I recently ran across another model for measuring customer satisfaction. It is referred to as the Kano Model and is named after Professor Noriaki Kano. This post is based on material I found on the web. Some of the material came from a blog by E. George Woodley posted April 14, 2009. The Kano model is built on four identifiers; namely, threshold attributes, performance attributes, exciters or delighters attributes and indifferent attributes. It appears that the Kano model was developed for personnel in the quality function and gives them a methodology for evaluating products and services. Each of these attributes are discussed below.
The threshold attributes are also referred to as "must be" attributes suggesting that they must always be present. These product (or service) attributes are necessary in order for a product (or service) to find acceptance in a market. An example of threshold attributes for a hospital would be quality doctors and adequate equipment in order for the hospital to be considered acceptable.
Performance attributes are those which increase satisfaction of the customers as new services or features are added. For example, a great music system and air conditioning in cars increase customer satisfaction besides the threshold attributes of speed, mileage and brakes. If these performance attributes are removed, customer satisfaction will likely diminish. This suggests that once a performance attribute has been included in a product or service, it must be continued. Performance attributes tend to reflect the voice of the customer. The better the product or service is meeting these needs, the happier the customer is. The Kano model presents a format which allows the company to make trade-offs such as cost versus attribute improvements or trade-offs between various attributes. An example would be trading off improved acceleration performance versus gas mileage for a new model automobile.
Exciter or delighter attributes represent characteristics the customer was not expecting but receive as a bonus. Unlike performance attributes they do not affect customer satisfaction when they are discontinued from a product or service. An example would be the discontinuation of extra planes and train s during the holiday season which are discontinued at the end of the holiday season. The challenge is that some exciter/delighter attributes can become threshold attributes. An example is a dealership that always washes the customer car after servicing. At first it was a exciter/delighter but over time becomes an exciter.
The indifferent attributes do not affect customer satisfaction. They may include such items as the company logo on their stationery or the socks worn by company personnel.
Now that we have described the four identifiers, the model consists of plotting each product/service feature in a 2-dimensional diagram. The x-axis is the degree to which each particular feature is meeting the customer's requirements. The y-axis reflects the customer's level of satisfaction as a result of the level of achievement. The Kano model provides a graph that plots each point (feature) with the measure of how well the feature is meeting its objective and the associated measure of customer satisfaction. Thus, a feature such as gas mileage could have a hypothetical score of 90% indicating the percent of meeting the customer desire for high gas mileage with a corresponding customer satisfaction score of 8 (on a scale of 1 to 10). Thus, the company could evaluate the possibility of increasing mileage versus the cost.
There are a number of flaws in this model which with some effort some of these flaws may be possible to eliminate. For example,
1. There is an implicit assumption that all the individual product/service features are independent with respect to customer satisfaction.
2. Another assumption is that the relationship between feature performance and customer satisfaction is a linear relationship.
3. There is no direct way of rank-ordering the various product/service features in terms of impact on customer satisfaction to eliminate the occurrences when product/service features score low but have less impact than other product/service features.
4. Another assumption is the product/feature performance is linear (even though it appears to be since it is plotted on a scale of 0 to 100%). Is a 5% change at the 25%level the same as a 5% change at the 90% level? Just because a scale is linear does not imply that the characteristic is linear.
The bottom line is this a model that looks good and is probably used by people and companies that are not aware of the flaws in the model. There are many of these models on the market that look good but many are built on a foundation of sand.
I have not been able to find documentation that supports the validity of this model. If I find such documentation I will amend this blog accordingly.
Friday, March 19, 2010
Wednesday, March 3, 2010
The Elements of Success for Call Centers
The Ascent Group has published a white paper and detail report for those with the money to pay for the report. The report is the result of Ascent selecting companies that exhibit high levels of satisfaction. They based their selection of companies on rankings from ACSI, J.D. Power or other third parties (of which no others were named). They culled out the best practices and summarized them in their report. Since I have supported the ACSI as a reputable independent measure of customer satisfaction, and the Ascent Group appears to be acting independently (without bias), the results have value.
The report lists five prevalent (their words) underlying traits that were pervasive among all the companies. These traits are discussed in the following paragraphs.
1. Corporate Culture or Vision - Having a well-defined vision seems to give employees a clear road map of how to act and treat customers as well as colleagues. I recently was a member of a doctoral student whose dissertation topic was to determine if the vision of a founder of a start-up company was an important component of the success of the company. He found that sustaining the vision of the founder was, indeed, an important component of success.
2. Data Mining and CRM Tactics - They are suggesting that companies who are using data mining in combination with the tactical use of CRM are finding better ways to enhance the customer experience. Harrah's Entertainment is used as an example of how a company can use their CRM efforts as a more economical way to compete with lavish attractions or new facilities by their competitors. The CRM effort was combined with a data warehouse that collected patron information in all their properties. From this strategy they have increased their market segmentation and customer profiling. which is leading to a strong brand identity.
3. Actively Measuring Customer Satisfaction and Expectations - All the industry leaders paid a great deal of attention to the customer satisfaction measurements. Some of the companies also looked for dissatisfying situations in order to proactively eliminate them. My experience supports this approach of measuring dissatisfaction as well as satisfaction. The truth is that more customers leave from dissatisfaction than being lured away by other companies. Many companies are their own worst enemies and they don't know it because they focus their attention on the satisfiers and ignore (or unaware) of the dissatisfiers.
4. Hiring the Right Employees - This is so obvious that it requires little explanation. One statement that most would agree with is that employees are the face of the company. The best strategy for a call center to use is to hire the right employees and train them well. When the employees can believe in the company's vision and can be themselves, they become advocates of the company and form the basis of a winning team.
5. Extensive Training - Training is one of the key ingredients in optimizing call center performance. As my previous blogs indicate average handling time (AHT) is not something you want to minimize; rather it is something that you want to optimize. Optimization comes through extensive training. Some companies see this as an investment in quality and see it as a cost. Ritz-Carlton hotels provide 310 hours of training the first year. I find it amazing that companies will cut training budgets especially the on-going training. The assumption must be for these companies that once trained is enough. Using that logic, there is no need for management education after the initial training. Obviously, I don't agree.
The bottom line is this report makes sense. These five factors continue to appear in the literature and on the blogs of the many call center consultants. This attention adds to the credibility of these five factors. The report lists 12 other lesser characteristics, most of which seem equally relevant although not as important. I would stick with these five.
The report lists five prevalent (their words) underlying traits that were pervasive among all the companies. These traits are discussed in the following paragraphs.
1. Corporate Culture or Vision - Having a well-defined vision seems to give employees a clear road map of how to act and treat customers as well as colleagues. I recently was a member of a doctoral student whose dissertation topic was to determine if the vision of a founder of a start-up company was an important component of the success of the company. He found that sustaining the vision of the founder was, indeed, an important component of success.
2. Data Mining and CRM Tactics - They are suggesting that companies who are using data mining in combination with the tactical use of CRM are finding better ways to enhance the customer experience. Harrah's Entertainment is used as an example of how a company can use their CRM efforts as a more economical way to compete with lavish attractions or new facilities by their competitors. The CRM effort was combined with a data warehouse that collected patron information in all their properties. From this strategy they have increased their market segmentation and customer profiling. which is leading to a strong brand identity.
3. Actively Measuring Customer Satisfaction and Expectations - All the industry leaders paid a great deal of attention to the customer satisfaction measurements. Some of the companies also looked for dissatisfying situations in order to proactively eliminate them. My experience supports this approach of measuring dissatisfaction as well as satisfaction. The truth is that more customers leave from dissatisfaction than being lured away by other companies. Many companies are their own worst enemies and they don't know it because they focus their attention on the satisfiers and ignore (or unaware) of the dissatisfiers.
4. Hiring the Right Employees - This is so obvious that it requires little explanation. One statement that most would agree with is that employees are the face of the company. The best strategy for a call center to use is to hire the right employees and train them well. When the employees can believe in the company's vision and can be themselves, they become advocates of the company and form the basis of a winning team.
5. Extensive Training - Training is one of the key ingredients in optimizing call center performance. As my previous blogs indicate average handling time (AHT) is not something you want to minimize; rather it is something that you want to optimize. Optimization comes through extensive training. Some companies see this as an investment in quality and see it as a cost. Ritz-Carlton hotels provide 310 hours of training the first year. I find it amazing that companies will cut training budgets especially the on-going training. The assumption must be for these companies that once trained is enough. Using that logic, there is no need for management education after the initial training. Obviously, I don't agree.
The bottom line is this report makes sense. These five factors continue to appear in the literature and on the blogs of the many call center consultants. This attention adds to the credibility of these five factors. The report lists 12 other lesser characteristics, most of which seem equally relevant although not as important. I would stick with these five.
Tuesday, March 2, 2010
More Reasons NOT to Focus on AHT
In my previous blog, I gave some of the reasons I believe that call centers who focus on lower the AHT don't really understand customers. I read a blog by Ann All that gave me some more ammunition regarding the value of long AHTs. There were also some very pertinent facts included in her blog that, I believe, are worth repeating.
1. A survey by Jonathan Whitaker, an Assistant Professor at the University of Richmonith and two of his colleagues studied offshoring and outsourcing activities of 150 U.S. companies from 1998 to 2006 and found that whether or not the company outsourced offshore or to domestic providers, there were similar declines in satisfaction. While this has little to do directly with AHT, it does demonstrate the possible benefit of keeping support calls within the company - as noted in the examples below.
2. Burroughs Payments Systems, a Michigan company found that when the company switched from offshore to employees with actual hands-on experience the customer satisfaction levels increased sharply. The conclusion given by CEO Alan Howard was that customers prefer to talk to people who know what they are talking about. Mr. Howard noted that Burroughs' cost savings is greater than 10 times what they could have achieved with offshore customer service.
Many customer satisfaction surveys of call center operations have indicated that first call resolution is a key to achieving high levels of customer satisfaction. According to Dick Hunter, Dell's former VP of global customer support services, during a September DataInfoCom webcast the average time of technical support call increased from 22 to 32 minutes but with that increase in AHT the percent of first call resolutions increased from 44 percent to 65 percent.
The bottom line is that AHT is not just another measure of call center performance, it is the place where loyalty begins in the call center. As I noted in my previous blog,"killing the call" should be the primary focus of the call center (unless all they are doing is selling).
1. A survey by Jonathan Whitaker, an Assistant Professor at the University of Richmonith and two of his colleagues studied offshoring and outsourcing activities of 150 U.S. companies from 1998 to 2006 and found that whether or not the company outsourced offshore or to domestic providers, there were similar declines in satisfaction. While this has little to do directly with AHT, it does demonstrate the possible benefit of keeping support calls within the company - as noted in the examples below.
2. Burroughs Payments Systems, a Michigan company found that when the company switched from offshore to employees with actual hands-on experience the customer satisfaction levels increased sharply. The conclusion given by CEO Alan Howard was that customers prefer to talk to people who know what they are talking about. Mr. Howard noted that Burroughs' cost savings is greater than 10 times what they could have achieved with offshore customer service.
Many customer satisfaction surveys of call center operations have indicated that first call resolution is a key to achieving high levels of customer satisfaction. According to Dick Hunter, Dell's former VP of global customer support services, during a September DataInfoCom webcast the average time of technical support call increased from 22 to 32 minutes but with that increase in AHT the percent of first call resolutions increased from 44 percent to 65 percent.
The bottom line is that AHT is not just another measure of call center performance, it is the place where loyalty begins in the call center. As I noted in my previous blog,"killing the call" should be the primary focus of the call center (unless all they are doing is selling).
Saturday, February 27, 2010
Customer Satisfaction versus Average Handle Time
I am seeing a lot of articles and blogs about the virtues and sins of average handle time (AHT) and how important it is. Much of the writing lately has been focused on call centers (and for good reason since they are becoming such a vital part of a company's performance and perception).
Customer service can be considered as four distinct categories; namely service at the customer site, service at the point of sale, service at a remote location and service via some electronic communications media (e.g. phone, fax, internet). The current research suggests that the electronic media is becoming the channel of choice. This leads to the reason for this blog and why I am taking time to respond to the notion that AHT is one of the most important aspects of customer service and, by inference, customer satisfaction and loyalty.
First let me state that AHT is probably not the most important driver of customer satisfaction and loyalty. My research certainly does not support that notion. It is one of the major factors but it is NOT the most important. I am sure there are others out there who will be ready to flog me and point out that I am unaware of the real market. Rather than taking on a fight, I would suggest that the time to answer (average speed of answer - ASA) is far more important if one is looking to improve customer satisfaction and loyalty. I recall a study several years ago that showed that ASA strongly correlates with customer satisfaction. The study showed that there was no perceptible drop in customer satisfaction for up to 2 minutes. However, once the time exceeded 2 minutes there was a precipitous drop in customer satisfaction.
I have seen studies that show if the AHT get very large there is a drop in customer satisfaction. Usually the time has to increase dramatically. Think about it. If you are a customer and you are getting your problem solved, will become dissatisfied when the customer service representative takes extra time to make sure your problem is resolved. I would pose that a longer handle time when done correctly will build customer satisfaction and loyalty. When I was in industry, I made it a policy to make sure that every one who touched a customer would take enough time to "kill each call." By that I meant that I wanted every call to take as long as necessary to make sure the customer thoroughly understood that the problem was resolved. That means the problem is DEAD.
It is very difficult to control incoming calls to an inbound call center. However, if you understand the basics of queuing theory, you can staff to take the calls in a reasonable time to be sure that your ASA is within the bounds you have set. That means you must also staff to give the service representatives sufficient time to "kill the calls."
The bottom line is that AHT is not something you want to reduce, it is what you need to build customer satisfaction and loyalty. The management focus should be on managing ASA and then train the service reps on how to kill a call. The results will surprise you. Of course many will say that you cannot reduce costs when AHT is high and that most companies are looking for ways to reduce costs. My purpose for writing this blog was to point out that ASA is more important to customer satisfaction and loyalty than AHT. Secondly, I wanted to make the suggest that there may be a significant down side to reducing AHT.
Customer service can be considered as four distinct categories; namely service at the customer site, service at the point of sale, service at a remote location and service via some electronic communications media (e.g. phone, fax, internet). The current research suggests that the electronic media is becoming the channel of choice. This leads to the reason for this blog and why I am taking time to respond to the notion that AHT is one of the most important aspects of customer service and, by inference, customer satisfaction and loyalty.
First let me state that AHT is probably not the most important driver of customer satisfaction and loyalty. My research certainly does not support that notion. It is one of the major factors but it is NOT the most important. I am sure there are others out there who will be ready to flog me and point out that I am unaware of the real market. Rather than taking on a fight, I would suggest that the time to answer (average speed of answer - ASA) is far more important if one is looking to improve customer satisfaction and loyalty. I recall a study several years ago that showed that ASA strongly correlates with customer satisfaction. The study showed that there was no perceptible drop in customer satisfaction for up to 2 minutes. However, once the time exceeded 2 minutes there was a precipitous drop in customer satisfaction.
I have seen studies that show if the AHT get very large there is a drop in customer satisfaction. Usually the time has to increase dramatically. Think about it. If you are a customer and you are getting your problem solved, will become dissatisfied when the customer service representative takes extra time to make sure your problem is resolved. I would pose that a longer handle time when done correctly will build customer satisfaction and loyalty. When I was in industry, I made it a policy to make sure that every one who touched a customer would take enough time to "kill each call." By that I meant that I wanted every call to take as long as necessary to make sure the customer thoroughly understood that the problem was resolved. That means the problem is DEAD.
It is very difficult to control incoming calls to an inbound call center. However, if you understand the basics of queuing theory, you can staff to take the calls in a reasonable time to be sure that your ASA is within the bounds you have set. That means you must also staff to give the service representatives sufficient time to "kill the calls."
The bottom line is that AHT is not something you want to reduce, it is what you need to build customer satisfaction and loyalty. The management focus should be on managing ASA and then train the service reps on how to kill a call. The results will surprise you. Of course many will say that you cannot reduce costs when AHT is high and that most companies are looking for ways to reduce costs. My purpose for writing this blog was to point out that ASA is more important to customer satisfaction and loyalty than AHT. Secondly, I wanted to make the suggest that there may be a significant down side to reducing AHT.
Friday, February 19, 2010
What is a "Bad" Customer?
I ran across a brief article titled "Get Rid of Bad Customers" that was published February 17th and was on the web under www.openforum.com/topics/managing/article/...
The essence of the article was that companies should get rid of bad customers. This is a statement that some companies have a difficult time accepting. The author lists four kinds of bad customers:
1. Slow-paying customers - if they continue to be a slow payer the author suggests they be put on a cash-only status. There is additional discussion but essentially the story is that a slow-paying customer is a "bad" customer although the author does not suggest getting rid of them.
2. Customers with constantly changing and ever-expanding needs - the author suggests these are not bad customers but ill-educated customers who don't know how to create project specifications and keep adding requirements. Once again the author does NOT suggest getting rid of them.
3. Price-sensitive, demanding customers - these customers resist standard pricing and insist on high levels of service and numerous product features. The author suggests that the company should decide what prices and terms are necessary to maintain the relationships. If the customers have already been given sufficient concessions, the author suggest it's time to refuse additional business at any price. (This is the first bad customer that the author actually suggests eliminating.)
4. Conniving customers - these customers "misrepresent problems to extract restitution in the form of full refunds or heavy discounts."
The author closes the article with the comment "Start making hard decisions, push away those who drag you down, and cultivate the right relationships."
While I generally agree with the author I think there are some additional points that should be made. The author seemed to limit the kinds of bad customers to those customers who had a direct impact on costs. The first point that seems appropriate is to suggest that customers are not "bad" or "good." Customers either fit your company or they do not. If they fit your company, then there should be a strategy in place to accommodate the needs of the customer. If a customer does not fit your company, it is a waste of your time and resource to try to "put a round peg into a square hole." By that I mean it is rarely cost-effective to stretch your resources to accommodate a customer whose needs are not a good fit with your products and/or services. More often both sides, customer and company, are not satisfied with the results.
It might be appropriate to add some other types of customers to the list of those that don't belong. For example,
1. A customer whose business strategy has changed and now is no longer a good fit with your products and/or services.
2. A customer who has out-grown you so that you cannot meet that customer's demands for products/services.
3. A customer who is not profitable when all the costs for customer support exceed the margin of the products/services purchased by the customer.
4. A customer whose needs have changed in such a way that your company would have to make significant changes to accommodate the customer (such as going to ISO 9000 certification when all of your other customers do not have that requirement).
The bottom line is there are no good or bad customers. The ideal customer is one whose needs for products and/or services matches the company. In addition companies want customers who they can trust and who trusts them. These customers will allow for occasional mistakes. They also understand that you must make a profit.
Most companies keep customers that are no longer worth keeping for any number of reasons - not that they are "bad." Too often an executive will say "we can't afford to lose another customer." This statement is naive and points out that the executive hasn't thought the process of what kind of customers the company needs to prosper and that not all customers will help the company prosper. One of the most difficult processes in business is knowing when it is time to say goodbye to a customer and how to say goodbye and still have the customer have a positive perception of you and your company. These are lessons that needs to be taught.
The essence of the article was that companies should get rid of bad customers. This is a statement that some companies have a difficult time accepting. The author lists four kinds of bad customers:
1. Slow-paying customers - if they continue to be a slow payer the author suggests they be put on a cash-only status. There is additional discussion but essentially the story is that a slow-paying customer is a "bad" customer although the author does not suggest getting rid of them.
2. Customers with constantly changing and ever-expanding needs - the author suggests these are not bad customers but ill-educated customers who don't know how to create project specifications and keep adding requirements. Once again the author does NOT suggest getting rid of them.
3. Price-sensitive, demanding customers - these customers resist standard pricing and insist on high levels of service and numerous product features. The author suggests that the company should decide what prices and terms are necessary to maintain the relationships. If the customers have already been given sufficient concessions, the author suggest it's time to refuse additional business at any price. (This is the first bad customer that the author actually suggests eliminating.)
4. Conniving customers - these customers "misrepresent problems to extract restitution in the form of full refunds or heavy discounts."
The author closes the article with the comment "Start making hard decisions, push away those who drag you down, and cultivate the right relationships."
While I generally agree with the author I think there are some additional points that should be made. The author seemed to limit the kinds of bad customers to those customers who had a direct impact on costs. The first point that seems appropriate is to suggest that customers are not "bad" or "good." Customers either fit your company or they do not. If they fit your company, then there should be a strategy in place to accommodate the needs of the customer. If a customer does not fit your company, it is a waste of your time and resource to try to "put a round peg into a square hole." By that I mean it is rarely cost-effective to stretch your resources to accommodate a customer whose needs are not a good fit with your products and/or services. More often both sides, customer and company, are not satisfied with the results.
It might be appropriate to add some other types of customers to the list of those that don't belong. For example,
1. A customer whose business strategy has changed and now is no longer a good fit with your products and/or services.
2. A customer who has out-grown you so that you cannot meet that customer's demands for products/services.
3. A customer who is not profitable when all the costs for customer support exceed the margin of the products/services purchased by the customer.
4. A customer whose needs have changed in such a way that your company would have to make significant changes to accommodate the customer (such as going to ISO 9000 certification when all of your other customers do not have that requirement).
The bottom line is there are no good or bad customers. The ideal customer is one whose needs for products and/or services matches the company. In addition companies want customers who they can trust and who trusts them. These customers will allow for occasional mistakes. They also understand that you must make a profit.
Most companies keep customers that are no longer worth keeping for any number of reasons - not that they are "bad." Too often an executive will say "we can't afford to lose another customer." This statement is naive and points out that the executive hasn't thought the process of what kind of customers the company needs to prosper and that not all customers will help the company prosper. One of the most difficult processes in business is knowing when it is time to say goodbye to a customer and how to say goodbye and still have the customer have a positive perception of you and your company. These are lessons that needs to be taught.
Tuesday, February 16, 2010
The Customer Perspective on Loyalty
As I have written in previous blogs, great companies do not need loyalty programs. Their customers are loyal because they are a great company. They leave the loyalty programs and the expense of implementation to the not-so-great companies. That being said, the Chief Marketing Officer (CMO) Council surveyed customers to find out how they feel about loyalty programs. The results are interesting but not surprising. Here are some of the findings from the survey.
1. 69% of the respondents said most of their own experience with such programs has been "pretty good."
2. 10% were very satisfied.
3. 21% were strongly motivated to come back for repeat visits.
4. 30% said it was a major factor in their decision making.
On the negative side they found:
1. 32% felt that the loyalty programs had little or no value.
2. 37% believed that the individual rewards had little value.
There are some generic concerns that are positive indicators that loyalty programs are still of interest according to the research firm Colloquy. For example,
1. 67% of consumers are involved in loyalty programs in 2009 compared with 57 percent in 2007.
2. Participation by young adults has increased 32 percent between 2007 and 2009.
3. Participation by women age 25-49 has increased 29 percent for the same period.
Another observation by Colloquy was that the average US household is enrolled in 14 loyalty programs but the typical household only uses (is involved in) 6.2 loyalty programs.
Customers were asked for the top three benefits they received from a loyalty program. The results are:
Greatest benefit - discounts and savings (66% of the respondents)
2nd greatest benefit - better deals and offers (43% of the respondents)
The rest of the top five are:
3rd free products or premiums (38%)
4th perks and privileges (36%)
5th cash back (33%)
Far down the list were the issues that most loyalty programs seem to focus; namely, "recognition and appreciation" was only mentioned 18% of the time and "more individualized attention was mentioned 12% of the time.
The most often mentioned concern by customers was that they received too much spam email and junk mail. When things go bad, customers will opt out of a loyalty program. In fact 54 percent of the respondents said they had left a loyalty program after poor product or service experiences.
The bottom line is that customers perceive the benefits of loyalty program in terms of cash or rewards. While customers do like to be recognized and not considered a stranger, they sign up for a loyalty program for the financial benefits.
1. 69% of the respondents said most of their own experience with such programs has been "pretty good."
2. 10% were very satisfied.
3. 21% were strongly motivated to come back for repeat visits.
4. 30% said it was a major factor in their decision making.
On the negative side they found:
1. 32% felt that the loyalty programs had little or no value.
2. 37% believed that the individual rewards had little value.
There are some generic concerns that are positive indicators that loyalty programs are still of interest according to the research firm Colloquy. For example,
1. 67% of consumers are involved in loyalty programs in 2009 compared with 57 percent in 2007.
2. Participation by young adults has increased 32 percent between 2007 and 2009.
3. Participation by women age 25-49 has increased 29 percent for the same period.
Another observation by Colloquy was that the average US household is enrolled in 14 loyalty programs but the typical household only uses (is involved in) 6.2 loyalty programs.
Customers were asked for the top three benefits they received from a loyalty program. The results are:
Greatest benefit - discounts and savings (66% of the respondents)
2nd greatest benefit - better deals and offers (43% of the respondents)
The rest of the top five are:
3rd free products or premiums (38%)
4th perks and privileges (36%)
5th cash back (33%)
Far down the list were the issues that most loyalty programs seem to focus; namely, "recognition and appreciation" was only mentioned 18% of the time and "more individualized attention was mentioned 12% of the time.
The most often mentioned concern by customers was that they received too much spam email and junk mail. When things go bad, customers will opt out of a loyalty program. In fact 54 percent of the respondents said they had left a loyalty program after poor product or service experiences.
The bottom line is that customers perceive the benefits of loyalty program in terms of cash or rewards. While customers do like to be recognized and not considered a stranger, they sign up for a loyalty program for the financial benefits.
Thursday, February 4, 2010
Measuring Customer Loyalty
There are some people who suggest that customer loyalty is an emotion that is most easily measured using a survey or interview of some form. There are others who say that loyalty shows up in the pocket book and that actions-speak-louder-than-words. One way to measure loyalty using the survey method that appears to be most popular these days is NPS. One of the ways to measure customer loyalty using the actions-speak-louder-than-words approach is RFM.
The term RFM stands for Recency, Frequency and Monetary value. The concept is baaed on a way of gathering the total value of a customer so that customers can be classified into groups which can then be assigned different levels of investment by the company to reward the various customer groups according to their "loyalty".
Recency is determined by reviewing past history for each customer and assign a score which is higher for the more recent purchase. There are several ways this score can scaled. One simple scale would be to give a maximum score if the most recent purchase was within 30 days, the second highest score would be for purchases within 90 days, etc. One concern is that high priced products often have longer periods of time between purchases (e.g.automobiles, tvs, washers and dryers) than clothing,or consumables such as ink cartridges and paper.
Frequency measures the number of purchases made in each of the time frames used to measure recency. Although the recency measure has a limited range of values (depending on the number of time periods used), the frequency measure has virtually no upper bound. Thus a customer could make a purchase every day and have a very high frequency rating or maybe as infrequently as once a year.
With the information of recency and frequency, a total score can be determined by adding the two scores together. In general, the more items a customer purchases and the more recent the purchase will yield a higher overall score which would lead a company to provide more lavish rewards to those customers. Many companies stop rating customers for loyalty when they have reached this point of adding the recency and frequency terms together to categorize their customers into different levels of loyalty. What has been ignored up to this point is the monetary value of these customers. When this term is omitted from the evaluation, the company can not differentiate between customers who provides a high level of profit and those who do not.
Monetary value is often measured in terms of revenue which is easily determined by reviewing the purchases. The monetary value is misleading when only the purchase prices are considered since different products will carry different profit margins. For that reason, the monetary value should be measured in terms of total profit margin rather than total revenue.
Some of the problems with RFM are:
1. A customer's history of purchasing may not be reflected in his future purchasing behavior.
2. A high frequency of buying low margin products can be misleading and score a low value customer high.
3. There are a number of ways to combine all three measurements.
4. The cost of servicing customers is usually not included in the measurement of profit margin.
The bottom line is that there is a need for a business measure of loyalty beyond feelings and emotion. Perhaps the best solution is to find some way to integrate the emotional measure with a business measure. This blog will continue to pursue other business measures of loyalty and report on those that appear to be rational, repeatable and consistent.
The term RFM stands for Recency, Frequency and Monetary value. The concept is baaed on a way of gathering the total value of a customer so that customers can be classified into groups which can then be assigned different levels of investment by the company to reward the various customer groups according to their "loyalty".
Recency is determined by reviewing past history for each customer and assign a score which is higher for the more recent purchase. There are several ways this score can scaled. One simple scale would be to give a maximum score if the most recent purchase was within 30 days, the second highest score would be for purchases within 90 days, etc. One concern is that high priced products often have longer periods of time between purchases (e.g.automobiles, tvs, washers and dryers) than clothing,or consumables such as ink cartridges and paper.
Frequency measures the number of purchases made in each of the time frames used to measure recency. Although the recency measure has a limited range of values (depending on the number of time periods used), the frequency measure has virtually no upper bound. Thus a customer could make a purchase every day and have a very high frequency rating or maybe as infrequently as once a year.
With the information of recency and frequency, a total score can be determined by adding the two scores together. In general, the more items a customer purchases and the more recent the purchase will yield a higher overall score which would lead a company to provide more lavish rewards to those customers. Many companies stop rating customers for loyalty when they have reached this point of adding the recency and frequency terms together to categorize their customers into different levels of loyalty. What has been ignored up to this point is the monetary value of these customers. When this term is omitted from the evaluation, the company can not differentiate between customers who provides a high level of profit and those who do not.
Monetary value is often measured in terms of revenue which is easily determined by reviewing the purchases. The monetary value is misleading when only the purchase prices are considered since different products will carry different profit margins. For that reason, the monetary value should be measured in terms of total profit margin rather than total revenue.
Some of the problems with RFM are:
1. A customer's history of purchasing may not be reflected in his future purchasing behavior.
2. A high frequency of buying low margin products can be misleading and score a low value customer high.
3. There are a number of ways to combine all three measurements.
4. The cost of servicing customers is usually not included in the measurement of profit margin.
The bottom line is that there is a need for a business measure of loyalty beyond feelings and emotion. Perhaps the best solution is to find some way to integrate the emotional measure with a business measure. This blog will continue to pursue other business measures of loyalty and report on those that appear to be rational, repeatable and consistent.
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