Tuesday, April 14, 2009

Loyalty not Satisfaction

A recent column on the Otho Supersite written by Free Lee discusses some lessons he learned at the Disney Institute in Orlando, Florida. His concern was whether or not the satisfaction of customers at a Disney resort would have any of the characteristics of satisfaction of patients with suffering grief and pain. the first thing that he noticed was the Disney uses a 1 to 5 scale for satisfaction but only counts the percentage of 5s. Disney does not measure customer satisfaction, they are measuring customer loyalty. The management at the Disney Institute use an article from the Harvard Business Review which presents research that shows that on a 1 to 5 scale a customer who marks a 4 is six times more likely to defect than a customer who marks 5 which implies that there is a six-fold increase in customer loyalty between 4s and 5s. It is amazing how many companies think that scores of 4 and even 3 on a 5 point scale suggest customer loyalty. Those companies should talk with the folks at the Disney Institute.

After reviewing his own data from the hospital, he noticed that many of the comments from patients that would indicate a 5 included words fell into three groups. I think these three groups of words are universal and for that reason I have listed them below.
1. The first group include words that are synonymous with compassion. This would include words like caring, comforting and kind. These represented about 80% of all the adjectives used for what would be considered a high score such as 5.
2. The second group includes words that are synonymous with courtesy. This group was a distant second in the number of comments.
3. The third group include words that describe competence. These words were the least mentioned.

A key insight by Mr. Lee is that courtesy and competence are expected, but loyalty is gained through showing more that simple courtesy. For the hospital it is engaging the patient by showing kindness, caring and compassion that is clearly perceived. While many service industries focus on courtesy and competence, they may be missing the differentiator, compassion.

The bottom line is that I think Mr. Lee has introduced me to a new dimension of service excellence, namely, compassion. I know that most of the training consultants that I have seen train only for competence and courtesy but I am not aware of any that train service people to be compassionate. One argument against using compassion in the commercial market place might be that customer service people will give too much away. That may be the case if they are not properly trained. However, I will take the position that compassion used properly will never be considered a negative by the customer. I will also take the position that this may be the shortest route to customer loyalty. I look forward to finding research to support my position. If anyone has such research I would appreciate a lead to the source.

Monday, April 13, 2009

Customer Feedback - Does Anyone Care?

A new study by the Chief Marketing Officer Council early in February of this year seems to indicate that companies are failing to take decisive, company wide action to integrate the feedback from customers and their experiences into their marketing processes. The study was based on a survey of 480 executives in various industries. Some of the facts that came out of the study were:
1. 58% of the executives say their companies do not compensate any employees or executives based on customer loyalty or satisfaction improvements.
2. 38% say their companies have no programs in place to track or propagate positive word of mouth among customers.
3. 29% rate highly their ability to handle and resolve customer problems or complaints.
4. Nearly 66% do not have a formal program in place to monitor and measure the voice of the customer
5. 13% have deployed real-time systems to collect, analyze and distribute customer feedback.
6. 74% receive customer feedback via e-mail.
7. 23% track and measure the volume and nature of these messages.
8. 14.5% of the companies track word of mouth on the Internet.

The bottom line is that many chief marketing officers are missing or ignoring a very important aspect of their business. I have shown many examples of the impact and importance of the customer experience and word-of-mouth in previous blogs. It seems from the statistics noted above that they know it and (i) they choose not to take advantage of this aspect of marketing, or (ii) they do not understand this aspect and because they do not understand are willing to ignore it or (iii) they really don't believe the importance of the customer experience. Maybe they just don't care.

Wednesday, April 8, 2009

Value Trumps Price

According to the 2009 Brand Keys Customer loyalty Engagement Index consumers are not buying on price alone. Brand Keys, a consulting firm polled 26,000 consumers of 441 brands in 63 categories earlier this year. Consumer expectations regarding brand value went up 20 percent. Robert Passikoff, president at Brand Keys, made some interesting observations from the results. Some of the comments he made include:
1. Those brands that aren't perceived as being worth it will fall to the wayside.
2. There is a price-value formula consumers use to calculate brand differences and to decide which brands to buy.
3. Shopper consciousness has shifted from just trying to ferret out deals to looking for brands that provide value.
4. This harkens back to why you build a brand. If you're a commodity item or a category placeholder like the GAP, the only way you get attention is by cutting price which ends up being an evil death spiral.
5. Value was a driver In the coffee category along with service and surroundings, quality and taste, and selection. Dunkin Donuts secured the top spot followed by McDonald's and then Starbucks.
6. Perhaps proving the value over price argument convincingly is the fact that Geico was dethroned by Allstate, which had previously been No.3. Consumers rallied around Allstate's added value combined with its rates. It's not just about lower prices, it is Allstate's Accident Forgiveness program, promising no rate increases despite multiple accidents that resonated with policyholders.

The bottom line is that people naturally integrate buying experiences from all their buying experiences so that they know value. While there is a group that is on the financial edge and thus will always buy the cheapest product or service, when given the option financially, people prefer value to price. The people at Brand Keys have demonstrated that premise once again.

Saturday, April 4, 2009

Drive-thru Restaurants Are No Different

There is an excellent article in Quirk's Marketing Research Review issue dated March, 2009 edition that focuses on the impact of satisfaction on sales and loyalty for drive-thru restaurants. Here are some of the major impacts noted in the article:
1. The difference in the ticket amount for highly satisfied customers is 4.3% higher than those customers who indicate they are satisfied.
2. Offering refills increases the average spend by 2.5%
3. Suggesting menu items increases the average spend by 2.7%.
4. On average there is a 2.9% increase in the amount spent between highly satisfied customers and satisfied customers.
5. Guests are three times as likely to recommend to others if they were highly satisfied versus those who were satisfied. The actual results indicate that the likelihood to recommend is 84% of highly satisfied customers versus 28% of those customers who were satisfied.
6. Guests are twice as likely to return if they were highly satisfied versus those guests who were satisfied. The actual results indicate that 90% of those who were highly satisfied would return versus 44% of those who were satisfied.

The bottom line is that drive-thru businesses have the same opportunity for building customer loyalty as other businesses. With highly satisfied customers at the drive-thru comes higher average spend.

More Proof of the Value of Customer Satisfaction

A report issued in February by Claes Fornell, a Professor at the University of Michigan, ran a correlation analysis using the American Customer Satisfaction Index (ACSI) against about 200 companies in 44 industries. He found that on average, retailers with improving ACSI scores lost about 30 percent of their market value in 2008, while those with declining ACSI scores lost nearly twice as much (57 Percent). By comparison the S&P 500 dropped about 38 percent.

This result tracks a paper I published in the Summer of 2007 with a colleague where we took the best and worst companies in eleven industries and showed that the financial performance was significantly better for those companies ranked at the top of the ACSI ratings than those ranked at the bottom.

The bottom line is that every time the hypothesis is tested to determine if customer satisfaction is related to financial performance, the test result verifies the hypothesis that there is a statistically significant relationship between the two measures of corporate performance (financial performance and customer satisfaction).

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