Customer Loyalty, Profitability and Mythology

In The Mismanagement of Customer Loyalty, Reinartz and Kumar take a surgical look at the false assumptions that underlie many Customer Loyalty programs. And whilst the research they quote is somewhat dated now (2002), their findings have an uneasy and contemporary feeling of truth about them.

The popular mythology is of course that the best customers are the loyal ones:  low cost to serve, willing to pay more, and to act as strong word-of-mouth.

The claim by our researchers: “Much of the common wisdom about customer retention is bunk. To get strong returns on relationship programs, companies need a clearer understanding of the link between loyalty and profits”.

Their research findings covered a high-tech corporate service provider, a large US mail-order company, a French retail food business and a German direct brokerage house. The data collected enabled them to compare the behaviour, revenue and profitability of more than 16,000 individual and corporate customers over a four year period.

They discovered “little or no evidence to suggest that customers who purchase steadily from a company over time are necessarily cheaper to serve, less price sensitive, or particularly effective at bringing in new business”.

However, they also claim that the reason that the apparent link between loyalty and profits is weak has a lot to do with the crudeness of the methods most companies use to decide whether or not to maintain their customer relationships.

RFM (Recency, Frequency, Monetary value) analysis is a popular way to sort customers. In practice, this method tends to overweight in favour of recency (eg. doesn’t distinguish different pacing patterns between frequently and infrequently purchased goods) and the monetary value component is almost always based on revenue rather than profitability. In short, it can be a very blunt instrument.

And as valuable as segmentation is, there is no substitute for identifying customers at any individual level. Knowing that 50% of your customers are loyal doesn’t exactly inform:  right offer, right customer, right time, right channel.

The really interesting findings from the research came from probing further into the attitudes of loyalty – sifting out the self-declared true believers. At the grocery retailer, for example, customers who scored high on both actual and attitudinal measures of loyalty generated 120% more profit than those whose loyalty was observed through transactions alone. And in the B2B environment of the high tech corporate services provider, loyal customers of both “thought and deed” were 50% more profitable than those designated loyal by transactions alone.

This certainly mirrors our experience with CRM programs and branded online communities. It is one thing to know about transactions – “who, what, how and when” are all critical to providing context in understanding customers. However, going the last mile to understand “why” is absolutely critical. And can turn a blunt instrument into something of surgical precision.

Hen’s teeth? An Australian company with high Net Promoter Scores…

 

Australian NPS study

 

Back in 2006 the Melbourne Business School researched Australian customer satisfaction / loyalty using Net Promoter Score (NPS) as the metric. They looked at a range of service and product categories and found generally poor NPS results (apart from Broome being a great holiday destination).

This research has recently been (coincidentally) updated in this report which looked at the NPS in Australian Banks, Insurance, Mobile, Health Insurance and online shopping.

Several of these categories overlap with the 3 year old MBS study and I thought it would be good to look at how some of our national icons have progressed in the last 3 years – from a customer perspective. No illusion of precision here as I am sure the customer samples are not apples to apples, but illuminating never the less.

So – some example changes in NPS follow…

Banks

Bendigo topped both studies with an NPS of +7 in 2006 and +33 in 2009 for a whopping increase of 26!

ANZ went from -24 to -5 increase of +19

St George went backwards from -29 to -30 decrease of -1

Westpac from -39 to -18 increase of +21

NAB from -42 to -30 for an increase of +12

CBA, last in both studies, from -54 to -39 for an increase of +15

Property Insurance – generally has improved

APIA was not in the 2006 study but overwhelmed the field with NPS of +69, world class

AAMI from -22 to +5

RACV from -25 to +2

NRMA from -33 to -10

CGU from -41 to -15

GIO still at the bottom but moved from -53 to -20 a +33 increase!

Health Insurance – generally getting better, but still low as a category

HBF on top, from -15 to -4

HCF from -30 to -18

MBF from -46 to -23

NIB from -27 to -23

Medibank from -48 to -30

Mobile Phones

Virgin with a bullet! From -29 in 2006 to 0 in 2009

Vodafone from -26 to -4

Three from -24 to -7

Optus from -34 to -22

Telstra still at the bottom but up 10 points from -44 to -34

Overall, there appears to have been a general improvement in customers’ willingness to promote Australian companies in these categories. But this is no cause for celebration – there were only 7 positive scores in the 2009 study and only 2 companies achieve world-class scores; APIA and Bendigo Bank.

Time to look to your Customer Experience Management (CEM) efforts integrated with your Customer Relationship Management (CRM) systems to improve your Net promoter Score (NPS) in this world of Three Latter Acronyms (TLAs).

Loyalty schemes buy you knowledge, not loyalty: loyalty can’t be bought.*

We have come from the CRM world, are currently active in social media and online communities – really feel like we have one foot in each of two generations of marketing.

From this (sometimes uncomfortable) stance, let me make a prediction; Loyalty programs will become the bridge between these two apparently different worlds, for savvy companies.

Why? Because loyalty program members identify themselves.

In fact, loyalty programs are the price you pay for individual customer data. You make money from the careful use of this data. When you also know the identity of the customers in your (branded) community, you can;

• look introspectively at their behaviour within your business
• identify your best and potentially best customers
• enrich this with third party data if you choose
• match it all to their behaviour in the community – what do they post about, what ideas do they rate highly, what do they disagree with, how do they rate us (in Net Promoter terms) – segmentation by ‘behaviour in the community’ allows you to profile your brand advocates usefully using insight into their attitudes and beliefs.

The road to success is paved with good information*.

Not just right customer, right offer, right channel, right time but also right content in your marketing communications. We have had gratifying success by taking note of what different types of customers want us to talk about and reflecting that in our targeted, personalised direct marketing with good reductions in member churn for a sporting organisation.

In all customer segmentation there is a risk that your customers are homogenous – they all want and need exactly the same thing from you. If this is your case you may end up with the first online community ever that has no customer politics!

If you cannot segment through your community, you will just have to live with the goodwill that comes from being open to a conversation with your customers. Not a bad consulation prize.

* Quoted in “Loyalty Marketing: The Second Act” by Brian Woolf

Membership Organisations and Social Media

It would be easy to say that customer engagement is core business for just about any business. Easy, but not particularly instructive.

The truth is that the degree of customer engagement required or desirable is going to vary by category and from business to business. Do I really want a deep and ongoing relationship with my gas utility? (Answer: only when things go wrong!)

There are some categories, however, such as membership based organisations – eg. sporting, professional and industry associations where customer or member engagement are clearly and unequivocally core business.

The passion found in sporting clubs such as the Australian Football  League and the vocational self-interest inspired by professional or industry associations such as the Australian Society of CPA’s represent an asset to membership organisations that is by and large untapped. And the uptake in social media and online communities frankly should represent the “elephant in the room” to these organisations.

Lets take your typical industry or professional association.

These organisations are often faced with several diverse challenges given their size including:

• The annual membership acquisition and retention tread mill
• Event driven schedules that require “all hands to the pump”
• The sponsorship deal that could make or break the bank
• Staff turnover that reduces critical IP from the organisation (and the occasional “ground-hog” day!)
• How to represent members in the appropriate political forums
• How to identify what members really want so that the Association can remain relevant
• How to get geographically scattered members engaged with the Association and other members

The last two points here I would argue are core business to these associations and are critical to resolving all other challenges.

My experience with associations is often turning up to events every month or so – with very little context around the topic or my relationship with the association and a “hit or miss” with satisfaction with the of the event. Now, you could rightly say that you only get back what you put into these organisations. However, it is 2009, and the threshold to participating and contributing just got a whole lot lower with the “social internet” and the collaborative tools now available.

Setting up and running an online community for such organisations is a relatively straight forward task – with the right specialist advice. Public communities such as Linked-In and Facebook too often fragment from “official” sites and have very few controls around identity and analysis. However, there are hosted open-source platforms available where you can create your own unique site at minimal cost. Creative look and feel can remain the same – meaning that the user has a seamless experience moving from the associations website to various community forums, blogs, polls, surveys etc And whilst some new roles are created internally (eg online community manager) there is inevitably a medium term reduction in headcount and spending devoted to  less efficient forms of communication and research.

For me, as a member, I now have a website resource where:

• Every other member is a potential resource
• There are no geographic boundaries to interaction and collaboration around special interests
• I can express my opinion and preferences instantly (subject to moderation)
• Due to profiling and groups, communication is far more tailored to my interests
• I can qualify the nature of events prior to committing valuable time
• I can promote myself to colleagues (career opportunities!)

From the associations viewpoint, you then have an online community where:

• Opinions, ideas and preferences (polls, surveys) deliver quick, unequivocal feedback from your most passionate members to keep the Association relevant
• Interest in events and new offers can be tested
• Collaborative forums and groups with a specialist focus can be far more effective and efficient (and in-view of the Association)
• Geography becomes less important (perhaps reducing unnecessary regional infrastructure) and special interest groups become the primary focus
• Sensitively handled, sponsors can be involved – creating potentially a new revenue stream

For more detailed ideas, you may wish to check-out the “Top 10 Ways Associations can Use Online Communities to Increase Member Acquisition and Drive Revenue.”

Sound too good to be true? Perhaps, but if ever there was a category waiting to benefit from social networking – it is staring our local associations in the face!

Social Media: What’s in a name?

What’s in a name? Well, a lot it seems, if you are setting the scene for an ongoing discussion.

Take this blog site for example…  we are talking with marketers, customer activists (eg other bloggers!) and indeed anyone interested in how brands can engage with customers and prospects online to achieve their marketing objectives. And… in a manner that represents a genuine exchange of value!

Bit wordy isn’t it! A label would be handy…

What are we discussing? Social media, online communities, online marketing, digital marketing, conversational marketing, customer engagement, customer experience management, CRM, web 2.o … Take your pick!

And the problem is that so many of these terms come with their own baggage – their own worldview, preconceived assumptions and  frames of reference.

The term “social media” appears to have gained significant currency but has the baggage associated with traditional media and the mindset of something you push one-way at the consumer…

“Online communities” and “social networking” don’t say enough about the brand’s purpose or context.

“Conversational marketing” is getting closer to our purpose but is a cumbersome term that does not appear to have gained currency.

One term that I spied recently from a leading digital agency website had me intrigued: “Social influence marketing“. It was however badged everywhere with a trademark sign. You have to laugh… some marketers will never quite understand the “social” component of this topic!

“Web 2.0” – well you have alienated half of your potential community who see this as too “techie”…

“CRM 2.0 -” – is this like putting lipstick on the pig? And by the way, customers don’t want their relationships managed.

And anything ….x.0 (CRM 2.0, Marketing 2.0, Enterprise 2.0…) is starting to look just a little too slick and contrived don’t you think? If it didn’t work in the last version, why is it going to work this time. That’s a negative place to start…

Customer Experience Management (CEM) – there is a growing body of knowledge and experience around this domain that complements CRM very nicely. But as a term, its only part of the story and it looks a bit old and tired. As a customer in 2008, having my experience managed sounds more like passively viewing the latest Hollywood blockbuster?

Apologies if this sounds a little too cynical… but the truth is, I don’t think we have the best label yet!

And for so long as we cannot express our endeavour in a concise term, there will be missed opportunity!

So this is our challenge – what term do you have?!

Amplifying the “Voice of the Customer”

The term “Voice of the Customer” (VoC) is a very useful term for initiatives designed to improve customer experience but it is also a term that has been bandied about in a very loose manner. So it is good to see from Bruce Temkin (Forrester) some definition of terms and analysis of how the concept can be translated into practical action!

The use of online communities to amplify and validate these VoC initiatives I believe can take these initiatives to new levels of effectiveness.

Bruce Temkin provides the following definition for a VoC Program:

“A systematic approach to incorporating the needs of customers into the design of customer experiences.”

He then identifies five distinct levels of activities in a VoC Program: (my comments in parenthesis)

1. Relationship tracking. Organisations need to track the health of customer relationships over time… Why is this important? Because an easy-to-grasp report card helps align everyone in the organisation around a common purpose. And focuses investments in key areas that correlate with improvements.

This, of course, is the challenge addressed by metrics such as Net Promoter Score. Online communities can make these efforts more dynamic by incorporating NPS results into subsequent conversations and prompting – eg. “why did you vote the way you did”; “how can we increase the propect of you recommending to a friend in future…”.  

2. Interaction monitoring. Every customer interaction – from an online transaction to a call into the call centre – is important. Firms need a way to monitor how effectively they handle these customer touches. This can provide detailed (& immediate) feedback to/about frontline employees and help spot problematic trends.

Incorporating this touchpoint feedback into an online community setting – helps to validate how widespread or problematic the feedback is and may of course prompt suggested improvements.

3. Continuous listening.  Structured feedback through customer surveys provides enormous opportunities for analysis. But this (data only view) should be supplemented by executives regularly listening to customers – such as listening to calls in the call centre, reading blogs, reading inbound emails and visiting retail outlets.  

We would argue that online communities can take this to another level with the more social component (customers talking to customers as well as the brand) and with the use of voting and ranking as appropriate. 

4. Project infusion. Projects that affect customers should incorporate insights about customers. Despite the clear need for this type of effort, many companies lack a formalised approach for infusing customer insights into projects. To make sure that this doesn’t happen, some firms are incorporating customer insight steps in the front-end of their Sigma processes.

One simple step… ask the online community! Employees and/or customers. “Is this project a good idea?” “Are we missing something?” “Could this project be executed in a more effective manner?”. Particularly in a pilot or scoping phase – this type of feedback can represent a great form of risk mitigation.

5. Periodic immersion. Every so often, it’s valuable for all employees – especially executives – to spend a significant amount of time interacting directly with customers or working alongside frontline employees. These experiences which should be al least a half day, provides an excellent opportunity for the company to question the status quo.

Whilst nothing will ever quite match dealing with a real live customer in the flesh – online communities are a pretty raw form of customer feedback and interaction; and with so much business be conducted remotely these days (employee-to-employee as well as employee-to-customer) online communities are a very efficient way for a vast number of employees to “stay in touch” with reality. 

Scary: unfiltered conversations with customers!

CRM ’sort of’ focused some companies on their customers and what they think, CEM makes it explicit but has yet to drive the software sales (and therefore hype?) of its alter ego.

But if a company embarks on a strategy of opening conversations, with their customers, through social media/online communities, the attitudes, feelings and ratings of those pesky customers become almost unavoidable.

And confronting to the average organisation with functional silos in their structure.

If CRM and CEM come under the general heading of Relationship Marketing, consider how difficult we make it for our customers – imagine having a friend who only remembers every second or third conversation. Or who recognises you in the office but treats you like a stranger in the bar.

That’s what we do when we let lines of business promote their own products without an overarching customer communication framework and a single view of what we do with each customer.

Which unfortunately puts us back at the traditional stumbling block; for CRM and now CEM – cultural change. The mind-numbing difficulty of changing the way an organisation plans and thinks, moving from the product as the starting point of everything – to putting the customer in the centre of key processes.

Let’s be honest, few organisations have succeeded at this.

I find the immediacy of conversational marketing helps – direct customer response is more personal and impactful on management than (sometimes) de-personalised market research. It is harder to ignore.

It may have the unexpected effect of making it easier to convince managers to have a passion for the customer; the critical success factor for Relationship Marketing.

Have you had success in changing executive attitudes by exposing them to undiluted customer interaction?

p.s. I found this great quote in a Forrester report by Bruce Tempkin that also helps reassure executives, “It’s not about making customers happy. It’s about focussing on the profitable customers and making them happy. It’s not about getting customers to sing kumbaya.”

Vice Versa

I have been doing some more traditional 1to1 database marketing recently and it has reminded me that the more things change the more they… don’t.

Aligning the culture of an organisation is the task that really makes it difficult to transition from product-centric to customer-centric thinking.

Both of the clients are using best of breed analytics and campaign automation platforms, so the technical challenges are not insignificant, but these dragons are being vanquished. Much harder to get the whole organisation aligned in their understanding of;

• what types of customers have been defined/discovered
• what differerent treatment strategies are planned for each different customer type.

Everyone understands the need for a “Single Customer View”, a system that combines all the information you have about customers into one easily accessed view. This puts the history of your interactions with each individual customer in the hands of your service staff and allows them to offer one of the most important customers benefits – being remembered.

Less appreciated but just as important is the need to have a “Single View of Customers” across the organisation. All should agree what types of customers your marketing and service strategy is tuned to address.

For example, if you have a ‘young aspirational’ segment (hypothetically), everyone involved with customers should know their defining characteristics, your objectives for this type of customer and the service treatment that is in place for them.

When I hear clients proudly (often with a hint of exhaustion) refer to their single customer view – I ask, ‘and vice versa?’

Facts are stubborn, but statistics are more pliable*

We are devout believers in the data driven market credo; ‘why guess when you can know?’ This means we keep a weather eye open for case studies and research that will move the decisions we make with our clients from the gut to the head (with or without blinking .

The recently published Relationship Marketing – part of the Relevant Knowledge Series from MSI - is the mother load. Mr Palmatier analyses 97 different empirical studies covering 38,077 different commercial relationships. Head spinning stuff for relationship marketers!

At the risk of over-simplifying, (and being too dry for a blog like this), the summary ‘Best Practices: ways to build & maintain strong customer relationships’ is worth disclosing;

• do not let conflict go unresolved
• assign customers a dedicated contact person
• spend most of your budget on raising the skills of your ‘boundary-spanning’ (aka service) staff
• focus on social (person to person) and structural (system integration with customers) programs
• minimise the use of financial (discount) programs
• let your boundary spanners (sales people) control social programs but not the structural & financial ones
• if your sales staff churn rate is high, make an effort to get them to be consistent in approach and focus more on structural programs
• early in the relationship, focus on amount, frequency & quality of communication
• measure relationship; quality, breadth, composition and growth/velocity regularly. Especially velocity (is the relationship improving or decaying, not just its current state)
• audit your own organisation to make sure you are aligned to relationship marketing – strategy, leadership, culture, structures and control, business processes

But for me the biggest insight is Mr Palmatier’s insistence that if a customer relationship is not growing, it declines. If you cannot grow the relationship, go for efficiency and being ‘easy to do business with’. There is no such thing as maintaining relationships – according to the facts.

The Australian Direct Marketing Association held its annual 3-day forum last week and this ‘make marketing evidence based’ message was consistent from almost all presenters, including yours truly. Sounds like we are finally getting the message. Now all we have to do is follow our own advice!

At the conference I managed to catch up with an old friend – Terry White who is the Chief Innovator (great title) at Amway Japan. Terry – ‘Marketing used to be 90% magic. Now it is 90% science and only 10% magic’ – and he does not mean statistics, he means facts.

* Mark Twain on customer analytics

Online Communities and Economies of Scale?

After computerising every customer touchpoint that we can lay our hands on over recent decades – a return to treating customers individually in online communities doesn’t always sit well.

“Surely this can’t be an efficient use of resources; where’s the economy of scale in answering an individual blog comment …?!”

Well, fear not – there is light at the end of the tunnel and some great case studies emerging now that demonstrate the efficiencies and scale that can be delivered through online communities.

An example retold in Groundswell is that of Dell:

“When started their most recent support forum in 1999, they knew they’d need moderators. They pulled 30 support reps off the phones and converted them into forum moderators. Those support reps answered questions online, just as they had been on the phone.

Already, Dell was getting more efficiencies, since each answer could be read by dozens or hundreds of other people searching for it on their support forum.

Now, five years later, the support forum is many times larger than it was then. And the number of moderators is no longer 30. Its five. And that’s because the members of the community are moderating it themselves.”

We are seeing the same in marketing forums as they mature. The more embedded the members, the more likely you will see self-moderation, and a genuine desire to assist members.

Marketing with your best customers – now that’s a different kind of scale economy!

And compared with that IVR system or that CRM application – I dont think it is just a quantitative issue, I suspect the qualitative (customer experience!) outcomes might also be instructive.

Benchmarking Engagement in Customer Communities

Recruitment and retention of community members is of course critical to the success of online customer communities. It is certainly not a case of “build it and they will come”!

How do you get a handle on a “healthy” level of engagement?

The answer to this needs to be strongly qualified by the objectives that you have for the community (refer last Post!). If your community is delivering strong insight or innovation results with minimal community numbers but adequate sample sizes, then driving additional engagement is less of a concern. If word of mouth marketing is the objective, then identifying as many advocates as possible becomes a priority. 

Regardless of objectives, measurement and numbers play an important part – “if you can’t measure it, you can’t manage it”. So where does one start…?

Measuring engagement is still at a rudimentary stage and generally limited to quantitative measures (traffic!) rather than qualitative measures. Numbers involved in broader online communities are a good starting point and the ratios quoted by Forrester are useful. As a rule of thumb we use 90:9:1 – where 90% of those invited do not get involved, 9% observe only and 1% contribute.

Our experience to date says that branded communities should do better than this – particularly when the conversation vehicles include surveys that are pushed to members. We have seen participation rates anywhere from 10% to 30% in these environments.

We do believe that the relative percentages of customer involvement varies quite dramatically as brand categories vary. Our 30% was a sporting club client, where passions run high.

The guys at Copernicus report “High Customer Involvement” rates that vary between 13% and 55% of customers as categories go from low involvement (toilet paper) through high involvement (retirement planning). We find that involvement with the brand (category) relates directly to active participation rates in a branded community.

How do you go about gauging engagement or participation? 

CRM, Embeddedness and Online Communities

  

I love it when the lessons learned in the trenches are supported by the rigour of the professional researchers!

Conducting research for the real world is the charter of the Marketing Science Institute;

“Founded in 1961, the Marketing Science Institute is a learning organization dedicated to bridging the gap between marketing science theory and business practice. MSI currently brings together executives from approximately 70 sponsoring corporations with leading researchers from over 100 universities worldwide.”

Not exactly a blog, but I recommend you bookmark their publication site and keep an eye on what 70 of the best marketing organisations think is worth researching in the marketing arena.

Case in point. “CRM in Virtual Communities”, work by Porter & Donthu published late last year.

Fascinating.  And you are right, I am one of the “tweedy strategy guys” mentioned on our home page.

They tested the idea that the value of a branded virtual community, (value to the sponsor), depends on the sponsor’s ability to cultivate the trust of the members.

Sponsors attempt to do this by;

• providing access to quality content
• fostering member embeddedness – defined as helping customers perceive themselves as insiders
• encouraging member interaction with the sponsor about trust and beliefs.

 As examples, during the study the researchers referred to communities run by Dell, Palm, HP, REI, Ford, Samsung etc.

Which one of these activities is best at fostering trust do you think?

Arguably the grandmother of branded communities is P&G’s Vocalpoint (originally Tremor), where customers actively collaborate with P&G product managers to develop/select product features. Pfizer has had a similar ‘panel’ and some of Legos most successful product launches ever were shaped by the active involvement of a large virtual community.

I think branded community practitioners would say that ‘embeddedness’ is the winner, at least based on these money making examples.

The research findings back this; ‘…efforts to provide quality content and to foster member embeddedness do indeed have positive effects on customer beliefs about a sponsor; in fact, fostering member embeddedness has a stronger effect on customer beliefs than does providing quality content.’

And to put a cherry on top of this meatball sundae; ‘…trust increases customer’s willingness to share personal information, to be loyal to the company, and to cooperate in new product development. Overall, their findings underscore the importance of using technology, such as virtual communities, to manage relationships with consumers.’

Could not have said it better. And they have the numbers to back it up!

 ’How to create embeddedness’ looks like a good subject for future posts.

Working with the Social Media Juggernaut…

And Avoiding the “Trough of Disillusionment” 

For those of us that work in and around the marketing and CRM arena, there is a certain déjà vu about the hype surrounding the topic of social media. Like many hyped topics before it, it appears to be just a matter of time before we descend into what our IT friends – Gartner – call the “trough of disillusionment”.

Gartner Hype Cycle

Don’t get me wrong. There is enormous potential for brands to engage with their more passionate customers in the world of social media. And social media itself reflects some fundamental shifts in the way customers interact with brands. But at the end of the day, it is just a (new, richer, interactive) channel.

So what are the threats and opportunities of this developing channel?

Well, it certainly seems that you ignore this channel at the peril of your brand.

In our part of the world (Australia), recent Nielsen research tells us: “84% of internet users use social applications”. And where goes the customer, goes the money…

Of course, it is not only that the internet and social networking are shifting eyeballs. Other forces are at work with today’s consumers. Consider the following:

• The saturation of marketing messages – refer your own experience!
• Fragmentation of media channels – refer your local ad agency exec
• Instant access to competitive information – refer examples: www.lasoo.com.au, www.tripadvisor.com, www.whirlpool.net.au
• Growing gaps in trust between customers and brands – refer to Jack Trout and his book ‘Differentiate or Die’.
• Gravitation to niche interests – “because we can” –the Long Tail phenomenon (refer www.thelongtail.com)
• Customer belligerence – refer your local “Do Not Call Register” and your ability to skip ads with set top boxes
• Ever shorter customer attention spans – refer your children

The point being, it is getting increasingly difficult to talk to today’s customers!

Not that you need to be told this right?!

The good news is that the new channel represented by social media brings new opportunities to work sympathetically with the new consumer (“consumer 2.0”) rather than being overwhelmed by the trends described.

A central idea to this approach is marketing as a conversation – refer our video page on this blog site.  Hardly a new idea, but to marketers raised in an era of one-way broadcast mass media – this takes some getting use to. We are no longer shouting at our consumers – we are listening. Consideration not awareness – is the name of the game.

Once you have this mindset, the trends cited above seem less overwhelming and the opportunities endless! Now, your opportunities come in the form of:

• Online customer communities
• User generated content
• The ability to add metrics (add quant to qual) through selection and ranking of content
• The influence of brand advocates
• Genuine exchange of ideas – mutually inspired innovation

And here’s the best bit, you can make a start now!

In the world of social media, brands don’t have to be perfect. They need to be authentic but not sanitised perfection. Most of all they need to be able to listen and to respond appropriately.

And with the advent of web 2.0 technologies, the cost of establishing a conversation with your customers online does not have to be expensive or leave you beholden to the IT department.

One of the most promising social media developments for brands is the ability to develop your own branded customer community online. In future posts, we will explore why online customer communities are an idea whose time has come and more importantly – how they can be effectively developed – with some very fresh examples – warts’n’all – drawn from our clients and others…

We are keen to avoid Gartner’s “trough of disillusionment” and move to the “slope of enlightenment” as quickly as possible!

NPS, CEM and Brand

“A brand is the sum total of the good, the bad and the ugly…your best product and your worst…your best ad and your worst…your receptionist and your CEO…your best customer experience and your worst”*

 We have previously pointed out the connection between Customer Experience Management (CEM) and the Net Promoter Score (NPS); NPS is a ’simple but not simplistic’ way of measuring how well you are managing your customers’ experience.

But where does ‘brand’ fit in this mashup?

These authors argue that the Product/CEM/CRM mashup is the brand.

This is not the first time I have come across a wholistic view of service – product – brand. Leonard Berry and his team wrote on this subject after a decade of study, in 1993. I used a 2003 paper published by the Marketing Science Institute to refresh my memory.

First impression - Berry’s work also produced an index/metric that focusses attention on the experience elements that are important to the customer (not the company). His is called SERVQUAL and involves separately asking customers what they consider important then asking how the experience measured up. The largest gaps between expectations and delivery are the experience areas that need the most attention. We used this vehicle about 5 years ago for a client with very good results. It convinced them that further precision in service areas that the customers did not value really was a waste of money.

NPS, when implemented as a process-change guide, also allows companies to focus on the things important to the customers, not the company.

From the perspective of experience = brand however, it is worth taking a look at the 10 lessons these CEM pioneers taught us. Good food for thought.

1. Listening. Quality is defined by the customer (we now have more effective ways of listening, online)
2. Reliability. Little else matters to customers when a service firm is unreliable.
3. Basic Service. Fundamentals not fanciness; performance not empty promises.
4. Service Design. Service design must be a fluid process of continuous improvement – ‘If it ain’t been fixed it will break’
5. Recovery. Encourage complaints, respond quickly & personally, develop a problem resolution system.
6. Surprising Customers. Exceed customer expectations, especially with assurance, responsiveness & empathy.
7. Fair Play. Airline example – ‘An industry that charges one customer $300 and another $1,300…with the only difference the timing of the reservation…cannot and will not earn the confidence and loyalty of customers.’
8. Teamwork. Service team building cannot be left to chance.
9. Employee research. As important as customer research.
10. Servant Leadership. Serve the servers, inspiring & enabling them to achieve.

 I am sure these 10 components do not appear in the brand bible of the average organisation.

Perhaps they should.

*A New Brand World Scott Bedbury & Stephen Fenichell

“The play went marvellously well. The audience was a complete failure”*

 

“The 20th century was about sorting out supply… The 21st is going to be about sorting out demand.”

I saw a reference to this Wired article on Seth Godin’s blog and it got me thinking.

In a time of fragmenting communications channels, customer insight, real knowledge of what your customers want from you becomes even more important.

When customers gather in increasingly small groups of like minded / common interest peers, you can no longer ’shout’ at a large audience and let them sort themselves out. Interested to the left, disinterested to the right. Knowing where to find them and what to say when you do is the web n.0 challenge.

But it is not just understanding where the customers are. Customer insight is required to make sure you build trust then loyalty. You want loyalty because it is the driver of profits in a demand constrained world.

Marketing can build loyalty because there is a set of rules around gift giving that are fundamental to human societies. People receiving gifts feel an obligation to repay them. Anthropologists speculate that these rules are socially Darwinian as they allowed for food surpluses to be stored, in a time before refrigeration, through an obligation to repay in the future when times were tight.

If you are sceptical about the role of reciprocity in modern society consider the scandal currently raging in my home state of NSW Australia. Large political party donations by property developers with applications requiring political approval make most of us uncomfortable, because we believe the rules of reciprocity do hold. The public and developers believe the donations will be repaid with favours; only the politicians disagree.

The psychologists tell us that the ‘gifts’ we can give others in order to develop a relationship leading to loyalty are; money, goods, service, information, status and love. These gifts are increasingly personal in nature and decreasingly tangible as you go through the list.

This is important because gift giving rules generally require repayment in kind.

Give your customers money gifts (e.g. discounts) and they feel they have repaid the gift when they give you money; tangible, impersonal gift repaid in kind; no need for a lingering relationship.

Give your customers personal, intangible gifts and it gets interesting. You get repaid with loyalty and positive word of mouth; personal and intangible repayment.

This is easier said than done; the gifts of information and status to be personal (’particularist’ is the technical term) require trust.

Trust takes time and interaction. Trust comes when the customer believes you have spent enough time with them to know who they are and have demonstrated your interest by making messages and offers relevant to them.

Relevance means an experience that recognises their preferences and needs (not just their value to you). It means listening and remembering. Write the play they want to see. ‘The play went marvellously well. The audience was a complete success.’

Puts as back at the CRM and CEM mash-up.

* Oscar Wilde on the Importance of Customer Insight

Are CRM Vendors keeping up with Conversational Marketing?

  

At a time when there is significant rationalisation of the CRM Application Vendor market – and well established brand names are fading or disappearing altogether, are CRM vendors keeping up with the developing trends in social networking and conversational marketing?  Are these vendors catching the wave or facing the wall?

John Chan from ISM says “CRM vendors are rushing to place Web 2.0 functionality in their CRM offerings” here.  John also mentions that an “eMarketer data report projects that social networks will grow by 180 percent by 2011. A potential boom period could await marketers trying to raise brand awareness through sites such as MySpace.”

Basically, if the way customers are interacting with organisations is changing, the CRM systems of these organisations MUST respond to this change or “horrible” things (that marketers dread) may happen – like a drop in market share or decreased brand loyalty.

Not only must new technology be introduced into existing CRM systems (e.g. Web 2.0) CRM vendors will also need to integrate with – or even embed within their own offerings -existing products or services that have an established position with customers.

Do these vendors get the irony? Social networking capabilities are being announced and developed without having a conversation with customers. Seems to miss the whole point doesn’t it? Organisations like (our customer) the Melbourne Football Club recruit their customers to help design products through conversations, so why not software vendors? Overseas, Intuit, Lego and Pfizer… do the same.

I will be less sceptical  about the Web 2.0 CRM extensions once we see evidence the designers understand how they should be used!

But…….. can current user organisations take advantage of these new innovations?  History has shown – especially in the Australian market place – the organisations who have implemented package CRM systems have customised these applications to within an inch of their lives thus making upgrades either very expensive or far too risky for the business to contemplate – or both!!!

The big issue is how organisations can work with what they’ve got and quickly and cost effectively take advantage of new “conversational”  offerings from technology vendors.   Organisations are now a lot more cautious – or perhaps even paranoid – about putting money into CRM projects given past experiences.

Our view? “ The past is the past”, and we should all learn from it and move on.  Our experience is that good project governance with realistic expectations work and never go out of fashion.  So……..now may be the time for organisations to review their current CRM platforms and bring them to a state whereby they can facilitate a conversation  – while they still have loyal customers to talk with.

“Talk to Me! Remember Me!”

Conversational Marketing as CRM Navigation 

CRM – It was such a sensible idea at the time!

The one customer view, a corporate memory for the customer, the left hand knowing what the right is doing, treating different customers differently, measuring the return on marketing investment…

The results have frankly, been well……    underwhelming.

The irony is, of course, that the ”C” part of “CRM” has too often just gone missing in action… 

It is not just that CRM intiatives generally lacked executive sponsorship or understanding; became IT projects, did not engage the natural stewardship of marketers and have been overly ambitious. All contributed to poor results.

Fundamentally - what has also been missing? The voice of the customer.

CRM projects have seen a rush to elaborate requirements gathering workshops involving a multitude of stakeholders, with one stakeholder missing – the customer. Arms-length market research hasn’t cut it either.

Can you just imagine if you, as an innocent customer, stumbled on one of these workshops… yes, a frightening thought!

Of course, CRM systems are in some cases necessarily challenging with complex processes and integration points to satisfy even basic customer requirements. However, without any strong customer reference point or sense of customer priorities it is easy to see how CRM implementations might lose their way. Chinese whispers are the result.

And so, after 12 months, we get to the end of Phase 1 of the CRM implementation – and someone innocently asks – “Please remind me again, why is it we are doing this?”

What this has bred – has been a lot of CRM initiatives that are “inside-out” – the organisations view of the customer, as opposed to “outside-in” – the customer’s view of the organisation (see Richard Owen’s “CRM Grows Up” ). 

And even stronger than that, it represents “what we are going to do to the customer”  - an attitude that simply aint going to fly with today’s customer…

Enter social networking, web 2.0, online communities and conversational marketing…

In comparison to our previous CRM efforts, these appear to have sprouted effortlessly and organically. And the message to us as marketers should be abundantly clear…

Things have changed. Customers want and are getting more control. They want a 2-way, no – multi-way dialogue with the brand. They have very little trust of brands but will listen to the recommendations of other customers. A small but significant proportion of customers in every category will engage with a brand online – if handled respectfully and authentically. 

Why is this important to our internal CRM initiatives – to the CRM infrastructure that is gathering dust or suffering quiet atrophy in the corner?

Well, at a very basic level, if an online customer community equals “I hear you” and a CRM system equals “I remember you” then we have the raw ingredients of a Customer Engagement Strategy.

The power of an online customer community lies in its ability to tell us “why”. Properly functioning CRM systems should handle the other questions – who, what, when, how. It is the ability to gain quick insight and engagement that is the hallmark of social networking carefully harnessed by a brand.

The promise of online customer communities – quite apart from these immediate insight and engagement benefits – is the ability to rework, repair, re-calibrate CRM infrastructure (people, processes, programs, technology) to something more like what customers want!     

In future posts we will look at what CRM software vendors are doing in this brave new world.

What’s your NPS for your CEM using your CRM?

The man that many say was the catalyst for the CRM industry through his work on customer loyalty, Fred Reichheld, has promoted a way to measure how well you are doing at meeting customer expectations; the Net Promoter Score (NPS). Fred’s ‘Ultimate Question’ is “On a scale from 0 to 10 how likely are you to recommend us to your family and friends?” Promoters give you 9 or 10, Neutrals give 7’s and 8’s all else are Detractors. % Promoters minus % Detractors gives your Net Promoter Score.

We have found this ‘simple but not simplistic’ metric a very effective way of focussing our clients on the important moments of truth so they can be ‘fixed’ in customer experience terms. CRM tells us which customers are valuable or potentially so, NPS identifies unhappy high value customers and we can investigate why and what to do about it.

To investigate on a large scale, here in Australia we have been using the Satmetrix Adaptive Community platform (known as ‘Informative’ before being acquired late in 2007). This platform allows us to conduct online surveys, quick polls and blogs and convert a mass of qualitative data into actionable quantitative insight quickly.

The NPS authors went further, claiming that NPS is a superior predictor of company growth rates and the market research industry reacted, creating a debate that is interesting but has not impacted our focus on valuable customers. For a good post on the debate look here,for a response from the co-authors, Satmetrix;

A sporting club client of ours asked their on-line Advisory Panel of members what they could do to convert detractors (the actual question was along the lines – “what could we do to make you more likely to recommend a membership…?”).

Watching the dynamics of a large community with visibility of opinion between peers gives almost visceral pleasure to a marketer raised on dusty research reports or the thin gruel of focus groups. Undiluted customer input, lots of it, immediately! Marketing really can be a conversation as Jaffe says ‘Join the Conversation’ !

The consensus advice from the community was implemented, to the great benefit of the club’s member recruiting program.

Where do these communities fit in the mash-up model we are constructing, if anywhere?

I think this is a new 4^th P; Place. This is NOT to say that on-line communities are just another channel, this is a Place to market that has no resemblance to the uni-directional communications implied by the word ‘channel’. It is a productive place to talk with customers and listen as they talk to each other.

We have experienced 2 distinct benefits from using this platform and Place for clients;

1. We find out things, in a research sense, very quickly and from a large number of customers, including their attitude towards promoting the product/service and
2. The very act of asking and listening creates advocates who help promote the client’s business, a classic outcome of the “Hawthorne Effect” (a definition).

Keep in mind the context here please; we are typically providing a place where registered customers, with an interest in the brand can express their opinions and inspect the opinions of peer customers. This is not, in our case, a blog naked to the world.This new Place has a different set of rules. Carefully crafted marketing messages cannot sustain the scrutiny of a group of self-selecting engaged customers for very long. ‘Seed’ ideas used by the marketers to start the conversation almost never end up in the top 25 of ideas as rated by the community for popularity and importance. Honesty and openness are the currencies and exchange at a good rate for customer insight and unfiltered advice from our best, most engaged customers.

“Doh”: the product matters!

I like to think that at some point in the endless crunching of cross sell data for CRM, the right side of the marketing brain (the emotional side) woke up and said “I wonder what the customers actually think and feel about this?”

When we ask them, they want a great product first and foremost.

But customers define product as the whole experience of dealing with the company, not just the tangible product or service.

The left brain took over again and Customer Experience Management, CEM, was born. Bernd Schmitt published a book of this name in 2003 defining CEM as ’the process of strategically managing a customer’s entire experience with a product or company’. This is a good outline; ‘Experience Architects’ apply the ‘discipline, methodology and/or process used to comprehensively manage a customer’s cross-channel exposure, interaction and transaction with a company, product, brand or service.’

The early 1990’s gave us CRM, the early 2000’s gave us CEM, though this had its roots in the ‘Moments of Truth’ documented by Jan Carlson of Scandinavian Airlines in 1987.

CEM projects typically involve the detailed mapping of what does/should happen at a ‘customer touch point’ and/or ‘customer moment of truth’ so that positive customer experiences can be institutionalised. Good customer experiences engage the customer emotionally; keep them satisfied and (hopefully) loyal.

The ‘peak – end’ rule is an interesting example of a CEM principle that is applied to process design; it says that customers remember an experience on the basis of the highest/lowest pleasure point and the last. So well designed processes make the peak as good as possible (luxurious airline lounges) and the end memorable (saying goodbye using the passenger’s name as they disembark is how Asian airlines achieve this).

CRM and CEM have the same overall objective; profit through loyalty. Emotionally engaged customers have an additional value for the company, they talk positively about you to their family and friends, potentially becoming your most effective salespeople as they are more trusted than your marketing will ever be.

Illustration: Mapping Moments of Truth for Customers

 

Vertical axis is a series of discrete service events such as checking in at the airport; peaks are:

1. Frequent Flier recognition,
2. Lounge
3. Condition of aircraft
4. In-flight
5. Timeliness 

Understanding what customers consider a good experience is exactly what CRM data can help you with; not all customers want the same experience. For example, experienced share traders do not want to talk to a broker, inexperienced traders want a human to give them advice. Mix these up and both rate the experience as poor.

CEM acknowledges that for the customer, the definition of “Product” is far wider than the product development managers think as it includes all aspects of their interactions with the company. Product design should not stop at the boundaries of the product. The challenge with this proposition is that the definition of a good experience varies by customer type. Luckily, CRM has been pretty good at identifying customer types, so the 2 should go together.

A focus on managing the customer experience has increased the importance of knowing when your customers are satisfied. We will discuss the current controversy around the TLA for customer satisfaction; NPS (Net Promoter Score) in a future post.

Mashing-up CRM

CRM was initially a response to the discovery that there is money to be made from customer loyalty. Fred Reichheld famously made this discovery in the early 1990’s; The Loyalty Effect.

This would be one of those ‘of course’ discoveries if there weren’t still so many companies obsessed with getting customers they do not have and doing little to keep customers they already have.

Doing this large scale requires lots of databases, systems, infrastructure and expense, so the system vendors were enthusiastic supporters. This expense focused attention on the value of customers as the system had to be paid for and this made CRM, for a ‘relationship’ strategy, curiously left-brain and inside-out; what is the customer worth to me?

In practice, this means organisations adopt more complex segmentation frameworks, and attempt to consider customer needs in their efforts to treat different customers differently.

But is this really different in principle? Let’s consider 3 CRM organisations most often referenced as the global best;

• Tesco & the processes that revolve around their Clubcard program in the UK:  Clubcard
• USAA the US insurer: USAA
• Harrahs the gaming and entertainment company and the processes that revolve around their Total Rewards frequency program: Harrahs.

Tesco have classified customers based on what groceries they buy so they can make sure only relevant offers are presented. They started with; Finer Foods, Healthy, Mainstream, Convenience, Traditional and Price Sensitive shoppers.

 

USAA have a detailed life cycle model of their armed services customers that allows them to predict what products will be most relevant, next; extra car insurance when your child approaches teenager-hood for example. They back this foresight with the best service in the industry, but you have to think they have a head-start if most customer conversations start with “I was just thinking about that very thing… thanks for calling”.

Harrahs looks at your gambling behaviour and builds a picture of your average gaming budget and the length of time you want it to entertain you. They use this information to, for example, slow you down with meal offers if you are losing too fast and could end up home early and disgruntled.

Using transaction data to infer customer preferences and then using this insight to and match offers to customer segment certainly works, but is it different in principle to segmenting by age, income, sex… the targeting of Kotler’s framework? (refer previous post…)

Strikes me it is more clever and effective, but not fundamentally different…

In our recent work with a football club (the mighty Demon’s!) we found that the best approach is to use a blend of the ‘old’ demographic targeting and the new-fangled 1to1 relevance stuff. This lets us speak differently to “passionate partisans” than we speak to “reclusive partisans” and where they live.

We employ the simple and useful methodology created by Peppers and Rogers to integrate CRM strategy into our client CRM work; IDIC, not the Vulcan “Infinite Diversity in Infinite Combinations” IDIC but,

·         Identify customers individually

·         Differentiate them (aka segment, target) on the basis of their value to you and then on what they need from you

·         Interact with them and remember what you both said

·         Customise how you treat them taking the preceding into account so you can be relevant. PRG.

From our perspective, CRM certainly fits in our marketing mash-up, Resonately.