Economic Reality Check: PeopleMetrics Study Finds Cost Matters More in Customer Engagement


Share on LinkedIn

Quality is still important, but a new study by PeopleMetrics reveals that low-cost providers are moving up. The only two brands that increased their engagement scores were Wal-Mart (+14 points) and RadioShack (+12 points). Neither brand known for “customer delight,” if you know what I mean.

Big picture: it’s getting more difficult to create an emotional bond with customers. Across 27 common brands in luxury, retail and casual dining segments, average engagement scores dropped 9 percentage points in the past year, and 13 brands saw a significant drop.

And, in this “challenged” economy, it appears that cost really does matter. Lower prices can help foster an emotional connection—also known as “engagement”—between consumers and some discount brands.

Key findings from the study reveal why it’s important to “fully engage” customers if possible, or at least to avoid the negative repercussions of “actively disengaged” customers:

  • A fully engaged customer recommends a brand nearly 4 times more often than does an ambivalent customer, while an actively disengaged customer will tell, on average, 3 people to avoid a company and its services.
  • 13% of fully engaged customers post to a blog or website about their positive experiences, while the actively disengaged customer is 4 times more likely than a neutral customer to post about their poor customer experience.
  • A fully engaged customer visits that company’s website twice as often as an actively disengaged customer and makes three times as many online purchases.

Some premium/luxury brands fared well, as you can see from the top 10 list here. Others, not so much. American Eagle Outfitters, J.Crew and Abercrombie & Fitch all dropped down significantly, apparently due to a “back to basics” movement by consumers.

PeopleMetrics is an interesting firm, founded in 2000 by an ex-Gallup executive. So I presume they know a thing or two about surveys. Kate Feather, Executive VP, told me they work with some big clients (e.g. Microsoft) and mid-sized professional services firms, too. The company provides both the tools to collect data (EFM) and the research to make sure the right questions are asked and acted upon.

That’s a healthy balance, in my view. I’m concerned that too many companies are investing in EFM systems and asking questions that may not link to business results (including NPS in some cases).

The engagement score used in the study was calculated based on answers to four questions, using a 1 to 5 scale. A customer is considered engaged if they answer “4” (Agree) or “5” (Strongly Agree) to all questions.

  • Retention: “Given the choice, I would do business with [Company] again”
  • Effort: “I would go out of my way to do business with [Company] in the future”
  • Advocacy: “I would recommend [Company] to a colleague, friend or family member”
  • Passion: “I love doing business with [Company]”

Why does engagement matter? Because companies with the highest engagement levels outperformed the industry average on Return on Investment, revenue growth and P/E ratio.

One nice surprise was the “halo effect” in recommendations. That means customers who are acquired after a recommendation from a friend or colleague are more tolerant if they experience problems. It’s a kind of “insurance against future failure,” says Feather.

So, how to increase enagement? It all starts with employees. PeopleMetrics has found in research with their clients that employee motivation/engagement drives customer engagement. And that is what ultimately drives business performance.

Kudos to PeopleMetrics on an impressive study. For more information please visit their web site.


Please use comments to add value to the discussion. Maximum one link to an educational blog post or article. We will NOT PUBLISH brief comments like "good post," comments that mainly promote links, or comments with links to companies, products, or services.

Please enter your comment!
Please enter your name here