Bob Hayes, who runs a consulting firm called Business Over Broadway, just released a study of loyalty of wireless providers which is worth noting. Global Market Insite, Inc. provided the data collection and consumer panels. First note the statistics he has compiled from the study of 1000 general consumers in the US that are 18 years or older.
1. 27% of current wirelesss subscribers indicated they are likely to switch to another provider within the next 12 months.
2. 70% of the respondents said they recommended their current wireless service provider to at least one friend/colleague within the past 12 months and 44% recommended to 3 or more.
3. Younger subscribers (18-40) are more likely to switch (30%) than older customers (41+).
4. 69% of respondents indicated their subscriber products are excellent.
5. 66% of respondents indicated their subscriber services are excellent.
6. 61% of Customers satisfied with their customer service rep are more likely to purchase different products and services from their current provider than customers who are not satisfied with their customer service rep (47%)
7. 33% of dissatisfied customers said the most important area for improvement was expanded coverage/better relaibility with fewer dropped calls.
In the executive summary there is a chart which shows the following:
1. 76% of the respondents would recommend their provider
2. 77% would choose the same provider again
3. 77% would purhase the same product again
4. 58% would purchase different products/services
5. 46% would increase the amount of ther purchases
6. 27% would switch within 12 months (noted as item #1 in the preceding paragraph)
I hope I read his chart accurately and interpreted the meanings of the scale properly.
His introductory remark that customer loyalty is a leading indicator of financial growth although unsubstantiated makes sense to me based on a recent article I wrote with my colleague Dr. Darrol Stanley where we showed that a customer focus was one key to financial success and we demonstrated itwith data from 12 industries.
One important aspect of the report is that he descrribes customer loyalty as having two dimensions; namely, advocacy loyalty and purchasing loyalty. He defines advocacy loyalty as loyalty that would lead one to recommend products and services to a friend or colleague. On the other hand, purchasing loyalty has to do with repeat purchases. His conclusion is that one should measure both in order to get a better understanding of your customers.
The good news is that his descriptions of loyalty factors fit very nicely into my four dimension loyalty model (noted in previous blogs). He has identified the loyalty aspect of the products and services as well as the impact of relatioinship. The disturbing news to me is that he has mapped customer loyalty into two dimensions (advocacy and purchase loyalty). By mapping it into two dimensions I think he misses the relationship component, eventhough he identifies it when he describes the impact of satisfaction with the customer service representative. I don't think the relationship component is included in his customer loyalty measures.
The bottom line for me is that this is a worthwhile study but I think the four dimensional model provides a better understanding of customer loyalty.
Saturday, July 28, 2007
Friday, July 27, 2007
Loyalty of the Wealthy
Cogent Research LLC, a Cambridge, Mass, market research company surveyed 4000 mutual fund investors witha at least $100,000 in investable assets. The managing Director, Chris Brown indicated the the funds that are able to generate sufficient long-term returns build strong investor loyalty. Cogent used a scoring system that appears to be similar to NPS. The results of the survey indicated that the Vanguard Group led all others in investor loyalty. Their score was plus 44. The second company was Dodge & Wilcox with a score of plus 29. It should be noted that the average for the funds surveyed was minus 12.
The second factor that seemed to impact loyalty was the ability to communicate their investment philosophies to their end-users. The most important driver noted in the survey however, was consistency of fund performance.
One point of interest was that the average holding period for a stock mututal fund is about 3 years. A pure bond fund averages about 3.2 years.
Another point made is that while fund companies can attract new custoemrs with strong short-term records, they will lose the customers to more reliable long-term performers.
This market seems to focus on the product aspect of loyalty (recall the four loyalty attributes are product, process, relationship and reward - see previous blogs). The wealthy appear to be loyal to a "product" that performs well for them in the long run. Some would equate this type of loyalty to the loyalty of some auto buyers who continue to buy their car based on long-term performance.
The second factor that seemed to impact loyalty was the ability to communicate their investment philosophies to their end-users. The most important driver noted in the survey however, was consistency of fund performance.
One point of interest was that the average holding period for a stock mututal fund is about 3 years. A pure bond fund averages about 3.2 years.
Another point made is that while fund companies can attract new custoemrs with strong short-term records, they will lose the customers to more reliable long-term performers.
This market seems to focus on the product aspect of loyalty (recall the four loyalty attributes are product, process, relationship and reward - see previous blogs). The wealthy appear to be loyal to a "product" that performs well for them in the long run. Some would equate this type of loyalty to the loyalty of some auto buyers who continue to buy their car based on long-term performance.
Monday, July 23, 2007
Interesting Statistics
TARP (Technical ASssistance Research Programs) is a Washington D.C. research firm published some interesting statistics that look familiar. For example,
1. The average business does not hear from 96 percent of its unhappy customers.
2. On average, a customer who has an unpleasant experience with a business will tell about 10 other people, and about 13 percent will tell more than 20 people.
3. A customer who has had a good experience with a company will tell an average of five people.
4. For every complaint received, the average business has an additional 26 with problems, and at least 6 of these 26 are serious.
5. 65 percent to 90 percent of your non-complainers will not buy from you again, and you will never know why.
6. Surveys show that you can win back 54 percent to 70 percent of these customers with problems simply by resolving their complaints.
7. As much as 95 percent of this groupwith problems will become loyal customers again if their complaints are handled quickly.
Many of the numbers noted sound very much like the numbers that Tom Peters (author of "In Search of Excellence", et al) used in some of his lectures. They are a good reminder nevertheless and demonstrate the impact of not solving customer problems.
One simple way of improving these statistics and increasing customer loyalty is:
1. Solicit complaints and make it easy for customers to tell you their problems.
2. Solve their complaints as quickly as possible.
3. Keep records and analyze the complaints to determine patterns or trends.
1. The average business does not hear from 96 percent of its unhappy customers.
2. On average, a customer who has an unpleasant experience with a business will tell about 10 other people, and about 13 percent will tell more than 20 people.
3. A customer who has had a good experience with a company will tell an average of five people.
4. For every complaint received, the average business has an additional 26 with problems, and at least 6 of these 26 are serious.
5. 65 percent to 90 percent of your non-complainers will not buy from you again, and you will never know why.
6. Surveys show that you can win back 54 percent to 70 percent of these customers with problems simply by resolving their complaints.
7. As much as 95 percent of this groupwith problems will become loyal customers again if their complaints are handled quickly.
Many of the numbers noted sound very much like the numbers that Tom Peters (author of "In Search of Excellence", et al) used in some of his lectures. They are a good reminder nevertheless and demonstrate the impact of not solving customer problems.
One simple way of improving these statistics and increasing customer loyalty is:
1. Solicit complaints and make it easy for customers to tell you their problems.
2. Solve their complaints as quickly as possible.
3. Keep records and analyze the complaints to determine patterns or trends.
Wednesday, July 18, 2007
The four dimensions of loyalty
I have pointed out in previous blogs that there are four dimesions of customer loyalty; namely product, process, relationship and reward. I have also made the point that the first three dimensions are natural because they reflect the company in one or more ways. I refer to the reward dimension as unnatural customer loyalty because it has nothing to do with the company and everything to do with the reward.
In this blog I would like to address the four dimensions in terms of their long-term impact. In other words, how much does each dimension impact loyalty. While it can be said that each dimension has a long-term effect, I am suggesting that each dimension contributes but not equally. Each dimension will individually provide some level of customer loyalty, however, I believe that long-term customer loyalty will be enhanced when more than one dimension has a positive effect.
I would hypothesize that the four dimensions are not orthogonal; that is, they are not directly additive. One way to understand this hypothesis is that customer loyalty is not four times greater when all four dimensions are positive than if only one dimension is positive. The problem that arise from this observation is how should customer loyalty be measured. Our current methods of measuring loyalty no longer make much sense when thinking abou these four dimensions. The subject of the measurement will have to wait for another blog.
For now, consider the four dimensions (product, process, relationship and rewards) in terms of how much each will impact long term loyalty.
1. Product - loyalty based on product is only as good as the product and lasts only as long as the product continues to maintain its performance. For example, Lexus has been consistent in providing a quality product and continues to maintain customer loyalty and has one of the highest (if not the highest) percentage of return customers.
2. Process - loyaly based on process lasts only as long as the process performance is maintained. Federal Express is an example of a company that consistently maintains its service level and now has added ground service as well. It's process performance has been so good that the phrase "Fed Ex it" has become almost as popular as asking someone to "Xerox" this for me.
3. Relationship - loyalty based on personal relationships lasts as long as the relationship is maintained. The benefit of relationship dimension is that customer loyalty may be able to survive some mishaps in product and process whereas the product and process loyalty are more vulnerable when mishaps occur.
4. Rewards - this dimension of loyalty is based on the perceived value of the reward with respect to rewards being offered by competitors. Customer loyalty becomes vulnerable as the competitors increase the perceived values of their rewards.
Obviously, this first quick review of the four dimensions needs further discussion. Experientially, I would expect the relationship dimension to have the greatest impact on long-term loyalty and rewards to have the lowest impact.
My closing thoughts are whether or not one can truly have lasting customer loyalty with only one dimension positive and how much does each dimension add to the strength of customer loyalty.
In this blog I would like to address the four dimensions in terms of their long-term impact. In other words, how much does each dimension impact loyalty. While it can be said that each dimension has a long-term effect, I am suggesting that each dimension contributes but not equally. Each dimension will individually provide some level of customer loyalty, however, I believe that long-term customer loyalty will be enhanced when more than one dimension has a positive effect.
I would hypothesize that the four dimensions are not orthogonal; that is, they are not directly additive. One way to understand this hypothesis is that customer loyalty is not four times greater when all four dimensions are positive than if only one dimension is positive. The problem that arise from this observation is how should customer loyalty be measured. Our current methods of measuring loyalty no longer make much sense when thinking abou these four dimensions. The subject of the measurement will have to wait for another blog.
For now, consider the four dimensions (product, process, relationship and rewards) in terms of how much each will impact long term loyalty.
1. Product - loyalty based on product is only as good as the product and lasts only as long as the product continues to maintain its performance. For example, Lexus has been consistent in providing a quality product and continues to maintain customer loyalty and has one of the highest (if not the highest) percentage of return customers.
2. Process - loyaly based on process lasts only as long as the process performance is maintained. Federal Express is an example of a company that consistently maintains its service level and now has added ground service as well. It's process performance has been so good that the phrase "Fed Ex it" has become almost as popular as asking someone to "Xerox" this for me.
3. Relationship - loyalty based on personal relationships lasts as long as the relationship is maintained. The benefit of relationship dimension is that customer loyalty may be able to survive some mishaps in product and process whereas the product and process loyalty are more vulnerable when mishaps occur.
4. Rewards - this dimension of loyalty is based on the perceived value of the reward with respect to rewards being offered by competitors. Customer loyalty becomes vulnerable as the competitors increase the perceived values of their rewards.
Obviously, this first quick review of the four dimensions needs further discussion. Experientially, I would expect the relationship dimension to have the greatest impact on long-term loyalty and rewards to have the lowest impact.
My closing thoughts are whether or not one can truly have lasting customer loyalty with only one dimension positive and how much does each dimension add to the strength of customer loyalty.
Saturday, July 14, 2007
Unnatural Loyalty - rewards
As I have discussed in previous blogs, one of the components of customer loyalty is the rewards component. I refer to this component as unnatural because the loyalty has little to do with the actual performance of the company. The reward is most likely independent of the quality of the product or service provided by the company and hence is most vulnerable to competitive offers or rewards.
Colloquy recently published a white paper that seems to document the state of loyalty marketing programs in the US. They note that the number of memberships into loyalty programs has increased 35.5% since their first survey in 2000. The number of memberships in 2006 has reached 1.319 billion in 2006. One interesting point they make is that across all industries only 39.5% of that total have active participation. In fact, they note that some industries have only 25% active memberships. When this is broken down by household the statistics indicate about 12 programs per household with about 4.7 with active participation.
I have a problem with reward-based loyalty. These programs seem to be very short-sighted in terms of customer loyalty. They are only as good as the perceived value of the reward. Based on the survey work of Colloquy, these reward programs do not seem to have lasting value and yet companies continue to pursue them. When a competitor can offer a reward with higher perceived value and effectively nullify the reward of the first company the reward program gets into a pricing game which can get out-of-hand. They are reducing profit margin to get some customer for the short term and those customers have less than a 50% chance of staying with the program (Colloquy says about 40% stay active).
In other words, I do not see reward programs as a way to build long-term customer loyalty. As I have noted in previous blogs, the company with great products (e.g. Lexus) or great service (e.g. Fed Ex) or who work at building customer relationships (e.g. Nordstroms) tends to build customer loyalty that is more lasting and less susceptible to competitive pressures.
The BOTTOM LINE for me is that companies should spend more time in building processes, products and relationships than offering rewards if they want to build customer loyalty that really means loyal.
Colloquy recently published a white paper that seems to document the state of loyalty marketing programs in the US. They note that the number of memberships into loyalty programs has increased 35.5% since their first survey in 2000. The number of memberships in 2006 has reached 1.319 billion in 2006. One interesting point they make is that across all industries only 39.5% of that total have active participation. In fact, they note that some industries have only 25% active memberships. When this is broken down by household the statistics indicate about 12 programs per household with about 4.7 with active participation.
I have a problem with reward-based loyalty. These programs seem to be very short-sighted in terms of customer loyalty. They are only as good as the perceived value of the reward. Based on the survey work of Colloquy, these reward programs do not seem to have lasting value and yet companies continue to pursue them. When a competitor can offer a reward with higher perceived value and effectively nullify the reward of the first company the reward program gets into a pricing game which can get out-of-hand. They are reducing profit margin to get some customer for the short term and those customers have less than a 50% chance of staying with the program (Colloquy says about 40% stay active).
In other words, I do not see reward programs as a way to build long-term customer loyalty. As I have noted in previous blogs, the company with great products (e.g. Lexus) or great service (e.g. Fed Ex) or who work at building customer relationships (e.g. Nordstroms) tends to build customer loyalty that is more lasting and less susceptible to competitive pressures.
The BOTTOM LINE for me is that companies should spend more time in building processes, products and relationships than offering rewards if they want to build customer loyalty that really means loyal.
Friday, July 13, 2007
Natural Loyalty continued
In my previous blog I noted that customer loyalty has two major components; namely unnatural and natural loyalty. I described unnatural customer loyalty as that which is related to rewards rather than the company, its processes and its people. Thus, loyalty is primarily related to the character of the reward. The strength of this type of loyalty is related to the perceived value of the reward. Thus, the company may actually provide a less than quality product with below average service, but the character of the reward induces the customer to return. The best example that comes to mind is the mileage reward programs offered by most airlines. While the airline service continues to deteriorate, the customers continue to return to claim their rewards. The concern with this aspect of customer loyalty is that the customers may not continue to use the airline once the rewards are used. The reward appears to be a short-term reward which may not have any long-term impact on keeping the customer.
One way to examine natural customer loyalty is to break it down into two component parts. The first part is the loyalty that is derived from excellent process performance or excellent product quality or both. This component of customer loyalty may not involve any individuals in the company. In this case, the product was shipped on time, was packaged so that the product was in excellent condition when received, the instructions to initiate operation was easy to understand and the product met the customer's expectation for performance.
The second part of natural loyalty is the human element or the relationship component between the customer and the company. Many companies want their employees to build relationships with their customers because they believe if the customer likes the intereaction with the employee, that customer is more likely to return and than a customer who does not like the interaction with the employee. These companies will often spend large sums of money to train their employees the many techniques which build customer loyalty or at least, to train the employee not to offend the customers. There are a great number of consulting firms that make a great deal of money offering the latest and greatest course that converts the average employee into a super star who "wows" the customer. One important point to make here is that the relationship component of natural customer loyalty is uniquely different from the process and product component of customer loyalty.
Thus, now that we have a basic description of customer loyalty, it is apparent that any measure of customer loyalty may have as many as four components; namely, the reward component (unnatural customer loyalty), process component (e.g. delivery on-time - natural customer loyalty), product quality and performance (e.g. product meets customer expectations - natural customer loyalty), and relationship between the customer and the company (natural customer loyalty).
All four of these components contribute to customer loyalty, the next step is to examine each component to determine whether or not its contribution will have a short-term or long term impact.
One way to examine natural customer loyalty is to break it down into two component parts. The first part is the loyalty that is derived from excellent process performance or excellent product quality or both. This component of customer loyalty may not involve any individuals in the company. In this case, the product was shipped on time, was packaged so that the product was in excellent condition when received, the instructions to initiate operation was easy to understand and the product met the customer's expectation for performance.
The second part of natural loyalty is the human element or the relationship component between the customer and the company. Many companies want their employees to build relationships with their customers because they believe if the customer likes the intereaction with the employee, that customer is more likely to return and than a customer who does not like the interaction with the employee. These companies will often spend large sums of money to train their employees the many techniques which build customer loyalty or at least, to train the employee not to offend the customers. There are a great number of consulting firms that make a great deal of money offering the latest and greatest course that converts the average employee into a super star who "wows" the customer. One important point to make here is that the relationship component of natural customer loyalty is uniquely different from the process and product component of customer loyalty.
Thus, now that we have a basic description of customer loyalty, it is apparent that any measure of customer loyalty may have as many as four components; namely, the reward component (unnatural customer loyalty), process component (e.g. delivery on-time - natural customer loyalty), product quality and performance (e.g. product meets customer expectations - natural customer loyalty), and relationship between the customer and the company (natural customer loyalty).
All four of these components contribute to customer loyalty, the next step is to examine each component to determine whether or not its contribution will have a short-term or long term impact.
Thursday, July 12, 2007
Natural and Unnatural loyalty
When companies in the industry think of loyalty, they generally believe that loyalty is one dimensional. From the customers I have dealt with, this is the only way they can see it. They see a loyalty scale and are concerned about where their score is on the scale. They become particularly concerned if their score on the scale is lower than in was in the previous measurement period (which could be a day, week, month or quarter). A typical industry scale combines the scores of satisfaction, likelihood of recommending the company or product to an associate, and the likelihood of buying again from the company. Of course, there are other measures of customer loyalty but they all come back to a scale (usually linear).
The problem I have with these measures is they measure loyalty as if it had only one dimension. I believe the measures of loyalty are biased on the high side for the following reasons:
1. The measure was developed from one or more customer measures that may not accurately reflect loyalty. (I admit this is somewhat circular, but I need a place to start).
2. The measure does not differentiate between natural and unnatural loyalty. I believe that the only persistent measure of customer loyalty is natural loyalty. There has not been any published articles, to my knowledge, that has attempted to quantify or qualify the differences. A more accurate measure may require a two dimensional scale that would measure natural and unnatural customer loyalty separately.
Thus, the current measurement includes a component that may not accurately reflect customer loyalty and since it is included provides a positive bias to the measurement.
I think the following points are valid (although untested):
1. To my knowledge there has been no effort to separtely measure these two components.
2. I am using this blog to begin a discussion of the differences between natural and unnatural loyalty.
3. An initial definition of natural customer loyalty as that loyalty that is derived through personal relationships. This leaves as the definition for unnatural loyalty as that loyalty derived NOT through personal relationships.
4. Some of the obvious examples of processes that develop unnatural customer loyalty might include: mileage reward programs, discount coupons, gifts, invitations to special events, etc.).
5. My hypothesis is that natural customer loyalty is more important in reducing customer defection than unnatural customer loyalty.
6. The problem associated with the unnatural customer loyalty is that it is subject to being out-bid. On the otherhand, it is difficult to out-bid a relationship between two people or a person and a company that has demonstrated trust over time.
7. So, the first difference between natural and unnatural customer loyalty is that unnatural customer loyalty is subject to market and/or competitive situations and the natural customer loyalty is not.
8. The second difference is relationships in natural customer loyalty are reciprocal but there is no reciprocity in unnatural customer loyalty.
9. The third difference between them is that natural customer loyalty takes time and hence is more resilient to problems, whereas, unnatural customer loyalty has little or no resilience when a problem occurs between the customer and the company.
10. The fourth difference between them is natural customer loyalty has a high cost to develop (consider the investment in time to build the relationshiop with the customer) and unnatural customer loyalty has a low cost (the cost of the instituting a "rewards" program).
11. The fifth difference between them is unnatural customer loyalty programs or processes can be started and stopped quickly while natural customer loyalty may out last any formal program.
One of the symbolic analogies I use to describe natural customer loyalty, is the concept of using a string to connect a company to a customer. This string is initiated at the time of the first intereaction. Each time thereafter that a positive interaction occurs, another strand is added to the string connecting the customer to the company. As more and more positive interactions occur, the string becomes a rope which binds the customer to the company so that over time the thickness of the rope grows such that the customer is no longer vulnerable to be taken by competition.
The BOTTOM LINE is that customer loyalty needs to be examined beyond the one-dimensional plane if it is to provide an accurate assessment of customer loyalty.
The next step is for someone to initiate a research program to validate this hypothesis. If this hypothesis is true, there may be a lot of companies being misled by their current loyalty measurement.
The problem I have with these measures is they measure loyalty as if it had only one dimension. I believe the measures of loyalty are biased on the high side for the following reasons:
1. The measure was developed from one or more customer measures that may not accurately reflect loyalty. (I admit this is somewhat circular, but I need a place to start).
2. The measure does not differentiate between natural and unnatural loyalty. I believe that the only persistent measure of customer loyalty is natural loyalty. There has not been any published articles, to my knowledge, that has attempted to quantify or qualify the differences. A more accurate measure may require a two dimensional scale that would measure natural and unnatural customer loyalty separately.
Thus, the current measurement includes a component that may not accurately reflect customer loyalty and since it is included provides a positive bias to the measurement.
I think the following points are valid (although untested):
1. To my knowledge there has been no effort to separtely measure these two components.
2. I am using this blog to begin a discussion of the differences between natural and unnatural loyalty.
3. An initial definition of natural customer loyalty as that loyalty that is derived through personal relationships. This leaves as the definition for unnatural loyalty as that loyalty derived NOT through personal relationships.
4. Some of the obvious examples of processes that develop unnatural customer loyalty might include: mileage reward programs, discount coupons, gifts, invitations to special events, etc.).
5. My hypothesis is that natural customer loyalty is more important in reducing customer defection than unnatural customer loyalty.
6. The problem associated with the unnatural customer loyalty is that it is subject to being out-bid. On the otherhand, it is difficult to out-bid a relationship between two people or a person and a company that has demonstrated trust over time.
7. So, the first difference between natural and unnatural customer loyalty is that unnatural customer loyalty is subject to market and/or competitive situations and the natural customer loyalty is not.
8. The second difference is relationships in natural customer loyalty are reciprocal but there is no reciprocity in unnatural customer loyalty.
9. The third difference between them is that natural customer loyalty takes time and hence is more resilient to problems, whereas, unnatural customer loyalty has little or no resilience when a problem occurs between the customer and the company.
10. The fourth difference between them is natural customer loyalty has a high cost to develop (consider the investment in time to build the relationshiop with the customer) and unnatural customer loyalty has a low cost (the cost of the instituting a "rewards" program).
11. The fifth difference between them is unnatural customer loyalty programs or processes can be started and stopped quickly while natural customer loyalty may out last any formal program.
One of the symbolic analogies I use to describe natural customer loyalty, is the concept of using a string to connect a company to a customer. This string is initiated at the time of the first intereaction. Each time thereafter that a positive interaction occurs, another strand is added to the string connecting the customer to the company. As more and more positive interactions occur, the string becomes a rope which binds the customer to the company so that over time the thickness of the rope grows such that the customer is no longer vulnerable to be taken by competition.
The BOTTOM LINE is that customer loyalty needs to be examined beyond the one-dimensional plane if it is to provide an accurate assessment of customer loyalty.
The next step is for someone to initiate a research program to validate this hypothesis. If this hypothesis is true, there may be a lot of companies being misled by their current loyalty measurement.
Friday, July 6, 2007
The Measurement Trap
Taking measurements are important. There is also a degree of risk in taking measurements. I refer to this risk as “the measurement trap. The objective of this blog is to identify and discuss a management behavior that appears valid but which can lead to “paralysis-by-analysis.” We normally assume that a measurement is an accurate assessment of some aspect of our business. But the measurement trap derives from a false belief that we can fully understand all aspects of our business strictly through measurements. In my view,
The measurement trap occurs when an executive believes that he can understand the business and customers in his market by increasing the number of measures and level of sophistication within his measurement system.
The four measurement traps
First trap – all aspects of the business can be measured.
To understand the subtlety of this trap consider the most obvious implication – that everything of importance in your business can be measured. This suggests that there is no aspect of the business that cannot be measured. While this may be a dream of people like me who deal the quantitative aspects of business, it is nevertheless naïve. Is it possible to capture the essence of the customer interaction or the level of trust that builds between people with quantitative measurement? Some would offer the examples of employee and customer satisfaction surveys as evidence that the essence of relationships can be measured. To rebut this idea, consider that satisfaction surveys of new car buyers indicate very high levels of satisfaction and yet the loyalty of car buyers, (indicated by repurchase of the same make again) is very low (the highest is less than 50%).
Another example of not being able to capture all aspects of employees is to consider the measures of employee satisfaction as they relate to customers.
Consider measures of courtesy and professionalism. Each measure is incomplete and only an indication at best and misleading at worst. For example, courtesy measures almost always show high levels of satisfaction (with rare exception). It is generally believed that they include a bias from the customer that may be based on the fear of retribution from a low rating or, on the other hand, the employee may have a good working relationship with the customer and the customer is biased to helping a “friend.”
Second trap – you don’t need to work with people.
Perhaps one of the most negative aspects of the measurement trap is that it relieves the executive from the responsibility/necessity of employee interaction with the service employee. If, in fact, all aspects of the business can be measured, there is then no longer a need to interact with employees reporting directly to the executive. The reason most executives interact with employees is to get additional information and details about the operation. They probe to discover the information not available through the measurement system. But, if all the information is available through measurement, he only needs to review the computer printouts. For this executive, the only role of the employee is to create the measurement systems and to assure that the measurements are accurate and timely.
At one time I worked for an executive who was an advocate of measurements. He was also one of the major influences that caused me to understand the concept of the measurement trap. He spent his day pouring over computer printouts and was always thinking of new measurements to take. Actually I have him to thank for getting me into the measurement of customer satisfaction so I guess his efforts were not entirely off based. (One great result of his obsession with measuring was the that the branch service managers were not spending enough time with customers. One of the measures that he took was of the time that branch service managers actually spent with customers. When I was asked to look into this situation and present solutions to get the branch service managers more involved with customers, we initiated an analysis of the activities of branch service managers. We discerned some rather dramatic workload situations:
1. The average service manager was signing about 1000 documents per month.
2. The average service manager was receiving about 20,000 pages of computer output per month.
3. Each service manager had to inspect the lease cars of every technician twice each year and report such items as worn out wiper blades, burned out light bulbs and general cleanliness.
Our findings were that (1) the average service manager needed to work overtime just to maintain his paperwork and (2) there was no time available during a standard workweek to meet with customers. With this information that we uncovered from digging into the operation, we did reduce the level of paperwork at the branch level. (Our digging did not require a measurement system). There is a positive from his perspective, he did discover through the measurement of time with the customer, that there was a problem with the branch service managers. The measurement did not disclose the nature of the problem. It took some detailed investigation to uncover the situations noted above.
One very important aspect of working with this executive was that he did not need to meet with me to discuss the business – all he needed to do was spend more time looking over the measurements. In fact, he rarely met with me or the rest of his staff (no regular staff meetings). My role changed from a planning and analysis role to one of designing more information systems. The executive did not need to work with me, only to pass on his requirements for information and to receive current information. Needless to say, it didn’t take long to figure out that this was not the place for me (and he agreed with me).
Third trap - company culture is not important
A variation on the second trap is that if you don’t need to work with the people around you, you don’t have to worry about what kind of people they are. By this I mean you can ignore the character and personalities of the employees. If the business is completely measurable, then there is no need to deal with employees and who they are. If the executive is really caught up in the measurement trap, he needs only have the measurements delivered to his office. The people on his staff can be the best in the world or a bunch of “goofballs.” The key is that there is no need for employee interaction when you are in the measurement trap. This leads to the obvious conclusion that the kind of people you have working for you is not important as long as you have the right measurements in place.
The factors which this trap overlooks are employee development and employee morale. If the quality of the employee is incidental and not an important aspect of the operation, what value will the employee perceive of himself? If the executive is busy spending his time behind a closed door analyzing measurements, he is not spending time to develop his replacement and is not giving those who report directly to him, the opportunity to work with him and learn more about the business to become more valuable employees.
Fourth trap - given enough measurements all problems can be understood and solved with quantitative information.
When an executive enters the measurement trap one of the largest impacts on the organization is the implementation of the measurement trap. When the executive believes that the business can be defined by measurements, then when a problem occurs, the executive concludes that more measurements are needed to analyze and solve the problem. The first thing the executive does is to implement additional measurements regarding the problem area. A spiral continues when the additional measurements do not provide the solution to the problem so the executive begins to add further measurements. For example, if the executive was measuring time of the branch service manager on the customer site as noted above, he might add an additional measurement of what other ways the branch service manager spends his time. If that did not provide sufficient information, he might add another level of detail to identify the specific activities associated with each of the ways the branch service manager is spending his other time. As a result, the executive gets more and more information and the branch service manager spends more and more of his time supplying the information.
In the extreme case, this continued search for the measurements necessary to solve a problem can create a spiral of ever-increasing efforts to measure aspects of the business to the point where the cost of measurement exceeds the cost of the problem. This may be the process that led to the popular phrase “paralysis by analysis.” The flaw in this aspect of the measurement trap is that all business problems can be understood by having more and more quantitative information and that because the information is not available there is a need to develop further information gathering systems.
Avoiding and Escaping the Measurement Trap
Now that you know what the measurement trap is and some of its obvious consequences, namely; the four traps noted in the preceding paragraphs, the question is how can you protect yourself from getting in it and what do you do when you in it to get out of it.
Staying out of the “measurement trap”
To keep from getting into the measurement trap, the first step is to be aware of the measurements you are currently making and examine each measurement to verify that it is necessary. The fact is that many companies take unnecessary measurements that are costly and have little or no impact of the successful operation of the business. (Consider the auto inspection noted above – was an examination of the wiper blades and associated documentation on a specific form a good use of the time of the service manager?) One of the outcomes from my consulting has been to note how much data companies have and how little information is actually useful. The point is that most companies take measurements without thinking about the cost, value or usefulness.
The second step to staying out of the measurement trap is to be judicious about measurements; select them carefully and constantly audit them for accuracy and relevance. While many measurements can be expensive, time consuming and superfluous, there are measurements necessary to successfully run a business. Remember, measurements are like looking out the rear view mirror, they only tell you what has happened in the past, they do not necessarily predict what is going to happen in the future.
The third step to staying out of the measurement trap is to look at the cost of your measurement systems. If the cost of measurement is disproportionate to your operation, you are probably making too many measurements and probably heading into the trap. When looking at the cost of measurement, don’t forget to include the cost of data collection.
Getting out of the “measurement trap”
The first step to getting out of the measurement trap is to see that you are in it. If you have noticed after reading the four traps noted above that you are in the measurement trap, you have already taken the first step.
The second step to getting out is to change your perspective from an internal perspective based merely on quantitative measurements to an external perspective based on qualitative considerations of the interaction with employees and customers as well as quantitative measurements.
The final step is to always be aware that measurements can be valuable and should be used where necessary but that they will not provide the total solution to any problem.
Conclusion
The measurement trap is easy to fall into because it generally is the easiest way to approach a problem. It doesn’t require the time and energy to work with people and besides who can argue with numbers. One of the corporate games I saw during my tenure in the corporate world was “he who has the numbers usually wins.” In fact, that is why I started to measure customer satisfaction. It was the easiest way to win the argument of how we were doing when the sales organization would introduce anecdotal stories of unhappy customers. In the business world the football adage of “winning is the only thing” doesn’t work because in the corporate world when one wins someone else loses. And that too often is the customer.
The measurement trap occurs when an executive believes that he can understand the business and customers in his market by increasing the number of measures and level of sophistication within his measurement system.
The four measurement traps
First trap – all aspects of the business can be measured.
To understand the subtlety of this trap consider the most obvious implication – that everything of importance in your business can be measured. This suggests that there is no aspect of the business that cannot be measured. While this may be a dream of people like me who deal the quantitative aspects of business, it is nevertheless naïve. Is it possible to capture the essence of the customer interaction or the level of trust that builds between people with quantitative measurement? Some would offer the examples of employee and customer satisfaction surveys as evidence that the essence of relationships can be measured. To rebut this idea, consider that satisfaction surveys of new car buyers indicate very high levels of satisfaction and yet the loyalty of car buyers, (indicated by repurchase of the same make again) is very low (the highest is less than 50%).
Another example of not being able to capture all aspects of employees is to consider the measures of employee satisfaction as they relate to customers.
Consider measures of courtesy and professionalism. Each measure is incomplete and only an indication at best and misleading at worst. For example, courtesy measures almost always show high levels of satisfaction (with rare exception). It is generally believed that they include a bias from the customer that may be based on the fear of retribution from a low rating or, on the other hand, the employee may have a good working relationship with the customer and the customer is biased to helping a “friend.”
Second trap – you don’t need to work with people.
Perhaps one of the most negative aspects of the measurement trap is that it relieves the executive from the responsibility/necessity of employee interaction with the service employee. If, in fact, all aspects of the business can be measured, there is then no longer a need to interact with employees reporting directly to the executive. The reason most executives interact with employees is to get additional information and details about the operation. They probe to discover the information not available through the measurement system. But, if all the information is available through measurement, he only needs to review the computer printouts. For this executive, the only role of the employee is to create the measurement systems and to assure that the measurements are accurate and timely.
At one time I worked for an executive who was an advocate of measurements. He was also one of the major influences that caused me to understand the concept of the measurement trap. He spent his day pouring over computer printouts and was always thinking of new measurements to take. Actually I have him to thank for getting me into the measurement of customer satisfaction so I guess his efforts were not entirely off based. (One great result of his obsession with measuring was the that the branch service managers were not spending enough time with customers. One of the measures that he took was of the time that branch service managers actually spent with customers. When I was asked to look into this situation and present solutions to get the branch service managers more involved with customers, we initiated an analysis of the activities of branch service managers. We discerned some rather dramatic workload situations:
1. The average service manager was signing about 1000 documents per month.
2. The average service manager was receiving about 20,000 pages of computer output per month.
3. Each service manager had to inspect the lease cars of every technician twice each year and report such items as worn out wiper blades, burned out light bulbs and general cleanliness.
Our findings were that (1) the average service manager needed to work overtime just to maintain his paperwork and (2) there was no time available during a standard workweek to meet with customers. With this information that we uncovered from digging into the operation, we did reduce the level of paperwork at the branch level. (Our digging did not require a measurement system). There is a positive from his perspective, he did discover through the measurement of time with the customer, that there was a problem with the branch service managers. The measurement did not disclose the nature of the problem. It took some detailed investigation to uncover the situations noted above.
One very important aspect of working with this executive was that he did not need to meet with me to discuss the business – all he needed to do was spend more time looking over the measurements. In fact, he rarely met with me or the rest of his staff (no regular staff meetings). My role changed from a planning and analysis role to one of designing more information systems. The executive did not need to work with me, only to pass on his requirements for information and to receive current information. Needless to say, it didn’t take long to figure out that this was not the place for me (and he agreed with me).
Third trap - company culture is not important
A variation on the second trap is that if you don’t need to work with the people around you, you don’t have to worry about what kind of people they are. By this I mean you can ignore the character and personalities of the employees. If the business is completely measurable, then there is no need to deal with employees and who they are. If the executive is really caught up in the measurement trap, he needs only have the measurements delivered to his office. The people on his staff can be the best in the world or a bunch of “goofballs.” The key is that there is no need for employee interaction when you are in the measurement trap. This leads to the obvious conclusion that the kind of people you have working for you is not important as long as you have the right measurements in place.
The factors which this trap overlooks are employee development and employee morale. If the quality of the employee is incidental and not an important aspect of the operation, what value will the employee perceive of himself? If the executive is busy spending his time behind a closed door analyzing measurements, he is not spending time to develop his replacement and is not giving those who report directly to him, the opportunity to work with him and learn more about the business to become more valuable employees.
Fourth trap - given enough measurements all problems can be understood and solved with quantitative information.
When an executive enters the measurement trap one of the largest impacts on the organization is the implementation of the measurement trap. When the executive believes that the business can be defined by measurements, then when a problem occurs, the executive concludes that more measurements are needed to analyze and solve the problem. The first thing the executive does is to implement additional measurements regarding the problem area. A spiral continues when the additional measurements do not provide the solution to the problem so the executive begins to add further measurements. For example, if the executive was measuring time of the branch service manager on the customer site as noted above, he might add an additional measurement of what other ways the branch service manager spends his time. If that did not provide sufficient information, he might add another level of detail to identify the specific activities associated with each of the ways the branch service manager is spending his other time. As a result, the executive gets more and more information and the branch service manager spends more and more of his time supplying the information.
In the extreme case, this continued search for the measurements necessary to solve a problem can create a spiral of ever-increasing efforts to measure aspects of the business to the point where the cost of measurement exceeds the cost of the problem. This may be the process that led to the popular phrase “paralysis by analysis.” The flaw in this aspect of the measurement trap is that all business problems can be understood by having more and more quantitative information and that because the information is not available there is a need to develop further information gathering systems.
Avoiding and Escaping the Measurement Trap
Now that you know what the measurement trap is and some of its obvious consequences, namely; the four traps noted in the preceding paragraphs, the question is how can you protect yourself from getting in it and what do you do when you in it to get out of it.
Staying out of the “measurement trap”
To keep from getting into the measurement trap, the first step is to be aware of the measurements you are currently making and examine each measurement to verify that it is necessary. The fact is that many companies take unnecessary measurements that are costly and have little or no impact of the successful operation of the business. (Consider the auto inspection noted above – was an examination of the wiper blades and associated documentation on a specific form a good use of the time of the service manager?) One of the outcomes from my consulting has been to note how much data companies have and how little information is actually useful. The point is that most companies take measurements without thinking about the cost, value or usefulness.
The second step to staying out of the measurement trap is to be judicious about measurements; select them carefully and constantly audit them for accuracy and relevance. While many measurements can be expensive, time consuming and superfluous, there are measurements necessary to successfully run a business. Remember, measurements are like looking out the rear view mirror, they only tell you what has happened in the past, they do not necessarily predict what is going to happen in the future.
The third step to staying out of the measurement trap is to look at the cost of your measurement systems. If the cost of measurement is disproportionate to your operation, you are probably making too many measurements and probably heading into the trap. When looking at the cost of measurement, don’t forget to include the cost of data collection.
Getting out of the “measurement trap”
The first step to getting out of the measurement trap is to see that you are in it. If you have noticed after reading the four traps noted above that you are in the measurement trap, you have already taken the first step.
The second step to getting out is to change your perspective from an internal perspective based merely on quantitative measurements to an external perspective based on qualitative considerations of the interaction with employees and customers as well as quantitative measurements.
The final step is to always be aware that measurements can be valuable and should be used where necessary but that they will not provide the total solution to any problem.
Conclusion
The measurement trap is easy to fall into because it generally is the easiest way to approach a problem. It doesn’t require the time and energy to work with people and besides who can argue with numbers. One of the corporate games I saw during my tenure in the corporate world was “he who has the numbers usually wins.” In fact, that is why I started to measure customer satisfaction. It was the easiest way to win the argument of how we were doing when the sales organization would introduce anecdotal stories of unhappy customers. In the business world the football adage of “winning is the only thing” doesn’t work because in the corporate world when one wins someone else loses. And that too often is the customer.
Thursday, July 5, 2007
Customer Loyalty Management (CLM)
I happened across an interesting set of data that seems worth sharing. It was published by Walker Insight Report. While the data is a little dated (published in 2005), I believe it is still valid.
Walker surveyed a panel of clients and prospects regarding linkage between CLM and financial information. Here is a brief overview of their findings:
1. 95% of the respondents said their companies gather satisfaction and loyalty feedback from their customers.
2. 70% of the respondents said they link operational data to customer satisfaction and loyalty results.
3. 40% of the respondents link CLM data to financial information.
4. Of those not currently linking financial information to CLM, 80% said they have never attempted it before.
5. Of those not currently linking financial information to CLM, 26% admitted they are not likely to start.
6. Of those not currently linking financial information to CLM, 52% said they were very likely to begin linking the CLM results to financial information in the next two years.
Maybe the bottom line is that creating a reliable linkage between CLM and financial information is difficult and expensive. Of course, I would suggest that without the linkage, an executive might just ask, "Why are we spending all this money on these surveys?" He just might have a point.
Walker surveyed a panel of clients and prospects regarding linkage between CLM and financial information. Here is a brief overview of their findings:
1. 95% of the respondents said their companies gather satisfaction and loyalty feedback from their customers.
2. 70% of the respondents said they link operational data to customer satisfaction and loyalty results.
3. 40% of the respondents link CLM data to financial information.
4. Of those not currently linking financial information to CLM, 80% said they have never attempted it before.
5. Of those not currently linking financial information to CLM, 26% admitted they are not likely to start.
6. Of those not currently linking financial information to CLM, 52% said they were very likely to begin linking the CLM results to financial information in the next two years.
Maybe the bottom line is that creating a reliable linkage between CLM and financial information is difficult and expensive. Of course, I would suggest that without the linkage, an executive might just ask, "Why are we spending all this money on these surveys?" He just might have a point.
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