Keeping Customer Relationship Measurement Programs Relevant: North American Conference on Customer Management October, 2007 Using Your Resources Wisely
Why Do We Care? Developing, implementing, and maintaining customer-focused measurement programs have become essential business practices. Consumers in both B2B and B2C settings are increasingly intolerant of products and services that do not meet their expectations. An organization with declining customer retention rates is a company in trouble, and measurement programs enable business managers to anticipate downturns in customer loyalty. In highly fragmented industries, customers have MANY competitive alternatives, so companies must never stop responding to evolving customer needs. Accordingly, substantial corporate resources are devoted to customer loyalty measurement programs. 2
Why Do We Care? Customer Loyalty Survey Research Expenditures (millions) (F) $743 2007 $658 2006 $606 2005 $548 2004 $478 2003 $452 2002 2001 $427 2000 $425 $378 1999 $0 $100 $200 $300 $400 $500 $600 $700 $800 Source: Inside Research, Volume 18, Number 3, March 2007 3
What Will You Take Away from This Session? Ten best practices that enable organizations to keep customer relationship measurement program relevant. Four pillars of these best practices include: Scope Measure Integrate Act 4
Burke s Framework 5
First Phase: Scope Best Practice #1: Connect the architecture of measurement programs to current business strategies of the company. Programs structured without consideration of business strategy and market conditions will not help reduce the risk associated with investment decisions. Strategic and tactical planning cycles Newer market segments to grow Possible acquisition targets Branding initiatives Employee recruiting, training, and reward systems. While intuitive, this practice can be quite difficult for research and quality departments to implement. 6
Scope Best Practice #2: Invest in early discovery or blueprinting activities to set the stage for the program s success. Key objectives of Blueprinting: Increase in the strategic relevance of structured customer feedback Managerial buy-in early in the design or redesign process Removal (or at least reduction) of organizational silos, aiding in design/redesign of a comprehensive, customer experience measurement and management system Creation of the foundation for statistical linkage of employee and operational measures to customer attitudes/behaviors, and to financial results Blueprinting sessions can also be used to identify gaps between what internal clients want and what the program currently produces. 7
Scope Operations Employees Company Customers Financials Price Corporate Entities Manager/ Supervisor Value Proposition The Job Daily Interaction Associate Compensation and Benefits Stock Price Operating Income Profit Process Career Development Business Process Measures Costs Employee Engagement Partnership Sales Reps Teamwork Customer Support Customer Relationship Fees Brand Promise Turnover Issues Individual Characteristics Customer Loyalty Revenue Growth Loyalty To Competitors Human Touch Tenure 8
Scope Best Practice #3: Perform a thorough Voice of the Customer (VOC) Architecture Assessment. VOC Architecture Assessment is necessary because organizations often lack an integrated customer survey measurement program Rare is the organization that has no history in the VOC arena. Many companies are on third- or fourth-generation programs. Measurement flavor of the day sometimes limits comparability across organizational units. Business units within organizations often have different silos, different approaches, different owners with different budgets, and sometimes (often?) lots of politics. Measurement frequency Sample frames Event-triggered versus relational perspectives Scaling Form of communication 9
Scope Best Practice #4: Perform Linkage Assessment to determine an organization s readiness for aligning survey and non-survey data sources used by business managers. Linkage Assessment involves examining the financial, operational, employee, and customer data available for linkage analysis. Key process elements include: Identify databases and other data streams that reflect enterprise blueprint components Determine data platforms, units of analysis, and time periods of data captured Establish degree of alignment across databases and survey (attitudinal) measurement Recommendations for improving data sources to enable comprehensive linkage 10
Next Phase: Measure 11
Measure Best Practice #5: With the Scoping Phase as the foundation, develop a relevant measurement system. The best measurement systems are developed by solid research, in concert with champions of VOC within the organization. A critical decision during program design relates to the measurement of overall customer loyalty. Period 1 Period 2 Loyalty Index Share of Wallet (0%-100%) Burke recently extended the traditional Secure Customer Index. R&D spanning multiple industries and customer types. Longitudinal approach relating customers perceptions at one point in time to their purchasing behavior in the future. While the traditional three-item, classification approach has worked well for a wide variety of industries and customer types, additional predictive value and discrimination power was sought. Burke s enhanced approach derives from longitudinal, primary research examining the relative importance of many dimensions of loyalty on future and concurrent customer behaviors. 12
Measure Traditional Secure Customer Index Secure Customers Most favorable rating on all three SCI scales Favorable Customers Most favorable or second most favorable rating on all three SCI scales (but not secure) Indifferent Customers All other combinations At Risk Customers Most unfavorable or second most unfavorable rating on any SCI scale 13
Measure Using research and development findings, Burke extended its Secure Customer Index to satisfy a broad set of requirements for practical and valid customer loyalty measurement: Detecting degrees of customer loyalty Parsimony Ease of measurement migration ease Multidimensionality Linkage to customer outcomes Burke examined 26,197 different ways to create a loyalty index. Sixteen loyalty dimensions All possible three- through seven-item loyalty items were examined. 14
Measure Overall Satisfaction Recommendation Continuation as a Customer Expected Change in Share of Business Perceived value of products Trustworthiness Commitment to Customers Earned Loyalty Estimated Growth in Loyalty Quality Proximity to Ideal Price Given Quality Quality Given Price Price Competitiveness Preference Confidence in Problem Resolution 15
Measure The extended Secure Customer Index is a multidimensional measure of loyalty based on five dimensions culled from a larger set. Overall Satisfaction: What is your overall level of satisfaction with (BRAND/CO.)? Likelihood to Recommend: If you were asked to recommend a (INDUSTRY) how likely would you be to recommend (BRAND/CO.)? Likelihood to Repurchase: How likely are you to continue using (BRAND/CO.)? Earned Loyalty: (BRAND/CO.) has earned my loyalty Preferred Company: I prefer (BRAND/CO.) to all other providers With customers responses to these five survey items, the degree of customer loyalty for an individual or a group of customers is constructed. 16
Measure Linkage to Future Share of Wallet* All Industries Overall Satisfaction 100 Old Secure Customer Index 126 New Secure Customer Index 207 Business-to-Business Overall Satisfaction Old Secure Customer Index New Secure Customer Index Business-to-Consumer Overall Satisfaction 100 Old Secure Customer Index 189 290 100 114 New Secure Customer Index 187 *Correlations are indexed to the correlation between overall satisfaction and share of wallet for the particular graph. 17
Measure While the SCI performs well across all a wide variety of industries and customer types, customized indices can, in some cases, provide superior fit with customer behavior measures vis-à-vis standardized indices. Linkage analysis can provide guidance on how, exactly, to customize a loyalty index. Ideally, such analyses would be performed after having two survey measurement waves. However, such analysis could be done cross-sectionally. For such customization, several additional candidate loyalty items should be included in survey. 18
Measure Additional best practices in VOC measurement include the following: Make decisions about measurement frequency based on the nature of the information being measured and the speed with which information users can use findings to make decisions. Choose sample sizes that ensure appropriate precision levels. Use statistical significance testing appropriately. Weigh the value of changes to sample frame, survey item wording, scaling, etc., against the loss of comparability to previous measurement waves. 19
Phase Three: Integrate 20
Integrate Best Practice #6: Leverage Linkage Analysis to connect customer loyalty to is precursors and outcomes. Downstream linkage analysis identifies Customer experiences with the largest impact on product and service offerings and ultimately revenue Ideal resource allocation to improve customer experiences and thereby drive business success Upstream linkage analysis establishes Whether operational standards are aligned with customer requirements Employee drivers of customer satisfaction and dissatisfaction While Linkage Analysis can be done in a very simple fashion, some of the most sophisticated modeling and simulation tools can be applied to show the impact of specific performance improvements on revenue and profit. 21
Integrate Sales Reps and Ease of Ordering Downstream Linkage Analysis Relative Strength of linkage Company Reputation Order Delivery Client Product Meets Needs High Medium Low Value Likelihood to Recommend and Repurchase Revenue Satisfaction Support and Relationship 22
Integrate Best Practice #7: Develop decision support systems to evaluate the ROI associated with different improvement strategies. Decisions support systems involve a variety of inputs. Potential areas for investment, derived from measurement Costs of improvement programs Estimated pay-out times Cost of capital 23
Integrate FISCAL Key Customer Retention Drivers Are: Technical knowledge of service reps Has a full range of products and services Is a customer oriented company Customer reps are available when needed Employees show personal empathy for customers How many strategies do you want to simulate in this session? 3 Enter a label for each strategy: Strategy 1 Revamp Product Training Program Strategy 2 Increase Service Rep Staff By 25% Strategy 3 Friendliness Training For Service Reps Done With Strategy Labels 24
Integrate FISCAL Enter dollar investment and timing information about this strategy Strategy 1 Revamp Product Training Program Dollars Required? Total life of project dollar investment required $2,000,000 Year 1 Year 2 Year 3 Enter estimated three year spread of investment in % terms for each year (must = 100%) 60% 30% 10% What cost of capital is in effect for this project? 7% Done With Investment Info For Strategy # 1 25
Integrate FISCAL Select targeted customer perceptions and level of impact as a result of this strategy: Strategy 1 Revamp Product Training Program Expected Rating Impacted? Point Change Has a full range of products and services Technical knowledge of service reps.5 Is a customer oriented company Service reps being available when needed Employees show personal empathy for customers Done With Impact Info For Strategy # 1 26
Integrate FISCAL Enter impact timing information about this strategy: Strategy 1 Revamp Product Training Program Enter estimated three year spread of impact on customer perceptions in % terms for each year (must = 100%) for each attribute targeted by this strategy Technical knowledge of service reps Year 1 Year 2 Year 3 20% 50% 30% Done With Impact Timing For Strategy # 1 27
Integrate FISCAL NPV Summary Revamp Product Training $3,034 Friendliness Training $2,001 Increase Service Rep Staff 25% $762 $0 $500 $1,000 $1,500 $2,000 $2,500 $3,000 $3,500 $4,000 NPV ($000) Save Chart Next 28
Phase Four: Act 29
Act Best Practice #8: Build on early buy-in from Blueprinting sessions and other discovery activities to mobilize the organization to act upon measurement results. Comprehensive scoping, measurement, and integration initiatives cannot move an organization toward its business objectives without using the resultant insights to improve decision making. Companies often struggle to formalize this last phase. Energy and money spent on previous phases The accountability associated with taking action Some executives tendency to act on gut Burke developed, TRACTIONTM, a framework that ensures connection between customer loyalty measurement and customer loyalty management. 30
Act TRACTION : Turning Results Into Action TRACTION ensures that management takes action to raise customer loyalty, and consequently, profitability. TRACTION involves many of the same business managers involved in Enterprise Blueprinting, further establishing customer centricity as a pillar of organizational success. Ensure Understanding of Critical Improvement Issues and Connection to Internal Processes Identify Root Causes for Suboptimal Performance Among Process Owners, Facilitate Identification of Improvement Strategies and Tactics Identify Ways to Eliminate or Reduce Barriers to Change (Processes, Organizational Culture, etc.) Document and Present Improvement Strategies, Including Timelines for Action and ReMeasurement 31
Act Best Practice #9: Build a problem recovery system to enhance customer loyalty and to take advantage of customer problems identified through survey research. Customer At Risk (as identified from loyalty questions) Alert email sent to program office Alert email routed to business unit Individual rep updates Action Tracking module in online system Individual rep follows up with customer OR Requested Red Alert 32
Act Unfavorable response to a key question Does customer want to be contacted? No Decline of follow up offer noted in data Follow up with customers builds credibility. Follow through by customer-facing departments ensures actionability. Yes Sale rep and location manager receive email requesting follow up Does sales rep follow up & describe in dashboard? No Yes Email describing follow up is sent to location manager Does location manager approve follow up? No Yes Quality manager contacts customer; is customer satisfied with resolution? No Yes Quality manager updates dashboard to indicate closure 33
Act Best Practice # 10: Establish communication mechanisms and corporate goals to make the Voice of the Customer central to all the organization s activities. Communication Electronic newsletters VOC Digital Dashboards on Intranets or Extranets; balanced scorecards Incorporation of VOC measures to regular communications from top management Explicit connection to any internal branding efforts Goals Corporate goals typically set through a combination of Historical or normative data Managerial judgment VOC measures typically comprise one portion of a larger variable/performance compensation system 34
Ensuring Program Relevance 35
Jamie Baker-Prewitt, Ph.D. Senior Vice President Director of Decision Sciences Burke, Inc. jamie.baker-prewitt@burke.com 36