The Halo Effect

I was recently reading an article where the author noted, quite correctly I might add, that if your agents are rated highly and all your performance metrics are good, especially if they hold up when bench marked, then you know that it is the product or another area of business that is at fault. The other side of the coin is that sometimes a customer will rate the customer service agent low even though the agent performed adequately. When this happens the scores for all areas tend to have the same value. If the customer was extremely unhappy, the scores in all areas might be very low. On the other hand if all the scores are high the customer might have been extremely happy. When a survey response indicates a consistently high or low score, it is often noted as a halo effect.

I have often seen survey survey questionnaires that showed that the company scored top box in every area. While it is nice to imagine your company is perfect, it is probably not true. Similarly, I have also seen many surveys that showed the company scored bottom box in every area. Just as having all top box scores is unlikely, having all scores in the bottom box is equally unlikely. These responses indicate customers who are either very happy or very unhappy. The phrase halo effect was initially used to identify customers who were very happy and were inclined to report that everything was perfect. These customers saw a halo over everything the company did. It quickly expanded to include those customers who were very unhappy and were sending a message that that the company could do nothing correctly.

There are even variations on the halo effect. I saw a survey which had a scale of 1 to 10 and the customer had scored every question 9. The comment from the customer was that only God could receive a 10. Once again, there is a halo reflecting an overall perception rather than a thoughtful consideration of the products/services received.

The question is what to do with responses that indicate a possible halo. The first problem is which question triggered the halo. Without knowing which question instigated the halo, the choices are to either accept all the scores or none of the scores. If the comments suggest which question triggered the halo, that question score would be reasonable to include any analysis. Once again the problem is whether or not to include the other data or ignore them. If the sample is small, I suggest that the others be ignored since the variation caused by the small sample may distort the results and lead to erroneous conclusions.

The bottom line is that halos can be found in most survey data and if they are ignored the results and conclusions may be erroneous. Many people who offer themselves as survey experts know little about the many ways results can be distorted and what to do with them. When people talk about scrubbing the data, it is not a simple process. Remember the adage "garbage in gives you garbage out" is no longer valid. The real adage is "garbage in gives you gospel out" since no one ever questions the computer.

Some thoughts on Loyalty

Cornell University has School of Hotel Administration which is world renown. They do some wonderful research in the area of customer loyalty. (You might expect that hotel management would be interested in customer loyalty - nothing like a good repeat customer.) Michael McCall of Cornell made an excellent point recently when he noted that an effective loyalty program should decrease a customer's price sensitivity. He notes that many loyalty programs focus on discounts or other related concessions. These programs have the opposite of the desired effect since it directs the customer's attention toward pricing.

McCall suggests that loyalty program should focus on ways to give special treatment to top customers. Since most companies have a distinct group of customers who are responsible for much of the company's profits, they should be given elite status. These customers should be given different treatment than other customers. He suggests that loyalty programs should have the following elements:
1. Avoid provoking customers' price sensitivity
2. Manage program tiers carefully because it is easy to give rewards but painful to take them away.
3. Think carefully about customer values.
4. Reward customer engagement.
5. Separate true effects of a loyalty program from artifacts by choosing appropriate data.
6. Bridge the gap between academics and practice.

The goal of any loyalty program should be profitability to the company and repeated patronage from the customer. As noted by McCall the key is to find customers who will provide the best future profits (not just revenue).

The bottom line is that loyalty programs should stay away from prices. I think the most important point made in this presentation is that companies must get away from talking prices with respect to their loyalty programs. Loyalty programs should focus on how the relationship with the customer is a win-win for the company and the customer. Not many loyalty programs can attest to doing this.

Soliciting Feedback

There is some very interesting research being performed at Brigham Young University regarding the impact of employees fishing or compliments. Some of the researchers are Sterling Bone, Katie Liljenquist, Bruce Money and Kristen De Tienne. Their two research issues are (i)can soliciting compliments influence customer loyalties and (ii) how does a company's acknowledgement of feedback influence customer perceptions and behaviour.

Their first experiment involved a hotel bellman and showed that customers who were solicited for feedback viewed their encounter more favorable than those who were not solicited. The conclusion was that asking for feedback appears to have a positive impact on customers.

The second experiment related to a portrait studio chain. Some customers were asked to share a compliment regarding product quality, customer treatment quality and their likelihood to recommend. Those customers who were asked to share a compliment rated significantly higher that those where were not asked. Once again, the impact of asking the customer for feedback had a more positive impact on the customer than those who were not asked for feedback.

The bottom line is that these experiments track what has been demonstrated in previous studies and noted in previous blogs; namely, customers need to feel that their feedback both positive and negative is valued and will be acted on by the company. By asking the customer is led to believe that the company cares.

A while ago a company sent out cards soliciting feedback on their products and services to some customers. When they received the cards back, they discarded them without looking at them. However, the next time they measured customer satisfaction they found that those who received the cards scored higher satisfaction scores than those who did not. The message is clear!

Best-in-Class Statistics

The Aberdeen Group has published the results of a survey of approximately 150 enterprises during November and December, 2008. The survey examined how the enterprises implemented or evaluated performance optimization initiates. The survey respondents had the following characteristics:
1. Job function - 22% managers, 14% C-level Executive, 11% Directors and 53% others.
2. Industry - 13% IT consultants, 12% finance/banking/accounting, 9% software/hardware supplier, 7% health/medical and 59% others.
3. Geography - 61% North America, 16% Europe, 13% Asia/Pacific and 10% from the rest of the world.
4. Company size - 23% from large enterprises (annual revenue above US $1 billion), 39% from midsized enterprises (between $50 million and $1 billion) and 38% from small enterprises.

While there is a large percentage of the respondents who fall into the "other" category, the survey results appear reasonable.

The results for customer satisfaction showed that best-in-class increased 9% year over year compared with industry average of 3% and the laggards losing 2%.

The results for customer retention showed that best-in-class increased 15% year over year compared with the industry average of 5% and the laggards increasing 3%.

The results for employee turnover showed that best-in-class decreased by 2% compared with the industry average of 0% decrease and the laggards increased by 7%.

The primary areas of performance improvement were in the areas of understanding the link between back-office operations and customer service and the alignment of back-office operations and corporate operational goals.

The bottom line suggests that enterprises that are focusing on the value of back-office operations are achieving significant performance increase when compared to the industry averages. The improvement of customer satisfaction and customer loyalty certainly implies improved financial performance as has been shown in other studies. The reduction in turnover should lead to a direct saving in hiring and training expenses.

The idea of using the back-office to improve performance is something that appears to have significant improvement opportunities and should continue as IT is used effectively. Keeping IT in the back-office and the employees in front of the customers seems to be a winning strategy. We have seen over and over that the customers need to talk with people and that is one of the best ways to build a relationship. Computers generally do not build long-term relationships with customers.

Data

Writing about data has the same effect on me as eating dirt. All I can say is Yuck! Unfortunately the topic needs to be addressed from time to time. The market place today is overflowing with customer satisfaction and customer loyalty data. Millions of dollars (probably billions) are being spent to generate the data. I am sure there are computer databases overflowing with customer data. The problem I would like to discuss is that most companies have lots of data but little information. We have found very efficient ways to generate data and that is where many companies stop. They have computer data bases full of customer data and probably have books of data and charts on multiple desks and book shelves. The problem is not collecting data, the real problem is knowing what to do with it.

Several years ago I had a client who called me and asked me to come visit him. After I arrived at his office and we had a very cordial discussion about the state of his industry, he wondered if I had some time to help him. He had just spent several hundred thousand dollars to gather customer information. He had a box full of 3-ring binders, one for each quarter of the previous year. The books were filled with tabulations of data and some charts. His question to me was very direct and to the point. He asked me tell him what all this data said. In essence, he was overwhelmed with the data but had little idea what information was in the data.

I can assure you that the data was collected by a very reputable research firm and that the data was reliable. I was sure the data was collected using all the proper rules of statistical surveys. The problem was that the data was just that - data. There was no thought given as to how to extract actionable information from the data.

After pouring over the data for about 2 weeks there were several points that I could make; namely, that customer satisfaction was,in fact, increasing each quarter and that his small customers loved his operation and his large customers were ready to leave him. The sad news was that there was not sufficient planning prior to the administration of the survey that would allow him to determine the key indicators that would allow him to improve his operation (particularly with respect to his large customers).

Today, companies have multiple sources of data coming in with little or no idea how to integrate the data into a use able database. Customer intelligence is not restricted to customer satisfaction and loyalty surveys, it also includes sales and marketing data as well as feedback from customer service. The real value comes from developing metrics that assist managers and executives into seeing a more accurate picture of their business. Without that knowledge/vision, companies fall back into relying on experiential knowledge which may no longer be valid in the changing markets of today.

The first data commandment is to invest in analysis and operational metrics if you are going to collect data; otherwise, don't bother collecting the data in the first place.

Some recent polls indicate the following:
1. About 49% of companies believe they have adequate customer metrics,
2. About 46% do not believe they have adequate customer metrics,
3. About 2% do not think have adequate customer metrics is important, and
4. About 3% don't know and think it is not relevant.

The bottom line is that companies need to spend the time (and money) to not only integrate their information into a usable database, they need to allocate resources to building metrics that are meaningful and will assist the decision making processes. If a company wants to spend the time and money to create the data, they must also be willing to invest in converting the data into useful information. I would like to know the condition of the 5% who do not think adequate cusotmer information is important in the next few years.

Is Loyalty Just a Habit

William McEwen of Gallup wrote an interesting article titled "Is Loyalty Dead?" He starts by referring to a study by Catalina Marketing that has reported that more than half of the average brand's highly loyal customers became significantly less loyal in 2008 than they were the year before. His question is whether this is just a reflection of the economic climate or is there a sea change in the customer's mindset of what loyalty is.

The definition of loyalty has been considered sacrosanct for many years even though we have gone through several generations of new consumers (generation Xers and then generation Yers). It may be time to stop and reconsider our basic definitions of loyalty. Can we expect these new generations to act identically as their parents did?

When we look back at what we thought were loyal customers we might want to think of them as loyal or, as an alternative, maybe they were merely buying out of habit. if they were buying out of habit, then there is no "glue" to hold them to a particular company. Mr. McEwen points out that habits reflect past behavior and may not represent future behavior. While past behavior might suggest some form of loyalty, companies need to be concerned about the future behavior of their customers.

Mr. McEwen also notes that Gallup research has shown that customers' intentions are only weakly related to behavior outcomes such as continuing to buy. If, however, the intention is complemented by strong feelings of emotional attachment to what they are purchasing, then the customer's indication of an intention to buy is valid. I believe the Gallup research would also show that customers who say they definitely will continue to buy a brand but have no emotional bond with that brand will wind up acting the same as those who say they're uncommitted or they might not continue to buy the brand.

The key point made in the article is that loyalty entails more than an intention and habit. Loyalty results from a strong bond of emotional engagement. AS I have noted in past blogs, loyalty is not a passive state. Loyalty occurs when a positive emotional bond is built between the company and the consumer. Loyalty measures the strength of the relationship. A customer who continues to purchase from a company but has no emotional bond is no more loyal than his habit of selecting the company out of habit.

In the larger picture companies buy businesses for the value of their customers. But customer loyalty is not always associated with the brand. It is possible to buy a brand but that may not include the relationships. The customer relationship must ALWAYS be earned. If customers don't feel the relationship, it should not surprise anyone that their buying habits might change.

The bottom line is that loyalty will always be defined by trust-based relationships. Thus a company must engage in actions that will lead to enduring, trust-based relationship. Remember customers do not have relationships with a company or a brand, they have relationships with people

Thinking of the Customer as an Asset

WE know that customer lists can be considered an asset and we also know that the net present value of a customer can be used to assess the value of a company. I think there is more to the customer than being on a list or looking at its net present value. Of course, the net present value makes sense because that value represents real dollars. What I am suggesting is that the net present value might need some adjustments to incorporate some of the complexities of customers.

There are at least 4 tangible assets on the balance sheet; namely, facilities, equipment, inventory and cash.
There are at least three intangible assets; namely personnel skills, name in the market, customer data base.

The customer asset has the following characteristics:
1. Highly complex
2. Changes value with time
3. Changes value with the size of the customer
4. Changes value with the level of support needed for the customer
5. Changes value with the age of the products/services offered.

The Oxford dictionary defines asset as: property available to meet debts; any possession; any useful quality.
My definition of the customer asset is: TREASURE. By this I mean the customer is precious; something valued for its rarity as a beloved or highly valued person.

What makes the customer an asset can be defined using the Oxford Dictionary definition; namely, customers are a form of property that provide revenue to meet debts and customers represent a possession without which there is no business.

The bottom line is that we need a better value of managing customers and I believe that looking at the customer as an asset may give us some insight that will translate into better customer relationships, increased loyalty and increased revenue and margins.

I think by viewing the customer as an asset of the company, the customer will be viewed more strategically. This perspective should translate into increased efficiency and productivity within the company.

I would appreciate feedback on this approach to analogizing the customer to an asset.

The Cost of Poor Service

A survey sponsored by Genesys Telecommunications Laboratories,Inc in collaboration with Datamonitor/Ovum has some very interesting results. The 28 question survey was conducted with a sample of 8,880 consumers from 16 countries. A minimum of 500 surveys were completed for each country. The countries surveyed were Australia, Brazil, Canada, China, Czech Republic, France, Germany, India, Italy, Mexico, Netherlands, New Zealand, Poland, Russia, U.K. and United States. The respondents were selected from all age and income groups. They were asked about the frequency of their interactions with businesses via the Web, through contact centers and with their mobile devices. The purpose was to determine the impact of their interactions with their purchasing decisions.

This survey was aimed at financials services, cable and satellite TV and a variety of telecommunications companies. The survey results indicate that these industries in these 16 countries lose about $338.5 Billion per year as a result of poor customer service when customers defect and/or abandon their purchases as a direct result of poor customer service. This translates into $243 per year per customer. Of this total 63% was lost to a competitor and 37% led to the transaction being abandoned.

These losses are broken down as follows:
1. Financial services lost $44 billion in revenue
2. Cable and satellite TV lost more than $37 billion in revenue
3. Wireless carriers and internet service providers each had $36 billion in lost revenue.
4. Land line carriers lost $33 billion in revenue.

The most frequent reasons the consumers mentioned for leaving (the apparent dissatisfiers) are:
1. Being trapped in automated self-service
2. Being forced to wait too long for service
3. Repeating themselves
4. Representatives that lack the skills to answer their inquiry.

The consumers were asked to identify the factors that have the greatest impact on improving customer satisfaction. The four most frequent responses are:
1. Competency
2. Convenience
3. Proactive engagement
4. Personalization.

There is a customer wish list which includes the following:
1. Provide better integration between self-service and assisted service.
2. Be able to start in self-service and then switch to an agent without having to repeat all the information previously entered (Don't ask me twice!)

The bottom line is that poor customer service is expensive. The good news is that this study appears to have some statistical rigor and thus has believability. The dollars of loss shown in this report should provide a wakeup call to companies in these industries. How can any company stand to lose $243 per lost customer and expect to maintain a viable business? Time will tell if these companies are listening.

As the authors of the report so wisely note "differentiating on service, especially in service-centric industries, such as finance and telecommunications, is how enterprises can retain customers in today's challenging business climate."

A Word about Trust

Thee was an interesting article by David Kiley and Burt Helm in Business Week in the September 17th edition. The first point they make is that trust is the most perishable asset. They point to a survey conducted a phone survey from May 26th to July 3rd by the public relations firm Edelman. The key statistic from the survey is that 44% of Americans said they trusted business and that statistic is down from 58% in the fall of 2007. This decline in trust has caught the attention of some major companies, such as Ford Motor and American Express.

Trust is what drives profit margin and share price according to Larry light, CEO of Arcature, a brand consultancy in Stamford, Connecticut. The poll indicates the consumers are becoming more suspicious not just in products and services but the companies as a whole.

Companies are beginning to understand that brand names are important. As I mentioned in an earlier blog that hyper-loyalty is what companies strive to achieve with their customer base. Companies such as In-And-Out Burgers and Federal Express have achieved some form of hyper-loyalty (customers not only recommend the company but will actually encourage others to use the companies products and/or services.

Trust and company reputation have become ever-more intertwined with customer loyalty and marketing. It appears to have permeated the entire corporate structure to the point that trust and reputation are no longer limited to the PR department. The idea that products and services are separate from the brand and reputation of the company doesn't work well anymore. Consumers at all levels are doing more research than ever before with the advent of the internet. With their research they can read reviews of products and services and discover what their peers are saying.

The bottom line is that trust is becoming more important when considering customer loyalty and market share. One of the words that seems to be descriptive of this enlightened customer approach is "authentic." When you think of In-and-Out or Federal Express you see an authentic company. I use the word authentic in the strictest form of its dictionary definition; namely, the company is being what it is represented or claimed to be. A good synonym is genuine or real. Companies that can attain this image in the market may find they have hyper-loyalty with their customer base. The question to be considered in future blogs is what is how does a company become authentic.

Happy Employees Do Not Make Satisfied Customers

There is some interesting research being done in the UK. Rosa Chun is a professor of business ethics and corporate social responsibility and Gary Davies is a professor of corporate reputation at Manchester Business School. They have been investigating the validity of the assertion that seems to stem from the 1994 Harvard Business Review article "Putting the Service-Profit Chain to Work" and the subsequent book by James L. Haskett that happy workers equal happy customers. The concept of happy employees equal happy customer has been a mantra of high profile executives such as Gordon Bethune, the former CEO of Continental Airlines and many other public, private, non-profit and governmental organizations.

These academics have created a survey of customers and staffs of 49 business units and 13 service organizations in the UK. The survey covers fields ranging from financial services to retailing.

They start out with the statement that they haven't seen any hard data that supports the idea that happy workers equal happy customers. In fact, their research failed to confirm that service businesses with more-contented staff also have more satisfied customers. They found a positive correlation between happy employees and happy customers in only one firm where the business units with employees with higher satisfaction also had happier customers. There were two firms in their sample that had negative correlation between happy employees and happy customers.

Perhaps one of the most startling outcomes of their study was the factors that apparently increased customer satisfaction seemed to decrease employee happiness. The researchers admit there is a great deal of evidence that there is a causal link between happy customers and higher profits but there are a great number of steps to reach happy employees equal happy customers (or loyal customers). It appears that using a happy employee in a service role is not enough to win customer loyalty.

The bottom line is this research is important and needs further verification because there are many companies that hold the belief that happy employees equals happy customers and that this new knowledge may well change their strategy of how to create satisfied and loyal customers. There are several areas that need further investigation; namely,
1. What is meant by happy and how is it measured? (These definitions may be answered in the full documentation of the research.)
2. Would either of the definitions of happy include the topic of compassion that was discussed in my blog from yesterday (April 14th)?
3. What is the satisfaction criteria that indicates a satisfied customer?
4. It is not clear how many actual employees and customers were included in the sample.

I look forward to further information about this very important relationship since there are so very many companies that are spending a great deal of their resources to create "happy employees" with the expectation that it will lead to satisfied customers and perhaps loyal customers.

Multiplicative versus Additive Customers

There was an interesting note in the October 22nd edition of the Philippine Daily Inquirer entitled "Customer complaints, dissatisfaction." While the article was aimed at showing that a focus on customer complaints and dissatisfiers is an excellent way to improve customer loyalty, the intriguing concept that was included in the article was that of multiplicative customers versus additive customers. Once the terms are defined, they are obvious and, I think, many of us wonder why we haven't considered customers this way before.

A multiplicative customer is usually highly demanding and who what to be satisfied for all of his/her expectations. You get a failing grade if any one of the expectations is not met. The final score is zero since the multiplicative customer "multiplies" all satisfaction scores together. A similar scenario is when the customer scores all aspects zero because one of the expectations were not met. This is often referred to as the "halo effect." In any case, customers will give extremely low scores when one or more of their expectations are not met and thus they "punish the company by giving an extremely low overall score. Thus, even though other scores on the survey are reasonable, one expectation not satisfied leads to a zero on the overall satisfaction score.

On the other hand there is the additive customer, most easily characterized as forgiving customer seems to have the ability to segment his/her response so that the final score may be averaged down due to one or more low scores but each of the other scores are considered when deciding the final score. For the additive customer, the final satisfaction score will probably represent some average of the individual question scores. In other words, this type of customer adds the scores to get a perspective whereas the multiplicative customer multiplies each score to get a measure for the overall score.

The bottom line is that everyone who is measuring customer satisfaction or customer loyalty should be aware of these two types of customers. The challenge is to figure out how to convert the multiplicative customers to additive customers. When the market is as competitive as it is these days the number of multiplicative customers seems to be increasing.

Confusion Reigns

In my opinion there is no consistency in our market regarding customer loyalty, customer satisfaction and customer dissatisfaction. For example, I have on my desk a blog regarding hyper-loyalty, an article about creating customer loyalty, and article which focuses on customer dissatisfaction. The problem is they do not connect.

For example, Bill Self in his blog "Thinkinglikeacustomer" of October 21st he discusses the concept of hyper-loyalty. He points out some companies whose customers are "beyond loyal." These customers appear to have a passion for converting others to become "members" of a particular business. One business he uses as an example is In-N-Out Burger. When asked how this passion is created Mr. Self suggests that the secret to creating his passion goes much deeper than customer satisfaction. Stacy Perman notes in her book "In-N-Out Burger" that "the chain's regulars assumed the responsibility of bringing in a constant stream of new devotees, an act generally referred to as "the conversion." It had the feel of bestowing membership into a club that seemed at once exclusive and egalitarian."

As a side note, when I am teaching queuing theory I have my class measure the queuing performance of some business. Often the various teams in the class will focus on fast food companies. In-N-Out Burger also has the longest wait time; however, when I ask how many students go to In-N-Out Burger, there is rarely a time when there is a student who does not go to In-N-Out. In fact, the students fit the description of being "hyper-loyal."

Mr. Self continues by suggesting the hyper-loyalty comes by winning the hearts and minds of the market. He notes that when done properly it creates contagion and people will have an unconditional love for the services because they trust you. In other words, hyper-loyalty is the way to focus customer-centered efforts. What this translates into is that your customers believe you are the best and will keep getting better.

My concern is that not every product and/or service is capable of creating hyper-loyalty. Certainly, it can be developed with high ticket products and services such as automobiles (Lexus and Porche come to mind). Certain airlines seem to be close to being hyper-loyal (such as Singapore Airlines). One aspect of "hyper-loyalty" is that they do not appear to be operating loyalty programs. This implies that loyalty programs are not required to build hyper-loyalty. One could conclude that hyper-loyalty has a higher customer retention percentage than the current market loyalty programs.

I believe this is an interestin concept! I would like to see some more research on companies that have hyper-loyal customers. One aspect that hasnot been addressed is the cost to the company of implementing a program that could lead to hyper-loyalty. As a secondary question is how long it takes to achieve customer relationships that become zealous for the products and/or services.

I would like to appeal to the consultants in the market to look into hyper-loyalty and see if this phenomenon can be replicated. This is one of those great ideas that may become a Black Swan. In the meantime the question is do we stick to the loyalty programs that seem to be working or do we re-direct the loyalty program efforts to building hyper-loyalty? Until then confusion reigns.

A "Little" problem

A poll was recently commissioned by IM Shopping and conducted by Harris Interactive. The survey of 2,274 adults, ages 18 and older, measured customer sentiment on receiving human assistance while shopping online. The results seem to indicate that customers really would like to talk to humans even when buying online. Some of the statistics are:
1. About 74% of US online adults have purchased online in the last 6 months.
2. The most common purchases were:
44 percent purchased clothing
38 percent purchased books
28 percent purchased music
28 percent purchased health and beauty products
28 percent purchased travel related items
4 percent purchased automobiles
1 percent purchased real estate.
3. About 77 percent who have purchased within the last 6 months say they would be interested in getting help from a real person before making certain online purchases. More than half say they would want help before purchasing real estate
(56%), automobiles (54%),and insurance (51%). Other items that many would also like help from a real person to make the purchase include computer hardware/software, home appliances and mobile phones.
4. A significant point is that 82 percent say there have been times when they have not been able to get the help from a real person.
5. Perhaps one of the most telling statistics is that 52 percent who have not been able to get the help they needed from a real person say it affected their decision to not purchase the product (at least sometimes).
6. Automated assistance is not the answer. About 93% of those who purchased online say they have had a question about an online purchase and over half (58%) say the question cannot be answered from the information on the website at least sometimes,and 16 percent say their question almost always or often cannot be answered.

The statistics tell the story that people are important when in comes to selling even when the selling is online. Most companies know about VoIP and how to tie phones into their Internet site. Maybe these statistics will inspire the companies that have a large presence online to reexamine their online strategy.

The bottom line is that we have not yet achieved the ability to displace people in the sales cycle. Until the computers start acting more human or the population becomes more adjusted to online shopping, the successful companies will make sure that real, live people are available to their online customers.

Rethinking Customer Satisfaction

This past spring I read a short article by Xavier Quenaudon of the CFI Group and thought he made some sense when he described some of the myths we live with in the world of customer satisfaction. I believe that once you see these myths described you might want to rethink what you have believed about customer satisfaction and how you might want to change your perspective.

The first myth says that loyalty is more important than customer satisfaction. Since it takes a while to get a measure of customer loyalty, loyalty can be considered a look through the rear view mirror. Loyalty comes with building a relationship which takes time. Although this is worthwhile, it is a lagging indicator. Customer satisfaction, on the other hand, is instant and can quickly identify the short term direction of customers. Loyalty is a strategic variable whereas customer satisfaction is tactical. If the tactics are not right, the strategy will fail.

The second myth says you should maximize customer satisfaction. It doesn't take a brain surgeon to realize that not all customers are profitable and you can't afford to keep them. The better approach should be to optimize customer satisfaction. That means you want to spend enough on customers to keep them profitably satisfied but you may not be able to afford to keep them completely satisfied.

The third myth is that you should exceed customer expectations (Wow them). I think we would all agree that customer expectations should be met - but not necessarily exceeded. It may not be profitable to reduce waiting time for service and so long as the real waiting time is within reason, the customers will often not notice the difference (such as waiting 30 seconds instead of 20 seconds when calling customer service).

The fourth myth says that customer dissatisfaction should be avoided. Thee are some customers that are not profitable and companies would be better off if those customers went to the competition (I have suggested this approach to some of my clients). While a company must be careful to take care of the profitable customers, the unprofitable customers can become a cash drain as well as a resource drain. It may not be profitable to eliminate dissatisfaction and it also may not be possible.

The fifth myth says the customer complaints should be minimized. One of my golden rules is that a customer complaint is the cheapest consulting you can get. Your customers know your company, your products and your services. When they complain they are, in fact, telling you the result of their analysis of your operation and have found a problem which they are usually suggesting that you fix. What a wonderful way to get first-hand analysis of your operation. The best thing you can do is make it as easy as possible to submit a complaint and then PAY ATTENTION to what the customer is telling you.

The sixth myth says that customer satisfaction should be expressed as a percentage. As I continue to blog about customer satisfaction the one message that continues is that customer satisfaction is a complex bundle of thoughts and emotions. I continue to write about the various methods academics and consultants devise to measure customer satisfaction. Almost all of them end up using more than a single measure. When customer satisfaction is reduced to a simple percentage it increases the likelihood that management will focus on the percentage and see it only as a simple number rather than seeing it as a major component of their corporate strategy.

The bottom line is that we often hear platitudes such as "we must get from our customers a "WOW" if we are to be successful." Too often we forget these myths and why they are important to remember.

More Metrics

If you think that NPS is the only way to go, be prepared to stop and take another look. This blog is based on an article by Suresh Lulla. I think the main message out of this blog is that we still haven't decided what is the best way to measure customer satisfaction and loyalty.

The first method is a single measure like NPS but his measure is CPV which stands for Customer-perceived value. The basis of this measure is the belief that perceived value is the basis of customer loyalty, retention and re-purchase. The measure is a cost-benefit analysis of a product and/or service. One of the challenges of CPV is that it is usually implicit and abstract. It is often used to compare alternatives. Customers don't usually put the CPV down on paper with numbers. However, the brain seems to be able to integrate values so that each purchase can be reviewed relative to all the other purchases made over a period of time. That is why customers can compare the value of a pair of shoes with a new shirt or blouse; or they can compare the value of a toaster to a mixer. The advantage of CPV is it is a great metric for benchmarking. Since customers value can change over time as result of purchases CPV becomes a dynamic measure and must be continuously revised. this puts a great deal of stress on the company to keep the measure current.

NPS is a single metric that many use to measure loyalty and predict future performance. NPS is based on the question "how likely is it that you would recommend this product/service to a friend or colleague?" Customers respond on a scale from 0 to 10 where 0 indicates no chance for a referral and 10 means the customer will make a recommendation. The scale is interpreted as follows: scores of 9 or 10 indicate a promoter, scores of 7 or 8 are neutral and scores from 0 to 6 are considered detractors. The Net Promoter Score (NPS) is the difference between the percentage of promoters and detractors. Most companies seem to fall into the range of 5% to 10% and market leaders such as Southwest Airlines and Federal Express will have an NPS score near 50%.

Another measure is Share of wallet (SOW). This metric forms the basis for penetration marketing and measures the percentage of the customer's purchase against their total product/service budget. Share of Wallet is being recognized as a more effective predictor of long-term performance than of market share.

The Gallup group uses four measures of customer engagement to analyze the satisfaction and loyalty of a company. Their four measures are:
1. Confidence - this is a measure of how the company is perceived in delivering on its promises.
2. Integrity - this measure detects the faith in the organization's commitment to quality, customers and ethics.
3. Pride - measures the ownership of the brand. This measure the personal association with the product/service.
4. Passion - It is a measure of the belief that the product/service is the perfect solution to their requirements.
Gallup's research suggests that customers who score high on all four metrics tend to contribute about 23% more to profitability than the average customer.

As you can easily see there are a number of metrics in the market that are all being promoted as the metric which will improve your company's performance. It is not clear that any one of the measures outperforms the others. These measures remind me of the simple management principle that "people do what gets measured." Once management starts looking at a metric, the metric tends to improve.

The bottom line is that measures are good but there is also the problem that the measure itself may become more important than the performance it is measuring. I call it the measurement trap and will discuss it in the next blog.

Two Opposing Views of Customer Loyalty

There was an interesting column in the Phillippine Daily inquirer by two consultants, Ned and Ardy Roberto who see what they call the reality of customer loyalty. They start by pointing out the difference between "how can we retain a customer whom we have not satisfied" and saying "satisfying customers is not necessary for retaining them." The obvious difference is that the first quote refers to an individual customer and the second is aimed at the entire customer base or some subset of the customer base.

From this perspective they note that surveys treat customers as a whole and what may be true for a group of customers may not be true of each individual customer. Besides the leap from customers as a group versus an individual customer, they ask what are you going after by focusing on customer satisfaction. Their conclusion is that one reason companies measure customer satisfaction is that it leads to customer loyalty. They quote the article in the Harvard Business Review in 1990 when Earl Sasser and Frederick Reichheld wrote that "by increasing customer satisfaction you will increase retention. ... Raising retention leads to more customer loyalty." The article goes on to state "if loyalty is the end, it follows that companies should strive for 100 percent retention or zero defection, or perfect customer satisfaction.

These two consultants point out they have never witnessed perfect customer satisfaction, or zero defection or 100 percent retention. The highest satisfaction score they ever saw was 92 percent and usually the scores were between the mid 70s and mid 80s.

What they found was that Professor Roland Rust at the University of Maryland replicated and re validated the study by Sasser and Reichheld but found that higher customer satisfaction does not necessarily lead to higher customer retention and shouldn't be expected to do so. He found that customers segmented themselves into three satisfied-retained/loyal segments; namely,
1. Dissatisfied-defecting/disloyal customers whose population ranged from 1 to 5 percent of the customer population.
2. Satisfied-borderline retention/loyal segment making up about 70 to 85 percent of the customer population
3. Delighted-raised retention/loyal customers who account for about 5 to 10 percent of the customer base.

From Dr. Rust's data he concludes that highly satisfied and loyal customers actually get in and out of loyalty depending on two recurring factors; namely some are seeking some variety in their product or service which may lead to defection and the second factor is competition continues with intense promotional activities such as discounts, coupons, etc. From this Dr. Rust concludes that 100 percent retention does not appear to be viable.

Whereas Sasser and Reichheld give an unqualified "yes" to the question "does higher customer satisfaction lead to higher customer retention?" The results from Dr. Rust's wider based research found that higher customer satisfaction does not necessarily lead to higher customer retention and shouldn't be expected to do so.

The bottom line is customer satisfaction appears to be more complex than most market researchers attribute to it. There must be some factors that we still do not understand which is why we continue to get different theories on how to keep customers, grow the business and increase profits. There is enough going on to keep a lot of consultants busy.

Another Challenge to the Ultimate Question

Once again there is a challenge to the use of the Ultimate Question. The Ultimate Question is used to create a Net Promoter Score (NPS) and has become very popular as a process to understand customers. It is a single question used on customer surveys that is used to compute a Net Promoter Score, a measure which its developers believe is the best predictor of business growth. A new book entitled Beyond the Ultimate Question takes aim at NPS and states that NPS is no more predictive of business growth than other commonly used customer loyalty questions such as overall satisfaction or likelihood to purchase.

The author, Dr. Bob Hayes, states that these three questions (likely to recommend, likely to purchase and overall satisfaction) all measure advocacy loyalty. Dr. Hayes suggests there are three robust, reliable measures of customer loyalty and then demonstrates how each of the three metrics predict different types of business growth. The three metrics are:
1. Advocacy
2. Purchasing
3. Retention
The idea proposed is that when a business measures these three components they will have a more complete picture of the customer relationship and will be able to maximize growth through new and existing customers.

The key to Dr. Hayes approach is to build a successful customer feedback program. Thus a company needs to look beyond the simple question of NPS and work on improving the entire customer feedback program.

Some companies have top executive support and others don not.Some companies use customer feedback results as part of their employee incentive programs while other companies rely on more tradition incentive programs. Some companies integrate their custom feedback data into their daily business processes while others keep them separate. Then there are other companies that conduct in-depth customer research using their feedback data while other rely on the data alone to provide them customer insight.

The bottom line is everybody seems to think they have the best metric to use to predict business growth. Since all the people and companies who are espousing their metric are in the business to make money, it seems reasonable to wonder how much of what they say is based on generating business and how much is valid. I suggest we wait and let the market or some unbiased organization sort the metrics out. I have written previous blogs about other metrics as well as NPS and the three metrics of Dr. Hayes. I would give the most credibility to ACSI if they would take the challenge to sort out which is better. I doubt they will take on this challenge.

Brick and Mortar Loyalty is Different Than Online Loyalty

Michael Greenberg has presented an interesting note in his article of August 25th published in the Multichannel Merchant that makes an interesting case that loyalty for brick and mortar companies is very different from loyalty for companies that are online. The obvious point is that customers who visit brick and mortar companies have to travel some distance to comparison shop whereas the online company is only a click away from all of its competitors. He provides two interesting definitions for loyalty.

The overall definition for customer loyalty according to Mt. Greenberg is a reflection of preference and choice. Within this definition he defines RATIONAL loyalty as the rational decision to choose one provider over another for a given purchase. It is measured by share of wallet.

The second definition is EMOTIONAL loyalty which reflects an attachment of the customer to a brand and is not measured by share of wallet. It is measured by word of mouth, referrals and participation in company programs with the customer.

The main difference Mr. Greenberg sees between online and brick and mortar is that online the company has the ability to track nearly all customer behaviour and transactions on the web. The brick and mortar company usually is limited to perceptions usually measured by a customer survey with little or no measure of
customer behaviour.

There are two strategic aspects to these differences.
1. The brick and mortar company can make friends with the customer and build personal bonds whereas the online company has little likelihood of building personal relationships.
2. The online company has the ability to track nearly all customer behaviour and thus can focus entirely on the driving customer value. Since online companies lack the ability for personal relationships that brick and mortar companies have, they must fight for every new customer on equal footing with every competitor (large or small is not easily perceived online).

Mr. Greenberg provides a list of actions that online companies should consider as a means of building customer loyalty.
1. Improve the online experience by making the shopping experience easy.
2. Reward loyalty by appealing to the rational loyalty element and giving the customer a financial reason to return.
3. Clarify the brand by making sure the brand message is consistent.
4. Listen and respond by watching and managing complaint rates and monitor social media for poor feedback. Avoid the likelihood that customers with a bad experience will share it with friends and coworkers.
5. Enable community by allowing customers to share their experiences with others through reviews and forums.
6. Communicate relevantly by eliminating irrelevant communications. Communications should be relevant, timely and useful and track your brand.
7. Minimize negatives by improving an unpleasant experience so it is neutral or better and no longer the source of bad perceptions. (When a bad experience is solved, it will often result in higher loyalty than a customer with no bad experience).

The bottom line is that online companies must act differently than the brick and mortar companies. When all your competitors are only one click away, the online company must offer some reason for the customer not to make that click. This topic needs more investigation; however, Mr. Greenberg has given some interesting perspectives and a real challenge to the online businesses. I think he presented an interesting idea that loyalty has two dimensions; namely rational and emotional. While this makes sense to the casual observer, there is no discussion on how these two definitions work together. The interaction of these two definitions of loyalty is an obvious topic for futures blogs.

Forget Surveys

William Cusick, CEO of Vox, Inc. has written an opinion article that states that satisfaction surveys don't work. His premise is that customers are irrational based on what he says is recent evidence that "fully 95 percent of our cognitive processing is subconscious." From this he notes that customers are pretty poor at telling others what they like or don't like and why they feel that way. He sums it up pretty well with the statement "how can you get closer to the truth, to determining real, actionable steps to drive customer behaviour, when you don't know what they're thinking in the first place?"

His next point supports his premise when he says that our actions are driven by emotion much more than logic but behavior leads to the truth. He makes a strong case for employing observation of customer behavior over other techniques like surveys. He doesn't ask customers. Instead he tracks customers out in the field to the actual retail stores and notes their behavior in real time. I think he sums it up when he says "to get to their hearts' desires, its much more effective to devote your company's time and resources watching customers actions, and not probing their feelings."

The key point that Mr. Cusick is making is true and we have known this for a long time. The hidden agenda behind Mr. Cusick's opinion article is that his company sells analysis of online businesses. He makes a good point that customers can be accurately tracked online and grabbing the web tracking numbers is not difficult.

The bottom line is that customer actions are definitely more powerful than a survey. As my mother used to say "actions speak louder than words." The drawback that keeps every business from observing their customers is that it is very expensive, especially if you want a large sample and your customers are located throughout the United States and possibly around the world. In addition, customer perceptions may not give you the whole truth but there is knowledge found in large samples of customer feedback. If this were not so, the many companies who use surveys would have quit surveying and saved their money long ago. Obviously, many companies have seen benefits gained from what the customers reported on their surveys. I can personally attest to this truth. I don't think it is time to stop surveying our customers.

Age Makes a Difference

There is something to be said about the "older" worker. A recent study by the Lancaster University Management School of 400 McDonald restaurants at various locations in the United Kingdom provided some unexpected results. The key result was that customer satisfaction was, on average, 20% higher in restaurants that employed kitchen staff and managers who are 60 years and older.

A McDonald official provided the following explanation. The older workers' cumulative experience, work ethic and people skills appear to have an impact on the younger staff. This same McDonald's official indicated that restaurants with a mix of old and young staff meant higher profits for the chain.

The bottom line is that companies are starting to realize the value of older workers. These workers not only bring experience to the job, but an understanding of the value of the job. A friend of mine once posted a bright orange placard in his service organization that read "Customers are what make paydays possible." Needless to say that phrase became the mantra for his organization and brought a clear mission statement to every one in his organization. As a passing note I might add that his organization was VERY profitable.

Can Customers Be Too Satisfied?

I have often preached that you can't have too much customer service since it is customers that make paydays possible. Based on a new study I may want to re-think my philosophy.

Researchers at the Chartered Institute of Management Accountants have uncovered some very interesting findings. They have found the financial benefits of keeping customers generally happy start to drop once you hit satisfaction levels of 90 to 95% They also found that good customer service is expensive and that companies can overspend on satisfaction. They also found that customer service can cost up to 60% of the costs in high-tech companies.

The bottom line is that you can sometimes overdo a good thing. We all generally believe that the better you are at customer service, the more money your company will make and the more loyal your customers will become. We all know that eating food is good is good for you but overeating is bad. It is difficult to draw the same conclusion about customer service, however once customer service is viewed from the point of profitability, the business model changes from never providing enough customer service to providing the most profitable amount. This should not be interpreted to mean that the most profitable amount of customer service is NO customer service. No customer service is a short term strategy with very little likelihood of long term success.

There is an Edelman Award paper that showed that a company with an inbound call center that took orders for product could improve profits by increasing the number of personnel. However, even this scenario has a limit. The company found that customers were not willing to wait on the phone to place an order so by increasing the number of personnel taking orders their sales increased more than the cost of the increased number of personnel in the call center. However, there was a point of diminishing returns. The solution was to find the number the maximized profit.

I once had a client who clearly understood that he could provide too much service. My assignment from him was to effectively create a business model that would provide the relationship between customer satisfaction and cost. In this way he could determine how much more an increment of improved service would cost. His insight was ahead of his time. I think industry now has the tools to build a similar model.

One Way to Fight the Recession

Colloquy has completed a study of consumer participation in loyalty programs. It found that incremental incentives that reward repeat business is up nearly 20% from 2007. About one third of the shoppers say they're relying more on such programs to find value during the recession. The rewards are not likely to entice them to spend more money according to Randy Allen, Associate Dean of marketing and corporate relations for Cornell University's Johnson School. His suggestion is that the loyalty programs might work if they lower prices.

There are a few changes that may give the loyalty programs some traction. Here are some that are popping up:
1. High-tech convenience - some retailers are letting the customers print reward certificates from home or even load manufacturers coupons onto their club card for automatic redemption at the checkout counter.
2. Concierge rewards - some stores are adding concierge-type rewards such as early access to concert tickets or sporting events via ticket brokers.
3. Tiered programs - some retailers are focusing on the customers that spend money so that those who spend more may be given additional rewards or have reward limitations removed.
4. Expanded partnerships - some stores are cross-marketing with other retailers to that discounts can be accrued from more than one store. For example, one store could offer discounts on gas when groceries are purchased at a supermarket.

The bottom line is that the American businessman is adaptable and will find ways to survive even when the economy goes South. This will remain true as long as the government stays out of the way. Regulations tend to have a greater negative impact on small business than the economy. We can only hope the "pols" in Washington get the message.

Lifetime Patient Value

Dr. Peter Meinhofer, a customer sales representative for Integrated Practice Solutions has written a blog entitled "Lifetime Patient Value" about what, in his opinion, might answer what patients truly want and value. He suggests the following 5 points:
1. Improve returns on patients investment by showing them how their range of motion has increased or missed days at work has decreased, etc.
2. Solutions to their problems by showing patients how their medical issues are being addressed.
3. Provide patients with a system of reduced complexity and which is easy to use.
4. Provide an atmosphere of professionalism so that the patient builds trust with the doctor.
5. Participation with the doctor over the long haul allows for the doctor-patient relationship to evolve into a co-creator participation in the outcomes and progress by the patient.

These five points sound like the selling points that a salesman would create in order to sell something (in this case a chiropractic practice management software system).

Dr. Meinhofer does make some very good points when he points out that the doctor is responsible for everything that occurs with the office. Untrained staff can create dissatisfaction to the point that the patient-doctor relationship is permanently damaged. Some of the dissatisfiers noted are billing problems, appointment mess-ups, and clutter. As a second point he mentions that doctors can damage their credibility in the eyes of their patients by having inconsistencies in the fees, procedures, and record keeping. Finally, the doctor himself can represent an inconsistent picture through his own personal appearance (hygiene, weight, diet, etc.).

I think the article makes some excellent points about managing the image of the practice as well as the personal image of the doctor. I would suggest the most important aspect of building a lifetime patient value revolves around the concept of CARE which seems to have been overlooked by Dr. Meinhofer. Studies of patient satisfaction and loyalty have shown that a clear message of caring for the patient appears to have the greatest impact on loyalty. What used to be called "bedside manner" when doctors came to the home and to the bedside of the patient now needs to be translated into showing the patient care and concern. When the patient can believe that the actions of the doctor and his staff are there to "care" for the patient in every way will the first step toward "lifetime patient relationship" begin.

Good News and Bad News

There was an interesting short article in the WSJ on Monday, July 13th. The headline read "The Customer Knows Best." The sub-headline was "Thanks to the Internet, companies can easily find out what consumers think. They just ask."

First, let's review the good news. The WSJ appears to be tuned into the notion that customers count - a notion to which I agree. In the article, the author, Kelly K. Spors, sees that customer input can help a company make better market decisions when they get feedback from their customers. Once agian, i am in complete agreement. The great advantage to using the Internet to connect with your customers is that the process is very timely and cost-effective. Ms. Spors points out the financial costs of having a customer survey developed and implemented by a professional consultant can be too great for start-ups and small companies. These are very valid points and by themselves would seem to point out that any start-up or small company that wants to improve their business would be wise to develop an Internet survey that will give them feedback on virtually all aspects of their business. The survey might focus on product features, service delivery or any other aspect of their business. This sounds almost too good to be true.

The dark side of this approach is that many surveys, even those developed by professional consultants are often flawed and lead to mis-direction as a result. To imagine that a start-up or small company would be able to develop and create a valid survey is asking a lot and has, in my opinion, very little likelihood of yielding valid results. If building and implementing a survey were a simple task, there would be little reason to offer advanced degrees in survey design and analysis.

I think there is a place for the start-up or small business to use an Internet survey. I am sure that if the survey is kept within the following guidelines, the result would be helpful in guiding the company in making better strategic decisions. Here are some simple principles that will provide some assurance that the survey and its results are valid.
1. Do not worry about whether or not your survey is statistically valid.
2. Send it to the customers you have a reasonable relationship with and can trust their responses.
3. Keep your questions simple and focused on:
a. a few product specific areas (e.g. is the product too heavy?)
b. a few service specific areas (e.g. were our service people knowledgeable?)
c. was the value of our product/service consistent with the price?
4. Do the survey quickly and make sure that the customers who responded get an acknowledgement and thank you from you PERSONALLY.

The bottom line is that surveys should be done by someone who is knowledgeable about survey design and analysis. This is not always a realistic probability. Since not everyone can afford having a survey done in this manner, the survey should be simple and direct with no concern about statistical validity. The survey for the start-up or small company should almost look like a personal letter from the company to a few key customers.

Sex and Customer Satisfaction

Researchers, David Hekman and his colleagues, at the University of Wisconsin - Milwaukee have determined the reason that white men continue to earn 25 percent more than equally performing women and minorities. They have found that customers prefer them.

Their experiment was to show a video featuring a black male, a white female, or a white male playing the role of an employee helping a customer. The outcome was that customers reported being 19 percent more satisfied with the employee's performance when they were assisted by a white male. In addition, they were more satisfied with the store's cleanliness and appearance. Their conclusion is that business owners and managers will hire white men when possible and will pay lower salaries to the women and minorities they do hire.

A second study of more than 10,000 medical patients performed by the same researchers showed that patients were more satisfied with their doctor's competence and approachability if the doctor was a white male.

One statistic that the researchers found was that 60 percent of employees have at least some of their pay directly linked to customer satisfaction survey results. As a result of this study, Dr. Bekman offers the following suggestions:
1. Make sure customer satisfaction surveys target specific employee behavior
2. Eliminate anonymous surveys since these can significantly affect the pay scale in many industries.
3. Make sure customers are identifiable and therefore at least somewhat accountable when they provide ratings.

The bottom line is that customer satisfaction does appear to have a component that relates to the sex and color of customer service employees. I believe this is specific to face-to-face interactions. Other research suggests that female customer service reps perform equally well when communicating by phone. However, it is interesting to note this phenomenon. I have not seen any research in this area before and would like to see if these results can be replicated.

Losing Loyalty

The CMO Council in association with Pointer Media Network recently published a white paper entitled "Losing Loyalty: the Consumer Defection Dilemma." In the white paper they present some startling statistics based on an analysis of the individual buying patterns of more than 32 million consumers in 2007 and 2008 across 685 leading CPG (consumer packaged goods) brands. All consumers tracked in the study were consistent shoppers who shopped at least twice in every eight weeks.

Some of the more dramatic statistics are:
1. Only 48% of high loyal consumers in 2007 remained highly loyal in 2008.
2. Only four out of ten brands retained 50% or more of their highly loyal consumers from year to year.
3. About one-third of all highly loyal consumers in 2007 completely defected to another brand in the same category in 2008.
4. Some of the major brands could have increased revenues by 20% in 2008 if they had eliminated brand defection.

These statistics indicate that much of the lost loyalty is due to churn rather than defection. They make the point that the two leading drivers of loyalty churn are variety and value. Consumers seek new experiences in terms of product attribute and are likely to try new products which may include switching brands. During this economic downturn, consumers are interested in saving money and are more likely to switch brands if lower cost alternatives are available.

Customer churn and defection can be found even in the best economy. However, the current economy is driving churn and defection to unforeseen high levels. The report suggests that both manufacturers and retailers need to take direct actions to increase loyalty, retention and customer value. This translates into a marketing strategy with a focus on better communications to their high value customers to demonstrate the real value of their products. This may include incentives, rewards and targeted advertising.

The bottom line is that churn and defection are always present. it just so happens that this economy is exacerbating the magnitude of churn and defection. The good news is that companies that survive and prosper in this economy, will be well positioned when the economy turns around. The bad news for those companies that do not manage the churn and defection well in this economy, may find that their lost customers have found new loyalties.

Predictive Versus Reflective Measures

Many companies seem to think that customer satisfaction measures are predictive. Other companies see customer satisfaction measures are reflective. I believe that once the terms predicative and reflective are carefully examined, it will become clear which term is more appropriate for customer satisfaction.

The dictionary gives a brief definition of predictive as: "being able to tell in advance usually based on facts." The synonyms of predictive are "forecast" and "prophesy". When we ask customers to report their satisfaction with a product or service, we are gaining perceived knowledge about a specific event, in most cases. Of course, customers are also asked strategic questions that are not event specific. In either case we have a measure of the customer's perception of past experiences.

On the other hand, the dictionary defines reflective as: "Something which reflects, or redirects back to the source; e.g.Mirrors are reflective. Thinking back on the past; e.g. He always becomes reflective in preparation for the new year. Thus customer satisfaction is more nearly related to be reflective than predictive.

So, if customer satisfaction is more reflective than predictive, what value does it bring to a company. There are a number of ways that a customer satisfaction measurement provides value. The following list provides some of the value components:
1. It is a measure of how the organization has performed in the past.
2. It may indicate organizational problems that are present and may impact future performance in a negative way.
3. When it is positive it can become an internal motivator.
4. It provides an on-going interest in the customer at all levels of management.
5. It can guide be used as a component of resource allocation.

One of the major misuses or customer satisfaction is using the measure as a predictor of future performance of the organization. Customer satisfaction is often referred to, correctly in my opinion, as a rear view mirror perspective of the organization's performance. Some would ask whether or not it is appropriate to use customer satisfaction measurements for predictive purposes. The obvious answer is no.

The bottom line is that customer satisfaction is a valuable measure of an organization's performance with respect to the customer. It is an historic measure since it is only capable of measuring past events. As the investor's guide usually states "past performance is no guarantee of future performance." When used properly, a valid measure of customer satisfaction is an excellent diagnostic tool for the organization and can be used to optimize the use of limited resources. It can also breed loyalty in both customers and employees.

Another Metric for Loyalty

Forrester, a marketing research company offers another metric for loyalty. It appears that Forrester has three elements which they use to define loyalty; namely
(1)reluctance to switch business from a company, (2)willingness to buy another product or more products from a company and (3)likelihood to recommend a company to a friend or colleague. These are good measures for loyalty and when combined make sense to use as a loyalty metric.

They offer what seems to be an obvious conclusion that there is a correlation between customer experience and loyalty. Another brilliant conclusion is that when companies want to increase sales they should focus on customers.

The real value of this blog is the reluctance to switch business metric. The three legged metric that has been used for many years consists of (1) overall satisfaction, (2) likelihood to recommend to a friend or colleague, and (3) willingness to buy again. Forrester appears to have substituted the reluctance to switch from a company in place of the overall satisfaction measure. Since the other two measures are ones that are familiar in the loyalty measure, the interest is in the reluctance to switch measurement.

One of the standard loyalty measures is to measure the percentage of customers that score "top box" for all three measures. By "top box" most people refer to the highest score on the scale as the "top box." Using a 5 point scale where 5 is the highest score, companies would measure the percentage of customers that scored all three questions with a five. I am presuming Forrester is soing something like this.

Some companies, in order to present high loyalty scores, will include the top two boxes. Thus the percentage of customers they would claim are loyal are those customers who scored them either a 4 or a 5 for all three loyalty questions.

Getting back to the loyalty question of reluctance to switch from a company offers both a positive aspect and a negative aspect for the metric. From the positive perspective a company/customer who is reluctant to switch is for all intents and purposes loyal by definition. The customer is saying that the products and/or services are such that he believes the value proposition offered by competitors is not sufficient to warrant the cost and energy to switch.

From the negative perspective this question may be deceiving by yielding a high score by the customer when, in fact, the customer feels locked into the product and/or service being offered and is only scoring high becasue he feels trapped. For example, a company may be using an obsolete product for a particular process and may be reluctant to switch to another product and/or company until a newer product has been deemed successful in the market. This has been true particularly in the software market with new revisions of software being offered. Companies are reluctant to switch until the newer software has been "debugged" by other customers in the market. An obvious example is the reluctance of companies to move to a new operating system for PCs.

The bottom line is that the use of the question reluctance to switch business from a company is novel. I believe it can be an excellent predictor of loyalty. It has the drawback that it can also be misleading if the customer/company feels trapped with the current product and/or service as noted above. It would be an excellent experiment to test the use of the these three metrics offered by Forrester against the more traditional three metric model which uses overall satisfaction in place of reluctance to switch.

I find this model to be very exciting. Until we have an industry standard model that everyone uses, we need to keep looking for the gold tablet of loyalty metrics and the best way to find it is to keep trying new models.

Is It a Cultural Phenomenon?

The States in the Middle East did not fare well in their first customer satisfaction survey. The survey was performed by Grass Roots, an independent survey organization. The survey used mystery shoppers who made 350 visits over a two month period into outlets in four industry sectors; namely, automotive, fast food and coffee shops, banking and mobile phone products. These industry sectors were chosen because of their fast growth and increasingly competitive nature. The survey was performed in Bahrain, Kuwait, Qatar, Saudi Arabia and the United Arab Emirates.

Some of the major findings include:
1. Approximately one in four customers are unwilling to repeat (23%) or recommend a visit (27%) to the outlet based on the service they received.
2. 83% of the staff was judged helpful.
3. Staff appear to be short on knowledge (40% of staff did not recommend or guide customers to a relevant product).
4. 34% of staff did not ask any questions to establish details about what the customer needed.
5. 41% of staff did not check that the customer had what they wanted or needed.
6. 94% of shoppers reported a clean and tidy environment.
7. 71% were served within 3 minutes.

The average satisfaction score was 69%. However, the States had very different scores. The United Arab Emirates had the highest average score at 78% and Qatar was last with an average score of 65%. Some of the specifics for each state are:
1. Qatar scored lowest and had cluttered outlets and poor product knowledge.
2. Saudi Arabia had low scores on interaction with customers.
3. Kuwait had the lowest score with respect to customers returning (66%)
4. Bahrain had the highest score with respect to customers returning (82%).

Mark Spicer, Operations Director of Grass Roots noted that "our report reveals that Gulf customers have come to expect a lower level of service." He went on to say "with nearly one third of shoppers saying they would not return to or recommend the outlet, the implications in terms of lost sales opportunities are alarming, especially at this time when a massive increase in retail outlets has coincided with an economic downturn. Gulf retailers need to invest in understanding the current needs of their customers and to train and engage staff to create a smarter workforce or else they will continue losing the war for repeat customers."

This is an interesting survey. I would like to know the profile of the mystery shoppers. I am sure there is some research that would show that shoppers from the Middle East have different reasons for scoring high on a satisfaction survey than shoppers from Europe, Asia and America. I would hope that Grass Roots had a blend of mystery shoppers that were stratified proportionately for the outlets they surveyed. As we see more and more surveys from around the world we will need to develop some cultural adjustment factors to account for the many cultural differences. I am not aware of such cultural factors but would appreciate guidance to a reputable source.

The bottom line is that we should beware of applying satisfaction scales from one culture on to another and drawing conclusions. Scores may not be as meaningful if cultures have different values and traditions.

Patient Satisfaction Is Different

The Health Ministry of Singapore commissions a survey of hospital patients every year. During the months of September through December, 2008 9,300 patients were surveyed. This was the first time the survey results showed a decline since the survey became an annual affair in 2005. The average satisfaction level was 69 percent in 2005, the first year of the survey. The average has been increasing every year until last year. The average satisfaction dropped from 76 percent to 74 percent in 2008. The 74 percent represents the percent of patients who scored the hospitals as either excellent or good.

The drop in satisfaction was attributed to the public mood at a time of economic recession according to the ministry. There were six hospitals in the survey and four of them showed a decline while two increased their score from last year.

The reason I have included this very short note is that Alexandra Hospital scored 83 percent and has been ranked first since 2004 when the survey was done with a different method. The key to the success of Alexandra Hospital is the hospital makes a point to hire people who care about patents as human beings and then constantly reminds them to treat patients like family - according to CEO Liak Teng Lit.

The bottom line is that patient satisfaction is very different than customer satisfaction. Remember patients are either in pain, in grief, emotionally distraught. The normal satisfiers are VERY different in a hospital environment. This is an example that supports this notion very clearly.

Web Site Customer Satisfaction Can Help Nonprofits

The ACSI surveyed 2,000 respondents who visited nonprofit websites. The basic finding is startling! They found that visitors to nonprofit websites are more likely to donate money, volunteer time and recommend the nonprofit to others if they are satisfied with their online experience.

While the average score for the nonprofit websites was 73 on the study’s 100 point scale, it was below other online industries such as online banking with a score of 83, E-Retail at 74 and automotive websites at 78.

Some of the specific findings that have particular value include:
1. highly satisfied visitors are 49% more likely to donate money to the non profit, and
2. highly satisfied visitors are 38% more likely to volunteer when compared to dissatisfied online visitors.
3. Satisfied web visitors are 66% more likely to use the website in instead of a costlier channel as the primary resource – thus providing a less costly channel for information and donations instead of the more costly direct mail and call centers

The key to the website success is functionality followed by image and content. With poor functionality nearly one third of donors chose not to give. Some of the other concerns were security and error messages.

The study found that 83% of those who donated online in 2008 donated as much or more than 2007. Finally, people who donate online tend to donate more than those who use other channels.

The bottom line is that nonprofits need too know about the value of their web site and make use of this information. The US is a giving country and in these tough economic times, our nonprofits that work so hard in providing services that the government chooses not to support need to utilize all the tools available to them. This is a tool that many of them will not be aware of its potential and value.

Singapore is Ranked #10

The international service ranking of Singapore is #10. However a recent study of 35,000 respondents disagree. The study was performed by Singapore Management University's Institute of Service Excellence found a drop in satisfaction in all eight sectors from finance to health care. The ranking began in 2005 when Singapore was ranked 17th by the World Economic Forum's global report. In 2006 the ranking fell to 26th and then rose to 15th in 2007 and 10th in 2008.

These rankings do not appear to be consistent with the university study which showed the following:
1. Tourism (hotels and accommodations) services was down 2.4 points from 71 out of 100.
2. Food and beverage sector was down 2.3 points to 65.4.

These results do not track the a separate survey by Singapore Retailers Association that uses a mystery shopper program and measures 155 retail companies. These results showed average scores increased to 73.61 from 70.87 as compared to the national customer satisfaction index which rated the retail sector at 68.2 out of 100, down 0.4 points.

The bottom line is that multiple measures cause confusion. Different questions, scales, and sample demographics often lead to finger pointing. I've seen multiple surveys used in companies for self defense. Even though these surveys were performed in the same time period, the other variables noted above are more important to control to keep a consistent measurement. Multiple surveys performed by different organizations with different objectives create more problems than the solve. Don't do it!

Loyalty not Satisfaction

A recent column on the Otho Supersite written by Free Lee discusses some lessons he learned at the Disney Institute in Orlando, Florida. His concern was whether or not the satisfaction of customers at a Disney resort would have any of the characteristics of satisfaction of patients with suffering grief and pain. the first thing that he noticed was the Disney uses a 1 to 5 scale for satisfaction but only counts the percentage of 5s. Disney does not measure customer satisfaction, they are measuring customer loyalty. The management at the Disney Institute use an article from the Harvard Business Review which presents research that shows that on a 1 to 5 scale a customer who marks a 4 is six times more likely to defect than a customer who marks 5 which implies that there is a six-fold increase in customer loyalty between 4s and 5s. It is amazing how many companies think that scores of 4 and even 3 on a 5 point scale suggest customer loyalty. Those companies should talk with the folks at the Disney Institute.

After reviewing his own data from the hospital, he noticed that many of the comments from patients that would indicate a 5 included words fell into three groups. I think these three groups of words are universal and for that reason I have listed them below.
1. The first group include words that are synonymous with compassion. This would include words like caring, comforting and kind. These represented about 80% of all the adjectives used for what would be considered a high score such as 5.
2. The second group includes words that are synonymous with courtesy. This group was a distant second in the number of comments.
3. The third group include words that describe competence. These words were the least mentioned.

A key insight by Mr. Lee is that courtesy and competence are expected, but loyalty is gained through showing more that simple courtesy. For the hospital it is engaging the patient by showing kindness, caring and compassion that is clearly perceived. While many service industries focus on courtesy and competence, they may be missing the differentiator, compassion.

The bottom line is that I think Mr. Lee has introduced me to a new dimension of service excellence, namely, compassion. I know that most of the training consultants that I have seen train only for competence and courtesy but I am not aware of any that train service people to be compassionate. One argument against using compassion in the commercial market place might be that customer service people will give too much away. That may be the case if they are not properly trained. However, I will take the position that compassion used properly will never be considered a negative by the customer. I will also take the position that this may be the shortest route to customer loyalty. I look forward to finding research to support my position. If anyone has such research I would appreciate a lead to the source.

Customer Feedback - Does Anyone Care?

A new study by the Chief Marketing Officer Council early in February of this year seems to indicate that companies are failing to take decisive, company wide action to integrate the feedback from customers and their experiences into their marketing processes. The study was based on a survey of 480 executives in various industries. Some of the facts that came out of the study were:
1. 58% of the executives say their companies do not compensate any employees or executives based on customer loyalty or satisfaction improvements.
2. 38% say their companies have no programs in place to track or propagate positive word of mouth among customers.
3. 29% rate highly their ability to handle and resolve customer problems or complaints.
4. Nearly 66% do not have a formal program in place to monitor and measure the voice of the customer
5. 13% have deployed real-time systems to collect, analyze and distribute customer feedback.
6. 74% receive customer feedback via e-mail.
7. 23% track and measure the volume and nature of these messages.
8. 14.5% of the companies track word of mouth on the Internet.

The bottom line is that many chief marketing officers are missing or ignoring a very important aspect of their business. I have shown many examples of the impact and importance of the customer experience and word-of-mouth in previous blogs. It seems from the statistics noted above that they know it and (i) they choose not to take advantage of this aspect of marketing, or (ii) they do not understand this aspect and because they do not understand are willing to ignore it or (iii) they really don't believe the importance of the customer experience. Maybe they just don't care.

Value Trumps Price

According to the 2009 Brand Keys Customer loyalty Engagement Index consumers are not buying on price alone. Brand Keys, a consulting firm polled 26,000 consumers of 441 brands in 63 categories earlier this year. Consumer expectations regarding brand value went up 20 percent. Robert Passikoff, president at Brand Keys, made some interesting observations from the results. Some of the comments he made include:
1. Those brands that aren't perceived as being worth it will fall to the wayside.
2. There is a price-value formula consumers use to calculate brand differences and to decide which brands to buy.
3. Shopper consciousness has shifted from just trying to ferret out deals to looking for brands that provide value.
4. This harkens back to why you build a brand. If you're a commodity item or a category placeholder like the GAP, the only way you get attention is by cutting price which ends up being an evil death spiral.
5. Value was a driver In the coffee category along with service and surroundings, quality and taste, and selection. Dunkin Donuts secured the top spot followed by McDonald's and then Starbucks.
6. Perhaps proving the value over price argument convincingly is the fact that Geico was dethroned by Allstate, which had previously been No.3. Consumers rallied around Allstate's added value combined with its rates. It's not just about lower prices, it is Allstate's Accident Forgiveness program, promising no rate increases despite multiple accidents that resonated with policyholders.

The bottom line is that people naturally integrate buying experiences from all their buying experiences so that they know value. While there is a group that is on the financial edge and thus will always buy the cheapest product or service, when given the option financially, people prefer value to price. The people at Brand Keys have demonstrated that premise once again.

Drive-thru Restaurants Are No Different

There is an excellent article in Quirk's Marketing Research Review issue dated March, 2009 edition that focuses on the impact of satisfaction on sales and loyalty for drive-thru restaurants. Here are some of the major impacts noted in the article:
1. The difference in the ticket amount for highly satisfied customers is 4.3% higher than those customers who indicate they are satisfied.
2. Offering refills increases the average spend by 2.5%
3. Suggesting menu items increases the average spend by 2.7%.
4. On average there is a 2.9% increase in the amount spent between highly satisfied customers and satisfied customers.
5. Guests are three times as likely to recommend to others if they were highly satisfied versus those who were satisfied. The actual results indicate that the likelihood to recommend is 84% of highly satisfied customers versus 28% of those customers who were satisfied.
6. Guests are twice as likely to return if they were highly satisfied versus those guests who were satisfied. The actual results indicate that 90% of those who were highly satisfied would return versus 44% of those who were satisfied.

The bottom line is that drive-thru businesses have the same opportunity for building customer loyalty as other businesses. With highly satisfied customers at the drive-thru comes higher average spend.

More Proof of the Value of Customer Satisfaction

A report issued in February by Claes Fornell, a Professor at the University of Michigan, ran a correlation analysis using the American Customer Satisfaction Index (ACSI) against about 200 companies in 44 industries. He found that on average, retailers with improving ACSI scores lost about 30 percent of their market value in 2008, while those with declining ACSI scores lost nearly twice as much (57 Percent). By comparison the S&P 500 dropped about 38 percent.

This result tracks a paper I published in the Summer of 2007 with a colleague where we took the best and worst companies in eleven industries and showed that the financial performance was significantly better for those companies ranked at the top of the ACSI ratings than those ranked at the bottom.

The bottom line is that every time the hypothesis is tested to determine if customer satisfaction is related to financial performance, the test result verifies the hypothesis that there is a statistically significant relationship between the two measures of corporate performance (financial performance and customer satisfaction).

When It's Time to Say Goodbye

There are those companies that think they should never lose a customer. They believe that customers are so important to their business that they should do whatever it takes to keep every one. There are management plaques that remind employees that “customers are what make paydays possible.”

While the general concept is true, the ultimate extension that all customers are important and that the company must do all in its power to keep every customer misses a significant point. The point has two components. The first is that not all customers are equal. The second is that customers change in value as their business changes and as your business changes.

The reality is that there are some customers that may need to be eliminated from the customer base. They will generally fall into one of the following categories:
1. Their business has changed and no longer fits your current product or service offerings.
2. The cost of doing business with them is greater than the margin you receive from products and/or services sold to them (it costs you money to keep them).
3. Your business has changed and no longer fits their business requirements.

The bottom line is that companies should be taking customer inventories on a regular basis. When the companies and customers change strategies, products, services, location or some other aspect of the business relationship, it should ring a bell that it is time to re-assess the relationship. Sometimes it will become clear that the customer is becoming more important and more resource should be directed to that customer. Other times, it just might be time to say goodbye.

Globalization of Customer Satisfaction.

Sometimes you just have to take a break and look around. I found a short but interesting article in the news about customer satisfaction in the Baltic countries.
It seems that customer satisfaction is reaching record lows in Estonia, Latvia and Lithuania. A survey of 750,000 respondents throughout Northern Europe and a few other countries including Russia, U.K., the Czech Republic and Greece. The survey was published by EPSI (Extended Performance Satisfaction Index and took place from September to December, 2008.

Here are some of the findings.
1. Estonia had satisfaction near the bottom of the list and was only better than Iceland. Its score was 65.1 on a scale of 1 to 100. The score was down more than 7 points from when the survey was begun 5 years ago.
2. Lithuania had a score of 74.9 even though its score was more than 6 points higher 5 years ago.
3. Latvia was in the middle with a score of 69.5.
4. One of the three Baltic states ranked either near the top or the bottom of the list for nearly every category.
5. The report made the following comment, "This year customer satisfaction reached its historical minimum for the last five years in Estonia, Latvia and Lithuania."

It would appear that customer service and poor products are the standard for these countries, at least for the moment. If this continues, it will ultimately lead to mistrust by the shoppers. They will begin to expect poor customer service and sub-standard products.

The bottom line is that customer service and quality products seem to be expected around the world. No longer are people willing to accept poor service and sub-standard products without letting people know. This may be one of the best aspects of globalization.

Satisfaction with e-Commerce Dropped

In recent blogs I have been focused on e-Commerce and the associated e-loyalty. Foresee Results which is associated with the American Customer Satisfaction Institute (ACSI) has reported that satisfaction with e-commerce has dropped 2 points to 80 (on a 100 point scale). One of the key contributors to the drop was a 6.3 percent drop in customer satisfaction with online brokerages. Some of the other results are:
1. Online travel satisfaction remains flat.
2. Online retail has also dropped 1.2 percent to a score of 82 with EBay showing a decline of 4 percent to 78 points which is the lowest that EBay has ever recorded for ACSI.
3. The three largest drops were E*Trade, EBay, and Priceline.com. (online travel sector).

There is some logic that retailers are giving such great deals off line that consumers do not have to shop on line to get the bargains. The other logic is that the financial crisis is hitting e-Commerce. e-Commerce is not immune to the economic conditions in the market.

The bottom line is the e-Commerce may be losing some steam but the cost of maintaining a web site is not the same as keeping a bricks and mortar business running. The companies that use the web must focus on the characteristics that I have mentioned in the past; namely, excellent customer service, a web site that is easy to navigate and is secure.