Measuring CEM


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Traditional measures of customer satisfaction have little to do with customer experience, or financial performance, for that matter. According to research 80 percent of customers who switch suppliers express satisfaction with their previous supplier. Revenue growth has everything to do with ‘advocacy’, the extent to which customers or clients prefer a supplier and then refer friends and colleagues to it. For example, First Direct, the UK retail bank, has the highest level of customer satisfaction in the market and is recommended by its customers every five seconds gaining over one third of all new business from referral. Advocacy translates into increased share of market and higher levels of retention, all of which mean good news for your bottom-line.

What is customer advocacy?

The dictionary definition of “advocate” is “Plead for, defend, champion, recommend, support”. It would be nice to think that our customers would be so satisfied with the products and services we provide that they would be willing to actively recommend our organisation in this way. Some do. When Steve Jobs, the CEO of Apple introduced the iPhone at the annual Apple convention, the reaction of the audience was more akin to a religious meeting than a product launch. There is no doubt that many Apple customers are passionate champions for the brand in a way few other technology users are.

One company creates such loyalty among its customers that they subject themselves to pain and disfigurement in order to promote its products. Next time you meet a Harley Davidson owner look out for the ubiquitous tattoo. The likelihood of a customer switching to a competitor’s product having had your identity literally “branded” on their body is fairly remote. However, Harley Davidson really understands that its brand is much more than just its famous winged logo; it is a total customer experience.

Advocacy at this level is rare and beyond the reach of most companies, yet the principles hold true whatever the nature of your industry and customer base. The fact is that delighted customers have an emotional connection to the brand that translates into bottom line growth. So how do you create a customer experience that is so distinctive that customers become your best sales people?

Jill Griffin, in her book ‘Customer Loyalty: How To Earn It, How To Keep It’ suggests a useful ladder of customer relationships which brings clarity to this issue.

Stage 1: suspect
Suspects include everyone who might possibly buy your product or service. We “suspect” they might buy; we do not know enough yet to be sure.

Stage 2: prospect
A prospect is someone who has a need for your product or service and has the ability to buy. Although a prospect has not yet purchased from you, he or she may have heard about you, read about you, or had someone recommend you to him or her.

Stage 3: disqualified prospect
These are prospects about whom you have learned enough to know that they are not the best fit for your products and services and so you may choose not to target them. Choosing not to serve certain customers is an indicator that you have really thought about your brand and customer experience.

Stage 4: first time customer
First-time customers are those who have purchased from you one time. They are customers of yours but are almost certainly still customers of your competitor as well.

Stage 5: repeat customer
They have purchased from you two or more times. They may have bought the same product twice or bought two different products or services on two or more occasions. They will buy from you but will also continue to give their business to competitors. You have share of market; you do not have share of mind of these customers.

Stage 6: loyal customer or client
A loyal customer or client buys from you rather than anyone else. You have a strong, ongoing relationship that makes him or her resistant to the pull of the competition. For professional services firms this is where you begin to make the transition from being a supplier to trusted advisor. You are ‘top of mind’ and the first firm that a client calls when they need help.

Stage 7: advocate.
Like a client, an advocate buys everything you have to sell and purchases regularly. In addition, an advocate encourages others to buy from you. An advocate talks about you, does your marketing for you and brings customers to you. Brands like Virgin, Apple and McKinsey all have advocates who are happy to be unpaid sales people for these companies. For professional services firms this is when you create a relationship for ‘life’. You are likely be the preferred supplier for this customer whichever company they happen to work for. You may have a seat at the planning table when they think about their longer term strategy but will certainly get advance notice when the client is thinking about a deal.

How is loyalty different to satisfaction?

In a survey that we conducted in the telecommunications industry in the UK, we found that over 90 percent of customers who awarded top scores for satisfaction indicated their intention to be loyal to that organisation. That figure dropped to just 25 percent for customers who were still satisfied but rated one box lower. We found very similar results when conducting our Customer Experience Management +™ surveys with retailers and hotels. The reason is that over the past ten years organisations have become increasingly aware of the need for customer focus and customer satisfaction. So much so, that it is now the norm and the entry price for any organisation wishing to be successful. As a result, differentiation on the basis of basic customer service has declined, price sensitivity has increased and it now takes a unique customer experience which goes beyond satisfaction and creates real value for the customer in order to regain the competitive edge.

So loyalty is not one and the same as satisfaction, neither is it the same thing as repeat purchase. Until First Direct came along and made it attractive and easy to switch banks, few customers would entertain the inconvenience of closing their account and applying for one elsewhere, yet the retail financial segment has generally low levels of satisfaction among consumers. What kept customers coming back was not loyalty, but ‘stickiness’ due to the inconvenience of changing accounts. Not any longer. First Direct tells its prospective customers “We can now transfer your standing orders and direct-debits for you, so transferring bank accounts has never been easier”. Another bank that understands this principle is ING Direct. The bank’s rapid growth is a result of positive word of mouth from satisfied customers.

We think that loyalty is a misused term. Most organisations think that it is about customers being loyal to them. We believe it should be the other way round. The firm should be loyal to their best customers by offering value that is not generally available to the mass market. True loyalty happens when there is an emotional engagement with the organisation or product. This engagement comes from experiencing the brand or organisation in unique way that creates true value for the customer.

One major airline calculated that if a competitor offered a frequent flyer scheme superior to its own, most of its customers would desert because the underlying satisfaction levels were not enough to keep them loyal. Since then, it has placed much more emphasis on improving its customer experience the key to creating true loyalty and if you are very good, going beyond it.

Beyond loyalty

For those organisations wishing to increase margins by driving down sales costs whilst driving up revenues, advocacy is the answer. This requires you to know who your most profitable customers are and to consistently deliver a customer experience so as to create a high degree of trust in your brand. Only then will these loyal and highly profitable customers be prepared to recommend your organisation to others. In his HBR article ‘The one number you need to grow’ Frederick Reichheld argues that the only measure of performance that really matters is the ‘Net-Promoter Index’. This is the result of subtracting those customers who are dissatisfied from those who are highly satisfied. Some academics argue that the Net-Promoter Index is insufficient as a stand-alone measure and may not be appropriate for all industries. Our term for this is the ‘Advocacy Index’ and our CEM+™ survey measures this along with a number of other customer metrics to determine the extent to which your firm will grow organically through attracting and retaining profitable customers through positive word-of-mouth.

Sometimes, an organisation can create such advocacy that it is accepted on trust by the market at large. At a conference in Paris a couple of years ago delegates were asked to raise their hands if they considered themselves to be advocates of Virgin Atlantic. Around 50 hands went up out of the 300-plus people in the room. Those with their hands up were asked to put them down if they had flown with the airline. This left about ten hands up. “So, you are people who are advocates of Virgin Atlantic… but have never flown with them?” the presenter said to clarify. The hands stayed up.

How can an organisation create advocacy without customers having a first hand experience? When Richard Branson first launched Virgin on the Hong Kong-London route it was at a time when competing airlines had a reputation for being technically efficient but a bit boring. What Branson did was to create a proposition, which matched the safety and procedural efficiency of competitors like British Airways and Cathay Pacific, but also offered a new and exciting customer experience. He put the fun back into flying. His Upper Class was soon a big hit; essentially a First Class product at a Business Class fare. The on-board bar, interactive entertainment system, in-flight massage, CD quality music channels and friendly and attractive cabin crew all created a customer experience which was new, different and exciting. The proposition was so compelling that Virgin quickly started to win market share from the competition and establish a positive word of mouth effect which influenced consumers whether or not they had actually experienced the brand first-hand.

There is an important point to be made about measuring customer experience. If you speak to people who have flown Virgin for example, you will find many people who are advocates of the brand but also a few who just do not like the innovative experience it offers and are critical of it. They prefer the gracious in-flight service offered by Cathay Pacific for example, or the more conservative style of British Airways. This is a natural consequence of making a strategic choice. When you stand for something specific and are targeting a specific group of customers then this will mean that your offer is not going to appeal to everyone; nor should it. Many brands however, try to satisfy everyone and end up delighting no one. So expect to see a polarization of customer feedback with some customers giving you low ratings. Most organizations panic and try to win these customers back and end up diluting their strategy by trying to be all things to all people. Low ratings only matter if they are from target customers. A common mistake is treating all customers as though they are equal. The fact is they are not; some are much more important to you because of the profit they represent.

Focusing on your most profitable customers

One large mobile phone company we worked with has several million customers and yet the top 5% of customers represented a significant proportion of the profit and are worth several times more than the average customer. Yet there was very little difference in how these customers were treated. In fact in some instances, new customers got better deals than the long standing customers. This is certainly true in financial services where new customers are routinely offered more attention, deeper discounts and better deals than long established customers. In loyalty terms this is madness. We advised our telecommunications client to establish a separate call centre and more highly trained employees for these high value customers. Their loyalty rose significantly as did the profits.

In his book The Loyalty Effect, Frederick Reichheld identifies that loyal customers are more profitable because the costs of sales are amortised over a longer period, they increase their purchases and percentage of spend with you, cost less to administer, refer others and are willing to pay a premium.

By focusing on delighting highly profitable customers, companies keep them loyal and eventually turn them into advocates who attract others who value the same things and thus in turn become advocates themselves.

Where do you start?

We have made the case for focusing on and keeping your most profitable customers. The question is where do you begin? The answer is with your own people. Some years ago researchers at Harvard Business School found a statistical relationship between the way in which employees are treated and the way that they treat clients. One bank found that this correlation was around 85%. There is no doubt that the employee experience is a major driver of the customer experience and, ultimately, business results.

A Gallup survey of 6,000 consumers found that the fifth “P” of the marketing mix, people, is by far the most important determinant of customer loyalty to brands. In motor retailing Gallup found that customers who feel their dealer representatives “stand out from all others” were ten to fifteen times more likely to choose that same make of vehicle for their next purchase. This same ratio held true for the airline industry, while in the banking sector the influence of people is even greater with customers saying they were ten to twenty times more likely to repurchase from organizations with outstanding employees. Even in telecommunications employees are three to four times as important in driving loyalty as other factors Dr. Bill McEwen of Gallup summed this up: “It’s the people, stupid.”

Some years ago we created an Organisational Alignment Survey™ that set out to measure the extent to which employees were aligned internally with organisational strategy. This survey has been used by organisations as diverse as banks, airlines, motor dealerships and retailers. In 2001, the survey was subjected to a very thorough validation by David Matsumoto, of San Francisco State University. Responses were correlated from over 23,000 Organisational Alignment Survey™ respondents from 52 companies representing a variety of industries and across 20 countries. The 60 statements of the survey were correlated against six business results areas namely, customer service, employee retention, sales growth, meeting agency requirements, competitive performance and profitability. Finally the dimensions were correlated against all six business results areas overall. The employee responses which correlated most highly with the improved business results achieved by these companies were:

1. We are a highly successful organisation.
2. We have a well-defined strategy to overcome competitors.
3. We match the claims made through our advertising and promotion.
4. Employees are well trained to meet the performance standards required by their jobs.
5. We measure our quality/service performance against the worlds’ best organisations in our field.
6. Managers meet with customers and consumer groups on a regular basis.
7. We carefully monitor the product/service quality of our suppliers, distributors and agents.
8. Employees are regularly briefed on departmental and organisational performance.
9. There is good cooperation among all departments in my organisation.
10. Performance targets that my department sets are realistic and consistent with our organisational vision/mission.

David Matsumoto concluded: “All of the correlations are statistically significant and seem to predict the desired business results”.

In conclusion, we believe that the companies that will thrive in the future are those that create a great experience for both customers and employees. These two go hand in hand and it is the leaders of the organisation that must create this alignment. However, executives are often focused on short-term results and more concerned about measuring the financials rather than the experience of their customers or people. What is the reality for your organisation? Answer the following questions to find out.

Find out if your organisation is measuring CEM

? Do we know who our most profitable customers/clients are? (Not necessarily the largest!)

? How much business do they represent compared with our average customers?

? What are the three most important customer expectations that drive loyalty in our business?

? To what extent do we consistently deliver a distinctive experience for our most profitable customers?

? To what extent do we consistently deliver a positive and distinctive experience for our employees?

? What proportion of our customer base are advocates?

? What proportion of our employee base are advocates

? What is our advocacy index and what level of organic growth that we can expect?

Shaun Smith

©shaunsmith+co 2007

Shaun Smith
Shaun Smith is the founder of Smith+Co the leading UK based Customer Experience consultancy. Shaun speaks and consults internationally on the subject of the brand purpose and customer experience. Shaun's latest book 'On Purpose- delivering a branded customer experience people love' was co-written with Andy Milligan.


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