Objectives To explain the concept of “customer sacrifices” To present the results of a study on customer loyalty I recently conducted.

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ObjectivesObjectives

• To explain the concept of “customer sacrifices”

• To present the results of a study on customer loyalty I recently conducted

• To understand the customer-satisfaction leadership challenge – and to develop a personal action plan

Every day that goes by in which you Every day that goes by in which you have dissatisfied - or less than totally have dissatisfied - or less than totally satisfied - customers who are forced satisfied - customers who are forced

to make sacrifices to do business to make sacrifices to do business with your organization, with your organization, you’re you’re

working hard to put yourself out of working hard to put yourself out of business!business!

““Breakthrough” Perspective of Breakthrough” Perspective of Customer SatisfactionCustomer Satisfaction

QuoteQuote

“If a customer says there is a problem, 99.5% of the time there really is; companies shouldn’t let the other .5% be a reason to mistreat everyone else.”

- Carl Sewell

Owner, Sewell Village Cadillac

Source: Sewell, Carl and Brown, Paul. Customers for Life: How to Turn that One-Time Buyer into a Lifetime Customers (New York, NY: Doubleday, 1990).

What areWhat are““Customer Sacrifices”?Customer Sacrifices”?

Customer sacrifices are what your customers are forced to put up with to do business with your organization.

My Client’s Perception of Unmet My Client’s Perception of Unmet Customer NeedsCustomer Needs

• Comfortable seating

• Cleanliness

What did their analysis of unmet customer needs miss?

• Cheerful Employees

• Wider Selection of Food

(still crappy and overpriced)

Key QuestionsKey Questions

#1: How many of you, after all this mental effort, have ever put the movie section aside and said, “Where’s the TV Guide? I wonder what’s on the tube tonight?”

#2: How many good movies that would have left you with great memories have you missed because of the customer sacrifices just described?

What Sacrifices are Your What Sacrifices are Your Customers Forced to put up With?Customers Forced to put up With?

What sacrifices are customers forced to put up with to do business with your

organization (or your part of the organization)?

Idea for ActionIdea for Action: Challenge People : Challenge People in Your Organization to . . . in Your Organization to . . .

brainstorm a list of sacrifices your customers are forced to put up with

to do business with your organization (or your part of the

organization), and...

formulate and implement breakthrough approaches for

eliminating them.

“How satisfied would you be if you heard a single mistake made by a pianist who was

giving a one-hour piano recital?”

Cross-Cultural Differences in Cross-Cultural Differences in Satisfaction PerceptionsSatisfaction Perceptions

0

1

2

3

4

5

Ave

rage

Sat

isfa

ctio

n

US Ca Au Fi NL UK Gr It Ja

Country

Piano RecitalOne mistake in a one hour recital ...

Cross-Cultural Differences in Cross-Cultural Differences in Satisfaction PerceptionsSatisfaction Perceptions

Results of Results of Commercial P&C Commercial P&C Company Loyalty Company Loyalty

StudyStudy

Satisfaction’s Impact on Repurchase IntentSatisfaction’s Impact on Repurchase Intent

0%

25%

50%

75%

100%

RepurchaseIntent

86%86%

70%70%

52%52%

Dissatisfied

(1-6)Satisfied

(7-8)Loyal

(9-10)

Satisfaction’s Impact on...Satisfaction’s Impact on...

0

500000

1000000

1500000

LoyalSatisfied OnlyDissatisfied

0

25

50

75

LoyalSatisfied OnlyDissatisfied

0

50000

100000

150000

200000

LoyalSatisfied OnlyDissatisfied

AccountShare (Mean)

Account Revenue (Mean)

AccountGross Margin

(Mean)

2x2x

3x3x

5x5x

Mini-breakoutMini-breakout:: What are causes of the What are causes of the

loyalty boost?loyalty boost?

Causes of the Loyalty Boost?Causes of the Loyalty Boost?

Lower Costs...

• Lower administrative costs (e.g., credit checks, order entry)

• Lower operating costs (e.g., know customers’ needs from working with them over time; they know what you offer)

• Employees less hassled better morale lower turnover

Higher Customer Net Present Value...

• Longer tenure customers more purchases over time keep customers longer lower sales and marketing costs

• Greater share of customers’ purchases

• Greater customer receptivity to purchase a broader range of new products and services

• Possible price premium

50%

75%

100%

125%

150%

Willingness-to-Pay As

% of Price

0 2 4 6 8 10

Customer Satisfaction (ACSI Data)

The Effect of Satisfaction on Price The Effect of Satisfaction on Price SensitivitySensitivity

All Respondents

Defection

Proof

Missile

Silo

Account Gross MarginAccount Gross Margin

0

50000

100000

150000

200000

5x5x

LoyalLoyalSatisfied OnlySatisfied OnlyDissatisfiedDissatisfied

Time in Years

5

10

15

2.52.555

1010 20x!20x!

Firms’ Satisfaction Scores and Stock Firms’ Satisfaction Scores and Stock Market ReturnsMarket Returns

1.7%

4.7%

-0.80%-0.20%

AverageMarket-

AdjustedReturnfrom

8/94-1/95

Top Quartile2nd Quartile3rd QuartileLower Quartile

Customer Satisfaction DistributionCustomer Satisfaction Distribution

Dissatisfied Satisfied Loyal

Percentage ofCustomers

62%62%

29%29%

9%9%

0%

25%

50%

75%

100%

0

50000

100000

150000

200000

5x5x

LoyalLoyalSatisfied OnlySatisfied OnlyDissatisfiedDissatisfied

00 7.377.37 1010

Average Customer Satisfaction

Mini-breakoutMini-breakout:: What could account for What could account for

the low percentage of the low percentage of loyal customers?loyal customers?

• It is difficult to be that good.It is difficult to be that good.

• Benchmarking shows that we lead our industry, Benchmarking shows that we lead our industry, which is good enough.which is good enough.

• If you were never in love, would you know what you If you were never in love, would you know what you had missed? had missed? TranslationTranslation: If you don’t know how : If you don’t know how much highly loyal customers are worth, would you much highly loyal customers are worth, would you know how much you are losing by not having more know how much you are losing by not having more of them?of them?

• Does accounting measure profits that could have Does accounting measure profits that could have been made if your customers had been been made if your customers had been moremore satisfied? (Does accounting measure profits lost satisfied? (Does accounting measure profits lost from customers who defect?)from customers who defect?)

Reasons for Low Percentage of LoyalsReasons for Low Percentage of Loyals

Every day that goes by in Every day that goes by in which you have dissatisfied - which you have dissatisfied - or less than totally satisfied or less than totally satisfied customers - you’re working customers - you’re working hard to put yourself out of hard to put yourself out of business. You are feeding business. You are feeding

your competition.your competition.

Therefore …Therefore …

““We Need to We Need to Institute a Loyalty Institute a Loyalty

Improvement Improvement Effort!”Effort!”

The Objective:

Increase lIncrease loyalty 2% / year.

How?How?

Eliminate customer sacrifices.

Question to CustomersQuestion to Customers

“What is your #1 concern with InsureCo?”

Better customer service

Error-free delivery

Flexible and customized

product/service packaging

Product fit with my needs

Pricing

Other (e.g., salesperson quality)

10% 20% 30% 40% 50%0%

47% !47% !

6%6%

9%9%

12%12%

9%9%

17%17%

62 59 56 53

29 30 31 32

9 11 13 150

10203040506070

Percentage of

Customers

1999 2000 2001 2002

Loyal Satisfied Dissatisfied

Loyalty Improvement PlanLoyalty Improvement Plan

The Bottom LineThe Bottom Line

19991999 20002000 20012001 20022002

Profit

ProjectionsGAP

Gross Margin Increase- Cost of Loyalty Effort- Taxes

= Incremental Profit X P/E Ratio = Additional Shareholder Value

Realistic Goal

?Stretch Goal

LOYALTY IMPROVEMENT

PROFITINCREASEIF LOYALTY

TARGETS REACHED

• It is easy to lower your customers’ satisfaction, but It is easy to lower your customers’ satisfaction, but once lowered, moving it back up is very hard.once lowered, moving it back up is very hard.

• A customer-retention strategy is every bit as A customer-retention strategy is every bit as important – if not more important – than a costumer-important – if not more important – than a costumer-acquisition strategy.acquisition strategy.

• Stock-market analysts do not plug increased Stock-market analysts do not plug increased retention rates into their financial models. They will. retention rates into their financial models. They will. When they do, your retention rate must be better When they do, your retention rate must be better than your competitors’.than your competitors’.

• You are in the business of creating defection-You are in the business of creating defection-resistant missile silos. The impact of customer resistant missile silos. The impact of customer service on your ability to do so is enormous. service on your ability to do so is enormous.

Major LessonsMajor Lessons

Question:Question:

How do you create the desire among the troops to

do what is required to increase customer

loyalty/persistency?

Answer:Answer:

Start with your leadership.

15-Minute Break

The Customer Satisfaction The Customer Satisfaction Credibility GapCredibility Gap

Objectives

• To understand the customer-satisfaction leadership challenge

• To understand the causes of this challenge

• For you to “look in the mirror” and identify actions that would be strong signals of your commitment to customer satisfaction - that fit your leadership style

• To create an action plan that holds your “feet to the fire”

Beliefs About Senior Management’s Beliefs About Senior Management’s Commitment to Customer SatisfactionCommitment to Customer Satisfaction

Grade

A

B

C

D

Group Reporting

SeniorManagement

LineEmployees

MiddleManagement

?Credibility

Gap

Mini-breakoutMini-breakout: What are : What are possible causes of the customer-possible causes of the customer-

satisfaction credibility gap?satisfaction credibility gap?

Credibility Gap -- Causes

• Incremental approach -- it takes time• Signal loses strength as it travels through the line• Lack of tangible examples of customer-satisfaction

emphasis• Lack of instances of “stopping the line” in the name

of the customer • Living with the “legacy of past customer sins”• Trade-offs made that compromise customer

satisfaction• Unaligned incentives• Management doesn’t believe in the financial return• Viewed as a BOHICA program-of-the-month

How Do Employees Develop Perceptions About Where You Stand on Customer

Satisfaction?

• Through your words and actions

• Through their perceptions of what you spend your time on

What personal actions could you take to demonstrate

your commitment to customer satisfaction?

To What Extent Do You ...

• Create customer-focus legends by telling great illustrative stories?

• Publicize your own failures pertaining to customers to help employees get over their fear of failure and blame?

• Make visible your decisions that are based on creating customer satisfaction, not cost containment?

• Continually ask questions related to customer satisfaction?

Mini-breakoutMini-breakout: What questions : What questions could you ask that signal your could you ask that signal your

commitment to customer commitment to customer satisfaction?satisfaction?

Questions You Could Ask RegularlyQuestions You Could Ask Regularly

• If you were boss, what would you do to build our focus on the customer?

• If you could, what could you do differently that would positively impact customers’ perceptions of our organization?

• What makes improving customers’ perceptions of our organization tough for you?

• What have you done today in the name of improving customers’ perceptions of our organization?

Possible Leadership Actions, 1Possible Leadership Actions, 1

• Set up a “hotline” with service providers (direct line to the boss)

• Write personalized letters to key customers asking for their opinions, views, and suggestions, followed by phone calls

• Send thank-you letters to front-line personnel who have taken visible actions that positively impact customers’ perceptions (and post them)

• Regularly have lunch with people from selected major accounts and line personnel

Possible Leadership Actions, 2Possible Leadership Actions, 2

• Give rewards, recognition of customer focus to start off every meeting

• Send a regular stream of e-mails stressing the importance of customer satisfaction

• Ask customer-related questions on a systematic and regular basis

• Publicly reward those employees who best demonstrate the essence of a customer-satisfaction focus

• Link compensation and promotions to meeting specific customer-satisfaction objectives

Possible Leadership Actions, 3Possible Leadership Actions, 3• Institute "excellence" and "mediocrity" awards for

service your employees receive from other firms

• Give mini-speeches on customer focus and satisfaction

• Create customer-focus legends and tell them repeatedly

• Publicize your own mistakes that pertain to customer satisfaction, to help drive out employees' "fear of failure." Foster a climate of "blameless error"

• Make decisions based on customer satisfaction, not cost-containment. Build employee credibility by explaining customer-satisfaction trade-offs when they occur

What specific action or actions might you take

personally that will build the momentum of effort

to build customer-satisfaction in your

organization?

Personal Action PlanningPersonal Action Planning

• What will you do?• How often will you do it?

• Where will you do it?• When will you do it?

• How will you hold your feet to the fire?

O.T.S.U. Analysis

It's January 1, 2001 ...

"Looking back, I thought the ideas that came out of my work at the ICAE conference had terrific potential. I really thought I was on to something. If only [fill in the blank], it would have worked."

THE ENDTHE END

ICAEICAE

Making it Happen: Lessons Making it Happen: Lessons From the TrenchesFrom the Trenches

ObjectiveObjective

• To uncover examples of customer-service best practices

“Since my last report this employee has reached rock bottom and shows signs of starting to dig.”

“His employees would follow him anywhere, but only out of morbid curiosity.”

“I would not allow this employee to breed.”

Quotes Taken from ActualQuotes Taken from ActualPerformance EvaluationsPerformance Evaluations

“This employee’s not so much of a has-been, but more of a definitely won’t be.”

“Works well when under constant supervision and cornered like a rat in a trap.”

“This employee has delusions of adequacy.”

Quotes Taken from ActualQuotes Taken from ActualPerformance EvaluationsPerformance Evaluations

“This employee sets low personal goals and then consistently fails to achieve them.”

“This employee should go far and the sooner he starts the better.”

“This employee is depriving a village somewhere of their idiot.”

Quotes Taken from ActualQuotes Taken from ActualPerformance EvaluationsPerformance Evaluations

The Three Essential Dimensions for Making The Three Essential Dimensions for Making Quality/Performance Improvement Happen Quality/Performance Improvement Happen

APPROACHAPPROACH DEPLOYMENTDEPLOYMENT

RESULTSRESULTS

DurationDuration QualityQuality

AssignmentAssignment

• Turn to your handout

Approach• Was this action initiated by a fact-based decision (customer/internal input)?• Is this action clearly linked to our vision, mission, values, and strategy (customer,

employees, and operations)?• Have we prioritized this action against other actions?

Deployment• Have we developed an implementation plan for this action, including a schedule, a

budget, resource assignments, and measurable objectives?• Have we determined how to lead/communicate this action through the company?• Have we appropriately involved employees at all levels?

Results• Have we determined what data we will gather and how we will gather it?• Will this data determine if we have met our objectives?• Have we designed a feedback loop for future improvement?

The 3-Dimensional Approach for Analyzing Initiatives

APPROACHAPPROACHDEPLOYMENTDEPLOYMENT

RESULTSRESULTS

DurationDuration

QualityQuality

We Did It! We Put All the We Did It! We Put All the Pieces TogetherPieces Together

APPROACHAPPROACH DEPLOYMENTDEPLOYMENT

RESULTSRESULTS

DurationDuration QualityQuality