I recently read an article published by the Database Marketing Institute dated August 30th that gives specific financial evidence that good customer service pays off. The point of the article is that all customers are not alike. The article starts out by identifying several factors that are driving changes in the market place. The four factors they note are:
1. Loyal customers buy more, buy more often, are cheaper to serve, have higher retention rates, and are more profitable than newly acquired customers.
2. Two of the better ways to influence the level of customer loyalty is recruit the right kind of customers to begin with and treat them very well once acquired.
3. Excellent customer care is the most important method for improving customer loyalty.
4. to provide excellent customer service the customer contact personnel have to be empowered with information and authority to make decisions and to act in the customer's behalf.
Here is where the Dollars show up.
Example #1
A large bank divided up their customers every month based on actual profitability. They discovered 16% of their customers contributed 105% of the bank's profit and the bottom 84% reduced the bank's profit by 5%. The bottom 20% of their customers eroded profits by a total of 22%.
The lesson the bank learned was that they should not be treating all customers the same because all customers are not alike. In other words, you cannot afford to give the bottom 84% of your customers the same level of service as you give the top 16%.
Example #2
A company that manufactures building products has 45,000 large building contractors as customers. Their standard procedure was to publish an annual catalog, mail it out and wait for the phone to ring. The company was very profitable.
They tried an experiment by taking the top 1,200 customers and dived ed them into two exactly equal groups: 600 in a test group and 600 in a control group. The control group would be treated exactly as we treat all of other customers.
For the test group they did outbound relationship building. The assigned one customer service specialist and one building products engineer for a 6 months test. These two people called every decision maker, influencer, and product user they could find in the 600 test companies. They did not try to sell. They did not offer discounts. They tried friendship and providing information. they provided the following:
1. Ask about customer needs
2. Follow up on bids and quotes
3. Schedule product training
4. Remind them of pricing specials
5. Give product comparison information
6. Give new product information & samples.
The results from this 6 month test are as follows:
1. The test group made 12% more orders than they had in the previous 6 months
2. The control group made 18% fewer orders
3. The test group placed 14% larger orders and the control group 14% smaller orders than before.
4. The test group bought products worth $2.6 million more than the control group during the 6 month period.
5. The total cost of the test was about $50,000.
The bottom line is that good customer service is a great investment. This is not rocket science.
Friday, September 5, 2008
Friday, August 29, 2008
Customer Service Does Matter
A new study from Accenture was based on a survey of 3500 consumers on five continents. Two of the key findings are;
1. 59%of the customers had actually stopped doing business with companines in the past year due to poor service.
2. Just slightly less than half of those surveyed said that their expectations were met only sometimes, rarely or never.
There are some other surveys that provide similar results. For example, an annual survey of 137 retail firms conducted by the National Retail Federation and IBM found the following:
1. 10% of retailers measure customer satisfaction on a weekly basis.
2. 8% of retailers measure customer satisfaction on an annual basis.
3. 6% of retailers don't have any set schedule for tracking customer satisfaction.
ForeSee, a consulting firm that measures customer loyalty for web sites found that customer satisfaction fell 1.3% to 74% in 2007. They also found that customer satisfaction ratings declined for nearly half of the 40 on-line retailers last year. ForeSee CEO, Larry Freed suggests the decline may be due to higher customer expectations. The exceptions to the decline were Wal-Mart, Barnes & Noble and Best Buy.
From another perspective, a survey of telecoms found that 96% of US customers said they wouldn't hesitate to switch carriers to get a better experience. 72% had already made a switch due to a negative experience. This was based on a survey of 2000 mobile phone users in the US.
Finally, Amdocs, a call center technology company, found from a survey of more than 2000 consumers in the US and Britain, that about 80% of consumers were satisfied with their service yet about 33% said they would switch to another carrier to get better services for mobile games, entertainment and ads.
The bottom line is that customer service seems to be playing a larger and larger role in building and maintaining customer loyalty. Some of the reasons the consultants say are impacting these statistics are;
1. Companies are cutting costs at the expense of customers.
2. Companies are misguided when they keep people on hold longer or slash store hours just to save money.
3. Companies can improve their customer service experience by appointing a high-level executive with real authority to enforce service levels - often called the chief customer officer.
4. A simple tactic is to make sure that all complaints get resolved on a single call.
5. Focus on brand consistency, increase product selection and enhance the user experience are some of the ways to gain ground in customer satisfaction according to Mark Mahaney, a Citi research analyst.
It all boils down to taking care of the customer. The better you take care of the customer the more you can count on the customer to came back. This is not rocket science.
1. 59%of the customers had actually stopped doing business with companines in the past year due to poor service.
2. Just slightly less than half of those surveyed said that their expectations were met only sometimes, rarely or never.
There are some other surveys that provide similar results. For example, an annual survey of 137 retail firms conducted by the National Retail Federation and IBM found the following:
1. 10% of retailers measure customer satisfaction on a weekly basis.
2. 8% of retailers measure customer satisfaction on an annual basis.
3. 6% of retailers don't have any set schedule for tracking customer satisfaction.
ForeSee, a consulting firm that measures customer loyalty for web sites found that customer satisfaction fell 1.3% to 74% in 2007. They also found that customer satisfaction ratings declined for nearly half of the 40 on-line retailers last year. ForeSee CEO, Larry Freed suggests the decline may be due to higher customer expectations. The exceptions to the decline were Wal-Mart, Barnes & Noble and Best Buy.
From another perspective, a survey of telecoms found that 96% of US customers said they wouldn't hesitate to switch carriers to get a better experience. 72% had already made a switch due to a negative experience. This was based on a survey of 2000 mobile phone users in the US.
Finally, Amdocs, a call center technology company, found from a survey of more than 2000 consumers in the US and Britain, that about 80% of consumers were satisfied with their service yet about 33% said they would switch to another carrier to get better services for mobile games, entertainment and ads.
The bottom line is that customer service seems to be playing a larger and larger role in building and maintaining customer loyalty. Some of the reasons the consultants say are impacting these statistics are;
1. Companies are cutting costs at the expense of customers.
2. Companies are misguided when they keep people on hold longer or slash store hours just to save money.
3. Companies can improve their customer service experience by appointing a high-level executive with real authority to enforce service levels - often called the chief customer officer.
4. A simple tactic is to make sure that all complaints get resolved on a single call.
5. Focus on brand consistency, increase product selection and enhance the user experience are some of the ways to gain ground in customer satisfaction according to Mark Mahaney, a Citi research analyst.
It all boils down to taking care of the customer. The better you take care of the customer the more you can count on the customer to came back. This is not rocket science.
Friday, August 22, 2008
Customer Satisfaction on the Internet Continues to Improve
The latest report from the American Customer Satisfaction Index (ACSI) indicates that customer satisfaction from web companies continues to improve. The web companies are segregated into two categories; namely eCommerce and eBusiness. The overall satisfaction with eBusiness has increased to an all-time high of 79.3 percent on the ACSI 100 point scale. The eCommerce companies have a satisfaction index of 81.6; however, eBusiness is improving at a much faster rate. If eBusiness continues to grow at this pace, it will soon overtake the eCommerce satisfaction level.
The internet business was first measured by ACSI in 2000 and has increased by 25.9 percent over that time period.
According to ACSI the increase has largely been due to the rise of Google eventhough there are obviously other factors. The University of Michigan found that quality is one of the drivers of this increase. Quality ratings have increased by 6 percent in the last year.
The increase in satisfaction has also impacted the loyalty measure which has increased almost 8 percent over the last year.
It is interesting to note that both eBusinss and eCommerce sectors have higher average satissfaction scores than the overall ACSI cross-industry average (75.1 this quarter).
The bottom line is that internet business has become a viable dimension of the US business community.
The internet business was first measured by ACSI in 2000 and has increased by 25.9 percent over that time period.
According to ACSI the increase has largely been due to the rise of Google eventhough there are obviously other factors. The University of Michigan found that quality is one of the drivers of this increase. Quality ratings have increased by 6 percent in the last year.
The increase in satisfaction has also impacted the loyalty measure which has increased almost 8 percent over the last year.
It is interesting to note that both eBusinss and eCommerce sectors have higher average satissfaction scores than the overall ACSI cross-industry average (75.1 this quarter).
The bottom line is that internet business has become a viable dimension of the US business community.
Thursday, August 21, 2008
The Best Service is No Service
There is a new book on the market with the title shown above; namely, "The Best Service is No Service" published by Josse-Bass. It was written by Bill Price, former VP of global customer service at Amazon.com, Inc. and David Jaffe, a consultant. Their premise is that the size of a customer service organization is inversely proportional to the quality of the product or service provided by the company. So, the lower the quality of the product, the more customer service personnel you need and the higher the quality the fewer customer service personnel you need. Sounds pretty obvious to me.
They discuss a metric not often used by customer service organizations, they suggest using the contacts per customer order (CPO). Their idea is to reduce the number of contacts per customer order. Mr. Price points out that Amazon has reduced its CPO by 90% over the last 5 years.
The authors note the four causes for customer contact.
1. "It doesn't work" creates about 1 in 7 contacts.
2. "How do I ..." questions create about 1 in 4 contacts.
3. "Where can I get..." questions create about 40% of the contacts.
4. The final 20% of contacts are customers who want to buy stuff.
The authors suggest that if you reduce the number of contacts for the first 80% of the contacts (the correction side), there will be more time to spend on the remaining 20% of customers who are there to buy. While the book sounds simple it is most likely a quality nightmare - but with a great payoff.
The bottom line is that the title of the book rings a bell to wake up those leaders in the customer service business to create a metric that may ultimately transform the activities of customer service into higher profits and higher customer loyalty.
They discuss a metric not often used by customer service organizations, they suggest using the contacts per customer order (CPO). Their idea is to reduce the number of contacts per customer order. Mr. Price points out that Amazon has reduced its CPO by 90% over the last 5 years.
The authors note the four causes for customer contact.
1. "It doesn't work" creates about 1 in 7 contacts.
2. "How do I ..." questions create about 1 in 4 contacts.
3. "Where can I get..." questions create about 40% of the contacts.
4. The final 20% of contacts are customers who want to buy stuff.
The authors suggest that if you reduce the number of contacts for the first 80% of the contacts (the correction side), there will be more time to spend on the remaining 20% of customers who are there to buy. While the book sounds simple it is most likely a quality nightmare - but with a great payoff.
The bottom line is that the title of the book rings a bell to wake up those leaders in the customer service business to create a metric that may ultimately transform the activities of customer service into higher profits and higher customer loyalty.
Automotive Customer Loyalty Drops
In an article dated August 13th, Experian Automotive released findings that indicate customer loyalty at the manufacturer level has dropped 9.2 percentage points in the last 10 years from 49.1 percent in 1998 to 39.9 percent in 2008.
The key point to the article was to demonstrate the value of customer loyalty. The article uses as an example of a manufacturer with 10 million customers. That manufacturer will have approximately 1.5 million of those customers returning to the market in a given year. A one-percentage point increase in loyalty translates to 15,000 additional cars sold. At an average vehicle sale price of $27,000 per vehicle, this represents $405,000,000 in additional revenue.
To take it to the obvious next step, consider the financial impact of regaining all 9.2 percentage points of customer loyalty. This increase in loyalty would yield $3,726,000,000 in additional revenue. However, there are many other factors that would have to be considered and managed to achieve the total loyalty recovery such aas the economy, financing, etc. However, it seems to be a prize worth seeking. I wonder what the automobile manufacturers are doing? Hmmmmmmmm.
The key point to the article was to demonstrate the value of customer loyalty. The article uses as an example of a manufacturer with 10 million customers. That manufacturer will have approximately 1.5 million of those customers returning to the market in a given year. A one-percentage point increase in loyalty translates to 15,000 additional cars sold. At an average vehicle sale price of $27,000 per vehicle, this represents $405,000,000 in additional revenue.
To take it to the obvious next step, consider the financial impact of regaining all 9.2 percentage points of customer loyalty. This increase in loyalty would yield $3,726,000,000 in additional revenue. However, there are many other factors that would have to be considered and managed to achieve the total loyalty recovery such aas the economy, financing, etc. However, it seems to be a prize worth seeking. I wonder what the automobile manufacturers are doing? Hmmmmmmmm.
Thursday, August 14, 2008
Bad news about outsourcing customer service
An excellent piece of research appears to demonstrate that outsourcing customer service has a negative effect on customer satisfaction and also appears to have a negative impact on the market capitalization of the company. The research is being conducted in partnership with the National Quality Research Center at the University of Michigan and the India National Association of Software and Service Companies. The research paper is entitled "Does Offshoring Impact Customer Satisfaction?"
The researchers analyzed 150 North American companies and business units from 1998 to 2006. They used the ACSI (American Customer Satisfaction Index) as the measure of customer satisfaction. The researchers found that whether or not the outsourcing was offshore or not, the results were the same; namely customer satisfaction declined whenever a company outsourced customer service. With the decline in customer satisfaction was a drop of 1% to 5% in the company's market capitalization.
There is some good news in the research. The outsourcing of back-office activities (such as IT) had no measurable impact on customer satisfaction.
The bottom line is that outsourcing customer service has a price; namely reduced level of customer satisfaction and a likely reduction in the market capitalization of the company.
Is there an obvious conclusion that customers want to deal with the company? One counter argument is that companies who provide outsourced customer service have an incentive to do as well, if not better, than the company itself in order to keep the business. I am thinking employee loyalty plays a part. While outsourced customer service companies may do all the right things, where is the loyalty of their employees?
The answer to outsourcing customer service, at least for now, appears to be a bad decision. The benefit of reduced costs seems to be offset by the reduction in customer satisfaction and potential loss of market capitalization.
The researchers analyzed 150 North American companies and business units from 1998 to 2006. They used the ACSI (American Customer Satisfaction Index) as the measure of customer satisfaction. The researchers found that whether or not the outsourcing was offshore or not, the results were the same; namely customer satisfaction declined whenever a company outsourced customer service. With the decline in customer satisfaction was a drop of 1% to 5% in the company's market capitalization.
There is some good news in the research. The outsourcing of back-office activities (such as IT) had no measurable impact on customer satisfaction.
The bottom line is that outsourcing customer service has a price; namely reduced level of customer satisfaction and a likely reduction in the market capitalization of the company.
Is there an obvious conclusion that customers want to deal with the company? One counter argument is that companies who provide outsourced customer service have an incentive to do as well, if not better, than the company itself in order to keep the business. I am thinking employee loyalty plays a part. While outsourced customer service companies may do all the right things, where is the loyalty of their employees?
The answer to outsourcing customer service, at least for now, appears to be a bad decision. The benefit of reduced costs seems to be offset by the reduction in customer satisfaction and potential loss of market capitalization.
Tuesday, August 12, 2008
Customers and Vendors disagree on Loyalty
A survey with no apparent definition of the sample size or the specifics of the respondents offers some very intersting insights. The results have been published by Marketing Sherpa. The respondents were webinar attendees. Questions were asked to both vendors and customers. The vendors were asked why they think their customers left them. The customers were asked why they left the vendor. Here are the startling results.
1. Vendors said that 56% of their customers left because of price. When the customers were asked only 29% of the customers said they left because of price.
2. Vendors said that 17% of their customers left because of customer service. When the customers were asked 40% said they left because of customer service.
3. Vendors said that 14% of their customers left because of capabilities and features of their products and services. When the customers were asked only 11% said they left because of the capabilities and features of the vendor's products and services.
4. Vendors said that 8% of their customers left because of scalability. When the customers were asked 13% said they left because of scalability.
The bottom line (if we can believe the validity of the survey) is that vendors are listening to their sales people and not the customers. Sometimes the customer will say that price is the reason they are leaving rather than having to explain and defend the real reason for leaving to the sales person. It appears that more customers seem to be leaving because of customer service rather than price. One might also conclude that price is less important than the customer relationship.
1. Vendors said that 56% of their customers left because of price. When the customers were asked only 29% of the customers said they left because of price.
2. Vendors said that 17% of their customers left because of customer service. When the customers were asked 40% said they left because of customer service.
3. Vendors said that 14% of their customers left because of capabilities and features of their products and services. When the customers were asked only 11% said they left because of the capabilities and features of the vendor's products and services.
4. Vendors said that 8% of their customers left because of scalability. When the customers were asked 13% said they left because of scalability.
The bottom line (if we can believe the validity of the survey) is that vendors are listening to their sales people and not the customers. Sometimes the customer will say that price is the reason they are leaving rather than having to explain and defend the real reason for leaving to the sales person. It appears that more customers seem to be leaving because of customer service rather than price. One might also conclude that price is less important than the customer relationship.
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