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How do your customers value you?

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19th Oct 2005
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The most important measure in corporate performance management is the value customers put on your company – their connection score. For this measure increases or decreases company profitability. Today’s profits are the direct result of customer’s valuations - the sum total of all their interaction experiences. Tomorrow’s profits will be the result of the customer value you create today. The company’s lifetime value to the customer is a crucial part of the customer lifetime value calculation. Yet less than 15% of all companies measure this key performance indicator in any way.

In his book 'The Loyalty Effect', Frederick Reichheld says that the importance of blood pressure was only realized when doctors started to measure it; when they could measure it they could start to treat the causes and increase life expectancy. Considering the high blood pressure generated by much of today’s customer service this analogy to measuring customer connection seems apt.

Here is an example of how a customer might value your company with a connection score.

Now here are some case studies on everyday causes that affect the connection score:

Clydesdale Bank – Understand emotional lifestyle connection

Thirty years ago a student joined the Clydesdale bank in St Andrews, Scotland. Her interaction experiences built their score up to 'enjoyable' – the bank manager was even on her Christmas card list. The Clydesdale bank has reaped the value of that score – she stayed for 30 years. But over those years their increasingly automated and impersonal service has caused them to slip down the rating to 'run of the mill' level. Three weeks ago this, older and much more valuable financial services customer, moved her business to another bank. Why did she move? "I felt I did not matter to Clydesdale anymore and looked around for the best current account," she said "you used to know the name of the bank manager and be able to call and speak to him. Now it’s an 0870 number." Why did she stay with them for so long, as personal service slipped? "I liked the fact the branch was where I was happy - St Andrews recalled my youth; it gave me warm feelings, familiarity." How many satisfaction surveys would pick this up?

Effect – lost customer
Cause – centralization of operations and lack of recognition.

British Gas –Know who influences your market

Over the years British Gas won the 'trust' of a customer and he purchased a range of services including maintenance agreements and even an alarm system – their proposition was good and staff knowledgeable. As time passed service slipped to 'convenient', but he wouldn’t move his account when other utilities called – he didn’t like their selling practices and didn't 'trust' them. Then a letter arrived from electricity supplier Npower; it threatened to cut his regular payment discount if he didn’t change his standing order to a direct debit. The man was incensed by the tone of the letter and Npower plunged into the 'loathing' category. He looked for another electricity supplier and, unfortunately for British Gas, found one he liked who offered a 'convenient' deal on both gas and electricity. British Gas still has his other business, for the moment, and has recognized him as a vulnerable customer - at his last maintenance check he got special treatment. They have at least worked out that customers who switch suppliers are often the most valuable.

Effect - lost business, and extra cost to increase connection again
Cause – failure to maintain service levels, and the actions of linked suppliers

GNER – Outsource with care

Railway operator GNER has an 'enjoyable' rating from a regular lady traveller – she even advocates their services to others. One day a client booked a ticket for her and it arrived with her name on but unusually no seat reservation. She rang GNER to make the reservation but was told that as the ticket was booked on the internet, she had to use another number. The new call centre refused to make the reservation; she hadn't booked the ticket – data protection had struck again. (see You have permission to talk to my wife - Jennifer Kirkby) GNER scored an interaction 'ugh'. She complained as this wasn’t the service she expected. The reply to her complaint went to her client – the person who booked the ticket. Now furious, with GNER heading for the 'loathing' category she rang them:

Customer – I've received a reply to a complaint I am not very happy about
GNER – Could I have the reference number?
Customer – 0205-9-807456789302
GNER – Doesn't it have 03 at the beginning?
Customer – No
GNER – Then I'm afraid its not one of ours
Customer – But it’s on your headed note paper
GNER – What's the address?
Customer – Dingwall, Rossshire
GNER – Oh that's TrainLine - nothing to do with us
Customer - But its on your headed paper, the booking was made on your website, I made the journey with you
GNER – Our website booking is run by TrainLine; they shouldn’t be using our headed notepaper

By now GNER were definitely in the 'loathing' category. Then suddenly and unexpectedly the GNER staff member decided to take responsibility for the problem. Promised to sort it out and call back. Within 2 days the lady had an apology, a voucher for a train journey and a promise to look into the problem.

Effect – GNER are still in the enjoyable category because of the usual experience, but unless the data protection problem is fixed, then thy will have a 'run of the mill' point on their score card.
Cause – Outsourcing service levels, channel silos, staff ownership of a problem


These examples are just a few of the stories I heard in researching this article. Everyone of us can recite similar tales of woe (and joy) from the recent past. The daily decrease in company profits must be incalculable – quite apart from the fact it is not being calculated. So what are the learning points:-

Learning

  1. Don't sell via calls to customers, and then ask customers to put a complaint in writing to a complaints department. Complaints are valuable and need attention. Insist that everyone who receives a problem takes ownership of it – even if that is passing it to someone else who can deal with it.

  2. Encourage, where relevant, all staff including Directors to use the products and services they deal with day to day. Give them free and discount usage and don’t have special staff service channels as some do. Open up staff feedback channels.

  3. Put an interaction connection score into event based feedback/satisfaction research. Would you recommend us to friends, is still a 'what are we going to get from you' question, not a 'what are we worth to you' question.

  4. Measure overall connection at regular intervals at a value segment level. So called loyalty indicators like product holding and length of tenure, are easy, but are not good connection measures. Measures of advocacy and questions such as ‘would you be disappointed if this brand was not available?’ get closer, but it’s really the degree of connection you need.

  5. You can over engineer your organization with scripts, detailed processes and targets. Set some parameters on service delivery expectations, and let staff get on with the job.

  6. Link operations to a strategy, and only measure the things that really contribute to customer value through a cause and effect linkage. (see The Must Have Customer Strategy – Jennifer Kirkby)

  7. Be careful that over adherence to regulations e.g. Data Protection Act, doesn’t damage customer value

  8. Get your customers to tell you their stories using this scale.

To quote Don Peppers in 'Return on Customer' (see Return on Customer – Don Peppers and Martha Rogers) –"Executives tend to let the service department worry about complaints. They're busy making money. In effect, what they are doing is strip-mining their customer bases for quick sales with little apparent regard for the future value of their customers. Why should they be worried about customer’s future value? By the time the damage shows up in the form of reduced profits, they’ll have collected their bonuses and be long gone. No one is holding them accountable today for eroding the company’s future profits."

My particular thanks for help in researching this report go to:

  • David Hicks, a designer of the Experience Excellence Assessment, Mulberry Consulting
  • Jason Goodwin, Head of Customer Intelligence, SAS
  • Valerie Popeck, Marketing Consultant for Carlson Marketing Group
  • Mike Wild, former Head of Marketing Capabilities, O2
  • Tim Wragg and Liz Montgomery, GfK-NOP Research
  • Alison Zakers, CRM Consultant, Axon Consulting
  • The customers who gave me their stories

Jennifer Kirkby
Strategy & Business Analyst, CMC

[email protected]

Find out more about Jennifer Kirkby

As always please add your comments to this story by clicking on the 'Add your own comment' link below.

Further Reading:

1. The Marketing Value of Customer Advocacy - Tim Wragg & Michael Lowenstein

2. Bond your Customer into an Asset - Jennifer Kirkby

3. Seven Rules for Increasing Customer Value - Don Peppers

4. The End of the Affair - Stuart Lauchlan

5. Best Practices in Measuring the Customer Experience - David Jackson

6. Customers as Assets? - Scott MacStravic

Replies (1)

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By AnonymousUser
02nd Nov 2005 10:29

Jennifer

I know that trends often swing from one extreme to another, but your suggestion that "the most important measure in corporate performance management is the value customers put on your company – their connection score" is simply unrealistic.

Aside from the obvious difficulties of unambigously measuring what it is that customers actually value (and I assume that it will differ by different customers, by the different products a company has to offer, by the context in which they are used and by the available alternatives, just to name a few), there is also the matter of developing a "balanced scorecard" of measures covering not only customers' perceptions, but also financial profitability, business productivity and innovation & growth. All of these have to be balanced in a systematic way if business performance is to be measured, monitored and managed competently. Just focussing on one measure, whether that be customer connections, or profitability, or anything else, is obviously not the way to go.

We both recognise that many companies' customer centricity leaves a lot to be desired (and almost certainly leaves profits on the table too). But the answer lies in indentifying a range of measures of the "heartbeat" of a company, in understanding the relationships between the measures and in developing a balanced scorecard of measures, not in focussing on just a single one.

Take a look at the Balanced Scorecard Collaborative website if you want to find out more about how to make performance management work.

Graham Hill
Independent CRM Consultant

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