* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Download “The purpose of business is to create and keep a customer”
Survey
Document related concepts
Direct marketing wikipedia , lookup
Consumer behaviour wikipedia , lookup
Sales process engineering wikipedia , lookup
Revenue management wikipedia , lookup
Subscription box wikipedia , lookup
Product planning wikipedia , lookup
Marketing strategy wikipedia , lookup
Service parts pricing wikipedia , lookup
Visual merchandising wikipedia , lookup
Brand loyalty wikipedia , lookup
Loyalty program wikipedia , lookup
Value proposition wikipedia , lookup
Sensory branding wikipedia , lookup
Services marketing wikipedia , lookup
Customer relationship management wikipedia , lookup
Customer experience wikipedia , lookup
Customer engagement wikipedia , lookup
Transcript
A new perspective on customer experience improvement “The purpose of business is to create and keep a customer” Peter F. Drucker, writer and management consultant Abstract Studies into customer satisfaction have been conducted over the last few decades. Managers have grown skeptical about its role in delivering genuine business benefits. It continues to be complicated to link a rather “soft” measure like customer satisfaction to “hard” measures such as financial results and shareholder value. Despite significant investments in customer satisfaction, satisfied customers do not necessarily remain loyal. Recent research shows us the importance of the emotional experience of customers compared with functional features of products or services. Correlations between emotions, customer satisfaction and business performance have been found. An important metric – known as the Net Promoter Score® (NPS) – has gained a lot of attention over the last year. It helps to improve insights into your customers’ experiences. Another application of NPS is that it can be used as a KPI to stimulate a customer-oriented culture within your company. Multinationals like General Electric and Philips have successfully implemented NPS as a single key metric of customer experience. This article describes various elements of NPS, which have been deployed by Ernst & Young across a wide range of companies. Introduction Today, one of the big questions faced by companies is deciding which customers have a positive customer lifetime value9 and are thus most worthy of investment. Furthermore, a lot of research has focused on how to make marketing investments more accountable. However, in today’s environment one has to face the fact that no holy grail exists to influence financial results and shareholder value. In the end, many direct and indirect factors influence business performance. Especially in turbulent times a loyal, stable and profitable customer base which adds current and future value is priceless. Focusing on keeping customers satisfied and loyal clearly contributes significantly to the future health of the business. Researchers have stated that customers are the primary source of future cash flows (Anderson et al. 2004). As customers are powerful growth-generating assets, it becomes even more important to turn them into true loyal fans. This highlights the important role of marketing to satisfy and even delight customers and not merely acquire them. Customer satisfaction has been found to be positively related to shareholder value, market value and ROI (Anderson et al. 2004; Ittner & Larcker 1998). Moreover, several researchers have carried out analyses that reveal that the cost of acquiring a new customer is five times the cost of 9 34 Performance Customer lifetime value is the present value of the future cash flows attributed to the customer relationship. This metric places more emphasis on long-term customer satisfaction than on the maximization of short-term sales. retaining a customer (Reichheld and Sasser 1990). Evidence has been found to show that customer satisfaction results in customer retention, cross-buying, future revenues, reduced costs of future transactions and more efficient future advertising due to positive word-of-mouth. One relationship often examined in literature is the interplay between customer satisfaction, customer loyalty and profitability. Customer satisfaction has been argued as a necessary but not sufficient condition for loyalty (Jones and Sasser 1995). It was found that loyalty, as measured by retention, is most likely when customers are completely satisfied and give a satisfaction rating of 5 on a 5-point scale. Therefore, complete satisfaction is more likely to result in future profits. Several studies have focused on how to retain satisfied customers. These studies acknowledge that satisfaction contains emotional as well as cognitive elements. The importance of customers’ emotional experience Recent research shows the importance of customers’ emotional experience compared with functional features of products or services. Correlations have been found between emotions and customer satisfaction and loyalty. Satisfaction based on emotions is a better indicator of future behavior than satisfaction based on cognitive experience. Moreover, in low-contact services, technical quality (what is delivered) is needed to obtain satisfaction, but functional quality (how it is delivered) is required to drive beyond satisfaction, What is NPS? NPS was developed by loyalty expert Frederick Reicheld (Reichheld 2003). The metric is based on recommendation intention and makes the vague concept of customer loyalty more tangible which helps to drive company growth. NPS is calculated from a single loyalty question: “How likely are you to recommend company or product X to your family, to loyalty (Mittal and Lassar 1998). This finding emphasizes the importance of taking the appropriate action during the “moments of truth” in customer interaction. Fortunately, there is a better way to measure customer loyalty, which takes into account the more emotional aspect of the customer relationship. It’s called NPS. Figure 1: What is Net Promoter Score®? “Would you recommend us to a friend?” Probes both dimensions of loyalty Scale Head 10 • Best features 9 • Best service 8 • Best price 7 • Best quality 6 Heart 5 • They know me • They value me • They listen to me • They share my values 4 3 2 1 0 Performance Promoters – customers who are loyal enthusiasts and are likely to recommend a company (i.e. ratings of 9 and 10). They demonstrate the highest rates of purchase and referral behaviors. Passives – customers who are satisfied and somewhat likely to recommend a company (i.e. ratings of 7 and 8). They demonstrate moderate rates of purchase and referral behaviours. They can be wooed by the competition. Detractors – customers who are unhappy and less likely to recommend a company (i.e. ratings of 0 to 6). They demonstrate the lowest rates of purchase and referral behaviors. % Promoters - % Detractors = Net Promoter Score (NPS) 35 It is advisable to include two or three questions in your survey in order to detect underlying reasons for the promotership or detractorship of a customer. Loyalty contains both behavioral (heart) and attitudinal (head) elements. When only measuring behavioral components of loyalty (repeat purchases, crossselling, upgrading etc.), one falls short of acknowledging the effects of the dynamic customer relationship. Behavioral loyalty can be caused by perceived switching barriers, while attitudinal loyalty reflects a conscious choice. Furthermore, a customer experiencing both behavioral and attitudinal loyalty (true loyalty) is more likely to become an active ambassador. The customers who are truly loyal engage in recommendation behavior and therefore add value beyond their own value and contribute to business growth and performance(Reinartz and Kumar 2002; Reinartz and Kumar 2000). The NPS makes loyalty tangible and gives more information about attitudinal loyalty as an intention to recommend indicates that a customer is willing to put its own reputation at risk by recommending the company or product. As true loyal customers have to show attitudinal loyalty as well, created by positive emotions towards the company or product, it is valuable to manage the customer experience. The customer experience, created when interacting with a company during many points of contact or moments of truth, is vital to the business results. The difference of NPS compared with the traditional measures of customer satisfaction is illustrated in Figure 2. NPS enables the quick identification of detractors within your customer base who could leave you or spread negative word-of-mouth. From that perspective, companies are able to take action swiftly in order to maintain their retention ratio. On the contrary, given the enormous influence that word-of-mouth messaging has on brand evaluation and purchase decisions, the promoters of a company represent a significant —and often untapped — asset. Figure 2: Difference between average overall satisfaction (CSAT) and NPS Use of NPS to measure customer loyalty Customer satisfaction trends July 2005 to June 2006 Average overall satisfaction (CSAT) = 7.46 “Promoters” 50% 47.9% 40% Net Promoter Score (38.8%) (i.e. “top box” rate less “bottom box” rate) 30% “Detractors” 20% 9.1% Bottom box (9.1%) customer dissatisfaction (CSAT 0 to 6) 10% 0 2 4 6 8 Customer satisfaction score Source: Company A KPI reports (Nov 2005 and June 2006) 36 Top box (47.9%) advocacy and loyalty (CSAT 9 to 10) 60% Percentage of customers friends and colleagues?” The answer, on a scale from 0 to 10, enables you to look at 3 distinct groups of clients (promoters and detractors of your firm, and those that are passive) and to take targeted action to improve the client experience. It refers to the percentage of promoters minus the percentage of detractors within a customer base. For a more detailed explanation of the NPS, please note Figure 1. Performance 10 Identifying ways to leverage promoters through reference programs, by providing tools that facilitate their naturally occurring word-of-mouth behavior and by amplifying their messages through community and social media, is a promising next development in the evolution of how companies can benefit from NPS. Emotional Fingerprint™ Based on several in-depth benchmark research studies on customer satisfaction, loyalty and NPS, Ernst & Young developed a new customer metric, the Emotional Fingerprint™. We have discovered that there are clusters of customer emotions within every organization that drive and effect value for an organization. Awareness of these clusters of emotions puts organizations in a better position to initiate actions to increase or decrease their NPS. By evoking certain emotions in delivering customer experiences at moments of truth over the course of the contract, you are able to improve your customer relationships in the short term. How can NPS help to improve customer orientation? Another feature of NPS is that it can be used as a strong KPI in order to drive change in stimulating the customer orientation within your company. Multinationals like General Electric and Philips have successfully implemented NPS as a single key metric of customer experience. To be successful, certain questions need to be tackled, including how to manage customer experience and its beneficial outcomes – increased loyalty and higher NPSs – and how to change the behavior of your employees and customers across the customer touch points. The NPS as a KPI is a means to create a more customer-centric company as it influences company culture, employees at all levels, company values, strategies and operations. It enhances the mindset of making investments for long-term “good” profits instead of costs for shortterm “bad” profits. The NPS is easy to communicate and interpret at all levels of the organization. It provides an indication of the percentage of the customer base that consists of truly loyal customers: the percentage of your customer base that is willing to recommend you minus the percentage that is not. Managers as well as front-line employees can interpret the NPS and can come up with ideas of how to improve the customer experience in order to create more promoters. Performance Conclusion The NPS is a valuable metric to discover practical implications for business growth. It enhances the ability to assess the true value of the customer base. However, knowing the NPS is only the first step of the customer experience journey. The metric itself is not the answer. Companies need to learn what actions they can take to increase the number of promoters and decrease detractors. Once you determine what has to be changed and take the steps to empower employees across the enterprise, you may start to see an impact on loyalty and growth. Author Jan Willem Rietdijk is an Executive Director focusing on Customer Relationship Management in the Advisory Practice, Ernst & Young, Netherlands. Net Promoter Score ® is a registered trademark of Satmetrix Systems, Inc., Bain & Company, and Fred Reichheld. Emotional Fingerprint ™ is a registered trademark of Ernst & Young LLP 37