Why Is Advocacy Important?

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Gwynne Young
Managing Editor, CustomerThink
Member

Posted 31-Jan-2005 08:44 AM
What’s the difference between loyalty and advocacy, and is it really worth the effort for businesses to concentrate on creating advocates?


Gwynne Young
Managing Editor, CustomerThink
Member

Posted 31-Jan-2005 08:49 AM
[Posted for Michael Lowenstein]

Let’s first address customer satisfaction as a basic stage of understanding customer thinking and behavior. Satisfaction deals almost exclusively with attitudes, and it tends to be tactical, passive and reactive in nature regarding customers’ supplier or brand relationship. It often focuses on most recent experiences rather than linear, or longitudinal, engagement.

Further, as a solo method of endeavoring to understand customer behavior, it has been proven to be not well correlated with financials, even when satisfaction is high, i.e. what might be termed “customer delight” …

In the past few years, many companies have made a more disciplined, concerted effort to understand customers in terms of outcomes. This has become what we would define as customer loyalty, which principally addresses recency, frequency, amount and type of purchases resulting from supplier actions (messages, programs and processes). It’s typically “barrier-to-exit” related, endeavoring also to determine if some level of emotional involvement between supplier and customer (commitment) has been created; and, though tending to be more linear and long-term than satisfaction, it still considers customers on a fairly impersonal, segmented basis (rather than as individuals), based on their spend value.

We’re now at the third stage of evolution in understanding customer needs, value perceptions, and brand and supplier decision dynamics, that of focusing on active emotional (B2C) and relationship (B2B) customer loyalty, what we call “felt” loyalty. Supplier, brand and product decisions are now more reliant on trusted, effective, non-traditional communication and engagement channels (word of mouth, peer to peer, viral) than in the satisfaction or loyalty stages.

Here, front-line supplier staff become active agents of reinforcement, so their loyalty and brand support is emphasized. Attitudes and perceptions about functional (cognitive) product and service features are part of felt loyalty; however, strong emphasis is on the level of strategic, deeply-rooted relationship with the supplier (affective).

Advocacy is the critical difference in this newest stage of customer understanding. It actively combines both attitudinal/perceptual (transactional) involvement and long-term engagement with the supplier. Importantly, advocacy identifies customers who reliably purchase, recommend and actively say positive things about a brand or supplier, compared to those who can be negative (such as some CRM systems purchasers who are unhappy but “trapped,” giving low satisfaction and high loyalty scores to their suppliers), to indifferent (available to competitors and highly likely to churn), fulfilled (high satisfaction, but little linear involvement) or even committed (low level of emotional or relationship engagement).

Advocacy measures the level of genuine kinship or attachment to a supplier or brand; however, it is very “real-world” in terms of financial impact. In applying the customer advocacy research algorithm developed at NOPWorld, we have found that there’s a much stronger correlation on key financial measures for customers identified as active advocates than those who give high satisfaction or high likelihood to recommend scores.


Graham Hill
Guru
Member

Posted 01-Feb-2005 12:13 AM
Gwynne

A lot of this thinking was originally developed by two South African market researchers, Jan Hofmeier & Butch Rice over 10 years ago.

They were looking at why some individuals—but only some—converted to a new religion. In doing so, the individuals became totally ‘committed’ to the new religion in a way that they were in effect, unavailable to other religions, or even to other activities that were a large part of their previous lives.

Hofmeier & Rice later adapted this conversion model to the world of brands with great success. It should not be suprising to find that consumers typically fall into a range of categories from totally loyal to a brand and unavailable to others, all the way to the opposite extreme. However, the distribution of consumers between the extremes is such that a only a few consumers are totally committed to a particular brand just as only a few are totally available to other brands. In the middle sit the masses who have various degrees of satasfaction with no real commitment to a brand, but who use it for a variety of reasons not related to their commitment.

You can find out more about their original Commitment Model research at http://www.conversionmodel.com/ in the ir book ‘Commitment-led marketing. It is well worth doing so.

The key thing to take away in all this talk of commitment, emotional loyalty & advocacy is that only a minority of consumers will ever be likely to reach this state of brand nirvana. The majority will never reach it. For example, a research study by Veronica Liljander in automotive retailing found that only about 5% of customers were emotionally committed to the retailer. And a significant proportion of these were actually committed to individuals they knew in the retailers not the retailer per se. The majority were not committed to the retailers at all, but stayed because their was no reason to go elsewhere. They were retained but were not loyal. And the vast majority of customers were profitable.

The decision where to spend your limited resources should be driven by an understanding of where the most leverage is. It might be in promoting higher levels of commitment, emotional loyalty & advocacy in customers, but it is more likely to be in persuading the masses in the middle to change their behaviour in more mundane ways.

(Sigh.) Such is life…

Graham Hill
Independent CRM Consultant


Jackie
Member

Posted 10-Nov-2005 05:19 AM
In our business (telecomms)we have recently come to a decision that measuring Likelihood to recommend our brand as a good measure of loyalty. We only measure ourselves on those that rate 9&10 on 10 point scale ie extremely likely.

Would you have any idea what a best in class score would look like across industries ie Banking, retail, telecomms etc.

You advice would be much appreciated.

Jackie


Vladimir Dimitroff
Member

Posted 11-Nov-2005 01:55 AM
Jackie,
You are on the right track choosing to measure your customers’ loyalty—many companies are working hard (and spending crazy money) to achieve loyalty but don’t measure it Smile

Advocacy (and likelihood to recommend, as a form of advocacy) is a strong indicator but shouldn’t remain your sole measure (see below).

As to ‘best in class’ and comparisons with others in- and outside your sector: any benchmarking only makes sense if measured with the same framework. Results will largely depend on the sampling method, wording and context of the question and statistical processing of the responses. If you are using an agency to perform this survey (e.g., the people who normally do your Satisfaction surveys, most of them already offer studies of loyalty including recommendation) then you should ask them for benchmarks, thus ensuring you are comparing similarly measured performances. Your best reference for the subject in this forum is perhaps Michael Lowenstein, with a history of his own research and currently representing a leading agency.

Useful as these surveys are, however, there is more to measuring loyalty (for the purpose of managing it). A Telecoms client of mine developed for their customer base a Loyalty Index that scores each individual customer, thus adding another dimension to segmentation schemes for treating different customers differently (the ultimate essence of CRM, wasn’t it?). Sample-based surveys of customers wouldn’t allow you to identify distinct groups and apply different treatments to them. With individual scores that is achievable.

Loyalty Index scores can still be aggregated for a segment or for the entire customer base and thus used as a KPI to measure our ability and success in creating loyalty.

Another characteristic of a good internal LI is that it does not rely on a single indicator. Over-simplified approaches at some companies include associating loyalty with satisfaction (proven to be poorly correlated) or even treating loyalty as the ‘opposite of churn’ (fundamentally wrong). Tenure is, sure, an element of loyalty but by far not the only one and often not the most important. Similarly, advocacy shouldn’t be your sole measure, although it is a recognised strong predictor and should be given appropriate weight.

Another aspect of individual scores is that such a measure can be based on actual evidence rather than a ‘Would you recommend?’ question. (Yes, they would… but would they? 🙂 ).

A good performance measure (call it an index or otherwise) starts with a well-thought definition of he attribute/object to be measured. It makes sense to have a dedicated effort (e.g. a workshop) at your business to come up with a clear definition of Loyalty.

In the case I mentioned, such definition led to a measure incorporating several variables representing different attributes of a loyal customer. Advocacy is one of them with a high weight, as is tenure (with a somewhat lower weight)—but there are sevral more. I can discuss details privately ([email protected]) off the forum, but the principles I wanted to highlight are:
– supplementing surveys with internal individual scores
– basing those scores on a carefully selected combination of variables
– using them for both differentiated customer strategies and as a performance measure of retention efforts.

Just a few thoughts, hope some were useful –

V.

Vladimir Dimitroff
PRISM Consulting (UK)
[email protected]


Gwynne Young
Managing Editor, CustomerThink
Member

Posted 14-Nov-2005 08:31 AM
[Posted for Michael Lowenstein]

Jackie –

I’ll generally echo my colleague Vladimir Dimitroff’s guidance, but also introduce a rather large caution and warning sign regarding your company’s decision to use recommendation as a way to measure loyalty behavior.

The concept that one metric, namely high recommendation, is a mnemonic for explaining customer brand and supplier behavior appears to have become somewhat like Christmas fruitcake. It’s difficult to digest, almost no one (in the customer market research community) wants it, and some even have a deep distaste for it. Also, since the notion was introduced in a late 2003 HBR article, similar to holiday fruitcake it won’t go away (and actually seems to be growing).

Customer research methodologists have pretty universally disavowed the concept (myself included, so there’s no doubt about where I stand on this subject), yet client-side MR staffs keep getting questioned about it by C-suite executives who regard the idea as an elegantly simple ‘holy grail’ for understanding customers.

As one of my colleagues concluded in an article addressing the concept’s pitfalls shortly after it was introduced, it’s “attractive but dangerous.”

The cold reality is that the one-number thesis is deeply flawed, and for multiple reasons, so I’d be challenged to attach any relevance or actionability to normative recommendation results.

Companies, we believe, should be concerned with evaluating how customers perceive the value proposition and developing sets of insights that can monetize at a high level, in other words explain customer marketplace activity, so that definitive and immediate action can be taken from the research results.

Here’s how we’ve approached this on behalf of our clients. Our organization has developed a simple, proprietary model and algorithm for understanding customer brand/product advocacy behavior. The model is composed of several questions, none of them about recommendation. When compared with high recommendation scores (which we do include in most of our customer research projects, because it does have some analytical value), our model is twice as stable and accurate at correlating to customer purchase recency and frequency, share of wallet activity, and positive informal communication about the product or service. Further, we can determine the strength of a brand’s franchise, the reasons for it, and how to increase it. This isn’t meant as a sales pitch, but merely our recognition that advocacy levels can be precisely quantified through customer research, and in a straightforward manner—but, unfortunately, not with a single metric like recommendation.

Michael Lowenstein


Malcolm Wicks
Member

Posted 17-Nov-2005 11:24 AM
Michael,

Can you please provide more information about the deeply flawed one number thesis, or a pointer to your collegues work.

I am frequently told by clients that they know that the recommendation question is the answer to everything and I’m searching for a simple and elegant way to convince them otherwise.

Malcolm Wicks


Jim Barnes, CRMGuru Panelist
Advisory Board
Member
Picture of Jim Barnes, CRMGuru Panelist

Posted 17-Nov-2005 07:39 PM
Jackie and Malcolm

I agree completely with Michael. Loyalty is an exceedingly complex concept, especially if you are talking about emotional rather than behavioral loyalty. Emotional loyalty is multifaceted and multidimensional. To try to render such a concept down to a single question is very dangerous indeed, Equally important is the question of what do you do with the information once you have concluded that, say, 72% of your customers are prepared to recommend you. It’s not actionable in that you are provided absolutely no direction concerning where to begin to drive the number higher.

I agree that the measurement of loyalty is important, but I also feel that few companies do it well. It is very tempting to take an easy way out and reduce it to its simplest form. But referrals do not mean loyalty. They may be an external manifestation of loyalty, a result, but they are not loyalty itself.

The recent Harvard Business Review article that was mentioned was by Frederick Reichheld, whose opinions on most things relating to customer loyalty I agree with. What he indicated in his article was that the single most important predictor of customer loyalty as revealed by his research was the likelihood to refer or recommend. This has been interpreted by some as now being the only thing one needs to measure. I disagree, and I’m not sure that Reichheld meant this to be the message he wanted to convey. Customer loyalty is critically important to the long-term health and success of a business. Something that important should be measured in the most deliberate and scientific way possible, so as to get it the underlying dimensions and to contribute to strategy making. You will not be well served by taking the easy way out.

Jim Barnes

Jim Barnes specializes in Customer Strategy as a member of the CRMGuru Advisory Board. For more information, please visit Barnes Marketing Associates.


Gwynne Young
Managing Editor, CustomerThink
Member

Posted 21-Nov-2005 02:06 PM
[Posted for Michael Lowenstein]

Malcolm –

I have two example articles on the subject, both by skilled customer research practitioners. Of these, the perspective I shared probably comes closer to my colleague Doug Grisaffe. Unfortunately, his article is not available online. But I’ve exerpted a portion below. The other is a March 2004 article titled “One Number” Appealing But Dangerous by Ken Powaga, senior vice president of Gfk Custom Reesarch Inc., which is available here:

http://www.gfkcr-ww.com/seiten/seiten_pdf/67/gfk_cri_ap…ng_but_dangerous.pdf

Here’s an exerpt from the document by Grisaffe, Ph.D., vice president and chief research methodologist, Walker Information:

Guru Misses the Mark With “One Number” Fallacy

In the December 2003 Harvard Business Review article, The One Number You Need to Grow, Frederick Reichheld claims a single summary number from one customer survey question is a sufficient basis for measuring and managing customer loyalty.

Customers answer the question on a 0-to-10scale: “How likely is it that you would recommend [company X] to a friend or colleague?” Anyone rating 0 to 6 is labeled “detractor,” 7 or 8 “passively satisfied” and 9 or 10 “promoter.” The percent promoters minus the percent detractors is the one number Reichheld advocates—the so-called “net promoter score.” According to Reichheld, “This number isthe one number you need to grow. It’s thatsimple and that profound” (p. 54).

Actually, there are several critical logical,conceptual and statistical problems withReichheld’s proposition.

Testing the logic

Business leaders should challenge this strategywith the following types of questions:

Is increasing recommendation really the bestway to drive business success?
Will it have more impact than reducing customer loss? If I lose 35 percent of my customer base per year, but most of those who stay would recommend, am I really in good shape?
Will recommendation be more powerful than increasing current customers’ volume, cross-sales or share of purchase?
Will it be more powerful than more controllable marketing actions aimed at targeted acquisition of profitable new customers?

Obviously recommendations are important, particularly in certain sectors and markets. But are they the main thing, the one thing that companies need to grow and manage business success?

Reichheld’s case seems implausible.

Interestingly, Reichheld contradicts his own past writing. He previously argued that recommendation is an outcome of loyalty, not an indicator of the construct itself. He focused more on customer loss, noting that reducing loss by even 5 percent radically multiplies profitability. Are increased recommendations the key to that kind of reduced loss? Not likely. Reichheld’s past writing also emphasizes sustaining base profit across time through retention and increasing customers’ volume, share of purchase, new product purchases, services cross-sold, and so on. Somehow, those powerful outcomes of loyalty are now supplanted by emphasis on recommendations alone.

Regards.

Michael


Graham Hill
Guru
Member

Posted 23-Nov-2005 02:38 AM
There is no one satisfactory measure for satisfaction, loyalty, advocacy or any of the other customer measures so often used with gay abandon in management writing.

As Jim points out using loyalty as an example, each are complex constructs that are influenced by many factors and by the circumstances in which they are measured. For example, a review of the copious satisfaction literature (which has been studied the longest) identifies literally dozens of factors which influence satisfaction depending upon the circumstances, and also a healthy debate about how satisfaction influences customer retention, customer loyalty and any number of other measures of customer behaviour! Loyalty is much less well understood than satisfaction and advocacy much less still.

But that doesn’t mean you shouldn’t measure anything.

The best way to progress in these uncertain times is with a balanced scorecard of customer (and other measures). The measures should ideally be identified from a combination of literature review, analysis of company data and management’s own “gut feel” about what drives business success. And expect 25% of the initial measures to require significant rework once you start to really measure, monitor and manage success using this approach. Any attempt to boil this down to just one or two measures is almost meaningless.

Understanding customer behaviour en massse is difficult enough, and understanding individual customer bahaviour is almost impossible, no matter what management writers tell you. It is better to be approximately right using a balanced scorecard of customer measures than precisely wrong using spuriously accurate measures like those discussed here for loyalty.

Graham Hill
Independent CRM Consultant

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