Friday, October 7, 2011

Farewell Steve Jobs from The Customer Institute

It is with great sadness that we at The Customer Institute bid farewell to Steve Jobs. While he is praised for many accomplishments, such as a successful businessman by turning Apple around a tits lowest point, then co-founding NeXT and Pixar. But, in our eyes, Steve Jobs was the most visionary creator of products that were focused on the customer.

Steve Jobs appears to have had the insight to see what customers wanted and needed before they did. He was relentless to produce the perfect customer-focused product. He took the "techy" aspect of computers out of the computer and gave customers a product that they could use and enjoy without being a "techy."

One has only to look back at the evolution of computers to see that for most of the 40 plus years of computing (late 40s to mid 80s), computers needed people to write code that the computer could understand. Without very specific training, the computer would ignore you and there was no way that it would respond without the intervention of a "techy."

Of course from the 40s through the late 70s, computers were too expensive for the average person. A basic IBM 1620 Scientific computer would rent for about $10,000 per month (not counting input/output devices). As the personal computer came on the scene and the cost of computing dramatically decrease, it was still a nightmare for the average person to understand the coding of MSDOS. Still the computer for the average person was out-of-reach.

With the advent of the first Macintosh, the blinders of technology were lifted so that the ordinary person could connect with the computer without the resident knowledge of computer code or MSDOS. Steve Jobs saw that the computer was not just for the "techy." He became the transformer - the one who changed the way that computers interfaced with people. He was the ultimate architect of human engineering that built computers for people.

Thank you Steve Jobs. You brought the computer to us In a way that we now see the computer as a tool that increases our productivity and provides a never-ending opportunity to improve our lives. He was the ultimate customer advocate!

Friday, August 19, 2011

What Makes Customers Leave?

This is the last blog relating to the survey of 250 customers that responded to a survey regarding the purchase of consumer electronics that was conducted by Infinite Field Marketing of the UK. My two previous blogs on what gets customers in the door and what keeps them need a final chapter. This final chapter will focus on what makes customers leave or break their loyalty. The last part will answer the question of what would it take to keep a customer that is ready to leave.

When the question was asked what would cause a customer to walk out the door the answers were:
1. About 48 percent responded that negative contact with the staff was the primary reason.
2. The second most important reason (24 percent) was the store was too busy which made it difficult to find staff and products.

These results track the earlier results that kept repeating the mantra that customer service plays a primary role in dealing with customers.

When the survey took the next step and asked what would break a customer's loyalty the two primary reasons were:
1. About 70 percent said that bad service would be the reason, and
2. 21.5 percent said poor product knowledge.

Here again the primary reason that customers are saying they would break their loyalty to a company or store would be the result of customer service.

There is a logic that follows these results that suggests that bad service not only leads to lost loyalty but also leads to negative word-of-mouth which in the long run can lead to the demise of the company.

The final area of interest is the question of what can a company do when the customer is ready to break their loyalty and leave. In other words, the question is what is the best way to deal with a customer who is ready to leave. The survey yielded the following results:
1. About 40 percent thought that a discount would be appropriate, and
2. 28 percent said that an apology would be sufficient.

Although there were a number of other comments, there appears to be no significant pattern in them.

The bottom line that comes from this survey of what brings customers to you, what makes them happy and why do they leave has a consistent theme; namely, that customer service is very important and may be the strongest driver for business success.

The two questions that everyone who reads this should consider are:
1. Is good customer service a company policy?
2. How much is the company willing to spend to support this policy?

Experience has shown me that companies often think that initial customer training is sufficient and no refresher training is necessary. This is fallacious thinking.

Tuesday, August 16, 2011

What Keeps Customers Coming Back?

The research mentioned in yesterday's blog also provided some insight on what makes customers loyal to a particular store. Rene' Wright, head of computing at Best Buy UK is quoted as saying "if someone has walked out of a store having had a positive shopping experience, they are much more likely to return, consider, recommend and purchase from you in the future."

The research by Infinite Field Marketing provides support to that notion with the following statistics from their survey of 250 shoppers.
1. Approximately 55 percent of the respondents sad good service was the most important.
2. About 21 percent said that price was the main reason
3. There was approximately 11 1/2 percent of the respondents that said convenience was most important.
4. Product knowledge was most important for only about 8 percent of the respondents.

The message is the same as yesterday; namely good service is a key driver to customer loyalty. Of course, returning to a store or company does not necessarily assure purchases.

Making it easy to do business has long been considered an excellent step to build trust and a good relationship. As has been noted in previous blogs just solving the customer problem with no hassles is often the most important aspect of the customer interaction.

The bottom line is reputation and customer service appear to be consistent drivers of loyalty. While location, price and product knowledge are also necessary they may not be the glue that sticks to customers and brings them back.

Monday, August 15, 2011

What Drives Customers to Stores?

A study commissioned by PCR and compiled by Infinite Field Marketing addressed the topic of what drives customers to stores. The study consisted of 250 respondents in the UK. One of the key concerns of the study was when purchasing an IT/consumer electronics product what makes you go to the retailer in the first place.

Too often studies start after the customer has arrived and then examines the customers attitudes and performance. This study has an unusual starting point by first examining the factors that lead customers to the store in the first place.

While their findings are not unexpected, they have quantified and calibrated what many have perceived in the past. The major findings of what drives customers to the store are:
1. Reputation seems to be the clear leader with 36 percent of the respondents identifying this as the most important factor.
2. The second factor was cost and approximately 25 percent reported that as the driving factor.

One conclusion that continues to show in the research is that customer service is a key component of reputation. Since word-of-mouth has become an important factor in in both marketing and PR, reputation often has customer service as a cornerstone of their reputation both in the UK as well as the US. It would be no surprise to find similar results in other countries.

The bottom line is that customer service may be one of the most important forces that drives customer TO YOUR STORE. Some proof can be found in the results of this survey.

Monday, August 8, 2011

Ethics and Loyalty

An English agency, "23red", has completed a survey of 1,000 adults. The results mirror previously reported connections between purchase intent and the ethical credentials of companies. Their findings include:

1. 91% of shoppers consider the approach of the business to the local community, the environment and its terms of operation before making a purchase decision.
2. 53% indicated that a significant contribution to charities would play a large part in whether a customer made a purchase or not.
3. 60% suggested that broader ethical concerns helped guide their behavior.
4. 53% also noted that they were influenced positively when they knew the company contributed a percentage of their profits to charity and good causes.

When the demographics are considered respondents under 30 years of age placed more importance on ethical values. Similarly, women also placed a higher value on ethical issues than men.

The bottom line, is that in order for ethical programs to have an impact on customers, they must work and be seen to work. These results are consistent with the blog of June 1st. With these consistent results there may be a sea change on the horizon concerning what customers are thinking when they consider making a purchase.

Tuesday, August 2, 2011

A Different Measure for Loyalty

The Customer Contact Council of the Corporate Executive Board has conducted a study of more than 75,000 people who had interacted over the phone or through self-service channels such as the web, voice prompts, chat and email. A brief summary of their research was published in the Harvard Business Review issue of July-August, 2010.

Their research, which took about 3 years addressed the following questions:

1. How important is customer service to loyalty?
2. Which customer service activities increase loyalty and which don't?
3. Can companies increase loyalty without increasing service operating costs?

The research covered many industries from product industries to pure service industries. Responses came from North America, Europe, South Africa, Australia and New Zealand. The research was limited to non face-to-face interactions.

The researchers evaluated the predictive power of three metrics, namely, customer satisfaction (CSAT), Net Promoter Score (NPS), and the Customer Effort Score (CES).

They based their results on the following definition of customer loyalty:

the customer's intention to keep doing business with the company, increase the amount they spend, or spread positive word of mouth.

From this definition they found that CSAT was a poor predictor, NPS proved better than CSAT. CES outperformed both in customer service interactions.

CES is measured by asking a single question: How much effort did you personally have to put forth to handle your request?

Their results are:
1. Of the customers who reported low effort 94% expressed an intention to repurchase and 88% said they would increase their spending. Only 1% said they would speak negatively about the company.
2. Of the customers who reported high effort 81% reported an intention to spread negative word of mouth.

The bottom line is that this new metric appears to have merit. The statistics strongly suggest this has the ability to detect loyalty at the operational level. The next several blogs will provide further detail on this metric.

Saturday, July 30, 2011

Brand Impact on Customer Loyalty

An interesting study of 1,000 adults suggests that consumers seem to be more concerned about ethics of businesses. The study reports that 91% of shoppers are seeking information about the approach of businesses to the environment as they are shopping for goods and services. The study was performed by Warc (which may be found at

Contributions to charities also appear to affect the consumer. Of the 1,000 consumers surveyed, 530 reported that contributions to charities would play a role to purchase or not.

In addition, 74 percent were very interested in learning more about the ethics of a firm before making their purchasing decision.

These results are consistent with the blog of June 1, 2011 which discussed the research into the impact of corporate social responsibility on customers.

The bottom line is that companies are no longer just sources of products and services. Customers are seeing them as a component of their environment and are looking for them to actively participate in the local community and society at large.

Saturday, July 23, 2011

Building Trust from the Customer's Perspective

This is the final blog describing the research of Professors Halliburton and Poenaru from ESCP Europe. As a result of their research where they interviewed 2000 customers in the US and UK over a 3 year period, they asked the customers what they would recommend as ways of building trust. Their responses fell neatly into three categories. The responses are listed in order of the number of responses in each of the categories.

1. Improve communications. There were 568 responses that fell into this category. This category includes communication itself in terms of quality and clarity as well as communication transparency.

2. Provide "customer care" or a sense of being "looked after". There were 438 responses that fell into this category.

3. Ensure a high level of competency and professional conduct from employees. There were 241 responses that fell into this category.

There were a number of other recommendations but with many fewer responses. They include:
1. getting the service right
2. admit mistakes and solve them fast
3. provide efficient services
4. improve security
5. reward loyalty more for existing customers.

The bottom line is that there are a number of lessons that can be taken from this research. Here are a few that seem most important:

1. Get your product or service right!
2. Ensure high standards for front-line staff
3. Admit mistakes, apologize and fix them!
4. Improve communications across the board.

This might not be news to anyone. But now we have some research that seems to back up those experiential evidence we have been using to make decisions.

Friday, July 15, 2011

Drivers for Loyalty and Trust

Carrying on the results from the research reported by Halliburton and Poenaru from ESCP Europe, they examined what they believe are the drivers of trust (and loyalty). They divided the drivers into their framework of emotional trust and rational trust.

Their main observations suggest the following:

The most important influencing factor of EMOTIONAL TRUST is rational trust, followed by front line employees, management policies and marketing communications.

The most important influencing factor of RATIONAL TRUST is front line employees, management policies and satisfaction with previous experience. The breakdown of these factors as they have derived them with their associated weights are:

1. Rational trust - 56%
2. Trust in front line employees - 16%
3. Management policies - 14%
4. Trust in marketing communications - 9%
5. Trust in self-service technologies - 5%

1. Trust in front line employees - 21%
2. management policies - 19%
3. Trust in marketing communications - 18%
4. Trust in past customer experience - 18%
5. Trust in self-service strategies - 15%
6. Reputation - 9%

Perhaps the most important observation is that rational trust plays the key role in customer trust. Emotion trust does not appear until some form of rational trust is achieved.

Recall that this research was done for only three industries in the US and the UK; namely banking, insurance and mobile communications. For that reason, these findings must be tempered with the understanding that they may not apply to other countries or other industries.

The bottom line that we can take away from these drivers is a research base that is logical and backed by a structured experiment. We have a starting point.

The next blog based on this research is a customer perspective of what could help build trust. If this research is valid, the customer perspectives noted in the next blog should mirror these research results.

Wednesday, July 13, 2011

Loyalty is Built on the Three Dimensions of Trust

This is the third in a series of blogs taken from the research of Professors Halliburton and Poenaru from ESCP. The previous blog discussed trust as having two components; namely rational and emotional trust. The research takes these factors the next step by introducing three complementary dimensions of trust built on these factors; namely competence, integrity and empathy. Based on the previous blog, the first dimension would be considered rational trust and the second and third dimensions could be considered emotional trust.

Each of these dimensions can be defined as follows:
COMPETENCE could be considered as the ability shown by the company demonstrated by its personnel.

INTEGRITY is another word for honesty which builds confidence that the actions of the company are true and correct.

Another word for EMPATHY is concern. The companies that show personal concern for their customers take a major step to showing their customers that they are more than a source of revenue.

From these three dimensions the answer to loyalty can be seen to be more than a simple one-dimensional measure. Any measure of trust needs to be reviewed with these three components in mind. While there is no current research that demonstrates that these dimensions are independent, intuitively they appear to have little overlap and hence may, indeed be independent.

Some of the results that have been discovered from their survey between the US and UK include:
1. USA tends to score higher than the UK when looking at banking, insurance and mobile telecommunications
2. Older customers are generally more trusting.
3. There were no gender differences in trust.
4. Part-time and self-employed individuals showed the lowest levels of trust. Retired workers showed the highest levels.
5. Education level had virtually no effect on trust.
6. The length of the relationship between the customer and the company had only a weak correlation.

In any case, measures of loyalty need to include measures of these three components in order to better understand trust. Rather than focus only on top boxes for a loyalty measure, it might be worthwhile to consider adding questions that incorporate these three measures.

The bottom line is that loyalty and trust are becoming more and more important to long-term success of companies. Companies need to consider the research that is being done and incorporating those aspects of the latest research that they believe will improve their understanding of their customers and ultimately add to their long-term success.

Thursday, July 7, 2011

Rational and Emotional Trust

Companies seem to agree that trust by the customer is the holy grail of customer relationship. All companies that measure customer attitudes are measuring trust either explicitly or implicitly. The researchers identified in the previous blog have noted that the main benefit of trust is customer loyalty which then leads to longer term relationships, greater share of wallet and higher advocacy of word-of-mouth. Their survey results indicated that trust drives between 22% and 44% of customer loyalty. The other major driver of customer loyalty is the satisfaction with previous experiences with the company.

The idea that trust has two components makes sense; especially as they are defined.

Rational trust is based on the process the customer follows to assess an organization's intention and ability to keep promises, by identifying guarantees in term of competencies, and predictability of behaviors.

Rational trust would include the following aspects: Knowledge, Competence, Ability, Reliability, Predictability, Creditability and Dependability.

Emotional trust is based on the process the customer uses to evaluate a company according to the qualities and characteristics that show concern and care as well as their willingness to compromise beyond the profit motive.

Emotional trust would include the following aspects: Empathy, Feelings of security, Benevolence, Good will, Personal beliefs and Altruism.

Many sales and marketing executives have noted in non-published discussions that many decisions are not rational. In fact, customer decisions probably consist of both rational and emotional trust. A good example is the decision to purchase a car. The basic need is transportation and yet the emotions often lead us (including me) to add many options that are not easy to rationalize. The care of the salesman or the understanding of the service manager will often play a significant role in supporting the trust. Thus, the trust developed during the purchase of the car includes components of both rational trust (knowledge, reliability, etc.)demonstrated by the product and dealership and emotional trust (feelings of security, empathy) provided by the salesman.

The bottom line is that trust is, as previously stated, the holy grail of relationship management that every company seeks. We can call it customer satisfaction, loyalty or any of a number of names but it all boils down to trust. Do my customers trust me? That is the real question we need to answer.

Wednesday, June 15, 2011

More About Trust

Two professors from ESCP Europe Business School have published a comprehensive review of the business and academic literature along with a survey of 2000 consumers in the US and the UK. Their findings are worth taking some time to report and interpret. The title of their report is "The Role of Trust in Consumer Relationships."

Their research focused on banking, insurance and mobil phone network companies and included interviews with executives in these businesses.

As a beginning consider some of the statistics they uncovered.
1. 32% of consumers trust international companies and 13% trust advertising compared to 48% trusting their friends, work colleagues or neighbors.
2. 90% of consumers trusted recommendations from friends and 70% trusted consumer opinions posted online.
3. The Edelman trust indices show that banking, media and insurance organizations score 21%, 23% and 41% respectively compared with 74% or technology and 57% for retail.

The bottom line is that customer relationship management has been centered on one or one-to many interactions with customers. This has changed with the digital communications media which now provides multi-channel relationship management. Companies can no longer afford to manage all the possible media that is available to their customers. Thus, trust appears to be gaining in importance as a way of building trust-based relationships that transcend the multi-channel media.

This report will be further discussed in future blogs.

Tuesday, June 7, 2011

Customer Satisfaction Impact on Purchase Intent

The annual survey performed by ForeSee Results provide evidence of the relationship between customer satisfaction and purchase intent. The annual survey results are based on more than 22,000 visitors to the top 100 e-retail web sites. (The top web sites are defined by sales volume as reported in the 2011 Internet Retailer top 500 Guide).

The report shows that when compared to dissatisfied visitors, highly satisfied visitors to the retail websites are:

1. 68 percent more likely to purchase online
2. 46 percent more likely to purchase offline
3. 61 percent more likely to purchase from the retailer the next time they are in the market for a similar product (based on likelihood scores).

The bottom line is that the statistics continue to demonstrate that companies that pay attention to customer satisfaction increase their likelihood of increasing their sales more than other companies.

Wednesday, June 1, 2011

Loyalty Impact of Corporate Social Responsibility

There is an interesting study documented by two professors at the Tuck School of Business at Dartmouth College. The authors Kusum Ailsesfi and Jackie Luan collected data from more than 3,000 grocery shoppers. Their objective was to determine if Corporate Social Responsibility (CSR) performance correlated with financial performance. They measured customer perceptions of the retailers' CSR on four dimensions as well as other variables including price, quality, etc. The results are noted below:

The first dimension is CSR performance (which included environmental friendliness, treating employees fairly, community support, sourcing from local growers and suppliers) all showed positive influence on customer's attitudes toward the retailer.

The second dimension is the economic return which is significant. If the retailer is able to improve the customer's perception of the company's CSR activities there was a gain of approximately 1.7% of share of wallet. This could translate into a sales lift of 10% to 15% for the average retailer in the study.

The third dimension is the price impact when higher prices were considered rather than higher share of wallet. The researchers found that a one-unit increase in customer perceptions of employee fairness translates to a price premium of about 12%. A similar increase in local sourcing of products translates to a price premium of about 16%.

The fourth benefit of CSR is that customers appear to patronize the company because they see personal benefits from the CSR initiatives and because the initiatives resonate with their own values. While high prices may be considered bad, they are considered fairer if they can be attributed to good motives such as CSR efforts. The researchers found that the perception of employee fairness accrues as much as 15% increase in share-of wallet.

The bottom line is that this research is showing that CSR is perceived positively by consumers. When consumers see that companies are spending their money on activities that reflect their own personal values, they appear to be willing to respond with their wallet. You might say that companies will can do well by doing good. The best news is that when companies participate beyond their walls everyone seems to benefit.

Saturday, May 7, 2011

Smart Services Impact on Satisfaction and Loyalty

The Customer Institute does not usually editorialize. Rather, the emphasis is on research findings that can be translated into improved satisfaction and loyalty performance by companies. However, with the rapid advancement of web technology and usage, the following comments are offered without supporting research.

As the web emerges as a secure platform for delivering products and services, the customer experience is also changing with it. The technology has given the customer an almost instantaneous access to companies. This access includes both products and services. We see advertisements that show customers doing real-time comparison shopping. Prices are being compared even as the customer enters a store.

While real-time comparison shopping for products is here today, there appears to be an obvious next step that customers are sure to take; namely, seeking more immediate services. We have all lived with companies asking us to wait for service. Often the wait includes either a multi-day wait or at least a multi-hour hour wait. The customer is expected to be available and wait for the service rather than have the service available and eliminate the customer wait.

With this immediacy of access to companies to request service and compare service availability between service providers, there is a possible new paradigm for service delivery that represents an opportunity to improve market position by companies who provide services. The company that can develop a service operation that can respond to this instant access may be able to gain customers and simultaneously improve margins on their services.

We believe, the bottom line is that the web is changing the company-customer relationship. The power of the web enhances the power of the customer by giving the customer instant access to multiple companies when seeking service. While some companies may see this as a loss of power, the wise companies will find ways to reposition their service offerings to capitalize on this next generation customer.

Research has generally shown that the longer customers wait the more likely it is that customer satisfaction and loyalty will be adversely affected. Call centers know that satisfaction is reduced dramatically when a customer waits. The same is true for on-site service and even for car repairs. Yes, most everyone expects to wait at the doctor's office or the dentist's office. But, the last place we want to wait is the emergency room at the hospital. But these may also begin to change when the customer is given choices (if the President doesn't take those choices away).

Thursday, April 21, 2011

When Is It Time To Say Goodbye to Customers?

There is interesting research being done to understand when and why should some customers be divested. Some of the work was documented by Mittal, Sarkees and Murshed in the HBR issue of April 2008. They categorized four critical reasons why companies might want to divest themselves of some of their customers.

The first, and most obvious reason, is profitability. Some companies find it easy to assess the profitability of a customer and hence can make the decision quickly. On the other hand, some companies may use analytical models to examine long-term customer value to find the customers that no longer provide the long term return that was originally expected. Insurance and finance companies may divest customers whose risk for massive losses might exceed company guidelines. This occurred in 2005 when Allstate Insurance and Nationwide dropped 95,000 and 35,000 respectively in Florida fearing future losses due to hurricanes. Filene's basement in Boston banned some customers for excessive returns.

The second reason is to increase employee productivity that may be reduced by obnoxious customers that may have a negative impact on the employees to the extent that some may resign to avoid further confrontations. This also occurs in professional organizations when clients work the company employees assigned to them too hard or that the client could never be pleased which required unreasonable amounts of rework.

The third reason is capacity constraints that may occur. Companies may underestimate customer demand or the effects of new regulations or environmental forces. This could occur as imply as the limitation of available skills when a new product or service is announced. The Sarbanes-Oxley act significantly increased the time that employees had to spend on compliance matter and consumed all the available resources to the point that some companies simple didn't have enough manpower to serve all their customers.

The fourth and final reason is that some companies see customer divestment as a consequence of changing business strategies and products. When the company decides to stop offering some products or services the lose the ability to serve some of their clients that depended on the dropped products and services. It may be as dramatic as divesting an entire business unit. Another way this might occur would be if the company had made a strategic mistake in the past and in the process of correcting the mistake had to drop one or more product lines or divisions.

The bottom line is that customers are not forever. Just as products and services need to be reviewed and upgraded or replaced to adapt to market changes, so must companies assess their customers.

Friday, March 25, 2011

Is There a Better Measure for Customer Value?

The Customer Institute has long believed that one of the better measures of a customer is the customer's Lifetime Value (often referred to as the CLV - Customer Lifetime Value). Now a group of professors has offered an alternative to CLV which they refer to Customer Equity (CE).

They pose the argument that CLV focuses only on existing customers and ignores the notion that companies often have a significant number of potential customers that will ultimately be acquired and produce cash and add value to the company. The CLV argument is that CLV represents the upper bound of what a company should be willing to spend to acquire a new customer. Thus, the CLV argument looks at one customer at a time and ignores potential customers.

There is a strong argument, that potential customers also have value; otherwise, why chase them. While companies often say they want loyal customers, and they really do, those same companies will spend most of their marketing money trying to capture new customers. If that is the case, then a model that attempts to capture those potential customers into its measure of customer value has a valid point from our perspective.

The CLV model is particularly appropriate for evaluating individual customers and can compute the total customer value based on the individual customers in the customer base. By continuously monitoring this LTV companies can detect trends in their long term customer value (which may be particularly important if the company is looking to be acquired).

The use of the customer equity model brings the future into the perspective of the value of the customer base. Of course, the concern would be how does one decide when a potential customer should be included into the calculation. There are many who would argue that such an inclusion could lead to erroneous assumptions of which to include and may end up leading to a complete distortion of who the real potential customers are and their value to the company.

While the CLV method brings a measureable quantity that can be reproduced, it certainly undervalues the customer base by excluding those potential customers. On the other hand, customer equity brings a higher value to the customer base but includes some assumptions that may ultimately be misleading.

The bottom line is there needs to be further clarification of what characterizes a potential customer that is unambiguous and repeatable. It will be interesting to watch how these metrics evolve and which one will ultimately dominate.

Thursday, March 17, 2011

Loyalty Begins with "T"

While The Customer Institute continues to seek quality research in the areas of customer satisfaction and loyalty, there are times when a little diversion may lead to some new ideas on the subjects. This blog will focus on a different concept for customer loyalty; namely, looking at a business process that might provide a path to customer loyalty.

The process is one that we often use and may not be aware that such a process can be accurately labeled. The concept is that there are three Ts that often lead to better relationships.

The first T is transparency. By transparency we mean that there are no secrets between the customer and the company. The company (and all the best salespeople) make sure that the customer is completely aware of all the facets of the relationship.

The second T is trust. As the customer and the company become aware of the completeness of the transparency, trust follows. It is very difficult to build trust between a company and its customers if there is no transparency. Without transparency, there is always a lingering doubt about the true relationship. (This is not being offered as a guide to personal relationships between two individuals).

The third T is truth. With knowledge of complete transparency and trust, both the company and the customer are usually willing to tell the truth. The likelihood of getting the truth without these previous conditions (transparency and trust), is small.

The bottom line is loyalty does not come quickly nor should it. Loyalty often implies a sharing relationship. These three Ts appear to offer such a foundation for a strong relationship which could become the basis of the sharing relationship that will lead to loyalty.

Wednesday, March 9, 2011

Money Isn't Everything

In reviewing some older research there was some interesting research documented in 2004 by Xavier Dreze and Joseph Nunes regarding the concept that loyalty points are often worth more than money. (Using Combined-Currency Prices to Lower Consumers' Perceived Cost"). They postulate that "combined currency-points" transactions may have more appeal to customers than money or points individually.

They point out that there hasn't been much research on the underlying principles that make a loyalty program work of not work for a firm. The authors of the research examined different kinds of currencies that consumers can accumulate and spend. Consumers generally have points gathered from airlines, hotels, car rentals and individual credit card points. The hypothesis behind the research is that there may be a best combination of points and currency that would be more appealing to the consumer than using either one separately to purchase additional products or services from the firm.

The authors present a mathematical proof that outlines the conditions under which a price delineated in multiple currencies (points and dollars) can be superior to a single method of payment. One of the outcomes of the research was the combined currency pricing can bring in more revenue for a company and pricing can either lower the psychological or perceived cost associated with the pricing scheme or raise the amount of revenue collected given a perceived cost.

Another interesting outcome was that consumer preference for the combined currency indicated that each point or dollar spent is not valued equally. They conclude that it would be preferable for a company to charge a combined currency when two conditions exist; namely, the consumer does not value each unit within a currency equally and the perceived cost function of one of the currencies is "convex." Convexity implies that the value of one of the currencies is not linear. Using airline miles as an example, the number of frequent flier miles for a free flight is worth more than twice the value of one half the number of miles for a free flight. If it takes 25,000 miles to get a free flight, that is worth more than twice the value of having only 12,500 miles. This seems to be true since people don't appear to value miles or points the same way they value money.

The bottom line is we get a first glimpse into the psychology of point value versus money from this research. Although many researchers would not think about finding a model that maximizes consumer satisfaction with a loyalty program by mixing reward points with currency to get a "best" solution, there is now some evidence that such is the case. When both the company and the consumer win in a transaction that includes the loyalty program, we are taking another step to demonstrate the value of loyalty programs.

Saturday, February 19, 2011

Scales Make a Difference

There is an article in Quark's marketing Research Review in January written by Kristin Cavllaro. The article is titled "Are global scales as easy as 1-2-3 or A-B-C? The point of her article is that scales make a difference when we are dealing with cultures outside the US.

We normally assume that when we use a survey in a global market, the respondents in the various markets will respond the same as those respondents in the US. According to Ms Cavallaro, that is not true. The article is based on a seven country study which tested the five-point Likert scales in two different manners. The study was performed by Survey Sampling International. The first set of questions used a verbal scale in which all points were described as words. The second set used the same questions but presented the answers as a numerical scale where only the first and last options were anchored or defined. The questionnaire included six different sections; namely,
1. self-comparison to set reference groups
2. women's rights
3. importance of cultures and traditions
4. dependent versus independent thought processes
5. public appearance
6. acceptance/likelihood to purchase a new product concept.

The countries included in the study were the United States, UK, Italy, Japan, China, Brazil and Mexico.

The conclusion drawn by the study are too many to include in this short blog; however, many of the study results are noted in the article. The key result of the study is that the scale does make a difference. Culture has a significant influence on the way people respond to scales. Teh results from Brazil indicate that numeric scales appear stronger than verbal scales. On the other hand Italy, Japan, China and the UK perfromed better with the verbal scale than the numberic. In this case better means a higher score than the data from the numeric scales.

The second major finding was that the difference between the results using the two scales were statistically different. There is a "however" and that is that it is not clear that there is one "best" scale. The validity of the results are not limited ot one scale. In other words, neither scale can be shown to be more correct or true.

The bottom line is the way we use the Likert scale may make a diffrence in the responses on a survey when we are taking measures in multiple cultures. There is no scale that will always out-perform the others. Cultural variations are important and we must continue to accommodate or, at the very least, explain them in any survey that includes other cultures.

The use of scales seems like an automatic and something we should not have to worry about. As it is turning out, the scale may be a new source of error that lead to incorrect solutions. The Customer Institute will continue to follow research in this area.

Wednesday, February 16, 2011

Putting Personal Concern into a Loyalty Model

In the previous blog a thought model of customer loyalty was posed that consisted of three components; namely, ability, integrity and personal concern. The blog closed with the note that this blog would provide further information about the concept of personal concern.

While there may be many ways to describe personal concern, the following four components are suggested as necessary.
1. In the customer relationship one of the most important aspects of having a personal concern is to be able to restrain your desire to speak. The concept of "holding your tongue" when a customer is either asking a question, offering a suggestion or issuing a complaint tells the customer that he/she is being respected. One of the fastest ways to disrespect a customer is to interrupt when the customer is talking.
2. The second aspect is the idea of putting the customer first. One might call this meekness. By showing the customer that the "the customer comes first" is demonstrable evidence that the customer really is important. Too often, employees will demonstrate their knowledge to the customer in ways that may actually be saying "you are not very smart and you really need me." One of the best approaches to building loyalty is to be humble even though the customer may know very little or may be totally wrong.
3. The third aspect and equally important as the first two is listening. We can often hold our tongue and be humble without listening. Until you focus on listening to the customer you will not really know what the situation is all about and therefore will not be able to provide the best solution to the customer's concern.
4. Finally if you have "held your tongue", remained humble and listened the final step is to help. You cannot provide the best help until you have been successful in the first three aspects.

Each of these four aspects of dealing with a customer builds loyalty because in each step trust is being created and with that trust will come loyalty.

The bottom line is that most loyalty models focus on the first two components of loyalty; namely, ability and integrity. Without the third component the loyalty is built on sand. The rock on which to build customer loyalty is personal concern.

Monday, February 14, 2011

An Interesting Thought Model for Loyalty

I ran across an interesting model for loyalty that makes sense. I am not sure how I would apply metrics to the model but intuitively I like it. It's one of those models that feels good in your gut. The model consists of three components. I am not sure that each component gets equal weight - but that really doesn't matter until we define the metrics.

The three components of the model are:
1. Ability - in order to develop loyalty one must have the ability to provide the product or service. Of course the quality must be adequate for the product and/or service.
2. Integrity - the provider must maintain a high level of integrity. This means the product/service must be provided with honesty and consistently offered on a morale and ethical base.
3. Personal Concern - the provider should show concern for the customer in a personal way. This is nothing more than building a relationship with the customer and showing specific concern for the individual customer.

Most loyalty models seem to focus on one or more of the three questions; namely, overall satisfaction, willingness to repurchase and willingness to recommend. The surveys often will focus on ability of the organization and sometimes will examine the integrity of the business relationship.

The beauty of this model, albeit its shortcoming of not having a clear set of metrics, is the addition of the personal concern component. One of the most often cited concerns of customers is what I refer to as the "big company syndrome". The company providing the product and/or service is too big to be concerned about me. That "me" might be a clerk in a very large organization whose job function is to recommend particular suppliers and yet gets a feeling that the people he/she deals with have no personal concern for him/her. The point I am making here is that the feeling that I am not important can be coming from within a large company just as well as an individual customer.

The bottom line is that most of our loyalty models today focus on ability and integrity but often ignore the personal concern which is one of the three building blocks of loyalty. it is time to add the personal concern factor into our loyalty metrics.

The next blog will focus on how to build the person concern into your strategy.

Saturday, January 22, 2011

The Impact of Name Badges on Customer Satisfaction

Research into customer satisfaction is uncovering some very interesting results. A study of 116,000 mystery shopper reports in the UK, Australia and New Zealand by independent research uncovered that name badges can increase customer satisfaction by 12%. They concluded that by making sure employees are easily recognizable helps to create a warm, friendly and professional atmosphere.

The study was carried out by mystery shopping and customer experience experts Shopper Anonymous ( They found that when a range of businesses introduced name badges for all staff, customer satisfaction ratings rose by 12% almost overnight in comparison to those that didn't require staff to wear badges.

It appears that customers wanted staff to be wearing badges so they could distinguish between staff and other customers and said they trusted staff wearing name badges and were more likely to build up a relationship conducive to making a sales with someone who wasn't anonymous.

John Bancroft, managing director of Europe's largest name badge manufacturer thinks the choice of design is an extra opportunity to help boost your brand. "We can manufacture customer-made bespoke name badges, in line with a company's corporate identity." According to John, "it is very rare to go into a quality establishment these days and find staff are not wearing name badges. The benefits are clearly proven."

While the words of the badge manufacturer may be expected, the dramatic increase of customer satisfaction based on a study of such a large magnitude supports his notion.

The bottom line is that simple things, such as a name badge, that help make the customer shopping experience easier seems like a no-brainer.

Thursday, January 13, 2011

Six Sigma Impact on Customer Satisfaction

There is an article in the Ezine/ that is titled "Increase Your Customer Satisfaction with Six Sigma". The article is brief and seems to make the point that the process of eliminating waste and boosting productivity has a direct relationship on customer satisfaction. While The Customer Institute agrees that eliminating waste and boosting productivity will have a positive impact on costs, the relationship to customer satisfaction is far from being clear.

One can make the case that eliminating waste and boosting productivity can reduce the costs of call center operations but will also have a negative impact on customer satisfaction. In general,maximizing productivity in a call center will have the opposite impact on customer satisfaction. Imagine a call coming in and the agent on the phone minimizes the time dealing with the customer. It is likely that the customer is going to have an decreased satisfaction with the company. The customer service industry knows from experience that there is a balance between productivity and time with the customer. Often when a customer calls in and the call is minimized, the likelihood of a call back increases dramatically thus increasing costs and reducing productivity. Probably the worst case would be to have a customer wait on the line for multiple minutes and then have the agent be friendly but very brief.

This scenario of balancing time with the customer and productivity works for almost all service-oriented businesses. Service executives have learned that each customer contact requires solving the customer problem (sales or service) and making sure the customer believes his reason for the contact has been met. There have been a number of studies that have shown that taking extra time with a customer not only increases customer satisfaction but also builds a customer relationship that increases the likelihood of additional business.

Nordstrom is an excellent example in the retail market place for the positive impact of taking extra time and not worrying about productivity. Sears is an example of a retail operation that worried maybe a little too much about productivity. Costco is a story unto itself and requires a separate blog.

The bottom line is that six sigma might work well within the brick walls of a factory but when dealing with customers directly, being lean and boosting productivity is not the solution.

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