The annual survey performed by ForeSee Results provide evidence of the relationship between customer satisfaction and purchase intent. The annual survey results are based on more than 22,000 visitors to the top 100 e-retail web sites. (The top web sites are defined by sales volume as reported in the 2011 Internet Retailer top 500 Guide).
The report shows that when compared to dissatisfied visitors, highly satisfied visitors to the retail websites are:
1. 68 percent more likely to purchase online
2. 46 percent more likely to purchase offline
3. 61 percent more likely to purchase from the retailer the next time they are in the market for a similar product (based on likelihood scores).
The bottom line is that the statistics continue to demonstrate that companies that pay attention to customer satisfaction increase their likelihood of increasing their sales more than other companies.
Tuesday, June 7, 2011
Wednesday, June 1, 2011
Loyalty Impact of Corporate Social Responsibility
There is an interesting study documented by two professors at the Tuck School of Business at Dartmouth College. The authors Kusum Ailsesfi and Jackie Luan collected data from more than 3,000 grocery shoppers. Their objective was to determine if Corporate Social Responsibility (CSR) performance correlated with financial performance. They measured customer perceptions of the retailers' CSR on four dimensions as well as other variables including price, quality, etc. The results are noted below:
The first dimension is CSR performance (which included environmental friendliness, treating employees fairly, community support, sourcing from local growers and suppliers) all showed positive influence on customer's attitudes toward the retailer.
The second dimension is the economic return which is significant. If the retailer is able to improve the customer's perception of the company's CSR activities there was a gain of approximately 1.7% of share of wallet. This could translate into a sales lift of 10% to 15% for the average retailer in the study.
The third dimension is the price impact when higher prices were considered rather than higher share of wallet. The researchers found that a one-unit increase in customer perceptions of employee fairness translates to a price premium of about 12%. A similar increase in local sourcing of products translates to a price premium of about 16%.
The fourth benefit of CSR is that customers appear to patronize the company because they see personal benefits from the CSR initiatives and because the initiatives resonate with their own values. While high prices may be considered bad, they are considered fairer if they can be attributed to good motives such as CSR efforts. The researchers found that the perception of employee fairness accrues as much as 15% increase in share-of wallet.
The bottom line is that this research is showing that CSR is perceived positively by consumers. When consumers see that companies are spending their money on activities that reflect their own personal values, they appear to be willing to respond with their wallet. You might say that companies will can do well by doing good. The best news is that when companies participate beyond their walls everyone seems to benefit.
The first dimension is CSR performance (which included environmental friendliness, treating employees fairly, community support, sourcing from local growers and suppliers) all showed positive influence on customer's attitudes toward the retailer.
The second dimension is the economic return which is significant. If the retailer is able to improve the customer's perception of the company's CSR activities there was a gain of approximately 1.7% of share of wallet. This could translate into a sales lift of 10% to 15% for the average retailer in the study.
The third dimension is the price impact when higher prices were considered rather than higher share of wallet. The researchers found that a one-unit increase in customer perceptions of employee fairness translates to a price premium of about 12%. A similar increase in local sourcing of products translates to a price premium of about 16%.
The fourth benefit of CSR is that customers appear to patronize the company because they see personal benefits from the CSR initiatives and because the initiatives resonate with their own values. While high prices may be considered bad, they are considered fairer if they can be attributed to good motives such as CSR efforts. The researchers found that the perception of employee fairness accrues as much as 15% increase in share-of wallet.
The bottom line is that this research is showing that CSR is perceived positively by consumers. When consumers see that companies are spending their money on activities that reflect their own personal values, they appear to be willing to respond with their wallet. You might say that companies will can do well by doing good. The best news is that when companies participate beyond their walls everyone seems to benefit.
Saturday, May 7, 2011
Smart Services Impact on Satisfaction and Loyalty
The Customer Institute does not usually editorialize. Rather, the emphasis is on research findings that can be translated into improved satisfaction and loyalty performance by companies. However, with the rapid advancement of web technology and usage, the following comments are offered without supporting research.
As the web emerges as a secure platform for delivering products and services, the customer experience is also changing with it. The technology has given the customer an almost instantaneous access to companies. This access includes both products and services. We see advertisements that show customers doing real-time comparison shopping. Prices are being compared even as the customer enters a store.
While real-time comparison shopping for products is here today, there appears to be an obvious next step that customers are sure to take; namely, seeking more immediate services. We have all lived with companies asking us to wait for service. Often the wait includes either a multi-day wait or at least a multi-hour hour wait. The customer is expected to be available and wait for the service rather than have the service available and eliminate the customer wait.
With this immediacy of access to companies to request service and compare service availability between service providers, there is a possible new paradigm for service delivery that represents an opportunity to improve market position by companies who provide services. The company that can develop a service operation that can respond to this instant access may be able to gain customers and simultaneously improve margins on their services.
We believe, the bottom line is that the web is changing the company-customer relationship. The power of the web enhances the power of the customer by giving the customer instant access to multiple companies when seeking service. While some companies may see this as a loss of power, the wise companies will find ways to reposition their service offerings to capitalize on this next generation customer.
Research has generally shown that the longer customers wait the more likely it is that customer satisfaction and loyalty will be adversely affected. Call centers know that satisfaction is reduced dramatically when a customer waits. The same is true for on-site service and even for car repairs. Yes, most everyone expects to wait at the doctor's office or the dentist's office. But, the last place we want to wait is the emergency room at the hospital. But these may also begin to change when the customer is given choices (if the President doesn't take those choices away).
As the web emerges as a secure platform for delivering products and services, the customer experience is also changing with it. The technology has given the customer an almost instantaneous access to companies. This access includes both products and services. We see advertisements that show customers doing real-time comparison shopping. Prices are being compared even as the customer enters a store.
While real-time comparison shopping for products is here today, there appears to be an obvious next step that customers are sure to take; namely, seeking more immediate services. We have all lived with companies asking us to wait for service. Often the wait includes either a multi-day wait or at least a multi-hour hour wait. The customer is expected to be available and wait for the service rather than have the service available and eliminate the customer wait.
With this immediacy of access to companies to request service and compare service availability between service providers, there is a possible new paradigm for service delivery that represents an opportunity to improve market position by companies who provide services. The company that can develop a service operation that can respond to this instant access may be able to gain customers and simultaneously improve margins on their services.
We believe, the bottom line is that the web is changing the company-customer relationship. The power of the web enhances the power of the customer by giving the customer instant access to multiple companies when seeking service. While some companies may see this as a loss of power, the wise companies will find ways to reposition their service offerings to capitalize on this next generation customer.
Research has generally shown that the longer customers wait the more likely it is that customer satisfaction and loyalty will be adversely affected. Call centers know that satisfaction is reduced dramatically when a customer waits. The same is true for on-site service and even for car repairs. Yes, most everyone expects to wait at the doctor's office or the dentist's office. But, the last place we want to wait is the emergency room at the hospital. But these may also begin to change when the customer is given choices (if the President doesn't take those choices away).
Thursday, April 21, 2011
When Is It Time To Say Goodbye to Customers?
There is interesting research being done to understand when and why should some customers be divested. Some of the work was documented by Mittal, Sarkees and Murshed in the HBR issue of April 2008. They categorized four critical reasons why companies might want to divest themselves of some of their customers.
The first, and most obvious reason, is profitability. Some companies find it easy to assess the profitability of a customer and hence can make the decision quickly. On the other hand, some companies may use analytical models to examine long-term customer value to find the customers that no longer provide the long term return that was originally expected. Insurance and finance companies may divest customers whose risk for massive losses might exceed company guidelines. This occurred in 2005 when Allstate Insurance and Nationwide dropped 95,000 and 35,000 respectively in Florida fearing future losses due to hurricanes. Filene's basement in Boston banned some customers for excessive returns.
The second reason is to increase employee productivity that may be reduced by obnoxious customers that may have a negative impact on the employees to the extent that some may resign to avoid further confrontations. This also occurs in professional organizations when clients work the company employees assigned to them too hard or that the client could never be pleased which required unreasonable amounts of rework.
The third reason is capacity constraints that may occur. Companies may underestimate customer demand or the effects of new regulations or environmental forces. This could occur as imply as the limitation of available skills when a new product or service is announced. The Sarbanes-Oxley act significantly increased the time that employees had to spend on compliance matter and consumed all the available resources to the point that some companies simple didn't have enough manpower to serve all their customers.
The fourth and final reason is that some companies see customer divestment as a consequence of changing business strategies and products. When the company decides to stop offering some products or services the lose the ability to serve some of their clients that depended on the dropped products and services. It may be as dramatic as divesting an entire business unit. Another way this might occur would be if the company had made a strategic mistake in the past and in the process of correcting the mistake had to drop one or more product lines or divisions.
The bottom line is that customers are not forever. Just as products and services need to be reviewed and upgraded or replaced to adapt to market changes, so must companies assess their customers.
The first, and most obvious reason, is profitability. Some companies find it easy to assess the profitability of a customer and hence can make the decision quickly. On the other hand, some companies may use analytical models to examine long-term customer value to find the customers that no longer provide the long term return that was originally expected. Insurance and finance companies may divest customers whose risk for massive losses might exceed company guidelines. This occurred in 2005 when Allstate Insurance and Nationwide dropped 95,000 and 35,000 respectively in Florida fearing future losses due to hurricanes. Filene's basement in Boston banned some customers for excessive returns.
The second reason is to increase employee productivity that may be reduced by obnoxious customers that may have a negative impact on the employees to the extent that some may resign to avoid further confrontations. This also occurs in professional organizations when clients work the company employees assigned to them too hard or that the client could never be pleased which required unreasonable amounts of rework.
The third reason is capacity constraints that may occur. Companies may underestimate customer demand or the effects of new regulations or environmental forces. This could occur as imply as the limitation of available skills when a new product or service is announced. The Sarbanes-Oxley act significantly increased the time that employees had to spend on compliance matter and consumed all the available resources to the point that some companies simple didn't have enough manpower to serve all their customers.
The fourth and final reason is that some companies see customer divestment as a consequence of changing business strategies and products. When the company decides to stop offering some products or services the lose the ability to serve some of their clients that depended on the dropped products and services. It may be as dramatic as divesting an entire business unit. Another way this might occur would be if the company had made a strategic mistake in the past and in the process of correcting the mistake had to drop one or more product lines or divisions.
The bottom line is that customers are not forever. Just as products and services need to be reviewed and upgraded or replaced to adapt to market changes, so must companies assess their customers.
Friday, March 25, 2011
Is There a Better Measure for Customer Value?
The Customer Institute has long believed that one of the better measures of a customer is the customer's Lifetime Value (often referred to as the CLV - Customer Lifetime Value). Now a group of professors has offered an alternative to CLV which they refer to Customer Equity (CE).
They pose the argument that CLV focuses only on existing customers and ignores the notion that companies often have a significant number of potential customers that will ultimately be acquired and produce cash and add value to the company. The CLV argument is that CLV represents the upper bound of what a company should be willing to spend to acquire a new customer. Thus, the CLV argument looks at one customer at a time and ignores potential customers.
There is a strong argument, that potential customers also have value; otherwise, why chase them. While companies often say they want loyal customers, and they really do, those same companies will spend most of their marketing money trying to capture new customers. If that is the case, then a model that attempts to capture those potential customers into its measure of customer value has a valid point from our perspective.
The CLV model is particularly appropriate for evaluating individual customers and can compute the total customer value based on the individual customers in the customer base. By continuously monitoring this LTV companies can detect trends in their long term customer value (which may be particularly important if the company is looking to be acquired).
The use of the customer equity model brings the future into the perspective of the value of the customer base. Of course, the concern would be how does one decide when a potential customer should be included into the calculation. There are many who would argue that such an inclusion could lead to erroneous assumptions of which to include and may end up leading to a complete distortion of who the real potential customers are and their value to the company.
While the CLV method brings a measureable quantity that can be reproduced, it certainly undervalues the customer base by excluding those potential customers. On the other hand, customer equity brings a higher value to the customer base but includes some assumptions that may ultimately be misleading.
The bottom line is there needs to be further clarification of what characterizes a potential customer that is unambiguous and repeatable. It will be interesting to watch how these metrics evolve and which one will ultimately dominate.
They pose the argument that CLV focuses only on existing customers and ignores the notion that companies often have a significant number of potential customers that will ultimately be acquired and produce cash and add value to the company. The CLV argument is that CLV represents the upper bound of what a company should be willing to spend to acquire a new customer. Thus, the CLV argument looks at one customer at a time and ignores potential customers.
There is a strong argument, that potential customers also have value; otherwise, why chase them. While companies often say they want loyal customers, and they really do, those same companies will spend most of their marketing money trying to capture new customers. If that is the case, then a model that attempts to capture those potential customers into its measure of customer value has a valid point from our perspective.
The CLV model is particularly appropriate for evaluating individual customers and can compute the total customer value based on the individual customers in the customer base. By continuously monitoring this LTV companies can detect trends in their long term customer value (which may be particularly important if the company is looking to be acquired).
The use of the customer equity model brings the future into the perspective of the value of the customer base. Of course, the concern would be how does one decide when a potential customer should be included into the calculation. There are many who would argue that such an inclusion could lead to erroneous assumptions of which to include and may end up leading to a complete distortion of who the real potential customers are and their value to the company.
While the CLV method brings a measureable quantity that can be reproduced, it certainly undervalues the customer base by excluding those potential customers. On the other hand, customer equity brings a higher value to the customer base but includes some assumptions that may ultimately be misleading.
The bottom line is there needs to be further clarification of what characterizes a potential customer that is unambiguous and repeatable. It will be interesting to watch how these metrics evolve and which one will ultimately dominate.
Thursday, March 17, 2011
Loyalty Begins with "T"
While The Customer Institute continues to seek quality research in the areas of customer satisfaction and loyalty, there are times when a little diversion may lead to some new ideas on the subjects. This blog will focus on a different concept for customer loyalty; namely, looking at a business process that might provide a path to customer loyalty.
The process is one that we often use and may not be aware that such a process can be accurately labeled. The concept is that there are three Ts that often lead to better relationships.
The first T is transparency. By transparency we mean that there are no secrets between the customer and the company. The company (and all the best salespeople) make sure that the customer is completely aware of all the facets of the relationship.
The second T is trust. As the customer and the company become aware of the completeness of the transparency, trust follows. It is very difficult to build trust between a company and its customers if there is no transparency. Without transparency, there is always a lingering doubt about the true relationship. (This is not being offered as a guide to personal relationships between two individuals).
The third T is truth. With knowledge of complete transparency and trust, both the company and the customer are usually willing to tell the truth. The likelihood of getting the truth without these previous conditions (transparency and trust), is small.
The bottom line is loyalty does not come quickly nor should it. Loyalty often implies a sharing relationship. These three Ts appear to offer such a foundation for a strong relationship which could become the basis of the sharing relationship that will lead to loyalty.
The process is one that we often use and may not be aware that such a process can be accurately labeled. The concept is that there are three Ts that often lead to better relationships.
The first T is transparency. By transparency we mean that there are no secrets between the customer and the company. The company (and all the best salespeople) make sure that the customer is completely aware of all the facets of the relationship.
The second T is trust. As the customer and the company become aware of the completeness of the transparency, trust follows. It is very difficult to build trust between a company and its customers if there is no transparency. Without transparency, there is always a lingering doubt about the true relationship. (This is not being offered as a guide to personal relationships between two individuals).
The third T is truth. With knowledge of complete transparency and trust, both the company and the customer are usually willing to tell the truth. The likelihood of getting the truth without these previous conditions (transparency and trust), is small.
The bottom line is loyalty does not come quickly nor should it. Loyalty often implies a sharing relationship. These three Ts appear to offer such a foundation for a strong relationship which could become the basis of the sharing relationship that will lead to loyalty.
Wednesday, March 9, 2011
Money Isn't Everything
In reviewing some older research there was some interesting research documented in 2004 by Xavier Dreze and Joseph Nunes regarding the concept that loyalty points are often worth more than money. (Using Combined-Currency Prices to Lower Consumers' Perceived Cost"). They postulate that "combined currency-points" transactions may have more appeal to customers than money or points individually.
They point out that there hasn't been much research on the underlying principles that make a loyalty program work of not work for a firm. The authors of the research examined different kinds of currencies that consumers can accumulate and spend. Consumers generally have points gathered from airlines, hotels, car rentals and individual credit card points. The hypothesis behind the research is that there may be a best combination of points and currency that would be more appealing to the consumer than using either one separately to purchase additional products or services from the firm.
The authors present a mathematical proof that outlines the conditions under which a price delineated in multiple currencies (points and dollars) can be superior to a single method of payment. One of the outcomes of the research was the combined currency pricing can bring in more revenue for a company and pricing can either lower the psychological or perceived cost associated with the pricing scheme or raise the amount of revenue collected given a perceived cost.
Another interesting outcome was that consumer preference for the combined currency indicated that each point or dollar spent is not valued equally. They conclude that it would be preferable for a company to charge a combined currency when two conditions exist; namely, the consumer does not value each unit within a currency equally and the perceived cost function of one of the currencies is "convex." Convexity implies that the value of one of the currencies is not linear. Using airline miles as an example, the number of frequent flier miles for a free flight is worth more than twice the value of one half the number of miles for a free flight. If it takes 25,000 miles to get a free flight, that is worth more than twice the value of having only 12,500 miles. This seems to be true since people don't appear to value miles or points the same way they value money.
The bottom line is we get a first glimpse into the psychology of point value versus money from this research. Although many researchers would not think about finding a model that maximizes consumer satisfaction with a loyalty program by mixing reward points with currency to get a "best" solution, there is now some evidence that such is the case. When both the company and the consumer win in a transaction that includes the loyalty program, we are taking another step to demonstrate the value of loyalty programs.
They point out that there hasn't been much research on the underlying principles that make a loyalty program work of not work for a firm. The authors of the research examined different kinds of currencies that consumers can accumulate and spend. Consumers generally have points gathered from airlines, hotels, car rentals and individual credit card points. The hypothesis behind the research is that there may be a best combination of points and currency that would be more appealing to the consumer than using either one separately to purchase additional products or services from the firm.
The authors present a mathematical proof that outlines the conditions under which a price delineated in multiple currencies (points and dollars) can be superior to a single method of payment. One of the outcomes of the research was the combined currency pricing can bring in more revenue for a company and pricing can either lower the psychological or perceived cost associated with the pricing scheme or raise the amount of revenue collected given a perceived cost.
Another interesting outcome was that consumer preference for the combined currency indicated that each point or dollar spent is not valued equally. They conclude that it would be preferable for a company to charge a combined currency when two conditions exist; namely, the consumer does not value each unit within a currency equally and the perceived cost function of one of the currencies is "convex." Convexity implies that the value of one of the currencies is not linear. Using airline miles as an example, the number of frequent flier miles for a free flight is worth more than twice the value of one half the number of miles for a free flight. If it takes 25,000 miles to get a free flight, that is worth more than twice the value of having only 12,500 miles. This seems to be true since people don't appear to value miles or points the same way they value money.
The bottom line is we get a first glimpse into the psychology of point value versus money from this research. Although many researchers would not think about finding a model that maximizes consumer satisfaction with a loyalty program by mixing reward points with currency to get a "best" solution, there is now some evidence that such is the case. When both the company and the consumer win in a transaction that includes the loyalty program, we are taking another step to demonstrate the value of loyalty programs.
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