A Dissssenting Opinion

I saw a blog by Perceptions dated December 6th where the author takes to task the ACSI (American Customer Satisfaction Index). The author provides two charts. The first chart shows the ACSI scores for four financial services companies (Wachovia, Bank of America, JP Morgan and Wells Fargo) over the last 4 years (2003 through 2007). The second chart shows the stock performance of these same companies for the first ten months of 2008. A simple viewing of the two charts shows that customer satisfaction is very stable for each of the four financial institutions and the stock performance shows dramatic decline in 2008.

I believe the author is making the point that customer satisfaction can't predict the future performance of companies. I suggest the author read the book "the Black Swan" by Nassim Taleb to see if he can understand that there may be some other variables in play. He may also want to review the very many papers that show strong correlations between customer satisfaction and financial performance. I don't think thee is anyone who truly believes that customer satisfaction is the only driver of future performance of a company. To think that customer satisfaction is the sole driver of a company's financial performance is a clue to the depth of the author's knowledge. Naivete' doesn't wear well on the web.

Service Counts More than Price

It appears that Accenture has surveyed more than 4,100 consumers in various countries (countries other than the US are not identified). The survey was conducted over the summer of 2008 when the signs of the current financial crisis were emerging. Their key finding during this market turmoil is that consumers found service, more than price, to be a clear differentiator.

According to their survey results 67% of the respondents reported that they switched companies because of poor customer service. In the US the percentage is even higher
(73%). The percentage of customers who switched because of lower prices was 47%. Accenture has been performing this same survey for four years and the survey results show the increasing impact of service. The first survey reported 48% of the respondents said they were switching because of customer service. In four years the percentage has increased 19% (about 5% per year).

There were four other interesting findings; namely,
1. US consumers are the least likely to believe that technology has significantly increased customer service in the past five years.
2. When choosing a new provider, US customers weighed price and customer service equally.
3. The most important aspect of customer service identified by consumers was employees who are knowledgeable and well informed.
4. Consumers estimated they BROUGHT $4,000 WORTH OF BUSINESS to their new provider.

The bottom line is that survey after survey seems to be repeating the same message, customer service is a vital strategic weapon for companies. Unfortunately most companies haven't figured out how to use the weapon.

Thursday, December 11, 2008

CMOs Don't Seem to Get It

I just finished reading the executive summary of the Routes to Revenue. It is a report that presents the findings of a survey of 650 senior marketers in 2008 published by the Infoprint Solutions Company. The first item that jumps out of the report is that 76 percent of the senior marketers believe they are not realizing the full revenue potential of their current customers. Only about 46.5 percent believe they have know their retention rates, customer profitability and customer lifetime value.

The report goes on to list various obstacles for not attaining greater customer penetration. The report lists the following obstacles:
1. Lack of real time data and analytics.
2. Information being selectively gathered and often inaccurate and incomplete.
3. Data being siloed and restricted across the organization.

The new roads to acquiring new business were listed as:
1. Launch new products aimed at specific market segments.
2. Establish new partnerships and revenue-sharing agreements.
3. Stepping up demand generation and customer acquisition programs
4. Expand geographical presence and intensifying international focus.
5. Ramping up eCommerce and customer-direct communications
6. Restructuring or expanding channels of distribution.

The answers to the question of what the companies are doing to improve revenue and reduce costs, the responses were:
1. 40 percent said they were reducing headcount and overhead
2. 38.7 percent said they were automating complex and costly processes.
3. 31.2 percent said they were outsourcing more services and functions
4. 27.8 percent said they were reformulating products or minimizing packaging to contain costs.

When asked what they were doing to increase efficiency and effectiveness, the responses were:
1. 64 percent were evaluating all areas of marketing to increase yield and accountability.
2. 47.3 percent said they were bringing more discipline and rigor to marketing budgeting and spending.
3. 47.3 percent said they were leveraging existing resources within the organization to enhance customer communications.
4. 40.9 percent said they were exploring new customized communications technologies.
5. 38.7 percent said they were moving more marketing investments to internet and mobile channels.
6. 33.3 percent said they were improving behavioral targeting of advertising and online marketing campaigns.
7. 31.5 percent said they were driving adoption and use of CRM and sales automation applications.

The survey listed the ways companies are trying to better engage core audiences. The Routes to Revenue were:
1. 60 percent said they would introduce better segmentation, profiling and targeting strategies.
2. 48.7 percent said they would add or improve their data base marketing systems.
3. 30.3 percent said they would acquire new customer and market analytics capability.
4. 29.8 percent said they would personalize multi-channel communication and customer touch points.
5. 26.4 percent said they would individualize print, email and text messaging, call center or web interactions.
6. 25.8 percent said they would build online customer communities and interactive channels.
7. 25.2 percent said they would capture more customer information via the web and at point-of-sale.

The bottom line is that CMOs (chief marketing officers) don't seem to understand the impact of customer service on loyalty, retention and customer attraction. There are a number of blogs in my archives that provide supporting evidence of the value of customer service in keeping business and attracting new business. See if you can find the few insights they noted that would increase share of pocket through customer service or attraction of new customers through customer loyalty. They may find the answers to higher retention rates, customer profitability and customer lifetime value if they can think outside the box of marketing. It would appear that they can only see the customers through the eyes of marketing - seems a bit myopic. For more data check my next blog.

Tuesday, December 9, 2008

The Drivers for e-Loyalty

Last week I wrote a blog about e-Loyalty. I would like to add some additional information to the e-Loyalty model by describing what, I believe, are some of the key drivers. It is always easy to say the drivers for e-Loyalty are the same as the drivers for face-to-face loyalty. That might be easy to say but it certainly is not correct.

When we are dealing face-to-face with customers the three components of loyalty are the product, the process and the people that represent the company. I believe the same components are there for e-Loyalty but with some additional considerations.

1. The PRODUCT has to have the same or better value proposition as the product that can be handled. When customers use the internet the company can offer a large set of choices without carrying the inventory, can provide warranties and well-known brands. The first component is still the competitive product.
2. The SERVICE PROCESS has the same name as the face-to-face service except the website and the technology replace the service process. Instead of a person there to answer questions, the web must provide fast page loads, an easy to navigate browser, language options, effective search functions, and a quick shopping checkout process.
3. The CUSTOMER SERVICE may or may not include contact with a real person. Some web sites do have a contact button that will immediately transfer to a real person. In this case, the customer service process has the same characteristics as a call center. Without the direct connect to customer service, customer service becomes the typical customer service function which handles customer inquiries, warranty administration, and problems that are not answered by the web site FAQs.

The main reason I am discussing these e-Loyalty components is the additional consideration of the website characteristics and the technology that are not necessary with face-to-face business but become critical on the web. The web site becomes a process that provides fast response to customer inquiries (usually through the net) and is easy to contact, provides an easy payment method (such as Pay-Pal), and provides delivery options from very fast at extra cost to snail mail at the lowest cost.

A secondary reason for discussing web loyalty is the aspect of trust and security for the web site. Trust and security are rarely a concern when dealing face-to-face with customers. On the web there is the concern for privacy and trust. Reputation becomes significant (who wants to spend money on an unknown; yes, I know there are many who do, but they generally do it irresponsibly). There is also the requirement for authentication in both directions. We know there are many hoaxes and scams on the web and that should alert every customer to be wary of an unknown site.

The bottom line is the web is a great selling tool and can be used effectively to build customer loyalty; however, it must be designed to incorporate the additional features of customer service along with web trust and security that are not necessary in the world of face-to-face business.

Monday, December 8, 2008

What About the Customer Asset?

I like the work of the Aberdeen Group. They do good research and I like reading their reports. I just received their report titled "Asset Performance Management" dated November, 2008. They start by making the point that in turbulent times, many companies are looking for ways to get more from their existing investments. They say this is especially true for asset intensive industries. Their approach is to suggest that these companies adopt a holistic strategy to manage the complete asset base. The Aberdeen Group includes plant equipment, facilities, automation, instrumentation, data, information technology and employees in their definition of asset.

So far so good. Are there companies that do not work at maximizing the use of their assets? But that is not the point here. If you look at the words in the Box describing the mission of the Customer Institute at the top of this blog the key is managing the CUSTOMER ASSET. This is where, I believe, most companies and certainly most consultants really miss the point about customers. In some previous blogs I noted some different ways to identify the asset value of customers. My perspective is that the customer asset is the MOST IMPORTANT asset and was omitted in their report.

Companies spend a fortune measuring and maintaining the assets that the accountants say are important, and they are important. But I rarely see a company that is truly managing their customer asset. I ask companies how healthy is your customer asset? Most companies have no idea. Is it more healthy than last year? If not, why not, and what are you doing about it? I get a lot of blank stares.

Two of my objectives in writing this blog, other than to be a file cabinet for my ideas and data, is to inspire those who are working in the area of customers to start building models to better understand the customers and then to start looking at the customer as an asset. Until businesses can understand the asset value of a customer, the customer, while considered important, will not have the board room attention that, in my opinion, it deserves.

Friday, December 5, 2008

Cyber Satisfaction

Foresee Results, a survey company, is conducting some customer satisfaction studies on cyber shoppers during this holiday season. They have just released the results of the Cyber Monday shopping. They surveyed more than 270,000 visitors at more than 80 online retailers between Friday, November 28th and Cyber Monday, December 1st. They used the ACSI methodology because of the ACSI's scientifically proven predictive abilities. ACSI has shown in previous studies (see their web site or call them directly for specific references) that satisfaction is the best measure of future success.

There are two points that, in my opinion are worth discussing; namely the satisfaction comparison between this year and last year and the impact of e-retail website satisfaction scores on purchases.

1. The Cyber Monday customer satisfaction score is down about 1% from 2007. (Score was 76.6 in 2007 and 75.9 in 2008 on a 100 point scale). Apparently the satisfaction scores were lower on every website element that was measured. Considering all the problems with the economy, it would appear that little was translated into the satisfaction of using the web for cyber shopping. There are many possible speculations to explain this minimal impact. Of course, it would be worthwhile to know how this compares to the customer satisfaction of shoppers at the malls on Black friday. I leave that to the speculators.

2. The more important point comes from the data analysis performed by Foresee Results. They noticed that e-retail websites with superior satisfaction scores (greater than 80) had customers that were significantly more likely to purchase online and offline than visitors to sites with subpar customer satisfaction (scores less than 70).

The bottom line is that this evidence appears to demonstrate that customer satisfaction is not limited to face-to-face communication. This study demonstrates once again the three legged stool of customer satisfaction ( satisfaction has three compontents; naamely, product, process and people). In this case, the customer contact with the e-retailer is limited to the web site process and product (people are not involved). The web e-retailers who understand this and built a website whose process exceeds the customer expectations and allows easy access to its products is rewarded by increased sales.

Perhaps this is obvious, but given this result, it once again demonstrates that satisfaction is a significant key to increased sales.

Wednesday, December 3, 2008

Customer Loyalty Mathematics

Dr. Mark Klein is a physicist who is using his mathematical skills to help companies tune their marketing programs. He has developed some mathematical models which, according to Dr. Klein, will improve the effectiveness of marketing campaigns. The reason I have chosen to mention this is that it is rare to find someone who is specifically mentioning the use of mathematics to understand customer loyalty. What appears most often in the market is different companies and consultants saying they do customer loyalty surveys better than others. In most cases the difference between the various groups (companies or consultants) is negligible.

The good news is that Dr. Klein mentions some mathematical techniques that he uses. The bad news is he doesn't say enough for someone like me to understand those techniques and be able to validate them.

He has a "Field Guide to Mathematical Marketing" available from his web site (55 pages). The book, which can be downloaded from his website at no cost, does an excellent job of making the case for using mathematics to better understand your customers. For that reason alone, the book is worth the time to read, especially if you think that mathematics has no place in analyzing customer loyalty.

Unfortunately, there are no mathematics in the document. The document does contain vary good descriptions of the statistical applications that appear to be one of the key tools he uses (factor analysis, factorial designs and fractional factorial designs). I am surprised he doesn't mention some of the other experimental statistical designs such as Latin Squares and Graeco-Latin Squares as long as he is using experimental designs. In any case, as I learned in school, it is always a good idea to know what is inside a black box (for those not used to the term, a black box is something that performs but you don't know how or why) before you buy it and thus until I know more about his application of the various methodologies noted, I am limited in the amount of support I can give. One of my concerns is what assumptions are required.

Some interesting observations made by Dr. Klein:
1. He believes that customer loyalty to be a more predictive measure of customer purchasing than customer satisfaction.
2. He also believes that customer satisfaction is a backwards-looking measure whereas customer loyalty, as noted above is more predictive of the future behavior of your customers.
3. He believes that most people in marketing (and probably in customer service/support) avoid using mathematics even though it would be beneficial.
4. He is a strong proponent of selling to existing customers and believes that the more information that you have about you're customer, the better job you can do in developing marketing programs to encourage them to buy.

Finally, I reviewed the software program on his site that allows a demonstration. Here is where I am a little concerned about the "black box." I am reminded of the phrase from my programming days that said "garbage in, garbage out" was corrected to say "garbage in, gospel out." The demonstration is excellent without being too complex for the non-mathematical observer, but it is not clear what is happening and why. Of course, that may be the idea, to sell the concept without giving away the company secrets.

The bottom line is that I am not recommending Dr. Klein's mathematical modeling because I do not have sufficient information to evaluate how he is using the techniques. I am, however, pointing out that there are a few people with enough education, such as Dr. Klein, to use the power of mathematics to help companies improve their understanding of their customers and customer loyalty.

Tuesday, December 2, 2008

Service Quality - What is it?

There is some interesting work being done by Phil Klaus (terminal degree and title unknown) at the Cranfield School of Management in England. He is working on a scale that represents not only the attributes of the customer experience (the reasons why customers choose (or not) to purchase and then weighting them. He defines the customer experience as the sum of the attributes leading to customer purchasing and repurchasing behavior. His research is focused on the financial services industry.

Mr. Klaus believes the whole story of customer purchasing behavior is multi-faceted and complicated. He states that research shows that customer decision cannot be reduced anymore into a simple "functionality versus price" formula. He asserts that purchasing behavior is driven more by the emotional and subconscious elements and less by the functional attributes of products and services.

From this assertion he believes that offering high-quality goods and services alone is not sufficient. He is suggesting that organizations must compete on a more complex level by creating a satisfactory customer experience through all stages of the buying process, managing the customer's expectations and assessments, before, during and after the buying process. The customer experience is a broad, holistic concept that managers find difficult to measure and manage.

At this point I would like to interject that I agree with much of what he is stating. My wife, a psychotherapist, has pointed out to me that most decisions are rationalizations of the underlying emotions. the four basic emotions are happy, sad, mad and afraid. It makes sense that people generally do not make a purchase when they are sad or mad. People more often make a purchase when they are either happy or afraid.

For example, people buy a tv when they are happy. I never see shoppers who are mad or sad looking at tvs. (I must admit there are some personality disorders that buy under other conditions - some are called shopaholics and some are a step beyond where the urge to shop is psychotic). Customers may also make purchases because of some fear. People will purchase excessive amounts of food if they think there will be a food shortage.

Of course, the problem presented by Mr. Klaus is what personality factors that contribute to happy or afraid does one examine. Since each consumer purchase decision is based on an individual, any survey developed must be able to accommodate all personality profiles for the market and how they react when happy or afraid. When the purchase experience is in the B2B market, the emotional and subconscious elements are dramatically less and more emphasis is placed on the functional attributes of products and services. The research that Mr. Klaus is doing appears to be limited to the consumer market.

Since the development of a scale that measures the customer experience becomes an overwhelming task, I believe Mr. Klaus is taking his measures from the customer corridor. By that I mean the questions that he proposes will pertain to the different ways a customer can experience the company by walking through the corridors (people and processes) of the company.

From this research Mr. Klaus has developed a scale that provides measures and weighting of each of the attributes of the customer experience. The bottom line is that his results may end up being no different that many scales that we see today. However, he has a great concept and only tying his research hypothesis to the real world with real data will tell the story.

The last bottom line is that the industry needs a consistent quality measure of the customer experience. There are many quality measures in use and proposed in the marketplace but none have risen to the top and become the standard.

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