The customer Institute usually publishes information regarding a specific research topic. This blog will be different in that it is primarily commentary. The topic of this blog "customer retention" will focus on companies that have long-term contracts with their customers. Customers with long-term contracts are very different from customers that are dealt with one event at a time with no long term commitment.
A study was done by the customer Institute several years ago that examined the migration of customers between competing companies. The objective of the study was to examine the roles of customer acquisition versus customer retention. One of the most interesting outcomes of the study was that the impact of customer retention (increasing the rate of contract renewal) on market share was greater than the impact of customer acquisition.
One of the challenges that companies (with long-term contracts with their customers) have is remembering the value of that customer even when the long-term relationship has been legally consummated and now is the time to start supporting the customer. Companies can easily become complacent once that long-term agreement is signed. It becomes very easy to give the long-term customer lower priority than the potential new customer. However, it is important to remember that the long-term value of the customer (with the long-term contract) is greater than the short term opportunity.
The bottom line is that companies who develop long-term contracts with their customers need to focus on retaining those customers. Long-term growth in market share comes from increasing retention rates of those customers with long-term contracts. In other words, the long-term customers represent your greatest opportunity for growth and market share.
Saturday, February 9, 2013
Monday, January 21, 2013
The Five Dimensions of Customer Behavior
There was an interesting article written by Danica Alann in the January 2012 issue of Quirk's Marketing Research Review titled "transcending brand and loyalty." In the article she reflects on the research by Pinker, who wrote about how the mind works.
Adweek in September 2008 made the following statement:
"Whatever the methodology, it's increasingly clear that customers desperately want goods and services, communications and marketing campaigns that dazzle their senses, touched their hearts and stimulates their minds - delivering a positive experience that will remember. Businesses will live or die not by the attributes they promise but by the brand experiences and value they offer customers at every touch point."
There's been considerable research performed that has confirmed Pinker's five dimensions. Those five dimensions are sensorial, social, behavioral, cognitive and emotional. A brief description of each of these dimensions is described below.
1. Social is the dimension of interacting with others. It is a dimension that creates a bond between the customer and the company.
2. Intellectual is the dimension of thinking. It is the dimension that causes me to reflect and try to understand and compare experiences.
3. Sensorial is the dimension of senses. It is the dimension that interacts with one or more of my five senses of smell, touch, sound, taste, hear.
4. Emotion is the dimension concerning my emotions. It is the dimension that affects the way I feel or react to a situation.
5. Behavior is a dimension concerning my actions. It is the dimension that describes my physical reaction or responses to the situation.
In her article Ms. Allen translates these five dimensions into more consumer-friendly words of talk, think, since, feel and act. These words make it easier to develop strategies that will best capture the customer dimensions most appropriate for specific products and services.
While not all five dimensions will have equal weight in any service encounter, all will be present. It is the challenge of the company who wants to understand its customers to determine how each of these five dimensions are working with their customers. For example food-service companies will obviously focus on the senses, such as sight and smell of their products. On the other hand, companies that sell products such as cars, boats, motorcycles and airplanes would probably be interested in the sight and emotional impact of the product on the customer.
The bottom line is that a better understanding of the dimensions of the customer should lead us to better metrics. The remaining question is how to translate these five dimensions into an overall metric that best represents the customer.
Adweek in September 2008 made the following statement:
"Whatever the methodology, it's increasingly clear that customers desperately want goods and services, communications and marketing campaigns that dazzle their senses, touched their hearts and stimulates their minds - delivering a positive experience that will remember. Businesses will live or die not by the attributes they promise but by the brand experiences and value they offer customers at every touch point."
There's been considerable research performed that has confirmed Pinker's five dimensions. Those five dimensions are sensorial, social, behavioral, cognitive and emotional. A brief description of each of these dimensions is described below.
1. Social is the dimension of interacting with others. It is a dimension that creates a bond between the customer and the company.
2. Intellectual is the dimension of thinking. It is the dimension that causes me to reflect and try to understand and compare experiences.
3. Sensorial is the dimension of senses. It is the dimension that interacts with one or more of my five senses of smell, touch, sound, taste, hear.
4. Emotion is the dimension concerning my emotions. It is the dimension that affects the way I feel or react to a situation.
5. Behavior is a dimension concerning my actions. It is the dimension that describes my physical reaction or responses to the situation.
In her article Ms. Allen translates these five dimensions into more consumer-friendly words of talk, think, since, feel and act. These words make it easier to develop strategies that will best capture the customer dimensions most appropriate for specific products and services.
While not all five dimensions will have equal weight in any service encounter, all will be present. It is the challenge of the company who wants to understand its customers to determine how each of these five dimensions are working with their customers. For example food-service companies will obviously focus on the senses, such as sight and smell of their products. On the other hand, companies that sell products such as cars, boats, motorcycles and airplanes would probably be interested in the sight and emotional impact of the product on the customer.
The bottom line is that a better understanding of the dimensions of the customer should lead us to better metrics. The remaining question is how to translate these five dimensions into an overall metric that best represents the customer.
Saturday, December 29, 2012
Customer Experiences are Relative
Dr. Howard Lax wrote a blog on November 7, 2012 which he titled Customer Experiences and the Theory of Relativity. The key point of his article is that we evaluate the world through the lens of comparisons. He makes an excellent point when he states that whatever the experience may be, our recall, reflection, and/or evaluation of the experience always is relative to some frame of reference.
These statements by Dr.Lax are consistent with the the preferred definition used by the Customer Institute which says: "customer satisfaction occurs when the perception of the reward from the purchase of goods or services by the customer meets or exceeds his or her perceived sacrifice. The perception is a consequence of matching past purchase and consumption experience with the current purchase."
There are simpler definitions of customer satisfaction, which are often used but which do not have the value derived from the definition above. Four other definitions that are often used are:
1. Customer satisfaction is equivalent to making sure that the product and service performance meets customer expectations.
2. Customer satisfaction is a perception of the customer that the outcome of business transaction is equal to or greater than his or her expectation.
3. Customer satisfaction occurs when the acquisition of products and/or services provides a minimum negative departure from expectations when compared with other acquisitions.
4. Customer satisfaction occurs when the marginal utility of a transaction is equal to or greater than preceding acquisitions.
There are several observations that follow from the Customer Institute definition; namely,
1. The comparison between past purchase and consumption experience must make sense. it is difficult to compare the purchase of the computer with the purchase of a wristwatch. Often we do not have a realistic context or frame of reference for making a comparison, so there may be occasions when the customer will actually compare "apples to oranges". That's just the way we are.
2. When thinking about customer experiences, it must be remembered that there are no absolutes.
3. When evaluating customer perceptions, especially in customer surveys, it is critically important to establish measurement scales that accurately describe them.
The bottom line is to remember that customer satisfaction and customer loyalty measurements are all relative. There is no absolute scale for satisfaction, nor is there an absolute scale for customer loyalty. Surveys of customers and measurements taken from those surveys will always reflect the customers perception relative to their past purchase experiences. It is not unreasonable to conclude that much of the variability in customer's. responses to survey questions is often times due to these experiences.
lax
These statements by Dr.Lax are consistent with the the preferred definition used by the Customer Institute which says: "customer satisfaction occurs when the perception of the reward from the purchase of goods or services by the customer meets or exceeds his or her perceived sacrifice. The perception is a consequence of matching past purchase and consumption experience with the current purchase."
There are simpler definitions of customer satisfaction, which are often used but which do not have the value derived from the definition above. Four other definitions that are often used are:
1. Customer satisfaction is equivalent to making sure that the product and service performance meets customer expectations.
2. Customer satisfaction is a perception of the customer that the outcome of business transaction is equal to or greater than his or her expectation.
3. Customer satisfaction occurs when the acquisition of products and/or services provides a minimum negative departure from expectations when compared with other acquisitions.
4. Customer satisfaction occurs when the marginal utility of a transaction is equal to or greater than preceding acquisitions.
There are several observations that follow from the Customer Institute definition; namely,
1. The comparison between past purchase and consumption experience must make sense. it is difficult to compare the purchase of the computer with the purchase of a wristwatch. Often we do not have a realistic context or frame of reference for making a comparison, so there may be occasions when the customer will actually compare "apples to oranges". That's just the way we are.
2. When thinking about customer experiences, it must be remembered that there are no absolutes.
3. When evaluating customer perceptions, especially in customer surveys, it is critically important to establish measurement scales that accurately describe them.
The bottom line is to remember that customer satisfaction and customer loyalty measurements are all relative. There is no absolute scale for satisfaction, nor is there an absolute scale for customer loyalty. Surveys of customers and measurements taken from those surveys will always reflect the customers perception relative to their past purchase experiences. It is not unreasonable to conclude that much of the variability in customer's. responses to survey questions is often times due to these experiences.
lax
Saturday, December 22, 2012
Customer Communications
Customer language may not be what you think it is. We think we know our customers language when we communicate with them. That is not always the case. In communication with customers, companies believe that the customers understand what they are saying. Since communication is in two directions, the assumption is that the company understands what the customer saying and the customer understands what the company is saying. The purpose of this blog is to examine the assumptions of the communications between the company and its customers.
Company Communication
Companies communicate with their customers from various organizations within the company. The sales organization has one type of communication. The customer support organization has another type of communication. accounts receivable organization will have another type of communication. The shipping department will have still another type of communication.
Each of the company organizations will have different vocabularies. In addition to these vocabularies there may be internal jargon that is unique within the company. It often occurs that internal company jargon will find its way to the customer. In fact, the employee may forget what it's like being without the specialized knowledge that they have acquired while working for the company. The jargon may be unique for each organization within the company, as well as having jargon that may be used consistently throughout the company. One example of different vocabulary from one department to another is the sales organization may refer to a product by a name created for advertising purposes; while on the other hand, accounts receivable may refer to the product by its product number.
Unfortunately, customers may be communicating with more than one organization at the same time. The likelihood that the communication from the company to the customer from each of these organizations will be consistent and understood may not be at the level of company expects. Sometimes the hand-off from sales to customer service can create problems for the customer. This particular communication problem may be as simple as matching expectations given by the sales organization to the performance being supported by customer service.
The final complexity occurs as companies expand into multiple areas that may have additional challenges in terms of culture and language.
Customer Communication
Customers come in all shapes and sizes for both B2B and B2C. Of course, the range of customer types for B2C is much greater than B2B. In either case.a wide range of communication skills from the customers can be expected.
Customers have their own jargon. Customers also have their own vocabulary and often their own definitions of the words they use, which may or may not track dictionary definitions. Many of the problems that occur between customers and companies arise from the communication and lack of consistent definitions between the two.
The Solution
Most companies do not realize this is a problem. Most companies believe their customers always understand the communication from the company. They also believe their employees always understand all customer communications. It is easy to conclude from the preceding discussion that these beliefs or assumptions are false.
The first step of the solution is to recognize that there is a communications problem.
The second step of the solution is to identify internal jargon and that must be eliminated from the communication to the customer.
The third step is to train all personnel that interface with customers to use a common language.
The fourth and most difficult step is to train all personnel that interface with customers to be aware of the communications variation from customer to customer and how to handle it.
The bottom line is that customer communication is imperfect. It is not just the company nor is it just the customer. The communication problem extends in both directions. If a company wants to increase customer satisfaction and customer loyalty it must first reduce communication errors.
Company Communication
Companies communicate with their customers from various organizations within the company. The sales organization has one type of communication. The customer support organization has another type of communication. accounts receivable organization will have another type of communication. The shipping department will have still another type of communication.
Each of the company organizations will have different vocabularies. In addition to these vocabularies there may be internal jargon that is unique within the company. It often occurs that internal company jargon will find its way to the customer. In fact, the employee may forget what it's like being without the specialized knowledge that they have acquired while working for the company. The jargon may be unique for each organization within the company, as well as having jargon that may be used consistently throughout the company. One example of different vocabulary from one department to another is the sales organization may refer to a product by a name created for advertising purposes; while on the other hand, accounts receivable may refer to the product by its product number.
Unfortunately, customers may be communicating with more than one organization at the same time. The likelihood that the communication from the company to the customer from each of these organizations will be consistent and understood may not be at the level of company expects. Sometimes the hand-off from sales to customer service can create problems for the customer. This particular communication problem may be as simple as matching expectations given by the sales organization to the performance being supported by customer service.
The final complexity occurs as companies expand into multiple areas that may have additional challenges in terms of culture and language.
Customer Communication
Customers come in all shapes and sizes for both B2B and B2C. Of course, the range of customer types for B2C is much greater than B2B. In either case.a wide range of communication skills from the customers can be expected.
Customers have their own jargon. Customers also have their own vocabulary and often their own definitions of the words they use, which may or may not track dictionary definitions. Many of the problems that occur between customers and companies arise from the communication and lack of consistent definitions between the two.
The Solution
Most companies do not realize this is a problem. Most companies believe their customers always understand the communication from the company. They also believe their employees always understand all customer communications. It is easy to conclude from the preceding discussion that these beliefs or assumptions are false.
The first step of the solution is to recognize that there is a communications problem.
The second step of the solution is to identify internal jargon and that must be eliminated from the communication to the customer.
The third step is to train all personnel that interface with customers to use a common language.
The fourth and most difficult step is to train all personnel that interface with customers to be aware of the communications variation from customer to customer and how to handle it.
The bottom line is that customer communication is imperfect. It is not just the company nor is it just the customer. The communication problem extends in both directions. If a company wants to increase customer satisfaction and customer loyalty it must first reduce communication errors.
Saturday, October 6, 2012
What is a perfect metric?
An article published in customer relationship management August 2012 edition was titled "in search of the perfect metric". The author starts by saying a perfect universal customer metric does not exist. The author Mr. Patrick Gibbons at Walker provides two reasons customer metrics fall short.
The first reason a metric fails is that the metric is not aligned to the business goals of the company. He notices that often it is because the metric is a popular one or one that may be touted in the literature or a book but has no connection with the business. Snce the metric doesn't track business , it often fails to predict customer tendencies. The second reason offered by Mr. Gibbons is that the metric is not used effectively. He suggests the employees often see a metric merely as a rating as opposed to a guide for improving the quality of decision-making.
He suggests that a metric can only be effective if the following steps are taken successfully. The first step is awareness, which required that employees must become familiar to the metric. The second step is understanding, which means that employees must understand how the metric works and how they are use it. The third step is belief, which means that the employees need to believe that the metric is valid and will be a useful tool. The fourth and final step is action, which will never happen if the first three steps are not taken. The fourth step translates the metric so that it will either guide some form of process improvement or will validate the successful operation of the current process.
Mr. Gibbons concludes there is a perfect customer metric. He suggests that this is the one that aligns with your business and is put to use in productive ways. This is where Mr. Gibbons and the Customer Institute part company.
It is the belief of the Customer Institute that there is no perfect customer metric. We believe that no metric can capture all aspects of every customer being measured. The metric can become a major measurment trap. Management will eventually believe that the metric is everything. This will lead to additional metrics when that perfect metric shows negative results. If/when those secondary results continue to show decline then more metrics will be added. Eeventually you become surrounded by metrics and have lost sight of the customers in the maze of numbers.
The bottom line is there is no perfect customer metric! I don't believe that in my lifetime we will develop a metric that totally captures the customer. When that day comes, if it ever comes, businesses will easily be run by robots and at that time all the customers will most likely be robots.
The first reason a metric fails is that the metric is not aligned to the business goals of the company. He notices that often it is because the metric is a popular one or one that may be touted in the literature or a book but has no connection with the business. Snce the metric doesn't track business , it often fails to predict customer tendencies. The second reason offered by Mr. Gibbons is that the metric is not used effectively. He suggests the employees often see a metric merely as a rating as opposed to a guide for improving the quality of decision-making.
He suggests that a metric can only be effective if the following steps are taken successfully. The first step is awareness, which required that employees must become familiar to the metric. The second step is understanding, which means that employees must understand how the metric works and how they are use it. The third step is belief, which means that the employees need to believe that the metric is valid and will be a useful tool. The fourth and final step is action, which will never happen if the first three steps are not taken. The fourth step translates the metric so that it will either guide some form of process improvement or will validate the successful operation of the current process.
Mr. Gibbons concludes there is a perfect customer metric. He suggests that this is the one that aligns with your business and is put to use in productive ways. This is where Mr. Gibbons and the Customer Institute part company.
It is the belief of the Customer Institute that there is no perfect customer metric. We believe that no metric can capture all aspects of every customer being measured. The metric can become a major measurment trap. Management will eventually believe that the metric is everything. This will lead to additional metrics when that perfect metric shows negative results. If/when those secondary results continue to show decline then more metrics will be added. Eeventually you become surrounded by metrics and have lost sight of the customers in the maze of numbers.
The bottom line is there is no perfect customer metric! I don't believe that in my lifetime we will develop a metric that totally captures the customer. When that day comes, if it ever comes, businesses will easily be run by robots and at that time all the customers will most likely be robots.
Friday, August 17, 2012
Some Thoughts about the Meaning of Loyalty
As I read many blogs and articles in the journals and the newspapers the loyalty is used often incorrectly. I would like to spend several paragraphs offering several possible definitions for customer loyalty. Often the word loyalty is used with the intent that the customer will always purchase the product or service from a specific vendor. This is a leap of faith when one believes that customer will never stray. Consider the following possible definitions for loyalty that, in my mind, make the most sense.
Using the logic of the previous paragraph every purchase that the customer makes will be with a specific vendor. Thus a sequence of purchases To Vendor A would be described as the following sequence: A, A, A, A, etc. This scenario will almost never happen in the real world for many reasons. Some reasons include:
1. Vendor A has an inventory stock out.
2. Vendor A has introduced a significant price increase.
3. Vendor B has introduced a significant price reduction.
4. Vendor B has introduced a replacement product with greater performance.
5. The customer does not want to become restricted to one vendor.
Consider variation on a definition of loyalty to include the possibility that not all product and/or services will be purchased from one vendor. In that case the customer might be considered loyal to vendor A with the following purchase sequence: A, A, B, A, B, A, etc. Under the circumstances the customer is providing major share of pocket to vendor A, but should customer B considered loyal. to vendor A? Even though vendor A does not capture 100%, both customersA and B may still be considered loyal.
How about the measure of customer loyalty that considers a customer to be loyal if the customer scores a 9 or 10 on a 0 to 10 satisfaction scale. What is the logic that supports the notion that because the customers are satisfied the customer must also be loyal? The NPS Measurement system would identifya customer scored either at nine or 10 as a promoter . A promoter, according to the NPS system, is a customer who acts like a loyal customer in that the customer promotes the company or product for which he has scored a 9 or 10.
There is another indication of loyalty that is often used. In this process a loyal customer is defined as a customer that scores a 10 on a 10 point satisfaction scale, a 10 on another 10 pint scale that measures the likelihood the customer will buy again, and a 10 on still another scale that measures the likelihood that the customer will recommend the company or product. If the customer scores the maximum value of 10 on all three scales the customer is considered a loyal customer.
The bottom line is there is no one definition in the market today that everybody agrees defines a loyal customer. As noted in the preceding paragraphs there are many ways of defining loyalty. The conclusion at this point in time is that customer loyalty is something that every company strives to achieve for those customers that represent value for them. The next several blogs will focus on the other customer states noted previously.
Using the logic of the previous paragraph every purchase that the customer makes will be with a specific vendor. Thus a sequence of purchases To Vendor A would be described as the following sequence: A, A, A, A, etc. This scenario will almost never happen in the real world for many reasons. Some reasons include:
1. Vendor A has an inventory stock out.
2. Vendor A has introduced a significant price increase.
3. Vendor B has introduced a significant price reduction.
4. Vendor B has introduced a replacement product with greater performance.
5. The customer does not want to become restricted to one vendor.
Consider variation on a definition of loyalty to include the possibility that not all product and/or services will be purchased from one vendor. In that case the customer might be considered loyal to vendor A with the following purchase sequence: A, A, B, A, B, A, etc. Under the circumstances the customer is providing major share of pocket to vendor A, but should customer B considered loyal. to vendor A? Even though vendor A does not capture 100%, both customersA and B may still be considered loyal.
How about the measure of customer loyalty that considers a customer to be loyal if the customer scores a 9 or 10 on a 0 to 10 satisfaction scale. What is the logic that supports the notion that because the customers are satisfied the customer must also be loyal? The NPS Measurement system would identifya customer scored either at nine or 10 as a promoter . A promoter, according to the NPS system, is a customer who acts like a loyal customer in that the customer promotes the company or product for which he has scored a 9 or 10.
There is another indication of loyalty that is often used. In this process a loyal customer is defined as a customer that scores a 10 on a 10 point satisfaction scale, a 10 on another 10 pint scale that measures the likelihood the customer will buy again, and a 10 on still another scale that measures the likelihood that the customer will recommend the company or product. If the customer scores the maximum value of 10 on all three scales the customer is considered a loyal customer.
The bottom line is there is no one definition in the market today that everybody agrees defines a loyal customer. As noted in the preceding paragraphs there are many ways of defining loyalty. The conclusion at this point in time is that customer loyalty is something that every company strives to achieve for those customers that represent value for them. The next several blogs will focus on the other customer states noted previously.
Saturday, July 28, 2012
Some Thoughts about Average Satisfaction Scores
The Customer Institute was recently at a conference regarding customer satisfaction and loyalty. The topic of average satisfaction came up. As it turns out many of the companies represented at the conference use measurements of customer satisfaction and specifically they use measures of average satisfaction without considering the fact that customers exist in many states. This blog will examine one way to provide granularity to the customer base.
This is a partial discussion of the presentation made at the conference by the Customer Institute. The focus of the presentation was to provide an analogy between inventory and customers. The major point of the presentation was to show inventory has different values depending on its state and the same holds true for customers.
Inventory can be described as having the following characteristics:
1. Raw material
2. Work in process
3. Need to repair
4. Scrap
5. Finished goods.
The analogies between these states of inventory and customer states are described in the following paragraph.
The customer analogy to raw material inventory is a potential customer base. Similarly, the customer analogy to work in process inventory is a new customer in which value is being added with each encounter. The customer who has a problem with either the product or the service would be analogous to a inventory that is in need of repair. There are some customers that no longer offer a good fit between the customer demands in the product or service the company is providing. These customers have the same characteristic is scrap material. The fifth category, finished goods, is equivalent to the loyal customer.
The preceding paragraph gives an indication that old inventory and customers have multiple states. When a customer satisfaction measurement is taken is often an average of the satisfaction for customers in all the states combined. While in averages and indication of something it certainly is not a metric that provides management direction other than "feel-good" or "feel-bad."
The bottom line is that the customer satisfaction metric when used as an average for all customers measured, confounds the satisfaction metric for each state. It is only when the satisfaction level is measured for each customer state can management optimize them properly allocate resources.
I'll expand this discussion in future blogs to point out some of the ways in which customer metrics can be tuned to a different customer states as they relate to inventory.
This is a partial discussion of the presentation made at the conference by the Customer Institute. The focus of the presentation was to provide an analogy between inventory and customers. The major point of the presentation was to show inventory has different values depending on its state and the same holds true for customers.
Inventory can be described as having the following characteristics:
1. Raw material
2. Work in process
3. Need to repair
4. Scrap
5. Finished goods.
The analogies between these states of inventory and customer states are described in the following paragraph.
The customer analogy to raw material inventory is a potential customer base. Similarly, the customer analogy to work in process inventory is a new customer in which value is being added with each encounter. The customer who has a problem with either the product or the service would be analogous to a inventory that is in need of repair. There are some customers that no longer offer a good fit between the customer demands in the product or service the company is providing. These customers have the same characteristic is scrap material. The fifth category, finished goods, is equivalent to the loyal customer.
The preceding paragraph gives an indication that old inventory and customers have multiple states. When a customer satisfaction measurement is taken is often an average of the satisfaction for customers in all the states combined. While in averages and indication of something it certainly is not a metric that provides management direction other than "feel-good" or "feel-bad."
The bottom line is that the customer satisfaction metric when used as an average for all customers measured, confounds the satisfaction metric for each state. It is only when the satisfaction level is measured for each customer state can management optimize them properly allocate resources.
I'll expand this discussion in future blogs to point out some of the ways in which customer metrics can be tuned to a different customer states as they relate to inventory.
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