New Approach Makes Marketing Research Obsolete
Wouldn’t you know it?Marketing Research is now an obsolete discipline. It’s been usurped by a new approach called Extrasensory Perception, or ESP. Yes, ESP practitioners are able to read consumer minds and learn all there is to know without a single questionnaire, report or statistic needed.
But this is silly isn’t it? Of course, I’m playing an April Fool’s joke. To my knowledge, we haven’t developed the means to actually read people’s minds (aside from some whizbang marketing sciences work that I’ve seen). However, our company and others are actively exploring the realm of neuroscience for what we can learn about consumer, employee and channel partner attitudes toward various topics.
There have been some terrific books published on this topic, including Jonah Lehrer’s book “How We Decide”, that discuss some of these advances. There are a plethora of technologies and advances that make this not as far-fetched as it might sound.
First, many people know that there are parts of the brain responsible for things like speech. Two of these areas, Wernicke’s area and Broca’s area, make it possible for us to speak. However, through the use of functional MRI’s (fMRI) and other devices, it’s possible to see the cross-talk between these two areas and uncover people’s desire to prevaricate or exaggerate, even before they speak. Yes, this is a very expensive, highly inconvenient lie detector.
But, on the flip-side, consumers often have strong, visceral reactions to things that they then struggle to put into words. Parts of the brain responsible for these strong reactions signal pleasure or fear, making it easier for communications development people to see how someone reacts to an ad or a slogan.
Further, neuroscience gives us the basis for understanding why people are loyal to companies and why people buy products or services that they seemingly don’t need. Our ability to better understand motivation and loyalty triggers can also help identify the most important elements of an experience. With this knowledge, we can be better service providers and manufacturers.
So, I can’t tell what you’re thinking, yet, but neuroscience is a promising avenue of exploration for better understanding the Voice of the Customer.
Share ThisHow Good Is Our Score? By D. Randall Brandt, PhD
Where and how high should managers “set the bar” for measures of customer experience and loyalty? If these measures are derived from survey data, what can or should be considered a “good score?” Managers ask these and related questions frequently, and for good reason: Decisions regarding allocation of resources, reward and recognition, and channel partner certification frequently are on the line. If an organization is basing such decisions on whether targets for key customer metrics have been met, then the rationale for such targets had better be solid and defensible.This article examines some of the most common approaches to setting targets for measures of customer experience and loyalty, including the strengths and limitations of each. Subsequently, the article describes an approach to target-setting that is based on how customer metrics are linked to financial and other desired business results metrics. The advantages of this “linkage-based” approach over the more common methods are highlighted.
Common Approaches to Defining Targets
The two most commonly-used approaches to setting targets for measures of customer experience and loyalty are: (1) judgment and (2) comparisons. Each of these is examined in greater detail below.
Judgment
Quite often, targets for key customer metrics are based upon judgment: Senior managers and executives select a score that seems reasonable, achievable, and/or desirable, and this score becomes the target. For example, one client recently told me that her organization strives for a mean overall satisfaction score of 9 or higher (on a 10-point scale) because “that’s what management wants.”
Those who defend such an approach point out that the responsibility for setting goals and targets, in all critical areas of organizational performance, rests squarely on the shoulders of top management. In the process of setting goals and targets, senior executives and managers are expected to use their “best judgment,” particularly when an alternative basis for target setting is unavailable and/or has not been identified. Also, it is common for executives and managers to use judgment in defining “stretch” targets for the purpose of challenging an organization to strive for excellence in customer experience and loyalty.
The preceding points are well-taken. However, Maritz advises organizations to be cautious about adopting a judgmental approach because it has at least three serious limitations:
- Management often has difficulty articulating the rationale or foundation for its choice of target to employees and partners who are trying to make sense of it, and who are being held accountable for achieving this target.
- The target may not be realistic in view of the organization’s current resources and capabilities.
- In the absence of knowledge regarding how performance on the customer experience measure of interest is related to one or more key business results metrics (e.g., customer retention, revenue, market share, etc.), it is anyone’s guess as to whether achieving a judgmentally-based target will lead to the desired outcome.
Because of the preceding shortcomings, some managers and executives are uncomfortable with a judgmentally-based approach to target setting. This leads these managers/executives to adopt an alternative approach involving score comparisons.
Comparisons
An alternative strategy for setting targets centers on looking at how the organization’s score on one or more key customer metrics compares to one or more benchmarks or reference points. Such comparisons generally fall into three categories:
- Intra-organizational
- Inter-organizational
- Longitudinal
Intra-organizational comparisons involve looking at the difference in scores between two or more entities within the same organization (e.g., dealerships, branches, stores, sales districts, etc.). For example, it is common in the automotive industry to rank dealerships on the basis of customer satisfaction scores. Dealerships at the top of the rankings (e.g., in the first or second deciles) often receive special reward and recognition as “top performers.” In some cases, judgment is used to select a minimally acceptable or “threshold” customer satisfaction score, and this becomes the target for dealership certification or accreditation.
Inter-organizational comparisons involve looking at the difference in scores between one’s own organization and one or more competitors or benchmarks. Many organizations gather data from their own, as well as competitors’ customers, in order to make performance comparisons. In some instances, organizations share the cost of capturing competitive data via participation in some sort of syndicated study (e.g., the type of survey conducted by J. D. Power and Associates in automotive, telecommunication, financial services, and other industries). Still other organizations participate in cross-industry efforts to measure customer satisfaction, such as the American Customer Satisfaction Index® (ACSI). Regardless of which of these various approaches is used, the idea is to determine how one’s own organization compares to one or more benchmarks. The selected benchmark might be a specific competitor and/or industry leader. Alternatively, it might be an industry average or normative range on the customer score of interest. In some cases, the comparison cross industry boundaries to determine how one’s own score compares to scores obtained by “world class” organizations. In any event, the benchmark’s score essentially becomes the target, and the favorableness or unfavorableness of comparison becomes the standard by which one’s own customer experience or satisfaction score is assessed.
Longitudinal comparisons involve looking at changes in customer experience or satisfaction scores over time. This approach frequently is used when an organization wants to evaluate the impact of decisions and actions taken to improve customer experience/satisfaction. For example, a retail bank might wish to determine if increasing the availability of self-service options (e.g., ATM’s, online banking) leads to improved customer ratings on “ease of doing business.” A longitudinal approach would be an appropriate method for this purpose. Increasing the score on this rating would be the target, and the direction and magnitude of changes in the score over time would become the basis for evaluating the impact of increasing the availability of self-service options.1
Comparisons generally appeal to managers, employees, and partners who want to know how they “stack up” against those with whom they compete, whether that means others in their organization, key competitors, or world class performers. Comparisons also overcome at least two of the limitations of judgmentally-based targets:
- The basis for evaluating customer experience/loyalty scores generally is clearer and easier to explain to employees and partners (i.e., “we’re aiming to be a top performer and/or better than other organizations.”).
- Comparisons take into account organizational, industry, and state-of-the-art capabilities: They reflect the highs, the lows, and the typical with respect to customer experience and loyalty in the current environment.
Unfortunately, comparisons have at least two key limitations:
- Under some circumstances, they can promote complacency and/or mediocrity where customer experience/loyalty are concerned.
- As with judgmentally-based targets, having a favorable score relative to a benchmark target may or may not lead to desired business results.
To illustrate the first of the above limitations, consider an example from the airline industry. Every year for the past 10 years, results of American Customer Satisfaction Index® (ACSI) survey reveal a customer satisfaction “leader” among all participating domestic airline companies. However, the same results show that the airline industry average falls in the bottom decile of all companies and industries ranked on the basis of customer satisfaction. This begs at least two questions: (1) What does being the “leader in customer satisfaction in the airline industry” really mean?; and (2) What business results are made possible via such leadership?
The second of the preceding questions points to the other key limitation of score comparisons. The relationship between customer satisfaction and financial performance among airlines participating in the ACSI is weak, at best. Thus, being the leader in customer satisfaction (or near the top) in the airline industry may or may not have much to do with key business performance results such as revenue and profitability – and if achieving the target of industry leadership in customer satisfaction does not translate into (or at least facilitate) achievement of desired business results, one has to question the usefulness of such a target.
The preceding discussion is not intended to dissuade managers altogether from considering judgment or score comparisons as a basis for setting targets for measures of customer experience and loyalty. Sometimes, these are the only options available. However, managers should seek better alternatives. One such alternative is target-setting based on linkage analysis.
Setting Targets Based on Linkage Analysis
More often than not, a commitment to managing and improving customer experience is based on belief in the value of customer loyalty. Managers believe that satisfied customers will become loyal customers, that they will continue to do business with the brand/firm, and that they will tell others about their positive experiences. Thus, customer loyalty contributes both to the retention of existing customers and to the acquisition of new customers. Ultimately, increases in customer retention and acquisition lead to desired financial and other key business results.
If all of the above sounds familiar, it is because it’s been around for a long time and reflects a belief that is widely held. For example, it is at the heart of models like the Service Profit Chain2 and the Balanced Scorecard,3 and is central to nearly everything renowned business guru, Fred Reichheld, has written in recent years.4 This belief also lies at the foundation of nearly every customer experience measurement and management program of which I am aware.
The good news is that managers are not restricted to acting on their belief in a “loyalty effect” as a matter of faith. Thanks to the growing practice of linkage analysis, these managers can put that faith to the test, and in the process, acquire some very actionable insight regarding where to set targets for key customer metrics.
Linkage analysis focuses on helping managers understand relationships among measures of customer experience, customer loyalty, and financial/business results. Planning and execution of linkage analysis is guided by the following questions:
- What financial, market performance, or other desired business result is the organization trying to achieve?
- What level of overall customer satisfaction and/or loyalty is required to achieve the preceding desired end result?
By conducting analyses that establish the strength and form of relationships among relevant customer and financial metrics, managers can answer each of the above questions. Furthermore, by answering the questions regarding required levels of customer satisfaction and loyalty, managers can determine where to “set the bar” for these measures. That is, they can establish linkage-based targets for key customer metrics.
A Case Illustration
A leading restaurant chain recently set out to define targets for survey measures of customer satisfaction and attitudinal loyalty. For each of several hundred restaurant locations, the following data were assembled:
- Sales and profitability data for six months
- Measures of overall guest satisfaction and willingness to recommend the restaurant to others (for the same six month time period)
A non-linear regression approach was used to determine the extent to which variations in overall customer satisfaction and attitudinal loyalty were associated with increases or decreases in restaurant profitability.5 Exhibit 1 illustrates results linking attitudinal customer loyalty (willingness to recommend) and restaurant profitability. These results reveal that the relationship between the two measures is not linear. Moreover, they suggest that managers might want to set the target for the willingness to recommend measure at around 74%. Why? The answer is that beyond this point, profitability flattens, and even diminishes. Analysis of the best available data suggests that restaurants achieving “definitely would recommend” score of 74% (or slightly above) are achieving the desired business result of maximum profitability.6
Imagine you are the manager charged with setting a target for attitudinal loyalty for this restaurant chain. In the absence of the insight provided by results of the linkage analysis shown above, where would you set the target? Perhaps judgment would lead you to decide on a target of 74%, but then again, you might think that to be too low. Judgment just as easily could lead you to a target of 85 or 90 percent. That is the key problem with using judgment alone as a basis for target setting: The target may seem like the “right” one, but without insights provided by linkage analysis, you have no way of knowing if it will lead to the desired business result.
What about using the comparison approach? After all, you have attitudinal loyalty scores for several hundred restaurant locations, and could easily rank them from highest to lowest. Perhaps then you could determine which restaurant units were in the top quartile, and use the score at the lower end of that quartile range as your target. Of course, the problem with such an approach stems from the fact that many of the units falling in this upper quartile appear to be driving a very high level of attitudinal loyalty at the expense of profit. Is this level of attitudinal loyalty really the one you want lower-scoring units to chase?
Using a linkage-based approach would allow you to avoid the preceding potential pitfalls. It would enable you to select a target for customer loyalty that is most closed associated with maximum profitability. In essence, it would help you set a target for customer loyalty that, if achieved, will have a high probability of leading to the desired business result.
Summary and Conclusion
Most organizations that invest in measuring customer experience and loyalty ultimately wrestle with the question of where to set the bar for key customer metrics. Quite often, important decisions regarding allocation of resources and/or reward and recognition are based upon whether such targets are met.
In this article, we have examined three approaches that can be used for the purpose of target-setting. A linkage-based approach is recommended because it produces a target for customer metrics that, if achieved, is most likely to lead to one or more desired business results. Relying on judgment and/or comparing customer scores to selected benchmarks may produce such a target serendipitously, but can just as easily miss the mark.
Managers need not play “pin the tail on the donkey” in an effort to select the “right” target for measures of customer experience and loyalty. They can remove the blindfold by adopting a linkage-based approach to setting such targets.
NOTES:
1. Quite often, all three types of score comparisons utilize methods of statistical inference or “significance testing” to evaluate differences/changes in customer experience/satisfaction scores. The idea is to determine the probability (and rule out the risk) that observed differences/changes merely reflect random variation due to sampling error. If the computed probability is equal to or lower than a criterion level selected in advance (usually somewhere between 1 to 10%), then the difference or change in scores is said to be “statistically significant.” This typically leads to a conclusion that the difference/change reflects something systematic, such as a “true” competitive advantage or a successful improvement effort.
2. Heskett, J., Jones, T., Loveman, G.. Sasser. E., and Schlesinger, L. (1994). “Putting the Service-Profit Chain to Work.” Harvard Business Review (March/April); 164-171.
3. Kaplan, R.S. and Norton, D.P. (1996). The Balanced Scorecard. Boston: Harvard Business Press.
4. For example, see Reichheld, F. (1996) The Loyalty Effect. Boston: Harvard Business Press; and Reichheld, F. (2006). The Ultimate Question. Boston: Harvard Business Press.
5. The specific technique used in this analysis was multivariate adaptive regression splines or “MARS” analysis. For details on this technique, see Friedman, J. H. (1991). “Multivariate Adaptive Regression Splines.” Annals of Statistics, 19 (1): 1–67.
6. Because of their confidential nature, the actual performance targets established by the restaurant chain cannot be revealed. However, every effort has been made to preserve the authenticity of this case illustration.
Share ThisWanna Buy a Checking Account?
A recent study from Thunderhead Communications shows that loyalty to financial services companies hovers in the 16% - 17% range. Further, more than six in ten financial services customers say they are actively looking to switch banks or insurance companies in the next year or so.Yikes. With numbers like that, and with the economy facing a strong headwind, I wouldn’t be surprised if prescriptions for Prozac have increased in New York and Charlotte.
Not surprisingly, the conclusion of this study was that financial institutions need to communicate more often and effectively with their customers. A shocking conclusion given that Thunderhead provides those services.
But before discounting this study as self-serving, there were some interesting and unexpected nuggets within.
The study indicated that the vast majority of consumers said they wanted the option of receiving communications via email, and two out of five said they preferred to get info like this from personalized web portals.
Here’s the biggie: half of the consumers surveyed said that it was “very important” to receive communications in real time. Even if the other half all said this is “not at all important,” if it was feasible to make half of your customer base happy and this was cost effective, wouldn’t you jump at the chance?
Somewhat less believable, but interesting just the same, some number of consumers actually want offers or communications directed to them on social networking sites like FaceBook or MySpace. Imagine chatting with your peeps on MySpace and MegaBank pops in and offers you a quarter point bump on your savings interest rate if you and ten of your friends sign up today.
This is a new age indeed.
Lest we lose focus on what’s important, however, the big finding here is the large number of consumers who don’t feel any loyalty to their financial institutions. With interest rates still high, higher approval standards for loans, and the proliferation of more creative “non-interest income opportunities” (i.e., fees), most financial services companies wear a black hat these days.
Communication with customers is often a critical element for creating and maintaining customer relationships. Companies that study their own customers, and evaluate what’s best to measure for their businesses will be able to confirm for themselves whether any of these recommendations or findings are relevant for their customer bases.
In the meanwhile, I’m going to print out this blog entry and use it to wrap all of the new Prozac and Zoloft prescriptions bottles in major financial centers throughout North America.
Repeat Business is Online Retail’s Core Customer Metric
In a study released recently by MarketLive, research confirms the importance of repeat business to online retailers. Many online (and off line) retailers focus strictly on acquiring new customers, often in the mistaken belief that volume is the name of the game.This work indicates that it’s the size of the online basket that makes all the difference. New customers buy 10% less than existing customers, and are less engaged with the retailer and the buying process in general.
Not surprisingly, marketing budgets for online retailers reflect this disparity, with more than half being spent on acquisition, and only about 20% being spent on retention or loyalty.
Yet another reason why knowing what’s best to measure is more important than traditional marketing methods or metrics.
Social Media Usage: Part of a Robust Core Customer Metric?
A study released by the Society for New Communications Research discusses how Social Media (i.e., blogs, online rating systems and discussion forums) is not only an important bellwether for consumers making decisions about a brand, but also as an indication of loyalty to a brand.Consider this scenario: You’ve just purchased the cool new MyVu video glasses and you decide that it is better than sliced bread. Likely, before making this purchase, you used an Internet search engine like Google to see what others were saying about this new device.
Your results show reviews on engadget and Gizmodo as well as some for sale listings on merchant sites like Amazon.com. Sure enough, clicking through to any of these not only provides you with an editorial review but also user comments and ratings. Based upon the information you’ve gleaned, you plop down your credit card and buy the MyVu glasses.
A week or so later, after you’ve come up for air from watching back-to-back movies on your new device, you decide to share the love. Back to the search engine, and you put in your two-cents worth at all of the sites that you found valuable for your choice information.
This example illustrates the burgeoning power that Social Media can play in the purchase decision. But if you were an online mogul, and your business’ success rests on how well you do with sophisticated customers who rely on the Internet for their info, how can you ignore the power of this medium?
Through the use of Internet scraping and scanning tools, text analysis and some nifty algorithms, it’s entirely possible to mine Social Media sources for suggestions of your brand’s health. This could be incorporated into your Brand Health Index or used in convergent analysis to convince Finance, senior management or venture capitalists that you’ve got a hot thing.
Social Media seems like more than a fad, and judging from its ballooning usage, it is becoming adopted by more than just gossipy teenagers.
How do you see Social Media being used in your Voice of the Customer efforts? Do you think that information gleaned from Social Media might be useful as part of your company’s Core Customer Metric?
Business To Business Core Customer Metrics
The Corporate Executive Board recently studied Customer Loyalty from a business to business perspective. One of the major conclusions is that, in many cases, switching business to business suppliers is so hard to do, the fact that a customer is buying from you (behavioral loyalty) doesn’t mean they are emotionally invested in that behavior. Also, purchase decisions are generally shared among multiple people, and still more people are internal influences.
While not shocking or surprising, it is true that much less to do is made about building loyalty among business to business customers than among business to consumer customers.
Thinking through some of the core measures that are prevalent today, most seem to be not especially well-suited for B2B applications. For instance, the much discussed Net Promoter Score relies upon the the predisposition of loyal customers to want to recommend the companies they like. While it makes sense for cars, audio equipment, movies etc., I’m not sure that physicists go to cocktail parties and talk about what brand of test equipment they’re using. Or maybe they do, and that’s why I’ve never seen a physicist at a cocktail party.
The article raises some interesting nuances worth thinking about. For instance, B2B surveys that focus on the end-user in the company are more predictive of loyalty than are those that focus on decision-makers. While this may seem simplistic, most B2C surveys focus on the household decision maker’s attitudes (e.g., Dad buys the soap) rather than the users (e.g., everyone in the house uses the soap).
Apparently there is no magic bullet available for B2B companies, just as there isn’t one for B2C. The most important distinguishing characteristic between successful and less successful companies will be the PROCESS they went through to arrive at their core customer metric — not the metric itself.
What B2B loyalty metrics do you think are most effective for a particular company or industry and why?
Share ThisZen and the Art of Motorcyclist Hospitality
I love it when my personal and professional life converge.The Wise Marketer reports that Harley-Davidson and Best Western are co-promoting a loyalty program aimed at H-D motorcyclists. Benefits include, according to the article, “special wipe-down towels at check-in, access to a bike wash, tar remover, lip balm and sun tan lotion” among other things.
Why is this so cool (other than the convergence of my favorite pastime and my favorite business topic)? Because Best Western has delved deep into segmentation or other market assessment work and came up with motorcycle touring as an opportunity. The loyalty of Harley-Davidson customers is renowned throughout the marketing business. Many companies would hand off first born progeny to have access to that loyalty.
However, among the many co-promotions cooked up by companies and The Motor Company, most simply use H-D logos, or make weak attempts at biker chic to win over the notoriously skeptical H-D customer. I will tell you from personal experience, people on motorcycles ARE often discriminated against at public conveniences. Seems that the biker mystique has its positive and negative edges.
So, when Best Western announces that they are now “biker friendly” and promise tangible benefits to motorcycle tourists and travelers, they will quickly find out whether their customer experience is up to the road test of real bikers.
If they meet this challenge and provide the kind of customer experience they promise, word of mouth will surely do the hard work of validating this brand promise in the motorcyclist community. Other hospitality chains will follow suit, perhaps going after the same Harley-Davidson customer, perhaps going after different parts of this travel segment. Regardless, Harley-Davidson customers win.
Conversely, if Best Western drops the ball and are unable to meet expectations or deliver poorly, they will likely do themselves long-term damage, as the word of mouth spreads that Best Western is a “poser” (the worst insult a motorcyclist can level at someone else).
It will be interesting to see how Best Western keeps track of their success in this new endeavor. Clearly loyalty will be a core customer metric to watch and measuring positive impressions or intent among prospective customers will also help gauge how well they are doing.
Share ThisCustomer Lifetime Value (CLV) as a Core Customer Metric
The latest edition (3 April 2008) of The Wise Marketer newsletter has some nice discussion regarding the idea of Customer Lifetime Value as a Core Customer Metric that is predictive of profits. (Sign up for your own copy at the link above, or if you have some cash laying about, about $2,300 in the US, you can buy their report The Loyalty Guide for yourself)Not surprisingly, the concept relies upon both current and expected information for its calculation. First, one assesses the current value of a customer (revenues less costs) for a single financial period. Next, using various techniques for projecting this information, you calculate the expected annual value of this customer for each subsequent year, as well as an expected tenure.
Given the “start-up” costs for many industries (acquisition, product cost, servicing and fulfillment costs, etc.), it isn’t a shock that after the initial few periods of amortizing these start-up costs, even modest customers can become very profitable over time.
The Wise Marketers point out that this calculation differs greatly by three important 
factors: 1) the industry Sector; 2) the product; and 3) the period of analysis. Even if your calculation of the Customer Lifetime Value isn’t 100% accurate, it does give you a way to compare various customers in your customer base. If you are in an industry that can provide differentiated service, this allows you to guide your front-line employees to provide better service to customers who have higher CLV’s.
The weakness, of course, is that CLV relies upon a lot of assumptions about tenure, future product purchasing and future costs. A 30 year old woman with a low financial services wallet might have higher costs and lower revenues for you today, but over her lifetime, IF you keep her, and IF you get your fair share of her wallet over time and IF she doesn’t cost you and arm and a leg to service, should be a good investment. But those are some pretty big ifs. And, once you’ve decided that your high CLV customer is worth your time, what aspects of her relationship do you need to actively manage in order to keep her a customer? The crux of a Core Customer Metric is that it is one that isn’t just predictive of the financial outcomes, it inherently includes some relative measure of stickiness or loyalty.
The best Core Customer Metric not only points to which customers are sticky or loyal, but which aspects of the Customer Experience are critical for increasing or decreasing the metric.
(Graphic used with kind permission from Adelino de Almeida’s blog: Profitable Marketing http://adelino.typepad.com)
Share ThisThe Value of Detractors
Maybe mushrooms and Luddites have never heard of the Net Promoter Score, co-developed by Fred Reichheld and Satmetrix. But other than those fungi and sabot-tossing naysayers, most of the rest of us in marketing have.Satmetrix recently released a study that puts an economic value on Promoters and Detractors in a business. The article, found here, doesn’t give much detail about methodology, but assuming it’s solid, the findings rely upon Referral Economics (how much a referral — or lack of one — is worth) and Buyer Economics, the more traditional customer value info you might expect.
The article I saw gives an example from the computing hardware industry. In it, each Promoter is worth an average of $2,634 — $203 more than the typical customer. Detractors, on the other hand, are worth $1,457 on average — about $158 less than the typical customer.
The Referral Economics piece is interesting. Each Promoter is responsible for contributing 0.5 of a new customer (acquired through word of mouth, and important caveat, I presume), while Detractors COST the company 0.84 of a customer (with the same caveats, but the article doesn’t elaborate.
I like the idea of segmenting and valuing the customers you have, and the notion of associating some amount of new business to referrals (and reciprocally, subtracting some amount of business for bad word of mouth) is somewhat intuitive.
The hard part, as always, is knowing which customers are going to promote or detract your company BEFORE they do so, so that you can intervene with the potential detractors and ensure continuing good experience for promoters.
In companies that rely heavily upon word of mouth for their new business, this will be exciting news. For those that don’t, a solid investigation into which core customer metric is their leading indicator of business results will remain the task at hand.
Share ThisIs It Really the “End of Customer Service”?
Time Magazine recently published a special called What’s Next 2008. Within the normal discussions regarding trends were its list of 10 Ideas that are Changing the World.Number 2 on this list was “The End of Customer Service.” They pointed to self service lines in airports, grocery stores, hotel lobbies and movie theatres.
But is this really the “end of customer service?” I think most people would point out that in most of these examples, these are simply places where we conduct a transaction, and where human intervention is often slower than machine help in many instances. More importantly, these are places where people wait in line to transact. Waiting is not something we are good at.
So, while Time Magazine might be calling for the end of Customer Service, I see that we are simply automating routine tasks so that people don’t have to wait. I sure don’t relish standing in box office lines, check in lines at the airport or behind a person with a cart full of groceries when I just have my two items to pay for.
More importantly, and more germane to this blog, how will we measure the Customer Experience when parts of the experience are automated?
We already face this in many industries, particularly financial services. Banks have offered ATM’s and online banking for a while now. The same with airlines. So many passengers check in before they get to the airport that many do not even go to the ticket lobby unless they need to reprint a boarding pass or check a piece of luggage.
It is sensible that automation be measured when we are measuring the Overall Customer Experience, but what are we measuring when we do so? As many banks do, they look at problem handling as a key indicator of whether customers are getting what they needed to do done. Customers are probably OK with your automated solution so long as they can complete their task. When they aren’t, it is pretty important that you provide a way to fix the problem.
As more things become automated, it will be interesting to see what Core Customer Metrics are being used to understand the changing landscape of the Customer Experience. If you have a good example of how this is done at your company, please share.
Share ThisDon’t Choose Your Core Customer Metric Using the “Wisdom of Crowds”
Seni Thomas wrote a thought provoking piece here decrying the current blogging world’s lack of ability to predict things that would be a fancy-tickler. The posting made me think about the crowd mentality that seems to be prevalent in the marketing research industry, particularly related to choosing a Core Customer Metric that 1) is predictive of business results and 2) can be easily communicated to the troops.We continue to receive frantic pleas from clients to explain why or why not the Net Promoter Score might be the metric for them. After talking this poor researcher off the ledge and listening to their business issues, inevitably, this is what is occurring with frequency in American corporations.
The CEO/ CIO/ CMO/ CXO wakes up one lazy Sunday afternoon and reads how GE or Enterprise Rent-A-Car or American Express is using the NPS. This well-meaning executive takes the torn-edged article from the Wall Street Journal, or Marketing News or some other paragon of business wisdom and hands it to someone in the organization, with the instruction to “make this happen.”
On down the slope this goes, until it lands on the desk of the hapless researcher, with the edict, “management wants this.”
The huge sum of money the company is spending against capturing the Voice of the Customer is clearly at stake. The company is already asking the Recommend question, so what might be the harm?
Probably none, since people who work with Customer Experience data know, many of the outcome questions in this work are so multi-correlated that you’re likely capturing the main effect with any one of the numerous outcome questions you’re asking.
But business wisdom has never come from a single book, article or conference presentation. Business wisdom comes from crafting a decent theory about what is true about your business, and testing to see if you are right.
I certainly can’t imagine Finance decisions being made using the “wisdom of crowds.” If shareholders are important enough to do some diligence with the financials, certainly your customers are worth the same effort.
This is certainly not a slam against the idea of Promoters. It is an admonition that your business is too important to shortcut the process of investigating which Core Customer Metric is the best one — one that is both predictive of business results and easily communicated to the rank and file. What do you think?
Share ThisAre You Sure You’ve Selected the “Right” Core Customer Metric?
During my keynote presentation at IIR’s 2008 Linkage Strategies Conference in Miami, I invited the audience to participate in a sort of informal “survey” regarding successes and failures experienced in connection with putting the Voice of the Customer (VOC) to work.
I asked how many felt their organization had successfully selected and implemented a core measure of customer loyalty, and more than half of the 200 in attendance raised their hands. However, when I asked how many clearly had been able to show how their organization’s loyalty metric is linked to financial or other key business outcomes, only three attendees raised their hands.
In earlier posts at this site, we have tried to argue that an effective Core Customer Metric should provide a valid leading indicator of changes in revenue, market share, customer retention, and other business performance measures. This requires demonstrating the link between the CCM and such business measures. So it seems a little ironic that, while a majority of managers attending the Linkage Strategies 2008 Conference believe they have the “right” Core Customer Metric in place, less than 2% have validated it through linkage to business results.
Yet, this is very similar to what we found in results of the 2007 Maritz Voice of the Customer Challenges survey of managers in Blue Chip companies. The survey found that:
- Seventy (70) percent of the managers we surveyed reported having developed an effective method of “selecting the right customer survey metric for their organization and business.”
- However, only thirty (30) percent of these same managers reported having developed an effective method to demonstrate “the link between customer survey measures and financial and/or other key business results.”
Managers and executives may all agree that they’ve identified the best CCM for their organization because it “makes sense” or because other organizations have found it to be effective. An organization might even be tempted to select a CCM that is “in vogue” in the latest management circles or business publications.
However, at some point, no matter what their stated beliefs or commitments, executives and shareholders will demand evidence of the “bottom-line” impact of customer loyalty. They will want proof that investments in and efforts to measure customer loyalty, for the purpose of making relevant process and quality improvements, actually contribute to growth in revenues, profitability, and other financial and market outcomes. This means that the link between an organization’s Core Customer Metric and key business results must be established.
Has your organization successfully linked its core customer metric to business results? How did you do it?
If not, what barriers are preventing this?
Share ThisCoreCustomerMetric.com Welcomes the AMA!
D. Randall Brandt, PhD, known to us as Randy Brandt, discussed the ins and outs of selecting the RIGHT core customer metric for businesses with the American Marketing Association on Marketing News Radio, March 5, 2008.Listen in to our illustrious Blogger in Chief as he shares a career’s worth of insightful industry knowledge, practical experience and the endgame of knowing what is best to measure. The teaser blurb:
“Conventional managerial wisdom holds that managing customer satisfaction, value, and loyalty makes good business sense because it leads to repeat purchasing, increased share-of-wallet, positive word-of-mouth, and a number of other favorable financial and business outcomes. In fact, faith in these alleged benefits has led many organizations to seek a measure – a Core Customer Metric – that can be used as a barometer of customer affinity, and as a leading indicator of business results. So, what is the best Core Customer Metric for your organization?”
The archived broadcast is Here, or visit Marketing News Radio or www.marketingpower.com and search for Core Customer Metric.
The Law of Diminishing Customer Returns
John Todor (author of “Addicted Customers: How to Get Them Addicted to Your Company”) was discussing an interesting notion — for a given value proposition, for every customer you add, the value of these incremental customers diminishes over time. He quotes author Merlin Stone, author of “The Law of Diminishing Customer Returns,” making the point that most companies do NOT adjust their acquisition or retention strategies for changing market conditions. See the post here.
This seems like a very basic fix but obviously one that has some complexity to it, else most companies would do this.
The problem seems to be two-fold. First, a company must recognize that its customer base (and potential customer base) are comprised of groups of people with very different attitudes and needs (the researchy word for this is “heterogeneity”). The second issue is finding a way to tell whether or not you’re being successful with customers. And, as we like to say here, one size does not fit all — companies need to find the right measure that works for their situation and not try to find a magic bullet.
Share ThisDuh! Unhappy Customers Can Ruin Your Business
Here’s one website/ blog where you don’t want to find out that your Customer Experience has failed: PissedConsumer.com
Yes, there’s a website dedicated to giving unhappy consumers voice. These customers name names, tell their sides of the story and potentially reach thousands of other people. I’m betting that you aren’t going to print this and give it to your corporate affairs person, for fear of causing a heart attack or stroke…
It is an old saw in the business world that a happy customer 
tells one person about their delightful customer experience, while an unhappy customer tells ten. With the increasing use of the internet, particularly Web 2.0, social networking sites, and blogs, do you have much doubt that an determined unhappy customer has the ability to tell way more than ten people about her unhappy experience?
A couple of lessons that must be learned here. First, you should make it EASY for unhappy customers to complain — but complain to you. You want people who’ve had bad experiences to tell YOU about it — not their hundreds of friends on FaceBook. Create or enhance feedback mechanisms at your company to ensure that feedback reaches the ears of someone who can listen, ask questions if necessary and begin the process of making things right. And, by gosh, act on this feedback!
Second, ensure that your company has a robust Voice of the Customer architecture that includes all feasible touchpoints. Don’t just let people send letters to Corporate Affairs (and your CEO) without capturing this feedback and seeing whether your formal customer feedback systems (e.g., customer satisfaction research) jive with what this less formal channels tell you. Is your customer service phone system connected to your sales department? Do your web portal people send feedback to product development? Is your marketing department actively looking for all the places in cyberspace where people might be giving feedback about your company (good and bad)?
Taking the time to build out your Voice of the Customer architecture now will prevent the kind of phone call you will receive from the President of your company when her husband Googles the company and finds a scathing review on a site like PissedConsumer.com.
Share ThisLinking to Business Results: The Holy Grail?
We’re receiving many more requests from clients who are interested in linking aspects of their customer experience research to their business results. Some of these requests are defensive: the marketing research group is trying to justify the customer experience research expenditure by showing how it drives results. Or, management has tied a rather hefty bonus or incentive program to customer results and wants to know how much to put in the pool.Some of these requests are a bit more strategic, along the lines of what aspects of the customer experience needs to be managed closely so that the company can achieve greater results? OK, none of our clients have asked this last question quite this way, but I wish they would.
Despite the repeated death knells for voice of the customer research, there is still no better way to assess your performance BEFORE the customer has taken those next behavioral steps, i.e., the decision to stay or go, to buy again or not.
But so many companies do this type of work for partly the right reasons and often mostly the wrong reasons, and forget that measurement is measurement. Action and change drive improvements.
Companies can’t be blamed for not taking action on their voice of the customer research. Often the research is a stand-alone program, often managed by Sales, Operations or even HR, feeding an employee incentive program, and not tied to any other critical business processes. Or, this program is conducted and reported to the organization without the benefit of planning how the results will be used, who owns the various issues surfaced and what goals need to be set as a result.
One way to overcome some of these problems is to take a hard look at customer experience research programs and ask the following questions:
How will we tie these measures to relevant business results? That is, how will we know what is important to improve in order to improve our bottom line?
Who owns this study, and who should own it? Are the people who have the responsibility for making improvements to what’s being measured heavily involved in the process all the way through?
Is the study method still appropriate for the job? What kind of burden are we placing on our customers to address these issues?
Do we know which processes, procedures or programs are “upstream” from the customer attitudes being measured?
These questions are a mix of internal and externally focused thoughts. The internal establishes the company’s ability to understand and use customer information to improve the business. The external focuses on how we capture that information and what information is captured.
It’s no longer a pipe dream to tie the voice of the customer to business results. New analytical approaches, improved computing power, more robust data capture systems and better thinking regarding linkage all make this task not only more attractive and attainable, but more imperative for companies that want to stay even or ahead of their competition.
What are your thoughts on linkage?
Share ThisCore Customer Metric - Knowing What is Best to Measure
What is your organization’s Core Customer Metric?Is it a customer satisfaction or loyalty index, or something else? A Core Customer Metric (CCM) may be one of your company’s most important performance measures. It is critical to company growth and success in developing and implementing customer strategy.
This website and blog is dedicated to discussion and community around Core Customer Metrics, and knowing what is best to measure.
There has been a huge surge of interest in core customer metrics, indexes and scores and our goal will be to provide balanced experience and knowledge, sort out controversies and discuss how we should be talking about various core customer metrics. You can look forward to valuable information, lively discussions, debates, and surprises. We welcome your thoughts, post comments, participation and feedback.
If your work involves customer relationships, you’ll find value here. Register to become a community member, receive news and give us your thoughts. Pull up a chair, invite your customer-focused colleagues in market research, consumer insights, customer loyalty, marketing communication, brand management, product development, quality, customer service, sales and management to join us, add your comments, and help spread the word.
Core Customer Metric Always, All Ways?
Core Customer Metric…What thoughts, images, ideas or feelings come to mind when you see or hear Core Customer Metric?
What exactly is a Core Customer Metric?
A Core Customer Metric is a key measure of how strongly customers embrace your brand, and how committed they are to continuing to buy from or to do business with you.
Ideally, a Core Customer Metric (CCM) is the most accurate measure of your customer base. A Core Customer Metric should serve as a leading indicator of downstream business results, and also furnish a key measure of overall organizational health and progress. An accurate Core Customer Metric is critical as it should help drive your customer strategy and growth plans.
How does your organization determine it’s Core Customer Metric? Do you think that it is the most accurate measure? Could there be another Core Customer Metric that is a more accurate predictive measure?
Many experts would agree that a Customer Loyalty measure should provide the best Core Customer Metric. But is a one number metric enough? Net Promoter Score (NPS) has recently attracted a lot of attention, and criticism, for its one metric simplicity. NPS is based on asking “The Ultimate Question”, “On a 0-10 sale, How likely is it that you would recommend (Company X) to a friend or colleague?” and then subtracting the % of 0-6 ratings from the % of 9-10 ratings.
Many would argue that while the “would recommend” question is a good question and has been used for years, it may not be the most accurate or predictive measure of customer loyalty based upon your specific market structure, customer type, business goals etc. As an example “share of next ten visits” proved to be more strongly correlated with actual customer loyalty behavior than “would recommend” measures in the study in this article.
Perhaps in some cases customer loyalty might not even be the most appropriate Core Customer Metric for your organization. Customer attitudes, experiences and behaviors must all be considered and new Customer Experience metrics are providing valuable insights.
In your search for your ultimate Core Customer Metric, you might even consider determining your top Core Customer Metrics and build a Core Customer Index, to perhaps then calculate a Core Customer Score.
But it all must start simply in first determing which Core Customer Metric is best for your specific organization and goals. It begins with a best practice approach, like at the end of the article above, to knowing what is best to measure.
Comments?
Share ThisNominate The Best Core Customer Metric
What do you think is The Best Core Customer Metric?“Best” means how strongly customers embrace your brand, and how committed they are to continuing to buy from or to do business with you.
Now is your opportunity to nominate what you think is the Best leading customer indicator of brand affinity and downstream business results. Is it a Customer Satisfaction, Loyalty, Advocacy, Experience, Relationship, Attitude, Behavior or other metric? If you are unsure you may nominate “unknown”.
Nominate the Best Core Customer Metric, receive a Special Results Summary, and help us support core charitable causes.
- Receive a Special Best Core Customer Metrics Final Results Summary for your Nomination.
- For your Nomination, Maritz Research will pledge $2 each to Second Harvest Hunger and the National Alliance to End Homelessness causes toward raising a minimum of $800.
- Please complete the following Best Core Customer Metric Nomination Form below, and then click >>Submit.
- Please nominate once. We will keep all personal nominations private. We will only report summary information and blind examples for CoreCustomerMetric.com readers and site communication.
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Share ThisResearch Spurs Debate Over Net Promoter Score
BtoB Magazine featured a lively article, “Research Spurs Debate Over Net Promoter Score” by Kate Maddox in the Septermber 10, 2007 issue on page 3.The crux of the article was research co-authored by Timothy Keiningham, Bruce Cooil (Vanderbilt University), Tor Wallin Andreassen (Norwegian School of Management), and Lerzan Aksoy (Koc University) appearing in the Journal of Marketing challenging the claim that NPS is the most effective metric linking customer loyalty to growth. Timothy Keiningham states, “Claims of Net Promoter’s superiority in predicting firm growth, or in predicting customer’s future loyalty behaviors are false.”
Gary Slack, Senior Partner at b-to-b agency Slack Barshinger summed things up nicely saying, “We need a respected third party to sort out the controversy and tell us if and how we should be talking about NPS.” Thank you for the nice lead-in Gary. That’s one of the key topics we’ll be discussing next.
While recognizing that NPS is a good metric, D. Randall Brandt, Vice President, Customer Experience & Loyalty of Maritz Research suggests that there are more effective core customer metrics and a core customer metric process in this recent Marketing Management magazine article titled, On the One Number You Need to Grow: One Size Does Not Fit All.
