Customer Loyalty and Goal Setting

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All companies who use customer loyalty surveys strive to see increases in their customer loyalty scores. Improving customer loyalty has been shown to have a positive impact on business results and long-term business success. Toward that end, executives implement various company-wide improvements in hopes that improvements in customer loyalty scores will follow.

One common method for improving performance is goal setting. There is a plethora of research on the effectiveness of goal setting in improving performance. In the area of customer satisfaction, what typically occurs is that management sees that their customer loyalty score is 7.0 (on a 0-10 scale) at the start of the year. They then set a customer loyalty goal of 8.0 for the end of the fiscal year. What happens at the end of the year? The score remains about 7.0. While their intentions are good, management does not see the increases in loyalty scores that they set out to attain. What went wrong? How can this company effectively use goal setting to improve their customer loyalty scores?

Here are a few characteristics of goals that improve the probability that goals will improve performance:

  • Specific. Goals need to be specific and clearly define what behaviors/actions are going to be taken to achieve the goal and in what time-frame or frequency these behaviors/actions should take place. For example, a goal stating, “Decrease the number of contacts with the company a customer needs to resolve an issue” does little to help employees focus their efforts because there is no mention of a rate/frequency associated with the decrease. A better goal would be, “Resolve customer issues in three or fewer contacts.”
  • Measurable. A measurement system needs to be in place to track/monitor progress toward the goal. The measurement system is used to determine whether the goal has been achieved and provides a feedback loop to the employees who are achieving the goal.

A common problem with using customer loyalty scores as the metric to track or monitor improvements is that satisfaction goals are still vague with respect to what the employees can actually do to impact satisfaction/loyalty scores. Telling the technical support department that the company’s customer loyalty goal is 8.0 provides no input on how that employee can affect that score. A better measure for the technical support department would be “satisfaction with technical support” or other technical support questions on the survey (e.g., “technical support responsiveness,” technical support availability”). We know that satisfaction with technical support is positively related to customer loyalty. Using these survey questions for goal setting has a greater impact on changing their behaviors compared to using vague loyalty questions. Because satisfaction with technical support is related to customer loyalty, improvements in technical support satisfaction should lead to improvements in loyalty scores.

An even better measure would be to use operational metrics for goal setting. The company must first identify the key operational metrics that are statistically related to customer satisfaction/loyalty. This process involves in-depth research via linkage analysis (e.g., linking satisfaction scores with operational measures such as hold time, turnaround time, and number of transfers) but the payoffs are great; once identified, the customer-centric operational metrics can be used for purposes of goal setting.

  • Difficult but attainable. Research has shown that difficult goals lead to better performance compared to goals that are easy. Difficult goals focus attention to the problem at hand. Avoid setting goals, however, that are too difficult and, consequently, not achievable. One way to set difficult and attainable goals is to use historical performance data to determine the likelihood of achieving different performance levels.
  • Relevant. Goals for the employees should be appropriate for the employees’ role; can the employee impact the goal? Additionally, the goal should be relevant to both the employee and the organization. Holding employees to be responsible for goals that are outside of their control (e.g., technical support representatives being responsible for product quality) is unfair and can lead to low morale.
  • Accepted (or mutually set). For goal setting to increase performance, employees should be allowed to participate in setting their goals. Goals that are not accepted by the recipient are not likely to be internalized and motivating. A good approach would be to get employees involved early in the process of goal setting. Let them help in identifying the problem, selecting (or understanding) the key measures to track, and setting the goal.

6 COMMENTS

  1. Hi Bob,

    You make some good points about measurement, and few would argue that setting specific, measuraable, challenging, relevant and agreed goals is part of the process. However, you don’t say anything about measuring loyalty, per se. All your examples are about measuring customer satisfaction or operational processes. Satisfaction is not the same as loyalty, as any divorce lawyer can tell you. So, how would you measure loyalty?

    Francis Buttle

  2. Francis,

    Thanks for your comment. You’re just in luck (and I am, too). I recently posted a few blogs about the measurement and meaning of customer loyalty. I have provided the links below. Bottom line: The research on the measurement of customer loyalty shows that many apparent diverse loyalty questions (satisfaction included) really measure the same underlying construct. The "overall satisfaction" item measures the same thing as "recommend," "purchase again," and "choose again" items.

    If you would like to read the recent blogs on the measurement and meaning of customer loyalty, they appear in order here: Part 1, Part 2, Part 3, Part 4, Part 5, and Part 6.

    For more information about the research cited in these blogs, you can download a free copy of executive reports on the two studies that were used in the research (Wireless Service Providers and PC Manufacturers) at Business Over Broadway.


    Bob E. Hayes, Ph.D.
    Business Over Broadway

  3. Bob

    Not quite so fast.

    Just as Cervantes reminded us that “one swallow maketh no summer”, one market research paper proveth no tentative theory. I fear that quite a bit of further research by independent researchers must be done before your loyalty theory can be held up as the truth.

    If the many years and many competing theories of customer satisfaction are anything to go by, you could have a long wait.

    Graham Hill
    Independent CRM Consultant
    Interim CRM Manager

    Readability Index: 12

  4. Graham,

    Your point is well taken. A theory cannot be proved, only falsified. My statements about the dimensionality of loyalty, however, are based on many surveys that I’ve analyzed, not just the ones I cited in my blog.

    To be sure, you can have satisfaction ratings focused on specific attributes of a product (e.g., reliability vs. usability) or service (e.g., responsiveness vs. knowledgeable). In these cases, the satisfaction item is measurably different than loyalty items. The satisfaction item I’m talking about is the overall assessment that customers make toward a given company/brand.

    Given that, I would love to see companies take the time to fully understand what they are measuring when they are conducting loyalty research. I find this is typically not the case. Saying one loyalty item is better than another without any rigorous research is always suspect and reflects muddy thinking about the topic. Are there other researchers out there who find something different than I have found? Are there real differences among common loyalty items? Tell your story.

    Bob E. Hayes, Ph.D.
    Business Over Broadway

  5. Let’s get back to the very basics.

    Loyal is defined by Cambridge Dictionaries Online as “firm and not changing in your friendship with or support for a person or an organization, or in your belief in your principles.

    Loyalty is thus “the quality of being loyal.

    Can quality be measured?

    The loyalty measurement discussed so far does not really measure loyalty, but the results that loyalty brings.

    Daryl Choy, the founder of Touchpoint eXperience Management, helps firms make a difference at every touchpoint. Choy can be reached at wisdomboom.blogspot.com.

  6. Daryl

    I am not sure that your argument is etymologically consistent.

    ‘Loyal’ is an adjective that describes the abstract noun ‘loyalty’. As loyalty is not a concrete thing that lends itself to measurement, logically it can only be measured as an outcome; in effect the consequent outcome of being loyal.

    The exact same logic applies to the adjective ‘satisfied’ and the abstract noun ‘satisfaction’. That is measured as an outcome too.

    Bob’s earlier articles clearly described the outcomes he suggests we use to measure loyalty.

    Graham Hill
    Independent CRM Consultant
    Interim CRM Manager

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