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.

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.

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.

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