Archive for the ‘Customer Retention’ Category

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Putting the Customer at the Heart of the Business

In a special Business Surgery, Carol-Ann Morgan discusses why Greg Smiths letter published in the New York Times (“Why I Am Leaving Goldman Sachs” – NY Times – 14.3.12 ) should serve as a warning shot across the boughs for any company which considers its customers or clients only in revenue generation terms.

I hope this can be a wake-up call to the board of directors. Make the client the focal point of your business again. Without clients you will not make money. In fact, you will not exist”

A simple fact that is easy to forget amid the pressures of business success; but forget this at your peril.

Some key facts which provide ample justification for a customer centric business approach:

• Two thirds of customers say a positive customer experience caused them to spend more
• 8 out of 10 customers would pay up to 25% more for a superior customer service
• Three quarters of those who switch suppliers/brands relate this to a poor customer experience and service
• More than half of those who recommend a company, make this based on the customer experience rather than other factors such as price or product
• Almost all of those who have had a bad customer experience tell others about it; mainly to warn them off or stop them buying from the supplier

Customer centricity tends to fall in and out of fashion, but it is now most definitely “in”. Customer Experience Management is, in fact, the new buzz phrase. Savvy companies are delving further into the customer experience; placing it at the heart of all they do. With this there has been a flourish of tools, techniques, processes and people who are there to offer their services.

Bernd Schmitt’s book “Customer Experience Management: A Revolutionary Approach to Connecting with your Customers” makes a very interesting read indeed, from the perspective of a professional and as a customer myself. The stages he takes you through cause you to examine your own customer experiences from the on-going relationships, eg with banks and utility companies to the regular, occasional or “one off” retail experiences with the likes of Tesco, John Lewis and Hobbs.

Schmitt, essentially advocates a paradigm shift from the traditional functional – transactional approaches to marketing (citing Kotler’s work), towards one which takes account of the “experience” of being a customer, from cradle to grave (however long that might be). He argues a need to take the customer seriously; to recognise customers as assets of a business, without whom the company would not exist and worthy of boardroom consideration and respect.
His model advocates putting the customer at the heart of everything the organisation does; strategically managing a customer’s entire experience with a product or company. He suggests that in doing so, this will involve becoming more process, rather than outcome, oriented; a shift towards building relationships rather than focusing only on recording transactions, and establishing ways in which the company can connect with the customer at every touch point. Inevitably, this comes from the top. It requires a cultural shift and a close examination and analysis of everything which impacts on the customer experience.

Schmitt’s 5 steps towards Customer Experience Management:

Greg Smith states clearly the linkage between the values of the firm, where it positions the customer and the degree of engagement he feels with it.

“Culture was always a vital part of Goldman Sachs’s success. … I knew it was time to leave when I realized I could no longer look students in the eye and tell them what a great place this was to work”

Companies embarking on a journey of Customer Experience Management need to understand that it has to be a cultural shift across the organisation. It needs to be led by example, from the top, engaging employees in the movement to place the customer at the heart of how the company goes about its business.
Experience Based Differentiation (EBD) cannot be mastered overnight. It is a multiyear journey, involving all departments (including HR), requiring an “obsession” with customers, reinforcement of the brand at every customer interaction and a group effort to deliver outstanding customer experiences by treating this as competence rather than a function, celebrating and sharing rewards for this with the employees.

Posted in Carol Ann Morgan, Customer Relationship Management, Customer Retention, Customer Satisfaction, The Business Surgery |
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Risky M&A–Delighting Shareholders to the Detriment of Customers

In this week’s Business Surgery, Julia Cupman discusses the risk to customer satisfaction through badly managed M&A

The repercussions of the merger of United and Continental airlines are continually impacting on the B2B International team. Many of us here at B2B travel with Continental (sorry, “United Airlines”) domestically as well as across the Atlantic between our North American and European offices, and it is shocking how badly the company is managing the merger. Over the past six months alone, we have experienced canceled and delayed flights with inadequate notifications, call wait times exceeding one hour, uncomfortable flying conditions such as freezing cabin temperatures, and soaring prices.

Continental and United were among many companies in the post-recession period–including Microsoft and Skype, Sanofi-Aventis and Genzyme, and Intel and McAfee–that turned to M&A for growth, through investing the significant cash reserves they had built during the financial crisis. Both airline CEOs promised “improved profitability and sustainable long-term value for shareholders”, and the $3.17billion merger of the two companies propelled the new United to the top of the industry, with 21% of domestic capacity. The company has less competition and increased monopolistic power, and can therefore charge higher prices–music to the ears of shareholders.

However, as per our experience, delivering value to shareholders is not synonymous with an improved customer value proposition post-merger/acquisition. An article in McKinsey Quarterly points out that the more successful mergers and acquisitions create value, and do so through at least one of the following five archetypes:

• Improving the performance of the target company;

• Removing excess capacity from an industry;

• Creating market access for products;

• Acquiring skills or technologies more quickly or at lower cost than they could be built in-house;

• Picking winners early and helping them develop their businesses.

One could assume that United and Continental’s goal fell within the first of these archetypes, but over a year after the merger, the unified airline is failing to satisfy its customers on a range of critical success factors. Although the company has pleased shareholders in growing market share and achieving economies of scale, United runs the risk of decreasing customer satisfaction levels to the point that more and more passengers will start switching to other airlines.

Customers are often neglected while companies pursue M&A as the focus is inevitably on the huge changes occurring internally, from restructuring through to changes in IT infrastructures and brand rationalization. Not surprisingly, the internal chaos results in confusion in the marketplace and disgruntled customers. Indeed a BusinessWeek study reported a 50% reduction in satisfied customers, even two years after a merger. In the case of Continental, decreasing customer satisfaction is reflected in the customer satisfaction scores published by the American Customer Satisfaction Index. The company has never been at the level of South West Airlines, but since the merger with United, Continental’s customer satisfaction scores have plummeted.

As the North American economy stabilizes, more companies are considering M&A to grow. It is critical that these companies incorporate initiatives driving customer satisfaction and loyalty into their change management programs throughout the M&A process. Successful M&A is not just about investing in companies; it’s also about investing in customers.

Posted in Customer Retention, Customer Satisfaction, Julia Cupman, Mergers and Acquisitions, The Business Surgery |
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Why Being ‘Good’ Is Not Good Enough

Matt Powell this week takes a look at the importance of customer satisfaction and going the extra mile.

“Delighting customers inevitably adds costs” – one of the three reasons suggested as to why some companies are averse to delighting their customers, by Steve Denning in his “Is Delighting The Customer Profitable?” article for Forbes earlier this year.

Of course, the type of statement above would usually be one quite heavily engrained in a company’s culture – a company that, being fairly successful, is perhaps content to deliver good service; much as the type of company that would say the opposite – “delighting customers is what we do, it helps our profits thrive” – would have such an idiom engrained in its culture (see Apple, Google, Amazon, Zappos, etc).

There are a couple of examples that I would like to highlight in relation to offering a ‘good enough’ service, and offering a service that delights. I was initially going to offer a comparison of just two companies and their approach – Netflix and LOVEFiLM. However, there is also a third company, a very well know company with perhaps a graver warning of a company taking its market for granted, which I will touch upon shortly.

LOVEFiLM and Netflix,are the leading film rental services in the UK and US (respectively)and serve as good examples of companies that ‘wow’ and companies that, arguably, rest on their laurels.

A couple of personal experiences I have had recently with LOVEFiLM have fed into the writing of this article. Sometime last year I decided to cancel my LOVEFiLM membership that I had had for around a year but had not used for 6 months. When I made the call to LOVEFiLM to cancel my contract, the customer service representative asked what my reason was; when I explained it to him, he said that they would be happy to keep my account open for the next 6 months free of charge. I had been braced for the standard struggle that comes with closing accounts of any kind, and was ready to decline the inevitable last ditch attempt to retain my custom, but this offer took me off-guard – and was indeed a ‘no-brainer’.

Their plan worked and I became an avid and happy customer. More recently, I had to contact customer services again, this time due to an error on LOVEFiLM’s part. I had been working my way through a DVD box-set, when LOVEFiLM missed the next disc they were due to send me, and sent me a later disc in the series instead, thus skipping out three episodes of vital HBO drama. I called LOVEFiLM, and knowing their good customer service from the past, I expected the next disc to be sent straight away. LOVEFiLM did offer to send the next disc –but they also said they would be sending two extra discs to apologise for the mistake. Yet again, they had caught me off-guard and surpassed my expectations. Needless to say, I hold LOVEFiLM in quite high regard following these moments of ‘delight’. I understand that they have also had their fair share of problems in the recent past with third-party sales agencies, which will not have aided their mission for improved customer satisfaction, but if these moments of delight filter across the customer base, the future could indeed be bright. And bright it will have to be, if LOVEFiLM is to weather the upcoming assault from Netflix as it opens up its service to the UK market in 2012…

Netflix, is an interesting example of how taking customer loyalty for granted can be quite problematic. Netflix had witnessed very rapid growth in terms of its number of subscribers in the past few years (its number of subscribers grew from 857,000 in 2002 to 20 million in 2010 (whilst operating in North America alone)). However earlier this year it dropped quite the clanger – Netflix took the decision to spin off its DVD mail-order business, and its online streaming offering into two separate businesses. With such a strong position in the market, Netflix assumed that its customers were so delighted and loyal that they wouldn’t mind either paying the same fee for half the current service, or twice the fee for their current service. The customers did mind. Subscriptions plummeted, as did the value of Netflix shares. After much board-level scrambling and a deluge of negativity from (ex-) subscribers, Netflix canned the idea and reverted back to its original offering, but not before a significant amount of damage had been done to the brand and revenue.

Now for the third company in this tale – one which is very pertinent to these two examples: Blockbuster Video. Once the market-leader (following a steamrollering of local video stores in the 90s), Blockbuster spectacularly collapsed in the US earlier this year . Quite a case of laurel-resting if ever there was one. Blockbuster ignored the rising trends in the market of online rental and ordering, and continued to deliver a service that it deemed ‘good enough’ – until a few years down the line (and too late to remedy), that service became not good enough as customers fled to more appealing pastures, and Blockbuster was left floundering.

The approach these companies adopt in their attitude to ‘delivering extra’, or indeed to delivering what is ‘good enough’, can be split into three distinct categories that are indicated on the pyramid below:

Hygiene factors are the elements of a service or offering that are expected. They are not issues that will increase satisfaction, but they are areas where satisfaction will drop if they are not delivered.

Nice to haves are elements of a service or offering that can influence satisfaction. These are elements of service that are not necessarily expected and can drive satisfaction higher if delivered effectively. Over time, nice to haves can become hygiene factors as they become expected.

DifferentiatorsThese are the delight issues – the things that customers do not expect; the examples of going one step further, of exceeding expectations. These are the things that set companies apart from their competitors. Despite their impact and value to customers, these can sometimes be easy and inexpensive to implement in b2b markets (such as a monthly call from an account manager, or a thank you letter after a particularly large sale).

What would you say are your company’s hygiene factors, nice to haves, and differentiators? What do you think your customers would say they are? Many differentiators are so simple; sometimes they can be the fundamental elements of a service offering that no company in the market currently does well, where providing an exceptional service can really set a company apart from the competition. Research into customer loyalty can have great value in highlighting these elements and identifying unmet needs, or in indicatingthe disconnect between a company’s perception and the customer’s perception of its offering.

In the case of Blockbuster, the company perceived it’s offering to be good enough to meet the needs of its market. Blockbuster felt, I am sure, that it had elements of its offering that covered all three tiers on the pyramid, and did not see Netflix’ new offering as too much of a threat. However, over time Netflix’ ‘online and mail order’ differentiator gradually matured to become a market hygiene factor – one that Blockbuster did not offer. With Blockbuster not providing its customers with a fundamental hygiene factor, its proverbial pyramid had no foundations to support any ‘nice to haves’ or ‘differentiators’, and the company sadly failed.

US business and coaching guru Tony Robbins has an interesting analogy when it comes to ‘going the extra mile’, and not accepting what is ‘good enough’:

If, when training, a successful athlete is told to do ten lifts of a particular weight in the gym, which of those ten lifts is the one that makes all the difference?

The eleventh.

So when thinking of where the elements of your service offering and products sit on the pyramid, think about how your company can go the extra mile and to add differentiators – or even improve any current differentiators to exceed expectations. But do be wary of assuming that what is currently being delivered is good enough – it won’t be for long.

Posted in Customer Retention, Customer Satisfaction, Matt Powell, The Business Surgery |
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Peeling The CVP Onion

This week Dan Attivissimo argues that understanding your customers’ needs – vital as that is – may not always be enough.

In a Market Research World article written by Mauricio Adade, CMO of DSM, the author talks about the importance of market research as a tool to enhance a company’s customer value proposition (CVP). Not only does he feel that utilizing market research can uncover insights into direct customers’ needs, but also serves as a great way to position your value to your clients by better understanding the customers of your customers. He goes on to say:

“In business-to-business companies research normally stops at the customer, but in my opinion it should go all the way to the customer of your customer, because only if you understand them can you have the right conversation, speak the same language and add value.”

A company operating within any business-to-business industry may see many different layers and moving parts where their products are used. Businesses that cater to multiple sectors should heed the above stated advice even more so. With a variety of end-users and applications in their value chain, each value proposition will resonate differently with every “piece” down the chain. To that end, understanding what your customers’ customer values most will help you communicate and provide that extra piece of value added service.

Take, for example, a materials supplier – a company that may simply produce a strong material that can be used for many different applications, like protective gloves, fishing lines, or even rope. Purchasers of this material are likely to be the manufacturers of those types of products just mentioned. Their customers will either be distributors, retailers, or even end-users. As we move further down the supply chain, each “piece” or business interacting with the material will have a different reason for purchasing that material. For the materials supplier to best understand how they can position their value proposition to their customers (manufacturers of the different products), they’ll need to uncover the different reasons why their material is valued for each of the different applications. After all, someone who is purchasing gloves will have a different set of what’s important to them than someone who is purchasing rope.

As a market research supplier it’s our goal to not only obtain but translate insights to our clients so they can then be used in a strategic manner. Helping our clients align themselves with their own customers’ needs takes more effort than simply developing a customer satisfaction survey. Sometimes we, as market researchers, must “peel the onion” and probe into the different points of a value chain to fill in the gaps. This means talking with both end-users and distributors of that material for each application so that we can help our client maintain a line of communication and offer a more clear customer value proposition through each channel.

Posted in Customer Retention, Dan Attivissimo, The Business Surgery, Value |
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The Net Promoter Score is Rubbish

Paul Hague this week advocates a simple, new metric to measure value.

In less than 10 years, the NPS or Net Promoter Score has become familiar jargon in business boardrooms. It is a single metric, a golf handicap score, that leaders can easily understand and which they can use to ruthlessly drive their businesses.

The Net Promoter Score is a measure of customer satisfaction and loyalty and who can deny that these two factors are crucial to the success of any business. It is easy to understand and the fact that it requires a simple calculation gives it a sort of scientific kudos.

Let us remind ourselves what the Net Promoter Score is. We ask customers one simple question – “How likely is it that you would recommend COMPANY X to a friend or colleague?” The response is recorded on a scale from 0 to 10 and the percentage of companies giving a score of 6 or less is subtracted from the percentage of companies giving a score of 9 or 10. Those in the middle ground giving scores of 7 or 8are ignored.

However, the NPS is not without its deficiencies.

We think that the NPS is a good metric but we also recognise that it is dangerous to drive a company on this number alone. The NPS does not measure the value that people attribute to a brand and this must be one of the most important metrics of all.

Towards this end we have developed a measure which is fast gaining ground. It is called the Net Value Score or NVS and it measures the value that people attach to a brand or a supplier.  Pat Kenny, Vice President Of Corporate Marketing at PPG Industries, said the following about the NVS:

“PPG Industries is fully committed to providing our customers with compelling value and so the NVS is a new metric that provides an ideal way to measure customer-experienced value. It is an excellent, adjacent metric to other popular customer advocacy scores that companies should embrace.”

To arrive at the Net Value Score, one simple question needs to be asked:

“How would you rate COMPANY X on the total value the company offers, compared to the total value offered by other suppliers of similar products/services?”

• Significantly better 
• Somewhat better
• Neither better nor worse
• Somewhat worse
• Significantly worse

Using answers to the question, the following steps result in the computation of the NVS:

1. Double the percentage of people that stated “significantly better”.
2. Double the percentage of people that stated “significantly worse”.
3. Add the adjusted “significantly better” figure (from step 1) to the percentage of people that stated “somewhat better”.
4. Add the adjusted “significantly worse” figure (from step 2) to the percentage of people that stated “somewhat worse”.
5. Subtract the total “worse” calculation (from step 4) from the total “better” calculation (from step 3) to arrive at the Net Value Score.

Calculating The Net Value Score

The Net Value Score is a composite measure of the brand value. The maximum possible score is 200. Excellent scores are above 60, good scores are between 40 and 60. Scores below 40 indicate a relative indifference to the brand and require urgent attention. The question can be asked of all companies known to a buyer or specifier (customers or potential customers) and it measures perceptions.  These perceptions drive customer choice. The NVS has the added advantage over the NPS of providing a simple tool for tracking the value of a brand over time and providing a very strong indicator of likelihood to purchase.

For more information on the Net Value Score, visit http://www.netvaluescore.com/

Posted in Customer Insight, Customer Retention, Customer Satisfaction Research, Loyalty, Net Promoter, Net Value Score, Paul Hague, The Business Surgery, Value |
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