Customer Strategy and Analysis

This blog series focuses on some trends and themes that I predict will have a great impact on the discipline of customer experience in 2013. In my last blog, I forecasted that we will continue to see great volatility in customer sentiment in 2013; this time, I want to focus my attention on a topic that is getting immense attention – big data.

“Big data” has become the buzz word du jour; like many buzz words, there seem to be different definitions of what this means, which results in different expectations on its impact. For purposes of this discussion, I would posit that “big data” relates to the collection and synchronization of disparate data sources with the intent of having a more holistic view of a system and its component parts. When looked at from this perspective, big data does not seem like such a radically new notion – after all, companies have always had customer lists, financial data, employee data, etc. The key point is on the notion of synchronization – in the past, most of these data sources were not able to talk to one another.

Big data reflects the realization of the promises of CRM – that is, firms can now not only look across a wide variety of data that is organized and linked in an efficient (if not complex) manner, but they can also begin to mine this data to reveal the underlying relationships that may not be evident to the casual observer. While I would offer that the full realization of CRM’s promise is yet to be achieved, we have certainly made great strides over the last decade.

How does this relate to the work of customer strategists? I would offer a few observations:

• As more behavioral data become available, we have the ability to identify meaningful customer segments; this will be especially valuable in identifying cross-sell and upsell opportunities.
• Linking survey-based data with behavioral data will become more the norm, not the exception. More emphasis will be placed on linking customer listening exercises to hard financial outcomes.
• Having a mechanism and process by which we can understand the inter-relationships of various data provides greater opportunities – and more imperative – to take a more action-oriented analytic approach. Stated differently – analyses that do not focus on action (and business outcomes) will have little value in organizations.
• The complexity of the data systems will require that customer strategists be skilled (or at least conversant) in the theory of data structures.
• As the volume of transactional data grows, the opportunity (and demand) for sophisticated longitudinal analysis and/or complex predictive analytics will increase. Customer strategists will need to be not only more data-savvy, but also will need to be more skilled in the use of complex predictive analytics.

Big data represents a great opportunity for the customer experience industry; however, it will require customer experience professionals to evolve. Here are my recommendations for staying ahead of the curve:

Continue to learn – Being conversant in data structures and analytics are a must. Even more important is to be more comfortable and capable in dealing with financial concepts and models in order to link customer experience work back to business outcomes.

Build new relationships – Learning new skills does not necessarily mean going back to school; expanding your business network beyond the boundaries of customer experience to include IT and financial resources will provide go-to resources who can aid in your ongoing learning.

Be proactive – Look for ways to embrace big data before you are asked; doing so shows initiative, and will speak to your ability to think strategically.

How is big data impacting your organization? What advice would you offer to customer strategists? As always, I welcome your comments.

Mark A. Ratekin
Senior Vice President, Consulting Services

As January comes to a close, I thought it might be beneficial to pause for a moment and provide some thoughts on what trends we see emerging in the science of customer listening. Over the next several blogs, I will comment on a key trend and discuss the implications for customer strategists. Before delving into our first prediction, we need to discuss what we saw in 2012 from a customer loyalty perspective.

Loyalty in 2012: More of the Same

Source: Walker calculations based on data from http://finance.yahoo.com

It may go without saying that 2012 was a volatile year – the chart above shows the progression of a $100 investment on 1/3/2012 in each of the major stock indices – the Dow 30, S&P 500 and the NASDAQ Composite. The values are not as important as the shape of the curves – it demonstrates that 2012 had many ups and downs in the market. There are a number of reasons for this – the broader global economy, geopolitical unrest, the year-end drama related to the fiscal cliff, and so on. In this period of volatility, the impact on customer loyalty is not surprising – among Walker’s client base, the percentage of customers who are Truly Loyal was flat between 2011 and 2012; on a quarterly basis, we saw more variance in the loyalty scores with a drop in the last quarter of the year.  This is not isolated to Walker; many of the other industry benchmarks suggest that customer sentiment was flat at best in 2012 (and some have not yet published Q4 results).

Source: Walker Benchmark Database, B2B-Oriented Programs

Is Loyalty Dead (or Even Achievable)?

Despite some claims that customer loyalty is dead (or dying), I would offer that loyalty is still achievable – however, the bar is higher. The underlying reason for this relates to the divergence of expectations vs. reality – that is, as the economy has tightened, funds have become more scarce; this scarcity means that buyers are more selective in how they use their funds. This results in customers not only being more price-sensitive, but they also have heightened expectations on what they will receive. At the same time, providers have been forced to scale back on resources (as a result of constrained growth and/or uncertainty in the market), which ultimately means that they are ill-equipped to deliver on these expectations. This creates a “perfect storm” of dissatisfaction, which means that customer loyalty is harder to achieve.

So, this brings me to my first prediction/forecast for the coming year:

Quarterly loyalty scores will remain volatile as long as there is excessive uncertainty in the markets and/or the economy continues to be challenged.

What can we do about this? I would offer the following strategies for consideration:

1. Review your workflows to ensure an “outside-in” perspective – Conducting a review of the experience that your customers have with your organization can be quite revealing. Conducting a customer journey mapping exercise can help to highlight where gaps exist and can assist you in re-tooling processes to ensure an optimal customer experience. This is particularly critical among companies that have recently merged with or acquired another company.
    
2. Communicate – both externally and internally – During periods of economic turbulence, it is better to over-communicate. From a customer perspective, seek to gain an understanding of not only their expectations, but also what drives those expectations. Understand how their business works and how your products and services can help them to achieve their goals.
   
   From an internal perspective, reinforce the role that customer centricity plays in your strategy; on the front line, managers should spend time with their direct reports to identify how to integrate customer perspective into their day-to-day operations. Above all else, though, leaders must walk the talk – leading by example communicates better (and louder) than words.
    
3. Control what you can control – Much (if not most) of the volatility in the markets are outside our control; it is tempting, then, to throw our hands up and surrender – that is, just let the chips fall where they will.

Rather than take a sit-and-wait approach, we would recommend that you identify (from the steps noted above) what aspects you do control – for example, you control how your organization approaches the customer experience, you control how you choose to innovate, and you control how you respond to competitive threats. Focusing on what you control – and then acting on it – can be much more empowering that waiting for the winds of change to blow in your favor.

Even though customer loyalty is more difficult to achieve in these economic times, those firms who successfully crack the code will find that they have one of the few sources of long-term sustainable competitive advantage in their strategic arsenal. I would argue that the payoff is worth the effort necessary to realize customer loyalty.

Over the next few blogs, we will review the other factors that I am forecasting will be the trends and themes that customer strategists should be thinking about in the coming year. In the meantime, I would be eager to hear your thoughts – what are the themes and trends that you are tracking?

Mark A. Ratekin
Senior Vice President, Consulting Services

In a recent Harvard Business Review article, researchers set out to determine which types of hotels are more likely to post fake reviews on websites such as Yelp!, TripAdvisor and Expedia. They found that independent, small-owner, and small-company hotels appeared to be more likely to manipulate reviews on websites.

What is the key lesson for this finding for customer strategists? I would argure that it is less about these specific findings and more about a basic aspect of a customer listening program – that is, are the results accurate and reliable? In other words, do the results reflect the overall population (and, by extension, what population do the results represent)? I have written on numerous occasions about the importance of the quality of customer lists (see here, here and here for examples); what I would add today to the discussion is the point that diversification matters.

There are two ways to define diversification in this context – first, how much variety is included in the customer list within a given account? This clearly aligns better with a B2B customer listening program – for example, do we have a good mix of end users, decision makers, and executives for each account in our listening data? Having a variety of contacts from the same account will yield, in the words of James Surowiecki, the “wisdom of crowds.” This means that the group in total is generally smarter than any one participant in that group. Sampling theory tells us that as the base size of a study increases, the error around the mean estimate will be minimized. This is applied in the context of a total sample, but it can also apply to the findings from an account – think of each account as a sub-sample. By getting a variety of perspectives from customers within each account, we increase the likelihood that we will be getting a clearer picture of the health of those accounts. This can provide clues to astute strategic account managers – for example, if there is significant variance in the scores from within an account, it may speak to confusion that should be teased out and/or managed; this can often lead to incremental sales opportunities.

The second type of diversification relates to how we listen – when customer loyalty research was in its infancy (called customer satisfaction research at that time), we asked customers for feedback because there were no other mechanisms to gather those perspectives. CRM systems did not exist that allowed us to tie together disparate data to arrive at “the big picture.” This is why we had to ask about which products a user was familiar with, even though the customer would (rightfully) argue that we should already know that information – there was no way to tie all the data together.

The world is changing, though. Not only are CRM systems providing a more well-rounded view of customers, there are new and different ways of listening to – and analyzing – customer feedback. In the same HBR article, the authors talked to doing a “web scrape” to gather data on the hotel ratings. In addition, we can scan data in Twitter, look at Facebook pages for the number of “likes” a company has, and so on. Operationally, we can link customer behavioral metrics as well as internal quality indicators to our listening data. We can literally swim in the data.

All of this data prompts some pundits to proclaim that the need for customer listening via surveys is gone. I could not disagree more. It is certainly getting more difficult to gather customer feedback – response rates are more challenging to achieve, and the proliferation of DIY survey tools means that anyone can send a survey, regardless of how bad it is – but to say that surveys are dead is a bit extreme. I would argue that this diversity of data sources provides an opportunity to gather, analyze and understand customer sentiment from a variety of perspectives, which is valuable. My colleague Jen Batley recently wrote about the uses and challenges of this. The bottom line: we have many sources of customer data to rely on, and we should be wary of focusing on just one. Making the connections among these sources means we increase our odds of understanding what makes our customers tick.

Mark A. Ratekin
Sr. Vice President, Consulting Services

The acquirer should look to their customer due diligence partner to be their strategic advisor during the integration process. This post discusses how and why acquirers should expect more.

Lesson 6: Acquirers should expect more

There are three dimensions acquirers should consider here – first, they should expect their partner to be experienced and forward-thinking; this means that the firm conducting the customer due diligence should be able to identify about 98 percent of what could present challenges in the execution of the program, and of that, they should know how to address about 99 percent of those issues. In other words, there should be few surprises in the planning and execution of the program.

The second dimension relates to how the results should be used – having a partner who not only gathers information, but also provides guidance to customers on how to use (and, in some cases, how not to use it) should be a core expectation. Our stance at Walker is simple – if you are going to go to the effort of asking your customers to provide feedback (and you absolutely should), you should also be prepared to take action on what they tell you, and you should use your customer due diligence partner in navigating the discovery of these key actions.

The final dimension relates to what acquirers should expect relative to the end deliverable – as Phil Bounsall's blog noted, we have seen that a common deliverable is a simple data dump of a lot of open end commentary. This is, to be sure, interesting reading, and given a significant investment of time, the reader will come away with a sense of the risk inherent in the customer base (assuming, of course, that the customers were not cherry-picked for the purposes of the due diligence). However, there are several questions acquirers should ask themselves about this process:

• Is this how I want to invest my time?
• Am I objective enough to reach the right conclusions within this data?
• Wouldn’t it be better to have a sound analysis of situation and have access to the detail if I really want to dive in?

In short, we would advise acquirers to look to their customer due diligence partner to be just that – more of a strategic advisor that will help to assess the level of revenue flight risk as well as identifying what steps should occur to address customer issues and to make any integration steps move as smoothly as possible.

Customer due diligence can be a powerful exercise that can add value not only during the negotiation and purchase of an organization, but also during the subsequent integration (where most acquisitions begin to fall short of expectation). Our experiences with clients suggest that many of the factors that will heighten the probability of harnessing of this power are contained within this list. Hopefully, this series will provide some valuable food for thought as you plan your next acquisition.

The feedback of the target’s customers is crucial for the timing and also the success of the customer due diligence program. That is the theme of lesson number five.

Lesson 5: The end customer ultimately drives the project cycle

Even when all of the mechanics of the project come together smoothly, we will often face a harsh reality – the target’s customers ultimately determine how long the project will take. It should go without saying that without adequate feedback, we do not have a sufficient customer due diligence program.

This is where collaborating with the target on the program can really pay off. The top driver of response from the end customer is outreach from the target company. If we have buy-in on the process, then the next step is to have customer-facing reps reach out to the customers to request their participation. Since we are framing this project as a customer listening exercise (which, at its core, it is), then this practice should raise no suspicion.

This is the fifth in a series of lessons learned conducting advanced customer due diligence. Watch my blog in the coming weeks for other key lessons. They will be available here.

The relationship and communication between the target company and the acquirer is very important in the customer due diligence process. That is the theme of lesson number four.

Lesson 4: Having the target and acquirer be on the same page is key

By the time customer due diligence is occurring, there is a slew of activity underway; it is understandable, then, if there are some gaps in terms of common understanding between the target and the acquirer. This can have significant impact on how we approach the customer due diligence (and the corresponding outputs); for example:

• Who will have access to the aggregate-level data? Will both target and acquirer have access to it, or will the acquirer be the only recipient? Does the answer depend on the outcome of the deal?
• Who will have access to the detailed (customer-level) data? When will it be possible for the acquirer to have access to the raw data (including the financial information)? Will the target be able to have access to this information? This is a key decision point that is usually more sensitive in a strategic purchase vs. a financial purchase.
• What are the expectations for the use of the information?  Is the information being used solely to assess revenue flight risk? Will the information be used to take action within the target firm at a macro (company) level, account level, both or neither? Will this information be used to inform the organizations how to best integrate the two firms?

Having absolute clarity among all the parties is not only critical from a project execution/expectation management perspective, but it can also have a material impact on the design and approach of the customer due diligence project. Once again, this is where Walker can help – our approach is based on the idea of understanding the key business issues the buyer is interested in exploring and ensuring that the approach offered has the full support and buy-in of both the target and the acquirer.

This is the fourth in a series of lessons learned conducting advanced customer due diligence. Watch my blog in the coming weeks for other key lessons. They will be available here.

We all struggle to gain consensus in an organization on virtually any topic, and I have found that to be true in conducting customer due diligence projects with companies. It brings me to my third lesson learned.

Lesson 3: Building consensus is important

Targets tend to be nervous about the experience that their customers will have in the due diligence process – for example, how their customers are going to be approached, the kind of questions that we will ask, etc. This is, in fact, one of my key litmus tests – if the target is not concerned about this issue, it may suggest a weakness regarding the level of customer-focus within the target organization that the acquirer should be mindful of. So, an engaged target is a good target – the key is how to best engage them.

This is where Walker can again provide value – by having a sound analytical framework, we can help the target understand the intent of the questions. We also want to hear how they are interpreting the questions – chances are, their customers will interpret them in a similar fashion, and understanding this allows us to fine-tune the language to best resonate with the customer.

Getting this level of consensus, though, does take time – and we advise acquirers to expect this. To minimize the overall project cycle time, we will work in parallel – that is, as we are building the customer list, we will be acquiring the customer financials and developing the question set. This way, we can take the time needed on each aspect of the project while not extending the overall project schedule. In fact, in spite of some of the challenges we have presented here, we have been able to work within the stringent deal timelines that clients have presented.
 

This is the third in a series of lessons learned conducting advanced customer due diligence. Watch my blog in the coming weeks for other key lessons. They will be available here.

In my last blog, I started a list of lessons learned from working with a number of companies on customer diligence projects. The first lesson was all about the importance of having good lists. The next lesson is about having financial information to guide your decisions.

Lesson 2: Having financial information is imperative

In order to properly assess the risk that the acquirer assumes in the transaction, we must be able to provide guidance on the probability of revenue flight risk. Walker’s Loyalty Matrix , coupled with customer-level sales or revenue data, will provide this level of insight.

However, it goes beyond just the revenue flight risk analysis. The key to interpreting the results is understanding who is represented in the analysis, and the extent to which they look like the customer population overall (or the extent to which they represent a large portion of the customer population). The customer-level financial data allows us to assess how representative our results are (and the extent to which major accounts have been included). These are important pieces of information that the acquirer must have in order to properly assess the validity and value of the due diligence exercise.

This is the second in a series of lessons learned conducting advanced customer due diligence. Watch my blog in the coming weeks for other key lessons. They will be available here.

Customer due diligence can be a powerful exercise that can add value not only during the negotiation and purchase of an organization, but also during the subsequent integrations (where most acquisitions begin to fall short of expectations.)

My colleague Phil Bounsall recently blogged on how to do customer due diligence the right way. Having reflected on the programs we have conducted for customers, I wanted to add to this narrative by providing a list of lessons we have learned. There are six themes that are prevalent that I would advise clients to consider if they really want to maximize the value of their investment in customer due diligence. This is the first of six.

Lesson 1: Acquiring the right list of customer contacts is critical (and hard)

Over the last twenty years, I have yet to see a customer listening program in which acquiring the customer list was not an issue. As CRM and other centralized databases become more common, the barriers to data are slowly coming down (thank goodness we don’t get customers records on paper anymore; I am not kidding when I say that early in my career I received some customer data written on the back of a napkin!).

However, in spite of centralized databases, there is a world of difference between having access to data vs. good customer information. The M&A process adds some additional wrinkles – for example, the target wants to protect this sensitive information from the acquirer, the target wants the potential deal to be on a need-to-know basis only (which can impact who in the target organization is involved with the program), and so on.

Our guidance to customers is to use Walker as a resource – as an independent third party, we can help navigate this terrain in a way that keeps the target comfortable; moreover, by leveraging this initiative as a customer listening program, we minimize the opportunities for the pending deal to leak to customers and employees.

In addition, expect that this process will be more complex than you would expect, but resist the temptation to cut corners – it is simply too important to not give this the attention it requires. The level of risk that the acquirer assumes is inversely proportional to the quality of the customer database; stated differently - garbage in = garbage out.

This is the first in a series of lessons learned conducted advanced customer due diligence. Watch my blog in the coming weeks for other key lessons.