Saturday, December 29, 2012

Customer Experiences are Relative

Dr. Howard Lax wrote a blog on November 7, 2012 which he titled Customer Experiences and the Theory of Relativity.  The key point of his article is that we evaluate the world through the lens of comparisons. He makes an excellent point when he states that whatever the experience may be, our recall, reflection, and/or evaluation of the experience always is relative to some frame of reference.

These statements by Dr.Lax are consistent with the the preferred definition used by the Customer Institute which says: "customer satisfaction occurs when the perception of the reward from the purchase of goods or services by the customer meets or exceeds his or her perceived sacrifice. The perception is a consequence of matching past purchase and consumption experience with the current purchase."

There are simpler definitions of customer satisfaction, which are often used but which do not have the value derived from the definition above. Four other definitions that are often used are:
1. Customer satisfaction is equivalent to making sure that the product and service performance meets customer expectations.
2. Customer satisfaction is a perception of the customer that the outcome of business transaction is equal to or greater than his or her expectation.
3. Customer satisfaction occurs when the acquisition of products and/or services provides a minimum negative departure from expectations when compared with other acquisitions.
4. Customer satisfaction occurs when the marginal utility of a transaction is equal to or greater than preceding acquisitions.

There are several observations that follow from the Customer Institute definition; namely,
1. The comparison between past purchase and consumption experience must make sense. it is difficult to compare the purchase of the computer with the purchase of a wristwatch. Often we do not have a realistic context or frame of reference  for making a comparison, so there may be occasions when the customer will actually compare  "apples to oranges".  That's just the way we are.
2. When thinking about customer experiences, it must be remembered that there are no absolutes.
3. When evaluating customer perceptions, especially in customer surveys, it is critically important to establish measurement scales that accurately describe them.

The bottom line is to remember that customer satisfaction and customer loyalty measurements are all relative. There is no absolute scale for satisfaction, nor is there an absolute scale for customer loyalty. Surveys of customers and measurements taken from those surveys will always reflect the customers perception relative to their past purchase experiences. It is not unreasonable to conclude that much of the variability in customer's. responses to survey questions is often times due to these experiences.


Saturday, December 22, 2012

Customer Communications

Customer language may not be what you think it is. We think we know our customers language when we communicate with them. That is not always the case. In communication with customers, companies believe that the customers understand what they are saying. Since communication is in two directions, the assumption is that the company understands what the customer saying and the customer understands what the company is saying.  The purpose of this blog is to examine the assumptions of the communications between the company and its customers.

Company Communication
Companies communicate with their customers from various organizations within the company. The sales organization has one type of communication. The customer support organization has another type of communication. accounts receivable organization will have another type of communication. The shipping department will have still another type of communication.

Each of the company organizations will have different vocabularies. In addition to these vocabularies there may be internal jargon that is unique within the company. It often occurs that internal company jargon will find its way to the customer. In fact, the employee may forget what it's like being without the specialized knowledge that they have acquired while working for the company.  The jargon may be unique for each organization within the company, as well as having jargon that may be used consistently throughout the company. One example of different vocabulary from one department to another is the sales organization may refer to a product by a name created for advertising purposes; while on the other hand, accounts receivable may refer to the product by its product number.

Unfortunately, customers may be communicating with more than one organization at the same time. The likelihood that the communication from the company to the customer from each of these organizations will be consistent and understood may not be at the level of company expects. Sometimes the hand-off from sales to customer service can create problems for the customer.  This particular communication problem may be as simple as matching expectations given by the sales organization to the performance being supported by customer service.

The final complexity occurs as companies expand into multiple areas that may have additional challenges in terms of culture and language.

Customer Communication
Customers come in all shapes and sizes for both B2B and B2C. Of course, the range of customer types for B2C is much greater than B2B.  In either case.a wide range of communication skills from the customers can be expected.

Customers have their own jargon.  Customers also have their own vocabulary and often their own definitions of the words they use, which may or may not track dictionary definitions. Many of the problems that occur between customers and companies arise from the communication and lack of consistent definitions between the two.

The Solution
Most companies do not realize this is a problem. Most companies believe their customers always understand the communication from the company. They also believe their employees always understand all customer communications. It is easy to conclude from the preceding discussion that these beliefs or assumptions are false.

The first step of the solution is to recognize that there is a communications problem.

The second step of the solution is to identify internal jargon and that must be eliminated from the communication to the customer.

The third step is to train all personnel that interface with customers to use a common language.

The fourth and most difficult step is to train all personnel that interface with customers to be aware of the communications variation from customer to customer and how to handle it.

The bottom line is that customer communication is imperfect. It is not just the company nor is it just the customer. The communication problem extends in both directions. If a company wants to increase customer satisfaction and customer loyalty it must first reduce communication errors.

Saturday, October 6, 2012

What is a perfect metric?

An article published in customer relationship management August 2012 edition was titled "in search of the perfect metric". The author starts by saying a perfect universal customer metric does not exist. The author Mr. Patrick Gibbons at Walker provides two reasons customer metrics fall short.

The first reason a metric fails is that the metric is not aligned to the business goals of the company. He notices that often it is because the metric is a popular one or one that may be touted in the literature or a book but has no connection with the business. Snce the metric doesn't track business , it often fails to predict customer tendencies.  The second reason offered by Mr. Gibbons is that the metric is not used effectively.  He suggests the employees often see a metric merely as a rating as opposed to a guide for improving the quality of decision-making.

He suggests that a metric can only be effective if the following steps are taken successfully. The first step is awareness, which required that employees must become familiar to the metric. The second step is understanding, which means that employees must understand how the  metric works and how they are use it. The third step is belief, which means that the employees need to believe that the metric is valid and will be a useful tool. The fourth and final step is action, which will never happen if the first three steps are not taken.  The fourth step translates the metric so that it will either guide some form of process improvement or will validate the successful operation of the current process.

 Mr. Gibbons concludes there is a perfect customer metric. He suggests that this is the one that aligns with your business and is put to use in productive ways.  This is where Mr. Gibbons and the Customer Institute part company. 

It is the belief of the Customer Institute that there is no perfect customer metric.   We believe that no metric can capture all aspects of every customer being measured.  The metric can become a major measurment trap.   Management will eventually believe that the metric is everything.  This will lead to additional metrics when that perfect metric shows negative results. If/when those secondary results continue to show decline then more metrics will be added.  Eeventually you become surrounded by metrics and have lost sight of the customers in the maze of numbers.

The bottom line is there is no perfect customer metric!  I don't believe that in my lifetime we will develop a metric that totally captures the customer.   When that day comes, if it ever comes, businesses will easily be run by robots and at that time all the customers will most likely be robots.

Friday, August 17, 2012

Some Thoughts about the Meaning of Loyalty

As I read many blogs and articles in the journals and the newspapers the loyalty is used often incorrectly. I would like to spend several paragraphs offering several possible definitions for customer loyalty. Often the word loyalty is used with the intent that the customer will always purchase the product or service from a specific vendor. This is a leap of faith when one believes that customer will never stray. Consider the following possible definitions for loyalty that, in my mind, make the most sense.

Using the logic of the previous paragraph every purchase that the customer makes will be with a specific vendor. Thus a sequence of purchases To Vendor A would be described as the following sequence: A, A, A, A, etc. This scenario will almost never happen in the real world for many reasons. Some reasons include:
1. Vendor A has an inventory stock out.
2. Vendor A has introduced a significant price increase.
3. Vendor B has introduced a significant price reduction.
4. Vendor B has introduced a replacement product with greater performance.
5. The customer does not want to become restricted to one vendor.

Consider variation on a definition of loyalty to include the possibility that not all product and/or services will be purchased from one vendor. In that case the customer might be considered loyal to vendor A with the following purchase sequence: A, A, B, A, B, A, etc. Under the circumstances the customer is providing major share of pocket to vendor A, but should customer B considered loyal. to vendor A?  Even though vendor A does not capture 100%,  both customersA and B may still be considered loyal.

How about the measure of customer loyalty that considers a customer to be loyal if the customer scores a 9 or 10 on a 0 to 10 satisfaction scale.  What is the logic that supports the notion that because the customers are satisfied the customer must also be loyal?  The NPS Measurement system would identifya customer scored either at nine or 10 as a promoter .   A promoter, according to the NPS system, is a customer who acts like a loyal customer in that the customer promotes the company or product for which he has scored a 9 or 10.

There is another indication of loyalty that is often used. In this process a loyal customer is defined as a customer that scores a 10  on a 10 point satisfaction scale,  a 10  on another 10 pint scale that measures the likelihood the customer will buy again, and a 10 on still another scale that measures the likelihood that the customer will recommend the company or product.  If the customer scores the maximum value of 10 on all three scales the customer is considered a loyal  customer.

The bottom line is there is no one definition in the market today that everybody agrees defines a loyal customer.  As noted in the preceding paragraphs there are many ways of defining loyalty.  The conclusion at this point in time is that customer loyalty is something that every company strives to achieve for those customers that represent value for them. The next several blogs will focus on the other customer states noted previously.

Saturday, July 28, 2012

Some Thoughts about Average Satisfaction Scores

The Customer Institute was recently at a conference regarding customer satisfaction and loyalty. The topic of average satisfaction came up. As it turns out many of the companies represented at the conference use measurements of customer satisfaction and specifically they use measures of average satisfaction without considering the fact that customers exist in many states. This blog will examine one way to provide granularity to the customer base.

This is a partial discussion of the presentation made at the conference by the Customer Institute. The focus of the presentation was to provide an analogy between inventory and customers. The major point of the presentation was to show inventory has different values depending on its state and the same holds true for customers.

Inventory can be described as having the following characteristics:
1. Raw material
2. Work in process
3. Need to repair
4. Scrap
5. Finished goods.
The analogies between these states of inventory and customer states are described in the following paragraph.

The customer analogy to raw material inventory is a potential customer base. Similarly, the customer analogy to work in process inventory is a new customer in which value is being added with each encounter. The customer who has a problem with either the product or the service would be analogous to a inventory that is in need of repair. There are some customers that no longer offer a good fit between the customer demands in the product or service the company is providing. These customers have the same characteristic is scrap material. The fifth category, finished goods, is equivalent to the loyal customer.

The preceding paragraph gives an indication that old inventory and customers have multiple states. When a customer satisfaction measurement is taken is often an average of the satisfaction for customers in all the states combined. While in averages and indication of something it certainly is not a metric that provides management direction other than "feel-good" or "feel-bad."

The bottom line is that the customer satisfaction metric when used as an average for all customers measured, confounds the satisfaction metric for each state. It is only when the satisfaction level is measured for each customer state can management optimize them properly allocate resources.

I'll expand this discussion in future blogs to point out some of the ways in which customer metrics can be tuned to a different customer states as they relate to inventory.

Saturday, July 21, 2012

Vendor Relationship Management

In the Saturday issue of the Wall Street Journal and the section "Review" there's a wonderful article about "The Customer as a God." The key point the author is making that with the advent of social media the customer is becoming stronger and stronger and, in fact, there may be a movement away from CRM which is Customer Relationship Management to VRM which is Vendor Relationship Management. The idea that companies will manage the customers may be evolving to the point where customers will be managing their vendors.

The time is quickly arriving when the availability of information on the Internet about companies will be so comprehensive that individual customers can quickly and accurately determine the best place to make purchases. The author of the article Mr. Searls is the author of "The Intention Economy: When Customers Take Charge" which was published by the Harvard business review press. The implications of this idea will ultimately have a profound effect on what we currently mean by customer satisfaction and customer loyalty. No longer will companies be the dominant force in the company/customer relationship. The customer will become the dominant force and will make decisions based on a greater set of data but also instantly available data.

It is not clear what the bottom line is for this perspective of changing the customer/company relationship. Perhaps the limiting factor for the time to make this transition will be the customers.

Monday, July 2, 2012

Referral Performance Score

Aite Group,a research firm has developed a new metric they have called "referral performance score. This metric tracks the percentage of customers of financial institutions recommend other customers and who may increse their own account balances and add new accounts.

The Aite Group suggests that this new metric, (the referral performance score, "RPS") is an improvement over the net promoter score (NPS). This new metric goes beyond intention and measures customer actions. They note that the new metric combines both growth and referral behavior. Since it is based on behavior Aite suggests that it provides a more accurate measure of customer loyalty. Their new metric were developed from the following industry statistics:
1. The percent of customers who referred new customers.
2. The percent of customers who grew thier relationship with the institution.

For example Aite surveyed 1115 consumers and found 5% referred their financial institution and grew their accounts in the year ending March, 2012. On the other hand 47% referred their credit unions compared to 32% who referred a large bank. They also found that 7.5% of credit union customers grew their assets.

The referral performance metric is computed by multiplying the percentage who refer the bank by the percentage who grew their assets. An example is the credit union with 47% referral and 7.5% grwoth in assets. This yields a referral performance metric of 47 times 7.5 which yields a score of 352.5. The range of values for the referral performance score is 0 to 10,000. I am not sure what 100% referrals means since a custoemr can provide more than one referral; but I think 100% of customers can provide growth iin thier accounts.

The score obviously needs some calibratio so that one can decide what a score of 352.5 means. Is it good or bad? It seems to count all financial institutions the same no matter the size. That may suggest another refinement.

The bottom line is this appears to be a more direct measure of customer loyalty than just intention. This metric has potential but until there is better understanding of the impact of institutional size on the metric and some understanding on what is a reasonable scale, the metric has limited value.

Saturday, June 30, 2012

Did You Ever Hear of the Gettysburg Principles

David Weinberger wrote an interesting article in the Harvard Business Review which describes an interesting perspective of how to build customer loyalty. He offers the question of whether a company meets the Gettysburg principles. From Lincoln's Gettysburg address the question asks for a given business is your business of the people, by the people and for the people?

OF THE PEOPLE means that the company appears to share the same values as its customers. It also appears to treat its employees like individuals rather than numbers. It also has a sense of humor and can admit it is not perfect. Mr Weinberger suggests that Ben and Jerry's does a pretty good job of being OF THE PEOPLE.

BY THE PEOPLE means that customers appear to have played a part in creating it. Wikipedia is just such a company. Customers beleive they are a part of the company even if when they have no ownership.

FOR THE PEOPLE means the company is completely focused on the customer. The company wants to satisfy the customer with every aspect of its business. Apple stores may be a good example of being FOR THE PEOPLE.

It is not easy to provide customers with all the principles to get loyalty. It is possible to gain loyalty by meeting two of the three principles. The good news is that each principle is not a black or white characteristic. That means it is not that you either have it or you don't. There is a range of values for each and a company does not need a perfect score for a principle for it be considered.

Some of the examples that Weinberger are:
1. Amazon provides excellent customer service makes it a company FOR THE PEOPLE. It's openness and the fact that it provides openness of its customer reviews suggests it is BY THE PEOPLE. however, its corporateness does not offer customers a chance to feel that it is OF THE PEOPLE.

2. Craigslist seems to hit all three principles. It seems to have built loyalty even though better technology services have come along because it appears to satisfy all three principles.

3. Google has hit all three in the past. Since it has become a mega corporation it is no longer OF THE PEOPLE and with its increasing interest in putting advertising on the pasges it is losing its ability to be FOR THE PEOPLE.

4. Facebook seems to be clearly BY THE PEOPLE. It no longer feels like it is OF THE PEOPLE or FOR THE PEOPLE. The loss of these two principles may be one of the reasons that Facebook is losing some of the glamor it once had.

These three principle really are another way of stating customer loyalty.

The bottom line is that companies should try to be OF US or FOR US even when it can't be BY US. When a company loses sight of these principles, customers will lose the connection and become vulnerable to competitive offers. When selling on the internet that competitive offer may be only one click away.

Wednesday, June 20, 2012

A New Dimension - Customer Rage

A national phone survey of 10,000 households was completed in September, 2011. The study was performed by the Center for Services Leadership at the W.P Carey School of Business at Arizona State University. The objective was to get an in-depth look at dissatisfaction.

The results of the study suggests that more than 50 million Americans had a problem with a product or service bought with the past year. The study is based on one conducted by the White House in 1976. This study is the fifth wave of that original study.

Some of the findings of the study are:
1. Complainant satisfaction has decreased 2% since the original study.
2. 90% of those complaining in the latest survey say they just wanted to be treated with dignity.
3. 40% believed they were treated with dignity.
4. The percent of respondents who reported experiencing a product or service problem has increased from 32% in the original study through a gradual climb to 45% in the most recent study.
5. The number of angry customers is high but the level of rage has dropped from 68% in the 2003 to 2011 to 60% in the new study.

In this case rage is noted as those customers who were either extremely or very upset.

Some other findings included the following:
1. The biggest peeve is customers lose time dealing with the problem. The average number of contacts required to resolve a problem was 4.4 contacts.
2. 61% of those who complain say the time spent complaining was worthwhile.
3. 88% of those in the new study shared their story with others.
4. 27% of those who complained posted the problem to the Internet.
5. More people posted good experiences to the the Internet that those who posted bad experiences by a margin of two-to-one.

The study indicated that spreading stories by social networking is more than 11 times greater than traditional word of mouth.

Ultimately 47% of those who complained felt they got nothing.

The bottom line is that customers appear to be complaining more and getting little satisfaction as a result of their complaining. Studies in the past have shown that ineffective handling of customer problems may be worse than not responding to complaints at all. On the other hand a well managed complaint can increase customer loyalty. The decision of which is better is obvious. This is not rocket science.

Monday, May 21, 2012

When is a Customer Not a Customer?

It has been a while since The Customer Institute has published a blog. This one is a little different. There is an article on the Opinion page of the WSJ May 21, 2012. The title is "Will Regulators Unfriend Facebook?" It was written by L. Gordon Crovitz.

Mr. Crovitz makes an interesting point about customers that may change the perspective of what is a customer. He offers up a truism "if you're not paying for something, then you're not the customer, you're the product being sold." He is making the point that "customers" who are on Facebook are not really customers, they are the product that Facebook is selling. Facebook sells access to customer information. Of course Google also does the same thing as do many other websites.

When you go onto a website to browse you are essentially building inventory for the website. In this sense we, the "customers", have become inventory. Intelligent but inventory nevertheless. We are no longer customers in this sense. We have lost the power of the customer.

As noted in the article, Mr. Douglas Rushkoff spoke to Betaworks, an internet company in New York: "In the boardroom at Facebook, people are not asking, "How can we find Johnny more friends online?" They are asking "How do we make more money off of Johnny's social graph?"

The playing field for eCommerce is not the same playing field we have become accustomed to in the brick-and-mortar world. It is going to take some time to understand the full ramifications and unintended consequences of this new world of commerce.

The bottom line is that the world of eCommerce is not the same place as the brick-and-mortal world we have known. With the growth rate that we see in eCommerce, it is fast becoming the dominant market place and we must learn how to use it.

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