Customer Loyalty -find out what sets First Direct apart and other gems from Customer Strategy Conference

26th Jun 2006

By Jeremy Cox, CMC Editor

All you need is love!
No, I'm not smoking anything interesting! The message that came out loud and clear from several of the half dozen electives I attended, and most especially from Peter Simpson Commercial Director of First Direct, is that if you want to build customer loyalty, you’ve got to love your people first.

The failures of service highlighted in our 'Any Answers' (Telewest customer liaison farce) provides a whiff of this, but some real gems came out of these thought provoking presentations, which I will share with you. I must add; my expectations were low. I'm not a believer in exhibitions. It seems to me more of an opportunity for an industry to meet itself, rather than potential customers. But these presentations were certainly worth the effort, and I shall distil and synthesize their principles, but first let me introduce the men of wisdom to you.

The 5 wise men

First up was the extremely articulate Professor Angus Jenkinson CEO of Stepping Stones Consultancy Ltd addressing the challenge of leadership and motivation, citing examples from IBM, AA and others. I then heard from Trent Fulcher EMEA consulting manager from Cincom Systems. He provided the rationale and roadmap for CEM – 'Customer Experience Management'. But then came the most insightful and self deprecating keynote from Peter Simpson of First Direct, with his 'Values Driven Marketing' story of what life is like and why First Direct comes out top in customer satisfaction, including the addition of 4 new 'P's of the marketing mix. More of this later...

After a couple of thinly veiled sales pitches, (I won't even grace this report with their names), came Neville Upton, CEO of the Listening Company. He rescued me from the slough of despond with a very interesting session on Creating Customer Advocates. Finally Paul Cooper communications director of the Institute of Customer Service provided some well researched insights into employee motivation and delivered these with gusto whilst claiming to be an Italian.

So what did I learn?

The Synthesis – leadership, values & involvement deliver customer loyalty – not systems alone.

Ella Fitzgerald hit the nail on the head: 'it don’t mean a thing if it ain't got that swing'. The essence of the message that emerged was if you want to offer world beating customer satisfaction, you simply have to engage and motivate your people. People not staff! Engaged and motivated people make things happen. Phrases like 'change management' are as exciting as a Ginster pie. Consultants alchemy won't do it, nor will systems alone. As the Dutch say, if you want to get the cat out of the tree, you've got to do something not just wait and stare. The first challenge then is one of leadership.

Professor Angus Jenkinson, a specialist in brand management, likened the leadership challenge to a cauliflower, and proceeded to break one up and pass its florets round. Each floret or chard is an image of the whole. It is a naturally occurring fractal.

But what does this mean for business?

Very simply, everyone in the organisation is driven and inspired by the same unique idea. Examples given included IBM. The uniting idea Lou Gerstner corralled the 200,000 people around and his lieutenants, was eBusiness, which has since evolved into 'on-demand'. This idea gave everyone a common purpose. I remember it as the rallying call. Instead of blasting a thousand mixed messages out to customers from a similar number of product groups and business units, we finally had something to unite behind which offered excitement and innovation to our customers.

A firm that got this wrong initially was the AA with its very successful advertising campaign claiming that it was the 4th emergency service. This demoralised many employees as breakdown services only represented a small percentage of the overall services portfolio, and was therefore irrelevant to them. They finally got it right when they united behind the single idea: 'we rescue people from uncertainty'. This was far more inclusive. This sense of identity expresses the differentiated value of the business, as well as being motivational for employees.

Trent Fulcher of Cincom gave us a simple roadmap to guide the overall improvement of the customer experience. This starts with developing insights into individual customer needs, behaviours and channel preferences. Based on these insights, the firm can enhance its processes to deliver the required experience. The third step is then to design the information architecture to support those involved with the customer and customers themselves. This often means extracting information from diverse legacy systems, by creating a middleware bridge which then is able to channel the right information about the customer at the point of customer contact. He illustrated this with a simple example. Imagine depositing £10k in a savings account. You then ring up the bank perhaps to discuss something else, and the agent able to understand your specific context says: 'Mr Smith, I see that you recently deposited £10k in a standard savings account, I wonder if it might be better for you if you transferred this money to our new high interest options for our premier customers, where you can earn an extra X%?' Rather than blanket marketing programme extolling the virtues of this new option, annoying customers who don't have the readies to invest, there is a high chance of this offer being accepted. If the customer feels the bank has his interests in mind rather than its own, he will also perceive this valuable and supportive.

Cultural values determine how customers are treated

Peter Simpson, Marketing Director First Direct, explained lucidly that behind the firm’s extraordinarily high level of customer loyalty and advocacy, is a firm cultural foundation. Right from the start the values of the firm were based on a deep respect for the individual employee, irrespective of rank. This pervades the organisation, and supplier choices are also made on the basis that they share the same values. In turn, this creates a real culture of respect which customers sense in the way they are treated.

Peter made the point that, irrespective of ones value to the bank, everyone will be treated with the same respect. This is a deep and embedded ethos, which means that people are trusted to support the customer. This not only makes it very empowering for the employee, but provides a sense of belonging and common purpose. As Peter said 'Unless top management believe it you've no chance (of success) - we genuinely believe it'. Little wonder then that the bank won the Sunday Times 100 best companies to work for award in 2006 and that someone recommends First Direct every 5 seconds.

He went on to say that the bank owed its success to its ability to turn this culture or respect into 'great conversations' with its customers and putting the customer in control. The traditional branch environment makes customers feel that the bank is in control, whereas online and mobile phone channels make the customer feel he or she is in charge. The customer is further reassured by having a human at the end of the phone should they need advice or support and they won’t have to go through the 'or press 7 if you want to talk to an agent' hell.

Good customer data underpins the ability to make the right offers and give the most effective support to customers. As a marketing director he sees data as being a ‘unit of profit’. It makes a direct contribution to the profitability of each customer as well as enabling a 1:1 relationship. However without the right culture, this wouldn’t work.

He concluded by giving us 4 new P’s for the marketing mix.

P1 = Make it personal
P2 = Proposition – it must provide real consumer benefit
P3 = Process – the marketing process supports great conversations with customers, rather than bashing out campaigns to all and sundry and finally
P4 = People - genuine respect for people – employees, customers and suppliers.

Word of Mouth and Net Promoter Score

The first of these Ps brings us neatly to the session on Customer Advocacy, by Neville Upton CEO of the Listening Company. Fred Reichheld the founder of Bain & Company’s loyalty practice developed the Net Promoter Score (NPS) to measure a firm’s customer advocacy – i.e. their customers’ propensity to recommend (at best) or slag off (at worst), based on their experiences.

By analysing and measuring the NPS, a firm can start to take the right action to turn passives into promoters and reduce or eliminate detractors. Neville cited Dell which following a study concluded that promoters were worth an average of $210 of profit, whereas detractors delivered around $105 on average. Approximately a quarter of their customers are attracted to Dell by word of mouth. By converting more of the passive consumers into promoters, and improving the position with detractors, Dell would improve margins through targeted improvements in customer satisfaction.

To be truly effective, Neville recommended that a parallel study be conducted with employees, to find out what they thought of the company they were working in. As we have seen in the First Direct example, the relationship between employee happiness with their employer has a direct impact on how customers are treated. An acid-test question to ask them is: "what is the likelihood of you recommending to a friend, your company as a place to work?"

The other nugget that Neville shared with us is that customer satisfaction is based on customer expectations. This is important in order to ensure that you compare apples with apples. BA would not get away with the same customer experience as a no-frills-airline like Ryanair for instance.

So what has the Institute of Customer Service have to say on the matter?

Paul Cooper communications director of the ICS provided us insights based on a recent study into employee motivation base on reward and recognition. This very much confirms the position of First Direct in its dealings with employees. What employees are looking for is an 'emotional contract'. This report concluded that as long as pay practice is’ internally equitable and externally competitive’ the real drivers of employee motivation are to be found in a better work-life balance. Top performing companies had the following attributes:

  • Strong ethic of fairness
  • A sense that the firm was looking after its people
  • Regular and open consultation – to create buy-in and involvement
  • Fair payer
  • Regular and actionable employee feedback
  • Transparency and consistency of reward mechanisms irrespective of position within the organisation
    First Direct displays this behaviour in spades which is according to Peter Simpson the reason that 36% of new customers come from recommendations.

Abraham Maslow got it right

As explained by Abraham Maslow back in 1943, it is not enough to provide the basics of pay and physical conditions. If you want to get the best out of your employees they need to be engaged on a higher plane. The industrial age thinking is no longer sufficient to get people to do what you want. Business has to be a personal as well as collective quest. For the most part employees are intelligent, educated and seek more from employment than simply paying the bills. Successful firms recognise this and also understand that to deliver world class service and customer loyalty, it has to be built on trust. It is the heart and soul not just the head that must be engaged on a common and inspiring purpose. This is a leadership challenge that must be overcome long before IT will have any positive impact on customer loyalty and service performance.

By Jeremy Cox CMC Editor Business & Strategy
If you would like to contact me and share your own experience or opinion please contact me at [email protected]

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