Saturday, February 27, 2010

Customer Satisfaction versus Average Handle Time

I am seeing a lot of articles and blogs about the virtues and sins of average handle time (AHT) and how important it is. Much of the writing lately has been focused on call centers (and for good reason since they are becoming such a vital part of a company's performance and perception).

Customer service can be considered as four distinct categories; namely service at the customer site, service at the point of sale, service at a remote location and service via some electronic communications media (e.g. phone, fax, internet). The current research suggests that the electronic media is becoming the channel of choice. This leads to the reason for this blog and why I am taking time to respond to the notion that AHT is one of the most important aspects of customer service and, by inference, customer satisfaction and loyalty.

First let me state that AHT is probably not the most important driver of customer satisfaction and loyalty. My research certainly does not support that notion. It is one of the major factors but it is NOT the most important. I am sure there are others out there who will be ready to flog me and point out that I am unaware of the real market. Rather than taking on a fight, I would suggest that the time to answer (average speed of answer - ASA) is far more important if one is looking to improve customer satisfaction and loyalty. I recall a study several years ago that showed that ASA strongly correlates with customer satisfaction. The study showed that there was no perceptible drop in customer satisfaction for up to 2 minutes. However, once the time exceeded 2 minutes there was a precipitous drop in customer satisfaction.

I have seen studies that show if the AHT get very large there is a drop in customer satisfaction. Usually the time has to increase dramatically. Think about it. If you are a customer and you are getting your problem solved, will become dissatisfied when the customer service representative takes extra time to make sure your problem is resolved. I would pose that a longer handle time when done correctly will build customer satisfaction and loyalty. When I was in industry, I made it a policy to make sure that every one who touched a customer would take enough time to "kill each call." By that I meant that I wanted every call to take as long as necessary to make sure the customer thoroughly understood that the problem was resolved. That means the problem is DEAD.

It is very difficult to control incoming calls to an inbound call center. However, if you understand the basics of queuing theory, you can staff to take the calls in a reasonable time to be sure that your ASA is within the bounds you have set. That means you must also staff to give the service representatives sufficient time to "kill the calls."

The bottom line is that AHT is not something you want to reduce, it is what you need to build customer satisfaction and loyalty. The management focus should be on managing ASA and then train the service reps on how to kill a call. The results will surprise you. Of course many will say that you cannot reduce costs when AHT is high and that most companies are looking for ways to reduce costs. My purpose for writing this blog was to point out that ASA is more important to customer satisfaction and loyalty than AHT. Secondly, I wanted to make the suggest that there may be a significant down side to reducing AHT.

Friday, February 19, 2010

What is a "Bad" Customer?

I ran across a brief article titled "Get Rid of Bad Customers" that was published February 17th and was on the web under
The essence of the article was that companies should get rid of bad customers. This is a statement that some companies have a difficult time accepting. The author lists four kinds of bad customers:
1. Slow-paying customers - if they continue to be a slow payer the author suggests they be put on a cash-only status. There is additional discussion but essentially the story is that a slow-paying customer is a "bad" customer although the author does not suggest getting rid of them.
2. Customers with constantly changing and ever-expanding needs - the author suggests these are not bad customers but ill-educated customers who don't know how to create project specifications and keep adding requirements. Once again the author does NOT suggest getting rid of them.
3. Price-sensitive, demanding customers - these customers resist standard pricing and insist on high levels of service and numerous product features. The author suggests that the company should decide what prices and terms are necessary to maintain the relationships. If the customers have already been given sufficient concessions, the author suggest it's time to refuse additional business at any price. (This is the first bad customer that the author actually suggests eliminating.)
4. Conniving customers - these customers "misrepresent problems to extract restitution in the form of full refunds or heavy discounts."

The author closes the article with the comment "Start making hard decisions, push away those who drag you down, and cultivate the right relationships."

While I generally agree with the author I think there are some additional points that should be made. The author seemed to limit the kinds of bad customers to those customers who had a direct impact on costs. The first point that seems appropriate is to suggest that customers are not "bad" or "good." Customers either fit your company or they do not. If they fit your company, then there should be a strategy in place to accommodate the needs of the customer. If a customer does not fit your company, it is a waste of your time and resource to try to "put a round peg into a square hole." By that I mean it is rarely cost-effective to stretch your resources to accommodate a customer whose needs are not a good fit with your products and/or services. More often both sides, customer and company, are not satisfied with the results.

It might be appropriate to add some other types of customers to the list of those that don't belong. For example,
1. A customer whose business strategy has changed and now is no longer a good fit with your products and/or services.
2. A customer who has out-grown you so that you cannot meet that customer's demands for products/services.
3. A customer who is not profitable when all the costs for customer support exceed the margin of the products/services purchased by the customer.
4. A customer whose needs have changed in such a way that your company would have to make significant changes to accommodate the customer (such as going to ISO 9000 certification when all of your other customers do not have that requirement).

The bottom line is there are no good or bad customers. The ideal customer is one whose needs for products and/or services matches the company. In addition companies want customers who they can trust and who trusts them. These customers will allow for occasional mistakes. They also understand that you must make a profit.

Most companies keep customers that are no longer worth keeping for any number of reasons - not that they are "bad." Too often an executive will say "we can't afford to lose another customer." This statement is naive and points out that the executive hasn't thought the process of what kind of customers the company needs to prosper and that not all customers will help the company prosper. One of the most difficult processes in business is knowing when it is time to say goodbye to a customer and how to say goodbye and still have the customer have a positive perception of you and your company. These are lessons that needs to be taught.

Tuesday, February 16, 2010

The Customer Perspective on Loyalty

As I have written in previous blogs, great companies do not need loyalty programs. Their customers are loyal because they are a great company. They leave the loyalty programs and the expense of implementation to the not-so-great companies. That being said, the Chief Marketing Officer (CMO) Council surveyed customers to find out how they feel about loyalty programs. The results are interesting but not surprising. Here are some of the findings from the survey.
1. 69% of the respondents said most of their own experience with such programs has been "pretty good."
2. 10% were very satisfied.
3. 21% were strongly motivated to come back for repeat visits.
4. 30% said it was a major factor in their decision making.

On the negative side they found:
1. 32% felt that the loyalty programs had little or no value.
2. 37% believed that the individual rewards had little value.

There are some generic concerns that are positive indicators that loyalty programs are still of interest according to the research firm Colloquy. For example,
1. 67% of consumers are involved in loyalty programs in 2009 compared with 57 percent in 2007.
2. Participation by young adults has increased 32 percent between 2007 and 2009.
3. Participation by women age 25-49 has increased 29 percent for the same period.

Another observation by Colloquy was that the average US household is enrolled in 14 loyalty programs but the typical household only uses (is involved in) 6.2 loyalty programs.

Customers were asked for the top three benefits they received from a loyalty program. The results are:
Greatest benefit - discounts and savings (66% of the respondents)
2nd greatest benefit - better deals and offers (43% of the respondents)
The rest of the top five are:
3rd free products or premiums (38%)
4th perks and privileges (36%)
5th cash back (33%)

Far down the list were the issues that most loyalty programs seem to focus; namely, "recognition and appreciation" was only mentioned 18% of the time and "more individualized attention was mentioned 12% of the time.

The most often mentioned concern by customers was that they received too much spam email and junk mail. When things go bad, customers will opt out of a loyalty program. In fact 54 percent of the respondents said they had left a loyalty program after poor product or service experiences.

The bottom line is that customers perceive the benefits of loyalty program in terms of cash or rewards. While customers do like to be recognized and not considered a stranger, they sign up for a loyalty program for the financial benefits.

Thursday, February 4, 2010

Measuring Customer Loyalty

There are some people who suggest that customer loyalty is an emotion that is most easily measured using a survey or interview of some form. There are others who say that loyalty shows up in the pocket book and that actions-speak-louder-than-words. One way to measure loyalty using the survey method that appears to be most popular these days is NPS. One of the ways to measure customer loyalty using the actions-speak-louder-than-words approach is RFM.

The term RFM stands for Recency, Frequency and Monetary value. The concept is baaed on a way of gathering the total value of a customer so that customers can be classified into groups which can then be assigned different levels of investment by the company to reward the various customer groups according to their "loyalty".

Recency is determined by reviewing past history for each customer and assign a score which is higher for the more recent purchase. There are several ways this score can scaled. One simple scale would be to give a maximum score if the most recent purchase was within 30 days, the second highest score would be for purchases within 90 days, etc. One concern is that high priced products often have longer periods of time between purchases (e.g.automobiles, tvs, washers and dryers) than clothing,or consumables such as ink cartridges and paper.

Frequency measures the number of purchases made in each of the time frames used to measure recency. Although the recency measure has a limited range of values (depending on the number of time periods used), the frequency measure has virtually no upper bound. Thus a customer could make a purchase every day and have a very high frequency rating or maybe as infrequently as once a year.

With the information of recency and frequency, a total score can be determined by adding the two scores together. In general, the more items a customer purchases and the more recent the purchase will yield a higher overall score which would lead a company to provide more lavish rewards to those customers. Many companies stop rating customers for loyalty when they have reached this point of adding the recency and frequency terms together to categorize their customers into different levels of loyalty. What has been ignored up to this point is the monetary value of these customers. When this term is omitted from the evaluation, the company can not differentiate between customers who provides a high level of profit and those who do not.

Monetary value is often measured in terms of revenue which is easily determined by reviewing the purchases. The monetary value is misleading when only the purchase prices are considered since different products will carry different profit margins. For that reason, the monetary value should be measured in terms of total profit margin rather than total revenue.

Some of the problems with RFM are:
1. A customer's history of purchasing may not be reflected in his future purchasing behavior.
2. A high frequency of buying low margin products can be misleading and score a low value customer high.
3. There are a number of ways to combine all three measurements.
4. The cost of servicing customers is usually not included in the measurement of profit margin.

The bottom line is that there is a need for a business measure of loyalty beyond feelings and emotion. Perhaps the best solution is to find some way to integrate the emotional measure with a business measure. This blog will continue to pursue other business measures of loyalty and report on those that appear to be rational, repeatable and consistent.

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