Using the analytics tools can let you see the rich data you do have—the combination of transaction data,conversational data,and richer profile information—in ways that can help you make the kind of advantageous decisions that get you the value you’re looking for from your customers. But in order to use these tools,you have to have a strategy that’s geared toward what you want from your customers. Part of that has to be determined by your business imperatives—revenue goals,profitability objectives,cost efficiencies,and your longer term overall business strategy,including the present and future mixture of products,services, experiences,and tools that you want to provide to the customer.
Another significant factor is what kind of customer you’re looking to “recruit.” Are you happy with high customer satisfaction ratings? Is a loyal customer what you strive for? Are you measuring that satisfaction or loyalty by the number of products that you’re selling the customer?
Striving for Advocacy,Settling for Loyalty
The customer that you should be aiming toward is the advocate. You should settle for the loyal customer. Why? Because the advocate,also called a customer evangelist,is the same customer who feels vested in what you do as well as sees themselves,in part,as a good-will ambassador for the company. When this is harnessed by companies like clothier Karmaloop,their street teams,consisting of 8,000 of their 800,000-person community,make 15 percent of Karmaloop’s annual revenue. These are the Harley hog owners who love their bikes and the company so much they tattoo “Harley-Davidson” all over their body. All . . . over. That commitment gives Harley-Davidson a 63 percent market share.
These are the people who will tell you how much they love Starbucks (or at least those who used to tell you that) or why they only shop at Zappos online for all their shoes. That grew Zappos to a billion dollars in eight years.
I’m sure you can name a company that you’re passionate about,can’t you? A restaurant you love,a theme park you’ve been to 30 times,a small barbershop that you’ve not only gone to but sent dozens of friends to get their locks shorn over the years.
What makes evangelism/advocacy even more powerful is now there are locations online for the advocates to go to and talk to thousands if not millions of others about their love of your company. Social networks like Yelp live for those passionate advocates. Your company needs to not only find and cultivate these advocates,but to put programs in place to provide value to the same customer.
Loyal Doesn’t Mean Profitable
But,please don’t confuse the customer advocate with a loyal customer. They are not the same and,often,confusing the two can lead to a potentially disastrous situation. Though loyal customers are nothing to sneeze at,they are not the optimal customer. One reason for that was discovered in a study by one of the true eminences in CRM value measurement,Dr.V.Kumar,professor of marketing at Georgia State University’s Robinson School of Business and the executive director of the Center for Excellence in Brand and Customer Management at GSU. You’ll hear much more about him later.
In 2003,Dr.Kumar and Werner Reinartz did a seminal study on the correlation between profitability and loyalty called “The Mismanagement of Customer Loyalty” in which they found that the correlation was “weak to moderate.” The reason is that the loyal customer expects more from the company they are loyal to. They also are extremely well acquainted with the ins and outs of the company and know how to game the system when it comes to getting “stuff ” from the company. For example,rather than simply resolving a customer complaint,loyal customers expect some compensation for their discomfiture.
This is isn’t exactly a ringing endorsement of loyalty,though it does show there is some correlation with profitability—enough to not be ignored. But it also re-emphasizes the point—loyal customers are what you settle for,not what you aim at.
Advocacy Is Just So Much Better
How do the distinctions between loyal customers and advocates manifest themselves? Confusing the two can lead to a bad assessment of a customer—and a potential disaster in the relationship. Part of the problem exists because many loyalty marketers are focused on the quantification of loyalty,and advocacy is not something that is particularly easy to quantify.
To begin,I’ll tell you a story that can sum this up considerably better than a lot of numerical machinations.
Lots of Frequent Flyer Miles + Rarely Flying Anyone Else/United Airlines Company Culture=I Despise United Airlines
If you’re a loyalty marketer and look at my United profile,you find something that would make you 4.5 on a scale of 5.0 when it comes to warm and fuzzy. You’d see hundreds of thousands of United Airlines frequent flier (FF) miles;a pattern that suggests that I fly United exclusively,including client bookings by their travel agencies on United for me. You’d see me signing up for dozens of promotions; you’d see me using hotel loyalty cards to get United FF miles in the place of hotel points; you’d see me flying United partners Star Alliance airlines whenever I can’t fly United. I’d look like a very loyal United flyer.
I’d been Premier Executive for a few years,which means that I flew 50,000 miles or more each year. But in 2008,I had a horrible auto accident in August that limited my flying to virtually none for the rest of the year. As a result I flew 36,000 miles,which brought me down a notch to Premier. But by November 2008,I was okay and I had booked and paid for 26,000 more miles of flying from January 4 though February 15,2009. That sets the stage. Oh,one other thing. United’s time frame for determining FF status is from January 1 through December 31. Status privileges run from March 1 through February 28. In any case,as late November 2008 rolled around,I received a letter in the mail from United Airlines. In effect,it said: “Hey,we see that you only have 36,000 miles this year,which will make you a Premier rather than a Premier Executive flyer. Tell you what,you give us $2,300 and we will give you the additional 14,000 miles that you need to be Premier Executive. How about that?”
I swear. They wanted me to pay $2,300. I was incensed. How crass can a company be? But the real question is,what should have happened? If I were United’s Vice President of Customer Experience (I believe that they’ve had four of those in five years,though don’t hold me to that exact number),I would have an algorithm or two that would pretty much spit out the same info as they had. But then I would have had a plan to address the issue that wasn’t “send us $2,300.” It would go something like this: “Hey,we see that you only have 36,000 miles this year,which will make you a Premier rather than a Premier Executive flyer. We’re concerned. What happened that caused you to fly so much less?” In other words,show me that you actually are wondering what caused the problem. In part because of a concern for the well being of the customer and in part because it would suggest a more intelligent course of action.
After I answered the question,should I choose to do that,if I were United,I would notice that Paul Geenberg had paid for 26,000 more miles for January and February before his official Premier Executive privileges ran out. Then I would send another note in this spirit: “Hey again. Since you’ve been a Premier Executive flyer for several years and you couldn’t help your circumstances and you’ve already paid for 26,000 more miles,which would total 62,000 miles by the time your privileges run out,we’ll take a chance on you and extend your Premier Executive flyer privileges another year. We’re sorry about your accident.”
They didn’t do that but instead insulted me with their “offer” to let me pay. To clarify,and to make it clear I’m not a whiny premier flyer type,the smarter move was to show personal concern. The offer would be icing on the cake. They didn’t do either. Rather than me moving a bit closer to being an advocate,I truly dislike United. Though my loyalty numbers don’t show that,do they?
Measuring Advocacy: Is Net Promoter Score (NPS) Enough?
The industry standard,as nascent an industry as advocacy metrics is,is the Net Promoter Score (NPS) developed by Frederick Reichheld,Bain and Company,and Satmetrix in 2003. It was announced by Reichheld in a now famous Harvard Business Review article entitled “The One Number You Need to Grow.” It was elaborated on by Reichheld (who is a great public speaker,by the way) in his important 2006 bestseller,The Ultimate Question: Driving Good Profits and True Growth.
The idea is incredibly simple. You ask one question: “How likely is it that you would recommend our company to a friend or colleague?” The key is not just would you recommend,but would you do that to someone you have a relationship with—meaning,because of their tight ties to you,they are going to trust what you say,and that is an increased emotional burden and factor in the willingness.
Recommending a company to a stranger is something like giving instructions to someone who asks you for directions to a place that you don’t know. If you’re a cad and you realize that you’ll never see them again,to look good,you might give them instructions,knowing that you don’t have a clue where you’re sending them. But you look good and when they realize that you gave them phony instructions—well,out of sight,out of mind.
But to recommend to a family member or friend brings a number of other things to the fore:
The “how likely” solo question is rated by the respondents on a scale of 0 to 10. Based on the answer,the respondents are grouped into one of three categories: detractors (0–6),passives (7–8),and promoters (9–10). The percentage of detractors is subtracted from the percentage of promoters. With the resultant numbers in hand,the next step is to contact the respondents and see why they rated themselves as detractors or promoters,most typically. Dig in and get feedback.
A lot of companies have adopted NPS as a way of measuring their ability to create advocates. By the way,if you haven’t figured it out,a promoter is an advocate,or,if you prefer,an evangelist.
While there are cases that show the value of NPS,its very simplicity brings it into question. A number of studies debunk at the least the underlying research assumptions as “biased.” Notable in that regard is a study that came out in July 2007,entitled obtusely “A Longitudinal Examination of Net Promoter and Firm Revenue Growth,”which claims that there is zero correlation between NPS and revenue growth. That would be 0.0 correlation.
However,it’s possible to find companies that have used it to benefit their top and bottom line growth. For example,by 2004,Schwab and Company was bleeding money. Their compound revenue had been dropping 5 percent per year starting in 2000. The company’s Net Promoter Score by 2004 was negative 35 percent!
To deal with this alarming problem,Schwab set monthly NPS KPIs for each branch and held the branch manager accountable. They began interviewing the detractors to find out what made them so angry. Certain types of account fees turned out to be among the reasons,so 24 months later those particular account fees were gone. This conscientious approach to NPS seemed to reap some real dividends. By summer 2007,the Schwab NPS had jumped to a plus 23 percent. The stock price jumped too,and the company moved back into positive growth.
Clearly there is some benefit to NPS,but there is a long way to go in terms of the development of reliable advocacy metrics for the social customer. How does the advocate benefit the company as an individual? This kind of thinking is far outside the scope of NPS,which figures out a ratio of great guys to bad guys all in all. Its value lies in the reasons why people chose the number from 0 to 10.
But even that isn’t enough. Feedback needs to become actionable,not just additional information to a numerical result. Unfortunately,apparently it isn’t often used in the way it has to be,thus negating some of the value of a measure like NPS.
Jennifer Kirkby,one of the resident forward-thinking CRM gurus at the fabulous MyCustomer.com site,wrote an article in 2005 called “The Customer Experience: The Voice of the Customer”. She quoted findings that made me want to cry—which I did just before I wrote this (in case your page is smeared).
“Although 95% of companies collect feedback only 50% brief staff on its contents,a mere 30% use it,and a paltry 5% bother to tell the customer what action they took. Prime causes of this sorry state are poorcross functional collaboration and lack of information culture. But the main culprit is the disparate sources of feedback with no overall owner,plan,or use. (See Squeezing more value from marketing information— by Professor Robert Shaw,City of London Business School.)”
Think about the irony in this statement. Companies spend all this time talking about the “voice of the customer”—giving it lip service,so to speak. Then when they collect the feedback that provides the voice of the customer information,they get laryngitis when it comes to feeding it back to the customers who gave them the insights—even though it is obviously useful for a customer to know what other customers think. Tell us all about yourself but don’t expect to find out what we found out. The thinking must go like this,“Not only is that our proprietary information,but we reserve the right to not tell each other about it or use it.”
Obviously,this lack of dissemination affects the value of methods like NPS,so what can you do?
I spoke with Syed Hasan,the CEO of ResponseTek They are,as you might guess, highly sensitive to engagement and feedback and advocacy measures. Of course, they’ve looked at NPS.They feel it’s a bit simplistic but can be a useful measure. So they worked with one of their clients,Hong Kong Shanghai Bank Corporation,to create an interactive model that allows clients to use past/current customer experience feedback to better predict future NPS scores,which enhances the value of NPS as a model metric. Predictive analysis is done to help their clients assess where they should focus their resources and projects in order to obtain the largest return on investment,as defined by the largest increase in NPS scores. The model then creates a number of key drivers that are assessed with their likely impact on future NPS scores. The user/client can create scenarios that show the impact of specific investments in key drivers measured by their potential impact on future NPS scores. An inverse relationship can also be established whereby the model can help articulate how much decreases in the satisfaction with specific key drivers will negatively influence NPS scores. The model,used alongside existing data (financial metrics,operational metrics,etc.),can help turn the customer voice into actionable business intelligence to help drive strategic decision making.
But it has to be taken further than even this. NPS is useful,but there are social customers who are actively engaged with your company and their own peers. While knowing how you’re doing generally is good,knowing the value the social customer as an individual provides is a way of pinpointing who your most ardent and valuable advocates are.
How do you measure a social customer when you can’t get them to sit still long enough to join a focus group? Please realize I’m saying that ironically,okay? I don’t mean it. I don’t like focus groups.
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