Customer Perspectives Study 2004 IMPLICATIONS FOR PLANNING AND CREATING REAL VALUE

Transcription

1 Customer Perspectives Study 2004 IMPLICATIONS FOR PLANNING AND CREATING REAL VALUE By Steven Nicks Key Contributor: Promise Phelon December, 2004

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3 This document is protected under the copyright laws of the United States and other countries. This document contains information that is proprietary and confidential to The Phelon Group, Inc. and shall not be disclosed outside the recipient s company or duplicated, used or disclosed in whole or in part by the recipient to any third party. Any other use or disclosure in whole or in part of this information without the express written permission of The Phelon Group, Inc. is prohibited.

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5 Preface Reference managers are faced with a very difficult task. On one hand, they must transform existing successful customer relationships into loyal, leveragable reference relationships; on the other, they must leverage those reference relationships in a manner that converts more prospects into customers--customers that will ideally become future reference customers. In concept, it is simple; but in implementation, the task is not so straightforward because of two factors that play against each other: 1) referencable customers must always be satisfied customers who have experienced success and 2) reference programs do not directly affect customer satisfaction and success, but rely heavily on those factors to do their jobs well. In an oversimplified view, this means that the reference organization is continually faced with a Catch-22: no successful customers, no references; no references, no new successful customers. What s reference management to do? The Phelon Group believes a key to successfully managing reference programs and thus eliminating the Catch-22 lies in developing deeper understandings of complex customer motivations and needs. By doing so, reference managers gain the insight they need to better manage their programs continual interactions with customers, and to engender loyalty and program satisfaction so reference customers remain leveragable. And by increasing satisfaction and loyalty among their reference base, reference managers will recruit more powerful reference customers those willing to talk about the trust and commitment involved in their customer-vendor relationships rather than to simply outline challenges faced and solutions provided. We believe you can use the results of this Study to empower your program and to ensure it carries a more significant impact. With these results, you can: Make informed decisions about value propositions, program benefits and incentives. Pinpoint and resolve customer needs-related issues to increase referencability. Increase your program s influence within marketing and across the company. Make sound decisions about the inevitable tradeoffs required to align human resources and budget. Inform how you attract and manage referencable customers and, ultimately, how you design your reference program. ANSWERS TO CRITICAL QUESTIONS: WHY WE UNDERTOOK THIS STUDY We knew from our consulting engagements that reference managers, finding it increasingly difficult to identify, attract and retain great reference customers, are asking more and more: What do customers want? Because existing and prospective reference customers are both the symbol and focal point of a reference program, we decided it made sense to seek answers to this question from their viewpoint. Page 5

6 We have discovered that referencability neither starts nor the ends with the reference program itself. Loyalty and satisfaction, key referencability ingredients, begin to be affected during pre-sales activities and continue to be influenced, by many organizations, as long as the customer remains a customer. Therefore, an additional goal of this Study is to provide reference managers with proof points by which they may educate the enterprise and foster cross-organizational commitments to success. REVEALING CUSTOMER PERSPECTIVES: AN ONGOING PROJECT The results of this Study include the aggregated responses and individual comments of over 60 participants, most at the CIO, VP and director levels. Although our 2004 Study officially culminates with this Report, the Customer Perspectives survey will remain open for a yet indeterminate period of time. By continuing to collect data we will continue to build a robust data set with which we may analyze trends at micro levels over time. Further data, analyses and recommendations will be released through The Phelon Group s Knowledge Center ( as well as through our consulting engagements. To include your customers in this ongoing research, or to compare your customer base to the overall sample, contact Steven Nicks at steven.nicks@phelongroup.com or call (877) x508 for more information. Page 6

7 Table of Contents PREFACE... 5 TABLE OF CONTENTS... 7 TABLE OF CHARTS... 9 CUSTOMER PERSPECTIVES STUDY 2004 BACKGROUND PERSPECTIVES STUDY METHODOLOGY STUDY PARTICIPANT PROFILES Participant Companies Participant Industries Participant Roles Participant Levels of Influence EXECUTIVE SUMMARY KEY FINDINGS SECTION 1: CRITICAL FACTORS THAT INFLUENCE CUSTOMER SATISFACTION AND REFERENCABILITY What Influences Customer Decisions to Act as Vendor References? To What Degree Do Incentives Influence Reference Involvement and Loyalty? What Matters to Reference Customers? Do Incentives Affect the Quality of Reference Programs? How Do Reference Programs Position Themselves Today? Phelon Group Opinion SECTION 2: REFERENCE ACTIVITIES IN WHICH CUSTOMERS ARE WILLING TO PARTICIPATE In Which Activities are Reference Customers Most Willing to Participate? How Effective Are Various Reference Activities? Phelon Group Opinion SECTION 3: WHY REFERENCE CUSTOMERS SAY NO Do Many Customers Turn Down Requests to Act as References? Why Do Customers Turn Down Requests to Act as References? Phelon Group Opinion RECOMMENDATIONS APPENDIX A: ABOUT THE PHELON GROUP ABOUT THE PHELON RESEARCH+ANALYSIS GROUP APPENDIX B: ABOUT THE AUTHOR Page 7

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9 Table of Charts CHART 0.1: BREAKOUT OF CUSTOMER PERSPECTIVES SURVEY PARTICIPANTS BY COMPANY SIZE CHART 0.2: BREAKOUT OF CUSTOMER PERSPECTIVES SURVEY PARTICIPANTS BY ROLE CHART 0.3: BREAKOUT OF CUSTOMER PERSPECTIVES SURVEY PARTICIPANTS BY PRIMARY FOCUS CHART 0.4: BREAKOUT OF CUSTOMER PERSPECTIVES SURVEY PARTICIPANTS BY LEVEL OF INFLUENCE CHART 1.1: FACTORS INFLUENCING CUSTOMER DECISIONS TO ACT AS REFERENCES, BY PERCENT CHART 1.2: PERCENT OF CUSTOMERS THAT NEED INCENTIVES FOR REFERENCE PROGRAM PARTICIPATION.. 19 CHART 1.3: INFLUENCE OF VARIOUS FACTORS ON ATTRACTING REFERENCE CUSTOMERS, BY PERCENT CHART 1.4: EFFECT OF INCENTIVES ON REFERENCE VALUE, BY PERCENT CHART 1.5: MOST COMMON POSITIONING OF REFERENCE PROGRAMS TO CUSTOMERS, BY PERCENT CHART 2.1: REFERENCE ACTIVITIES IN WHICH CUSTOMERS ARE WILLING TO PARTICIPATE, BY PERCENT CHART 2.2: REFERENCE ACTIVITIES IN WHICH CUSTOMERS HAVE ENGAGED, BY PERCENT CHART 2.3: VENDOR RESOURCES THAT INFLUENCE TECHNOLOGY BUYING DECISIONS, BY PERCENT CHART 2.4: EFFECT OF REFERENCE PARTICIPATION ON SATISFACTION, BY PERCENT CHART 3.1: PERCENTAGE OF CUSTOMERS THAT HAVE TURNED DOWN REQUESTS TO ACT AS REFERENCES.. 29 CHART 3.2: REASONS CUSTOMERS TURNED DOWN REQUESTS TO ACT AS REFERENCES, BY PERCENT Page 9

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11 Customer Perspectives Study 2004 Background IT buying behaviors have shifted; buyers are ever-more savvy. They demand objective proof that their purchases will be wise investments and therefore reflect well upon them. All the while, the economy is still struggling to find its path along recovery road and executive management is demanding more proof that the budgets it doles out provide a measurable return. Control of IT decision-making has shifted as well; since 2003, the number of CIOs reporting to the CFO has doubled, a trend that McKinsey & Company says will continue 1. Because of the valuable, strategic asset it touches customers today s reference organization feels these ever-increasing pressures through greater demands from both internal and external constituents. The Customer Perspectives Study 2004 is a collection of current data gathered from this same strategic asset customers. Specifically, the Study focuses on the customer s perspective of reference activities: what compels customers to join a program, why they say no, and what they expect to give and receive in return. In addition to delivering relevant survey response data, The Phelon Group provides insight on presented results, as well as actionable recommendations that allow reference management to simultaneously meet internal and external demands. Perspectives Study Methodology Approach: The perspectives and insights from more than 60 individuals at enterprise companies have been used to develop The Customer Perspectives Study Each respondent participated in the Study through an online survey. Select participants also participated in follow-up telephone interviews aimed at exploring motivations for answers to certain questions in greater detail. Specific trigger questions were included in the survey to determine the relevancy of particular sets of questions to each participant 2. For example, survey participants who indicated that they had never acted as reference customers were not presented with certain question sets. Data Integrity: Participants were solicited through targeted opt-in sources, specifically, through qualified online and print media lists, as well as through customer lists provided by sponsors of this Study. During the survey, participants were asked to provide names and contact information; if such information was not provided, or if the information provided did not correspond with publicly available data, such as annual revenue, those participants surveys and companies were not included in this Study. Individual responses were also reviewed for potentially erroneous data. 1 Davis, K., Scanlon, B., Rath, A. How IT Spending Is Changing. The McKinseyQuarterly The number of respondents answering each specific question varied depending upon responses to certain trigger questions. Page 11

12 Study Participant Profiles PARTICIPANT COMPANIES The participants in this Study come from small, medium and large companies, as illustrated in Chart 0.1. A partial list of companies from which data and perspectives were obtained for this Study follows: asksam Systems AT&T Blue Shield of California Capgemini Experian Giant Food, Inc. Ground Zero Software Lear Corporation Lockheed Martin Integration Technology OC Register Ramada Inn Sumitomo Corporation of America Wells Fargo CHART 0.1: Breakout Of Customer Perspectives Survey Participants By Company Size Company Size Small: Revenue under $500M 37% 30% 33% Medium: Revenue between $500M and $5B Large: Revenue over $5B Customer Perspectives Study 2004 Page 12

13 PARTICIPANT INDUSTRIES The Customer Perspectives Study 2004 includes data and insight from respondents within the following industries: Banking and Finance Telecommunications Computing and Technology Healthcare Government Education PARTICIPANT ROLES The data included in this Study comes from survey respondents and interview participants, the majority of who held CIO, VP, Director or Manager roles as illustrated in Chart 0.2. Other roles of respondents included both managerial and technical positions. Overall, participants represented both the business and technical sides of their businesses as reflected in Chart 0.3. CHART 0.2: Breakout Of Customer Perspectives Survey Participants By Role CHART 0.3: Breakout Of Customer Perspectives Survey Participants By Primary Focus Role Primary Focus 20% 15% CIO/VP Director Manager 11% 33% Technical Business Both 41% 24% Other 56% Customer Perspectives Study 2004 Customer Perspectives Study 2004 Page 13

14 PARTICIPANT LEVELS OF INFLUENCE The Customer Perspectives Study 2004 includes data only from respondents who indicated that they either influence or make purchasing decisions; responses from participants who indicated that they do not influence or make purchasing decisions were excluded from our analyses. CHART 0.4: Breakout Of Customer Perspectives Survey Participants By Level Of Influence Purchasing Authority I influence purchasing from a business perspective 37% 41% I influence purchasing from a technical perspective I make purchasing decisions 22% Customer Perspectives Study Page 14

15 Executive Summary Reference managers today face many challenges, some of which may be critical enough to affect programmatic survival. From our research and consulting engagements we know that three of these challenges in particular are at the forefront of reference planning and value discussions: how to attract and retain leveragable reference customers, how to leverage those customers while increasing satisfaction and loyalty, and how to build evidence of program impact and efficacy for those with keys to the budget. Forrester Research s 2004 Benchmark Survey of Senior Marketers confirms the latter; it reports that 55 percent of marketers say measuring effectiveness or ROI is their top challenge. The Customer Perspective Study 2004 tackles these issues head-on. It is a collection of current data and analyses that illustrate how best to attract, retain and leverage customers from their perspectives while providing objective evidence that supports the continuance and expansion of strategic customer initiatives. Uncovering Results Key Findings The Customer Perspectives Study 2004 presents data collected to date from our ongoing surveys and interviews. Study highlights include that: 1. While a high number of participants indicated a willingness to participate in key reference program activities, the most important factors that influence willingness are outside of a reference program s direct control. Participants cited the following key influencers: Overall relationship with vendor Robustness of product features Quality and responsiveness of technical support Length of vendor relationship 2. Tangible incentives, which promote transactional relationships, are ineffective tools. The vast majority of participants indicated that they do not need incentives to act as references; rather their willingness is tied to overall relationships and to the quality of vendor technology, services and technical support. 3. Benefits, such as peer networking opportunities, access to executives and an ability to influence the product roadmap, are key to developing meaningful differentiators for reference programs. These benefits have become necessities rather than nice to haves. Page 15

16 4. While respondents clearly seek strategic relationships as opposed to transactional relationships based upon discounts and incentives, we identified a clear gap between what customers want and what reference programs are positioned to deliver today. This finding further supports our conclusions from the Customer Reference Program Benchmarking Study 2004 Edition. 5. Most customers who reported turning down requests to participate in reference activities did so because they were dissatisfied with some aspect of their vendor relationships, illustrating that reference programs cannot exist in a vacuum. To experience program success, reference management must be willing and able to work outside of its box to educate and influence management in other critical areas. GARNERING PROGRAMMATIC SUPPORT WITH PROOF POINTS Just as technology buyers are demanding objective proof points before investing in technology purchases, so too are senior enterprise leaders demanding proof points before continuing or expanding their support of customer reference programs. And just as technology buyers want to ensure that their technology investments are wise, so too do executive leaders want to ensure that their customer reference program investments will be worthwhile, even productive. The Customer Perspectives Study 2004 changes the essence of those proof points; it gives reference management data and hard facts gathered and analyzed by a respected, objective external resource; data with which they may build more solid business cases than are possible with generalities, suppositions and intuitions. Beyond the data and proof points, the Customer Perspectives Study 2004 presents the experiential and research-based opinions, conclusions and recommendations of The Phelon Group. Our goal is to provide reference managers with the perspective they need, both from us and from customers, along with actionable ways to affect positive changes that lead to attractive, differentiated reference programs and a pool of satisfied, leveragable references with which to build mutually beneficial relationships. Page 16

17 Key Findings We have organized key findings from the Customer Perspectives Study 2004 in three sections to address three specific issues: Section 1: Critical factors that influence customer satisfaction and referencability Section 2: Reference activities in which customers are willing to participate Section 3: Why reference customers say no Within each section, we present data from various survey questions, as well as our own commentary to add perspective and highlight key concepts. Section 1: Critical Factors that Influence Customer Satisfaction and Referencability Before the reference organization can articulate value and motivate customers to act as references, it must first understand what influences customers what causes them to agree to, and continue to, participate. Understanding customer motives is especially critical today for two reasons: first, because more and more programs are vying for the same reference customers, and second, because most Study respondents indicated a willingness to act as a reference for only two to three vendors; sixty five percent of those who currently act as a reference customer indicated that they do so for one to three vendors. WHAT INFLUENCES CUSTOMER DECISIONS TO ACT AS VENDOR REFERENCES? Respondents were asked to indicate the significance level of various factors that affect their decisions to act as reference customers for vendors. Chart 1.1 indicates the percentage of respondents who selected either significant or extremely significant for each factor shown. Page 17

18 CHART 1.1: Factors Influencing Customer Decisions To Act As References, By Percent Overall relationship with vendor 98% Robustness of product features Vendor's technical support Length of relationship with vendor 77% 84% 82% Benefit to cost ratio of products or services 64% Vendor's brand name 48% What is offered in return for acting as a reference 23% Percent of Participants Indicating Significant or Extremely Significant Customer Perspectives Study 2004 While we recognize that many of these factors are outside of the direct control of the reference program, by planning and acting strategically reference management can educate and influence the individuals and internal organizations that do hold responsibility. Respondents reported the highest influence of the following factors: 1. The overall vendor-customer relationship (98 percent of respondents indicated this as a significant or extremely significant factor when deciding whether to act as a reference) 2. Product feature robustness (84 percent attributed significance to extreme significance to this factor) 3. Technical support (82 percent indicated this factor as significant or extremely significant) 4. Length of vendor-customer relationship (77 percent attributed significance to extreme significance to this factor) It is interesting to note that the traditional focus of many reference programs offering something in return for program participation was rated least influential by respondents; none attached extreme significance to this factor, only 23 percent attached significance to it. TO WHAT DEGREE DO INCENTIVES INFLUENCE REFERENCE INVOLVEMENT AND LOY- ALTY? Respondents were asked to indicate whether incentives played a key role in their decisions to act as vendor references (see sidebar on page 19 for a definition of incentives ). Chart 1.2 indicates responses by percentage. Page 18

19 CHART 1.2: Percent Of Customers That Need Incentives For Reference Program Participation Participants' Responses 23% 5% I don't need incentives to participate. If the vendor provides a good product and service, I'll act as a reference. 72% I don't need incentives to participate, but I give preference to vendors who offer some type of benefit for acting as a reference. I generally only provide references for vendors who offer some type of tangible benefit in return. Customer Perspectives Study 2004 While five percent of respondents indicated that they do require tangible incentives to act as a reference, an overwhelming 95 percent indicated that they do not require such incentives. And a full 72 percent indicated that their decision to participate is based solely upon the quality of products and services, a finding that may surprise readers but that is further supported by the data in Chart 1.1. Incentive or Benefit: What s the Difference? Does your reference program customer value proposition speak of incentives or of benefits? Does it matter which term you use? Before we answer that question, let us first explore what those words mean. in- sen-tiv: Something, such as the expectation of reward that induces action or motivates effort. be-n&- fit: Something that promotes or enhances well-being; an advantage 3. Applying the literal meanings specifically to reference programs, incentives are the somethings, the free services, free hours or product discounts, used to induce customers to participate in reference activities. Incentives are tangible rewards for action and effort; they are doled out tit-for-tat. As such, incentives must be accounted for, tracked and monitored. And as they clearly don t address customer business needs, incentives promote transactional relationships. Benefits, on the other hand, are the less tangible somethings, the networking opportunities with peers or the access to key executives, with which vendors promote or enhance the well-being of their reference customers. Benefits are also the intangibles in which both vendors and reference customers further invest to strengthen their mutual relationships. While benefits might be realized based upon levels of customer effort or the importance of a specific customer to a reference program, they are not doled out tit-for-tat, nor must they be accounted for, tracked and monitored. Benefits are, however, sustainable, and they do provide real traction for customers. (Continued on next page.) Page 19

20 In aligning these definitions with Study, we find that, although customers may not explicitly recognize the literal distinctions that surround how reference programs position their offerings, a clear majority of reference customers whether they use the right language or not prefer benefits to incentives. Sixty one percent of respondents want peer networking opportunities; nearly half want executive access. However, just slightly more than a quarter of respondents reported being attracted to a reference program because of rewards and discounts (Chart 1.3). One final note: which term should you use in your reference program communications? If your program offers true incentives, such as points programs or product discounts in exchange for referencing activities, then by all means, use the word incentives or tangible rewards. However, if your program does not offer incentives as so defined, but instead offers benefits such as networking, access or promotion, then we recommend steering clear of the word incentive. Our research and consulting experience clearly illustrate that the majority of buyers, industry analysts and prospective reference customers attaches a negative connotation to the word incentives, as they do to the word rewards. 3 The American Heritage Dictionary of the English Language, Fourth Edition, WHAT MATTERS TO REFERENCE CUSTOMERS? To examine the role benefits play in attracting reference customers, respondents were asked to indicate the significance level of various factors used by vendors to attract customers (see sidebar on page 19 for a definition of benefits ). Chart 1.3 indicates the percentage of respondents who selected either significant or extremely significant for each factor shown. CHART 1.3: Influence Of Various Factors On Attracting Reference Customers, By Percent 70% 60% 61% Percent of Participants Indicating Significant or Extremely Significant 50% 40% 30% 20% 48% 43% 27% 23% 18% 10% 0% Ability to network with your peers Access to the vendor's executives Visibility and influence on the vendor's roadmap Rewards and discounts Promotion of your project and team Increased exposure for me personality Customer Perspectives Study 2004 Page 20

21 Respondents attached the greatest significance to benefits such as peer networking opportunities, executive access and roadmap influence. This, we believe, clearly indicates that these types of benefits are key to developing meaningful and powerful customer value propositions. DO INCENTIVES AFFECT THE QUALITY OF REFERENCE PROGRAMS? We further examined the topic of incentives by asking participants both those who act as references and those who indicated that they have never participated in reference programs how they view a customer reference knowing that references are offered something in return. As illustrated by Chart 1.4 (left), when it is known that incentives are generally offered to reference program participants, 39 percent of respondents indicated that the reference is less effective at influencing the buy decision (28 percent) or that the reference is simply disregarded (11 percent). As Chart 1.4 (right) reveals, however, when it is known that incentives are specifically offered to reference program participants for particular activities, the former rose to 41 percent; the latter to nearly 20 percent. What is a value proposition? A value proposition is a statement that describes the unique value offered to customers who participate in your company s program. It should be formalized, but a value proposition need not be the same for every program or customer. Typically, we recommend to our clients that they begin by segmenting their reference customers into logical, manageable groups not too many and then by crafting value propositions for each group. A segmentation model might isolate your ten most critical reference customers into one group, x number into a second and the remainder into a third group. Segmentation is for internal-eyes-only so segment in such a way that will help you create more meaningful value propositions for each customer group. And remember, you are not segmenting customers based on their value to the company; rather, you are segmenting based on their distinct value to your reference program. Also recognize that every reference customer is an individual with unique needs, wants and desires. If you re trying to target a key potential reference customer or if you lack an inventory of reference customers for a particular product or service, craft customized value propositions specifically tailored to those individuals. The more you know about your targets and the more you try to create real value for them, the more successful your efforts will be. To learn more about the dynamics involved in customer relationships dynamics that allow you to build powerful value propositions refer to The Phelon Group s Customer Hierarchy of Needs at CHoN/. Page 21

22 CHART 1.4: Effect Of Incentives On Reference Value, By Percent Incentive offered for program participation Incentive offered for specific activity 11% 28% 19% 22% 61% 59% I attach the same value to the recommendation I attach a lower value to the recommendation I disregard the recommendation Customer Perspectives Study HOW DO REFERENCE PROGRAMS POSITION THEMSELVES TODAY? While respondents clearly seek strategic relationships as opposed to transactional relationships based upon discounts and incentives, the data in this Study shows a clear gap between what customers say they want and how reference programs are positioned today. Only 37 percent of respondents indicated that the most common way in which customer reference programs have been positioned to them is as part of a strategic relationship. Chart 1.5 illustrates this. CHART 1.5: Most Common Positioning Of Reference Programs To Customers, By Percent Positioning of Reference Programs 2% As a favor 23% As part of a strategic relationship 38% As something for which the company could benefit 37% As something for which I personally could be rewarded Customer Perspectives Study 2004 Page 22

23 A comparison of this data to the results of the Customer Reference Program Benchmarking Study 2004 Edition further highlights this divide. Fifty percent of small companies surveyed in the Benchmarking Study offered incentives as a primary customer value proposition, while 80 percent of mid-size companies surveyed offered incentives. Large companies were the exception; none offered incentive programs. PHELON GROUP OPINION Based on these findings, we believe that transactional relationships those based solely on exchanging reference activities for something specific in return are ineffective. Reference programs, therefore, must develop a more strategic approach to attracting and retaining reference customers. We believe the correct approach is to create customer value propositions that focus on overall customer relationships and broader customer values instead of on rewards or incentives for specific activities. Clearly, a relationship with a customer who agrees to act as a reference in exchange for free training is not a sustainable one. For that matter, a relationship with a customer who agrees to act as a reference for an opportunity to inform product development is still a tenuous one. A solid reference comes from a solid customer relationship; one in which, for example, a customer participates in product development because they believe their opinions matter, and because they feel their vendor is a partner developing offerings based on their needs. Section 2: Reference Activities in Which Customers are Willing to Participate Customers, in general, understand the importance of helping vendors by participating in reference activities. While the following data sets provide reference management with an overall view of activities in which customers are willing to participate, managers must also realize that customers are individuals. Not all reference customers will be willing to participate in each activity all the more reason to develop, as The Phelon Group has suggested in the past, customized reference plans for key, strategic customers. IN WHICH ACTIVITIES ARE REFERENCE CUSTOMERS MOST WILLING TO PARTICIPATE? Respondents were asked to indicate to what degree they would be willing to engage in various activities on behalf of a vendor. Chart 2.1 shows the percentage of respondents who selected either very likely or certain on a four-point scale for each activity shown. Page 23

24 CHART 2.1: Reference Activities In Which Customers Are Willing To Participate, By Percent Advise vendor during product development 68% Participate in calls Collaborate on success story Collaborate on ROI or TCO studies Speak with industy analysts Participant in articles or press releases Attend advisory board meetings Host site visits Approve logo for use 59% 59% 55% 55% 52% 52% 48% 41% Participate in audio/video testimonial 30% 0% 10% 20% 30% 40% 50% 60% 70% 80% Percent of Participants Indicating Willingness to Participate Customer Perspectives Study 2004 Fifty nine percent of respondents reported a willingness to participate in calls with prospective customers and success story development key activities for many reference programs today. To further validate willingness to participate, we also asked participants in which activities their company has already participated on behalf of a vendor. Chart 2.2 indicates the percentage of respondents who selected each activity shown. Page 24

25 CHART 2.2: Reference Activities In Which Customers Have Engaged, By Percent Participated in calls Collaborated on success story Advised vendor during product development 55% 59% 59% Participanted in articles or press releases Approved logo for use Collaborated on ROI or TCO studies Hosted site visits 41% 39% 36% 36% Spoke with industy analysts Attended advisory board meetings 23% 27% Participated in audio/video testimonial 11% 0% 10% 20% 30% 40% 50% 60% 70% Percent of Participants Indicating Participation in Activity Customer Perspectives Study 2004 Responses for reference calls and success stories, two common reference program activities, indicate a strong relationship between willingness to participate (59 percent for both activities) and actual participation (59 percent for both activities). Responses regarding several strategic activities, however, illustrate very different results specifically responses for advising vendors during product development (68 percent willing, 55 percent actual), participating in advisory board meetings (52 percent willing, 23 percent actual), and speaking with industry analysts (55 percent willing, 27 percent actual). We draw two possible conclusions from this data: 1. These more strategic activities are underused; customer willingness is not being effectively tapped, or 2. These activities are too complex for some customers; they may initially indicate willingness but fail to participate. HOW EFFECTIVE ARE VARIOUS REFERENCE ACTIVITIES? We also asked survey participants which vendor resources influenced their buying decisions; responses are illustrated in Chart 2.3. (Note that this question was asked early in the survey, before participants were presented with questions focused specifically on reference activities.) Page 25

26 CHART 2.3: Vendor Resources That Influence Technology Buying Decisions, By Percent Visits to vendor's customers Call with vendor's customers 80% 78% ROI or TCO studies 70% Analyst reports mentioning customers 61% Success stories Articles in which customers are featured Press release describing relationships with customers Advertisements featuring customers 17% 22% 46% 44% 0% 10% 20% 30% 40% 50% 60% 70% 80% Percent of Participants Influenced Customer Perspectives Study 2004 Not surprisingly, high percentages of respondents rated one-to-one types of reference activities, such as calls and visits, as influential. However, a surprisingly high percentage of respondents also considered a few one-to-many reference activities as influential, specifically ROI or TCO studies and analyst mentions. These figures provide reference managers with powerful proof points. They also reveal a strong relationship between a customer s willingness to participate in certain activities (i.e. visits and calls with prospective customers) and the activities effectiveness as sales tools. PHELON GROUP OPINION Overall, Study participants reported a high degree of willingness to participate in reference activities. A red flag should be raised if reference managers find that reference customers are unwilling to participate in calls. More than half of all respondents reported a willingness to participate in calls, so any resistance on the part of reference customers may not be because they do not want to take calls in general; it may be more that they do not want to take calls for a particular vendor or in specific instances. Should a reference manager see this red flag, we recommend conducting a perception audit to understand why customers are not willing to take calls. Further, although we believe it is important to understand general trends relating to willingness to participate, we caution against relying on willingness as part of a strategy. We revealed earlier (Chart Page 26

27 1.4) that 38 percent of all reference activities are solicited from customers as a favor. Building activities into strategic customer account plans and relying on strong customer value is a much more viable approach and will yield much greater success. Another area in which reference management can affect greater programmatic success is in the decision of which reference activities to undertake. While we were not surprised to find that 78 percent of prospective customers indicated that reference calls highly influenced their purchase decision, we were pleasantly surprised to see that 70 percent of prospective customers considered ROI and TCO studies almost as influential. These one-to-many reference tools have a far greater reach than do one-to-one calls. Additionally, ROI and TCO studies are perceived to be significantly more useful to prospects than are success stories; only 46 percent of respondents reported that success stories are influential in purchasing decisions, compared to the 70 percent of respondents who opted for ROI and TCO studies. This is significant. Our 2004 Benchmarking Study showed that 47 percent of companies surveyed spent the majority of their budgets on success story writers and agencies, yet only 13 percent spent most of their budgets on ROI analyses. We recommend that reference management consider these results, and either reduce the quantity of success stories produced or shift success story funds toward the production of more high impact content content that a significantly higher percentage of prospective customers say they want. One additional consideration for reference managers who want to affect greater programmatic success is the relationship between reference activities and satisfaction. Even though we realized that a direct causeeffect relationship would be difficult to establish through this Study, we asked participants how reference activities affect their overall vendor satisfaction. The results were surprising. Sixty eight percent of all respondents indicated that participating in reference activities positively impacts satisfaction. While we did believe that this was in fact the case, we did not expect that participants would recognize an increase in satisfaction based solely upon their participation in reference activities. We believe that, if used effectively, the results presented in Chart 2.4 provide reference managers with critical proof points for establishing solid business cases. Page 27

28 CHART 2.4: Effect Of Reference Participation On Satisfaction, By Percent Change in Satisfaction 25% 7% 68% 23% 45% Less satisfied No difference Increased satisfaction Much more satisfied More satisfied Customer Perspectives Study 2004 Section 3: Why Reference Customers Say No Armed with an understanding of why customers turn down requests to act as references, reference managers may confirm suspicions about what they believe may be the real reasons for declining enrollment and then act accordingly. Alternately, reference managers may locate potential gaps in program or company effectiveness and proactively seek remedies before the gaps become real before the gaps affect their customers. DO MANY CUSTOMERS TURN DOWN REQUESTS TO ACT AS REFERENCES? Respondents were asked to indicate whether they had ever turned down a request to be a reference for a vendor. This chart indicates the percentage of respondents who had, and had not, turned down such requests. Page 28

29 CHART 3.1: Percentage Of Customers That Have Turned Down Requests To Act As References Participants Declining Request 20% Turned down a request Never turned down a request 80% Customer Perspectives Study 2004 That customers decline reference requests is not surprising; this happens for many reasons. With more vendors than ever before vying for reference customers, the same pool of customers is being asked to participate in more and more programs. Recall that Study respondents indicated that, on average, they acted as a reference for only one to three vendors. As more vendors establish and expand reference programs, we can expect the number of customers who say no to increase simply because customers will become overwhelmed. We present this data here to highlight the fact that, as in the sales business, no is normal in the reference business. WHY DO CUSTOMERS TURN DOWN REQUESTS TO ACT AS REFERENCES? Respondents who indicated that they had turned down reference requests were asked to indicate reasons why. This chart illustrates the percentage of respondents who selected among the following reasons for declining to participate. Page 29

30 CHART 3.2: Reasons Customers Turned Down Requests To Act As References, By Percent 40% 35% 35% Percent of Participants 30% 25% 20% 15% 23% 18% 13% 10% 8% 5% 3% 0% Unsatisfied with technology or professional services Unsatisfied with technical support Policy or approval issue Perception of time commitment Unsatisfied with sales rep Other Customer Perspectives Study 2004 Chart 3.2 confirms what reference customers have already told us; it also validates earlier data reported. Ninety eight percent of Study participants reported that overall vendor relationships significantly or extremely significantly influenced their decisions to act as references (Chart 1.1). The importance of good relationships is also reflected here: sixty six percent reported saying no due to satisfaction-related issues, whether with the technology, professional services, technical support or sales. This further illustrates that a reference program doesn t exist in a vacuum; to experience program success, reference management must be willing and able to work outside of its box to educate and influence management in these other critical areas. Open-ended survey questions also reveal that many customers have additional concerns that cause them to say no. First, customers report feeling overused and abused by the barrage of never-ending reference activities. Second, they report a perceived lack of process, which manifests itself in last minute requests, in a lack of information about the upcoming activity, and in a disregard for their time. Keep me informed and provide me with the appropriate resources for the activity, said one participant. Another commented, Provide lead time and a brief explanation of what the prospective customer is looking to accomplish. Page 30

31 PHELON GROUP OPINION We were surprised that only 18 percent of respondents indicated turning down requests due to policy or lack of approval, as we have consistently heard from our clients that this is a key problem. Although we may find over time that this number is higher in certain segments, such as in financial services or among Fortune 500 companies, 18 percent is still much lower than we had anticipated. We recommend that reference managers investigate further if they find that many of their reference customers turn down requests for approval-related reasons. Requests may be being made to the wrong levels. Or perhaps requests need to come from a higher level within the vendor organization. Or, with more exploration, reference managers might find that potential reference customers are using the approval excuse because it s easy, and because it s highly unlikely that anyone will verify it. If that indeed turned out to be the case, it should raise a large, red flag regarding satisfaction-type issues. We also recommend that reference managers implement a formal process with which to track the number of requests turned down and the reasons why. This information, although unpleasant, will provide reference managers with critical metrics that will come in handy when educating and influencing product development and technical support management. Finally, to avoid a no in the first place, we recommend that reference managers establish account plans with key reference customers. Get the agreement up front and let other vendors take the no. Page 31

32 Recommendations Create the Shepherd Effect The findings of the Customer Perspectives Study 2004 expose an incorrect premise that says reference managers who are good at what they do can successfully recruit and maintain reference customers. Such thinking is clearly out of touch. Not only does it ignore the reality that compartmentalized customer relationships are never successful, but also, it fails to recognize interdependencies among customer-facing organizations. As we have learned, customers want overall positive relationships with their vendors, not just with their reference managers. Several of the Study s findings bear this out: Ninety eight percent of survey respondents pointed to the overall vendor relationship as the most significant factor in determining whether to act as a reference (Chart 1.1). Eighty four percent reported product feature robustness as a significant or extremely significant factor influencing a decision whether to act as a reference; eighty two percent reported that a vendor s technical support plays a similar key role (Chart 1.1). Eighty nine percent of survey respondents reported saying no to reference requests due to satisfaction issues with sales, products, services or support (Chart 3.2). And perhaps most importantly, 72 percent of respondents said they would act as a reference if the vendor s product and service is good whether the vendor offers incentives or not (Chart 1.2). Unless you already align with this view, coping with the realities of the Study s findings will require that you rethink your program management approach, as well as your approach to success measurement. You must accept that you are not in control, but are instead part of a larger team that seeks success together. We believe that to experience true, measurable success as a reference program leader, you need to cultivate within yourself both a spirit of innovation and the ability to shepherd others. Specifically, you must: Inform various groups within the enterprise of what customers are saying about your company. As a reference leader, you are in one of the best positions to know. Consult with other customer-facing organizations. By providing sensitive suggestions, help crossorganizational leaders identify actions that positively impact customers. Educate the enterprise on customer-related interdependencies. Illustrate the ripple effect of various positive and negative actions, as well as its influence on sales. Page 32

33 We tell you this because we believe, based on much research and many client engagements, that tomorrow s successful reference programs will be those led by management that both influences and cooperates with decision makers and influencers of other internal organizations. We also believe that reference management s ability to reach beyond the walls of its programmatic box will be tomorrow s measure of reference program success. Reference managers who keep their arms tucked in, who don t want to soar with the winds of change, might still succeed but it won t be because of what they do well. Instead, it will be because everything outside the box within other organizations is working well. On the other hand, we also believe that reference managers who do think outside of their programs, who do reach beyond their organizations spheres of influence, will be those who achieve programmatic credibility, and whose customers, programs and companies flourish. While programmatic credibility does not typically follow the reference work of churning out success stories and organizing reference calls, it does, however, quite naturally follow the work of measuring and communicating efforts to impact the company, and the work of harnessing and communicating the customer intelligence that flows through the reference organization each day. Leave Incentives Behind We ve said much in this Study about incentives for good reasons: 72 percent of Study respondents do not require incentives to participate in reference programs; instead, they require good products and services (Chart 1.2). And from the viewpoint of the prospective customer we learned that between one-third and one-half of respondents attach low to no value to incented reference customers (Chart 1.4). This data, along with data reported through earlier Phelon Group Studies and knowledge gained through consulting engagements, leads us to believe that incentives substantially impact programmatic success. Since incentives consume scare budget resources, since most customers do not need them, and since increasingly greater numbers of prospects are skeptical of customers that receive them, we believe companies should not offer them. Instead, we believe, companies should focus their scare budget resources elsewhere on the factors and activities customers and prospects do say they want. If you leave incentives behind, you will positively change how you leverage customers. You may need to educate colleagues and other groups in your company especially sales that references are about relationships, not about what s in it for me. But keep in mind that individuals within your company who do support incentives are likely do so based on the faulty assumptions that incentives create traction and help to build a sustainable reference program. Use the data we present in this Study to both illustrate the dangers of these false assumptions and highlight the rewards of offering more strategic program benefits. Page 33

34 Also support your case for change by clearly articulating value propositions for customers; this keeps comments like, If it s not about incentives then what s it about? to a minimum. And be confident the impact these changes bring will be far reaching. Chart 2.4 illustrates clearly that reference activities increase customer satisfaction. Be Creative Learn to get past no In a world in which reference customers are demanded by proof-seeking prospects (and therefore demanded by vendors), more and more customers are over-extended and restrict their participation in reference programs. Thus demand for reference customers is growing while the pool of such customers remains more or less consistent; most are only willing to participate in one to three reference programs. The data suggests that customers approval processes and policies, in general, are not barriers to reference program participation; only 18 percent of respondents indicated that they said no to reference requests due to company policy or issues with internal approval (Chart 3.2). We also know from open-ended survey questions and interviews that reference program participation concerns customers because they perceive that reference activities may take too much time or that the process won t be well managed. Specifically, customers referred to expectation-setting, scheduling and preparation issues, as illustrated by these survey responses: Make sure prospective customers are prepared with relevant questions. Prep me well; tell me the key points the prospect is looking for, and give me a good executive briefing on them. Reduce the impact on my schedule. When customers believe that reference teams mismanage the process or do not respect their time, it s that much easier (and tempting) for them to say no. At this juncture we ask: when you call a customer to ask them to act as a reference for your company, are you trying to build a relationship or fulfill an internal request? If you are simply trying to fulfill an internal request for a customer that uses a certain technology or impacts a certain industry, a no may be devastating it may be the end of the road for that particular request. If you are trying to build a relationship, however, the fact that the customer responded to you at all is an opportunity to make the relationship better and stronger by learning what you, or your company, can do for that customer. Page 34