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Category: Customer Feedback Analysis

What is The Current State of Customer Loyalty?

Is customer loyalty on the decline or improving? We often find that clients want to evaluate their own performance relative to the “norm.” It is always good to look above and beyond your own data as a means to provide context for the trends you are seeing (I did a blog series on this topic a while back that you may find useful). One thing to remember when using benchmark data is that you should be able to evaluate the fit and appropriateness of the benchmark as well as the worth (and rigor) of the underlying data.

 

A well-respected benchmark of customer sentiment is the American Customer Satisfaction Index. This index has been existence since the mid-1990s and has a regular, regimented schedule of studying satisfaction trends across a wide variety of industries. The consistency in how the data are collected and reported provides some rigor in the process that can be absent in some benchmarks. In addition, despite some criticisms related to its concentration in the B2C space and the black-box nature of the calculations, it has been analyzed and vetted by a number of academicians. In the most recent update, the ACSI authors state that the ACSI has hit the lowest levels since 2008.

 

We, too, have seen some evidence of a shift in customer sentiment toward more of the High Risk category (you can learn more about the Walker Loyalty Matrix here). Interestingly, there is a similar trend starting to occur among employees – more and more employees are becoming less engaged, and are planning to look for new work when the recession ends. My colleague Chris Woolard (Walker’s employee expert) has blogged recently on this topic.

 

The convergence of the decline in both customer and employee sentiment suggests, to me, that a more macro-oriented dynamic is at play.

 

What is driving these shifts? Becca Lewis blogged about the impact that the economy has on customer behavior at the start of the economic downturn. The combination of the simultaneous shift in customer and employee sentiment is interesting; at the risk of analyzing without immense statistical rigor, here’s my assessment of what is driving this phenomenon among both customers and employees:

·         In a challenged economy, companies are delaying or deferring purchases as long as possible; this has the effect of hitting the P&L of service providers, who remain committed to maximizing shareholder returns. To achieve this, they cut any and all extraneous people costs as well as any discretionary expense items.

·         Customers who are purchasing run into roadblocks – they have to wait longer for salespeople to respond (because staffs have been cut), they wait longer in queues for customer support, and they are forced – either by their provisioning groups or by sheer survival instincts – to negotiate harder with vendors. This has the result of providing a negative customer experience. This situation not only exacerbates the P&L situation, but it creates a stressful environment for employees.

·         At the start of the recession, there was evidence that employees were simply grateful to maintain employment; however, over time, the stress created by more work among fewer associates, coupled with frustrated customers, creates a situation where employees are waiting for the tide to shift so they can seek greener pastures.

 

In short – an environment in which the customer experience suffers hurts everyone – customers, employees, and the company at large (including shareholders).

 

The good news is that companies and employees alike can get ahead of the curve by focusing on a few good strategies. I will cover those in my next two blogs.

 

Mark A. Ratekin

Senior Vice President, Consulting Services

The centrality of partnership

"There is only one valid definition of business purpose: to create a customer." – Peter Drucker (1954)
"The aim of marketing is to know and understand the customer so well that the product or service fits her and sells itself." – Peter Drucker (1973)
 

These two quotes are foundational to many people’s view of business and marketing, mine included, but even Drucker himself observed in 2003 – a few years before his death – that most companies do not put these beliefs into action. In a series of posts many months ago I argued for a broader understanding of being customer-focused. Well, based on some recent reading and conversations with clients, I think we need to think even more broadly. 

This broader thinking is nicely encapsulated in a concept called Service-Dominant Logic, which is based on a 2004 article in the Journal of Marketing by Stephen Vargo and Robert Lusch ("Evolving to a New Dominant Logic for Marketing"). This logic uses concepts like "value-in-use" and "co-creation of value" instead of the "value-in-exchange" and "embedded-value" concepts more familiar to the current, goods-and-services dominated paradigm that we generally operate under. Instead of companies trying to market to customers, the goal should be marketing with customers and other value-creating partners in the supply chain.

One of the most noticeable concepts to make its way from this new logic into the popular business press is the concept of value co-creation. But beware, most discussions of this concept have de-valued it to little more than co-production or customer-involved innovation, which is a small part of it’s true meaning.

To me, the heart of service-dominant logic is partnership. We need to realize that there are no clear-cut roles in the modern economy. There are not individual parties who are responsible for one section of the supply-production-consumption chain – parties who perform their role to peak efficiency, pass a "product" along to the next stage in the chain, and then convince customers it is valuable. In fact, companies cannot create or deliver value to customers. At best they can offer a value proposition to customers and then, if accepted, interactively work with customers to create value – hence value co-creation.

Here’s an example of the difference in viewpoints as described by Evert Gummerson in "Service Provision Calls for Partners Instead of Parties" in the Journal of Marketing (2004). The traditional view of exchange would see a physician providing expert advice to a patient who would receive it and (hopefully) get better. A service-dominant view sees this interaction a little differently: "The physician provides expertise in certain therapies, but patients are experts of their own experience of a disorder. To arrive at a superior solution, doctors need interactions with patients, and patients must not only consume the therapies but also produce them by taking medication, exercising, and altering their lifestyles."

Suddenly, what could be seen as a unilateral transaction where success is dependent primarily upon the expertise of one party becomes a partnership. And the success of the interaction now depends on the expertise of both doctor and patient and a network of partners supporting both sides – medical schools, pharma companies, families, insurance, access to nutrition, lifestyle coaching, fitness centers, etc.

I’m still not sure of the full impact of this view on how we function as customer advocates except that it makes our role even more critical to company success. In fact, if this view is correct, then the only real competitive advantage a company has is in the way it understands, interacts and partners with its customers and partners to create value.

Troy Powell, Ph.D.
Walker Information

To Delight or Not to Delight? That is the question… (Part 2)

In my last entry, I reviewed one of two seemingly contradictory articles in the July-August issue of the Harvard Business Review. In this entry, I will provide a summary of the second article, “Zappos’s CEO on Going to Extremes for Customers.” For the third (and final) installment of this series, I will provide some thoughts on what we can learn from these articles, including if they really contradict one another.

This article describes the process by which Zappos addressed a problem that I suspect every company with telephone support has faced – how to recruit and retain call center employees. It was 2004, and this was a vexing problem for the five-year old company – particularly difficult given the culture of customer focus that the firm was reinforcing both internally and externally. The Bay Area was proving to be suboptimal in terms of offering a suitable resource pool for customer service; while some of this was cultural, there was certainly an economic reality – customer service reps could not live affordably in the Bay Area.

The key decision that Zappos made was to relocate the entire company to Las Vegas. The alternative, of course, was to move only the call center. This idea was rejected when the firm reflected on its objective of being customer-focused – that is, having a customer-focused culture meant that everyone played a role in customer service; it would, therefore, be counterintuitive to isolate the customer service function from the rest of the company.

The remainder of the article provides stories that illustrate the key learnings that Zappos has realized over their journey. I would summarize these learnings as follows:

1)      Decide early on what you are going to be – Zappos decided that they were going to be fanatical about customer service; once they made that decision, then other decisions (i.e., where to locate the operation, how to invest in employees, etc.) were easier to make. This should remind us of the value of having well-articulated mission, vision and values statements – the value in having these is not in the talking points, but the extent to which they provide a framework for making decisions.

 

2)      Outsourcing would not work – While it would have offered cost benefits, outsourcing customer support would have eroded the firm’s image and value proposition. The reason is that they needed to be close to customer service reps to reinforce the firm’s core values; additionally, Zappos’ reps do not use scripts when dealing with customers, so it was important that the reps understand the company, be a part of its culture, and know what customers wanted.

 

Interestingly, Zappos made the same determination on inventory management – they carry inventory as opposed to having their suppliers drop-ship on their behalf. This is designed to ensure that they are listening to customers, are able to address consumer demand and can reliably set expectations regarding delivery – in essence, they did not want the perceived value of Zappos constrained by their suppliers’ inventory.

 

3)      Cheapest isn’t always best – This is a theme throughout the article. From the outsourcing decision, to where to relocate the operation, to their return policy, cost was not the primary concern. Rather, Zappos recognized that compromising their core competency for the sake of a short-term ROI would jeopardize not only long-term ROI, but the company’s long-term viability.

 

4)      You have to make it easy for customers – Zappos offers 24-hour support, free shipping, and a liberal return policy (including free return shipping); the key theme here is making it easy for customers to do business with them. This includes having their contact information readily available at the top of every page on their site – and the contact information is a telephone number, which is fairly unique for an internet pure-play.
 

5)      Customer support is a marketing investment – Zappos sees its customer service operation as a key way in which they market – they clearly are leveraging the power of word-of-mouth that tends to yield results in the B2C space. In viewing support as an investment, they take a decidedly different operational approach – for example, they do not measure average call handling time, they don’t attempt to upsell customers in the support process, and they do not use a scripted approach to customer service. This helps reinforce the brand promise and the firm’s customer-focused image.

 

6)      There is a link between loyal employees and loyal customers – While the article does not overtly make this link, it is telling that 78% of the employee base chose to relocate with the company and the firm has an applicant-to-hire ratio of 100:1 while maintaining an image of being extraordinarily customer-focused.

So – we have two different articles with two different conclusions. The first maintains that targeting delight is over-reaching, while the second demonstrates the benefits of building customer delight. In the final entry of this series, I will outline what we should take away from these seemingly opposing views.

Mark A. Ratekin
Sr. Vice President, Consulting Services & Resource Management

 

Source: Hsieh, Tony. “How I Did It…Zappos’s CEO on Going to Extremes for Customers.” Harvard Business Review, Volume 88 (July-August 2010).41.

To Delight or Not to Delight? That is the question…

In reading the most recent issue of the Harvard Business Review, I naturally gravitated toward two articles that on the surface seemed to contradict one another. The first, entitled “Stop Trying to Delight Your Customers,” essentially said that companies are trying too hard to provide a superlative customer service experience. Their advice – simply fix the customers’ problems. The second article, “Zappos’s CEO on Going to Extremes for Customers,” talked about how Zappos has succeeded by – you guessed it – providing a superlative customer service experience.

So, which is it – should we have customer delight as a strategic corporate objective? Over the next couple of blogs, I will review each article and will provide some recommendations on how to approach this concept. Let’s start, though, with a review of the article "Stop Trying to Delight Your Customers.”

In this article, Matthew Dixon, Karen Freeman and Nicholas Toman of the Corporate Executive Board argue that firms spent too much time trying to figure out how to go above and beyond expectation, when simply addressing the basic need will do. The result, they advise, is wasted time/effort (i.e., the mis-utilization of support resources) and lost revenue/profit (via refunds or free products/services offered to build “delight”).

The alternative? Dixon, Freeman and Toman’s research suggests that making the customer service interaction easy – and helping customers solve their problems – is the best path toward building customer loyalty. Removing the barriers/pain associated with customer support is key to making the process easy for customers. The authors propose a new metric – the Customer Effort Score – that is, according to their research, a stronger predictor of stated behavioral intentions (that is, likelihood to continue doing business with the company, increase spend, and spread positive word of mouth) than either the traditional customer satisfaction question or NPS.

What steps, though, should firms take to ensure an easy-to-navigate process that addresses the customer service needs? Dixon et al propose five tactics:

1)      Proactive analysis of the customer’s issue – This relates to understanding not only how to fix the current problem, but also how to predict what other issues may emerge as a result of the fix and addressing that before the customer hangs up (or logs off the website).
 

2)      Understanding the customer’s personality type – By picking up on queues provided by the customer’s communication style, the rep can react in a way that will not only resonate better with the customer, but also will minimize the number of repeat calls by the customer.
 

3)      Ensure your self-service channel is working – The authors report that 57% of customers who call for customer support first visited the firm’s website. This “channel-jumping” behavior – which results in more effort on the part of the customer – is a result of the customer either not being able to determine the best method of support for their situation or getting overwhelmed and going back to the more familiar method of phone-based support.
 

4)      Follow-up with customers who are irritated with the level of effort they expended to learn where to improve – Customers, as we know, are a wealth of information, and following up to learn what did not go well can be quite illuminating. To be customer-centric, though, remember that the primary objective of a follow-up initiative should be to address the customer’s need first and to learn where to improve second.
 

5)      Empower associates – What gets rewarded gets done; if a support center is incentivized to minimize average handle time, then you can be sure that the calls will be short – even if that means the customer’s question is not answered. Making it “okay” to help the customer can result in longer average handle times, but fewer repeat calls – which should net out to less time spent on customer issues in total.

There is little to argue with in this article – the premise makes sense, and the tactics are straightforward. However, should we completely give up on the notion of customer delight? Before we answer that, I will review the second article that talks about Zappos, a firm that has become synonymous with being customer-focused. I will review that article in part two and will conclude in part three with my assessment of where companies should be focused based on our experiences with clients across a number of industries. In the meantime, I would love to hear your thoughts – are we working too hard (and giving up too much vis-à-vis revenue/profit) by attempting to build customer delight?

Mark A. Ratekin
Sr. Vice President, Consulting Services & Resource Management

 

Source: Dixon, Matthew; Freeman, Karen; and Toman, Nicholas. “Stop Trying to Delight Your Customers.” Harvard Business Review, Volume 88 (July-August 2010).116.

At the Movies – A Lesson in Customer Service

A month ago, my husband and I went to see “Iron Man 2”. Halfway through the movie, the projector in the theater began having some technical issues, and after about five minutes, the movie stopped playing completely. Frustrating, but at least it wasn’t during a particularly action-packed or climactic part of the movie, and the movie was playing perfectly again in less than three minutes. 

After the movie, as we exited the theater, we were greeted by a supervisor. He apologized for the interruption to our movie and handed us complimentary tickets that we could use for any movie we wanted at any time. That was so unexpected to me, but a gesture that I’ve told everyone about. 

As I got to thinking about it, this was a great customer service move by the management at the movie theater. Sure, it cost them money to give everyone in the theater a free ticket, but they successfully turned a negative transaction into a positive transaction for their customers (at least in my mind). This probably saved the theater money in the long-run! An article I read recently supports this; it found that negative critical incidents can lead to declining satisfaction and altered purchasing behavior over time, even for long-term customers. This is because negative incidents cause customers to reflect on and reconsider the relationship with the company in a way they may not if it is “business as usual”. Therefore, managers should be on the lookout for customers who have recently experienced a negative event and should strive to resolve it in a positive manner.

In the case of the movie theater, a minor irritation was turned into a gesture that let me know I was a valued customer and subsequently increased my satisfaction with my experience.   The manager definitely took the right steps to increase the loyalty of his customers. Would your company handle a negative incident in a similar way?

Jessica Gregory, Director, Marketing Sciences

Reference: van Doorn, Jenny and Peter C. Verhoef (2008). “Critical Incidents and the Impact of Satisfaction on Customer Share," Journal of Marketing, Vol. 72 (July 2008), pgs. 123-142.

How to Succeed in Business – Mergers & Acquisitions Edition

In a recent article for BusinessWeek, Mark Johnson discusses mergers and acquisitions and how to increase the probability of success. Johnson points out the familiar statistic that 80% of acquisitions fail to create value for the acquiring company; the reason, Johnson hypothesizes, is that firms fail to realize what they are buying. In Johnson’s words:

“When one company buys another, what it’s really purchasing is the target company’s business model—its customer value proposition, its profit formula, its resources, and its processes.”[i]

Johnson outlines that two types of acquisitions can occur:

1)      Acquisition of resources – The acquiring firm is essentially purchasing technology, capabilities, etc., that are then integrated into the acquiring firm’s existing business model. Cisco Systems (a Walker client) is noted as following this path.
 

2)      Acquisition of a business model – The acquiring firm is purchasing the business model of the target; in this case, the acquisition is generally kept separate from the acquiring firm. Resources (capital, for example) of the acquirer are leveraged to help jettison the growth of the purchased firm. Best Buy’s purchase of Geek Squad is given as an example.

This premise is interesting and makes sense; we would offer some additional observations to add to the analysis:

1)      What about customers? Critical to understanding the aspects of the business model as addressed by Johnson (i.e., customer value proposition, profit formula, resources, processes) is how customers fit into that model. For example:

a.      How loyal are the customers to the organization? We have found customer loyalty (that is, the likelihood for the customer to continue to purchase coupled with the level of commitment of the customer toward the firm) to be a strong predictor of future business success. Understanding the extent to which customers are loyal to the acquisition target is key to understanding the long-term viability of the firm’s profit model (and, therefore, the valuation of the firm at large).
 

b.      What revenue flight risks exist within the organization? Suppose you are interested in acquiring a firm that has an excellent product; if the firm has had some service issues of late that has caused some level of degradation of customer loyalty, should you proceed with the purchase? There is no one-size-fits-all answer. For example – if the product is unique (that is, few competitive alternatives exist), customers are likely trapped in the short run, which means that the purchasing firm will likely have to invest aggressively from the onset; moreover, this approach carries risk – if a new entrant comes into the market, there could be great revenue flight. At a minimum, this could have a significant impact on the price of the acquisition.

If, on the other hand, plenty of competitive alternatives exist, it may make more sense to not complete the acquisition. Regardless of the outcome, the acquiring firm cannot make an informed decision without knowing the level of loyalty among the customer base and how the firm’s revenue aligns with the loyalty profiles.

c.       How distinct are the customers relative to the acquiring firm’s customer base? Is the product or service provided by the acquired firm designed to offer new offerings to your existing customers, bring distinct (and new) customer segments to the firm, or some combination of the two? Consider the Walker Growth Matrix:

Simply put, this matrix decomposes four growth strategies into customer type and product/service offering components. This matrix can be helpful in identifying what type of growth we can expect the acquired company to provide.

Understanding this can help in the valuation of the acquisition, as it tells us how much wholly new revenue vs. incremental revenue to expect. In order to reliably estimate this, you need to understand your current customers as well as what needs (met and unmet) exist among the target firm’s customer base.

 

2)      How complementary are the cultures? Johnson does make that case that understanding the culture is key to understanding the extent to which the two businesses can be effectively integrated – for example, an entrepreneurial culture will likely be suffocated if the acquiring firm is more structured/disciplined (the difference between being “disciplined” and “staid” is often in the eyes of the beholder).

 

Understanding the culture, combined with an understanding of the loyalty of the employee base of the acquired firm, will help to determine whether to fully integrate the acquired company or to keep it as a stand-alone entity. In addition, understanding the employee loyalty will also provide insight as to the likelihood that the firm will be able to continue to generate success – if the firm has been successful but the employee loyalty is low, then there is a heightened likelihood that the best days may be behind it due to the probability of post-acquisition employee defections. While that isn’t necessarily a reason to not consummate the deal, it again would likely have some influence on the tangible value of the firm. Do you see a theme emerging here?

 

Tying all this together, the advice we would offer on the topic of mergers and acquisitions to customer-focused firms is fairly straightforward:

 

1)      Don’t lose your sense of self – If you are a customer-focused firm, seek to acquire like-minded companies. While it is possible to successfully acquire a firm that is not customer-focused, the effort to achieve successful integration will be immense, and failure could have adverse impact on how customer-focused your current customers perceive your organization.
 

2)      Remember what you are buying – If the customer base of the target is a key aspect of the acquisition (and it absolutely is unless you are acquiring a specific technology that has not yet been introduced to the market), then take the time and make the necessary investment to optimally understand how loyal those customers are.
 

3)      To integrate or not? – Examining the culture of the acquired firm (including the loyalty of its employees) can provide effective cues to whether or not an absorption acquisition model should be preferred over a stand-alone entity model.
 

4)      Loop back after the acquisition – Regardless of which integration model you pursue, don’t forget to loop back after a reasonable period of time to see how customers and employees are feeling about the success of the acquisition. Use this information to quickly address any problem areas and to reinforce the importance that both customers and employees play in the long-term success of the firm.

Considering these aspects, in conjunction with the excellent guidance provided by Mark Johnson, will help increase your overall probability of a successful acquisition.

Mark A. Ratekin
Senior Vice President, Consulting Services & Resource Management



[i] Johnson, M. W. (2010, May 26). How to Succeed at M&A. Retrieved June 7, 2010, from Bloomberg Businessweek: http://www.businessweek.com/innovate/content/may2010/id20100525_156769.htm?link_position=link16